SIEBERT FINANCIAL CORP 10-Q

ITEM 1. FINANCIAL STATEMENTS SIEBERT FINANCIAL CORP. & SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION June 30, 2022 (unaudited) December 31, 2021 ASSETS    Current assets Cash and cash equivalents $ 4,089,000 $ 3,758,000 Cash and securities segregated for regulatory purposes 321,669,000 326,826,000 Receivables from customers 63,264,000 85,327,000 Receivables from broker-dealers and clearing organizations 5,164,000 8,185,000 Receivables from non-customers 149,000 81,000 Other receivables 3,652,000 2,242,000 Prepaid service contract - current 650,000 709,000 Prepaid expenses and other assets 1,802,000 1,596,000 Securities borrowed 715,392,000 939,518,000 Securities owned, at fair value 3,350,000 3,991,000 Total Current assets 1,119,181,000 1,372,233,000    Deposits with broker-dealers and clearing organizations 4,457,000 5,541,000 Prepaid service contract - non-current - 295,000 Property, office facilities, and equipment, net 7,957,000 7,463,000 Software, net 621,000 752,000 Lease right-of-use assets 2,551,000 2,662,000 Equity method investments in related parties 9,042,000 8,156,000 Investments, cost 850,000 850,000 Deferred tax assets 4,386,000 4,294,000 Goodwill 1,989,000 1,989,000 Total Assets $ 1,151,034,000 $ 1,404,235,000    LIABILITIES AND EQUITY    Liabilities Current liabilities Payables to customers $ 353,138,000 $ 376,670,000 Payables to non-customers 9,209,000 17,430,000 Drafts payable 1,969,000 1,804,000 Payables to broker-dealers and clearing organizations 855,000 254,000 Accounts payable and accrued liabilities 2,876,000 3,677,000 Taxes payable 1,047,000 1,748,000 Securities loaned 712,703,000 931,735,000 Securities sold, not yet purchased, at fair value 9,000 24,000 Notes payable - related party 3,250,000 7,000,000 Current portion of lease liabilities 1,103,000 1,234,000 Current portion of long-term debt 1,022,000 998,000 Current portion of deferred contract incentive 758,000 808,000 Total Current liabilities 1,087,939,000 1,343,382,000    Lease liabilities, less current portion 1,670,000 1,699,000 Long-term debt, less current portion 6,524,000 6,710,000 Deferred contract incentive, less current portion 1,563,000 1,938,000 Total Liabilities 1,097,696,000 1,353,729,000    Commitments and Contingencies Equity Stockholders’ equity Common stock, $ . 01 par value; 100 million shares authorized; 32,403,235 shares issued and outstanding as of both June 30, 2022 and December 31, 2021 324,000 324,000 Additional paid-in capital 29,540,000 27,967,000 Retained earnings 20,710,000 20,972,000 Total Stockholders’ equity 50,574,000 49,263,000 Noncontrolling interests 2,764,000 1,243,000 Total Equity 53,338,000 50,506,000    Total Liabilities and Equity $ 1,151,034,000 $ 1,404,235,000 Numbers are rounded for presentation purposes. See notes to condensed consolidated financial statements. -2- SIEBERT FINANCIAL CORP. & SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited) Three Months Ended June 30, Six Months Ended June 30, 2022 2021 2022 2021    Revenue Commissions and fees $ 1,853,000 $ 4,325,000 $ 4,193,000 $ 11,333,000 Interest, marketing and distribution fees 3,151,000 3,623,000 5,513,000 7,082,000 Principal transactions and proprietary trading 1,081,000 4,107,000 814,000 8,355,000 Market making 535,000 1,758,000 1,299,000 3,372,000 Stock borrow / stock loan 4,148,000 2,240,000 7,726,000 4,087,000 Advisory fees 476,000 403,000 983,000 759,000 Other income 479,000 337,000 1,503,000 729,000 Total Revenue 11,723,000 16,793,000 22,031,000 35,717,000    Expenses Employee compensation and benefits 7,368,000 8,745,000 14,462,000 17,911,000 Clearing fees, including execution costs 375,000 1,289,000 869,000 3,142,000 Technology and communications 978,000 1,100,000 2,160,000 2,341,000 Other general and administrative 935,000 1,188,000 1,866,000 1,958,000 Data processing 687,000 695,000 1,203,000 1,492,000 Rent and occupancy 456,000 470,000 929,000 1,040,000 Professional fees 1,032,000 577,000 1,728,000 1,192,000 Depreciation and amortization 261,000 374,000 520,000 766,000 Referral fees — 353,000 — 760,000 Interest expense 103,000 89,000 227,000 192,000 Advertising and promotion 59,000 — 172,000 — Total Expenses 12,254,000 14,880,000 24,136,000 30,794,000   Earnings of equity method investments in related parties 14,000 — 215,000 —   Income (loss) before provision for (benefit from) income taxes ( 517,000 ) 1,913,000 ( 1,890,000 ) 4,923,000 Provision for (benefit from) income taxes ( 1,027,000 ) 484,000 ( 1,309,000 ) 1,219,000 Net income (loss) 510,000 1,429,000 ( 581,000 ) 3,704,000 Less net loss attributable to noncontrolling interests ( 201,000 ) — ( 320,000 ) — Net income (loss) available to common stockholders $ 711,000 $ 1,429,000 $ ( 261,000 ) $ 3,704,000    Net income (loss) available to common stockholders per share of common stock Basic and diluted $ 0.02 $ 0.05 $ ( 0.01 ) $ 0.12    Weighted average shares outstanding Basic and diluted 32,403,235 31,283,364 32,403,235 31,228,725 Numbers are rounded for presentation purposes. See notes to condensed consolidated financial statements. -3- SIEBERT FINANCIAL CORP. & SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (unaudited)   Number of Shares Issued $.01 Par Value Additional Paid-In Capital Retained Earnings Total Stockholders’ Equity Noncontrolling Interests Total Equity Balance – January 1, 2021 30,953,710 $ 309,000 $ 21,768,000 $ 15,909,000 $ 37,986,000 $ — $ 37,986,000 Shares issued for OpenHand transaction 329,654 3,000 1,378,000 — 1,381,000 — 1,381,000 Net income — — — 2,275,000 2,275,000 — 2,275,000 Balance – March 31, 2021 31,283,364 $ 312,000 $ 23,146,000 $ 18,184,000 $ 41,642,000 $ — $ 41,642,000 Net income — — — 1,429,000 1,429,000 — 1,429,000 Balance – June 30, 2021 31,283,364 $ 312,000 $ 23,146,000 $ 19,613,000 $ 43,071,000 $ — $ 43,071,000 Number of Shares Issued $.01 Par Value Additional Paid-In Capital Retained Earnings Total Stockholders’ Equity Noncontrolling Interests Total Equity Balance – January 1, 2022 32,403,235 $ 324,000 $ 27,967,000 $ 20,972,000 $ 49,263,000 $ 1,243,000 $ 50,506,000 Issuance and transfers of RISE membership interests — — 1,573,000 — 1,573,000 1,841,000 3,414,000 Net income (loss) — — — ( 973,000 ) ( 973,000 ) ( 119,000 ) ( 1,092,000 ) Balance – March 31, 2022 32,403,235 $ 324,000 $ 29,540,000 $ 19,999,000 $ 49,863,000 $ 2,965,000 $ 52,828,000 Net income (loss) — — — 711,000 711,000 ( 201,000 ) 510,000 Balance – June 30, 2022 32,403,235 $ 324,000 $ 29,540,000 $ 20,710,000 $ 50,574,000 $ 2,764,000 $ 53,338,000 Numbers are rounded for presentation purposes. See notes to condensed consolidated financial statements. -4- SIEBERT FINANCIAL CORP. & SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) Six Months Ended June 30, 2022 2021    Cash Flows From Operating Activities Net income (loss) $ ( 581,000 ) $ 3,704,000 Adjustments to reconcile net income (loss) to net cash provided by / (used in) operating activities:     Deferred income tax expense / (benefit) ( 92,000 ) 273,000 Depreciation and amortization 520,000 766,000 Net lease liabilities ( 49,000 ) ( 14,000 ) Earnings of equity method investments in related parties ( 215,000 ) —     Changes in Receivables from customers 22,063,000 10,508,000 Receivables from non-customers ( 68,000 ) — Receivables from and deposits with broker-dealers and clearing organizations 4,105,000 3,906,000 Securities borrowed 224,126,000 267,616,000 Securities owned, at fair value 641,000 ( 1,652,000 ) Prepaid expenses and other assets ( 1,614,000 ) 205,000 Prepaid service contract 354,000 454,000 Payables to customers ( 23,532,000 ) 11,350,000 Payables to non-customers ( 8,221,000 ) 495,000 Drafts payable 165,000 ( 2,747,000 ) Payables to broker-dealers and clearing organizations 601,000 5,024,000 Accounts payable and accrued liabilities ( 801,000 ) 147,000 Securities loaned ( 219,032,000 ) ( 277,166,000 ) Securities sold, not yet purchased, at fair value ( 15,000 ) 28,000 Interest payable — — Taxes payable ( 1,252,000 ) 1,270,000 Deferred contract incentive ( 425,000 ) — Net cash provided by (used in) operating activities ( 3,322,000 ) 24,167,000     Cash Flows From Investing Activities Distribution from equity method investment in related party 172,000 — Purchase of OpenHand common stock — ( 850,000 ) Purchase of office facilities and equipment ( 95,000 ) ( 198,000 ) Purchase of software ( 193,000 ) ( 156,000 ) Build out of property ( 596,000 ) — Net cash (used in) investing activities ( 712,000 ) ( 1,204,000 )     Cash Flows From Financing Activities Issuance of RISE membership interests 600,000 — Transfers of RISE membership interests 240,000 — Repayments of notes payable – related party ( 1,470,000 ) — Repayments of long-term debt ( 162,000 ) ( 498,000 ) Net cash (used in) financing activities ( 792,000 ) ( 498,000 )     Net change in cash and cash equivalents, and cash and securities segregated for regulatory purposes ( 4,826,000 ) 22,465,000 Cash and cash equivalents, and cash and securities segregated for regulatory purposes - beginning of year 330,584,000 328,556,000 Cash and cash equivalents, and cash and securities segregated for regulatory purposes - end of period $ 325,758,000 $ 351,021,000     Reconciliation of cash, cash equivalents, and cash and securities segregated for regulatory purposes Cash and cash equivalents - end of period $ 4,089,000 $ 2,332,000 Cash and securities segregated for regulatory purposes - end of period 321,669,000 348,689,000 Cash and cash equivalents, and cash and securities segregated for regulatory purposes - end of period $ 325,758,000 $ 351,021,000     Supplemental cash flow information Cash paid / (refunds received) during the period for income taxes $ 35,000 $ ( 873,000 ) Cash paid during the period for interest $ 227,000 $ 192,000     Non-cash investing and financing activities Shares issued for OpenHand transaction $ — $ 1,381,000 Transfers of RISE membership interests $ 2,880,000 $ — Purchase of equity method investment in related party, net of cash paid of $ 350,000 $ 650,000 $ — Numbers are rounded for presentation purposes. See notes to condensed consolidated financial statements. -5- SIEBERT FINANCIAL CORP. & SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) 1. Organization and Basis of Presentation Organization Overview Siebert Financial Corp., a New York corporation, incorporated in 1934, is a holding company that conducts the following lines of business through its wholly-owned subsidiaries and VIE: • Muriel Siebert & Co., Inc. (“MSCO”) provides retail brokerage services. MSCO is a Delaware corporation and broker-dealer registered with the Securities and Exchange Commission (“SEC”) under the Exchange Act and the Commodity Exchange Act of 1936, and member of the Financial Industry Regulatory Authority (“FINRA”), the New York Stock Exchange (“NYSE”), the Securities Investor Protection Corporation (“SIPC”), and the National Futures Association (“NFA”). • Siebert AdvisorNXT, Inc. (“SNXT”) provides investment advisory services. SNXT is a New York corporation registered with the SEC as a Registered Investment Advisor (“RIA”) under the Investment Advisers Act of 1940. • Park Wilshire Companies, Inc. (“PW”) provides insurance services. PW is a Texas corporation and licensed insurance agency.   • Siebert Technologies, LLC (“STCH”) provides technology development. STCH is a Nevada limited liability company.   • RISE Financial Services, LLC (“RISE”) provides prime brokerage services. RISE is a Delaware limited liability company and a broker-dealer registered with the SEC and NFA. RISE is a woman-owned and operated financial services firm that offers a comprehensive suite of prime brokerage services aligned with the growing mission-driven environmental, social and governance (“ESG”) initiatives of institutional investors. • StockCross Digital Solutions, Ltd. (“STXD”) is an inactive subsidiary headquartered in Bermuda. For purposes of this Report on Form 10-Q, the terms “Siebert,” “Company,” “we,” “us,” and “our” refer to Siebert Financial Corp., MSCO, SNXT, PW, STCH, RISE, and STXD collectively, unless the context otherwise requires. The Company is headquartered in New York, NY, with primary operations in New Jersey, Florida, and California. The Company has 14 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 three and six months ended June 30, 2022 and 2021 were derived from its operations in the U.S. As of June 30, 2022, the Company is comprised of a single operating segment based on the factors related to management’s decision-making framework as well as management evaluating performance and allocating resources based on assessments of the Company from a consolidated perspective. Transaction with Hedge Connection On January 21, 2022, RISE entered into an agreement with Hedge Connection, Inc. (“Hedge Connection”), a Florida corporation and a woman-owned fintech company founded by Lisa Vioni that provides capital introduction software solutions for the prime brokerage industry. The Company accounts for Hedge Connection under the equity method of accounting. Refer to Note 8 – Equity Method Investments in Related Parties, for additional detail. Change in Membership Interests of RISE During the first quarter of 2022, RISE issued and Siebert sold membership interests in RISE to certain employees, directors, and affiliates of RISE and Siebert. From January 1, 2022 through March 30, 2022, RISE issued 8.3 % of RISE’s total issued and outstanding membership interests in exchange for a net increase in assets of $ 1,000,000 . Siebert sold membership interests representing 2 % of RISE’s total issued and outstanding membership interests to two Siebert employees. Through March 30, 2022, Siebert continued to hold a majority ownership interest in RISE. -6- On March 31, 2022, Siebert exchanged $ 2,880,000 in aggregate of notes payable to Gloria E. Gebbia for 24 % ownership interest in RISE. As a result of the aforementioned transactions, Siebert’s direct ownership percentage in RISE declined from 76 % as of December 31, 2021 to approximately 44 % as of March 31, 2022, and remained unchanged as of June 30, 2022. The change in membership interest on March 31, 2022 required Siebert to reassess its interest in RISE in accordance with Accounting Standards Codification (“ASC”) Topic 810 – Consolidation. As of March 31, 2022, Siebert determined that RISE is a VIE as the equity holders lack the characteristics of a controlling financial interest. Siebert holds a variable interest in RISE and is the primary beneficiary of RISE since it holds both the power to direct the activities of RISE that most significantly impact RISE’s economic performance, as well as the obligation to absorb losses and right to receive the returns from RISE that would be significant to RISE. Accordingly, Siebert consolidates RISE as a VIE. As of June 30, 2022, there have been no changes to this conclusion. Refer to Note 3 – Consolidation of Variable Interest Entity for further information. Basis of Presentation The accompanying condensed consolidated financial statements (“financial statements”) of the Company have been prepared in accordance with accounting principles generally accepted in the U.S. (“GAAP”) for interim financial information with the instructions for Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all the information and footnotes required by GAAP for complete annual financial statements. In the opinion of management, the financial statements contain all adjustments (consisting of normal recurring entries) necessary to fairly present such interim results. Interim results are not necessarily indicative of the results of operations which may be expected for a full year or any subsequent period. These financial statements should be read in conjunction with the financial statements and notes thereto in the Company’s 2021 Form 10-K. Principles of Consolidation The consolidated financial statements include the accounts of Siebert and its consolidated subsidiaries, each of which is a wholly-owned subsidiary, as well as the 44 % investment in a VIE for which the Company has determined it is the primary beneficiary. Upon consolidation, all intercompany balances and transactions are eliminated. For consolidated subsidiaries that are not wholly-owned, the third-party holdings of equity interests are referred to as noncontrolling interests. The net income or loss attributable to noncontrolling interests for such subsidiaries is presented as net income or loss attributable to noncontrolling interests in the statement of operations. The portion of total equity that is attributable to noncontrolling interests for such subsidiaries is presented as noncontrolling interests in the statements of financial condition. For investments in entities in which the Company does not have a controlling financial interest but has significant influence over its operating and financial decisions, the Company applies the equity method of accounting with net income and losses recorded within earnings of equity method investments in related parties. The U.S. dollar is the functional currency of the Company and numbers are rounded for presentation purposes. Significant Accounting Policies The Company’s significant accounting policies are included in Note 2 – Summary of Significant Accounting Policies in the Company’s 2021 Form 10-K. Other than the below, there have been no material changes to the Company’s significant accounting policies during the three and six months ended June 30, 2022. Variable Interest Entities The Company evaluates whether an entity is a VIE and determines if the primary beneficiary status is appropriate on a quarterly basis. The Company consolidates a VIE for which it is the primary beneficiary. When assessing the determination of the primary beneficiary, the Company considers all relevant facts and circumstances, including factors such as the power to direct the activities of the VIE that most significantly impact its economic performance, the obligation to absorb the losses and/or the right to receive the expected returns of the VIE. Through this evaluation, the Company determined that RISE is a VIE and the Company is the primary beneficiary, primarily due to the Company having the power to direct the activities of RISE that most significantly impact its economic performance. Additionally, the Company may be obligated to fund RISE’s operations at an amount that is disproportional to its ownership percentage. 2. New Accounting Standards The Company did not adopt any new accounting standards during the three and six months ended June 30, 2022. In addition, the Company has evaluated other recently issued accounting standards and does not believe that any of these standards will have a material impact on the Company’s financial statements and related disclosures as of June 30, 2022. -7- 3. Consolidation of Variable Interest Entity As of June 30, 2022, the Company owned approximately 44 % of RISE. RISE was deemed to be a VIE as the equity investors at risk, as a group, lack the characteristics of a controlling financial interest. The major factor that led to the conclusion that the Company is the primary beneficiary of this VIE is that the Company has the power to direct the activities of RISE that most significantly impact its economic performance, as well as the potential obligation to fund operations and absorb losses in amount that is disproportional to the Company’s ownership percentage. As of June 30, 2022, RISE reported assets of $ 3.3 million and liabilities of $ 0.4 million. There are no restrictions on the consolidated VIE’s assets. 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: As of June 30, 2022 As of December 31, 2021 Receivables from and deposits with broker-dealers and clearing organizations DTCC / OCC / NSCC (1) $ 6,917,000 $ 10,968,000 Goldman Sachs & Co. LLC ("GSCO") 27,000 335,000 Pershing Capital 1,090,000 1,193,000 National Financial Services, LLC (“NFS”) 1,333,000 974,000 Securities fail-to-deliver 78,000 174,000 Globalshares 45,000 55,000 Other receivables 131,000 27,000 Total Receivables from and deposits with broker-dealers and clearing organizations $ 9,621,000 $ 13,726,000    Payables to broker-dealers and clearing organizations Securities fail-to-receive $ 690,000 $ 254,000 Payables to broker-dealers 165,000 — Total Payables to broker-dealers and clearing organizations $ 855,000 $ 254,000 ​ (1) Depository Trust & Clearing Corporation is referred to as (“DTCC”), Options Clearing Corporation is referred to as (“OCC”), and National Securities Clearing Corporation is referred to as (“NSCC”). Under the DTCC shareholders’ agreement, MSCO is required to participate in the DTCC common stock mandatory purchase. As of June 30, 2022 and December 31, 2021, MSCO had shares of DTCC common stock valued at approximately $ 1,054,000 and $ 905,000 , respectively, which are included within the line item “Deposits with broker-dealers and clearing organizations” on the statements of financial condition. 5. Fair Value Measurements Overview ASC 820 defines fair value, establishes a framework for measuring fair value as well as a hierarchy of fair value inputs. Refer to the below as well as Note 6 – Fair Value Measurements in the Company’s 2021 Form 10-K for further information regarding fair value hierarchy, valuation techniques and other items related to fair value measurements. Municipal securities: Municipal securities are valued using recently executed transactions, market price quotations (when observable), bond spreads from independent external parties such as vendors and brokers, adjusted for any basis difference between cash and derivative instruments. The spread data used is for the same maturity as the bond. Municipal securities are generally categorized in level 2 of the fair value hierarchy. Options: Options 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. -8- 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. As of June 30, 2022 Level 1 Level 2 Level 3 Total Assets Cash and securities segregated for regulatory purposes U.S. government securities* $ 116,818,000 $ — $ — $ 116,818,000    Securities owned, at fair value U.S. government securities** $ 2,845,000 $ — $ — $ 2,845,000 Certificates of deposit — 92,000 — 92,000 Municipal securities — 10,000 — 10,000 Corporate bonds — 11,000 — 11,000 Equity securities 240,000 152,000 — 392,000 Total Securities owned, at fair value $ 3,085,000 $ 265,000 $ — $ 3,350,000    Liabilities Securities sold, not yet purchased, at fair value Equity securities $ — $ 9,000 $ — $ 9,000 Total Securities sold, not yet purchased, at fair value $ — $ 9,000 $ — $ 9,000 As of December 31, 2021 Level 1 Level 2 Level 3 Total Assets Securities owned, at fair value U.S. government securities** $ 2,966,000 $ — $ — $ 2,966,000 Certificates of deposit — 91,000 — 91,000 Corporate bonds — 12,000 — 12,000 Equity securities 489,000 433,000 — 922,000 Total Securities owned, at fair value $ 3,455,000 $ 536,000 $ — $ 3,991,000    Liabilities Securities sold, not yet purchased, at fair value Equity securities $ — $ 24,000 $ — $ 24,000 Total Securities sold, not yet purchased, at fair value $ — $ 24,000 $ — $ 24,000 * As of June 30, 2022, the Company had U.S. government securities with market values of approximately $ 9.8 million, $ 9.9 million, $ 62.9 million, $ 24.3 million and 9.9 million and corresponding maturity dates of May 18, 2023, August 31, 2023, December 31, 2023, January 31, 2024 and May 31, 2024, respectively. As of December 31, 2021, the Company did not have any U.S. government securities classified as cash and securities segregated for regulatory purposes. ** As of both June 30, 2022 and December 31, 2021, the U.S. government securities had a maturity date of August 15, 2024. Refer to the below as well as Note 6 – Fair Value Measurements in the Company’s 2021 Form 10-K for further information regarding financial instruments not carried at fair value on the statements of financial condition as of June 30, 2022 and December 31, 2021. Short-term financial instruments: The carrying value of short-term financial instruments, including cash and cash equivalents as well as cash and securities segregated for regulatory purposes, are recorded at amounts that approximate the fair value of these instruments. These financial instruments generally expose the Company to limited credit risk and have no stated maturities or have short-term maturities and carry interest rates that approximate market rates. The Company had no cash equivalents for regulatory purposes as of June 30, 2022 and December 31, 2021. Securities segregated for regulatory purposes consist solely of U.S. government securities and are included in the fair value hierarchy table above. Cash and cash equivalents and cash and securities segregated for regulatory purposes are classified as level 1. -9- 6. Property, Office Facilities, and Equipment, Net Property, office facilities, and equipment consisted of the following as of the periods indicated: As of June 30, 2022 As of December 31, 2021 Property $ 6,815,000 $ 6,815,000 Office facilities 2,204,000 1,608,000 Equipment 508,000 413,000 Total Property, office facilities, and equipment 9,527,000 8,836,000 Less accumulated depreciation ( 1,570,000 ) ( 1,373,000 ) Total Property, office facilities, and equipment, net $ 7,957,000 $ 7,463,000 Total depreciation expense for property, office facilities, and equipment was $ 99,000 and $ 98,000 for the three months ended June 30, 2022 and 2021, respectively. Total depreciation expense for property, office facilities, and equipment was $ 196,000 and $ 214,000 for the six months ended June 30, 2022 and 2021, respectively. Miami Office Building On December 30, 2021, the Company purchased an office building located at 653 Collins Ave, Miami Beach, FL (“Miami office building”). The Miami office building contains approximately 12,000 square feet of office space and will be used as one of the primary operating centers for the Company. As of June 30, 2022, no depreciation expense has been recorded for the Miami office building. Depreciation expense will commence when the build out of the Miami office building is completed and placed in service, which is expected to occur in the third quarter of 2022. The Company invested $320,000 and $596,000 in the three and six months ended June 30, 2022, respectively, to build out the Miami office building. 7. Leases As of June 30, 2022, the Company rents office space under operating leases expiring in 2022 through 2027, 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 less than twelve months), or equipment leases (deemed immaterial) on the statements of financial condition. -10- As of June 30, 2022, 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. As of June 30, 2022 As of December 31, 2021 Assets Lease right-of-use assets $ 2,551,000 $ 2,662,000 Liabilities Lease liabilities $ 2,773,000 $ 2,933,000 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 operations 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. Lease Term and Discount Rate As of June 30, 2022 As of December 31, 2021 Weighted average remaining lease term – operating leases (in years) 3.1 2.9 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 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. Three Months Ended June 30, Six Months Ended June 30, 2022 2021 2022 2021 Operating lease cost $ 347,000 $ 410,000 $ 726,000 $ 898,000 Short-term lease cost 52,000 23,000 77,000 44,000 Variable lease cost 57,000 37,000 126,000 98,000 Total Rent and occupancy $ 456,000 $ 470,000 $ 929,000 $ 1,040,000   Cash paid for amounts included in the measurement of lease liabilities Operating cash flows from operating leases $ 375,000 $ 338,000 $ 775,000 $ 894,000    Lease right-of-use assets obtained in exchange for new lease liabilities Operating leases $ 602,000 $ 487,000 $ 602,000 $ 1,875,000 Lease Commitments Future annual minimum payments for operating leases with initial terms of greater than one year as of June 30, 2022 were as follows: Year Amount 2022 $ 623,000 2023 1,092,000 2024 543,000 2025 450,000 2026 234,000 2027 48,000 Remaining balance of lease payments 2,990,000 Less: difference between undiscounted cash flows and discounted cash flows 217,000 Lease liabilities $ 2,773,000 -11- 8. Equity Method Investments in Related Parties Transaction with Tigress On November 16, 2021, the Company entered into an agreement with Tigress Holdings, LLC, (“Tigress”), a Delaware limited liability company. Refer to Note 10 – Equity Method Investment in Related Party in the Company’s 2021 Form 10-K for further information regarding the material terms of this agreement and the corresponding accounting treatment. For the three months ended June 30, 2022 and 2021, the earnings recognized from the Company’s investment in Tigress was $ 33,000 and $ 0 , respectively. For the six months ended June 30, 2022 and 2021, the earnings recognized from the Company’s investment in Tigress was $ 198,000 and $ 0 , respectively. For the three and six months ended June 30, 2022, the Company received cash distributions from Tigress of $ 172,000 . The Company did not receive any cash distributions from Tigress in 2021; however, RISE made a distribution of $ 156,000 to SFC in 2021 in lieu of a corresponding distribution from Tigress. As of June 30, 2022 and December 31, 2021, the carrying amount of the investment in Tigress was $ 8,025,000 and $ 8,156,000 , respectively. The Company evaluates its equity method investments for impairment when events or changes indicate the carrying value may not be recoverable. If the impairment is determined to be other-than-temporary, the Company will recognize an impairment loss equal to the difference between the expected realizable value and the carrying value of the investment. There were no events or circumstances suggesting the carrying amount of the investment may be impaired as of June 30, 2022 and December 31, 2021. Below is a table showing the summary from the consolidated statements of operations and financial condition for Tigress for the periods indicated (unaudited): Three Months Ended June 30, Six Months Ended June 30, 2022 2021 2022 2021 Revenue $ 2,333,000 $ 3,269,000 $ 5,732,000 $ 7,321,000 Operating income $ 134,000 $ 914,000 $ 823,000 $ 2,624,000 Net income $ 134,000 $ 914,000 $ 823,000 $ 2,624,000 As of June 30, 2022 December 31, 2021 Assets $ 10,893,000 $ 10,793,000 Liabilities $ 5,359,000 $ 6,096,000 Stockholders’ Equity $ 5,534,000 $ 4,697,000 Transaction with Hedge Connection On January 21, 2022, RISE entered into an agreement to acquire a minority stake in Hedge Connection, a Florida corporation and a woman-owned fintech company founded by Lisa Vioni that provides capital introduction software solutions for the prime brokerage industry. Refer to Note 25 – Subsequent Events in the Company’s 2021 Form 10-K for additional details. For the three months ended June 30, 2022 and 2021, the loss recognized from the Company’s investment in Hedge Connection was $ 19,000 and $ 0 , respectively. For the six months ended June 30, 2022 and 2021, the earnings recognized from the Company’s investment in Hedge Connection was $ 17,000 and $ 0 , respectively. The Company has not received any cash distributions from Hedge Connection for the three and six months ended June 30, 2022 and 2021. As of June 30, 2022 and December 31, 2021, the carrying amount of the investment in Hedge Connection was $ 1,017,000 and $ 0 , respectively. The Company evaluates its equity method investments for impairment when events or changes indicate the carrying value may not be recoverable. If the impairment is determined to be other-than-temporary, the Company will recognize an impairment loss equal to the difference between the expected realizable value and the carrying value of the investment. There were no events or circumstances suggesting the carrying amount of the investment may be impaired as of June 30, 2022. The Company incurred expenses from Hedge Connection for licensing and consulting fees in an aggregate amount of $ 103,000 and $ 0 , for the three months ended June 30, 2022 and 2021, respectively. The Company incurred expenses from Hedge Connection for licensing and consulting fees in an aggregate amount of $ 171,000 and $ 0 , for the six months ended June 30, 2022 and 2021, respectively. As of June 30, 2022, the Company had a future commitment to Hedge Connection for consulting fees and the notes payable to Hedge Connection. This commitment was in aggregate $ 340,000 , $ 180,000 , and $ 15,000 for the years ended 2022, 2023, and 2024, respectively. 9. Investments, Cost OpenHand As of June 30, 2022 the Company maintained a 2 % ownership interest in OpenHand Holdings, Inc. (“OpenHand”) and an option to purchase an additional 2 % of the outstanding common stock of OpenHand at an exercise price equal to a $ 42.5 million valuation of OpenHand. The investment does not have a readily determinable fair value since OpenHand is a private company and its shares are not publicly traded. The Company made an accounting policy election to measure this investment at cost less any impairment adjusted for any changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer. -12- As of June 30, 2022, management concluded that the investment in OpenHand is not impaired and that no additional events or changes in circumstances were identified that could have a significant effect on the original valuation of the investment. As of both June 30, 2022 and December 31, 2021, the carrying value of the Company’s investment in OpenHand was $ 850,000 . As of both June 30, 2022 and December 31, 2021, no value was attributed to the option to purchase an additional 2 % of OpenHand because the option is not a derivative and there were no transaction costs associated with this option as of those periods. Refer to Note 11 – Investments, Cost in the Company’s 2021 Form 10-K for further information regarding this transaction and the corresponding accounting treatment. 10. Goodwill As of both June 30, 2022 and December 31, 2021, the Company’s carrying amount of goodwill was $ 1,989,000 , all of which came from the Company’s acquisition of RISE. As of June 30, 2022, management concluded that there have been no impairments to the carrying value of the Company’s goodwill and no impairment charges related to goodwill were recognized in the three and six months ended June 30, 2022 and 2021. Additionally, the Company determined there was not a material risk for future possible impairments to goodwill as of the date of the assessment. 11. Long-Term Debt Mortgage with East West Bank Overview On December 30, 2021, the Company purchased the Miami office building for approximately $ 6.8 million, and the Company entered into a mortgage with East West Bancorp, Inc. (“East West Bank”) for approximately $ 4 million to finance part of the purchase of the Miami office building as well as $ 338,000 to finance the build out of the Miami office building. The Company’s obligations under the mortgage are secured by a lien on the Miami office building and the term of the loan is ten years. The repayment schedule will utilize a 30-year amortization period, with a balloon on the remaining amount due at the end of ten years. The interest rate is 3.6 % for the first 7 years, and thereafter the interest rate shall be 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 3.6 %. As part of the agreement, the Company must maintain a debt service coverage ratio of 1.4 to 1. The loan is subject to a prepayment penalty over the first five years which is calculated as a percentage of the principal amount outstanding at the time of prepayment. This percentage is 5% in the first year and decreases by 1% each year thereafter, with the prepayment penalty ending after 5 years. As of June 30, 2022, the Company is in compliance with all of its covenants related to this agreement. As of June 30, 2022, the Company used its full commitment of $ 338,000 with East West Bank for the build out of the Miami office building. Remaining Payments Future remaining annual minimum principal payments for the mortgage with East West Bank as of June 30, 2022 were as follows: Amount 2022 $ — 2023 54,000 2024 61,000 2025 65,000 2026 69,000 Thereafter 4,139,000 Total $ 4,388,000 The interest expense related to this mortgage was $ 40,000 and $ 0 for the three months ended June 30, 2022, and 2021, respectively. The interest expense related to this mortgage was $ 65,000 and $ 0 for the six months ended June 30, 2022, and 2021, respectively. As of June 30, 2022, the interest rate for this mortgage was 3.6 %. Line of Credit with East West Bank Overview 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 . -13- 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 June 30, 2022, the Company was in compliance with all 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 and Gloria E. Gebbia, individually, and as a co-trustees of the John and Gloria Living Trust, U/D/T December 8, 1994 (“John and Gloria Gebbia Trust”). As of June 30, 2022, the Company has drawn down a $5.0 million term loan under this agreement and has an outstanding balance of $ 3.2 million. The Company has an additional $ 5.0 million remaining to draw down from this line of credit. Remaining Payments Future remaining annual minimum principal payments for the line of credit with East West Bank as of June 30, 2022 were as follows: Amount 2022 $ 500,000 2023 998,000 2024 1,661,000 Total $ 3,159,000 The interest expense related to this line of credit was $ 31,000 and $ 36,000 for the three months ended June 30, 2022 and 2021, respectively. The interest expense related to this line of credit was $ 60,000 and $ 73,000 for the six months ended June 30, 2022 and 2021, respectively. As of June 30, 2022, the interest rate for this line of credit was 4.8 %. 12. Notes Payable - Related Party As of June 30, 2022, the Company had various notes payable to Gloria E. Gebbia and Hedge Connection, the details of which are presented below: Description Issuance Date Face Amount Unpaid Principal Amount 0.00% due July 20, 2022* January 21, 2022 $ 600,000 $ 250,000 4.00% due November 30, 2022*** November 30, 2020 3,000,000 3,000,000   Total Notes payable – related party $ 3,600,000 $ 3,250,000 -14- As of December 31, 2021, 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 30, 2022** December 30, 2021 $ 2,000,000 $ 2,000,000 4.00% due June 30, 2022** December 31, 2021 2,000,000 2,000,000 4.00% due November 30, 2022*** November 30, 2020 3,000,000 3,000,000   Total Notes payable – related party $ 7,000,000 $ 7,000,000 * On January 21, 2022, the Company entered into a $ 600,000 note payable to Hedge Connection. During the six months ended June 30, 2022, the Company paid $ 350,000 of this note payable. ** On March 31, 2022, $ 2,880,000 in aggregate of notes payable to Gloria E. Gebbia was exchanged for 24% ownership interest in RISE. During the six months ended June 30, 2022, the Company paid the remainder of these notes payable. *** This note payable is subordinated to MSCO and is subordinated to the claims of general creditors, approved by FINRA, and is included in MSCO’s calculation of net capital and the capital requirements under FINRA and SEC regulations. On August 17, 2021, this note payable was renewed with a maturity of November 30, 2022. The Company’s interest expense for these notes payable for the three months ended June 30, 2022 and 2021 was $ 31,000 and $ 52,000 , respectively. The Company’s interest expense for these notes payable for the six months ended June 30, 2022 and 2021 was $ 101,000 and $ 104,000 , respectively. 13. Deferred Contract Incentive Effective August 1, 2021, MSCO entered into an amendment to its clearing agreement with NFS that, among other things, extends the term of their arrangement for an additional four-year period commencing on August 1, 2021 and ending July 31, 2025. As part of this agreement, the Company received a one-time business development credit of $ 3 million from NFS which is within the line item “Deferred contract incentive” on the statements of financial condition. This credit will be recognized as contra expense over the term of the agreement in the line item “Clearing fees, including execution costs” on the statements of operations. For the three months ended June 30, 2022 and 2021, the Company recognized $ 213,000 and $ 0 in contra expense, respectively. For the six months ended June 30, 2022 and 2021, the Company recognized $ 425,000 and $ 0 in contra expense, respectively. As of June 30, 2022 and December 31, 2021, the balance of the deferred contract incentive was $ 2.3 million and $ 2.7 million, respectively. 14. 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 and Proprietary Trading Principal transactions and proprietary trading primarily represent two business lines. The first business line is 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. The second business line is entering into transactions where proprietary U.S. government securities and other securities are traded by the Company. -15- Principal transactions and proprietary trading 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. During the six months ended June 30, 2022, the Company invested in a portfolio of U.S. government securities, which is primarily within the line item cash and securities segregated for regulatory purposes on the statements of financial condition. The following table represents detail related to principal transactions and proprietary trading. Refer to the year-over-year comparisons within Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations within this Report for additional detail. Three Months Ended June 30, 2022 2021 (Year over Year Decrease) Principal transactions and proprietary trading Realized and unrealized gain on primarily riskless principal transactions $ 1,698,000 $ 4,114,000 $ ( 2,416,000 ) Unrealized loss on portfolio of U.S. government securities ( 617,000 ) ( 7,000 ) ( 610,000 ) Total Principal transactions and proprietary trading $ 1,081,000 $ 4,107,000 $ ( 3,026,000 ) Six Months Ended June 30, 2022 2021 (Year over Year Decrease) Principal transactions and proprietary trading Realized and unrealized gain on primarily riskless principal transactions $ 3,616,000 $ 8,369,000 $ ( 4,753,000 ) Unrealized loss on portfolio of U.S. government securities ( 2,802,000 ) ( 14,000 ) ( 2,788,000 ) Total Principal transactions and proprietary trading $ 814,000 $ 8,355,000 $ ( 7,541,000 ) Market Making Market making revenue is 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 and fully-paid securities from client accounts, facilitates borrow and loan contracts for broker-dealer counterparties, and provides stock locate services to broker-dealer counterparties. The Company recognizes self-clearing revenues net of operating expenses related to stock borrow / stock loan. Stock borrow / stock loan also includes any revenues generated from the Company’s fully paid lending programs on a self-clearing or introducing basis. The Company does not utilize stock borrow / stock loan activities for the purpose of financing transactions. 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 three months ended June 30, 2022, stock borrow / stock loan revenue was $ 4,148,000 ($ 8,836,000 gross revenue less $ 4,688,000 expenses). For the three months ended June 30, 2021, stock borrow / stock loan revenue was $ 2,240,000 ($ 7,021,000 gross revenue minus $ 4,781,000 expenses). For the six months ended June 30, 2022, stock borrow / stock loan revenue was $ 7,726,000 ($ 16,301,000 gross revenue less $ 8,575,000 expenses). For the six months ended June 30, 2021, stock borrow / stock loan revenue was $ 4,087,000 ($ 11,851,000 gross revenue minus $ 7,764,000 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. -16- Interest, Marketing and Distribution Fees The Company earns interest from clients’ accounts, net of payments to clients’ accounts, and on the Company’s bank balances. Interest income also includes interest payouts from introducing relationships related to short interest, net of charges. The Company also earns margin interest which is the net interest charged to customers for holding financed margin positions. Marketing and distribution fees consist of 12b-1 fees which are trailing payments from money market funds. Interest, marketing and distribution fees are recorded as earned. Other Income Other income represents fees generated from consulting services to institutional partners, 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: Three Months Ended June 30, Six Months Ended June 30, Revenue Category 2022 2021 2022 2021 Timing of Recognition   Trading Execution and Clearing Services Commissions and fees $ 1,853,000 $ 4,325,000 $ 4,193,000 $ 11,333,000 Recorded on trade date Principal transactions and proprietary trading 1,081,000 4,107,000 814,000 8,355,000 Recorded on trade date Market making 535,000 1,758,000 1,299,000 3,372,000 Recorded on trade date Stock borrow / stock loan 4,148,000 2,240,000 7,726,000 4,087,000 Recorded as earned Advisory fees 476,000 403,000 983,000 759,000 Recorded as earned Total Trading Execution and Clearing Services 8,093,000 12,833,000 15,015,000 27,906,000    Other Income   Interest, marketing and distribution fees Interest 572,000 1,163,000 807,000 2,317,000 Recorded as earned Margin interest 2,201,000 2,296,000 4,168,000 4,448,000 Recorded as earned 12b-1 fees 378,000 164,000 538,000 317,000 Recorded as earned Total Interest, marketing and distribution fees 3,151,000 3,623,000 5,513,000 7,082,000    Other income 479,000 337,000 1,503,000 729,000 Recorded as earned    Total Revenue $ 11,723,000 $ 16,793,000 $ 22,031,000 $ 35,717,000 The following table presents each revenue category and its related performance obligation: Revenue Stream Performance Obligation Commissions and fees, Principal transactions and proprietary trading, Market making, Stock borrow / stock loan, Advisory fees Provide financial services to customers and counterparties Interest, marketing and distribution fees, Other income n / a Other Items For the periods presented, 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. 15. Income Taxes The Company’s provision for income taxes consists of federal and state taxes, as applicable, in amounts necessary to align the Company’s year-to-date tax provision with the effective rate that it expects to achieve for the full year. Each quarter the Company updates its estimate of the annual effective tax rate and records cumulative adjustments as necessary. As of June 30, 2022, the Company has concluded that its deferred tax assets are realizable on a more-likely-than-not basis with the exception of certain state net operating losses. -17- On March 11, 2021, the American Rescue Plan Act of 2021 (“American Rescue Plan”) was signed into law to provide additional relief in connection with the ongoing COVID-19 pandemic. The American Rescue Plan includes, among other things, provisions relating to PPP loan expansion, defined pension contributions, excessive employee remuneration, and the repeal of the election to allocate interest expense on a worldwide basis. Under ASC 740, the effects of new legislation are recognized upon enactment. The enactment of the American Rescue Plan did not impact the Company’s income tax provision. For the three months ended June 30, 2022, the Company recorded an income tax benefit of $ 1,027,000 on pre-tax book loss of $517,000. For the six months ended June 30, 2022, the Company recorded an income tax benefit of $ 1,309,000 on pre-tax book loss of $1,890,000. The effective tax rate for the three and six months ended June 30, 2022 was 199 % and 69 %, respectively. The effective tax rate differs from the federal statutory rate of 21 % primarily related to the benefit from the reversal of the uncertain tax position related to the 2018 amended tax return due to the expiration of the statute of limitations and certain permanent tax differences and state and local taxes. For the three and six months ended June 30, 2021, the Company recorded an income tax provision of $ 484,000 and $ 1,219,000 , respectively. The effective tax rate for the three and six months ended June 30, 2021 was both 25 %. The effective tax rate differs from the statutory rate of 21 % primarily related to certain permanent tax differences and state and local taxes. As of June 30, 2022, and December 31, 2021, the Company recorded an uncertain tax position of $ 1,583,000 and $ 2,418,000 , respectively, related to various tax matters. During the three months ended June 30, 2022, the Company reversed its uncertain tax position related to the 2018 amended tax return due to the expiration of the statute of limitations. 16. Capital Requirements MSCO Net Capital MSCO is subject to the Uniform Net Capital Rules of the SEC (Rule 15c3-1) of the Exchange Act. 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 June 30, 2022, MSCO’s net capital was $30.1 million, which was approximately $ 28.5 million in excess of its required net capital of $ 1.6 million, and its percentage of aggregate debit balances to net capital was 37.1 %. As of December 31, 2021, MSCO’s net capital was $36.4 million, which was approximately $ 34.3 million in excess of its required net capital of $ 2.1 million, and its percentage of aggregate debit balances to net capital was 34.9 %. 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 June 30, 2022, MSCO had cash and securities deposits of $ 321.7 million in the special reserve accounts which was $ 28.7 million in excess of the deposit requirement of $ 293.0 million. After adjustments for deposit(s) and / or withdrawal(s) made on July 1, 2022, MSCO had $ 28.4 million in excess of the deposit requirement. As of December 31, 2021, MSCO had cash deposits of $ 326.8 million in the special reserve accounts which was $ 31.9 million in excess of the deposit requirement of $ 294.9 million. After adjustments for deposit(s) and / or withdrawal(s) made on January 3, 2022, MSCO had $ 1.9 million in excess of the deposit requirement. RISE Net Capital RISE, as a member of FINRA, is subject to the SEC Uniform Net Capital Rule 15c3-1. This rule requires the maintenance of minimum net capital and that the ratio of aggregate indebtedness to net capital, both as defined, shall not exceed 15 to 1 and that equity capital may not be withdrawn, or cash dividends paid if the resulting net capital ratio would exceed 10 to 1. RISE is also subject to the CFTC's minimum financial requirements which require that RISE maintain net capital, as defined, equal to the greater of its requirements under Regulation 1.17 under the Commodity Exchange Act or Rule 15c3-1. As of June 30, 2022, RISE’s net capital was approximately $1.3 million which was $1.1 million in excess of its minimum requirement of $ 250,000 under 15c3-1. As of December 31, 2021, RISE’s net capital was approximately $1.7 million which was $1.4 million in excess of its minimum requirement of $ 250,000 under 15c3-1. -18- 17. 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. Refer to the below as well as Note 21 – Financial Instruments with Off-Balance Sheet Risk in the Company’s 2021 Form 10-K for further information. As of June 30, 2022, the Company had margin loans extended to its customers of approximately $ 0.5 billion, of which $ 63.2 million is within the line item “Receivables from customers” on the statements of financial condition. As of December 31, 2021, the Company had margin loans extended to its customers of approximately $ 0.6 billion, of which $ 84.2 million is within the line item “Receivables from customers” on the statements of financial condition. There were no material losses for unsettled customer transactions for the three and six months ended June 30, 2022 and 2021. 18. 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. The below legal matter is related to operations of StockCross Financial Services, Inc. (“StockCross”), prior to the Company’s acquisition of StockCross on January 1, 2020. For activity related to operations of StockCross prior to the Company’s acquisition of StockCross, FINRA’s Division of Enforcement is currently investigating (“Unit investment trust”) UIT transactions that were executed by StockCross that the enforcement staff believes were terminated early. Management cannot at this time assess either the duration or the likely outcome or consequences of this matter. Nevertheless, FINRA has the authority to impose sanctions on the Company or require that it make offers of restitution to other customers who FINRA believes incurred sales charges in early liquidations of UITs. No assurances can be given that a mutual settlement with FINRA regarding this matter can be reached or that any amount paid in settlement will not be material. As of both June 30, 2022 and December 31, 2021, all other legal matters are without merit or involve amounts which would not have a material impact on the Company’s results of operations or financial position. Overnight Financing As of June 30, 2022 and December 31, 2021, MSCO had an available line of credit for short term overnight demand borrowing with BMO Harris Bank (“BMO Harris”) of up to $ 25 million and $ 15 million, respectively. As of those dates, MSCO had no outstanding loan balance and there were no commitment fees or other restrictions on this line of credit. On May 23, 2022, MSCO increased its principal amount for this line of credit from $ 15 million to $ 25 million. The interest expense for this line of credit was $ 1,000 for both the three months ended June 30, 2022 and 2021. The interest expense for this line of credit was $ 1,000 and $ 15,000 for the six months ended June 30, 2022 and 2021, respectively. There were no fees related to this line of credit for both the three and six months ended June 30, 2022 and 2021. At the Market Offering On May 27, 2022, the Company entered into a Capital on Demand TM Sales Agreement (the “Sales Agreement”) with JonesTrading as agent, pursuant to which the Company may offer and sell, from time to time through JonesTrading, shares of the Company’s common stock having an aggregate offering price of up to $ 9.6 million under the Company’s shelf registration statement on Form S-3. The Company is not obligated to make any sales of shares under the Sales Agreement. The Company agreed to pay JonesTrading a commission rate equal to 3.0 % of the aggregate gross proceeds from each sale of shares. The Company or JonesTrading may suspend or terminate the offering upon notice to the other party and subject to other conditions. Whether the Company sells securities under the Sales Agreement will depend on a number of factors, including the market conditions at that time, the Company’s cash position at that time and the availability and terms of alternative sources of capital. -19- For the six months ended June 30, 2022, the Company did not sell any shares pursuant to this Sales Agreement. For the six months ended June 30, 2022, the Company incurred approximately $ 77,000 in legal and audit fees related to this Sales Agreement, which are within the line item “Professional services” on the statements of operations, and were expensed as incurred. NFS Contract Effective August 1, 2021, MSCO entered into an amendment to its clearing agreement with NFS that, among other things, extends the term of their arrangement for an additional four-year period commencing on August 1, 2021 and ending July 31, 2025. If the Company chooses to exit this agreement before the end of the contract term, the Company is under the obligation to pay an early termination fee upon occurrence pursuant to the table below: Date of Termination Early Termination Fee Prior to August 1, 2022 $ 8,000,000 Prior to August 1, 2023 $ 7,250,000 Prior to August 1, 2024 $ 4,500,000 Prior to August 1, 2025 $ 3,250,000 For the three and six months ended June 30, 2022 and 2021, there has been no expense recognized for any early termination fees. The Company believes that it is unlikely it will have to make material payments related to this early termination arrangement and has not recorded any contingent liability in the financial statements related to this arrangement. -20- General Contingencies The Company’s general contingencies are included in Note 22 – Commitments, Contingencies, and Other in the Company’s 2021 Form 10-K. Other than the below, there have been no material updates to the Company’s general contingencies during the three and six months ended June 30, 2022. The Company, through its affiliate, Kennedy Cabot Acquisition, LLC (“KCA”), is self-insured with respect to employee health claims. KCA maintains stop-loss insurance for certain risks and has a health claim reinsurance limit capped at approximately $ 65,000 per employee as of June 30, 2022. As part of this plan, the Company recognized expenses of $ 409,000 and $ 359,000 for the three months ended June 30, 2022 and 2021, respectively. The Company recognized expenses of $ 905,000 and $ 650,000 for the six months ended June 30, 2022 and 2021, respectively. The Company had an accrual of $ 117,000 as of June 30, 2022, which represents the estimate of future expense 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. Employee Benefit Plans The Company, through 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 three and six months ended June 30, 2022 and 2021. The Company has an equity incentive plan that provides for the grant of stock options, restricted stock, and other equity awards of the Company’s common stock to employees, officers, consultants, directors, affiliates and other service providers of the Company. There are 3 million shares reserved under the plan, and the Company issued no securities under the plan for the three and six months ended June 30, 2022 and 2021. 19. Related Party Disclosures KCA 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 defined-contribution retirement plan under Section 401(k) of the Internal Revenue Code that covers substantially all employees. For the three and six months ended June 30, 2022 and 2021, KCA has earned no profit for providing any services to the Company as KCA passes through any revenue or expenses to the Company’s subsidiaries. PW PW brokers the insurance policies for related parties. Revenue for PW from related parties was $ 20,000 and $ 7,000 for the three months ended June 30, 2022 and 2021, respectively. Revenue for PW from related parties was $ 95,000 and $ 56,000 for the six months ended June 30, 2022 and 2021, respectively. Gloria E. Gebbia, John J. Gebbia, and Gebbia Family Members On March 31, 2022, Gloria E. Gebbia exchanged approximately $2.9 million of her notes payable to Company for 24% of the outstanding and issued membership interests in RISE. The Company has entered into various debt agreements with Gloria E. Gebbia, the Company’s principal stockholder. Refer to Note 12 – Notes Payable - Related Party for additional detail. -21- The Company’s obligations under its line of credit with East West Bank are guaranteed pursuant to a guarantee agreement by and among, John J. Gebbia and Gloria E. Gebbia, individually, and as a co-trustees of the John and Gloria Gebbia Trust. Refer to 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. The sons of Gloria E. Gebbia and John J. Gebbia hold executive positions within the Company’s subsidiaries and their compensation was in aggregate $ 631,000 and $ 210,000 for the three months ended June 30, 2022 and 2021, respectively. The compensation for the sons of Gloria E. Gebbia and John J. Gebbia was in aggregate $ 1,074,000 and $ 398,000 for the six months ended June 30, 2022 and 2021, respectively. 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 member of the Gebbia Family. For both the three months ended June 30, 2022 and 2021, rent expense was $ 15,000 for this branch office. For both the six months ended June 30, 2022 and 2021, rent expense was $ 30,000 for this branch office. Tigress and Cynthia DiBartolo On November 16, 2021, the Company entered into an agreement with Tigress in exchange for 24% of RISE and shares of the Company’s common stock. Refer to Note 8 – Equity Method Investments in Related Parties for additional detail. As part of the transaction, Tigress’ founder, Cynthia DiBartolo, will continue as CEO of Tigress, and assumed the position as CEO of RISE. Gloria E. Gebbia, one of Siebert’s and RISE’s directors, assumed the position of Chief Impact Officer at RISE. Ms. DiBartolo was appointed to Siebert’s and RISE’s Board of Directors and Ms. Gebbia was appointed to Tigress’ Board of Directors. Hedge Connection and Lisa Vioni On January 21, 2022, RISE entered into an agreement with Hedge Connection, a Florida corporation and a woman-owned fintech company founded by Lisa Vioni. Refer to Note 8 – Equity Method Investments in Related Parties and Note 12 – Notes Payable – Related Party for additional detail. 20. Subsequent Events The Company has evaluated events that have occurred subsequent to June 30, 2022 and through August 15, 2022, the date of the filing of this Report. On July 13, 2022, the Company renewed one of its leases for a total commitment of approximately $ 155,000 over a two-year period commencing on August 1, 2022. Based on the Company’s assessment, 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 financial statements as of June 30, 2022. -22- ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion provides a narrative of our financial performance and condition that should be read in conjunction with the accompanying financial statements and related notes included under Part I, Item 1 of this Report. Overview We are a financial services company and provide a wide variety of financial services to our clients. We operate in business lines such as retail brokerage, investment advisory, insurance, technology development, and prime brokerage through our wholly-owned subsidiaries and VIE. Results in the businesses in which we operate are highly correlated to general economic conditions and, more specifically, to the direction of the U.S. equity and fixed-income markets. Market volatility, overall market conditions, interest rates, economic, political, and regulatory trends, and industry competition are among the factors which could affect us and which are unpredictable and beyond our control. These factors affect the financial decisions made by market participants who include investors and competitors, impacting their level of participation in the financial markets. In addition, in periods of reduced financial market activity, profitability is likely to be adversely affected because certain expenses remain relatively fixed, including salaries and related costs, as well as portions of communications costs and occupancy expenses. Accordingly, earnings for any period should not be considered representative of earnings to be expected for any other period. Interest Rates We are exposed to market risk from changes in interest rates. Such changes in interest rates primarily impact revenue from interest, marketing, and distribution fees. The Company primarily earns interest, marketing and distribution fees from margin interest charged on clients’ margin balances, interest on cash and securities segregated for regulatory purposes, and distribution fees from money market mutual funds in clients’ accounts. Securities segregated for regulatory purposes consist solely of U.S. government securities. If prices of U.S. government securities within our portfolio decline, we anticipate the impact to be temporary as we intend to hold these securities to maturity. We seek to mitigate this risk by managing the average maturities of our U.S. government securities portfolio and setting risk parameters for securities owned, at fair value. RISE Arrangements with GSCO and JonesTrading On August 30, 2021, GSCO notified RISE that its clearing arrangement with RISE will be terminated. Due to the termination of RISE’s clearing arrangement with GSCO, substantially all the revenue producing customers of RISE have transitioned to other prime service providers. Revenue and pre-tax income from customers that have transitioned to other prime service providers was approximately $3.5 million and $0.4 million, respectively, for the three months ended June 30, 2021. Revenue and pre-tax income from customers that have transitioned to other prime service providers was approximately $8.4 million and $1.5 million, respectively, for the six months ended June 30, 2021. On October 7, 2021, RISE signed an agreement with JonesTrading Institutional Services, LLC (“JonesTrading”) to transfer certain customers of RISE to JonesTrading. In exchange, JonesTrading agreed to pay RISE a percentage of the net revenue produced by those clients less any related expenses. For the three and six months ended June 30, 2022, this agreement resulted in pre-tax income of $36,000 and $76,000, respectively. We do not anticipate the pre-tax income related to this agreement will offset the reduction in pre-tax income from customers that have transitioned to other prime service providers. Relaunch of RISE RISE relaunched its business as a woman-owned and operated prime brokerage with a specific emphasis on aligning the mission-driven initiatives with the technological needs of institutional customers. Cynthia DiBartolo was appointed as the new CEO of RISE, and Gloria E. Gebbia, one of Siebert’s and RISE’s directors, was appointed as the Chief Impact Officer of RISE. In addition, on January 21, 2022, RISE entered into an agreement with Hedge Connection, a woman-owned fintech company founded by Lisa Vioni that provides capital introduction software solutions for the prime brokerage industry. While we believe our expertise and industry relationships will enable us to execute this strategic direction, our business plan for RISE is new and untested, and it is uncertain whether our efforts will attract the prime brokerage customers and revenue necessary to compete in a new market for prime customers. Any failure to adapt to these evolving trends may reduce our revenue or operating margins and could have a material adverse effect on our business, results of operations and financial condition. -23- As of the date of this Report, management is assessing the strategic direction of RISE, taking into consideration current market conditions, demand trends, and resources, and is currently reviewing RISE’s originally proposed business plan and evaluating whether we can accomplish those plans as contemplated. Membership Interests of RISE During the first quarter of 2022, RISE issued and Siebert sold membership interests in RISE to certain employees, directors, and affiliates of RISE and Siebert. As a result of these transactions, Siebert’s ownership percentage in RISE declined from 76% as of December 31, 2021 to approximately 44% as of March 31, 2022, and remained unchanged as of June 30, 2022. Management will continue to assess whether RISE remains a VIE and whether Siebert remains the primary beneficiary on an on-going basis. Refer to Note 1 – Organization and Basis of Presentation for additional detail. Client Account and Activity Metrics The following tables set forth metrics we use in analyzing our client account and activity trends for the periods indicated. Client Account Metrics – Retail and Institutional Customer Net Worth As of June 30, 2022 December 31, 2021 Retail and institutional customer net worth (in billions) $ 14.0 $ 17.3 Client Account Metrics – Retail Customers As of June 30, 2022 December 31, 2021 Retail customer net worth (in billions) $ 13.8 $ 16.8 Retail customer margin debit balances (in billions) $ 0.5 $ 0.5 Retail customer credit balances (in billions) $ 0.8 $ 0.8 Retail customer money market fund value (in billions) $ 0.7 $ 0.8 Retail customer accounts 117,821 115,380 • Retail customer net worth represents the total value of securities and cash in the retail customer accounts after deducting margin debits • Retail customer margin debit balances represents credit extended to our customers to finance their purchases against current positions • Retail customer credit balances represents client cash held in brokerage accounts • Retail customer money market fund value represents all retail customers accounts invested in money market funds • Retail customer accounts represents the number of retail customers Client Account Metrics – Institutional Customers As of June 30, 2022 December 31, 2021 Institutional customer net worth (in billions) $ 0.2 $ 0.5 • Institutional customer net worth represents the total value of securities and cash in the institutional customer accounts after deducting margin debits and short positions Client Activity Metrics – Retail Customers Three Months Ended Six Months Ended June 30, June 30, 2022 2021 2022 2021 Total retail trades 91,389 111,028 201,341 253,903 • Total retail trades represents retail trades that generate commissions -24- Statements of Operations and Financial Condition Statements of Operations for the Three Months Ended June 30, 2022 and 2021 Revenue Commissions and fees for the three months ended June 30, 2022 were $1,853,000 and decreased by $2,472,000 from the corresponding period in the prior year, primarily due to the loss of institutional customers due to the termination of GSCO’s clearing agreement with RISE as well as market conditions during the second quarter of 2022. Interest, marketing and distribution fees for the three months ended June 30, 2022 were $3,151,000 and decreased by $472,000 from the corresponding period in the prior year, primarily due to the loss of institutional customers due to the termination of GSCO’s clearing agreement with RISE, partially offset by an increase in margin interest, 12b-1fees, as well as interest on U.S. treasuries and cash deposits within MSCO. Principal transactions and proprietary trading for the three months ended June 30, 2022 were $1,081,000 and decreased by $3,026,000 from the corresponding period in the prior year, primarily due to the factors discussed below. The decrease in realized and unrealized gain on primarily riskless principal transactions was primarily due to market conditions. The increase in unrealized loss on our portfolio of U.S. government securities was due to the following. From January to June 2022, Siebert invested approximately $120 million in 1-year treasury bills and 2-year treasury notes in order to enhance its yield on its excess 15c3-3 deposits. For the six months ended June 30, 2022, there was an increase in U.S. government securities yields, which created an unrealized loss of approximately $617,000 on our government securities portfolio for the three months ended June 30, 2022. We intend to hold these securities to maturity and as such, the aggregate unrealized loss of $2.8 million on the portfolio as of June 30, 2022 will be returned over the duration of the government securities, at a point no later than the maturity of the securities, the latest maturity being August 2024. If the value of our portfolio of government securities declines further, we will incur further unrealized losses; however, we anticipate this loss to be temporary as we intend to hold these securities to maturity . The portfolio of U.S. government securities represents less than half of the total value of our cash and securities segregated for regulatory purposes, and we believe that the level invested reduces the risk of having to liquidate the securities prior to maturity. Below is a summary of the change in the principal transactions and proprietary trading line item as well as a maturity schedule of our portfolio of U.S. government securities for the periods presented. Three Months Ended June 30, 2022 2021 (Year over Year Decrease) Principal transactions and proprietary trading Realized and unrealized gain on primarily riskless principal transactions $ 1,698,000 $ 4,114,000 $ (2,416,000 ) Unrealized loss on portfolio of U.S. government securities (617,000 ) (7,000 ) (610,000 ) Total Principal transactions and proprietary trading $ 1,081,000 $ 4,107,000 $ (3,026,000 ) As of June 30, 2022 December 31, 2021 Market value of U.S. government securities Maturing 05/18/2023, 2.790% Coupon Rate $ 9,773,000 $ — Maturing 08/31/2023, 1.375% Coupon Rate 9,871,000 — Maturing 12/31/2023, 0.750% Coupon Rate 62,932,000 — Maturing 01/31/2024, 0.875% Coupon Rate 24,303,000 — Maturing 05/31/2024, 2.500% Coupon Rate 9,939,000 — Maturing 08/15/2024, 0.375% Coupon Rate 2,845,000 2,966,000 Total Market value of U.S. government securities $ 119,663,000 $ 2,966,000 Market making for the three months ended June 30, 2022 was $535,000 and decreased by $1,223,000 from the corresponding period in the prior year, primarily due to market conditions. Stock borrow / stock loan for the three months ended June 30, 2022 was $4,148,000 and increased by $1,908,000 from the corresponding period in the prior year, primarily due to the growth of the business, expansion of our stock locate revenues, and additional securities lending and locate counterparty relationships. -25- Advisory fees for the three months ended June 30, 2022 were $476,000 and increased by $73,000 from the corresponding period in the prior year, primarily due to the expansion of the advisory business line. Other income for the three months ended June 30, 2022 was $479,000 and increased by $142,000 from the corresponding period in the prior year, primarily due to an increase in consulting services to institutional, partners partially offset by lower payment for order flow in the second quarter of 2022. Operating Expenses Employee compensation and benefits for the three months ended June 30, 2022 were $7,368,000 and decreased by $1,377,000 from the corresponding period in the prior year, primarily due to a decrease in commissions payouts from RISE related to the loss of our institutional customers and a decrease in fixed income commissions, partially offset by an increase in payouts related to stock borrow / stock loan. Clearing fees, including execution costs for the three months ended June 30, 2022 were $375,000 and decreased by $914,000 from the corresponding period in the prior year, primarily due to a decrease in our institutional clearing costs as well as the recognition of the business development credit from our agreement with NFS. Technology and communications expenses for the three months ended June 30, 2022 were $978,000 and decreased by $122,000 from the corresponding period in the prior year, primarily due to a decrease in technology costs related to RISE, partially offset by miscellaneous technology expenses. Other general and administrative expenses for the three months ended June 30, 2022 were $935,000 and decreased by $253,000 from the corresponding period in the prior year, primarily due to a legal settlement occurring in the second quarter of 2021, partially offset by an increase in travel and entertainment in 2022. Data processing expenses for the three months ended June 30, 2022 were $687,000 and decreased by $8,000 from the corresponding period in the prior year. Rent and occupancy expenses for the three months ended June 30, 2022 were $456,000 and decreased by $14,000 from the corresponding period in the prior year, primarily due to a reduction in rent related RISE’s operations. Professional fees for the three months ended June 30, 2022 were $1,032,000 and increased by $455,000 from the corresponding period in the prior year, primarily due to an increase in legal and consulting fees related to certain transactions. Depreciation and amortization expenses for the three months ended June 30, 2022 were $261,000 and decreased by $113,000 from the corresponding period in the prior year, primarily due to the completion of useful lives of assets within STCH and write-offs of intangible assets related to RISE occurring in 2021. Referral fees for the three months ended June 30, 2022 were $0 and decreased by $353,000 from the corresponding period in the prior year, primarily due to the loss of our institutional clients. Interest expense for the three months ended June 30, 2022 was $103,000 and increased by $14,000 from the corresponding period in the prior year, primarily due to the interest from the mortgage with East West Bank in 2022, partially offset by a decrease in interest from notes payable – related party. Advertising and promotion expense for the three months ended June 30, 2022 was $59,000 and increased by $59,000 from the corresponding period in the prior year, primarily due to an increase in promotional costs for various marketing initiatives. Earnings of Equity Method Investments in Related Parties The earnings of equity method investment in related party for the three months ended June 30, 2022 was $14,000 and increased by $14,000 from the corresponding period in the prior year, primarily due to our proportional income from our investment in Tigress. Benefit From Income Taxes The benefit from income taxes for the three months ended June 30, 2022 was $1,027,000 and decreased from the provision for income taxes by $1,511,000 from the corresponding period in the prior year. The change from the corresponding period in the prior year is primarily due to the reversal of the uncertain tax position related to the 2018 amended tax return coupled with lower pre-tax earnings. Refer to Note 15 – Income Taxes for additional detail. -26- Net Loss Attributable to Noncontrolling Interests As further discussed in Note 1 – Organization and Basis of Presentation, we consolidate RISE’s financial results into our financial statements and reflect the portion of RISE not held by Siebert as a noncontrolling interests in our financial statements. The net loss attributable to noncontrolling interests for the three months ended June 30, 2022 was $201,000, and increased by $201,000 from the corresponding period in the prior year. Statements of Operations for the Six Months Ended June 30, 2022 and 2021 Revenue Commissions and fees for the six months ended June 30, 2022 were $4,193,000 and decreased by $7,140,000 from the corresponding period in the prior year, primarily due to the loss of institutional customers due to the termination of GSCO’s clearing agreement with RISE as well as market conditions during 2022. Interest, marketing and distribution fees for the six months ended June 30, 2022 were $5,513,000 and decreased by $1,569,000 from the corresponding period in the prior year, primarily due to the loss of institutional customers due to the termination of GSCO’s clearing agreement with RISE, partially offset by an increase in margin interest, 12b-1fees, as well as interest on U.S. treasuries and cash deposits within MSCO. Principal transactions and proprietary trading for the six months ended June 30, 2022 were $814,000 and decreased by $7,541,000 from the corresponding period in the prior year, primarily due to the factors discussed below. The decrease in realized and unrealized gain on primarily riskless principal transactions was primarily due to market conditions. The increase in unrealized loss on our portfolio of U.S. government securities was due to the following. From January to June 2022, Siebert invested approximately $120 million in 1-year treasury bills and 2-year treasury notes in order to enhance its yield on its excess 15c3-3 deposits. For the six months ended June 30, 2022, there was an increase in U.S. government securities yields, which created an unrealized loss of approximately $2.8 million on our government securities portfolio for the six months ended June 30, 2022. We intend to hold these securities to maturity and as such, the aggregate unrealized loss of $2.8 million on the portfolio as of June 30, 2022 will be returned over the duration of the government securities, at a point no later than the maturity of the securities, the latest maturity being August 2024. If the value of our portfolio of government securities declines further, we will incur further unrealized losses; however, we anticipate this loss to be temporary as we intend to hold these securities to maturity. The portfolio of U.S. government securities represents less than half of the total value of our cash and securities segregated for regulatory purposes, and we believe that the level invested reduces the risk of having to liquidate the securities prior to maturity. Below is a summary of the change in the principal transactions and proprietary trading line item for the periods presented. Six Months Ended June 30, 2022 2021 (Year over Year Decrease) Principal transactions and proprietary trading Realized and unrealized gain on primarily riskless principal transactions $ 3,616,000 $ 8,369,000 $ (4,753,000 ) Unrealized loss on portfolio of U.S. government securities (2,802,000 ) (14,000 ) (2,788,000 ) Total Principal transactions and proprietary trading $ 814,000 $ 8,355,000 $ (7,541,000 ) Market making for the six months ended June 30, 2022 was $1,299,000 and decreased by $2,073,000 from the corresponding period in the prior year, primarily due to market conditions. Stock borrow / stock loan for the six months ended June 30, 2022 was $7,726,000 and increased by $3,639,000 from the corresponding period in the prior year, primarily due to the growth of the business, expansion of our stock locate revenues, and additional securities lending and locate counterparty relationships. Advisory fees for the six months ended June 30, 2022 were $983,000 and increased by $224,000 from the corresponding period in the prior year, primarily due to overall expansion of the advisory business line. Other income for the six months ended June 30, 2022 was $1,503,000 and increased by $774,000 from the corresponding period in the prior year, primarily due to an increase in consulting services to institutional partners. -27- Operating Expenses Employee compensation and benefits for the six months ended June 30, 2022 were $14,462,000 and decreased by $3,449,000 from the corresponding period in the prior year, primarily due to a decrease in commissions payouts from RISE related to the loss of our institutional customers and a decrease in fixed income commissions, partially offset by an increase in payouts related to stock borrow / stock loan. Clearing fees, including execution costs for the six months ended June 30, 2022 were $869,000 and decreased by $2,273,000 from the corresponding period in the prior year, primarily due to a decrease in our institutional clearing costs as well as the recognition of our business development credit from our agreement with NFS. Technology and communications expenses for the six months ended June 30, 2022 were $2,160,000 and decreased by $181,000 from the corresponding period in the prior year, primarily due to a decrease in technology costs related to RISE, partially offset by an increase in other technology expenses. Other general and administrative expenses for the six months ended June 30, 2022 were $1,866,000 and decreased by $92,000 from the corresponding period in the prior year, primarily due to a legal settlement occurring in the second quarter of 2021, partially offset by an increase in travel and entertainment cost in 2022. Data processing expenses for the six months ended June 30, 2022 were $1,203,000 and decreased by $289,000 from the corresponding period in the prior year, primarily due to a reduction in market data analytics and service bureau costs. Rent and occupancy expenses for the six months ended June 30, 2022 were $929,000 and decreased by $111,000 from the corresponding period in the prior year, primarily due to a reduction in rent related RISE’s operations, partially offset by an increase in other occupancy expenses. Professional fees for the six months ended June 30, 2022 were $1,728,000 and increased by $536,000 from the corresponding period in the prior year, primarily due to an increase in legal and consulting fees related to certain transactions. Depreciation and amortization expenses for the six months ended June 30, 2022 were $520,000 and decreased by $246,000 from the corresponding period in the prior year, primarily due to the completion of useful lives of assets within STCH and write-offs of intangible assets related to RISE occurring in 2021. Referral fees for the six months ended June 30, 2022 were $0 and decreased by $760,000 from the corresponding period in the prior year, primarily due to the loss of our institutional clients. Interest expense for the six months ended June 30, 2022 was $227,000 and increased by $35,000 from the corresponding period in the prior year, primarily due to the interest from the mortgage with East West Bank in 2022. Advertising and promotion expense for the six months ended June 30, 2022 was $172,000 and increased by $172,000 from the corresponding period in the prior year, primarily due to an increase in promotional costs for various marketing initiatives. Earnings of Equity Method Investments in Related Parties The earnings of equity method investment in related party for the six months ended June 30, 2022 was $215,000 and increased by $215,000 from the corresponding period in the prior year, primarily due to our proportional income from our investments in Tigress and Hedge Connection. Benefit From Income Taxes The benefit from income taxes for the six months ended June 30, 2022 was $1,309,000 and decreased from the provision for income taxes by $2,528,000 from the corresponding period in the prior year. The change from the corresponding period in the prior year is primarily due to the reversal of the uncertain tax position related to the 2018 amended tax return coupled with lower pre-tax earnings. Refer to Note 15 – Income Taxes for additional detail. Net Loss Attributable to Noncontrolling Interests As further discussed in Note 1 – Organization and Basis of Presentation, we consolidate RISE’s financial results into our financial statements and reflect the portion of RISE not held by Siebert as a noncontrolling interests in our financial statements. The net loss attributable to noncontrolling interests for the six months ended June 30, 2022 was $320,000, and increased by $320,000 from the corresponding period in the prior year. -28- Statements of Financial Condition as of June 30, 2022 and December 31, 2021 Assets Assets as of June 30, 2022 were $1,151,034,000 and decreased by $253,201,000 from December 31, 2021, primarily due to a decrease in securities borrowed and receivables from customers. Liabilities Liabilities as of June 30, 2022 were $1,097,696,000 and decreased by $256,033,000 from December 31, 2021, primarily due to a decrease in securities loaned and payables to customers. Liquidity and Capital Resources Overview The indicators of our liquidity are cash and cash equivalents. Our cash and cash equivalents are unrestricted and are used to fund our working capital needs. Our cash and cash equivalents as of June 30, 2022 and December 31, 2021 were $4.1 million and $3.8 million, respectively. We believe that our operating cash flows, cash and cash equivalents, borrowing capacity, and overall access to capital markets are sufficient to fund our operating, investing and financing requirements for the foreseeable future. Sources of Liquidity and Planned Obligations As of June 30, 2022, we had a variety of debt instruments and sources of borrowing capability. As of June 30, 2022, the debt instruments and their outstanding obligations were as follows: $4.4 million mortgage with East West Bank, $3.2 million line of credit with East West Bank, and $3.3 million in notes payable to related parties. We have an additional $5.0 million available on our line of credit with East West Bank and have an available line of credit for short term overnight demand borrowing of up to $25 million with BMO Harris. Our ability to borrow incremental amounts for the line of credit with East West Bank is set to terminate by July 2022; however, we are in discussions to extend and possibly increase this line of credit. As of June 30, 2022, we were in compliance with all of our covenants related to our debt agreements. As of June 30, 2022, the aggregate future payment obligations related to these debt instruments were $6.7 million through 2026 and $4.1 million thereafter. The remaining balance of our lease payments for operating leases with initial terms of greater than one year was $0.6 million during 2022, and $2.4 million thereafter. On December 30, 2021, we purchased the Miami office building and are building out this space to be one of our primary operating centers. The total estimated cost for the build out is $1.4 million, with $338,000 financed through a commitment with East West Bank and the remainder being cash. At the Market Offering On May 27, 2022, we entered into a Capital on Demand TM Sales Agreement with JonesTrading as agent, pursuant to which we may offer and sell, from time to time through JonesTrading, shares of our common stock having an aggregate offering price of up to $9.6 million under our shelf registration statement on Form S-3. For the six months ended June 30, 2022, we did not sell any shares pursuant to this Sales Agreement. Refer to Note 18 – Commitments, Contingencies, and Other for additional detail. Net Capital, Reserve Accounts, Segregation of Funds, and Other Regulatory Requirements MSCO is subject to the Uniform Net Capital Rules of the SEC (Rule 15c3-1) and the Customer Protection Rule (15c3-3) of the Exchange Act and maintains capital and segregated cash reserves in excess of regulatory requirements. Requirements under these regulations may vary; however, MSCO has adequate reserves and contingency funding plans in place to sufficiently meet any regulatory requirements. In addition to net capital requirements, as a self-clearing broker-dealer, MSCO is subject to cash deposit and collateral requirements with clearing houses, such as the DTCC and OCC, which may fluctuate significantly from time to time based upon the nature and size of clients’ trading activity and market volatility. RISE, as a member of FINRA, is subject to the SEC Uniform Net Capital Rule 15c3-1 and the corresponding regulatory capital requirements. -29- For the three and six months ended June 30, 2022 and 2021, MSCO and RISE met all of their respective liquidity and regulatory capital requirements. Refer to Note 16 – Capital Requirements for additional detail on our capital requirements. Off-Balance Sheet Arrangements We enter into various transactions to meet the needs of customers, conduct trading activities, and manage market risks and are, therefore, subject to varying degrees of market and credit risk. In the normal course of business, our customer activities involve the execution, settlement, and financing of various customer securities transactions. These activities may expose us to off-balance sheet risk in the event the customer or other broker is unable to fulfill its contracted obligations and we are forced to purchase or sell the financial instrument underlying the contract at a loss. There were no material losses for unsettled customer transactions for the three and six months ended June 30, 2022 and 2021. Refer to Note 17 – Financial Instruments with Off-Balance Sheet Risk for additional detail. Uncertain Tax Positions We account for uncertain tax positions in accordance with the authoritative guidance issued under ASC 740-10, which addresses the determination of whether tax benefits claimed or expected to be claimed on a tax return should be recorded in the financial statements. We may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities based on the technical merits of the position. The tax benefits recognized in the financial statements from such position should be measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate settlement. ASC 740-10 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods and disclosure requirements. We recognize interest and penalties related to unrecognized tax benefits on the provision for income taxes line on the statements of operations. Accrued interest and penalties would be included on the related tax liability line on the statements of financial condition. As of June 30, 2022, and December 31, 2021, the Company recorded an uncertain tax position of $1,583,000 and $2,418,000, respectively, related to various tax matters. During the three months ended June 30, 2022, the Company reversed its uncertain tax position related to the 2018 amended tax return due to the expiration of the statute of limitations. Related Party Disclosures During the course of business, we enter into various agreements and transactions with related parties. Refer to Note 19 – Related Party Disclosures for additional detail. Fair Value Measurements We have securities that are valued using the fair value framework under ASC 820 within our assets and liabilities as of June 30, 2022 and December 31, 2021. Refer to Note 5 – Fair Value Measurements for additional detail. Impairment We have concluded as of June 30, 2022, there has been no impairment to the carrying value of Siebert’s goodwill and tangible assets, and there are no intangible assets. Refer to Note 10 – Goodwill for additional information. Segment We concluded as of June 30, 2022, Siebert is comprised of a single operating segment based on the factors related to management’s decision-making framework as well as management evaluating performance and allocating resources based on assessments of Siebert from a consolidated perspective. Critical Accounting Policies Certain of our accounting policies that involve a higher degree of judgment and complexity are discussed in Part I, Item 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations in our 2021 Form 10-K as well as in the below section. As of June 30, 2022, there have been no changes to our critical accounting policies or estimates other than the below. -30- Variable Interest Entities We evaluate whether an entity is a VIE and determine if the primary beneficiary status is appropriate on a quarterly basis. We consolidate a VIE for which we are the primary beneficiary. When assessing the determination of the primary beneficiary, we consider all relevant facts and circumstances, including factors such as the power to direct the activities of the VIE that most significantly impact its economic performance, the obligation to absorb the losses and/or the right to receive the expected returns of the VIE. Through this evaluation, as of June 30, 2022, we determined that RISE is a VIE and we are the primary beneficiary, primarily due to Siebert’s power to direct the activities of RISE that most significantly impact its economic performance. Additionally, Siebert may be obligated to fund RISE’s operations at an amount that is disproportional to its ownership percentage. New Accounting Standards We did not adopt any new accounting standards during the three and six months ended June 30, 2022. In addition, we evaluated other recently issued accounting standards and do not believe that any of these standards will have a material impact on our financial statements and related disclosures as of June 30, 2022. Regulatory Matters We are party to certain claims, suits and complaints arising in the ordinary course of business. As of June 30, 2022, we had one pending regulatory matter related to operations of StockCross prior to our acquisition of StockCross on January 1, 2020. Refer to Note 18 – Commitments, Contingencies, and Other for additional detail. -31-