SIEBERT FINANCIAL CORP 10-Q

ITEM 1. FINANCIAL STATEMENTS SIEBERT FINANCIAL CORP. & SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION September 30, 2023 (unaudited) December 31, 2022 ASSETS Current assets Cash and cash equivalents $ 4,932,000 $ 23,672,000 Cash and securities segregated for regulatory purposes 237,378,000 276,166,000 Receivables from customers 71,761,000 52,057,000 Receivables from broker-dealers and clearing organizations 8,366,000 9,094,000 Receivables from non-customers 30,000 100,000 Other receivables 2,433,000 2,119,000 Prepaid expenses and other assets 1,613,000 2,055,000 Securities borrowed 404,924,000 336,909,000 Securities owned, at fair value 18,687,000 3,204,000 Total Current assets 750,124,000 705,376,000 Deposits with broker-dealers and clearing organizations 1,478,000 1,311,000 Property, office facilities, and equipment, net 9,305,000 8,328,000 Software, net 1,701,000 991,000 Lease right-of-use assets 3,045,000 2,222,000 Equity method investment in related party — 2,584,000 Investments, cost — 850,000 Deferred tax assets 3,504,000 4,397,000 Goodwill 1,989,000 1,989,000 Total Assets $ 771,146,000 $ 728,048,000 LIABILITIES AND EQUITY Liabilities Current liabilities Payables to customers $ 270,221,000 $ 321,391,000 Payables to non-customers 991,000 11,506,000 Drafts payable 1,016,000 2,384,000 Payables to broker-dealers and clearing organizations 3,446,000 660,000 Accounts payable and accrued liabilities 4,102,000 2,507,000 Taxes payable 2,496,000 1,052,000 Securities loaned 408,395,000 327,180,000 Securities sold, not yet purchased, at fair value 1,000 2,000 Current portion of lease liabilities 846,000 1,158,000 Current portion of long-term debt 84,000 1,073,000 Current portion of deferred contract incentive 733,000 808,000 Total Current liabilities 692,331,000 669,721,000 Lease liabilities, less current portion 2,376,000 1,245,000 Long-term debt, less current portion 4,249,000 5,974,000 Deferred contract incentive, less current portion 625,000 1,188,000 Total Liabilities 699,581,000 678,128,000 Commitments and Contingencies Equity Stockholders’ equity Common stock, $ .01 par value; 100,000,000 shares authorized; 40,580,936 shares issued and 39,580,936 shares outstanding as of September 30, 2023, respectively. 32,505,329 shares issued and outstanding as of December 31, 2022. 406,000 325,000 Treasury stock, at cost; 1,000,000 and 0 shares held as of September 30, 2023 and December 31, 2022, respectively ( 2,510,000 ) — Additional paid-in capital 45,016,000 29,642,000 Retained earnings 27,642,000 18,982,000 Total Stockholders’ equity 70,554,000 48,949,000 Noncontrolling interests 1,011,000 971,000 Total Equity 71,565,000 49,920,000 Total Liabilities and Equity $ 771,146,000 $ 728,048,000 Numbers are rounded for presentation purposes. See notes to condensed consolidated financial statements. - 1 - SIEBERT FINANCIAL CORP. & SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited) Three Months Ended September 30, Nine Months Ended September 30, 2023 2022 2023 2022 Revenue Commissions and fees $ 1,986,000 $ 1,750,000 $ 5,839,000 $ 5,943,000 Interest, marketing and distribution fees 7,194,000 5,204,000 21,583,000 10,717,000 Principal transactions and proprietary trading 3,753,000 953,000 9,207,000 1,767,000 Market making 223,000 723,000 836,000 2,022,000 Stock borrow / stock loan 4,008,000 4,183,000 11,963,000 11,909,000 Advisory fees 506,000 437,000 1,421,000 1,420,000 Other income 380,000 1,086,000 963,000 2,589,000 Total Revenue 18,050,000 14,336,000 51,812,000 36,367,000 Expenses Employee compensation and benefits 8,723,000 7,290,000 23,770,000 21,752,000 Clearing fees, including execution costs 581,000 398,000 1,265,000 1,267,000 Technology and communications 827,000 1,214,000 2,409,000 3,374,000 Other general and administrative 1,108,000 1,072,000 3,320,000 2,939,000 Data processing 725,000 932,000 2,317,000 2,135,000 Rent and occupancy 467,000 562,000 1,436,000 1,491,000 Professional fees 979,000 874,000 3,060,000 2,602,000 Depreciation and amortization 265,000 240,000 716,000 760,000 Interest expense 40,000 108,000 222,000 335,000 Advertising and promotion 62,000 58,000 52,000 230,000 Total Expenses 13,777,000 12,748,000 38,567,000 36,885,000 Operating income (loss) 4,273,000 1,588,000 13,245,000 ( 518,000 ) Impairment of investments — — ( 1,035,000 ) — Earnings of (loss from) equity method investment in related party — ( 148,000 ) 111,000 67,000 Non-operating income (loss) — ( 148,000 ) ( 924,000 ) 67,000 Income (loss) before provision for (benefit from) income taxes 4,273,000 1,440,000 12,321,000 ( 451,000 ) Provision for (benefit from) income taxes 1,516,000 473,000 3,621,000 ( 836,000 ) Net income 2,757,000 967,000 8,700,000 385,000 Less net income (loss) attributable to noncontrolling interests ( 4,000 ) ( 85,000 ) 40,000 ( 405,000 ) Net income available to common stockholders $ 2,761,000 $ 1,052,000 $ 8,660,000 $ 790,000 Net income available to common stockholders per share of common stock Basic and diluted $ 0.07 $ 0.03 $ 0.24 $ 0.02 Weighted average shares outstanding Basic and diluted 39,678,762 32,403,235 36,224,313 32,419,398 Numbers are rounded for presentation purposes. See notes to condensed consolidated financial statements. - 2 - SIEBERT FINANCIAL CORP. & SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (unaudited) Common Stock Treasury Stock Number of Shares Issued $.01 Par Value Number of Shares Amount 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 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 Termination of agreement with technology partner — — 193,906 ( 293,000 ) — — ( 293,000 ) — ( 293,000 ) Share-based compensation 138,000 1,000 — — 233,000 — 234,000 — 234,000 Net income (loss) — — — — — 1,052,000 1,052,000 ( 85,000 ) 967,000 Balance – September 30, 2022 32,541,235 $ 325,000 193,906 $ ( 293,000 ) $ 29,773,000 $ 21,762,000 $ 51,567,000 $ 2,679,000 $ 54,246,000 Common Stock Treasury Stock Number of Shares Issued $.01 Par Value Number of Shares Amount Additional Paid-In Capital Retained Earnings Total Stockholders’ Equity Noncontrolling Interests Total Equity Balance – January 1, 2023 32,505,329 $ 325,000 — $ — $ 29,642,000 $ 18,982,000 $ 48,949,000 $ 971,000 $ 49,920,000 Net income — — — — — 3,196,000 3,196,000 19,000 3,215,000 Balance – March 31, 2023 32,505,329 $ 325,000 — $ — $ 29,642,000 $ 22,178,000 $ 52,145,000 $ 990,000 $ 53,135,000 Kakaopay transaction, net of issuance cost 8,075,607 81,000 — — 15,374,000 — 15,455,000 — 15,455,000 Net income — — — — — 2,703,000 2,703,000 25,000 2,728,000 Balance – June 30, 2023 40,580,936 $ 406,000 — $ — $ 45,016,000 $ 24,881,000 $ 70,303,000 $ 1,015,000 $ 71,318,000 Reacquisition of shares outstanding — — 1,000,000 ( 2,510,000 ) — — ( 2,510,000 ) — ( 2,510,000 ) Net income (loss) — — — — — 2,761,000 2,761,000 ( 4,000 ) 2,757,000 Balance – September 30, 2023 40,580,936 $ 406,000 1,000,000 $ ( 2,510,000 ) $ 45,016,000 $ 27,642,000 $ 70,554,000 $ 1,011,000 $ 71,565,000 Numbers are rounded for presentation purposes. See notes to condensed consolidated financial statements. - 3 - SIEBERT FINANCIAL CORP. & SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) Nine Months Ended September 30, 2023 2022 Cash Flows From Operating Activities Net income $ 8,700,000 $ 385,000 Adjustments to reconcile net income to net cash (used in) operating activities: Deferred income tax expense / (benefit) 893,000 ( 22,000 ) Depreciation and amortization 716,000 760,000 Net lease liabilities ( 4,000 ) ( 74,000 ) Earnings of equity method investment in related party ( 111,000 ) ( 67,000 ) Impairment of investments 1,035,000 — Share-based compensation — 234,000 Changes in Receivables from customers ( 19,704,000 ) 19,721,000 Receivables from non-customers 70,000 19,000 Receivables from and deposits with broker-dealers and clearing organizations 561,000 4,285,000 Securities borrowed ( 68,015,000 ) 324,494,000 Securities owned, at fair value ( 15,483,000 ) 523,000 Prepaid expenses and other assets ( 190,000 ) ( 823,000 ) Prepaid service contract — 711,000 Payables to customers ( 51,170,000 ) ( 54,067,000 ) Payables to non-customers ( 10,515,000 ) ( 8,081,000 ) Drafts payable ( 1,368,000 ) ( 496,000 ) Payables to broker-dealers and clearing organizations 2,786,000 188,000 Accounts payable and accrued liabilities 1,594,000 ( 1,824,000 ) Securities loaned 81,215,000 ( 313,034,000 ) Securities sold, not yet purchased, at fair value ( 1,000 ) ( 13,000 ) Taxes payable 1,444,000 ( 855,000 ) Deferred contract incentive ( 638,000 ) ( 621,000 ) Cloud computing implementation ( 776,000 ) — Net cash (used in) operating activities ( 68,961,000 ) ( 28,657,000 ) Cash Flows From Investing Activities Distribution from equity method investment in related party — 172,000 Purchase of office facilities and equipment ( 241,000 ) ( 165,000 ) Purchase of software ( 246,000 ) ( 379,000 ) Build out of property ( 1,140,000 ) ( 892,000 ) Net cash (used in) investing activities ( 1,627,000 ) ( 1,264,000 ) Cash Flows From Financing Activities Issuance of RISE membership interests — 600,000 Transfers of RISE membership interests — 240,000 Kakaopay issuance cost ( 1,589,000 ) — Shares issued for Kakaopay transaction 17,363,000 — Repayments of notes payable – related party — ( 1,470,000 ) Repayments of long-term debt ( 2,714,000 ) ( 411,000 ) Net cash provided by (used in) financing activities 13,060,000 ( 1,041,000 ) Net change in cash and cash equivalents, and cash and securities segregated for regulatory purposes ( 57,528,000 ) ( 30,962,000 ) Cash and cash equivalents, and cash and securities segregated for regulatory purposes - beginning of year 299,838,000 330,584,000 Cash and cash equivalents, and cash and securities segregated for regulatory purposes - end of period $ 242,310,000 $ 299,622,000 Reconciliation of cash, cash equivalents, and cash and securities segregated for regulatory purposes Cash and cash equivalents - end of period $ 4,932,000 $ 4,489,000 Cash and securities segregated for regulatory purposes - end of period 237,378,000 295,133,000 Cash and cash equivalents, and cash and securities segregated for regulatory purposes - end of period $ 242,310,000 $ 299,622,000 Supplemental cash flow information Cash paid during the period for income taxes $ 1,284,000 $ 42,000 Cash paid during the period for interest $ 222,000 $ 335,000 Non-cash investing and financing activities Treasury stock (1) $ ( 2,500,000 ) $ ( 293,000 ) Kakaopay issuance cost (2) $ 318,000 $ — Transfers of RISE membership interests (3) $ — $ 2,880,000 Purchase of equity method investment in related party, net of cash paid of $ 350,000 (1) $ — $ 650,000 (1) Refer to Note 3 – Transactions with Tigress and Hedge Connection for further detail. (2) Refer to Note 5 – Kakaopay Transaction for further detail. (3) Refer to Note 4 – RISE for further detail. Numbers are rounded for presentation purposes. See notes to condensed consolidated financial statements. - 4 - SIEBERT FINANCIAL CORP. & SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) 1. Organization and Basis of Presentation Organization Siebert Financial Corp., a New York corporation, incorporated in 1934, is a holding company that conducts the following lines of business through its wholly-owned and majority-owned subsidiaries: ● 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”) is a Delaware limited liability company and a broker-dealer registered with the SEC and NFA. ● StockCross Digital Solutions, Ltd. (“STXD”) is an inactive subsidiary headquartered in Bermuda. For purposes of thi s 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 Miami Beach, FL with primary operations in Florida, New Jersey, and California. The Company has 12 branch offices throughout the U.S. and clients around the world. The Company’s SEC filings are available through the Company’s website at www.siebert.com, where investors can obtain copies of the Company’s public filings free of charge. The Company’s common stock, par value $ .01 per share, trades on the Nasdaq Capital Market under the symbol “SIEB.” The Company primarily operates in the securities brokerage and asset management industry and has no other reportable segments. All of the Company’s revenues for the three and nine months ended September 30, 2023 and 2022 were derived from its operations in the U.S. As of September 30, 2023 , 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. Basis of Presentation The accompanying unaudited condensed consolidated financial statements (“financial statements”) of the Company have been prepared on the accrual basis of accounting in conformity 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. The U.S. dollar is the functional currency of the Company and numbers are rounded for presentation purposes. 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 2022 Form 10-K. Principles of Consolidation The financial statements include the accounts of Siebert and its wholly-owned and majority-owned consolidated subsidiaries. Upon consolidation, all intercompany balances and transactions are eliminated. For the period of March 31, 2022 to October 18, 2022, the Company determined that RISE was a variable interest entity (“VIE”) for which the Company was the primary beneficiary. As discussed in more detail in Note 4 – RISE, as of October 18, 2022, the Company’s ownership in RISE increased to 68 % and therefore, the Company continued to consolidate RISE under the voting interest model (“VOE model”). The Company’s ownership in RISE remained 68 % as of September 30, 2023. 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 statements 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. - 5 - 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 in earnings of equity method investment in related party. Significant Accounting Policies The Company’s significant accounting policies are included in Note 2 – Summary of Significant Accounting Policies in the Company’s 2022 Form 10-K. During the three and nine months ended September 30, 2023, there were no significant changes made to the Company’s significant accounting policies. 2. New Accounting Standards The Company did not adopt any new accounting standards during the three and nine months ended September 30, 2023. 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 September 30, 2023. 3. Transactions with Tigress and Hedge Connection In 2021 and 2022, the Company entered into agreements and subsequent reorganization agreements and termination agreements with Tigress Holdings, LLC (“Tigress”) and Hedge Connection, LLC (“Hedge Connection”). Refer to Note 3 – Transactions with Tigress and Hedge Connection in the Company’s 2022 Form 10-K and Note 12 – Equity Method Investment in Related Party in this Report for more detail on these transactions and information that impacted the periods presented. On January 21, 2022, the Company purchased Hedge Connection for $ 1,000,000 , of which $ 400,000 was noncash consideration and $ 600,000 was a note payable. The Company paid off $ 350,000 of its note payable to Hedge Connection during the nine months ended September 30, 2022. On July 10, 2023, the Company entered into a Share Redemption Agreement with Cynthia DiBartolo, CEO of Tigress, pursuant to which the Company repurchased from Ms. DiBartolo one million shares of its common stock held by Ms. DiBartolo in exchange for conveying to Ms. DiBartolo the Company’s 17 % interest in Tigress. Refer to Siebert’s Current Report on Form 8-K filed on July 14, 2023, incorporated herein by reference, and Note 12 – Equity Method Investment in Related Party in this Report for more detail on these transactions and information that impacted the periods presented. 4. RISE During the three months ended March 31, 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 Siebert employees. 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, Siebert’s direct ownership percentage in RISE declined from 76 % as of December 31, 2021 to approximately 44 % as of March 31, 2022. As of March 31, 2022, Siebert determined that RISE was a VIE and that Siebert was the primary beneficiary, requiring RISE to be consolidated in accordance with Accounting Standards Codification (“ASC”) Topic 810 – Consolidation. As a result of transactions described in Note 3 – Transactions with Tigress and Hedge Connection, Siebert’s ownership in RISE increased to 68 %, and therefore Siebert continued to consolidate RISE from October 18, 2022 through December 31, 2022 under the VOE model. There have been no further transactions completed by the Company related to RISE’s membership interests for the three and nine months ended September 30, 2023. As of September 30, 2023, RISE reported assets of $ 1.4 million and no liabilities. As of December 31, 2022, RISE reported assets of $ 1.3 million and liabilities of $ 0.1 million. There are no restrictions on RISE’s assets. 5. Kakaopay Transaction On April 27, 2023, Siebert entered into a Stock Purchase Agreement with Kakaopay (the “First Tranche Stock Purchase Agreement”), pursuant to which Siebert agreed to issue to Kakaopay Corporation (“Kakaopay”), a company established under the Laws of the Republic of Korea and a fintech subsidiary of Korean-based conglomerate Kakao Corp., 8,075,607 shares of Siebert’s common stock (the “First Tranche Shares” and, such transaction, the “First Tranche”) at a per share price of Two Dollars Fifteen Cents ($ 2.15 ), which represented 19.9 % of the outstanding equity securities of Siebert on a fully diluted basis (taking into account the issuance of the First Tranche Shares). The First Tranche closed on May 18, 2023. - 6 - Concurrent with the execution of the First Tranche Stock Purchase Agreement, Siebert and Kakaopay entered into a second Stock Purchase Agreement (the “Second Tranche Stock Purchase Agreement” and, together with the First Tranche Stock Purchase Agreement, the “Stock Purchase Agreements”), pursuant to which Siebert agreed to issue to Kakaopay an additional 25,756,470 shares of Siebert’s common stock (the “Second Tranche Shares” and, such transaction, the “Second Tranche”) at a per share price of Two Dollars Thirty Five Cents ($ 2.35 ), so that Kakaopay will own 51 % of the outstanding equity securities of Siebert on a fully diluted basis (taking into account the issuance of the First Tranche Shares and the Second Tranche Shares). The consummation of the Second Tranche is subject to a number of conditions , which have not yet been satisfied as of the date of this Report . The conditions to Kakaopay’s obligation to close the Second Tranche include, among others, (i) the affirmative vote of a majority of the outstanding shares of Siebert’s common stock and the affirmative vote of the holders of a majority of the outstanding shares of Siebert’s common stock not beneficially owned, directly or indirectly, by certain family members related to Directors John J. Gebbia and Gloria E. Gebbia (“Gebbia Stockholders”), Kakaopay or any of their respective affiliates, (ii) approval by FINRA, (iii) favorable completion of the review by the Committee on Foreign Investment in the United States (“CFIUS”), (iv) certain performance conditions relating to order execution and the execution of employment and consulting agreements for key personnel of Siebert and MSCO, (v) the approvals in connection to the filing of an overseas direct investment report as required under the Foreign Exchange Transactions Act of the Republic of Korea, and, if applicable in accordance with applicable law, any antitrust report or filing with the Korea Fair Trade Commission shall have been obtained or provided, (vi) the listing by Siebert of the Second Tranche Shares on the Nasdaq Capital Market, (vii) the accuracy of certain representations and warranties of Siebert as of the closing of the Second Tranche, (viii) the absence of any material adverse effect having occurred with respect to Siebert between April 27, 2023 and the closing of the Second Tranche, and (ix) the performance by Siebert of all covenants, agreements and obligations required to be performed by it prior to the closing of the Second Tranche . The conditions to Siebert’s obligation to close the Second Tranche include, among others, (i) the affirmative vote of the holders of a majority of the outstanding shares of Siebert’s c ommon stock not beneficially owned, directly or indirectly, by the Gebbia Stockholders, Kakaopay or any of their respective affiliates, (ii) approval by FINRA, (iii) favorable completion of the review by CFIUS, (iv) the accuracy of certain representations and warranties of Kakaopay as of the closing of the Second Tranche, (v) the absence of any material adverse effect having occurred with respect to Kakaopay between April 27, 2023 and the closing of the Second Tranche, and (vi) the performance by Kakaopay of all covenants, agreements and obligations required to be performed by it prior to the closing of the Second Tranche. Refer to the Company’s Current Report on Form 8-K filed on May 3, 2023, incorporated herein by reference, for further detail regarding this transaction. Since the closing of the First Tranche, Korean authorities have taken action against Kakaopay, its parent company, Kakao Corp., and their affiliates. In addition, Kakao Corp., recently announced that it will establish an independent compliance committee for Kakao Corp. and its subsidiaries to address what it described as the current crisis at Kakao Corp. and its subsidiaries. Siebert believes these events have had a material adverse effect on both Kakaopay and its ability to perform its obligations under the Second Tranche Stock Purchase Agreement and consummate the transactions contemplated therein. Accordingly, on November 11, 2023, Siebert delivered a notice to Kakaopay stating that a material adverse effect had occurred with respect to Kakaopay and that, as a result, Siebert’s conditions to closing will not be satisfied. The notice also specified that Kakaopay has indicated that it has no intention of satisfying the conditions precedent to Siebert preparing the proxy statement contemplated by the Second Tranche Stock Purchase Agreement. Siebert is considering its rights and obligations under the Second Tranche Stock Purchase Agreement, including evaluating whether and under what circumstances the Second Tranche Stock Purchase Agreement might be terminated, and has reserved all of its rights and remedies, including Siebert’s right to assert that Kakaopay has materially breached a number of covenants in the Second Tranche Stock Purchase Agreement. On November 12, 2023, Kakaopay delivered a letter in response to the notice that expressed Kakaopay’s disagreement with the statements in the notice. As a result of the foregoing, Siebert has incurred and may incur additional legal expenses evaluating these matters, the amount of which is uncertain as of the date hereof. As of December 31, 2022, the Company capitalized deferred issuance costs related to this transaction of $ 318,000 , which was recorded within the line item “Prepaid expenses and other assets” in the statements of financial condition. At the time of the issuance, the total deferred issuance cost of $ 1,907,000 related to this transaction was reclassified as a reduction to “Additional paid-in capital” in stockholders’ equity in the statements of financial condition. During the nine months ended September 30, 2023, the Company recognized $ 1,589,000 of issuance costs related to this transaction. During the three and nine months ended September 30, 2023, the Company incurred deferred issuance costs related to the Second Tranche of $ 58,000 , which was recorded within the line item “Prepaid expenses and other assets” in the statements of financial condition. On May 22, 2023, Gloria E. Gebbia issued a warrant to BCW Securities LLC, a Delaware limited liability company (“BCW”), to purchase 403,780 shares of common stock of the Company held by Ms. Gebbia at an exercise price of $ 2.15 per share. Ms. Gebbia issued the warrant pursuant to that certain agreement, dated March 27, 2023, by and among Ms. Gebbia, the Company and BCW relating to the investment by Kakaopay in the Company. 6. 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 September 30, 2023 As of December 31, 2022 Receivables from and deposits with broker-dealers and clearing organizations DTCC / OCC / NSCC (1) $ 7,277,000 $ 8,187,000 Goldman Sachs & Co. LLC (“GSCO”) 34,000 31,000 Pershing Capital — 96,000 National Financial Services, LLC (“NFS”) 1,988,000 2,006,000 Securities fail-to-deliver 469,000 3,000 Globalshares 76,000 82,000 Total Receivables from and deposits with broker-dealers and clearing organizations $ 9,844,000 $ 10,405,000 Payables to broker-dealers and clearing organizations Securities fail-to-receive $ 2,695,000 $ 396,000 Payables to broker-dealers 751,000 264,000 Total Payables to broker-dealers and clearing organizations $ 3,446,000 $ 660,000 (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”). - 7 - Under the DTCC shareholders’ agreement, MSCO is required to participate in the DTCC common stock mandatory purchase. As of September 30, 2023 and December 31, 2022, MSCO had shares of DTCC common stock valued at approximately $ 1,236,000 and $ 1,054,000 , respectively, which are included within the line item “Deposits with broker-dealers and clearing organizations” on the statements of financial condition. In September 2022, MSCO and RISE entered into a clearing agreement whereby RISE would introduce clients to MSCO. As part of the agreement, RISE deposited a clearing fund escrow deposit of $ 50,000 to MSCO, and had excess cash of approximately $ 1.0 million in its brokerage account at MSCO as of September 30, 2023. The resulting asset of RISE and liability of MSCO is eliminated in consolidation. The Company terminated its clearing relationships with GSCO and Pershing in 2022. 7. Prepaid Service Contract In April 2020, the Company entered into an agreement with a technology partner whereby the Company paid the technology partner shares of the Company’s common stock and cash in exchange for services to develop a new client and back-end interface as well as related functionalities for the Company’s key operations. In February 2022, the Company entered into a Consulting Services Agreement (“CSA”) with the technology partner, whereby the Company would provide certain consulting services over an 18-month period. In September 2022, the Company and the technology partner mutually agreed to terminate the services being provided under both the original agreement as well as the CSA. Refer to Note 6 – Prepaid Service Contract in the Company’s 2022 Form 10-K for further detail. Information related to these transactions that impacted the periods presented is shown below. As part of the termination, in September 2022, the technology partner returned 193,906 shares of the Company’s common stock previously issued and agreed to pay the Company a total of $ 950,000 . The Company recorded amortization of prepaid service contract assets of $ 357,000 and $ 711,000 for the three and nine months ended September 30, 2022, respectively, which is included in the line item “Technology and communications” in the statements of operations. The Company recorded consulting fee income of $ 867,000 and $ 1,700,000 for the three and nine months ended September 30, 2022, respectively, which is recorded in “Other income” in the statements of operations. The Company did not record consulting fee income or amortization of prepaid service contract assets for the three and nine months ended September 30, 2023. 8. 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 2 – Summary of Significant Accounting Policies in the Company’s 2022 Form 10-K for further information regarding fair value hierarchy, valuation techniques and other items related to fair value measurements. Financial Assets and Liabilities Measured at Fair Value on a Recurring Basis The tables below present, by level within the fair value hierarchy, financial assets and liabilities, measured at fair value on a recurring basis for the periods indicated. As required by ASC Topic 820, financial assets and financial liabilities are classified in their entirety based on the lowest level of input that is significant to the respective fair value measurement. As of September 30, 2023 Level 1 Level 2 Level 3 Total Assets Cash and securities segregated for regulatory purposes U.S. government securities $ 118,101,000 $ — $ — $ 118,101,000 Securities owned, at fair value U.S. government securities $ 17,875,000 $ — $ — $ 17,875,000 Certificates of deposit — 113,000 — 113,000 Municipal securities — 319,000 — 319,000 Corporate bonds — 131,000 — 131,000 Equity securities 117,000 132,000 — 249,000 Total Securities owned, at fair value $ 17,992,000 $ 695,000 $ — $ 18,687,000 Liabilities Securities sold, not yet purchased, at fair value Equity securities $ 1,000 $ — $ — $ 1,000 Total Securities sold, not yet purchased, at fair value $ 1,000 $ — $ — $ 1,000 - 8 - As of December 31, 2022 Level 1 Level 2 Level 3 Total Assets Cash and securities segregated for regulatory purposes U.S. government securities $ 140,978,000 $ — $ — $ 140,978,000 Securities owned, at fair value U.S. government securities $ 2,808,000 $ — $ — $ 2,808,000 Certificates of deposit — 92,000 — 92,000 Municipal securities — 52,000 — 52,000 Corporate bonds — 7,000 — 7,000 Equity securities 63,000 182,000 — 245,000 Total Securities owned, at fair value $ 2,871,000 $ 333,000 $ — $ 3,204,000 Liabilities Securities sold, not yet purchased, at fair value Equity securities $ 2,000 $ — $ — $ 2,000 Total Securities sold, not yet purchased, at fair value $ 2,000 $ — $ — $ 2,000 The Company had U.S. government securities with the below market values and maturity dates for the periods indicated: As of September 30, 2023 Market value of U.S. government securities portfolio Maturing in 2023 $ 67,245,000 Maturing in 2024 64,505,000 Maturing in 2025 3,918,000 Accrued interest 308,000 Total Market value of U.S. government securities portfolio $ 135,976,000 As of December 31, 2022 Market value of U.S. government securities portfolio Maturing in 2023 $ 106,873,000 Maturing in 2024 36,506,000 Accrued interest 408,000 Total Market value of U.S. government securities portfolio $ 143,787,000 Financial Assets Measured at Fair Value on a Non-Recurring Basis The following table represents information for assets measured at fair value on a nonrecurring basis and displays the carrying value after measurement as of the periods indicated. The fair value measurement is nonrecurring as these assets are measured at fair value only when there is a triggering event (e.g., an evidence of impairment). Assets included in the table are those that were impaired during the respective reporting periods and that are still held as of the reporting date. The estimated fair values for these amounts were determined using significant unobservable inputs (Level 3). As of September 30, 2023 As of December 31, 2022 Equity method investment in related party $ — $ 2,584,000 As a result of the 2022 transaction discussed in Note 3 – Transactions with Tigress and Hedge Connection, the Company recognized an impairment charge for its investment in Tigress of approximately $ 4,015,000 for the year ended December 31, 2022. The fair value of the Company’s investment in Tigress was determined using the income and market approach. For the income approach, the Company utilized estimated discounted future cash flow expected to be generated by Tigress. For the market approach, the Company utilized market multiples of revenue and earnings derived from comparable publicly-traded companies. - 9 - As a result of the 2023 transaction discussed in Note 3 – Transactions with Tigress and Hedge Connection, the Company recognized an impairment charge for its investment in Tigress of approximately $ 185,000 during the nine months ended September 30, 2023, which is included in “Impairment of investments” in the statements of operations. The fair value of the Company’s investment in Tigress was determined using observed current market prices of Tigress’ membership interests that were below the Company’s carrying value of its equity investment in Tigress. Following the 2023 transaction discussed in Note 3 – Transactions with Tigress and Hedge Connection, the Company had no remaining interest in Tigress. Financial Assets and Liabilities Not Carried at Fair Value The following represents financial instruments in which the ending balances as of September 30, 2023 and December 31, 2022 are not carried at fair value in the statements of financial condition: 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 September 30, 2023 and December 31, 2022. 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. Receivables and other assets: Receivables from customers, receivables from non-customers, receivables from and deposits with broker-dealers and clearing organizations, other receivables, and prepaid expenses and other assets are recorded at amounts that approximate fair value and are classified as level 2 under the fair value hierarchy. The Company may hold cash equivalents related to rent deposits in prepaid expenses and other assets that are categorized as level 2 under the fair value hierarchy. Securities borrowed and securities loaned: Securities borrowed and securities loaned are recorded at amounts which approximate fair value and are primarily classified as level 2 under the fair value hierarchy. The Company’s securities borrowed and securities loaned balances represent amounts of equity securities borrow and loan contracts and are marked-to-market daily in accordance with standard industry practices which approximate fair value. Investments, cost: The Company’s non-marketable equity securities are investments in privately held companies without readily determinable market values due to the absence of quoted market prices, the inherent lack of liquidity and the fact that inputs used to measure fair value are unobservable and require management’s judgment. As there is no readily determinable fair value, the carrying amount of these investments minus impairment approximates the fair value. The cost will be adjusted upwards or downwards in accordance with observable market transactions. Under the fair value hierarchy, investments, cost is classified as level 3. Payables: Payables to customers, payables to non-customers, drafts payable, payables to broker-dealers and clearing organizations, accounts payable and accrued liabilities, and taxes payable are recorded at amounts that approximate fair value due to their short-term nature and are classified as level 2 under the fair value hierarchy. Deferred contract incentive: The carrying amount of the deferred contract incentive approximates fair value due to the relative short-term nature of the liability. Under the fair value hierarchy, the deferred contract incentive is classified as level 2. Long-term debt: The carrying amount of the mortgage with East West Bank approximates fair value as it reflects terms that approximate current market terms for similar arrangements. Under the fair value hierarchy, the mortgage is classified as level 2. 9. Property, Office Facilities, and Equipment, Net Property, office facilities, and equipment consisted of the following as of the periods indicated: As of September 30, 2023 As of December 31, 2022 Property $ 6,815,000 $ 6,815,000 Office facilities 3,806,000 2,616,000 Equipment 864,000 674,000 Total Property, office facilities, and equipment 11,485,000 10,105,000 Less accumulated depreciation ( 2,180,000 ) ( 1,777,000 ) Total Property, office facilities, and equipment, net $ 9,305,000 $ 8,328,000 Total depreciation expense for property, office facilities, and equipment was $ 168,000 and $ 102,000 for the three months ended September 30, 2023 and 2022, respectively. Total depreciation expense for property, office facilities, and equipment was $ 403,000 and $ 298,000 for the nine months ended September 30, 2023 and 2022, respectively. - 10 - 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 serves as the headquarters of the Company. Depreciation expense commenced in April 2023 when the Miami office building was completed and placed in service. The Company invested $ 299,000 and $ 296,000 in the three months ended September 30, 2023 and 2022, respectively, to build out the Miami office building. The Company invested $ 1,140,000 and $ 892,000 in the nine months ended September 30, 2023 and 2022 respectively, to build out the Miami office building. 10. Software, Net Software consisted of the following as of the periods indicated: As of September 30, 2023 As of December 31, 2022 Robo-advisor $ 763,000 $ 763,000 Other software 4,365,000 3,342,000 Total Software 5,128,000 4,105,000 Less accumulated amortization – robo-advisor ( 763,000 ) ( 763,000 ) Less accumulated amortization – other software ( 2,664,000 ) ( 2,351,000 ) Total Software, net $ 1,701,000 $ 991,000 In the fourth quarter of 2022, the Company partnered with a technology partner to develop a new retail trading platform for the Company’s customers and integrate this platform into the Company’s operations. The total capitalized software development work related to this project was $ 1,133,000 as of September 30, 2023, of which $ 219,000 and $ 776,000 was capitalized during the three and nine months ended September 30, 2023, respectively. Total amortization of software was $ 98,000 and $ 138,000 for the three months ended September 30, 2023 and 2022, respectively. Total amortization of software was $ 312,000 and $ 461,000 for the nine months ended September 30, 2023 and 2022, respectively. As of September 30, 2023, the Company estimates future amortization of software assets of $ 176,000 , $ 684,000 , $ 537,000 , and $ 304,000 in the years ended December 31, 2023, 2024, 2025, and 2026, respectively. 11. Leases As of September 30, 2023, all of the Company’s leases are classified as operating and primarily consist of office space leases expiring in 2023 through 2028. 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. 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 balance of the lease right-of-use assets and lease liabilities are displayed on the statements of financial condition and the below tables display further detail on the Company’s leases. On July 7, 2023, the Company entered into a new lease agreement expiring in December 2028 for office space in the World Financial Center in New York City. This office will replace the New Jersey office as one of the Company’s key operating centers and the total commitment of the lease is approximately $ 2.1 million. The estimated build out cost for this office space is approximately $ 500,000 . Lease Term and Discount Rate As of September 30, 2023 As of December 31, 2022 Weighted average remaining lease term – operating leases (in years) 3.9 2.7 Weighted average discount rate – operating leases 6.7 % 5.0 % - 11 - Three Months Ended September 30, Nine Months Ended September 30, 2023 2022 2023 2022 Operating lease cost $ 356,000 $ 283,000 $ 965,000 $ 1,008,000 Short-term lease cost 67,000 151,000 346,000 228,000 Variable lease cost 44,000 128,000 125,000 255,000 Total Rent and occupancy $ 467,000 $ 562,000 $ 1,436,000 $ 1,491,000 Cash paid for amounts included in the measurement of lease liabilities Operating cash flows from operating leases $ 315,000 $ 299,000 $ 969,000 $ 1,074,000 Lease right-of-use assets obtained in exchange for new lease liabilities Operating leases $ 1,693,000 $ 152,000 $ 1,693,000 $ 754,000 Lease Commitments Future annual minimum payments for operating leases with initial terms of greater than one year as of September 30, 2023 were as follows: Year Amount 2023 $ 287,000 2024 938,000 2025 861,000 2026 694,000 2027 520,000 2028 443,000 Remaining balance of lease payments 3,743,000 Less: difference between undiscounted cash flows and discounted cash flows 521,000 Lease liabilities $ 3,222,000 12. Equity Method Investment in Related Party Transaction with Tigress On November 16, 2021, the Company entered into an agreement with Tigress and a subsequent reorganization agreement with Tigress on October 18, 2022. Refer to Note 3 – Transactions with Tigress and Hedge Connection in the Company’s 2022 Form 10-K for further detail. As a result of the reorganization agreement with Tigress on October 18, 2022, the Company’s ownership interest of Tigress decreased from 24 % to 17 %. Based on the level of the Company’s ownership of Tigress, the Company concluded that it was still able to exercise significant influence over Tigress following the reorganization agreement. Therefore, the Company continued to account for this investment under the equity method of accounting through the Company’s sale of its interest in Tigress on July 10, 2023. On July 10, 2023, the Company entered into a Share Redemption Agreement with Cynthia DiBartolo, pursuant to the Share Redemption Agreement, the Company repurchased from Ms. DiBartolo one million (1,000,000) of its common stock held by Ms. DiBartolo in exchange for conveying to Ms. DiBartolo the Company’s 17% interest in Tigress. The Company has accounted for the Share Redemption Agreement as a sale of a financial asset in accordance with ASC 860. As the one million shares of Company common stock that the Company received from Ms. DiBartolo had a fair value equal to the fair value of the Company’s 17% interest in Tigress sold to Ms. DiBartolo, no gain or loss was recognized as a result of the transaction. Following the transaction, the Company had no remaining interest in Tigress. For the three months ended September 30, 2023 and 2022, the loss recognized from the Company’s investment in Tigress was $ 0 and $ 148,000 , respectively. For the nine months ended September 30, 2023 and 2022, the earnings recognized from the Company’s investment in Tigress were $ 111,000 and $ 67,000 , respectively. The Company received cash distributions from Tigress of $ 0 and $ 172,000 during the three and nine months ended September 30, 2022, respectively. - 12 - As of September 30, 2023 and December 31, 2022, the carrying amount of the Company’s investment in Tigress was $ 0 and $ 2,584,000 , respectively. Below is a table showing the summary of the consolidated statements of operations and financial condition for Tigress based on the most recent financials prior to the transaction on July 10, 2023 (unaudited): Six Months Ended June 30, 2023 2022 Revenue $ 4,025,000 $ 5,732,000 Operating income $ 650,000 $ 823,000 Net income $ 650,000 $ 823,000 As of June 30, 2023 December 31, 2022 Assets $ 8,795,000 $ 8,169,000 Liabilities $ 5,821,000 $ 5,301,000 Stockholders’ Equity $ 2,974,000 $ 2,868,000 13. Investments, Cost As of both September 30, 2023 and December 31, 2022, the Company maintained a 2 % ownership interest in a retail platform (“Retail Platform”). In June 2023, in view of the Retail Platform’s business performance and near-term business outlook that were below the Company’s previous expectations, as well as observed market transactions of the Retail Platform’s equity that were below the carrying value of the Company’s investment of the Retail Platform, the Company determined that an other than temporary impairment existed. For the three months ended September 30, 2023, the Company did not recognize an impairment charge for its investment in the Retail Platform. For the nine months ended September 30, 2023, the Company recognized an impairment charge for its investment in the Retail Platform of $ 850,000 . The impairment loss was included in “Impairment of investments” in the statements of operations for the nine months ended September 30, 2023. 14. Goodwill As of both September 30, 2023 and December 31, 2022, the Company’s carrying amount of goodwill was $ 1,989,000 , all of which came from the Company’s acquisition of RISE. As of September 30, 2023, 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 during the three and nine months ended September 30, 2023 and 2022. Additionally, the Company determined there was not a material risk for future possible impairments to goodwill as of the date of the assessment. 15. 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 part of 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 September 30, 2023, the Company was in compliance with all of its covenants related to this agreement. - 13 - Remaining Payments Future remaining annual minimum principal payments for the mortgage with East West Bank as of September 30, 2023 were as follows: Amount 2023 $ 22,000 2024 84,000 2025 88,000 2026 91,000 Thereafter 4,048,000 Total $ 4,333,000 The interest expense related to this mortgage was $ 40,000 and $ 39,000 for the three months ended September 30 , 2023, and 2022, respectively. The interest expense related to this mortgage was $ 119,000 and $ 104,000 for the nine months ended September 30 , 2023, and 2022, respectively. As of September 30, 2023, the interest rate for this mortgage was 3.6 %. Loan with East West Bank On July 22, 2020, the Company entered into a loan and security agreement with East West Bank. In accordance with the terms of this agreement, the Company borrowed $ 5.0 million and paid off the full remaining balance of the loan of approximately $ 2.7 million in the second quarter of 2023. Refer to Note 13 – Long-Term Debt in the Company’s 2022 Form 10-K for more information. 16. Deferred Contract Incentive Effective August 1, 2021, MSCO entered into an amendment to its clearing agreement with NFS that, among other things, extended the term of the 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 was recorded in 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. The Company recognized $ 213,000 and $ 196,000 in contra expense for the three months ended September 30 , 2023 and 2022, respectively. The Company recognized $ 637,000 and $ 621,000 in contra expense for the nine months ended September 30 , 2023 and 2022, respectively. As of September 30, 2023 and December 31, 2022, the balance of the deferred contract incentive was $ 1.4 million and $ 2.0 million, respectively. 17. Revenue Recognition Refer to Note 2 – Summary of Significant Accounting Policies in Company’s 2022 Form 10-K for detail on the Company’s primary sources of revenue and the corresponding accounting treatment. Information related to items that impact certain revenue streams within the periods presented is shown below. Principal Transactions and Proprietary Trading In 2022, the Company invested in treasury bill and treasury notes, which are primarily in the line item “Cash and securities segregated for regulatory purposes” on the statements of financial condition, in order to enhance its yield on its excess 15c3-3 deposits. During 2022, there was an increase in U.S. government securities yields, which created an unrealized loss on the Company’s U.S. government securities portfolio. The Company continuously invests in treasury bills and treasury notes as part of its normal operations to meet deposit requirements. The aggregate unrealized loss on the portfolio of approximately $ 1.3 million as of September 30, 2023 will be returned over the duration of the government securities, at a point no later than the maturity of the securities. Refer to Note 8 – Fair Value Measurements for additional detail. The following table represents detail related to principal transactions and proprietary trading. Three Months Ended September 30, 2023 2022 Increase (Decrease) Principal transactions and proprietary trading Realized and unrealized gain on primarily riskless principal transactions $ 2,657,000 $ 2,340,000 $ 317,000 Unrealized gain (loss) on portfolio of U.S. government securities 1,096,000 ( 1,387,000 ) 2,483,000 Total Principal transactions and proprietary trading $ 3,753,000 $ 953,000 $ 2,800,000 Nine Months Ended September 30, 2023 2022 Increase (Decrease) Principal transactions and proprietary trading Realized and unrealized gain on primarily riskless principal transactions $ 6,642,000 $ 5,956,000 $ 686,000 Unrealized gain (loss) on portfolio of U.S. government securities 2,565,000 ( 4,189,000 ) 6,754,000 Total Principal transactions and proprietary trading $ 9,207,000 $ 1,767,000 $ 7,440,000 - 14 - Stock Borrow / Stock Loan For the three and nine months ended September 30, 2023, stock borrow / stock loan revenue was $ 4,008,000 ($ 13,000,000 gross revenue less $ 8,992,000 expenses) and $ 11,963,000 ($ 34,300,000 gross revenue less $ 22,337,000 expenses), respectively. For the three and nine months ended September 30, 2022, stock borrow / stock loan revenue was $ 4,183,000 ($ 9,921,000 gross revenue minus $ 5,738,000 expenses) and $ 11,909,000 ($ 26,222,000 gross revenue less $ 14,313,000 expenses), respectively. 18. 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 September 30, 2023, the Company has concluded that its deferred tax assets are realizable on a more-likely-than-not basis with the with the exception of investments that are expected to generate a capital loss when realized and certain state net operating losses. For the three months ended September 30, 2023, the Company recorded an income tax provision of $ 1,516,000 on pre-tax book income of $ 4,273,000 . For the nine months ended September 30, 2023, the Company recorded an income tax provision of $ 3,621,000 on pre-tax book income of $ 12,321,000 . The effective tax rate for the three and nine months ended September 30, 2023 was 35 % and 29 % respectively. The effective tax rate differs from the federal statutory rate of 21 % primarily related to certain permanent tax differences and state and local taxes including the impact of finalizing the prior year tax filings. For the three months ended September 30, 2022, the Company recorded an income tax provision of $ 473,000 on pre-tax book income of $ 1,440,000 . For the nine months ended September 30, 2022, the Company recorded an income tax benefit of $ 836,000 on pre-tax book loss of $ 451,000 . The effective tax rate for the three and nine months ended September 30, 2022 was 33 % and 185 %, 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. As of both September 30, 2023 and December 31, 2022, the Company recorded an uncertain tax position of $ 1,596,000 related to various tax matters, which is included in the line item “Taxes payable” in the statements of financial condition. 19. 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 September 30, 2023, MSCO’s net capital was $ 54.1 million, which was approximately $ 52.3 million in excess of its required net capital of $ 1.8 million, and its percentage of aggregate debit balances to net capital was 60.50 %. As of December 31, 2022, MSCO’s net capital was $ 30.6 million, which was approximately $ 29.2 million in excess of its required net capital of $ 1.4 million, and its percentage of aggregate debit balances to net capital was 44.49 %. 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 September 30, 2023, MSCO had cash and securities deposits of $ 236.2 million (cash of $ 118.1 million, securities with a fair value of $ 118.1 million) in the special reserve accounts which was $ 26.1 million in excess of the deposit requirement of $ 210.1 million. After adjustments for deposit(s) and / or withdrawal(s) made on October 2, 2023, MSCO had $ 2.0 million in excess of the deposit requirement. As of December 31, 2022, MSCO had cash and securities deposits of $ 276.2 million (cash of $ 135.2 million, securities with a fair value of $ 141.0 million) in the special reserve accounts which was $ 11.9 million in excess of the deposit requirement of $ 264.3 million. The Company made no subsequent deposits or withdrawals on January 3, 2023. - 15 - As of September 30, 2023, the Company was subject to the PAB Account Rule 15c3-3 of the SEC which requires segregation of funds in a special reserve account for the exclusive benefit of proprietary accounts of introducing broker-dealers. As of September 30, 2023, the Company had $ 1.2 million in the special reserve account which was approximately $ 0.2 million in excess of the deposit requirement of approximately $ 1.0 million. The Company made no subsequent deposits or withdrawals on October 2, 2023. As of December 31, 2022, the Company did not hold any proprietary accounts of introducing broker-dealers. 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 September 30, 2023, RISE’s regulatory net capital was approximately $ 1.2 million which was $ 1.0 million in excess of its minimum requirement of $ 250,000 under 15c3-1. As of December 31, 2022, RISE’s regulatory net capital was approximately $ 1.2 million which was $ 0.9 million in excess of its minimum requirement of $ 250,000 under 15c3-1. 20. 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 2022 Form 10-K for further information. As of September 30, 2023, the Company had margin loans extended to its customers of approximately $ 359.3 million, of which $ 71.8 million is within the line item “Receivables from customers” on the statements of financial condition. As of December 31, 2022, the Company had margin loans extended to its customers of approximately $ 365.4 million, of which $ 52.1 million is in 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 nine months ended September 30, 2023 and 2022. 21. 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. As of September 30, 2023, all 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 both September 30, 2023 and December 31, 2022, MSCO had an available line of credit for short term overnight demand borrowing with BMO Harris Bank (“BMO Harris”) of up to $ 25 million. 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. 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 amount 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. For the three and nine months ended September 30, 2023 and 2022, the Company did not sell any shares pursuant to this Sales Agreement. - 16 - 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 the 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, 2024 $ 4,500,000 Prior to August 1, 2025 $ 3,250,000 For the three and nine months ended September 30, 2023 and 2022, 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 early termination fees and has not recorded any contingent liability in the financial statements related to this arrangement. Technology Vendor On March 31, 2023, the Company entered into an agreement with a technology vendor for certain development projects. As of September 30, 2023, the total budget for this project was approximately $ 1.1 million over a term of 2 years. For the three and nine months ended September 30, 2023, we incurred $ 214,000 in expenses related to this project. General Contingencies The Company’s general contingencies are included in Note 22 – Commitments, Contingencies, and Other in the Company’s 2022 Form 10-K. Other than the below, there have been no material updates to the Company’s general contingencies during the three and nine months ended September 30, 2023. The Company, through its affiliate, Kennedy Cabot Acquisition, LLC (“KCA”), is self-insured with respect to employee health claims. As part of this plan, the Company recognized expenses of $ 336,000 and $ 234,000 for the three months ended September 30, 2023 and 2022, respectively. The Company recognized expenses as part of this plan of $ 782,000 and $ 1,139,000 for the nine months ended September 30, 2023 and 2022, respectively. The Company had an accrual of $ 76,000 as of September 30, 2023, 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. As a result of the transaction and recent developments with Kakaopay, the Company has incurred and may incur additional legal expenses evaluating these matters, the amount of which is uncertain as of the date hereof. Refer to Note 5 – Kakaopay Transaction for further detail. 22. 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. For 401(k) employee contribution matching, the Company incurred $ 26,000 and $ 135,000 of expense for the three and nine months ended September 30, 2023, respectively. The Company did not incur any expense for 401(k) employee contribution matching in 2022. 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 were 3 million shares reserved under the equity incentive plan and 2,704,000 shares remained as of September 30, 2023. For the three and nine months ended September 30, 2022, the Company granted 138,000 restricted units that were fully vested upon grant date. The restricted units had a grant date fair value of $ 1.70 per share and compensation expense of $ 235,000 was recognized and is included in the line item “Employee compensation and benefits” in the statements of operations both for the three and nine months ended September 30, 2022. The Company did not issue any shares under this plan for the three and nine months ended September 30, 2023. - 17 - 23. 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 the first quarter of 2023, KCA entered into an agreement with the Company for payroll processing services. The Company incurred $ 10,000 and $ 40,000 of expenses related to these services for the three and nine months ended September 30, 2023, respectively. KCA owns a license from the Muriel Siebert Estate / Foundation to use the names “Muriel Siebert & Co., Inc.” and “Siebert” within business activities, which expires in 2025. For the use of these names, KCA passed through to the Company $ 15,000 and $ 45,000 for the three and nine months ended September 30, 2023, respectively. There were no costs passed through to the Company for the use of these names in 2022. Other than the above arrangements, 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 for the three and nine months ended September 30, 2023 and 2022. As of September 30, 2023 and December 31, 2022, the Company had a payable to KCA for miscellaneous expenses of $ 11,000 and $ 4,000 , respectively, which are in the line item “Accounts payable and accrued liabilities” on the statements of financial condition. PW PW brokers the insurance policies for related parties. Revenue for PW from related parties was $ 8,000 and $ 7,000 for the three months ended September 30, 2023 and 2022, respectively. Revenue for PW from related parties was $ 99,000 and $ 102,000 for the nine months ended September 30, 2023 and 2022, respectively. Gloria E. Gebbia, John J. Gebbia, and Gebbia Family Members On March 31, 2022, Gloria E. Gebbia, a director of the Company, exchanged approximately $ 2.9 million of the Company’s notes payable to Gloria E. Gebbia for 24 % of the outstanding and issued membership interests in RISE. The Company has entered into various notes payable with Gloria E. Gebbia . The Company paid off this notes payable in 2022 and as such, the Company had no interest expense related to these notes payable in 2023. The Company had interest expense related to these notes payable of $ 30,000 and $ 131,000 for the three and nine months ended September 30, 2022, respectively. Gloria E. Gebbia had 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 $ 748,000 and $ 820,000 for the three months ended September 30, 2023 and 2022, respectively. The compensation for the sons of Gloria E. Gebbia and John J. Gebbia was in aggregate $ 1,878,000 and $ 1,894,000 for the nine months ended September 30, 2023 and 2022, respectively. Part of their compensation includes performance-based payments related to key revenue streams. On May 22, 2023, Gloria E. Gebbia issued a warrant to BCW Securities LLC, a Delaware limited liability company, to purchase 403,780 shares of common stock of the Company held by Gloria E. Gebbia at an exercise price of $ 2.15 per share. On May 24, 2023, the Board of Directors of the Company appointed John J. Gebbia as Chairman of the Board and Chief Executive Officer. The Company compensated Gloria E. Gebbia and John J. Gebbia $ 90,000 each for the nine months ended September 30, 2023 for board of director fees. - 18 - On July 1, 2023, Gloria E. Gebbia and John J. Gebbia entered into a consulting agreement with the Company for services. The compensation for the consulting agreement for Gloria E. Gebbia was $ 30,000 for both the three and nine months ended September 30, 2023. The compensation for the consulting agreement for John J. Gebbia was $ 125,000 for both the three and nine months ended September 30, 2023. 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 September 30, 2023 and 2022, rent expense was $ 15,000 for this branch office. For both the nine months ended September 30, 2023 and 2022, rent expense was $ 45,000 for this branch office. RISE During the year ended December 31, 2022, RISE issued and Siebert sold membership interests of RISE to Siebert employees, directors and affiliates, refer to Note 4 – RISE for further detail. RISE entered into a clearing arrangement with MSCO and deposited a clearing fund escrow deposit of $ 50,000 to MSCO and had excess cash of approximately $ 1.0 million in its brokerage account at MSCO as of September 30, 2023. Kakaopay and Affiliates On April 27, 2023, the Company entered into the First Tranche Stock Purchase Agreement, pursuant to which the Company agreed to issue to Kakaopay the First Tranche Shares at a per share price of Two Dollars Fifteen Cents ($ 2.15 ). Refer to Note 5 – Kakaopay Transaction for further details on the transaction. MSCO entered into an agreement whereby it would provide an omnibus trading account for Kakaopay’s subsidiary, Kakao Pay Securities Corp., and provide trade execution services to Kakao Pay Securities Corp, subject to compliance with applicable U.S. laws, rules and regulations. 24. Subsequent Events The Company has evaluated events that have occurred subsequent to September 30, 2023 and through November 14, 2023, the date of the filing of this Report. On October 20, 2023, the Company relocated its headquarters to 653 Collins Avenue, Miami Beach, FL 33139. Since the closing of the First Tranche with Kakaopay, there have been numerous developments related to Kakaopay and the transaction with Siebert. Refer to Note 5 – Kakaopay Transaction for further detail. Based on the Company’s assessment, other than the events 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 September 30, 2023. - 19 -