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Acquisitions | 9 Months Ended
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Sep. 30, 2020
Acquisitions Abstract |
Acquisitions | 3. Acquisitions StockCross Overview of Acquisition Established in 1971, StockCross was one of the largest privately-owned brokerage firms in the nation and its operations consisted primarily of market making, fixed-income products distribution, online or broker-assisted equity trading, securities lending, and equity stock plan services. Prior to being acquired by the Company, StockCross and the Company were affiliated entities through common ownership and had various related party transactions. In January 2019, the Company acquired approximately 15% ownership of StockCross. Effective January 1, 2020, pursuant to an Agreement and Plan of Merger, the Company acquired the remaining 85% of StockCross’ outstanding shares and StockCross was merged with and into MSCO. The purchase price paid was approximately $29,750,000 or 3,298,774 shares of the Company’s restricted common stock which was issued in connection with the acquisition. Prior to the acquisition, MSCO had a clearing agreement with StockCross whereby StockCross provided custody and clearing services to MSCO for its securities broker-dealer business; however, as of January 1, 2020, all clearing and other services provided by StockCross are performed by MSCO. Accounting for Acquisition Prior to and as of the date of the acquisition, the Company and StockCross were entities under common control of the Gebbia Family. As such, the acquisition was accounted for as a transaction between entities under common control. A common-control transaction is similar to a business combination for the Company as it is the entity that received the net assets of StockCross; however, this common-control transaction does not meet the definition of a business combination in accordance with GAAP because there is no change in control over the net assets. The acquisition represented a change in reporting entity. As such, upon the closing of the acquisition, the net assets of the Company were combined with those of StockCross at their historical carrying amounts. The companies have been presented on a combined basis for all periods presented in the financial statements in a manner similar to a pooling of interests, as the period of common control existed prior to the periods presented in the financial statements. Accordingly, the historical financial statements of the Company have been presented under the “as if pooling” method. Prior to the Company’s acquisition of StockCross, StockCross sold its treasury stock totaling $172,000 to third parties and the Company purchased approximately 15% of the outstanding shares of StockCross from an unrelated party for $3,665,000. On September 5, 2019, StockCross made a return of capital distribution in the aggregate amount of $1.6 million, of which the Company received approximately 15%, or $241,000. All of these cash transactions are reflected in the “Cash flows from financing activities” section of the statements of cash flows for the nine months ended September 30, 2019. Assets Acquired and Liabilities Assumed The Company acquired various assets and liabilities from StockCross which were recorded at their historical carrying amounts and summarized below:
|  | Historical Carrying Value |
Assets acquired |  |  |
Cash and cash equivalents |  | $ | 1,588,000 |
Cash and securities segregated for regulatory purposes |  |  | 224,814,000 |
Receivables from customers |  |  | 86,331,000 |
Receivables from broker-dealers and clearing organizations |  |  | 3,105,000 |
Other receivables |  |  | 627,000 |
Prepaid expenses and other assets |  |  | 346,000 |
Securities borrowed |  |  | 193,529,000 |
Securities owned, at fair value |  |  | 3,018,000 |
Furniture, equipment and leasehold improvements, net |  |  | 19,000 |
Lease right-of-use assets |  |  | 1,141,000 |
Deferred tax assets |  |  | 407,000 |
Total Assets acquired |  |  | 514,925,000 |
Liabilities assumed |  |  |  |
Payables to customers |  |  | 308,091,000 |
Payables to non-customers |  |  | 9,151,000 |
Drafts payable |  |  | 2,834,000 |
Payables to broker-dealers and clearing organizations |  |  | 1,406,000 |
Accounts payable and accrued liabilities |  |  | 963,000 |
Securities loaned |  |  | 170,443,000 |
Securities sold, not yet purchased, at fair value |  |  | 28,000 |
Notes payable – related party |  |  | 5,000,000 |
Lease liabilities |  |  | 1,295,000 |
Total Liabilities assumed |  |  | 499,211,000 |
Net Assets acquired |  | $ | 15,714,000 |
Pro Forma Statements The following pro forma financial statements present the statements of income of the Company as if the acquisition of StockCross had occurred on January 1, 2019, inclusive of pro forma adjustments (unaudited). The combined results of these pro forma financial statements are also reflected in the Company’s financial statements for the periods presented for 2019. StockCross’ financial statements have already been consolidated in the Company’s financial statements for the periods presented for 2020: Statements of Operations Three Months Ended September 30, 2019 (unaudited)
|  | Three Months Ended September 30, 2019 |
|  | Siebert |  |  | StockCross |  |  | Pro Forma Adjustments |  |  | Total Combined Siebert |
Revenue |  |  |  |  |  |  |  |  |  |  |  |
Commissions and fees |  | $ | 1,925,000 |  |  | $ | 348,000 |  |  | $ | — |  |  | $ | 2,273,000 |
Margin interest, marketing and distribution fees |  |  | 2,944,000 |  |  |  | 968,000 |  |  |  | — |  |  |  | 3,912,000 |
Principal transactions |  |  | 2,041,000 |  |  |  | 286,000 |  |  |  | — |  |  |  | 2,327,000 |
Interest income |  |  | 23,000 |  |  |  | 1,038,000 |  |  |  | — |  |  |  | 1,061,000 |
Market making |  |  | — |  |  |  | 330,000 |  |  |  | — |  |  |  | 330,000 |
Stock borrow / stock loan |  |  | — |  |  |  | 349,000 |  |  |  | — |  |  |  | 349,000 |
Advisory fees |  |  | 211,000 |  |  |  | — |  |  |  | — |  |  |  | 211,000 |
Other income |  |  | — |  |  |  | 351,000 |  |  |  | (61,000 | ) |  |  | 290,000 |
Total Revenue |  |  | 7,144,000 |  |  |  | 3,670,000 |  |  |  | (61,000 | ) |  |  | 10,753,000 |
Expenses |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Employee compensation and benefits |  |  | 3,157,000 |  |  |  | 1,652,000 |  |  |  | — |  |  |  | 4,809,000 |
Clearing fees, including execution costs |  |  | 617,000 |  |  |  | 242,000 |  |  |  | (61,000 | ) |  |  | 798,000 |
Technology and communications |  |  | 291,000 |  |  |  | 150,000 |  |  |  | — |  |  |  | 441,000 |
Other general and administrative |  |  | 589,000 |  |  |  | 279,000 |  |  |  | — |  |  |  | 868,000 |
Data processing |  |  | — |  |  |  | 527,000 |  |  |  | — |  |  |  | 527,000 |
Rent and occupancy |  |  | 380,000 |  |  |  | 250,000 |  |  |  | — |  |  |  | 630,000 |
Professional fees |  |  | 439,000 |  |  |  | 344,000 |  |  |  | — |  |  |  | 783,000 |
Depreciation and amortization |  |  | 244,000 |  |  |  | — |  |  |  | — |  |  |  | 244,000 |
Interest expense |  |  | — |  |  |  | 31,000 |  |  |  | — |  |  |  | 31,000 |
Total Expenses |  |  | 5,717,000 |  |  |  | 3,475,000 |  |  |  | (61,000 | ) |  |  | 9,131,000 |
Earnings of equity method investment in related party |  |  | 30,000 |  |  |  | — |  |  |  | (30,000 | ) |  |  | — |
Income before provision (benefit) for (from) income taxes |  |  | 1,457,000 |  |  |  | 195,000 |  |  |  | (30,000 | ) |  |  | 1,622,000 |
Provision (benefit) for (from) income taxes |  |  | 353,000 |  |  |  | 4,000 |  |  |  | (8,000 | ) |  |  | 349,000 |
Net income / (loss) |  | $ | 1,104,000 |  |  | $ | 191,000 |  |  | $ | (22,000 | ) |  | $ | 1,273,000 |
Net income per share of common stock |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Basic and diluted |  | $ | 0.04 |  |  | $ | 0.03 |  |  |  |  |  |  | $ | 0.04 |
Weighted average shares outstanding |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Basic and diluted |  |  | 27,157,188 |  |  |  | 6,152,500 |  |  |  |  |  |  |  |  |
Pro forma shares used to compute net income per share |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 30,455,962 |
Nine Months Ended September 30, 2019 (unaudited)
|  | Nine Months Ended September 30, 2019 |
|  | Siebert |  |  | StockCross |  |  | Pro Forma Adjustments |  |  | Total Combined Siebert |
Revenue |  |  |  |  |  |  |  |  |  |  |  |
Commissions and fees |  | $ | 6,030,000 |  |  | $ | 1,102,000 |  |  | $ | — |  |  | $ | 7,132,000 |
Margin interest, marketing and distribution fees |  |  | 8,499,000 |  |  |  | 2,662,000 |  |  |  | — |  |  |  | 11,161,000 |
Principal transactions |  |  | 5,479,000 |  |  |  | 659,000 |  |  |  | — |  |  |  | 6,138,000 |
Interest income |  |  | 54,000 |  |  |  | 3,363,000 |  |  |  | — |  |  |  | 3,417,000 |
Market making |  |  | — |  |  |  | 1,303,000 |  |  |  | — |  |  |  | 1,303,000 |
Stock borrow / stock loan |  |  | — |  |  |  | 1,353,000 |  |  |  | — |  |  |  | 1,353,000 |
Advisory fees |  |  | 572,000 |  |  |  | — |  |  |  | — |  |  |  | 572,000 |
Other income |  |  | — |  |  |  | 816,000 |  |  |  | (183,000 | ) |  |  | 633,000 |
Total Revenue |  |  | 20,634,000 |  |  |  | 11,258,000 |  |  |  | (183,000 | ) |  |  | 31,709,000 |
Expenses |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Employee compensation and benefits |  |  | 8,882,000 |  |  |  | 4,930,000 |  |  |  | — |  |  |  | 13,812,000 |
Clearing fees, including execution costs |  |  | 1,849,000 |  |  |  | 659,000 |  |  |  | (183,000 | ) |  |  | 2,325,000 |
Technology and communications |  |  | 800,000 |  |  |  | 464,000 |  |  |  | — |  |  |  | 1,264,000 |
Other general and administrative |  |  | 1,861,000 |  |  |  | 926,000 |  |  |  | — |  |  |  | 2,787,000 |
Data processing |  |  | — |  |  |  | 1,487,000 |  |  |  | — |  |  |  | 1,487,000 |
Rent and occupancy |  |  | 995,000 |  |  |  | 759,000 |  |  |  | — |  |  |  | 1,754,000 |
Professional fees |  |  | 1,388,000 |  |  |  | 1,180,000 |  |  |  | — |  |  |  | 2,568,000 |
Depreciation and amortization |  |  | 670,000 |  |  |  | 19,000 |  |  |  | — |  |  |  | 689,000 |
Interest expense |  |  | — |  |  |  | 84,000 |  |  |  | — |  |  |  | 84,000 |
Total Expenses |  |  | 16,445,000 |  |  |  | 10,508,000 |  |  |  | (183,000 | ) |  |  | 26,770,000 |
Earnings of equity method investment in related party |  |  | 84,000 |  |  |  | — |  |  |  | (84,000 | ) |  |  | — |
Income before provision (benefit) for (from) income taxes |  |  | 4,273,000 |  |  |  | 750,000 |  |  |  | (84,000 | ) |  |  | 4,939,000 |
Provision (benefit) for (from) income taxes |  |  | 1,171,000 |  |  |  | 218,000 |  |  |  | (24,000 | ) |  |  | 1,365,000 |
Net income / (loss) |  | $ | 3,102,000 |  |  | $ | 532,000 |  |  | $ | (60,000 | ) |  | $ | 3,574,000 |
Net income per share of common stock |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Basic and diluted |  | $ | 0.11 |  |  | $ | 0.09 |  |  |  |  |  |  | $ | 0.12 |
Weighted average shares outstanding |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Basic and diluted |  |  | 27,157,188 |  |  |  | 6,152,500 |  |  |  |  |  |  |  |  |
Pro forma shares used to compute net income per share |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 30,455,962 |
Statements of Financial Condition
|  | As of December 31, 2019 |
|  | Siebert |  |  | StockCross |  |  | Pro Forma Adjustments (unaudited) |  |  | Total Combined Siebert (unaudited) |
ASSETS |  |  |  |  |  |  |  |  |  |  |  |
Cash and cash equivalents |  | $ | 3,082,000 |  |  | $ | 1,588,000 |  |  | $ | — |  |  | $ | 4,670,000 |
Cash and securities segregated for regulatory purposes |  |  | 110,000 |  |  |  | 224,814,000 |  |  |  | — |  |  |  | 224,924,000 |
Receivables from customers |  |  | — |  |  |  | 86,331,000 |  |  |  | — |  |  |  | 86,331,000 |
Receivables from broker-dealers and clearing organizations |  |  | 3,067,000 |  |  |  | 1,265,000 |  |  |  | (808,000 | ) |  |  | 3,524,000 |
Receivables from related party |  |  | 1,000,000 |  |  |  | — |  |  |  | (1,000,000 | ) |  |  | — |
Other receivables |  |  | 223,000 |  |  |  | 627,000 |  |  |  | (88,000 | ) |  |  | 762,000 |
Prepaid expenses and other assets |  |  | 624,000 |  |  |  | 346,000 |  |  |  | — |  |  |  | 970,000 |
Securities borrowed |  |  | — |  |  |  | 193,529,000 |  |  |  | — |  |  |  | 193,529,000 |
Securities owned, at fair value |  |  | — |  |  |  | 3,018,000 |  |  |  | — |  |  |  | 3,018,000 |
Total Current assets |  |  | 8,106,000 |  |  |  | 511,518,000 |  |  |  | (1,896,000 | ) |  |  | 517,728,000 |
Deposits with broker-dealers and clearing organizations |  |  | 3,186,000 |  |  |  | 1,840,000 |  |  |  | (75,000 | ) |  |  | 4,951,000 |
Furniture, equipment and leasehold improvements, net |  |  | 1,131,000 |  |  |  | 19,000 |  |  |  | — |  |  |  | 1,150,000 |
Software, net |  |  | 1,888,000 |  |  |  | — |  |  |  | — |  |  |  | 1,888,000 |
Lease right-of-use assets |  |  | 2,810,000 |  |  |  | 1,141,000 |  |  |  | — |  |  |  | 3,951,000 |
Equity method investment in related party |  |  | 3,360,000 |  |  |  | — |  |  |  | (3,360,000 | ) |  |  | — |
Deferred tax assets |  |  | 4,981,000 |  |  |  | 407,000 |  |  |  | — |  |  |  | 5,388,000 |
Intangible assets, net |  |  | 1,022,000 |  |  |  | — |  |  |  | — |  |  |  | 1,022,000 |
Goodwill |  |  | 1,989,000 |  |  |  | — |  |  |  | — |  |  |  | 1,989,000 |
Total Assets |  | $ | 28,473,000 |  |  | $ | 514,925,000 |  |  | $ | (5,331,000 | ) |  | $ | 538,067,000 |
LIABILITIES AND STOCKHOLDERS’ EQUITY |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Payables to customers |  | $ | — |  |  | $ | 308,091,000 |  |  | $ | — |  |  | $ | 308,091,000 |
Payables to non-customers |  |  | — |  |  |  | 9,151,000 |  |  |  | (1,088,000 | ) |  |  | 8,063,000 |
Drafts payable |  |  | — |  |  |  | 2,834,000 |  |  |  | — |  |  |  | 2,834,000 |
Payables to broker-dealers and clearing organizations |  |  | — |  |  |  | 1,406,000 |  |  |  | (883,000 | ) |  |  | 523,000 |
Payables to related parties |  |  | 7,000 |  |  |  | — |  |  |  | (7,000 | ) |  |  | — |
Accounts payable and accrued liabilities |  |  | 1,473,000 |  |  |  | 963,000 |  |  |  | 7,000 |  |  |  | 2,443,000 |
Securities loaned |  |  | — |  |  |  | 170,443,000 |  |  |  | — |  |  |  | 170,443,000 |
Securities sold, not yet purchased, at fair value |  |  | 88,000 |  |  |  | 28,000 |  |  |  | — |  |  |  | 116,000 |
Interest payable |  |  | 10,000 |  |  |  | — |  |  |  | — |  |  |  | 10,000 |
Current portion of notes payable - related party |  |  | 3,000,000 |  |  |  | 5,000,000 |  |  |  | — |  |  |  | 8,000,000 |
Current portion of lease liabilities |  |  | 1,291,000 |  |  |  | 936,000 |  |  |  | — |  |  |  | 2,227,000 |
Total Current liabilities |  |  | 5,869,000 |  |  |  | 498,852,000 |  |  |  | (1,971,000 | ) |  |  | 502,750,000 |
Lease liabilities, less current portion |  |  | 1,823,000 |  |  |  | 359,000 |  |  |  | — |  |  |  | 2,182,000 |
Total Liabilities |  |  | 7,692,000 |  |  |  | 499,211,000 |  |  |  | (1,971,000 | ) |  |  | 504,932,000 |
Commitments and Contingencies |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Stockholders’ equity |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Common stock, $.01 par value |  |  | 271,000 |  |  |  | 10,000 |  |  |  | 23,000 |  |  |  | 304,000 |
Additional paid-in capital |  |  | 7,641,000 |  |  |  | 12,436,000 |  |  |  | (180,000 | ) |  |  | 19,897,000 |
Retained earnings |  |  | 12,869,000 |  |  |  | 3,268,000 |  |  |  | (3,203,000 | ) |  |  | 12,934,000 |
Total Stockholders’ equity |  |  | 20,781,000 |  |  |  | 15,714,000 |  |  |  | (3,360,000 | ) |  |  | 33,135,000 |
Total Liabilities and stockholders' equity |  | $ | 28,473,000 |  |  | $ | 514,925,000 |  |  | $ | (5,331,000 | ) |  | $ | 538,067,000 |
Pro Forma Adjustments The pro forma results include adjustments made for the consolidation of both entities. The statements of income reflects the elimination of StockCross’ other income and the Company’s corresponding custody and clearing fees resulting from the fully disclosed clearing relationship between MSCO and StockCross. In addition, the Company’s earnings recognized as part of its equity method investment in StockCross for the three and nine months ended September 30, 2019 were eliminated upon consolidation. These adjustments to pre-tax income were tax affected using an estimated effective tax rate of 28.0%. The statements of financial condition reflects the elimination of intercompany payables and receivables between the Company and StockCross as part of their ongoing business relationship, as well as reflects the elimination of the Company’s 15% ownership of StockCross. The statements of financial condition reflects an adjustment to increase the Company’s common stock by the par value of the shares issued in connection with the transaction and to eliminate the par value of StockCross’ common stock. The adjustments also increase additional paid-in capital for the net difference, as well as the change in retained earnings from the adjustments in the statements of operations. Pro forma data may not be indicative of the results that would have been obtained had these events occurred at the beginning of the periods presented, nor is it intended to be a projection of future results. WP Overview of Acquisition As previously disclosed in the Company’s 2019 Form 10-K, the Company completed its acquisition of 100% of the member interests in WP and effective December 1, 2019, WP became a wholly-owned subsidiary of the Company. The acquisition was accounted for under the acquisition method of accounting for business combinations pursuant to ASC 805 - Business Combinations and resulted in $1,989,000 of goodwill. Pro Forma Statements The following pro forma summary presents the statements of income of the Company as if the acquisition of WP had occurred on January 1, 2019, inclusive of pro forma adjustments (unaudited). WP’s financial statements have already been consolidated as part of the Company’s financial statements for the periods presented for 2020.
|  | Three Months Ended September 30, 2019 |  |  | Nine Months Ended September 30, 2019 |
Revenue |  | $ | 14,372,000 |  |  | $ | 41,191,000 |
Operating income |  | $ | 1,905,000 |  |  | $ | 3,693,000 |
Net income |  | $ | 1,577,000 |  |  | $ | 2,407,000 |
The pro forma results include adjustments made for the consolidation of both entities. These adjustments take into consideration the interest expense on the promissory note used in financing the acquisition, the amortization of the acquired intangible assets, as well as the tax effect of pro forma adjustments using an estimated combined statutory rate of 28.0%. Pro forma data may not be indicative of the results that would have been obtained had these events occurred at the beginning of the periods presented, nor is it intended to be a projection of future results.

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- Definition The entire disclosure for a business combination (or series of individually immaterial business combinations) completed during the period, including background, timing, and recognized assets and liabilities. The disclosure may include leverage buyout transactions (as applicable). + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -URI http://asc.fasb.org/topic&trid=2303972 + Details
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