SIEBERT FINANCIAL CORP 10-Q

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. In addition to our historical consolidated financial information, the following discussion contains forward-looking statements that reflect our plans, estimates, and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to these differences include those discussed below and elsewhere in our 2023 Form 10-K, particularly in Part I, Item 1A – Risk Factors. Overview We are a financial services company and provide a wide variety of financial services to our clients. We operate in business lines such as retail brokerage, investment advisory, insurance, and technology development through our wholly-owned and majority-owned subsidiaries. Results in the businesses in which we operate are highly correlated to general economic conditions and, more specifically, to the direction of the U.S. equity and fixed-income markets. Market volatility, overall market conditions, interest rates, economic, political, and regulatory trends, and industry competition are among the factors which could affect us and which are unpredictable and beyond our control. These factors affect the financial decisions made by market participants who include investors and competitors, impacting their level of participation in the financial markets. In addition, in periods of reduced financial market activity, profitability is likely to be adversely affected because certain expenses remain relatively fixed, including salaries and related costs, as well as portions of communications costs and occupancy expenses. Accordingly, earnings for any period should not be considered representative of earnings to be expected for any other period. Financial Overview Earnings per share were $0.10 for the current quarter, compared to earnings per share of $0.07 for the prior-year quarter. For the current quarter, our net revenues were $22.6 million and operating income before taxes was $4.8 million, compared to net revenues of $18.1 million and operating income before taxes of $4.3 million in the prior-year quarter. Financial highlights as of September 30, 2024: ● Retail customer net worth increased by 10% to $17.5 billion compared to December 31, 2023 ● Stock borrow / stock loan increased by 44% to 5.8 million compared to the prior-year quarter ● Commissions and fees increased by 19% to $2.3 million compared to the prior-year quarter Trends and Key Factors Affecting our Operations Market Risk Market risk is our risk of loss resulting from the impact of changes in market prices on our trading inventory and investment positions. We have exposure to market risk primarily through our broker-dealer trading operations. Through our broker-dealer subsidiary, we trade debt obligations and equity securities and maintain trading inventories to ensure availability of securities to facilitate client transactions. Inventory levels may fluctuate daily as a result of client demand. Our primary market risks relate to interest rates and equity prices. Equity risk results from changes in prices of equity securities, affecting the value of the equity securities and other instruments that derive their value from a particular stock. We may enter into underwriting commitments and, as a result, we may be subject to market risk on any unsold securities issued in the offerings to which we are committed. Risk exposure is controlled by limiting our participation, the transaction size, or through the syndication process. Interest Rate Risk We are exposed to market risk from changes in interest rates. Such changes in interest rates primarily impact revenue from interest, marketing, and distribution fees. We primarily earn interest, marketing and distribution fees from margin interest charged on clients’ margin balances, interest on cash and securities segregated for regulatory purposes, and distribution fees from money market mutual funds in clients’ accounts. Securities segregated for regulatory purposes consist solely of U.S. government securities. If prices of U.S. government securities within our portfolio decline, we anticipate the impact to be temporary as we intend to hold these securities to maturity. We seek to mitigate this risk by managing the average maturities of our U.S. government securities portfolio and setting risk parameters for securities owned, at fair value. - 21 - The following table presents simulated changes to net interest revenue over the next 12 months beginning September 30, 2024 and December 31, 2023 of a gradual increase or decrease in market interest rates relative to prevailing market rates at the end of each reporting period: As of September 30, 2024 December 31, 2023 Increase of 200 basis points 26 % 35 % Increase of 100 basis points 12 % 19 % Increase of 50 basis points 6 % 4 % Decrease of 50 basis points (8 )% (3 )% Decrease of 100 basis points (14 )% (11 )% Decrease of 200 basis points (28 )% (26 )% The difference in our simulated incremental increases and decreases in the market interest rates as of September 30, 2024 compared to December 31, 2023 is primarily due to an increase in the proportion of segregated cash to segregated securities and an increase in the proportion of margin debit balances to cash credit balances. Technology Initiatives At the end of 2023, we hired new technology personnel, changed our primary software development vendor, and made investments in technology development. Some of these technology investments include the development of a Siebert mobile retail trading application, online platform for our retail customer base and corporate services clients, as well as upgrades to our technological and operational infrastructure to support these platforms and future growth. We believe that these ongoing investments in technology will be key in meeting the needs of our retail customers, correspondent clearing, corporate services as well as our expansion into new markets and demographics. Client Account and Activity Metrics The following tables set forth metrics we use in analyzing our client account and activity trends for the periods indicated. Client Account Metrics As of September 30, 2024 December 31, 2023 Retail customer net worth (in billions) $ 17.5 $ 15.9 Retail customer margin debit balances (in billions) $ 0.4 $ 0.3 Retail customer credit balances (in billions) $ 0.4 $ 0.5 Retail customer money market fund value (in billions) $ 0.8 $ 0.7 Retail customer accounts 158,594 153,727 ● 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 represent credit extended to our customers to finance their purchases against current positions ● Retail customer credit balances represent 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 represent the number of retail customers Statements of Operations and Financial Condition Statements of Operations for the Three Months Ended September 30, 2024 and 2023 Revenue Commissions and fees for the three months ended September 30, 2024 were $2,270,000 and increased by $367,000 from the corresponding period in the prior year, primarily due to strong market conditions. - 22 - Interest, marketing and distribution fees for the three months ended September 30, 2024 were $8,350,000 and increased by $1,156,000 from the corresponding period in the prior year primarily due to an increase in interest income received on U.S. government securities and bank deposits. Principal transactions and proprietary trading for the three months ended September 30, 2024 were $4,197,000 and increased by $444,000 from the corresponding period in the prior year, primarily due to the factors discussed below. The increase in realized and unrealized gain on primarily riskless principal transactions was primarily due to strong market conditions. The increase in unrealized gain on our portfolio of U.S. government securities was due to the following. We invested in 1-year treasury bills and 2-year treasury notes in order to enhance our yield on excess 15c3-3 deposits. During 2022, there was an increase in U.S. government securities yields, which created an unrealized loss on our U.S. government securities portfolio. In 2023, we began to record substantially all of the reversal of the unrealized loss resulting in an unrealized gain due to the securities coming closer to maturity. We continually invest in US government securities based on market yields and cash needs. Below is a summary of the change in the principal transactions and proprietary trading line item for the periods presented. Three Months Ended September 30, 2024 2023 Increase (Decrease) Principal transactions and proprietary trading Realized and unrealized gain on primarily riskless principal transactions $ 3,865,000 $ 2,657,000 $ 1,208,000 Realized and unrealized gain on portfolio of U.S. government securities 332,000 1,096,000 (764,000 ) Total Principal transactions and proprietary trading $ 4,197,000 $ 3,753,000 $ 444,000 Market making for the three months ended September 30, 2024 was $597,000 and increased by $374,000 from the corresponding period in the prior year, primarily due to strong equity markets. Stock borrow / stock loan for the three months ended September 30, 2024 was $5,784,000 and increased by $1,776,000 from the corresponding period in the prior year, primarily due to growth in stock locate services. Advisory fees for the three months ended September 30, 2024 were $629,000 and increased by $123,000 from the corresponding period in the prior year, primarily due to growth in platform assets. Other income for the three months ended September 30, 2024 was 733,000 and increased by $270,000 from the corresponding period in the prior year, primarily due to fees related to administrative services. Operating Expenses Employee compensation and benefits for the three months ended September 30, 2024 were $11,886,000 and increased by $3,163,000 from the corresponding period in the prior year, primarily due to an increase in commission payouts, executive compensation, as well as additional personnel related to technology initiatives. Clearing fees, including execution costs for the three months ended September 30, 2024 were $345,000 and decreased by $236,000 from the corresponding period in the prior year, primarily due to a reduction in volume. Technology and communications expenses for the three months ended September 30, 2024 were $1,147,000 and increased by $320,000 from the corresponding period in the prior year, primarily due to an expansion of technological infrastructure. Other general and administrative expenses for the three months ended September 30, 2024 were $1,070,000 and decreased by $38,000 from the corresponding period in the prior year. Data processing expenses for the three months ended September 30, 2024 were $894,000 and increased by $169,000 from the corresponding period in the prior year, primarily due to increased market activities. Rent and occupancy expenses for the three months ended September 30, 2024 were $365,000 and decreased by $102,000 from the corresponding period in the prior year, primarily due to the expiration of short term leases. Professional fees for the three months ended September 30, 2024 were $1,464,000 and increased by $485,000 from the corresponding period in the prior year primarily due to an increase in legal and accounting fees offset by an decrease in consulting services. - 23 - Depreciation and amortization expenses for the three months ended September 30, 2024 were $350,000 and increased by $85,000 from the corresponding period in the prior year, primarily due to an increase in depreciation related to office facilities in 2024. Interest expense for the three months ended September 30, 2024 was $72,000 and increased by $32,000 from the corresponding period in the prior year, primarily due to the interest related to an agreement with Kakaopay in 2024. Advertising and promotion expense for the three months ended September 30, 2024 was $128,000 and increased by $66,000 from the corresponding period in the prior year, primarily due to a reversal related to advertising expenses in 2023 as well as an increase in marketing initiatives in 2024. Provision For (Benefit From) Income Taxes The provision from income taxes for the three months ended September 30, 2024 was $1,005,000 and decreased by $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 impact of finalizing the prior year tax filings in the third quarter of 2024. Refer to Note 16 – Income Taxes for additional detail. Net Income (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 interest in our financial statements. The net income attributable to noncontrolling interests for the three months ended September 30, 2024 was $8,000, and increased by $12,000 from the corresponding period in the prior year. Statements of Operations for the Nine Months Ended September 30, 2024 and 2023 Revenue Commissions and fees for the nine months ended September 30, 2024 were $7,173,000 and increased by $1,566,000 from the corresponding period in the prior year, primarily due to strong market conditions. Interest, marketing and distribution fees for the nine months ended September 30, 2024 were $24,948,000 and increased by $3,365,000 from the corresponding period in the prior year primarily due to an increase in interest income received on U.S. government securities and bank deposits. Principal transactions and proprietary trading for the nine months ended September 30, 2024 were $11,277,000 and increased by $2,070,000 from the corresponding period in the prior year, primarily due to the factors discussed below. The increase in realized and unrealized gain on primarily riskless principal transactions was primarily due to strong market conditions. The increase in unrealized gain on our portfolio of U.S. government securities was due to the following. We invested in 1-year treasury bills and 2-year treasury notes in order to enhance our yield on excess 15c3-3 deposits. During 2022, there was an increase in U.S. government securities yields, which created an unrealized loss on our U.S. government securities portfolio. In 2023, we began to record substantially all of the reversal of the unrealized loss resulting in an unrealized gain due to the securities coming closer to maturity. We continually invest in US government securities based on market yields and cash needs. Below is a summary of the change in the principal transactions and proprietary trading line item for the periods presented. Nine Months Ended September 30 2024 2023 Increase (Decrease) Principal transactions and proprietary trading Realized and unrealized gain on primarily riskless principal transactions $ 10,788,000 $ 6,642,000 $ 4,146,000 Realized and unrealized gain on portfolio of U.S. government securities 489,000 2,565,000 (2,076,000 ) Total Principal transactions and proprietary trading $ 11,277,000 $ 9,207,000 $ 2,070,000 Market making for the nine months ended September 30, 2024 was $1,706,000 and increased by $870,000 from the corresponding period in the prior year, primarily due to strong equity markets. Stock borrow / stock loan for the nine months ended September 30, 2024 was $14,578,000 and increased by $2,615,000 from the corresponding period in the prior year, primarily due to a growth in stock locate services. Advisory fees for the nine months ended September 30, 2024 were $1,670,000 and increased by $249,000 from the corresponding period in the prior year, primarily due to growth in platform assets. Other income for the nine months ended September 30, 2024 was $2,527,000 and increased by $1,332,000 from the corresponding period in the prior year, primarily due to fees related to administrative services. - 24 - Operating Expenses Employee compensation and benefits for the nine months ended September 30, 2024 were $32,569,000 and increased by $8,799,000 from the corresponding period in the prior year, primarily due to an increase in commission payouts, executive compensation, as well as additional personnel related to technology initiatives. Clearing fees, including execution costs for the nine months ended September 30, 2024 were $1,011,000 and decreased by $254,000 from the corresponding period in the prior year, primarily due to a reduction in volume. Technology and communications expenses for the nine months ended September 30, 2024 were $2,903,000 and increased by $494,000 from the corresponding period in the prior year, primarily due to an expansion of technological infrastructure. Other general and administrative expenses for the nine months ended September 30, 2024 were $3,169,000 and decreased by $151,000 from the corresponding period in the prior year, primarily due to a decrease in office expenses. Data processing expenses for the nine months ended September 30, 2024 were $2,377,000 and increased by $60,000 from the corresponding period in the prior year, primarily due to increased market activities. Rent and occupancy expenses for the nine months ended September 30, 2024 were $1,240,000 and decreased by $196,000 from the corresponding period in the prior year, primarily due to a discontinued rent expense related to the temporary Miami office. Professional fees for the nine months ended September 30, 2024 were $3,741,000 and increased by $681,000 from the corresponding period in the prior year primarily due to an increase in legal and accounting fees offset by an decrease in consulting services. Depreciation and amortization expenses for the nine months ended September 30, 2024 were $941,000 and increased by $225,000 from the corresponding period in the prior year, primarily due to an increase in depreciation related to office facilities in 2024. Interest expense for the nine months ended September 30, 2024 was $183,000 and decreased by $39,000 from the corresponding period in the prior year, primarily due to the repayment of a loan with East West Bank in the second quarter of 2023. Advertising and promotion expense for the nine months ended September 30, 2024 was $225,000 and increased by $173,000 from the corresponding period in the prior year, primarily due to a reversal related to advertising expenses in 2023 as well as an increase in marketing initiatives in 2024. Non-Operating Income (Loss) The earnings of equity method investment in related party for the nine months ended September 30, 2024 was $0 and decreased by $111,000 from the corresponding period in the prior year, primarily due to the exit of our investment in Tigress in the third quarter of 2023. The impairment of investment for the nine months ended September 30, 2024 was $0 and decreased by $1,035,000 from the corresponding period in the prior year, primarily due to the impairment of our investment in a trading technology provider and the impairment of our investment in Tigress occurring in 2023. Provision For (Benefit From) Income Taxes The provision from income taxes for the nine months ended September 30, 2024 was $3,952,000 and increased by $331,000 from the corresponding period in the prior year. The change from the corresponding period in the prior year is primarily due to increased pre-tax earnings in the nine months ending September 30, 2024. Refer to Note 16 – Income Taxes for additional detail. Net Income (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 interest in our financial statements. The net income attributable to noncontrolling interests for the nine months ended September 30, 2024 was $14,000, and decreased by $26,000 from the corresponding period in the prior year,. - 25 - Statements of Financial Condition As of September 30, 2024 and December 31, 2023 Assets Assets as of September 30, 2024 were $579,156,000 and decreased by $222,644,000 from December 31, 2023, primarily due to a decrease in cash and securities segregated for regulatory purposes and securities borrowed. Liabilities Liabilities as of September 30, 2024 were $495,833,000 and decreased by $235,258,000 from December 31, 2023, primarily due to a decrease in payables to customers and securities loaned. Liquidity and Capital Resources Overview As of September 30, 2024, a significant portion of our assets were liquid in nature, providing us with flexibility in financing our business. A significant portion of our assets not held by customers or used for stock borrow / stock loan consisted primarily of cash and cash equivalents, securities owned, at fair value, which are marked-to-market daily, and receivables from and deposits with broker-dealers and clearing organizations. We expect to use our available cash, cash equivalents, and potential future borrowings under our debt agreements and potential issuance of new debt or equity, to support and invest in our core business, including investing in new ways to serve our customers, potentially seeking strategic acquisitions to leverage existing capabilities, and for general capital needs (including capital, deposit, and collateral requirements imposed by regulators and SROs). Based on our current level of operations, we believe our available cash, available lines of credit, overall access to capital markets, and cash provided by operations will be adequate to meet our current liquidity needs for the foreseeable future. As of the date of this Report, other than the items detailed in the section below, there are no known or material events that would require us to use large amounts of our liquid assets to cover expenses. Kakaopay The net capital infusion from Kakaopay to Siebert from the First Tranche transaction was approximately $14.8 million after the issuance cost. This capital is currently being used to enhance our regulatory capital, and is primarily invested in U.S. government securities and is in the line item “Securities owned, at fair value” on the statements of financial condition. Refer to Note 5 – Kakaopay Transaction in our 2023 Form 10-K for further detail. Credit Agreement On August 15, 2024, we entered into the Credit Agreement with East West Bank providing a $20 million revolving credit facility, which offers substantial financial flexibility to support our strategic initiatives. This credit facility allows the Company to fund acquisitions, execute stock buybacks, and meet general corporate needs up to $10 million, ensuring access to capital for both growth and operational purposes. The two-year term of the Credit Agreement, combined with a competitive interest rate structure that is tied to either the one-month Term SOFR plus 3.15% or a minimum of 7.50%, provides a stable and predictable financing source. The personal guarantees provided by key executives, John J. Gebbia and Gloria E. Gebbia, and their trust, further strengthen the Company’s borrowing position and help secure favorable terms. Cash and Cash Equivalents Our cash and cash equivalents were $4.4 million and $5.7 million as of September 30, 2024 and December 31, 2023, respectively. - 26 - Debt Agreements We have $4.2 million outstanding on our mortgage with East West Bank and an unutilized line of credit for short term overnight demand borrowing of up to $25 million with BMO Harris as of September 30, 2024. As of September 30, 2024, we were in compliance with all covenants related to our mortgage agreement. Cash Requirements The following table summarizes our short- and long-term material cash requirements as of September 30, 2024. Payments Due By Period 2024 2025 2026 2027 2028 Thereafter Total Operating lease commitments $ 209,000 $ 909,000 $ 694,000 $ 520,000 $ 443,000 $ — $ 2,775,000 Kakaopay fee (1) 1,000,000 2,000,000 1,000,000 — — — 4,000,000 Mortgage with East West Bank (2) 22,000 88,000 91,000 95,000 98,000 3,855,000 4,249,000 Technology vendors (3) 39,000 1,521,000 — — — — 1,560,000 Broadridge contract (4) 102,000 407,000 170,000 — — — 679,000 Total $ 1,372,000 $ 4,925,000 $ 1,955,000 $ 615,000 $ 541,000 $ 3,855,000 $ 13,263,000 (1) Pursuant to the Settlement Agreement with Kakaopay, we will pay Kakaopay a fee of $5 million payable in ten quarterly installments beginning in the first quarter of 2024. Refer to Note 5 – Kakaopay Transaction in our 2023 Form 10-K for further detail. (2) On December 30, 2021, we purchased the Miami office building and financed part of the purchase price with a mortgage with East West Bank. (3) We have entered into agreements with technology vendors for certain development projects related to our Retail Platform. As of September 30, 2024, we have incurred approximately $2.8 million out of the $4.4 million total budget for these vendors. (4) In June 2023, we entered into an amendment to its service agreement with Broadridge Securities Processing Solutions, LLC with a total minimum expense of approximately $1.2 million for this arrangement. Shelf Registration Statement On February 18, 2022, we filed a shelf registration statement on Form S-3 that was declared effective on March 2, 2022 by the SEC for the potential offering, issuance and sale by Siebert of up to $100.0 million of our common stock, preferred stock, warrants to purchase our common stock and/or preferred stock, units consisting of all or some of these securities and subscription rights to purchase all or some of these securities. However, since we filed the 2023 Form 10-K after its scheduled due date, we no longer satisfy the eligibility requirements for use of registration statements on Form S-3, which requires that we file in a timely manner all reports required to be filed during the prior twelve calendar months. As a result, we have suspended use of the shelf registration statement. Net Capital, Reserve Accounts, Segregation of Funds, and Other Regulatory Requirements MSCO is subject to the Uniform Net Capital Rules of the SEC (Rule 15c3-1) and the Customer Protection Rule (15c3-3) of the Exchange Act and maintains capital and segregated cash reserves in excess of regulatory requirements. Requirements under these regulations may vary; however, MSCO has adequate reserves and contingency funding plans in place to sufficiently meet any regulatory requirements. In addition to net capital requirements, as a self-clearing broker-dealer, MSCO is subject to cash deposit and collateral requirements with clearing houses, such as the DTCC and OCC, which may fluctuate significantly from time to time based upon the nature and size of clients’ trading activity and market volatility. RISE, as a member of FINRA, is subject to the SEC Uniform Net Capital Rule 15c3-1 and the corresponding regulatory capital requirements. MSCO can transfer funds to Siebert as long as MSCO maintains its liquidity and regulatory capital requirements. RISE can transfer funds to its shareholders, of which Siebert is entitled to its proportional ownership interest, as long as RISE maintains its liquidity and regulatory capital requirements. For the three and nine months ended September 30, 2024 and 2023, MSCO and RISE had sufficient net capital to meet their respective liquidity and regulatory capital requirements. Refer to Note 17 – Capital Requirements for more detail about our capital requirements. Cash Flows Cash used in operating activities consisted of net income adjusted for certain non-cash items. Net operating assets and liabilities at any specific point in time are subject to many variables, including variability in customer activity, the timing of cash receipts and payments, and vendor payment terms. The total changes in our statements of cash flows, especially our operating cash flow, are not necessarily indicative of the ongoing results of our business as we have customer assets and liabilities on our statements of financial condition. - 27 - For the nine months ended September 30, 2024, cash used in operating activities decreased by $15.9 million compared to the prior year period, which was primarily driven by the net change in securities borrowed and securities loaned, receivables from broker-dealers and clearing organizations, receivables from customers, payables to non-customers and securities owned, at fair value. For the nine months ended September 30, 2024, cash used in investing activities increased by $3.4 million compared to the prior year period, which was primarily driven by the purchase of software related to the Retail Platform as well as the acquisition of GE in 2024. For the nine months ended September 30, 2024, cash flows used in financing activities decreased by $13.1 million compared to 2023, which was primarily driven by the issuance of shares related to the transaction with Kakaopay in 2023. Long Term Contracts Effective August 1, 2021, MSCO entered into an amendment to its clearing agreement with NFS that, among other things, extends the term of their arrangement for an additional four-year period commencing on August 1, 2021 and ending July 31, 2025. As part of this agreement, we received a one-time business development credit of $3 million, and NFS will pay us four annual credits of $100,000 over the term of the agreement. The amendment also provides for an early termination fee; however, as of September 30, 2024, we do not expect to terminate the contract with NFS before the end of the contract term. Refer to Note 14 – Deferred Contract Incentive and Note 19 – Commitments, Contingencies and Other for additional detail. Effective June 2023, MSCO entered into an amendment to its service agreement with Broadridge Securities Processing Solutions, LLC that, among other things, extends the term of their arrangement for a five-year period ending June 2028, with an option to terminate after three years. The total minimum expense for this arrangement is estimated at approximately $1.2 million over the duration of the contract. Off-Balance Sheet Arrangements We enter into various transactions to meet the needs of customers, conduct trading activities, and manage market risks and are, therefore, subject to varying degrees of market and credit risk. In the normal course of business, our customer activities involve the execution, settlement, and financing of various customer securities transactions. These activities may expose us to off-balance sheet risk in the event the customer or other broker is unable to fulfill their contracted obligations and we are forced to purchase or sell the financial instrument underlying the contract at a loss. There were no material losses for unsettled customer transactions for the three and nine months ended September 30, 2024 and 2023. Refer to Note 18 – 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 both September 30, 2024 and December 31, 2023, the Company recorded an uncertain tax position of $1,405,000 related to various tax matters, which is included in the line item “Taxes payable” in the statements of financial condition. Critical Accounting Policies and Estimates 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 2023 Form 10-K. As of September 30, 2024, there have been no changes to our critical accounting policies or estimates. - 28 - New Accounting Standards In November 2023, the FASB issued ASU 2023-07, “Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures.” This ASU updates reportable segment disclosure requirements primarily through enhanced disclosures about significant segment expenses. This ASU is effective for all entities for fiscal years beginning after December 15, 2023, and for interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted. The amendments should be applied retrospectively to all prior periods presented in the financial statements. We are currently evaluating this ASU to determine its impact on the Company’s disclosures. In December 2023, the FASB issued ASU 2023-09, “Improvements to Income Tax Disclosures” (“ASU 2023-09”). The ASU is intended to enhance the transparency and decision usefulness of income tax disclosures. The amendments in the ASU address investor requests for enhanced income tax information primarily through changes to the rate reconciliation and income taxes paid information. ASU 2023-09 will be effective for us for annual periods beginning after December 15, 2024, though early adoption is permitted. We are still evaluating the presentational effect that ASU 2023-09 will have on our consolidated financial statements, but we expect considerable changes to our income tax footnote. Refer to Note 2 – New Accounting Standards for additional information regarding new ASUs issued by the FASB.