SIEBERT FINANCIAL CORP 10-K

ITEM 8 . FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA INDEX TO CONSOLIDATED FINANCIAL STATEMENTS SIEBERT FINANCIAL CORP. Page Report of Independent Registered Public Accounting Firm 34 Consolidated Statements of Financial Condition as of December 31, 2020 and 2019 36 Consolidated Statements of Income for each of the years in the two-year period ended December 31, 2020 37 Consolidated Statement of Changes in Stockholders’ Equity for each of the years in the two-year period ended December 31, 2020 38 Consolidated Statements of Cash Flows for each of the years in the two-year period ended December 31, 2020 39 Notes to Consolidated Financial Statements 40 Siebert 2020 Form-10K 33 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Shareholders and the Board of Directors of Siebert Financial Corp: Opinion on the Financial Statements We have audited the accompanying consolidated statements of financial condition of Siebert Financial Corp. & Subsidiaries (the Company ) as of December 31, 2020 and 2019, 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, 2020 and 2019, 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. 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. 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 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. Critical Audit Matters The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters 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 matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate. Deferred Tax Asset valuation allowance As described in Note 16 to the consolidated financial statements, the Company’s consolidated net deferred tax asset balance of $4,857,000 primarily related to net operating loss carryforwards. As disclosed by management, the Company has evaluated whether it is more likely than not that some portion or the entire deferred tax asset will be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income in those periods in which temporary differences become deductible and/or net operating losses can be utilized. The Company considered all positive and negative evidence when determining the amount of the net deferred tax assets that are more likely than not to be realized. This evidence includes, but is not limited to, historical earnings, scheduled reversal of taxable temporary differences, tax planning strategies, and projected future taxable income. We identified the valuation allowance over the deferred tax asset as a critical audit matter. The assessment of future realization, particularly auditing management’s forecast of future operating results, involves significant judgment by management and, in turn, a high degree of auditor judgment, subjectivity, and effort. Siebert 2020 Form-10K 34 The primary procedures we performed to address this critical audit matter included: ● Testing management’s process for forecasting future taxable income and whether any factors exist that may materially bear on the Company's ability to achieve sufficient taxable income to utilize remaining net operating loss carryforwards. ● Evaluating whether management’s assumptions were reasonable by considering the past performance of the Company and whether such assumptions were consistent with evidence obtained in other areas of the audit. The Company's acquisition of StockCross Financial Services, Inc. As described in Notes 1 and 3 to the consolidated financial statements, the Company acquired the remaining 85% interest in StockCross Financial Services, Inc. Management has concluded that this is an entity under common control with Siebert Financial Corp. and that the transaction represented a change in the reporting unit, and as such, the companies have been presented on a combined basis for all periods presented in the consolidated financial statements. We identified the accounting for this transaction as a critical audit matter. The determination of common control requires management to evaluate the direct and indirect ownership of each entity and elements of control, as well as the period for which common control existed. The determination of a change in reporting unit requires management to exercise significant judgment regarding whether there is a change in the specific subsidiaries that make up the group of entities for which consolidated financial statements are presented. Auditing these aspects of the transaction involved a high degree of subjectivity and complexity. The primary procedures we performed to address this critical audit matter included: ● Identifying and testing the direct and indirect ownership of each entity and identifying the period for which common control existed. ● Evaluating the composition of the Company's subsidiaries that make up the group of entities which are consolidated. ● Testing the underlying accounting information and assumptions utilized in management's combination of the historical results of Siebert Financial Corp. and StockCross Financial Services, Inc. from the date that common control existed. /s/ Baker Tilly US, LLP (formerly known as Baker Tilly Virchow Krause, LLP) We have served as the Company's auditor since 2017. New York, New York March 10, 2021 Siebert 2020 Form-10K 35 SIEBERT FINANCIAL CORP. & SUBSIDIARIES CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION December 31, 2020 December 31, 2019* ASSETS Current assets Cash and cash equivalents $ 3,632,000 $ 4,670,000 Cash and securities segregated for regulatory purposes 324,924,000 224,924,000 Receivables from customers 95,358,000 86,331,000 Receivables from broker-dealers and clearing organizations 15,815,000 3,524,000 Other receivables 1,692,000 762,000 Prepaid service contract - current 809,000 — Prepaid expenses and other assets 2,095,000 970,000 Securities borrowed 905,785,000 193,529,000 Securities owned, at fair value 2,623,000 3,018,000 Total Current assets 1,352,733,000 517,728,000 Deposits with broker-dealers and clearing organizations 7,209,000 4,951,000 Prepaid service contract – non-current 1,004,000 — Furniture, equipment, and leasehold improvements, net 762,000 1,150,000 Software, net 1,334,000 1,888,000 Lease right-of-use assets 2,290,000 3,951,000 Deferred tax assets 4,857,000 5,388,000 Intangible assets, net 809,000 1,022,000 Goodwill 1,989,000 1,989,000 Total Assets $ 1,372,987,000 $ 538,067,000 LIABILITIES AND STOCKHOLDERS’ EQUITY Liabilities Current liabilities Payables to customers $ 380,524,000 $ 308,091,000 Payables to non-customers 11,570,000 8,063,000 Drafts payable 4,021,000 2,834,000 Payables to broker-dealers and clearing organizations 1,810,000 523,000 Accounts payable and accrued liabilities 3,777,000 2,443,000 Securities loaned 920,811,000 170,443,000 Securities sold, not yet purchased, at fair value 21,000 116,000 Interest payable — 10,000 Notes payable - related party 5,200,000 8,000,000 Current portion of lease liabilities 1,314,000 2,227,000 Current portion of long-term debt 998,000 — Total Current liabilities 1,330,046,000 502,750,000 Lease liabilities, less current portion 1,298,000 2,182,000 Long-term debt, less current portion 3,657,000 — Total Liabilities 1,335,001,000 504,932,000 Commitments and Contingencies Stockholders’ equity Common stock, $.01 par value; 100 million shares authorized; 30,953,710 and 30,459,804 shares issued and outstanding as of December 31, 2020 and 2019, respectively** 309,000 304,000 Additional paid-in capital 21,768,000 19,897,000 Retained earnings 15,909,000 12,934,000 Total Stockholders’ equity 37,986,000 33,135,000 Total Liabilities and stockholders' equity $ 1,372,987,000 $ 538,067,000 * Statement of financial condition as of December 31, 2019 represents the pro forma combination of Siebert and StockCross balances. See “Note 3 – Acquisitions” for additional detail . **Shares outstanding as of December 31, 2019 represents the combined total of the Company’s shares outstanding and the shares issued for the Company’s acquisition of StockCross. See “Note 1 – Organization and Basis of Presentation” for additional detail. Shares authorized were 100 million and 49 million as of December 31, 2020 and 2019, respectively. Numbers are rounded for presentation purposes. See notes to consolidated financial statements. Siebert 2020 Form-10K 36 SIEBERT FINANCIAL CORP. & SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME Year Ended December 31, 2020 2019 * Revenue Commissions and fees $ 20,179,000 $ 9,750,000 Margin interest, marketing and distribution fees 10,183,000 14,710,000 Principal transactions 11,850,000 9,018,000 Interest income 4,012,000 4,235,000 Market making 2,042,000 1,744,000 Stock borrow / stock loan 4,045,000 1,607,000 Advisory fees 1,142,000 801,000 Other income 1,419,000 912,000 Total Revenue 54,872,000 42,777,000 Expenses Employee compensation and benefits 28,502,000 19,965,000 Clearing fees, including execution costs 5,107,000 3,346,000 Technology and communications 4,622,000 1,870,000 Other general and administrative 2,364,000 3,861,000 Data processing 2,797,000 2,081,000 Rent and occupancy 2,767,000 2,570,000 Professional fees 2,864,000 3,575,000 Depreciation and amortization 1,566,000 1,002,000 Referral fees 738,000 86,000 Interest expense 349,000 135,000 Advertising and promotion — 2,000 Total Expenses 51,676,000 38,493,000 Income before provision for income taxes 3,196,000 4,284,000 Provision for income taxes 221,000 1,048,000 Net income $ 2,975,000 $ 3,236,000 Net income per share of common stock Basic and diluted $ 0.10 $ 0.11 Weighted average shares outstanding Basic and diluted 30,637,794 30,455,962 Numbers are rounded for presentation purposes. See notes to consolidated financial statements. * Statement of income for the year ended December 31, 2019 represents the pro forma combination of Siebert and StockCross balances. See “Note 3 – Acquisitions” for additional detail . Siebert 2020 Form-10K 37 SIEBERT FINANCIAL CORP. & SUBSIDIARIES CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY Number of Shares Issued $.01 Par Value Additional Paid-In Capital Retained Earnings Total Balance – January 1, 2019 27,157,188 $ 271,000 $ 7,641,000 $ 9,262,000 $ 17,174,000 Net income — — — 3,236,000 3,236,000 Shares issued for StockCross purchase* 3,302,616 33,000 12,256,000 436,000 12,725,000 Balance – December 31, 2019 30,459,804 304,000 19,897,000 12,934,000 33,135,000 Shares issued for payment of professional services 193,906 2,000 1,125,000 — 1,127,000 Employee stock purchases 300,000 3,000 797,000 — 800,000 Adjustment for deferred tax asset valuation — — (51,000 ) — (51,000 ) Net income — — — 2,975,000 2,975,000 Balance – December 31, 2020 30,953,710 $ 309,000 $ 21,768,000 $ 15,909,000 $ 37,986,000 * Represents the purchase of the net assets of StockCross less Siebert’s 15% equity method investment in StockCross and also includes other pro forma adjustments. See the statement of financial condition within “Note 3 – Acquisitions” for additional detail . Numbers are rounded for presentation purposes. See notes to consolidated financial statements. Siebert 2020 Form-10K 38 SIEBERT FINANCIAL CORP. & SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS Year Ended December 31, 2020 2019 Cash Flows From Operating Activities Net income $ 2,975,000 $ 3,236,000 Adjustments to reconcile net income to net cash provided by operating activities: Deferred income tax expense 479,000 490,000 Depreciation and amortization 1,566,000 1,002,000 Changes in Receivables from customers (9,027,000 ) (6,424,000 ) Receivables from and deposits with broker-dealers and clearing organizations (14,549,000 ) 383,000 Securities borrowed (712,256,000 ) 104,438,000 Securities owned, at fair value 395,000 2,717,000 Prepaid expenses and other assets (2,055,000 ) 271,000 Prepaid service contract (686,000 ) — Payables to customers 72,433,000 30,308,000 Payables to non-customers 3,507,000 (7,179,000 ) Drafts payable 1,187,000 289,000 Payables to broker-dealers and clearing organizations 1,287,000 585,000 Accounts payable and accrued liabilities 1,334,000 (505,000 ) Securities loaned 750,368,000 (105,796,000 ) Securities sold, not yet purchased, at fair value (95,000 ) 69,000 Interest payable (10,000 ) 10,000 Lease liabilities (136,000 ) 458,000 Net cash provided by operating activities 96,717,000 24,352,000 Cash Flows From Investing Activities Segregated cash acquired in a business acquisition — 152,000 Cash paid in a business acquisition, net of cash and cash equivalents acquired — (3,824,000 ) Purchase of furniture, equipment, and leasehold improvements (13,000 ) (1,010,000 ) Purchase of software (397,000 ) (1,262,000 ) Net cash used in investing activities (410,000 ) (5,944,000 ) Cash Flows From Financing Activities Notes payable – related party (2,800,000 ) 2,000,000 Long-term debt 4,655,000 — Employee stock purchases 800,000 — Purchase of StockCross common stock — (3,424,000 ) Return of capital distribution - StockCross — (1,600,000 ) Treasury stock sales - StockCross — 172,000 Net cash provided by / (used in) financing activities 2,655,000 (2,852,000 ) Net increase / (decrease) in cash and cash equivalents, and cash and securities segregated for regulatory purposes 98,962,000 15,556,000 Cash and cash equivalents, and cash and securities segregated for regulatory purposes - beginning of year 229,594,000 214,038,000 Cash and cash equivalents, and cash and securities segregated for regulatory purposes - end of year $ 328,556,000 $ 229,594,000 Cash and cash equivalents - end of year $ 3,632,000 $ 4,670,000 Cash and securities segregated for regulatory purposes - end of year 324,924,000 224,924,000 Cash and cash equivalents, and cash and securities segregated for regulatory purposes - end of year $ 328,556,000 $ 229,594,000 Supplemental cash flow information Cash paid during the year for income taxes $ 167,000 $ 636,000 Cash paid during the year for interest $ 359,000 $ 125,000 Non-cash investing and financing activities Shares issued for payment of professional services $ 1,127,000 $ — Numbers are rounded for presentation purposes. See notes to consolidated financial statements. Siebert 2020 Form-10K 39 SIEBERT FINANCIAL CORP. & SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. Organization Siebert Financial Corp., a New York corporation, incorporated in 1934, is a holding company that conducts the following lines of business through its wholly-owned subsidiaries: ● Retail brokerage business through Muriel Siebert & Co., Inc. (“MSCO”), a Delaware corporation and broker-dealer registered with the SEC ● Investment advisory services through Siebert AdvisorNXT, Inc. (“SNXT”), a New York corporation registered with the SEC as a RIA under the Advisers Act ● Insurance services through Park Wilshire Companies, Inc. (“PWC”), a Texas corporation and licensed insurance agency ● Robo-advisory technology development through Siebert Technologies, LLC (“STCH”), a Nevada limited liability company ● Prime brokerage services through WPS Prime Services, LLC (“WPS”), a Delaware limited liability company and a broker-dealer registered with the SEC ● 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. and its subsidiaries collectively, unless the context otherwise requires. The Company is headquartered in New York, New York, with primary operations in New Jersey, Florida, and California. The Company has 18 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 years ended December 31, 2020 and 2019 were derived from its operations in the U.S. As of December 31, 2020, the Company is comprised of a single operating segment based on the factors related to management’s decision-making framework as well as management evaluating performance and allocating resources based on assessments of the Company from a consolidated perspective. Acquisition of WPS Prime Services, LLC Effective December 1, 2019, the Company acquired 100% of the member interests in WPS Prime Services, LLC and WPS became wholly-owned subsidiary of the Company. The operating results for the 31-day period ended December 31, 2019 were included in the Company’s statement of income. Acquisition of StockCross On January 25, 2019, the Company purchased approximately 15% of the outstanding shares of StockCross Financial Services, Inc. (“StockCross”). Subsequently, the Company acquired the remaining 85% of StockCross’ outstanding shares in exchange for 3,298,774 shares of the Company’s common stock. Effective January 1, 2020, StockCross was merged with and into MSCO, and as of January 1, 2020, all clearing and other services provided by StockCross were performed by MSCO. Change in Reporting Entity As of the date of the Company’s acquisition of StockCross, the Company and StockCross were entities under common control of the Gebbia Family. The acquisition represented a change in reporting entity and as such, the companies have been presented on a combined basis for all periods presented in the consolidated financial statements (“financial statements”). See “Note 3 – Acquisitions” for additional detail on the transaction with StockCross and the corresponding accounting. COVID-19 The challenges posed by the COVID-19 pandemic on the global economy increased significantly starting in the first quarter of 2020. COVID-19 has spread across the globe during 2020 and has impacted economic activity worldwide. In response to COVID-19, national and local governments around the world instituted certain measures, including travel bans, prohibitions on group events and gatherings, shutdowns of certain businesses, curfews, shelter-in-place orders and recommendations to practice social distancing. Siebert 2020 Form-10K 40 The Company instituted a number of temporary closures of branch offices; however, as of the date of the filing of this report, all of the Company’s branch offices have been re-opened while maintaining compliance with federal, state and local mandates and guidelines. The Company has taken numerous steps to ensure that its employees and customers are operating in a safe environment by implementing measures such as social distancing, sanitizing workstations, temperature checks, requiring masks, and alternating staff. The financial impact on the Company from the COVID-19 pandemic has been varied as revenue streams related to interest rates have decreased while revenue streams from commissions and fees and principal transactions have largely benefited from the market volatility associated with the pandemic. The Company is actively monitoring the impact of COVID-19 on its business, financial condition, liquidity, operations, employees, clients and business partners. Based on management’s assessment as of December 31, 2020, 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. See “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations” for additional detail on COVID-19 and its impact on the Company. 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 subsidiaries and upon consolidation, all intercompany balances and transactions are eliminated. The U.S. dollar is the functional currency of the Company and numbers are rounded for presentation purposes. 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. 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 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. Siebert 2020 Form-10K 41 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 years ended December 31, 2020 and 2019. As of December 31, 2020 and 2019, 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. 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, 2020 and 2019, the Company did not hold any cash equivalents. At time, 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. Effective upon the Company’s acquisition of StockCross on January 1, 2020, the requirements and special reserve accounts of MSCO and StockCross were combined. See “Note 17 – Capital Requirements” for additional detail. As of December 31, 2020 and 2019, MSCO had $0 and $1.3 million of securities segregated for regulatory purposes, respectively. Receivables From and Payables To Customers Accounts receivable from and payable to customers include amounts due and owed on cash and margin transactions. Securities owned by customers are held as collateral for receivables. Receivables from customers are reported at their outstanding principal balance, adjusted for any allowance for doubtful accounts. An allowance is established when collectability is not reasonably assured. When the receivable from a brokerage client is considered to be impaired, the amount of impairment is generally measured based on the fair value of the securities acting as collateral, which is measured based on current prices from independent sources such as listed market prices or broker-dealer price quotations. Securities beneficially owned by customers, including those that collateralize margin or other similar transactions, are not reflected in the statements of financial condition. No valuation allowance for doubtful accounts was necessary as of December 31, 2020 and 2019. Receivables From, Payables To, and Deposits With Broker-Dealers and Clearing Organizations Accounts receivable from and payable to broker-dealers includes receivables from or payables to MSCO and WPS clearing broker-dealers, fail-to-deliver and fail-to-receive items, deposits with clearing organizations, and amounts receivable for unsettled regular-way transactions. The Company operates on a month-to-month basis with its clearing broker-dealers and their fees are offset against the Company's revenues on a monthly basis. See “Note 4 – Receivables from, Payables to, and Deposits with Broker-Dealers and Clearing Organizations” for additional detail. MSCO customer transactions for the year ended December 31, 2020 were both self-cleared and cleared on a fully disclosed basis through National Financial Services Corp. (“NFS”). MSCO customer transactions for the year ended December 31, 2019 were cleared on a fully disclosed basis through NFS and StockCross, the latter of which was an affiliate. As of January 1, 2020, all clearing and other services provided by StockCross were performed by MSCO and all MSCO deposits with StockCross were eliminated. WPS customer transactions clear on a fully disclosed basis through The Goldman Sachs Group, Inc. (“Goldman Sachs”) and Pershing LLC (“Pershing”). Amounts payable to broker-dealers and clearing organizations are offset against 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. Siebert 2020 Form-10K 42 The Company evaluates receivables from broker-dealers and clearing organizations and other receivables for collectability noting no amount was considered uncollectable as of December 31, 2020 and 2019. No valuation allowance is recognized for these receivables as the Company does not have a history of losses from these receivables and does not anticipate losses in the future. See “Note 13 – Revenue Recognition” for additional detail on the accounting policies for the revenue related to these receivables. Securities Borrowed and Securities Loaned Securities borrowed are recorded at the amount of cash collateral advanced. Securities borrowed transactions require the Company to deposit cash, letters of credit, or other collateral with the lender. 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. 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. See “Note 6 – Fair Value Measurements” for additional detail. Furniture, Equipment, and Leasehold Improvements, Net Furniture, equipment, and leasehold improvements are stated at cost, net of accumulated depreciation and amortization. Depreciation is calculated using the straight-line method over the estimated useful lives of the assets, generally not exceeding four years. Leasehold improvements 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. 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. The Company enters into certain software hosting arrangements where the cost associated 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. 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. Payables to non-customers also include amounts due on cash transactions owned and controlled by the Company’s proprietary accounts of introducing broker-dealers. Effective upon the Company’s acquisition of StockCross on January 1, 2020, the Company no longer had any proprietary accounts of introducing broker-dealers. Drafts Payable Drafts payable represent checks drawn by the Company against customer accounts which remained outstanding and had not cleared the bank as of the end of the period. Siebert 2020 Form-10K 43 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 “Depreciation and amortization” line item 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. The Company currently does not have any intangible assets with indefinite lives other than goodwill. 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. Revenue Recognition Revenue from contracts with customers and counterparties includes commissions and fees, principal transactions, market making, stock borrow / stock loan, advisory fees, margin interest, marketing and distribution fees, interest income, and other income. The recognition and measurement of revenue is based on the assessment of individual contract terms. Significant judgment is required to determine whether performance obligations are satisfied at a point in time or over time; how to allocate transaction prices where multiple performance obligations are identified; when to recognize revenue based on the appropriate measure of the Company’s progress under the contract; and whether constraints on variable consideration should be applied due to uncertain future events. As of December 31, 2020 and 2019, the acquisition of new entities did not impact the Company’s existing revenue streams as the acquired entities had consistent application of the revenue recognition guidance. Advertising Costs Advertising costs are expensed as incurred and were $0 and $2,000 for the years ended December 31, 2020, and 2019, respectively. Income Taxes The Company accounts 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, the Company determines 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. The Company recognizes deferred tax assets to the extent that the Company believes that these assets are more likely than not to be realized. In making such a determination, the Company considers all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax-planning strategies, and results of recent operations. If the Company determines that it would be able to realize deferred taxes in the future in excess of their net recorded amount, the Company would make an adjustment to the deferred tax asset valuation allowance, which would reduce the provision for income taxes. The Company records uncertain tax positions in accordance with ASC 740 on the basis of a two-step process in which (1) the Company determines 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, the Company recognizes 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 2020 Form-10K 44 The Company recognizes 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. Capital Stock The authorized capital stock of the Company consists of a single class of common stock. Shares authorized were 100 million and 49 million as of December 31, 2020 and 2019, respectively. Per Share Data Basic earnings per share is calculated by dividing net income by the weighted average number of outstanding common shares during the year. Diluted earnings per share is calculated by dividing net income by the number of shares outstanding under the basic calculation and adding, all dilutive securities, which consist of options. The Company has no dilutive securities as of December 31, 2020 and 2019. Non-Cash Investing and Financing Activities The Company entered into a promissory note of $3 million with Gloria E. Gebbia to finance part of the acquisition of WPS. This was a non-cash item for the Company for the year ended December 31, 2019 as the $3 million was paid directly from Gloria E. Gebbia to WPS. See “Note 12 – Notes Payable - Related Party” for additional detail. Recently Issued Accounting Pronouncements ASU 2019 - 12 - In December 2019, the FASB issued ASU No. 2019-12, “Simplifying the Accounting for Income Taxes.” This guidance removes certain exceptions related to the approach for intra-period tax allocation, the methodology for calculating income taxes in an interim period, and the recognition of deferred tax liabilities for outside basis differences. This guidance also clarifies and simplifies other areas of ASC 740. This guidance is effective for fiscal years beginning after December 15, 2020. The guidance in this update has various elements, some of which are applied on a prospective basis and others on a retrospective basis with earlier application permitted. The Company is currently evaluating the effect of this new standard; however, the Company believes there will be no material impact to its financial statements. Recently Adopted Accounting Pronouncements ASU 2020-04 / ASU 2021-01 - In March 2020, t he FASB issued Accounting Standards Update (“ASU”), which was subsequently amended in January 2021, related to contracts or hedging relationships that reference London Interbank Offered Rate (“LIBOR”) or other reference rates that are expected to be discontinued due to reference rate reform. The new standard provides for optional expedients and other guidance regarding the accounting related to modifications of contracts, hedging relationships and other transactions affected by reference rate reform. The amendment in ASU 2021-01 clarifies that all derivative instruments affected by changes to interest rates used for discounting, margining or contract price alignment are in the scope of Accounting Standards Codification (“ASC”) 848. The Company adopted the new standards as of January 1, 2020 and determined they were immaterial to the Company’s financial statements as of December 31, 2020. ASU 2018 - 15 - In August 2018, the FASB issued Accounting Standards Update (“ASU”) 2018-15, Intangibles, Goodwill and Other Internal-Use Software, (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract, which requires customers to apply the same criteria for capitalizing implementation costs incurred in a cloud computing arrangement that is hosted by the vendor as they would for an arrangement that has a software license. The standard is effective for interim and annual periods beginning after December 15, 2019 and early adoption is permitted. The standard can be adopted prospectively or retrospectively. The Company adopted this new standard on January 1, 2020 and there was no material impact to the Company’s financial statements as the only transactions impacted by this new standard occurred during the year ended December 31, 2020. See “Note 5 – Prepaid Service Contract” for additional detail. ASU 2018-13 - In August 2018, the FASB issued ASU 2018-13, Fair value Measurement (Accounting Standards Codification (“ASC”) 820): Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement. ASU 2018-13 removes certain disclosures, modifies certain disclosures and adds additional disclosures. The standard is effective for annual periods, including interim periods within those annual periods, beginning after December 15, 2019 and early adoption is permitted. The Company adopted the new standard on its effective date, January 1, 2020, and determined it was immaterial to the Company’s financial statements as of December 31, 2020. Siebert 2020 Form-10K 45 ASU 2018-07 - In June 2018, the FASB issued ASU No. 2018-07, Compensation - Stock Compensation (Topic 718). ASU 2018-07 is intended to reduce cost and complexity of financial reporting for non-employee share-based payments. Currently, the accounting requirements for non-employee and employee share-based payments are significantly different. ASU 2018-07 expands the scope of Topic 718, which currently only includes share-based payments to employees, to include share-based payments to non-employees for goods or services. Consequently, the accounting for share-based payments to non-employees and employees will be substantially aligned. This ASU supersedes Subtopic 505-50, “Equity - Equity-Based Payments to Nonemployees.” The amendments to ASU 2018-07 are effective for fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020. Early adoption is permitted, but no earlier than a company’s adoption date of ASU No. 2014-09, (Topic 606), “Revenue from Contracts with Customers.” The Company adopted this new standard on January 1, 2020 and there was no material impact to the Company’s financial statements as the only transactions impacted by this new standard occurred during the year ended December 31, 2020. See “Note 5 – Prepaid Service Contract” for additional detail. ASU 2017-04 – In January 2017, the FASB amended the guidance to simplify the test for goodwill impairment by eliminating Step 2 from the goodwill impairment test. The amended guidance requires the Company to perform its annual goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An impairment charge should be recognized at the amount by which the carrying amount exceeds the fair value of the reporting unit; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. Income tax effects resulting from any tax-deductible goodwill should be considered when measuring the goodwill impairment loss, if applicable. The Company will still have the option to perform a qualitative assessment to conclude whether it is more likely than not that the carrying amount of the Company exceeds its fair value. The guidance will be effective for interim and annual periods beginning January 1, 2020, and must be applied prospectively. Early adoption is permitted. The Company adopted the new standard on January 1, 2020 and determined that it did not impact the Company as goodwill was not impaired as of December 31, 2020. ASU 2016-02 – In February 2016, the FASB established ASC 842, Leases, by issuing ASU 2016-02, which requires lessees to recognize leases on-balance sheet and disclose key information about leasing arrangements. The new standard establishes a right-of-use model that requires a lessee to recognize a lease right-of-use asset and lease liability on the statement of financial condition for all leases with a term longer than 12 months. Leases will be classified as finance or operating, with classification affecting the pattern and classification of expense recognition in the statement of income. The new standard is effective for the Company on January 1, 2019, with early adoption permitted. The Company adopted the new standard on its effective date. A modified retrospective transition approach is required, applying the new standard to all leases existing at the date of initial application. An entity may choose to use either (1) its effective date or (2) the beginning of the earliest comparative period presented in the consolidated financial statements as its date of initial application. The Company adopted the new standard on January 1, 2019 and used the effective date as the date of initial application. Consequently, financial information will not be updated and the disclosures required under the new standard will not be provided for dates and periods before January 1, 2019. The new standard provides a number of optional practical expedients in transition. The Company elected the “package of practical expedients,” which permits the Company not to reassess under the new standard the Company’s prior conclusions about lease identification, lease classification and initial direct costs. The Company has not elected the hindsight practical expedient at transition. The new standard also provides practical expedients for an entity’s ongoing accounting. The Company elected the short-term lease recognition exemption for all leases that qualify. This means, for those leases that qualify, the Company will not recognize lease right-of-use assets or lease liabilities. As of December 31, 2020, the financial statements for the periods presented reflect the changes from this accounting guidance. Management has evaluated other recently issued accounting pronouncements and does not believe that any of these pronouncements will have a significant impact on the Company’s financial statements and related disclosures as of December 31, 2020 . 3. Acquisitions StockCross Overview of Acquisition Established in 1971, StockCross was one of the largest privately-owned brokerage firms in the nation and its operations consisted primarily of market making, fixed-income products distribution, online and broker-assisted equity trading, securities lending, and equity stock plan services. Siebert 2020 Form-10K 46 Prior to being acquired by the Company, StockCross and the Company were affiliated entities through common ownership and had various related party transactions. In January 2019, the Company acquired approximately 15% ownership of StockCross. Effective January 1, 2020, the Company acquired the remaining 85% of StockCross’ outstanding shares and StockCross was merged with and into MSCO. The purchase price paid was approximately $29,750,000 or 3,298,774 shares of the Company’s restricted common stock which was issued in connection with the acquisition. Prior to the acquisition, MSCO had a clearing agreement with StockCross whereby StockCross provided custody and clearing services to MSCO for its securities broker-dealer business; however, as of January 1, 2020, all clearing and other services provided by StockCross were performed by MSCO. Accounting for Acquisition Prior to and as of the date of the acquisition, the Company and StockCross were entities under common control of the Gebbia Family . As such, the acquisition was accounted for as a transaction between entities under common control. This common-control transaction does not meet the definition of a business combination in accordance with GAAP because there was no change in control over the net assets. The acquisition represented a change in reporting entity. As such, upon the closing of the acquisition, the net assets of the Company were combined with those of StockCross at their historical carrying amounts. The companies have been presented on a combined basis for all periods presented in the financial statements in a manner similar to a pooling of interests, as the period of common control existed prior to the periods presented in the financial statements. Accordingly, the historical financial statements of the Company have been presented under the “as if pooling” method. The statement of income for the year ended December 31, 2019 reflects the elimination of StockCross’ other income and the Company’s corresponding custody and clearing fees resulting from the fully disclosed clearing relationship between MSCO and StockCross. In addition, the Company’s loss recognized as part of its equity method investment in StockCross for the year ended December 31, 2019 was eliminated upon consolidation. These adjustments to pre-tax income were tax affected using an estimated effective tax rate of 28.0%. The statement of financial condition as of December 31, 2019 reflects the elimination of intercompany payables and receivables between the Company and StockCross as part of their ongoing business relationship and reflects the elimination of the Company’s 15% ownership of StockCross. The statement of financial condition as of December 31, 2019 reflects an adjustment to increase the Company’s common stock by the par value of the shares issued in connection with the transaction and to eliminate the par value of StockCross’ common stock. The adjustments also increase additional paid-in capital for the net difference, as well as the change in retained earnings from the adjustments in the statement of income. Prior to the Company’s acquisition of StockCross, StockCross sold its treasury stock totaling $172,000 to third parties and the Company purchased approximately 15% of the outstanding shares of StockCross from an unrelated party for $3,665,000. On September 5, 2019, StockCross made a return of capital distribution in the aggregate amount of $1.6 million, of which the Company received approximately 15%, or $241,000. All of these cash transactions are reflected in the “Cash flows from financing activities” section of the statements of cash flows for the year ended December 31, 2019. Pro forma data may not be indicative of the results that would have been obtained had these events occurred at the beginning of the periods presented, nor is it intended to be a projection of future results. Siebert 2020 Form-10K 47 Assets Acquired and Liabilities Assumed The Company acquired various assets and assumed liabilities from StockCross which were recorded at their historical carrying amounts and summarized below: Historical Carrying Value Assets acquired Cash and cash equivalents $ 1,588,000 Cash and securities segregated for regulatory purposes 224,814,000 Receivables from customers 86,331,000 Receivables from broker-dealers and clearing organizations 3,105,000 Other receivables 627,000 Prepaid expenses and other assets 346,000 Securities borrowed 193,529,000 Securities owned, at fair value 3,018,000 Furniture, equipment, and leasehold improvements, net 19,000 Lease right-of-use assets 1,141,000 Deferred tax assets 407,000 Total Assets acquired 514,925,000 Liabilities assumed Payables to customers 308,091,000 Payables to non-customers 9,151,000 Drafts payable 2,834,000 Payables to broker-dealers and clearing organizations 1,406,000 Accounts payable and accrued liabilities 963,000 Securities loaned 170,443,000 Securities sold, not yet purchased, at fair value 28,000 Notes payable – related party 5,000,000 Lease liabilities 1,295,000 Total Liabilities assumed 499,211,000 Net Assets acquired $ 15,714,000 Siebert 2020 Form-10K 48 WPS Overview of Acquisition WPS is a Delaware limited liability company originally organized as a corporation under the laws of the State of Florida in 2007. WPS is a registered broker-dealer with the SEC and Commodity Futures Trading Commission ("CFTC"), and is a member of the FINRA, National Futures Association ("NFA"), and SIPC. WPS operations consist primarily of trade execution and risk management services for customers and is an introducing broker for the transactions of institutional customers. Prior to being acquired by the Company, WPS was comprised of two members, Weeden Investors L.P. (“WILP”), a Delaware limited partnership, and Weeden Securities Corporation (“WSC”), a Delaware corporation, and was managed by a Board of Managers. Effective December 1, 2019, the Company purchased 100% of the member interests of WPS from WILP and WSC and WPS became a wholly-owned subsidiary of the Company. The purchase price was approximately $7.1 million paid in cash and the Company borrowed $3 million in a promissory note payable to Gloria E. Gebbia to finance part of the purchase. The operating results for the 31-day period ended December 31, 2019 were included in the Company’s statement of income for the year ended December 31, 2019. Accounting for Acquisition The transaction was accounted for under the acquisition method of accounting for business combinations pursuant to ASC 805 - Business Combinations. ASC 805, requires, among other things, that the assets acquired and liabilities assumed be recognized at their fair values as of the proposed acquisition date. ASC 820 - Fair Value Measurements, which establishes a framework for measuring fair values, defines fair value as “the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.” Assets Acquired and Liabilities Assumed The Company was required to allocate the WPS purchase price to tangible and identifiable intangible assets acquired and liabilities assumed based on their fair values as of November 30, 2019. The excess of the purchase price over those fair values was recorded as goodwill. In accordance with ASC 805, the Company was required to finalize the fair value of net assets of the business combination on the acquisition date. As of December 31, 2019, the Company completed its allocation of the WPS purchase price and adjustments were made for tax considerations. In determining the fair value of assets acquired and liabilities assumed, the Company primarily used discounted cash flow analyses and market approaches. Inputs to the discounted cash flow analyses and other aspects of the allocation of purchase price required judgment. The more significant inputs used in the discounted cash flow analyses and other areas of judgment included assumptions such as future revenue growth or attrition rates, projected margins, discount rates used to present value future cash flows, the amount of synergies expected from the acquisition, and the economic useful life of assets. Siebert 2020 Form-10K 49 The following table summarizes the Company’s allocation of the purchase price as of the date of acquisition: Estimated Fair Value Cash and cash equivalents $ 301,000 Cash segregated for regulatory purpose 152,000 Receivables from broker-dealers and clearing organizations 4,616,000 Furniture, equipment, and leasehold improvements, net 41,000 Software, net 51,000 Intangible assets, net 1,057,000 Lease right-of-use assets 214,000 Prepaid expenses and other assets 271,000 Total Assets acquired 6,703,000 Accounts payable and accrued liabilities 1,353,000 Lease liabilities 214,000 Total Liabilities assumed 1,567,000 Net Assets acquired 5,136,000 Goodwill 1,989,000 Purchase price $ 7,125,000 The transaction resulted in $1,989,000 of goodwill, all of which is expected to be deductible for tax purposes. Financial Results from WPS The following table summarizes the revenue and net income from operations of WPS included in the Company’s statement of income for the year ended December 31, 2019 since the date of acquisition (for the 31-day period ended December 31, 2019): Year Ended December 31, 2019 Revenue $ 968,000 Net income $ 203,000 Pro Forma Statements The following pro forma summary presents the statement of income of the Company as if the acquisition of WPS had occurred on January 1, 2019, inclusive of pro forma adjustments (unaudited). WPS financial statements have already been consolidated as part of the Company’s financial statements for the period presented for 2020. The pro forma results include adjustments made for the consolidation of both entities. These adjustments take into consideration the interest expense on the promissory note used in financing the acquisition, the amortization of the acquired intangible assets, as well as the tax effect of pro forma adjustments using an estimated effective rate of 28.0%. Pro forma data may not be indicative of the results that would have been obtained had these events occurred at the beginning of the periods presented, nor is it intended to be a projection of future results. Year Ended December 31, 2019 Revenue $ 53,938,000 Net income $ 1,704,000 4. Receivables From, Payables To, and Deposits With Broker-Dealers and Clearing Organizations Amounts receivable from, payables to, and deposits with broker-dealers and clearing organizations consisted of the following as of the periods indicated: Siebert 2020 Form-10K 50 As of December 31, 2020 As of December 31, 2019 Receivables from and deposits with broker-dealers and clearing organizations DTCC / OCC / NSCC $ 17,841,000 $ 3,059,000 Goldman Sachs 2,430,000 2,841,000 Pershing Capital 1,266,000 1,192,000 NFS 1,061,000 1,328,000 Securities fail-to-deliver 379,000 43,000 Globalshares 46,000 2,000 ICBC — 10,000 Total Receivables from and deposits with broker-dealers and clearing organizations $ 23,023,000 $ 8,475,000 Payables to broker-dealers and clearing organizations Securities fail-to-receive $ 1,810,000 $ 523,000 Total Payables to broker-dealers and clearing organizations $ 1,810,000 $ 523,000 Under the DTCC shareholders’ agreement, MSCO is required to participate in the DTCC common stock mandatory purchase. As of December 31, 2020, MSCO had shares of DTCC common stock valued at approximately $937,000 which is included within the line item “Deposits with broker-dealers and clearing organizations” in the statements of financial condition. As of December 31, 2019, StockCross had shares of DTCC common stock valued at approximately $359,000. 5. Prepaid Service Contract On April 21, 2020, the Company entered into a Master Services Agreement (“MSA”), with InvestCloud, Inc. (“InvestCloud”). Pursuant to the MSA, InvestCloud agreed to provide the Company with the InvestCloud Platform, a new client and back end interface and related functionalities for the Company’s key operations. The Company agreed to pay InvestCloud as consideration therefore during the initial three-year term an annual license fee of $600,000 as well as an upfront professional service fee of $1.0 million for one-time configuration, installation and customization of the software. Following the initial three-year term, the MSA will automatically renew for additional one-year terms unless terminated by the Company upon 120 days’ notice. In connection with the MSA, InvestCloud entered into a Side Letter Agreement with the Company pursuant to which InvestCloud acquired 193,906 shares of the Company’s restricted common stock (the “Shares”) at a per share price of $5.81 (the Company’s share price as of the close of May 12, 2020) for a total of $1.1 million for professional services, which approximates the cost of services to be provided, to integrate the InvestCloud Platform into the Company’s existing systems and Robo-Advisor. The Shares were issued to InvestCloud on May 12, 2020 without registration under the Securities Act of 1933 in reliance upon the exemption provided in Section 4(a)(2) thereunder. This transaction is reflected in the “Non-cash investing and financing activities” section of the statements of cash flows. In accordance with ASU 2018-15, Intangibles, Goodwill and Other Internal-Use Software, the Company initially recorded a prepaid asset equal to the $2.1 million of the total professional services related to the development work performed by InvestCloud, which is within the line item “Prepaid service contract” on the statements of financial condition. The Company amortizes this asset over the 3-year term of the contract, a period during which the arrangement is noncancelable. The license fees related to the Company’s use of the InvestCloud Platform are prepaid three months in advance and are also within the line item “Prepaid service contract” on the statements of financial condition. These prepaid license fees are amortized over the three-month term. The amortization for all the prepaid assets related to InvestCloud is within the line item “Technology and Communications” on the statements of income. The Company recorded $219,000 in expense related to share-based payments to InvestCloud for professional services and the total cost related to InvestCloud was $764,000 for the year ended December 31, 2020. 6. Fair Value Measurements Overview ASC 820 defines fair value, establishes a framework for measuring fair value, and establishes a hierarchy of fair value inputs. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. A fair value measurement assumes that the transaction to sell the asset or transfer the liability occurs in the principal market for the asset or liability or, in the absence of a principal market, the most advantageous market. Valuation techniques that are consistent with the market, income, or cost approach, as specified by ASC 820, are used to measure fair value. Siebert 2020 Form-10K 51 The fair value hierarchy prioritizes the inputs to valuation techniques used to measure fair value into three broad levels: Level 1 - Quoted prices (unadjusted) in active markets for an identical asset or liability that the Company can assess at the measurement date. Level 2 - Inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly or indirectly. Level 3 - Unobservable inputs for the asset or liability. The availability of observable inputs can vary from security to security and is affected by a variety of factors, such as the type of security, the liquidity of markets, and other characteristics particular to the security. To the extent that the valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. As such, the degree of judgment exercised in determining fair value is greatest for instruments categorized in level 3. The inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, for disclosure purposes, the level in the fair value hierarchy within which the fair value measurement falls in its entirety is determined based on the lowest level input that is significant to the fair value measurement. Fair value is a market-based measure considered from the perspective of a market participant rather than an entity-specific measure. Therefore, even when market assumptions are not readily available, the Company’s own assumptions are set to reflect those that the Company believes market participants would use in pricing the asset or liability at the measurement date. A description of the valuation techniques applied to the Company’s major categories of assets and liabilities measured at fair value on a recurring basis is as follows: U.S. government securities: U.S. government securities are valued using quoted market prices and as such, valuation adjustments are not applied. Accordingly, U.S. government securities are generally categorized in level 1 of the fair value hierarchy. Corporate bonds and convertible preferred stock: The fair value of corporate bonds and convertible preferred stock are determined using recently executed transactions, market price quotations (when observable), bond spreads, or credit default swap spreads obtained from independent external parties such as vendors and brokers, adjusted for any basis difference between cash and derivative instruments. The spread data used is for the same maturity as the bond. If the spread data does not reference the issuer, then data that references a comparable issuer is used. When position-specific external price data is not observable, fair value is determined based on either benchmarking to similar instruments or cash flow models with yield curves, bond, or single-name credit default swap spreads and recovery rates as significant inputs. Corporate bonds and convertible preferred stocks are generally categorized in level 2 of the fair value hierarchy. Equity securities: Equity securities are valued based on quoted prices from the exchange. To the extent these securities are actively traded, valuation adjustments are not applied, and they are categorized in level 1 of the fair value hierarchy. Securities quoted in inactive markets or with observable inputs are categorized into level 2. If there are no observable inputs or quoted prices, securities are categorized as level 3 assets in the fair value hierarchy. Level 3 assets are not actively traded and subjective estimates based on managements’ assumptions are utilized for valuation. Certificates of deposit: Certificates of deposit included in investments are valued at cost, which approximates fair value. When certificates of deposits are held directly with banking institutions and issued directly to the Company, these are categorized within cash and cash equivalents in level 2 of the fair value hierarchy. When certificates of deposits are available for trading, they are categorized within securities owned, at fair value in level 2 of the fair value hierarchy. Fair Value Hierarchy Tables The following tables present the Company's fair value hierarchy for those assets and liabilities measured at fair value on a recurring basis as of the periods presented. Siebert 2020 Form-10K 52 As of December 31, 2020 Level 1 Level 2 Level 3 Total Assets Securities owned, at fair value U.S. government securities* $ 2,029,000 $ — $ — $ 2,029,000 Certificates of deposit — 91,000 — 91,000 Corporate bonds — 24,000 — 24,000 Equity securities 345,000 134,000 — 479,000 Total Securities owned, at fair value $ 2,374,000 $ 249,000 $ — $ 2,623,000 Liabilities Securities sold, not yet purchased, at fair value Equity securities $ — $ 21,000 $ — $ 21,000 Total Securities sold, not yet purchased, at fair value $ — $ 21,000 $ — $ 21,000 As of December 31, 2019 Level 1 Level 2 Level 3 Total Assets Cash and securities segregated for regulatory purposes U.S. government securities** $ 1,311,000 — — $ 1,311,000 Securities owned, at fair value U.S. government securities* $ 2,007,000 $ — $ — $ 2,007,000 Corporate bonds — 25,000 — 25,000 Equity securities 453,000 245,000 288,000 986,000 Total Securities owned, at fair value $ 2,460,000 $ 270,000 $ 288,000 $ 3,018,000 Liabilities Securities sold, not yet purchased, at fair value Equity securities $ 88,000 $ 28,000 $ — $ 116,000 Total Securities sold, not yet purchased, at fair value $ 88,000 $ 28,000 $ — $ 116,000 *As of December 31, 2020 and 2019, these U.S. government securities mature on 08/31/21 ** As of December 31, 2019, these U.S. government securities mature on 02/29/20 Changes in Level 3 Equity Assets Year Ended December 31, 2020 Amount Valuation Technique Reason for Change Balance – January 1, 2020 $ 288,000 Liquidation value based on valuation report Transfers out of level 3 (288,000 ) Sale of equity security Balance – December 31, 2020 $ — The following represents financial instruments in which the ending balances as of December 31, 2020 and 2019 are not carried at fair value in the statements of financial condition: Receivables and other assets : Receivables from broker-dealers and clearing organizations, receivables from customers, other receivables, prepaid service contact, and prepaid expenses and other assets are recorded at amounts that approximate fair value and are classified as level 2 under the fair value hierarchy. Securities borrowed and securities loaned : Securities borrowed and securities loaned are recorded at amounts which approximate fair value and are primarily classified as level 2 under the fair value hierarchy. The Company’s securities borrowed and securities loaned balances represent amounts of equity securities borrow and loan contracts and are marked-to-market daily in accordance with standard industry practices which approximate fair value. Siebert 2020 Form-10K 53 Payables : Payables to customers, payables to non-customers, drafts payable, payables to broker-dealers and clearing organizations, accounts payable and accrued liabilities, interest payable, and taxes payable are recorded at amounts that approximate fair value due to their short-term nature and are classified as level 2 under the fair value hierarchy. Notes payable – related party: The carrying amount of the notes payable – related party approximates fair value due to the relative short-term nature of the borrowing. Under the fair value hierarchy, the notes payable – related party is classified as level 2. Line of credit : The carrying amount of the line of credit with East West Bank approximates fair value due to the relative short-term nature of the borrowing. Under the fair value hierarchy, the line of credit is classified as level 2. 7. Furniture, Equipment, and Leasehold Improvements, Net Furniture, equipment, and leasehold improvements consisted of the following as of the periods indicated: As of December 31, 2020 2019 Leasehold improvements $ 1,389,000 $ 1,389,000 Equipment 170,000 170,000 Furniture and fixtures 166,000 154,000 Total Furniture, equipment, and leasehold improvements 1,725,000 1,713,000 Less accumulated depreciation (963,000 ) (563,000 ) Total Furniture, equipment, and leasehold improvements, net $ 762,000 $ 1,150,000 Total depreciation expense for furniture, equipment, and leasehold improvements was $402,000 and $405,000 for the years ended December 31, 2020 and 2019, respectively. 8. Software, Net Software consisted of the following as of the periods indicated: As of December 31, 2020 2019 Robo-Advisor $ 763,000 $ 763,000 Other Software 2,170,000 1,771,000 Total Software 2,933,000 2,534,000 Less accumulated amortization – Robo-Advisor (509,000 ) (254,000 ) Less accumulated amortization – Other software (1,090,000 ) (392,000 ) Total Software, net $ 1,334,000 $ 1,888,000 Total amortization of software was $951,000 and $562,000 for the years ended December 31, 2020 and 2019, respectively. As of December 31, 2020, the Company estimates future amortization of software assets of $870,000, $390,000, and $74,000, in the years ended December 31, 2021, 2022, and 2023, respectively. 9. Leases As of December 31, 2020, the Company rents office space under operating leases expiring in 2021 through 2024, and the Company has no financing leases. The leases call for base rent plus escalations as well as other operating expenses. The following table represents the Company’s lease right-of-use assets and lease liabilities on the statements of financial condition. The Company elected not to include short-term leases (i.e., leases with initial terms of twelve months or less), or equipment leases (deemed immaterial) on the statements of financial condition. The Company acquired two leases from both its acquisition of StockCross and WPS, the impact of which is reflected in the following disclosures. As of December 31, 2020, the Company does not believe that any of the renewal options under the existing leases are reasonably certain to be exercised; however, the Company will continue to assess and monitor the lease renewal options on an ongoing basis. Siebert 2020 Form-10K 54 As of December 31, 2020 2019 Assets Lease right-of-use assets $ 2,290,000 $ 3,951,000 Liabilities Lease liabilities $ 2,612,000 $ 4,409,000 The calculated amounts of the lease right-of-use assets and lease liabilities in the table above are impacted by the length of the lease term and the discount rate used to present value the minimum lease payments. The Company leases some miscellaneous office equipment, but they are immaterial and therefore the Company records the costs associated with this office equipment on the statements of income rather than capitalizing them as lease right-of-use assets. The Company determined a discount rate of 5.0% would approximate the Company’s cost to obtain financing given its size, growth, and risk profile. As of December 31, 2020 2019 Weighted average remaining lease term – operating leases (in years) 2.2 2.7 Weighted average discount rate – operating leases 5.0 % 5.0 % The following table represents lease costs and other lease information. The Company has elected the package of practical expedients and as a result, expired leases and classification of leases per ASC 840 were not assessed as of the transition date. In addition, the Company has elected the practical expedient to not separate lease and non-lease components, and as such, the variable lease cost primarily represents variable payments such as common area maintenance and utilities which are usually determined by the leased square footage in proportion to the overall office building. Year Ended December 31, 2020 2019 Operating lease cost $ 2,314,000 $ 1,764,000 Short-term lease cost 102,000 446,000 Variable lease cost 351,000 360,000 Sublease income — — Total Rent and occupancy $ 2,767,000 $ 2,570,000 Cash paid for amounts included in the measurement of lease liabilities Operating cash flows from operating leases $ 2,457 ,000 $ 1,876 ,000 Lease right-of-use assets obtained in exchange for new lease liabilities Operating leases $ 2,353,000 $ 5,732,000 Lease Commitments Future annual minimum payments for operating leases with initial terms of greater than one year as of December 31, 2020 were as follows: Year Amount 2021 $ 1,405,000 2022 756,000 2023 543,000 2024 56,000 Remaining balance of lease payments 2,760,000 Less difference between undiscounted cash flows and discounted cash flows 146,000 Lease liabilities $ 2,614,000 Siebert 2020 Form-10K 55 As of December 31, 2020, the Company had an operating lease agreement for an office space in Beverly Hills, California with a term of approximately 5 years. The total commitment of the lease is approximately $1.6 million, and the lease will commence on March 1, 2021. Rent and occupancy expenses were $2,767,000 and $2,570,000 for the years ended December 31, 2020 and 2019, respectively. 10. Goodwill and Intangible Assets, Net Goodwill As of December 31, 2020 and 2019, the Company’s carrying amount of goodwill was $1,989,000, all of which came from the Company’s acquisition of WPS. The goodwill from the acquisition consisted of WPS providing a new customer base of institutional clients, several strategic clearing relationships, as well as substantial cross-selling opportunities for the institutional and retail clients. The addition of WPS brings economies of scale in terms of operational and administrative functions as well as a skilled management team within the institutional space to Siebert . See “Note 3 – Acquisitions” for more detail on the acquisition of WPS. Intangible Assets, Net As a result of the Company’s acquisition of WPS, the Company acquired intangible assets consisting of WPS customer relationships and trade name, the fair values of which were $987,000 and $70,000, respectively, as of the acquisition date. The Company recorded intangible assets which are subject to amortization over their estimated useful lives. The intangible assets are deductible for tax purposes. Pursuant to the Company’s agreement with the original owners of WPS, the Company agreed to discontinue using the name of Weeden Prime Services, LLC and filed to change it to WPS Prime Services, LLC in May 2020. As of December 31, 2020, the WPS trade name was fully amortized. The following tables summarize information related to the intangible assets as of the dates indicated. Date Acquired Original Useful Life Remaining Useful Life As of December 31, 2020 WPS Customer Relationships 11/30/19 6.0 years 4.9 years WPS Trade Name 11/30/19 0.5 years — Purchase Price 2019 Amortization Balance as of December 31, 2019 2020 Amortization Balance as of December 31, 2020 WPS Customer Relationships $ 987,000 $ 23,000 $ 964,000 $ 155,000 $ 809,000 WPS Trade Name 70,000 12,000 58,000 58,000 — Total Intangible assets $ 1,057,000 $ 35,000 $ 1,022,000 $ 213,000 $ 809,000 The weighted average remaining useful life for the above intangible assets as of December 31, 2020 was 4.9 years. The Company expects its aggregate annual amortization expense for existing amortizable intangible assets for the below periods to be as follows: Amount 2021 $ 165,000 2022 165,000 2023 165,000 2024 165,000 2025 149,000 Total future amortization expense $ 809,000 Siebert 2020 Form-10K 56 Impairment For the years ended December 31, 2020 and 2019, management concluded that there have been no impairments to the carrying value of the Company’s goodwill and other tangible and intangible assets. 11. Long-Term Debt Line of Credit with East West Bank On July 22, 2020, the Company entered into a Loan and Security Agreement with East West Bank. In accordance with the terms of this agreement, the Company has the ability to borrow term loans in an aggregate principal amount not to exceed $10 million during the two-year period after July 22, 2020. The Company’s obligations under the agreement are secured by a lien on all of the Company’s cash, dividends, stocks and other monies and property from time to time received or receivable in exchange for the Company’s equity interests in and any other rights to payment from the Company’s subsidiaries; any deposit accounts into which the foregoing is deposited and all substitutions, products, proceeds (cash and non-cash) arising out of any of the foregoing. Each term loan will have a term of four years, beginning when the draw is made. The repayment schedule will utilize a five-year (60 month) amortization period, with a balloon on the remaining amount due at the end of four years. Term loans made pursuant to the agreement shall bear interest at the prime rate as reported by the Wall Street Journal, provided that the minimum interest rate on any term loan will not be less than 3.25%. In addition to the foregoing, on the date that each term loan is made, the Company shall pay to the lender an origination fee equal to 0.25% of the principal amount of such term loan. Pursuant to the loan agreement, the Company paid all lender expenses in connection with the loan agreement. This agreement contains certain financial and non-financial covenants. The financial covenants are that the Company must maintain a debt service coverage ratio of 1.35 to 1, an effective tangible net worth of a minimum of $25 million, and MSCO must maintain a net capital ratio that is not less than 10% of aggregate debit items. Certain other non-financial covenants include that the Company must promptly notify East West Bank of the creation or acquisition of any subsidiary that at any time owns assets with a value of $100,000 or greater. As of December 31, 2020 and the date of the filing of this report, the Company was in compliance with all of its covenants related to this agreement. In addition, the Company’s obligations under the agreement are guaranteed pursuant to a guarantee agreement by and among, John J. Gebbia, individually and as a co-trustee of the John and Gloria Living Trust, U/D/T December 8, 1994 (the “Trust”) and Gloria E. Gebbia, individually and as a co-trustee of the Trust. As of December 31, 2020, the Company has drawn down a $5.0 million term loan under this agreement and has an outstanding balance of $4.7 million. The Company has an additional $5.0 million remaining to draw down from this line of credit. Remaining Payments Future annual minimum payments for the line of credit with East West Bank as of December 31, 2020 were as follows: Amount 2021 $ 998,000 2022 998,000 2023 998,000 2024 1,661,000 Total $ 4,655,000 The interest expense and cash interest paid related to this line of credit was both $54,000 for the year ended December 31, 2020. The effective interest rate related to this line of credit was 3.25% for the year ended December 31, 2020. 12. Note Payables - Related Party As of December 31, 2020, the Company had various notes payable to Gloria E. Gebbia, the Company’s principal stockholder, the details of which are presented below: Siebert 2020 Form-10K 57 Description Issuance Date Face Amount Unpaid Principal Amount 4.00% due May 31, 2021 December 1, 2020 $ 2,200,000 $ 2,200,000 4.00% due November 30, 2021* November 30, 2020 3,000,000 3,000,000 Total Notes payable – related party $ 5,200,000 $ 5,200,000 *This note payable is subordinated to MSCO and is subordinated to the claims of general creditors, approved by FINRA, and are included in MSCO’s calculation of net capital and the capital requirements under FINRA and SEC regulations. As of December 31, 2019, the Company had various notes payable to Gloria E. Gebbia, the details of which are presented below: Description Issuance Date Face Amount Unpaid Principal Amount 4.00% due December 2, 2020 December 2, 2019 $ 3,000,000 $ 3,000,000 2.75% due November 30, 2020* November 30, 2018 3,000,000 3,000,000 1.75% due September 4, 2020* September 4, 2020 2,000,000 2,000,000 Total Notes payable – related party $ 8,000,000 $ 8,000,000 *These notes payable are subordinated to MSCO and are subordinated to the claims of general creditors, approved by FINRA, and are included in MSCO’s calculation of net capital and the capital requirements under FINRA and SEC regulations. Subsequently, a rate adjustment was completed on March 3, 2020. These notes were acquired as part of the transaction with StockCross and no consideration was paid or received as part of the renegotiation. MSCO subsequently repaid the notes on September 4, 2020 and November 30, 2020, respectively. The Company’s interest expense for these notes for the year ended December 31, 2020 and 2019 was $276,000 and $106,000, respectively. Cash paid for these notes for the year ended December 31, 2020 and 2019 was $286,000 and $96,000, respectively. The Company’s interest payable was $0 and $10,000 as of December 31, 2020 and December 31, 2019, respectively, for notes payable – related party. 13. Revenue Recognition Overview of Revenue The primary sources of revenue for the Company are as follows: Commissions and Fees The Company earns commission revenue for executing trades for clients in individual equities, options, insurance products, futures, fixed income securities, as well as certain third-party mutual funds and ETFs. Commission revenue associated with combined trade execution and clearing services, as well as trade execution services on a standalone basis, is recognized at a point in time on the trade date when the performance obligation is satisfied. The performance obligation is satisfied on the trade date because that is when the underlying financial instrument or purchaser is identified, the pricing is agreed upon, and the risks and rewards of ownership have been transferred to / from the customer. Principal Transactions Principal transactions primarily represent riskless transactions in which the Company, after executing a solicited order, buys or sells securities as principal and at the same time buys or sells the securities with a markup or markdown to satisfy the order. Principal transactions are recognized at a point in time on the trade date when the performance obligation is satisfied. The performance obligation is satisfied on the trade date because that is when the underlying financial instrument or purchaser is identified, the pricing is agreed upon, and the risks and rewards of ownership have been transferred to / from the customer. Siebert 2020 Form-10K 58 Market Making Market making is revenue generated from the buying and selling of securities. Market making transactions are recorded on a trade-date basis as the securities transactions occur. The performance obligation is satisfied on the trade date because that is when the underlying financial instrument or purchaser is identified, the pricing is agreed upon, and the risks and rewards of ownership have been transferred to / from the counterparty. Securities owned are recorded at fair market value at the end of the reporting period. Stock Borrow / Stock Loan The Company borrows securities on behalf of retail clients to facilitate short trading, loans excess margin securities from client accounts, facilitates borrow and loan contracts for broker-dealer counterparties, and provides stock locate services to broker-dealer counterparties. The Company does not utilize stock borrow / stock loan activities for the purpose of financing transactions. Stock borrow / stock loan revenue is reported on a monthly basis net of expense. The performance obligation is satisfied on the contract date because that is when the underlying financial instrument or purchaser is identified, the pricing is agreed upon, and the risks and rewards of ownership have been transferred to / from the counterparty. For the year ended December 31, 2020, stock borrow / stock loan revenue was $4,045,000 ($10,068,000 gross revenue less $6,023,000 expenses). For the year ended December 31, 2019, stock borrow / stock loan revenue was $1,607,000 ($10,137,000 gross revenue minus $8,530,000 expenses). Advisory Fees The Company earns advisory fees associated with managing client assets. The performance obligation related to this revenue stream is satisfied over time; however, the advisory fees are variable as they are charged as a percentage of the client’s total asset value, which is determined at the end of the quarter. Margin Interest, Marketing and Distribution fees Margin interest, marketing and distribution fees consists of two components: margin interest and 12b1 fees resulting from rebates in money market funds. Margin interest is the net interest charged to customers for holding financed margin positions, and 12b1 fees are fees paid to the Company related to trailing payments from money market funds. Margin interest, marketing and distribution fees are recorded as earned. Interest Income The Company earns interest from clients’ accounts, net of payments to clients’ accounts, and on the Company’s bank balances and is recorded as earned. Other Income Other income represents fees generated from correspondent clearing fees, corporate services client fees, payment for order flow, and transactional fees generated from client accounts. Transactional fees are recorded concurrently with the related activity. Other income is recorded as earned. Categorization of Revenue The following table presents the Company’s major revenue categories and when each category is recognized: Siebert 2020 Form-10K 59 Year Ended December 31, Revenue Category 2020 2019 Timing of Recognition Trading Execution and Clearing Services Commissions and fees $ 20,179,000 $ 9,750,000 Recorded on trade date Principal transactions 11,850,000 9,018,000 Recorded on trade date Market making 2,042,000 1,744,000 Recorded on trade date Stock borrow / stock loan 4,045,000 1,607,000 Recorded as earned Advisory fees 1,142,000 801,000 Recorded as earned Total Trading Execution and Clearing Services 39,258,000 22,920,000 Other Income Margin interest, marketing and distribution fees Margin interest 8,725,000 11,502,000 Recorded as earned 12b1 fees 1,458,000 3,208,000 Recorded as earned Total Margin interest, marketing and distribution fees 10,183,000 14,710,000 Interest income 4,012,000 4,235,000 Recorded as earned Other income 1,419,000 912,000 Recorded as earned Total Other Income 15,614,000 19,857,000 Total Revenue $ 54,872,000 $ 42,777,000 The following table presents each revenue category and its related performance obligation: Revenue Stream Performance Obligation Commissions and fees, Principal transactions, Market making, Stock borrow / stock loan, Advisory fees Provide financial services to customers and counterparties Margin interest, marketing and distribution fees, Interest income, Other income n / a Soft Dollar Arrangement As a result of the acquisition of WPS, the Company has soft dollar and commission sharing arrangements with customers that fall both within, and outside of, the safe harbor provisions of Rule 28(e) of the Securities Exchange Act of 1934 ("Rule 28(e)"), as amended. These soft dollar arrangements were determined to be a separate performance obligation that should be allocated a portion of the transaction price. Under these arrangements, the Company charges additional dollars on customer trades and uses these fees to pay third parties for research, brokerage services, market data, and related expenses (“research services”) on behalf of clients. The Company is an agent in these arrangements, as it does not control the research services before they are transferred to the customer. As such, the revenue from these agreements are recognized net of cost in the statements of income in the line item “Commissions and fees.” The Company paid client expenses of approximately $693,000 and $48,000 for the years ended December 31, 2020 and 2019, respectively. The Company had an outstanding receivable and payable of approximately $4,000 and $230,000, respectively, as of December 31, 2020. The Company had an outstanding receivable and payable of approximately $31,000 and $158,000, respectively, as of December 31, 2019. The receivable and payable related to soft dollar arrangements are in the line items “Other receivables” and “Accounts payable and accrued liabilities,” respectively, on the statement of financial condition. As of December 31, 2020 and 2019, no allowance for uncollectible commissions was necessary as the Company believes all commissions receivable and prepaid research services expenses will be realized. Siebert 2020 Form-10K 60 Other Items For the years ended December 31, 2020 and 2019, there were no costs capitalized related to obtaining or fulfilling a contract with a customer, and thus the Company has no balances for contract assets or contract liabilities. The Company concludes that its revenue streams have the same underlying economic factors, and as such, no disaggregation of revenue is required. 14. Employee Stock Purchases On November 10, 2020, the Company issued 150,000 shares of its restricted common stock (the “Shares”) to each of Anthony Palmeri and Gerard Losurdo, each new employees of MSCO, as part of their employment agreements. Mr. Palmeri and Mr. Losurdo each paid the Company approximately $400,000 for their Shares, which was equal to 70% of the closing price of the common stock as reported on Nasdaq on November 9, 2020. The Shares issued to Mr. Palmeri and Mr. Losurdo are subject to a three-year restriction on transfer commencing on the day of issuance. The issuance of the Shares were each approved by unanimous written consent of the Company's board of directors. The shares were issued to Mr. Palmeri and Mr. Losurdo as part of their employment agreements in accordance with Nasdaq Listing Rule 5635(c)(4). The Shares were issued without registration under the Securities Exchange Act of 1933, as amended in reliance upon the exemption provided in Section 4(a)(2) thereunder. The above transaction had no impact to the Company’s statements of income, but is reflected in the Company’s statement of financial condition, statement of changes in stockholders’ equity, and statement of cash flows within cash flows from financing activities for the year ended December 31, 2020. 15. Referral Fees Upon the acquisition of WPS, the Company has agreements with various third parties to share commissions and pay fees as defined in the respective agreements. These expenses were approximately $738,000 and $86,000 for the years ended December 31, 2020 and 2019, which are presented in the line item “Referral fees” in the statement of income. 16. Income Taxes On March 27, 2020, the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”) was enacted in response to the COVID-19 pandemic. Under ASC 740, the effects of changes in tax rates and laws are recognized in the period which the new legislation is enacted. The CARES Act made various tax law changes including among other things (i) increased the limitation under IRC Section 163(j) for 2019 and 2020 to permit additional expensing of interest (ii) enacted a technical correction so that qualified improvement property can be immediately expensed under IRC Section 168(k) and (iii) made modifications to the federal net operating loss rules including permitting federal net operating losses incurred in 2018, 2019, and 2020 to be carried back to the five preceding taxable years in order to generate a refund of previously paid income taxes and (iv) enhanced recoverability of AMT tax credits. The CARES Act did not have a significant impact on the financial statements. The Company’s provision for income taxes is comprised of the following: Year Ended December 31, 2020 2019 Current Federal $ (176,000 ) $ 288,000 State and local (82,000 ) 270,000 Total Current (258,000 ) 558,000 Deferred Federal $ 161,000 $ 229,000 State and local 318,000 261,000 Total Deferred 479,000 490,000 Total Provision for income taxes $ 221,000 $ 1,048,000 Siebert 2020 Form-10K 61 The Company’s effective tax rate differs from the U.S. federal statutory income tax rate of 21% for 2020 and 2019 as follows: Year Ended December 31, 2020 2019 Federal statutory income tax rate 21.0 % 21.0 % Tax amortization of intangible assets (8.8 %) (1.3 %) Permanent differences 1.5 % 0.9 % State and local taxes, net of federal benefit 2.5 % 4.3 % Change in valuation allowance (5.2 %) — Other (4.1 %) (0.4 %) Effective tax rate 6.9 % 24.5 % Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company’s deferred tax assets and liabilities are as follows: As of December 31, 2020 2019 Deferred tax assets: Net operating losses $ 6,043,000 $ 6,876,000 Lease liabilities 722,000 810,000 Share-based compensation 61,000 — Intangible assets 2,000 — Subtotal 6,828,000 7,686,000 Less: Valuation allowance (1,070,000 ) (1,236,000 ) Total Deferred tax assets 5,758,000 6,450,000 Deferred tax liabilities: Fixed assets $ (901,000 ) $ (1,062,000 ) Total Deferred tax liabilities (901,000 ) (1,062,000 ) Net Deferred tax assets $ 4,857,000 $ 5,388,000 In assessing the Company’s ability to recover its deferred tax assets, the Company evaluated whether it is more likely than not that some portion or the entire deferred tax asset will be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income in those periods in which temporary differences become deductible and/or net operating losses can be utilized. The Company considered all positive and negative evidence when determining the amount of the net deferred tax assets that are more likely than not to be realized. This evidence includes, but is not limited to, historical earnings, scheduled reversal of taxable temporary differences, tax planning strategies and projected future taxable income. Based on historical operating profitability, positive trend of earnings and projected future taxable income, the Company concluded as of December 31, 2020 that certain of its U.S. deferred tax assets are realizable on a more-likely-than-not basis. The Company maintains a valuation allowance on certain federal net operating losses that are expected to expire unutilized and certain state net operating losses. The Company’s valuation allowance decreased by $166,000 during 2020. The Company will continue to evaluate its deferred tax assets to determine whether any changes in circumstances could affect the realization of their future benefit. If it is determined in future periods that portions of the Company’s deferred income tax assets satisfy the realization standards, the valuation allowance will be reduced accordingly. As of December 31, 2020, the Company had U.S. federal net operating loss carryforwards of approximately $13.8 million, of which (i) $12.8 million expire in varying amounts starting in 2033 to 2036 if not utilized, and (ii) $1.0 million have an indefinite carryforward period, but are only available to offset 80% of future taxable income. The U.S. federal net operating loss carryforwards are subject to annual limitation under Section 382 of the Internal Revenue Code. A reconciliation of the beginning and ending amount of unrecognized tax benefits, excluding interest and penalties, is as follows: Siebert 2020 Form-10K 62 As of December 31, 2020 2019 Balance at beginning of period $ — $ — Additions for tax positions taken during current year 1,105,000 — Additions for tax positions taken during prior year — — Reductions for tax positions taken during prior years — — Settlements — — Expirations of statutes of limitations — Balance at end of period $ 1,105,000 $ — Of the amounts reflected above as of December 31, 2020, the entire amount would reduce the Company’s effective tax rate if recognized. The Company records accrued interest and penalties related to income tax matters as part of the provision for income taxes. For the year ended December 31, 2020 and December 31, 2019, the Company recognized expense related to interest and penalties on unrecognized tax benefits of $0 and $0, respectively. The Company does not believe that the amount of unrecognized tax benefits will significantly increase or decrease within the next 12 months. The Company files a federal income tax return and income tax returns in various state tax jurisdictions. The Company is not currently under examination by the IRS or any state or local taxing authority for any tax year. The open tax years for the federal and state income tax filings is generally 2017 through 2020. 17. Capital Requirements MSCO and StockCross Net Capital MSCO is subject to the Uniform Net Capital Rules of the SEC (Rule 15c3-1) of the Securities Exchange Act of 1934. Under the alternate method permitted by this rule, net capital, as defined, shall not be less than the lower of $1 million or 2% of aggregate debit items arising from customer transactions. As of December 31, 2020, MSCO’s net capital was $27.5 million, which was approximately $25.2 million in excess of its required net capital of $2.3 million, and its percentage of aggregate debit balances to net capital was 24%. As of December 31, 2019, MSCO’s net capital was $4.4 million, which was $4.2 million in excess of its required net capital of $250,000. As of December 31, 2019, StockCross’ net capital was $18.8 million, which was $16.7 million in excess of its required net capital of $2.1 million, and its percentage of aggregate debit balances to net capital was 18%. Effective upon the Company’s acquisition of StockCross on January 1, 2020, the capital of MSCO and StockCross was combined. Special Reserve Account MSCO is subject to Customer Protection Rule 15c3-3 which requires segregation of funds in a special reserve account for the exclusive benefit of customers. As of December 31, 2020, MSCO had cash deposits of $324.9 million in the special reserve accounts which was $5.0 million in excess of the deposit requirement of $319.9 million. After adjustments for deposit(s) and / or withdrawal(s) made on January 2, 2021, MSCO had $1.0 million in excess of the customer reserve requirement. As of December 31, 2019, MSCO did not have any special reserve accounts. As of December 31, 2019, StockCross had deposits of $223.4 million (cash of $222.1 million and securities with fair value of $1.3 million) in the special reserve account which was $4 million in excess of the deposit requirement of $219.4 million. After adjustments for deposit(s) and / or withdrawal(s) made on January 2, 2020, StockCross had $1 million in excess of the customer reserve requirement. Effective upon the Company’s acquisition of StockCross on January 1, 2020, the requirements and special reserve accounts of MSCO and StockCross were combined. As of December 31, 2019, StockCross was also subject to the PAB Account Rule 15c3-3 of the SEC which requires segregation of funds in a special reserve account for the exclusive benefit of proprietary accounts of introducing broker-dealers. As of December 31, 2019, StockCross had segregated cash of $1.4 million under rule 15c3-3. As of December 31, 2019, StockCross had $1.4 million in the special reserve account which was $282,000 in deficit of the deposit requirement of $1.7 million. After adjustments for deposit(s) and / or withdrawal(s) made on January 2, 2020, StockCross had $218,000 in excess of the PAB reserve requirement. Effective upon the Company’s acquisition of StockCross on January 1, 2020, MSCO no longer had a PAB requirement. Siebert 2020 Form-10K 63 WPS Net Capital WPS, as a member of FINRA, is subject to the SEC Uniform Net Capital Rule 15c3-1. This rule requires the maintenance of minimum net capital and that the ratio of aggregate indebtedness to net capital, both as defined, shall not exceed 15 to 1 and that equity capital may not be withdrawn, or cash dividends paid if the resulting net capital ratio would exceed 10 to 1. WPS is also subject to the CFTC's minimum financial requirements which require that WPS maintain net capital, as defined, equal to the greater of its requirements under Regulation 1.17 under the Commodity Exchange Act or Rule 15c3-1. As of both December 31, 2020 and 2019, WPS net capital was approximately $3.9 million which was approximately $3.7 million in excess of its minimum requirement of $250,000 under 15c3-1. Special Reserve Account As of December 31, 2019, cash of $110,000 for WPS was segregated in a special reserve bank account for the benefit of customers. 18. Financial Instruments with Off-Balance Sheet Risk The Company enters into various transactions to meet the needs of customers, conduct trading activities, and manage market risks and is, therefore, subject to varying degrees of market and credit risk. In the normal course of business, the Company's customer activities involve the execution, settlement, and financing of various customer securities transactions. These activities may expose the Company to off-balance sheet risk in the event the customer or other broker is unable to fulfill its contracted obligations and the Company has to purchase or sell the financial instrument underlying the contract at a loss. The Company's customer securities activities are transacted on either a cash or margin basis. In margin transactions, the Company extends credit to its customers, subject to various regulatory and internal margin requirements, collateralized by cash and securities in the customers' accounts. In connection with these activities, the Company executes and clears customer transactions involving the sale of securities not yet purchased, substantially all of which are transacted on a margin basis subject to individual exchange regulations. Such transactions may expose the Company to off-balance sheet risk in the event margin requirements are not sufficient to fully cover losses that customers may incur. In the event the customer fails to satisfy obligations, the Company may be required to purchase or sell financial instruments at prevailing market prices to fulfill the customer's obligations. The Company seeks to control the risks associated with its customer activities by requiring customers to maintain margin collateral in compliance with various regulatory and internal guidelines. The Company monitors required margin levels daily and pursuant to such guidelines, requires customers to deposit additional collateral or to reduce positions when necessary. The Company's customer financing and securities settlement activities may require the Company to pledge customer securities as collateral in support of various secured financing sources such as bank loans and securities loaned. In the event the counterparty is unable to meet its contractual obligation to return customer securities pledged as collateral, the Company may be exposed to the risk of acquiring the securities at prevailing market prices in order to satisfy its customer obligations. On a daily basis, the Company controls this risk by monitoring the market value of securities pledged and by requiring adjustments of collateral levels in the event of excess market exposure. In addition, the Company establishes credit limits for such activities and continuously monitors compliance. 19. Commitments, Contingencies and Other Legal and Regulatory Matters The Company is party to certain claims, suits and complaints arising in the ordinary course of business. On January 22, 2021, the California Department of Financial Protection and Innovation proposed that StockCross enter into a consent order related to StockCross and one of its registered representatives for activities that occurred prior to its acquisition by Siebert. The California proposed order seeks an aggregate amount of approximately $900,000 in relation to this matter. Based on the facts of the matter as well as historical resolutions, the Company does not believe that the matter will have a material impact on the Company’s financial statements. Siebert 2020 Form-10K 64 As of December 31, 2020, all other legal matters are without merit or involve amounts which would not have a significant effect on the financial statements of the Company. Overnight Financing The Company has available lines of credit for short term overnight demand borrowing of up to $15 million with both BMO Harris Bank and Texas Capital Bank as of December 31, 2020. As of December 31, 2020, the Company had no outstanding loan balances with either institution. There are no commitment fees or other restrictions on the credit lines. MSCO utilizes customer or firm securities as a pledge for short-term borrowing needs. The interest expense and the cash paid related to the utilization of these credit lines were both $18,000 and $29,000 for the year ended December 31, 2020 December 31, 2019, respectively. There were no fees associated with the utilization of these credit lines for the years ended December 31, 2020 or December 31, 2019. General Contingencies In the normal course of its business, the Company indemnifies and guarantees certain service providers against specified potential losses in connection with their acting as an agent of, or providing services to, the Company. The maximum potential amount of future payments that the Company could be required to make under these indemnifications cannot be estimated. However, the Company believes that it is unlikely it will have to make material payments under these arrangements and has not recorded any contingent liability in the financial statements for these indemnifications. The Company provides representations and warranties to counterparties in connection with a variety of commercial transactions and occasionally indemnifies them against potential losses caused by the breach of those representations and warranties. The Company may also provide standard indemnifications to some counterparties to protect them in the event additional taxes are owed or payments are withheld, due either to a change in or adverse application of certain tax laws. These indemnifications generally are standard contractual terms and are entered into in the normal course of business. The maximum potential amount of future payments that the Company could be required to make under these indemnifications cannot be estimated. However, the Company believes that it is unlikely it will have to make material payments under these arrangements and has not recorded any contingent liability in the financial statements for these indemnifications. The Company is self-insured with respect to employee health claims. The Company maintains stop-loss insurance for certain risks and has a health claim reinsurance limit capped at approximately $50,000 per employee. The estimated liability for self-insurance claims is initially recorded in the year in which the event of loss occurs and may be subsequently adjusted based upon new information and cost estimates. Reserves for losses represent estimates of reported losses and estimates of incurred but not reported losses based on past and current experience. Actual claims paid and settled may differ, perhaps significantly, from the provision for losses. This adds uncertainty to the estimated reserves for losses. Accordingly, it is at least possible that the ultimate settlement of losses may vary significantly from the amounts included in the financial statements. As part of this plan, the Company recognized expenses of $1,308,000 and $876,000 for the years ended December 31, 2020 and 2019, respectively. The Company had an accrual of $69,000 as of December 31, 2020, which represents the historical estimate of future claims to be recognized for claims incurred during the period. The Company believes that its present insurance coverage and reserves are sufficient to cover currently estimated exposures, but there can be no assurance that the Company will not incur liabilities in excess of recorded reserves or in excess of its insurance limits. 20. Employee Benefit Plans The Company through its affiliate, Kennedy Cabot Acquisition, LLC (“KCA”), sponsors a defined-contribution retirement plan under Section 401(k) of the Internal Revenue Code that covers substantially all employees. Participant contributions to the plan are voluntary and are subject to certain limitations. The Company may also make discretionary contributions to the plan. No contributions were made by the Company or KCA for the years ended December 31, 2020 and 2019. Siebert 2020 Form-10K 65 21. Related Party Disclosures StockCross StockCross and the Company were under common ownership, and prior to January 1, 2020, StockCross served as one of the clearing broker-dealers for the Company. The StockCross clearing agreement with the Company provided that StockCross passed through all revenue and charged the Company for related clearing expenses. Outside of the clearing agreement, the Company had an expense sharing agreement with StockCross for its Beverly Hills and Jersey City branch offices, and StockCross paid some vendors for miscellaneous expenses which it passed through to the Company. In January 2019, the Company purchased approximately 15% of StockCross’ outstanding shares from an outside party. Effective January 1, 2020, the Company acquired the remaining 85% of StockCross in exchange for 3,298,774 shares of the Company’s common stock and StockCross was merged with and into MSCO. Upon the closing of this transaction on January 1, 2020, all receivables and payables between the Company and StockCross as well as any loss from the Company’s equity method investment in StockCross was eliminated upon consolidation. Kennedy Cabot Acquisition, LLC KCA is an affiliate of the Company and is under common ownership with the Company. To gain efficiencies and economies of scale with billing and administrative functions, KCA serves as a paymaster for the Company for payroll and related functions, the entirety of which KCA passes through to the subsidiaries of the Company proportionally. In addition, KCA has purchased the naming rights of the Company for the Company to use. KCA sponsors a 401(k)-profit sharing plan which covers substantially all of the Company’s employees. In January 2020, MSCO sold approximately $288,000 worth of a private equity security to KCA at cost. Park Wilshire Companies, Inc. PWC brokers the insurance policies for related parties. Revenue for PWC from related parties was $73,000 and $69,000 for the years ended December 31, 2020 and 2019. Gloria E. Gebbia and John J. Gebbia The Company has entered into various debt agreements with Gloria E. Gebbia, the Company’s principal stockholder . See “Note 12 – Notes Payable - Related Party” for additional detail . In addition, the Company’s obligations under its agreement with East West Bank are guaranteed pursuant to a guarantee agreement by and among, John J. Gebbia, individually and as a co-trustee of the John and Gloria Living Trust, U/D/T December 8, 1994 (the “Trust”), and Gloria E. Gebbia, individually and as a co-trustee of the Trust. See “Note 11 – Long-Term Debt” for additional detail . Gloria E. Gebbia has extended loans to certain Company employees for the purchase of the Company’s shares. These transactions have not materially impacted the Company’s financial statements. Gebbia Sullivan County Land Trust The Company operates on a month-to-month lease agreement for its branch office in Omaha, Nebraska with the Gebbia Sullivan County Land Trust, the trustee of which is a relative of the Gebbia Family. For both years ended December 31, 2020 and 2019, rent expense was $60,000 for this branch office. 22. Subsequent Events The Company has evaluated events that have occurred subsequent to December 31, 2020 and through March 10, 2021, the date of the filing of this report. Pursuant to a stock purchase agreement dated as of January 31, 2021, the Company acquired an interest of 5% of OpenHand Holdings, Inc. ("OpenHand") common stock for consideration of a total of $2,231,000 consisting of $850,000 in cash and 329,654 restricted shares of the Company's common stock valued at $1,381,000 or $4.19 per share. The value of the restricted stock was determined using the thirty (30) day trading average. The Company agreed to register the shares issued to OpenHand by filing a selling shareholder registration statement. Siebert 2020 Form-10K 66 OpenHand is a subscription-based brokerage platform that will provide zero-commission trading for equity and option transactions and credit its members daily with rebates of revenues generated by the clients, less operational expenses. The Company will be the exclusive broker-dealer for all OpenHand account services and will benefit from their cloud-based technology which uses Amazon Web Services. Through this strategic, operational, regulatory, and technological partnership, OpenHand and the Company’s clients will benefit from numerous financial and operational efficiencies. The Company also received an option to purchase an additional 7.5% of OpenHand for approximately $4.5 million, based upon a $60 million valuation of OpenHand. Other than the event described above, there have been no material subsequent events that occurred during such period that would require disclosure in this report or would be required to be recognized in the consolidated financial statements as of December 31, 2020. Siebert 2020 Form-10K 67 ITEM 9 . CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None