The undersigned, desiring to amend a certificate of incorporation under the provisions of the Business Corporation Law of the State of New York (hereinafter referred to as the “BCL”), hereby certifies as follows:
FINANCIAL STATEMENTS
StockCross Financial Services, Inc. & Subsidiary
September 30, 2018 and for the nine month Period Then Ended
StockCross Financial Services, Inc. & Subsidiary
Nine month period ended September 30, 2018
Contents
Financial Statements
Statement of Operations
Statement of Financial Condition
Statement of Cash Flows
Notes to Financial Statements
StockCross Financial Services, Inc. & Subsidiary
Statement of Operations
Nine Month Period Ended September 30, 2018
Revenue
|
|
|
|
Interest income
|
|
$
|
5,435,805
|
|
Other income
|
|
|
2,271,573
|
|
Market making
|
|
|
1,457,247
|
|
Commissions
|
|
|
1,151,139
|
|
Principal transactions
|
|
|
393,550
|
|
|
|
|
10,709,314
|
|
Expenses
|
|
|
|
|
Employee compensation and benefits
|
|
|
4,712,672
|
|
Other expenses
|
|
|
2,912,684
|
|
Data processing
|
|
|
1,164,313
|
|
Rent and occupancy expense
|
|
|
1,074,236
|
|
Clearance fees
|
|
|
626,049
|
|
Interest expense
|
|
|
215,275
|
|
|
|
|
10,705,229
|
|
Gain before (benefit) from income taxes
|
|
|
4,085
|
|
Provision for income tax
|
|
|
-
|
|
|
|
|
|
|
Net Income
|
|
$
|
4,085
|
|
|
|
|
|
|
See notes to financial statements.
StockCross Financial Services, Inc. & Subsidiary
Statement of Financial Condition
September 30, 2018
ASSETS
|
|
|
|
Cash
|
|
$
|
1,602,812
|
|
Cash and securities segregated under federal and other regulations (cash of $168,991,784 and securities with a fair value of $51,731,075)
|
|
|
220,722,859
|
|
Receivable from broker-dealers and clearing organizations
|
|
|
6,141,733
|
|
Receivable from customers
|
|
|
85,816,284
|
|
Securities owned-marketable, at fair value
|
|
|
6,634,254
|
|
Securities borrowed
|
|
|
99,525,020
|
|
Property, equipment and leasehold improvements,
net of accumulated depreciation and amortization
|
|
|
60,604
|
|
Other assets
|
|
|
1,885,436
|
|
|
|
$
|
422,389,002
|
|
LIABILITIES AND STOCKHOLDER'S EQUITY
|
|
|
|
|
Liabilities
|
|
|
|
|
Payable to customers
|
|
$
|
304,860,918
|
|
Payable to non-customers
|
|
|
23,772,936
|
|
Drafts payable
|
|
|
4,571,133
|
|
Payable to broker-dealers and clearing organizations
|
|
|
2,884,224
|
|
Securities loaned
|
|
|
66,171,775
|
|
Securities sold, not yet purchased, at fair value
|
|
|
47,478
|
|
Accounts payable, accrued expenses and other liabilities
|
|
|
901,115
|
|
|
|
|
403,209,579
|
|
Stockholder's Equity
|
|
|
|
|
Common stock; $.0016 par value, 20,000,000 shares
authorized, 6,152,500 shares issued and outstanding
|
|
|
9,844
|
|
Paid-in capital
|
|
|
14,786,489
|
|
Retained earnings
|
|
|
4,383,090
|
|
|
|
|
19,179,423
|
|
|
|
$
|
422,389,002
|
|
See notes to financial statements.
StockCross Financial Services, Inc. & Subsidiary
Statement of Cash Flows
Nine Month Period Ended September 30, 2018
Cash flows from operating activities
|
|
|
|
Net Income
|
|
$
|
4,085
|
|
Adjustments to reconcile net income to net cash used in operating activities:
|
|
|
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
Cash and securities segregated under federal and other regulations
|
|
|
32,160,281
|
|
Receivable from broker - dealers and clearing organizations
|
|
|
(3,444,671
|
)
|
Receivable from customers
|
|
|
(14,503,643
|
)
|
Receivable from non-customers
|
|
|
107,992
|
|
Securities owned, at market value
|
|
|
(1,921,815
|
)
|
Securities borrowed
|
|
|
116,043,472
|
|
Other assets
|
|
|
(526,369
|
)
|
Payable to customers
|
|
|
(15,392,571
|
)
|
Payable to non customers
|
|
|
12,526,304
|
|
Drafts payable
|
|
|
1,585,378
|
|
Payable to broker - dealers and clearing organizations
|
|
|
2,211,904
|
|
Securities loaned
|
|
|
(129,434,542
|
)
|
Securities sold, but not yet purchased
|
|
|
(27,931
|
)
|
Accounts payable, accrued expenses and other liabilities
|
|
|
(1,032,512
|
)
|
Total adjustments
|
|
|
(1,648,723
|
)
|
Net cash used in operations
|
|
|
(1,644,638
|
)
|
|
|
|
|
|
Cash flows from investing activities
|
|
|
|
|
Sale of property
|
|
|
415,000
|
|
Net cash provided by investing activities
|
|
|
415,000
|
|
|
|
|
|
|
Cash flows from financing activities
|
|
|
|
|
Proceeds from payment for subscribed stock
|
|
|
567,000
|
|
Net cash provided by financing activities
|
|
|
567,000
|
|
|
|
|
|
|
NET CHANGE IN CASH
|
|
|
(662,638
|
)
|
CASH - BEGINNING
|
|
|
2,265,450
|
|
CASH - END
|
|
$
|
1,602,812
|
|
|
|
|
|
|
Supplemental disclosures of cash flow information:
|
|
|
|
|
Cash paid during the year for:
|
|
|
|
|
Interest expense
|
|
$
|
215,275
|
|
Income taxes
|
|
$
|
-
|
|
See notes to financial statements.
StockCross Financial Services, Inc.
Notes to Financial Statements for the nine month period ended September 30, 2018
1. ORGANIZATION AND NATURE OF BUSINESS
StockCross Financial Services, Inc. (the "Company") is a securities broker dealer registered with the Securities and Exchange Commission (“SEC”) and is a member of Financial Industry Regulatory Authority (“FINRA”) and Securities Investor
Protection Corporation (“SIPC”).
The Company is located in Beverly Hills, California, with offices throughout the United States and worldwide customers.
Effective August 16, 2018 the Company established a Bermuda subsidiary StockCross Digital Solutions, Ltd. (“StockCross Digital”). For the nine months ended September 30, 2018 there was no income or expenses associated with the subsidiary.
The Company is affiliated with Muriel Siebert & Co. Inc. (“MSCO”) through common ownership. MSCO is a wholly owned subsidiary of Siebert Financial Corp. (“SFC“).
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The financial statements are presented on the accrual basis of accounting in accordance with accounting principles generally accepted in the United States of America.
Recently Issued Accounting Pronouncements
In February 2016, the FASB issued ASU 2016-02, Leases, which replaces the existing guidance in ASC 840, Leases. The new standard establishes a right-of-use model that requires a lessee to record a right-of-use asset and a lease liability
on the balance sheet for all leases with terms longer than twelve months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the statement of income. The guidance will
be effective for annual reporting periods beginning after December 15, 2018, and early adoption is permitted. Management of the Company has evaluated the impact of ASU 2016-02 will have on its financial statements and related disclosures and
determined that there would be no material change to the occupancy expenses reported.
Management has evaluated other recently issued accounting pronouncements and does not believe that any of these pronouncements will have a significant impact on our consolidated financial statements and related disclosures.
Principles of Consolidation
The consolidated financial statements include the Company’s wholly owned corporate subsidiary StockCross Digital. All significant intercompany transactions and balances are eliminated. There was no income or expenses generated for the
nine months ended September 2018 from StockCross Digital.
Cash
Cash represents cash on hand and cash held in banks. At times, cash balances may exceed Federal Deposit Insurance Corporation insured limits.
Cash and Securities Segregated Under Federal and Other Regulations
Cash equivalents (interest bearing deposit accounts) and securities owned in the amount of $220,722,859 (cash $168,991,784, securities with a fair value $51,731,075) have been segregated in special reserve accounts for the benefit of
customers and proprietary accounts of introducing broker dealers under Rule 15c3-3 of the Securities and Exchange Commission.
Receivable from and Payable to Broker-Dealers and Clearing Organizations
Accounts receivable from and payable to broker-dealers and clearing organizations include amounts held on deposit with clearing organizations, amounts due from/to introducing broker-dealers, fail-to deliver and fail-to-receive items, and
amounts receivable for unsettled regular-way transactions.
Receivable From and Payable to Customers
Accounts receivable from and payable to customers include amounts due and owed on cash and margin transactions. Securities owned by customers are held as collateral for receivables. Receivables from customers are reported at their
outstanding principal balance, adjusted for any allowance for doubtful accounts. An allowance is established when collectability is not reasonably assured. When the receivable from a brokerage client is considered to be impaired, the amount
of impairment is generally measured based on the fair value of the securities acting as collateral, which is measured based on current prices from independent sources such as listed market prices or broker-dealer price quotations. Securities
beneficially owned by customers, including those that collateralize margin or other similar transactions, are not reflected in the Statement of Financial Condition. No allowance for doubtful accounts was necessary at September 30, 2018.
Receivable from and Payable to Non-Customers
Accounts receivable from and payable to non-customers includes amounts due/owed on cash and margin transactions on accounts owned and controlled by principal officers, directors and stockholders of the Company. Securities owned by
non-customers are held as collateral for receivables.
Payable to non-customer amounts also include amounts due on cash transactions owned and controlled by the Company’s proprietary accounts of introducing broker dealers. As of September 30, 2018, the Company had one correspondent clearing
relationship with MSCO.
Securities Owned-Marketable, at Fair Value
Securities owned-marketable, at fair value represent marketable securities owned by the company at trade-date valuation. See “Fair Value of Financial Instruments” disclosure below.
Securities Borrowed and Loaned
Securities borrowed are recorded at the amount of cash collateral advanced. Securities borrowed transactions require the Company to deposit cash, letters of credit, or other collateral with the lender. Securities loaned are recorded at
the amount of cash collateral received. For securities borrowed and loaned, the Company monitors the market value, with additional collateral obtained or refunded as necessary.
Property, Equipment and Leasehold Improvements
Property, equipment and leasehold improvements are carried at cost less accumulated depreciation and amortization. Depreciation and amortization are recorded on a straight-line basis over the lesser of the estimated useful lives of the
related assets or the non-cancelable remaining lease terms, as appropriate.
Other Assets
Other assets consist of miscellaneous receivables and prepaid expenses not otherwise categorized above.
Drafts Payable
Drafts payable represent checks drawn by the Company against customer accounts which remained outstanding and had not cleared the bank as of September 30, 2018.
Securities Sold, Not Yet Purchased, at Fair Value
Securities sold, not yet purchased, at fair value represent marketable securities sold by the company prior to purchase at trade-date valuation. See “Fair Value of Financial Instruments” disclosure below.
Accounts Payable, Accrued Expenses, and Other Liabilities
Accounts payable, accrued expenses, and other liabilities represent amounts accrued in the reporting period but not yet paid.
Revenues
On January 1, 2018, the Company adopted the new revenue recognition standard on the modified retrospective method (i.e., cumulative method). The Company has elected the modified retrospective method which did not result in a
cumulative-effect adjustment at the date of adoption.
Revenue from contracts with customers is recognized when, or as, the Company satisfies its performance obligations by transferring the promised goods or services to customers. A good or service is transferred to a customer when, or as, the
customer obtains control of that good or service. A performance obligation may be satisfied over time or at a point in time. Revenue from a performance obligation satisfied over time is recognized by measuring the Company's progress in
satisfying the performance obligation in a manner that depicts the transfer of the goods or services to the customer. Revenue from a performance obligation satisfied at a point in time is recognized at the point in time that the Company
determines the customer obtains control over the promised good or service. The amount of revenue recognized reflects the consideration to which the Company expects to be entitled in exchange for those promised goods or services (i.e., the
"transaction price").
The transaction price for the services provided by the Company is equal to the commission rate and the account maintenance fees that the Company quotes to its customers. The Company charges miscellaneous fees for various services performed
in relation to handling the account (i.e. wire transfer fees, account transfer fees, reorganization fees), which are relatively small in nature. There is no noncash consideration, consideration payable to the customer; however, in terms of
financing, the Company charges customers on their margin interest balances and pays them for their credit balances. The transaction price is equal to the quoted commission rate and the account maintenance fee. Then the transaction price
(quoted commission rate and account maintenance fee) is allocated to the performance obligations based on the standalone selling prices.
The Company earns revenue from contracts with customers and other sources (interest, trading gains, and commissions and fees). The following provides detailed information on the recognition of the Company's revenue from contracts with
customers:
Interest Income
Interest income represents the actual interest generated in clients’ margin accounts and the Company’s bank balances. Interest income is recorded monthly based on the average daily balances held in accounts.
Other Income
Other income represents fees generated from securities borrow and loan transactions and administrative fees generated from client accounts. Stock Borrow and loan revenue is recorded on a monthly basis. Transactional fees are recorded
concurrently with the related activity and an annual maintenance fee is charged to inactive client accounts at fiscal year-end.
Commissions, Market Making, and Securities Transactions
Customers’ securities transactions are recorded on a settlement date basis, generally two business days following the transaction. Commissions, other securities transactions and related clearing expenses are recorded on a trade-date basis
as the securities transactions occur. The Company believes that the performance is satisfied on the trade date because that is when the underlying financial instrument or purchaser is identified, the pricing is agreed upon, and the risks and
rewards of ownership have been transferred to/from the customer. Securities owned are recorded at fair market value at the reporting period. See “Fair Value of Financial Instruments” disclosure below.
Principal Transactions
Principal transactions represent actual mark-up and mark-down on sales to client accounts. Principal transaction mark-up and mark-downs are recorded on the trade date of the transactions. Management has reviewed the impact of any
unsettled transactions and determined there is no material difference between trade date and settlement date positions at the nine months ended September 30, 2018. The Company believes that the performance is satisfied on the trade date
because that is when the underlying financial instrument or purchaser is identified, the pricing is agreed upon, and the risks and rewards of ownership have been transferred to/from the customer.
Expenses
Employee Compensation and Benefits, Other Expenses, Data Processing, Occupancy, Clearing Costs, and Advertising and Promotion
Employee compensation and benefits; other expenses; data processing; occupancy, clearing costs; and advertising and promotion are all recorded as incurred, including expenses accrued but not yet paid. The company records payments made in
the prior period for the upcoming period under other assets including annual registration fees and annual insurance premiums.
Interest Expense
Interest expense includes interest paid on clients’ credit balances. Interest is accrued and paid on a monthly basis on the last business day of the month.
Concentrations of Credit Risk
The Company is engaged in various trading and brokerage activities whose contra-parties include broker-dealers, banks and other financial institutions.
In the event contra-parties do not fulfill their obligations, the Company may sustain a loss if the market value of the instrument is different from the contract value of the transaction. The risk of default primarily depends upon the
credit worthiness of the contra-parties involved in the transactions. It is the Company’s policy to review, as necessary, the credit standing of each contra-party with which it conducts business.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.
3. FAIR VALUE MEASUREMENTS
FASB ASC 820 defines fair value, established a framework for measuring fair value, and established a hierarchy of fair value inputs. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an
orderly transaction between market participants at the measurement date. A fair value measurement assumes that the transaction to sell the asset or transfer the liability occurs in the principal market for the asset or liability or, in the
absence of a principal market, the most advantageous market. Valuation techniques that are consistent with the market, income or cost approach, as specified by FASB ASC 820, are used to measure fair value.
The following represents financial instruments in which the ending balance as of September 30, 2018 is not carried at fair value in the Statement of Financial Condition:
Short-term financial instruments: The carrying value of short-term financial instruments, including cash and securities segregated pursuant to federal regulations 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.
Receivables and other assets: Receivables from broker-dealers and clearing organizations, receivables from customers, and other assets are recorded at amounts that approximate fair value.
Securities borrowed and securities loaned: Securities borrowed and securities loaned are recorded at amounts which approximate fair value. The Company’s securities borrowed and securities loan
balances represent amounts of equity securities borrow and loan contracts and are market-to-market daily in accordance with standard industry practices which approximate fair value.
Payables: Payable to customers; payable to non-customers; drafts payable; payable to broker-dealers and clearing organizations; and accounts payable, accrued expenses, and other liabilities are
recorded at amounts that approximate fair value due to their short-term nature.
4. COMMITMENTS AND CONTINGENCIES
Lease Commitments
The Company rents office space under various operating leases. Rent expense for the nine months ended September 30, 2018 was approximately $1,074,000, commitments going forward are approximately:
|
2018
|
171,000
|
|
|
2019
|
670,000
|
|
|
2020
|
640,000
|
|
|
2021
|
176,000
|
|
|
Thereafter
|
137,000
|
|
|
|
$1,794,000
|
|
Refer to Recently issued Accounting Pronouncements section regarding adopted guidance for future financial filings.
Litigation and Regulatory Matters
The Company is subject to various claims and arbitrations in the normal course of business. The Company believes that the resolution of these matters will not have a material adverse effect on these financial statements.
5. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
The Company enters into various transactions to meet the needs of customers, conduct trading activities, and manages market risks and is, therefore, subject to varying degrees of market and credit risk.
In the normal course of business, the Company's customer activities involve the execution, settlement, and financing of various customer securities transactions. These activities may expose the Company to off-balance sheet risk in the
event the customer or other broker is unable to fulfill its contracted obligations and the Company has to purchase or sell the financial instrument underlying the contract at a loss.
The Company's customer securities activities are transacted on either a cash or margin basis. In margin transactions, the Company extends credit to its customers, subject to various regulatory and internal margin requirements,
collateralized by cash and securities in the customers' accounts. In connection with these activities, the Company executes and clears customer transactions involving the sale of securities not yet purchased, substantially all of which are
transacted on a margin basis subject to individual exchange regulations.
Such transactions may expose the Company to off-balance sheet risk in the event margin requirements are not sufficient to fully cover losses that customers may incur. In the event the customer fails to satisfy its obligations, the Company
may be required to purchase or sell financial instruments at prevailing market prices to fulfill the customer's obligations.
The Company seeks to control the risks associated with its customer activities by requiring customers to maintain margin collateral in compliance with various regulatory and internal guidelines. The Company monitors required margin levels
daily and, pursuant to such guidelines, require customers to deposit additional collateral or to reduce positions, when necessary.
The Company's customer financing and securities settlement activities may require the Company to pledge customer securities as collateral in support of various secured financing sources such as bank loans and securities loaned. In the
event the counter-party is unable to meet its contractual obligation to return customer securities pledged as collateral, the Company may be exposed to the risk of acquiring the securities at prevailing market prices in order to satisfy its
customer obligations. The Company controls this risk by monitoring the market value of securities pledged on a daily basis and by requiring adjustments of collateral levels in the event of excess market exposure. In addition, the Company
establishes credit limits for such activities and monitors compliance on a daily basis.
6. INCOME TAXES
Income Taxes
Beginning January 1, 2018, the Company elected to be taxed as a “C” Corporation for federal income tax purposes and in various states. The company filed with the IRS terminating its prior election as an “S” corporation and the termination
of “S” election was completed as of December 31, 2017.
The Company recognizes the effect of tax positions only when they are more likely than not to be sustained under audit by the taxing authorities. At September 30, 2018, the Company recognized no tax benefit. The Company operates in the
United States and in various state and local jurisdictions, tax years prior to 2014 are no longer subject to examination by taxing authorities. There are presently no income tax examinations in process.
7. RELATED PARTY DISCLOSURES
MSCO
The Company and MSCO are under common ownership and the Company serves as a clearing broker for MSCO. MSCO has a clearing agreement with the Company whereby the Company passes through all revenue and charges to MSCO for its related
expenses. Outside of the clearing agreement, the Company has an expense sharing agreement with MSCO for its Beverly Hills office. In addition, the Company pays certain vendors for miscellaneous expenses which it passes through to MSCO and
splits margin interest revenue.
Kennedy Cabot Acquisition, LLC
Kennedy Cabot Acquisition, LLC (“KCA”) is an affiliate of the Company through common ownership, MSCO, and SFC. To gain efficiencies and economies of scale with billing and administrative functions, KCA serves as a paymaster for the Company
and MSCO for compensation and benefits expenses, the entirety of which KCA passes through to MSCO and the Company proportionally.
KCA sponsors a 401(k) profit sharing plan, which covers substantially all of the Company’s employees. Employee contributions to the plan are at the discretion of eligible employees. There were no contributions by the Company or KCA to
the plan for the nine months ended September 30, 2018.
Gebbia Sullivan County Land Trust
On July 31, 2018, the Company sold an office condominium located in Omaha, NE for $415,000 to the Gebbia Sullivan County Land Trust (“Land Trust”). The trustee of the Land Trust is a relative of the majority owners of the Company.
Subsequent to the transaction, the Company entered into a lease agreement with the Land Trust that expires December 31, 2018. For the nine months ended September 30, 2018, $10,000 was paid in rent.
8. SUBSEQUENT EVENTS
The Company has evaluated events that have occurred subsequent to September 30, 2018. All material subsequent events that occurred during such period have been disclosed in this report or recognized in the financial statements as of
September 30, 2018.
FINANCIAL STATEMENTS
StockCross Financial Services, Inc. & Subsidiary
September 30, 2019 and for the nine month Period Then Ended
StockCross Financial Services, Inc. & Subsidiary
Nine month period ended September 30, 2019
Contents
Financial Statements
Statement of Operations
Statement of Financial Condition
Statement of Cash Flows
Notes to Financial Statements
StockCross Financial Services, Inc. & Subsidiary
Statement of Operations
Nine Month Period Ended September 30, 2019
Revenue
|
|
|
|
Interest income
|
|
$
|
6,319,603
|
|
Other income
|
|
|
2,168,556
|
|
Market making
|
|
|
1,303,202
|
|
Commissions
|
|
|
1,101,560
|
|
Principal transactions
|
|
|
658,760
|
|
|
|
|
11,551,681
|
|
Expenses
|
|
|
|
|
Employee compensation and benefits
|
|
|
4,930,300
|
|
Other expenses
|
|
|
2,302,806
|
|
Data processing
|
|
|
1,486,952
|
|
Rent and occupancy expense
|
|
|
1,043,230
|
|
Clearance fees
|
|
|
659,266
|
|
Interest expense
|
|
|
375,020
|
|
Depreciation
|
|
|
19,469
|
|
|
|
|
10,817,043
|
|
Gain before (benefit) from income taxes
|
|
|
734,638
|
|
Provision for income tax
|
|
|
200,633
|
|
|
|
|
|
|
Net Income
|
|
$
|
534,005
|
|
|
|
|
|
|
See notes to financial statements.
StockCross Financial Services, Inc. & Subsidiary
Statement of Financial Condition
September 30, 2019
ASSETS
|
|
|
|
Cash
|
|
$
|
1,661,854
|
|
Cash and securities segregated under federal and other regulations (cash of $193,065,066 and securities with a fair value of $1,304,367)
|
|
|
194,369,433
|
|
Receivable from broker-dealers and clearing organizations
|
|
|
2,703,128
|
|
Receivable from customers
|
|
|
95,246,000
|
|
Receivable from non-customers
|
|
|
103,196
|
|
Securities owned-marketable, at fair value
|
|
|
4,063,846
|
|
Securities borrowed
|
|
|
254,585,360
|
|
Property, equipment and leasehold improvements,
net of accumulated depreciation and amortization
|
|
|
19,469
|
|
Software
|
|
|
61,000
|
|
Lease right of use asset, net of amortization
|
|
|
1,501,106
|
|
Deferred tax asset
|
|
|
101,191
|
|
Other assets
|
|
|
1,158,894
|
|
|
|
$
|
555,574,477
|
|
LIABILITIES AND STOCKHOLDER'S EQUITY
|
|
|
|
|
Liabilities
|
|
|
|
|
Payable to customers
|
|
$
|
274,242,870
|
|
Payable to non-customers
|
|
|
12,483,158
|
|
Drafts payable
|
|
|
2,777,783
|
|
Payable to broker-dealers and clearing organizations
|
|
|
1,804,548
|
|
Securities loaned
|
|
|
240,334,060
|
|
Securities sold, not yet purchased, at fair value
|
|
|
43,081
|
|
Accounts payable, accrued expenses and other liabilities
|
|
|
700,743
|
|
Lease liability
|
|
|
1,519,422
|
|
Subordinated debt
|
|
|
5,000,000
|
|
|
|
|
538,905,665
|
|
Stockholder's Equity
|
|
|
|
|
Common stock; $.0016 par value, 20,000,000 shares
authorized, 6,152,500 shares issued and outstanding
|
|
|
9,844
|
|
Paid-in capital
|
|
|
12,436,489
|
|
Retained earnings
|
|
|
4,222,479
|
|
|
|
|
16,668,812
|
|
|
|
$
|
555,574,477
|
|
See notes to financial statements.
StockCross Financial Services, Inc. & Subsidiary
Statement of Cash Flows
Nine Month Period Ended September 30, 2019
Cash flows from operating activities
|
|
|
|
Net Income
|
|
$
|
534,005
|
|
Adjustments to reconcile net income to net cash used in operating activities:
|
|
|
|
|
Depreciation and amortization
|
|
|
19,469
|
|
Deferred tax asset
|
|
|
200,633
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
Cash and securities segregated under federal and other regulations
|
|
|
10,085,550
|
|
Receivable from broker - dealers and clearing organizations
|
|
|
392,119
|
|
Receivable from customers
|
|
|
(15,338,718
|
)
|
Receivable from non-customers
|
|
|
(103,196
|
)
|
Securities owned, at market value
|
|
|
1,671,009
|
|
Securities borrowed
|
|
|
43,381,860
|
|
Software
|
|
|
(61,000
|
)
|
Lease right of use asset
|
|
|
(1,501,106
|
)
|
Other assets
|
|
|
77,054
|
|
Payable to customers
|
|
|
(3,541,038
|
)
|
Payable to non customers
|
|
|
(3,846,998
|
)
|
Lease liability
|
|
|
1,519,422
|
|
Drafts payable
|
|
|
233,526
|
|
Payable to broker - dealers and clearing organizations
|
|
|
1,109,797
|
|
Securities loaned
|
|
|
(35,905,315
|
)
|
Securities sold, but not yet purchased
|
|
|
(3,601
|
)
|
Accounts payable, accrued expenses and other liabilities
|
|
|
(187,887
|
)
|
Total adjustments
|
|
|
(1,798,420
|
)
|
Net cash used in continued operations
|
|
|
(1,264,415
|
)
|
|
|
|
|
|
Cash flows from investing activities
|
|
|
-
|
|
Net cash provided by investing activities
|
|
|
-
|
|
|
|
|
|
|
Cash flows from financing activities
|
|
|
|
|
Proceeds from issuance of subordinated debt
|
|
|
2,000,000
|
|
Treasury stock purchase
|
|
|
171,972
|
|
Return of capital distribution
|
|
|
(1,600,000
|
)
|
Net cash provided by financing activities
|
|
|
571,972
|
|
|
|
|
|
|
NET CHANGE IN CASH
|
|
|
(692,443
|
)
|
CASH - BEGINNING
|
|
|
2,354,297
|
|
CASH - END
|
|
$
|
1,661,854
|
|
|
|
|
|
|
Supplemental disclosures of cash flow information:
|
|
|
|
|
Cash paid during the year for:
|
|
|
|
|
Interest expense
|
|
$
|
375,020
|
|
Income taxes
|
|
$
|
-
|
|
See notes to financial statements.
StockCross Financial Services, Inc.
Notes to Financial Statements for the nine month period ended September 30, 2019
1. ORGANIZATION AND NATURE OF BUSINESS
StockCross Financial Services, Inc. (the "Company") is a securities broker dealer registered with the Securities and Exchange Commission (“SEC”) and is a member of Financial Industry Regulatory Authority (“FINRA”) and Securities Investor
Protection Corporation (“SIPC”).
The Company is located in Beverly Hills, California, with offices throughout the United States and worldwide customers.
Effective August 16, 2018 the Company established a Bermuda subsidiary StockCross Digital Solutions, Ltd. (“StockCross Digital”). For the nine months ended September 30, 2019 there was no income or expenses associated with the
subsidiary. The sole transaction was to initially fund the subsidiary in the amount of $10,000 and the subsidiary is an inactive corporation at September 30, 2019. See Principles of Consolidation note below.
The Company is affiliated with Muriel Siebert & Co. Inc. (“MSCO”) through common ownership. MSCO is a wholly owned subsidiary of Siebert Financial Corp. (“SFC“).
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The financial statements are presented on the accrual basis of accounting in accordance with accounting principles generally accepted in the United States of America.
Recently Issued Accounting Pronouncements
In February 2016, the FASB issued ASU 2016-02, Leases, which replaces the existing guidance in ASC 840, Leases. The new standard establishes a right-of-use model that requires a lessee to record a right-of-use asset and a lease liability
on the balance sheet for all leases with terms longer than twelve months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the statement of income. The guidance will
be effective for annual reporting periods beginning after December 15, 2018, and early adoption is permitted. Management of the Company adopted ASU 2016-02 effective for all financial statements beginning January 1, 2019.
Management has evaluated other recently issued accounting pronouncements and does not believe that any of these pronouncements will have a significant impact on our consolidated financial statements and related disclosures.
Principles of Consolidation
The consolidated financial statements include the Company’s wholly owned corporate subsidiary StockCross Digital. All significant intercompany transactions and balances are eliminated. There was no income or expenses generated for the
nine months ended September 2019 from StockCross Digital.
Cash
Cash represents cash on hand and cash held in banks. At times, cash balances may exceed Federal Deposit Insurance Corporation insured limits.
Cash and Securities Segregated Under Federal and Other Regulations
Cash equivalents (interest bearing deposit accounts) and securities owned in the amount of $194,369,433 (cash $193,065,066, securities with a fair value $1,304,367) have been segregated in special reserve accounts for the benefit of
customers and proprietary accounts of introducing broker dealers under Rule 15c3-3 of the Securities and Exchange Commission.
Receivable from and Payable to Broker-Dealers and Clearing Organizations
Accounts receivable from and payable to broker-dealers and clearing organizations include amounts held on deposit with clearing organizations, amounts due from/to introducing broker-dealers, fail-to deliver and fail-to-receive items, and
amounts receivable for unsettled regular-way transactions.
Receivable From and Payable to Customers
Accounts receivable from and payable to customers include amounts due and owed on cash and margin transactions. Securities owned by customers are held as collateral for receivables. Receivables from customers are reported at their
outstanding principal balance, adjusted for any allowance for doubtful accounts. An allowance is established when collectability is not reasonably assured. When the receivable from a brokerage client is considered to be impaired, the amount
of impairment is generally measured based on the fair value of the securities acting as collateral, which is measured based on current prices from independent sources such as listed market prices or broker-dealer price quotations. Securities
beneficially owned by customers, including those that collateralize margin or other similar transactions, are not reflected in the Statement of Financial Condition. No allowance for doubtful accounts was necessary at September 30, 2019.
Receivable from and Payable to Non-Customers
Accounts receivable from and payable to non-customers includes amounts due/owed on cash and margin transactions on accounts owned and controlled by principal officers, directors and stockholders of the Company. Securities owned by
non-customers are held as collateral for receivables.
Payable to non-customer amounts also include amounts due on cash transactions owned and controlled by the Company’s proprietary accounts of introducing broker dealers. As of September 30, 2019, the Company had one correspondent clearing
relationship with MSCO.
Securities Owned-Marketable, at Fair Value
Securities owned-marketable, at fair value represent marketable securities owned by the company at trade-date valuation. See “Fair Value of Financial Instruments” disclosure below.
Securities Borrowed and Loaned
Securities borrowed are recorded at the amount of cash collateral advanced. Securities borrowed transactions require the Company to deposit cash, letters of credit, or other collateral with the lender. Securities loaned are recorded at
the amount of cash collateral received. For securities borrowed and loaned, the Company monitors the market value, with additional collateral obtained or refunded as necessary.
Property, Equipment and Leasehold Improvements
Property, equipment and leasehold improvements are carried at cost less accumulated depreciation and amortization. Depreciation and amortization are recorded on a straight-line basis over the lesser of the estimated useful lives of the
related assets or the non-cancelable remaining lease terms, as appropriate.
Software
The Company capitalizes certain costs for software, such as its IT security system, and amortizes the assets over the estimated useful life of the software or contract term, generally not exceeding 3 years. Other software costs such as
routine maintenance and various data services to provide market information to customers are expensed as incurred.
Lease right of use asset and lease liability
A lease is defined as a contract, or part of a contract, that conveys the right to control the use of identified property, plant or equipment for a period of time in exchange for consideration. On January 1, 2019, the Company adopted ASU
No. 2016-02 “Leases” (Topic 842) and all subsequent ASUs that modified Topic 842. For the Company, Topic 842 affected the accounting treatment for operating lease agreements in which the Company is
the lessee.
The Company rents office space under operating leases expiring in 2019 through 2023, and the Company has no financing leases. The leases call for base rent plus escalations as well as other operating expenses. The Company elected not to
include short-term leases (i.e., leases with initial terms of twelve months or less), or equipment leases (deemed immaterial) on the condensed consolidated statements of financial condition.
See Lease Commitments below for a review of future lease commitments.
Deferred Tax Asset
Included in the accompanying Statement of Financial Condition as of September 30, 2019 are deferred tax assets of $101,191, representing tax loss carryforwards. Realization of that asset is dependent on the Company’s ability to generate
future taxable income. Management believes that it is more likely than not that forecasted taxable income will be sufficient to utilize the tax carryforwards before their expirations to fully recover the asset. However, there can be no
assurance that the Company will meet its expectations of future income. As a result, the amount of the deferred tax assets considered realizable could be reduced in the near term if estimates of future taxable income are reduced. Such an
occurrence could affect the Company’s results of operations and financial condition. See “Income Taxes” disclosure below.
Other Assets
Other assets consist of miscellaneous receivables and prepaid expenses not otherwise categorized above.
Drafts Payable
Drafts payable represent checks drawn by the Company against customer accounts which remained outstanding and had not cleared the bank as of September 30, 2019.
Securities Sold, Not Yet Purchased, at Fair Value
Securities sold, not yet purchased, at fair value represent marketable securities sold by the company prior to purchase at trade-date valuation. See “Fair Value of Financial Instruments” disclosure below.
Accounts Payable, Accrued Expenses, and Other Liabilities
Accounts payable, accrued expenses, and other liabilities represent amounts accrued in the reporting period but not yet paid.
Subordinated Debt
Effective November 30, 2018, the Company entered into a one-year subordinated borrowing agreement with Gloria Gebbia, a Director of the Company, in the amount of $3.0 million. The rate of interest on the note is 2.75%.
Effective September 4, 2019, the Company entered into a one-year subordinated borrowing agreement with Gloria Gebbia, a Director of the Company, in the amount of $2.0 million. The rate of interest on the note is 1.75%.
The borrowing is subordinated to the claims of general creditors, approved by FINRA, and are included in the Company’s calculation of net capital and the capital requirements under FINRA and SEC regulations.
Revenues
On January 1, 2018, the Company adopted the new revenue recognition standard on the modified retrospective method (i.e., cumulative method). The Company has elected the modified retrospective method which did not result in a
cumulative-effect adjustment at the date of adoption.
Revenue from contracts with customers is recognized when, or as, the Company satisfies its performance obligations by transferring the promised goods or services to customers. A good or service is transferred to a customer when, or as, the
customer obtains control of that good or service. A performance obligation may be satisfied over time or at a point in time. Revenue from a performance obligation satisfied over time is recognized by measuring the Company's progress in
satisfying the performance obligation in a manner that depicts the transfer of the goods or services to the customer. Revenue from a performance obligation satisfied at a point in time is recognized at the point in time that the Company
determines the customer obtains control over the promised good or service. The amount of revenue recognized reflects the consideration to which the Company expects to be entitled in exchange for those promised goods or services (i.e., the
"transaction price").
The transaction price for the services provided by the Company is equal to the commission rate and the account maintenance fees that the Company quotes to its customers. The Company charges miscellaneous fees for various services performed
in relation to handling the account (i.e. wire transfer fees, account transfer fees, reorganization fees), which are relatively small in nature. There is no noncash consideration, consideration payable to the customer; however, in terms of
financing, the Company charges customers on their margin interest balances and pays them for their credit balances. The transaction price is equal to the quoted commission rate and the account maintenance fee. Then the transaction price
(quoted commission rate and account maintenance fee) is allocated to the performance obligations based on the standalone selling prices.
The Company earns revenue from contracts with customers and other sources (interest, trading gains, and commissions and fees). The following provides detailed information on the recognition of the Company's revenue from contracts with
customers:
Interest Income
Interest income represents the actual interest generated in clients’ margin accounts and the Company’s bank balances. Interest income is recorded monthly based on the average daily balances held in accounts.
Other Income
Other income represents fees generated from securities borrow and loan transactions and administrative fees generated from client accounts. Stock Borrow and loan revenue is recorded on a monthly basis. Transactional fees are recorded
concurrently with the related activity and an annual maintenance fee is charged to inactive client accounts at fiscal year-end.
Commissions, Market Making, and Securities Transactions
Customers’ securities transactions are recorded on a settlement date basis, generally two business days following the transaction. Commissions, other securities transactions and related clearing expenses are recorded on a trade-date basis
as the securities transactions occur. The Company believes that the performance is satisfied on the trade date because that is when the underlying financial instrument or purchaser is identified, the pricing is agreed upon, and the risks and
rewards of ownership have been transferred to/from the customer. Securities owned are recorded at fair market value at the reporting period. See “Fair Value of Financial Instruments” disclosure below.
Principal Transactions
Principal transactions represent actual mark-up and mark-down on sales to client accounts. Principal transaction mark-up and mark-downs are recorded on the trade date of the transactions. Management has reviewed the impact of any
unsettled transactions and determined there is no material difference between trade date and settlement date positions at the nine months ended September 30, 2019. The Company believes that the performance is satisfied on the trade date
because that is when the underlying financial instrument or purchaser is identified, the pricing is agreed upon, and the risks and rewards of ownership have been transferred to/from the customer.
Expenses
Employee Compensation and Benefits, Other Expenses, Data Processing, Occupancy, Clearing Costs, and Advertising and Promotion
Employee compensation and benefits; other expenses; data processing; occupancy, clearing costs; and advertising and promotion are all recorded as incurred, including expenses accrued but not yet paid. The company records payments made in
the prior period for the upcoming period under other assets including annual registration fees and annual insurance premiums.
Interest Expense
Interest expense includes interest paid on clients’ credit balances and interest related to a subordinated debt issuance. Interest is accrued and paid on a monthly basis on the last business day of the month.
Depreciation and Amortization
Depreciation and amortization are recorded on a straight-line basis over the lesser of the estimated useful lives of the related assets or the non-cancelable remaining lease terms, as appropriate. Refer to Recently Issued Accounting
Pronouncements section regarding recently adopted guidance.
Concentrations of Credit Risk
The Company is engaged in various trading and brokerage activities whose contra-parties include broker-dealers, banks and other financial institutions.
In the event contra-parties do not fulfill their obligations, the Company may sustain a loss if the market value of the instrument is different from the contract value of the transaction. The risk of default primarily depends upon the
credit worthiness of the contra-parties involved in the transactions. It is the Company’s policy to review, as necessary, the credit standing of each contra-party with which it conducts business.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.
3. FAIR VALUE MEASUREMENTS
FASB ASC 820 defines fair value, established a framework for measuring fair value, and established a hierarchy of fair value inputs. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an
orderly transaction between market participants at the measurement date. A fair value measurement assumes that the transaction to sell the asset or transfer the liability occurs in the principal market for the asset or liability or, in the
absence of a principal market, the most advantageous market. Valuation techniques that are consistent with the market, income or cost approach, as specified by FASB ASC 820, are used to measure fair value.
The following represents financial instruments in which the ending balance as of September 30, 2019 is not carried at fair value in the Statement of Financial Condition:
Short-term financial instruments: The carrying value of short-term financial instruments, including cash and securities segregated pursuant to federal regulations 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.
Receivables and other assets: Receivables from broker-dealers and clearing organizations, receivables from customers, and other assets are recorded at amounts that approximate fair value.
Securities borrowed and securities loaned: Securities borrowed and securities loaned are recorded at amounts which approximate fair value. The Company’s securities borrowed and securities loan
balances represent amounts of equity securities borrow and loan contracts and are market-to-market daily in accordance with standard industry practices which approximate fair value.
Payables: Payable to customers; payable to non-customers; drafts payable; payable to broker-dealers and clearing organizations; and accounts payable, accrued expenses, and other liabilities are
recorded at amounts that approximate fair value due to their short-term nature.
Subordinated Debt: The carrying amount of subordinated debt approximates fair value due to the relative short-term nature of the borrowing.
4. COMMITMENTS AND CONTINGENCIES
Lease Commitments
The Company rents office space under various operating leases. Rent expense for the year ended December 31, 2018 was approximately $670,000, commitments going forward are approximately:
|
2019
|
152,000
|
|
|
2020
|
616,000
|
|
|
2021
|
176,000
|
|
|
Thereafter
|
137,000
|
|
|
|
$1,081,000
|
|
Refer to Recently issued Accounting Pronouncements section regarding adopted guidance for future financial filings.
Litigation and Regulatory Matters
The Company is subject to various claims and arbitrations in the normal course of business. The Company believes that the resolution of these matters will not have a material adverse effect on these financial statements.
5. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
The Company enters into various transactions to meet the needs of customers, conduct trading activities, and manages market risks and is, therefore, subject to varying degrees of market and credit risk.
In the normal course of business, the Company's customer activities involve the execution, settlement, and financing of various customer securities transactions. These activities may expose the Company to off-balance sheet risk in the
event the customer or other broker is unable to fulfill its contracted obligations and the Company has to purchase or sell the financial instrument underlying the contract at a loss.
The Company's customer securities activities are transacted on either a cash or margin basis. In margin transactions, the Company extends credit to its customers, subject to various regulatory and internal margin requirements,
collateralized by cash and securities in the customers' accounts. In connection with these activities, the Company executes and clears customer transactions involving the sale of securities not yet purchased, substantially all of which are
transacted on a margin basis subject to individual exchange regulations.
Such transactions may expose the Company to off-balance sheet risk in the event margin requirements are not sufficient to fully cover losses that customers may incur. In the event the customer fails to satisfy its obligations, the Company
may be required to purchase or sell financial instruments at prevailing market prices to fulfill the customer's obligations.
The Company seeks to control the risks associated with its customer activities by requiring customers to maintain margin collateral in compliance with various regulatory and internal guidelines. The Company monitors required margin levels
daily and, pursuant to such guidelines, require customers to deposit additional collateral or to reduce positions, when necessary.
The Company's customer financing and securities settlement activities may require the Company to pledge customer securities as collateral in support of various secured financing sources such as bank loans and securities loaned. In the
event the counter-party is unable to meet its contractual obligation to return customer securities pledged as collateral, the Company may be exposed to the risk of acquiring the securities at prevailing market prices in order to satisfy its
customer obligations. The Company controls this risk by monitoring the market value of securities pledged on a daily basis and by requiring adjustments of collateral levels in the event of excess market exposure. In addition, the Company
establishes credit limits for such activities and monitors compliance on a daily basis.
6. INCOME TAXES
Income Taxes
Beginning January 1, 2018, the Company elected to be taxed as a “C” Corporation for federal income tax purposes and in various states. The company filed with the IRS terminating its prior election as an “S” corporation and the termination
of “S” election was completed as of December 31, 2017.
The Company recognizes the effect of tax positions only when they are more likely than not to be sustained under audit by the taxing authorities. At September 30, 2019, the Company has a tax benefit of $101,191. The Company operates in
the United States and in various state and local jurisdictions, tax years prior to 2014 are no longer subject to examination by taxing authorities. There are presently no income tax examinations in process.
7. RELATED PARTY DISCLOSURES
MSCO
The Company and MSCO are under common ownership and the Company serves as a clearing broker for MSCO. MSCO has a clearing agreement with the Company whereby the Company passes through all revenue and charges to MSCO for its related
expenses. Outside of the clearing agreement, the Company has an expense sharing agreement with MSCO for its Beverly Hills office. In addition, the Company pays certain vendors for miscellaneous expenses which it passes through to MSCO and
splits margin interest revenue. MSCO also has a 15% equity interest in the Company as of September 30, 2019. The company has entered into an agreement with MSCO and SFC to sell the Company and fully merge the StockCross broker-dealer into
the SFC subsidiary MSCO. The transaction is currently pending regulatory approval.
Kennedy Cabot Acquisition, LLC
Kennedy Cabot Acquisition, LLC (“KCA”) is an affiliate of the Company through common ownership, MSCO, and SFC. To gain efficiencies and economies of scale with billing and administrative functions, KCA serves as a paymaster for the Company
and MSCO for compensation and benefits expenses, the entirety of which KCA passes through to MSCO and the Company proportionally.
KCA sponsors a 401(k) profit sharing plan, which covers substantially all of the Company’s employees. Employee contributions to the plan are at the discretion of eligible employees. There were no contributions by the Company or KCA to
the plan for the nine months ended September 30, 2019.
Gebbia Sullivan County Land Trust
On July 31, 2018, the Company sold an office condominium located in Omaha, NE for $415,000 to the Gebbia Sullivan County Land Trust (“Land Trust”). The trustee of the Land Trust is a relative of the majority owners of the Company.
Subsequent to the transaction, the Company entered into a lease agreement with the Land Trust that expired December 31, 2018 and is currently operating on a month-to-month rental agreement with the Land Trust. For the nine months ended
September 30, 2019, $45,000 was paid in rent.
8. DIVIDENDS AND DISTRIBUTIONS
On September 5, 2019, the Company made a return of capital distribution in the aggregate amount of $1,600,000 to shareholders.
9. SUBSEQUENT EVENTS
The Company has evaluated events that have occurred subsequent to September 30, 2019. All material subsequent events that occurred during such period have been disclosed in this report or recognized in the financial statements as of
September 30, 2019.
Annex E
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
The unaudited pro forma condensed financial statements (“Pro Forma Financial Statements”) of Siebert Financial Corp. (“SIEB”) and StockCross Financial Services, Inc. (“StockCross”) reflect various adjustments to give effect to the
following transaction:
●
|
SIEB acquired the remaining 85% of StockCross, pursuant to the terms of a merger agreement (“Merger Agreement”), for approximately $29,750,000 which was paid through the issuance of SIEB common stock and effective January 1,
2020, StockCross was merged with and into MSCO (“the Transaction”).
|
●
|
Prior to the Transaction, the Company, MSCO, and StockCross were under common control and were affiliates. In addition, SIEB’s fully owned subsidiary, Muriel Siebert & Co., Inc. (“MSCO”), owned 15% of StockCross. MSCO had
a clearing agreement with StockCross whereby StockCross provided custody and clearing solutions to MSCO for its securities broker dealer business.
|
The merger will be accounted for using the common-control method of accounting for business combinations under U.S. generally accepted accounting principles (“GAAP”).
The merger is considered a common-control transaction, which is similar to a business combination for SIEB which is the entity that received the net assets in 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. Based on the Merger Agreement, SIEB has been identified as the accounting acquirer. The unaudited pro forma condensed
combined balance sheets as of December 31, 2018 and September 30, 2019 (“Pro Forma Balance Sheets”) are based on the historical consolidated balance sheets of SIEB and StockCross after giving effect to the Transaction as if it had occurred
on January 1, 2018 and January 1, 2019, respectively.
Similarly, the unaudited pro forma condensed consolidated combined statements of operations for the year ended December 31, 2018 and nine months ended September 30, 2019 (“Pro Forma Income Statements” are based on the historical
consolidated statements of operations of SIEB and StockCross after giving effect to the Transaction as if it had occurred on January 1, 2018 and January 1, 2019, respectively.
The historical consolidated financial information has been adjusted in the Pro Forma Statements to give effect to pro forma events that are (1) directly attributable to the Transaction, (2) factually supportable and (3) with respect to
the Pro Forma Income Statements, are expected to have a continuing impact on the results of operations.
The Pro Forma Financial Statements and adjustments have been prepared based on the information that is currently available and certain assumptions, which are described in the accompanying notes thereto. Given that the common-control
method of accounting is utilized, all the identified assets and assumed liabilities were recorded at their carrying values and adjusted where applicable. Further, the accompanying Pro Forma Income Statements does not reflect the financial
impact of any future expected cost savings, restructurings, synergies, integration costs or non-recurring activities and one-time transaction costs that may be realized or incurred in subsequent reporting periods. The Pro Forma Income
Statements reflect only those adjustments that are expected to have an impact on the continuing operations of the combined companies.
The Pro Forma Financial Statements are provided for information purposed only and are not intended to represent, or be indicative of, the future anticipated financial position or results of operations or results that would have occurred
had the Transactions been consummated on the dates indicated herein. The Pro Forma Financial Statements and notes thereto, should be read in conjunction with:
1.
|
The historical audited and unaudited financial statements and related notes of SIEB and StockCross for the pertinent reporting periods
|
2.
|
Annual Reports on Form 10-K and Quarterly Reports on Form 10-Q filings filed by SIEB for the pertinent reporting periods
|
3.
|
Form 17A-5 filings filed by MSCO and StockCross for the pertinent reporting periods
|
SIEBERT FINANCIAL CORP. & STOCKCROSS FINANCIAL SERVICES, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
As of December 31, 2018
|
|
Siebert
|
|
|
StockCross
|
|
|
Pro Forma
Adjustments
|
|
Note
Reference
|
|
Pro Forma
Combined Siebert
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
7,229,000
|
|
|
$
|
2,354,000
|
|
|
$
|
—
|
|
|
|
$
|
9,583,000
|
|
Cash segregated
|
|
|
—
|
|
|
|
204,455,000
|
|
|
|
—
|
|
|
|
|
204,455,000
|
|
Receivables from customers
|
|
|
—
|
|
|
|
79,907,000
|
|
|
|
—
|
|
|
|
|
79,907,000
|
|
Receivables from clearing and other brokers
|
|
|
2,030,000
|
|
|
|
3,095,000
|
|
|
|
(310,000
|
)
|
(i)
|
|
|
4,815,000
|
|
Receivable from related party
|
|
|
1,000,000
|
|
|
|
—
|
|
|
|
(1,000,000
|
)
|
(ii)
|
|
|
—
|
|
Receivable from lessors
|
|
|
171,000
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
171,000
|
|
Other receivables
|
|
|
96,000
|
|
|
|
691,000
|
|
|
|
—
|
|
|
|
|
787,000
|
|
Securities borrowed
|
|
|
—
|
|
|
|
297,967,000
|
|
|
|
—
|
|
|
|
|
297,967,000
|
|
Securities owned-marketable, at fair value
|
|
|
—
|
|
|
|
5,735,000
|
|
|
|
—
|
|
|
|
|
5,735,000
|
|
Furniture, equipment and leasehold improvements, net
|
|
|
468,000
|
|
|
|
39,000
|
|
|
|
—
|
|
|
|
|
507,000
|
|
Software, net
|
|
|
1,137,000
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
1,137,000
|
|
Prepaid expenses and other assets
|
|
|
470,000
|
|
|
|
545,000
|
|
|
|
—
|
|
|
|
|
1,015,000
|
|
Deferred tax assets
|
|
|
5,576,000
|
|
|
|
302,000
|
|
|
|
—
|
|
|
|
|
5,878,000
|
|
|
|
$
|
18,177,000
|
|
|
$
|
595,090,000
|
|
|
$
|
(1,310,000
|
)
|
|
|
$
|
611,957,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payables to customers
|
|
$
|
—
|
|
|
$
|
277,784,000
|
|
|
$
|
—
|
|
|
|
$
|
277,784,000
|
|
Payables to non-customers
|
|
|
—
|
|
|
|
16,330,000
|
|
|
|
(1,000,000
|
)
|
(vi)
|
|
|
15,330,000
|
|
Drafts payable
|
|
|
—
|
|
|
|
2,544,000
|
|
|
|
—
|
|
|
|
|
2,544,000
|
|
Due to clearing brokers and related parties
|
|
|
133,000
|
|
|
|
695,000
|
|
|
|
(310,000
|
)
|
(vii)
|
|
|
518,000
|
|
Accounts payable and accrued liabilities
|
|
|
699,000
|
|
|
|
889,000
|
|
|
|
—
|
|
|
|
|
1,588,000
|
|
Securities loaned
|
|
|
—
|
|
|
|
276,239,000
|
|
|
|
—
|
|
|
|
|
276,239,000
|
|
Securities sold, not yet purchased
|
|
|
—
|
|
|
|
47,000
|
|
|
|
—
|
|
|
|
|
47,000
|
|
Lease incentive obligation
|
|
|
171,000
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
171,000
|
|
Long term debt
|
|
|
—
|
|
|
|
3,000,000
|
|
|
|
—
|
|
|
|
|
3,000,000
|
|
|
|
|
1,003,000
|
|
|
|
577,528,000
|
|
|
|
(1,300,000
|
)
|
|
|
|
577,221,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments and Contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders’ equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock, $.01 par value
|
|
|
271,000
|
|
|
|
10,000
|
|
|
|
23,000
|
|
(viii)
|
|
|
304,000
|
|
Additional paid-in capital
|
|
|
7,641,000
|
|
|
|
14,036,000
|
|
|
|
3,493,000
|
|
(viii)
|
|
|
25,170,000
|
|
Retained earnings
|
|
|
9,262,000
|
|
|
|
3,688,000
|
|
|
|
(3,688,000
|
)
|
(viii)
|
|
|
9,262,000
|
|
Treasury stock, at cost
|
|
|
—
|
|
|
|
(172,000
|
)
|
|
|
172,000
|
|
(viii)
|
|
|
—
|
|
|
|
|
17,174,000
|
|
|
|
17,562,000
|
|
|
|
—
|
|
|
|
|
34,736,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
18,177,000
|
|
|
$
|
595,090,000
|
|
|
$
|
(1,310,000
|
)
|
|
|
$
|
611,957,000
|
|
SIEBERT FINANCIAL CORP. & STOCKCROSS FINANCIAL SERVICES, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
For the year ended December 31, 2018
|
|
Siebert
|
|
|
StockCross
|
|
|
Pro Forma
Adjustments
|
|
Note
Reference
|
|
Pro Forma
Combined Siebert
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
REVENUE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Margin interest, marketing and distribution fees
|
|
$
|
10,928,000
|
|
|
$
|
2,942,000
|
|
|
$
|
—
|
|
|
|
$
|
13,870,000
|
|
Commissions and fees
|
|
|
9,504,000
|
|
|
|
1,626,000
|
|
|
|
—
|
|
|
|
|
11,130,000
|
|
Principal transactions
|
|
|
9,020,000
|
|
|
|
422,000
|
|
|
|
—
|
|
|
|
|
9,442,000
|
|
Interest
|
|
|
106,000
|
|
|
|
4,568,000
|
|
|
|
(305,000
|
)
|
(i)
|
|
|
4,369,000
|
|
Market making
|
|
|
—
|
|
|
|
1,272,000
|
|
|
|
—
|
|
|
|
|
1,272,000
|
|
Stock loan / stock borrow
|
|
|
—
|
|
|
|
1,131,000
|
|
|
|
—
|
|
|
|
|
1,131,000
|
|
Other income
|
|
|
—
|
|
|
|
1,379,000
|
|
|
|
(290,000
|
)
|
(ii)
|
|
|
1,089,000
|
|
Advisory fees
|
|
|
478,000
|
|
|
|
—
|
|
|
|
192,000
|
|
(iii)
|
|
|
670,000
|
|
|
|
|
30,036,000
|
|
|
|
13,340,000
|
|
|
|
(403,000
|
)
|
|
|
|
42,973,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EXPENSES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee compensation and benefits
|
|
|
13,817,000
|
|
|
|
5,914,000
|
|
|
|
—
|
|
|
|
|
19,731,000
|
|
Other general and administrative
|
|
|
1,859,000
|
|
|
|
2,071,000
|
|
|
|
—
|
|
|
|
|
3,930,000
|
|
Professional fees
|
|
|
1,963,000
|
|
|
|
1,352,000
|
|
|
|
—
|
|
|
|
|
3,315,000
|
|
Clearing fees, including execution costs
|
|
|
2,852,000
|
|
|
|
839,000
|
|
|
|
(290,000
|
)
|
(ii)
|
|
|
3,401,000
|
|
Rent and occupancy
|
|
|
988,000
|
|
|
|
1,023,000
|
|
|
|
—
|
|
|
|
|
2,011,000
|
|
Data processing
|
|
|
—
|
|
|
|
1,756,000
|
|
|
|
—
|
|
|
|
|
1,756,000
|
|
Technology and communications
|
|
|
1,008,000
|
|
|
|
754,000
|
|
|
|
—
|
|
|
|
|
1,762,000
|
|
Depreciation and amortization
|
|
|
144,000
|
|
|
|
22,000
|
|
|
|
—
|
|
|
|
|
166,000
|
|
Interest expense
|
|
|
—
|
|
|
|
325,000
|
|
|
|
(305,000
|
)
|
(i)
|
|
|
20,000
|
|
Advertising and promotion
|
|
|
45,000
|
|
|
|
56,000
|
|
|
|
—
|
|
|
|
|
101,000
|
|
|
|
|
22,676,000
|
|
|
|
14,112,000
|
|
|
|
(595,000
|
)
|
|
|
|
36,193,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income / (loss) from continuing operations
|
|
|
7,360,000
|
|
|
|
(772,000
|
)
|
|
|
192,000
|
|
|
|
|
6,780,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from discontinued operations
|
|
|
—
|
|
|
|
(158,000
|
)
|
|
|
(192,000
|
)
|
(iii)
|
|
|
(350,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before provision (benefit) for (from) income taxes
|
|
|
7,360,000
|
|
|
|
(930,000
|
)
|
|
|
—
|
|
|
|
|
6,430,000
|
|
Provision (benefit) for (from) income taxes
|
|
|
(4,602,000
|
)
|
|
|
(238,000
|
)
|
|
|
—
|
|
|
|
|
(4,840,000
|
)
|
Net income
|
|
$
|
11,962,000
|
|
|
$
|
(692,000
|
)
|
|
$
|
—
|
|
|
|
$
|
11,270,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per share of common stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
$
|
0.44
|
|
|
$
|
(0.11
|
)
|
|
|
—
|
|
|
|
$
|
0.37
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
|
27,157,188
|
|
|
|
6,152,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro Forma shares used to compute net income per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30,455,962
|
|
SIEBERT FINANCIAL CORP. & STOCKCROSS FINANCIAL SERVICES, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
As of September 30, 2019
|
|
Siebert
|
|
|
StockCross
|
|
|
Pro Forma
Adjustments
|
|
Note
Reference
|
|
Pro Forma
Combined Siebert
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
4,231,000
|
|
|
$
|
1,663,000
|
|
|
$
|
—
|
|
|
|
$
|
5,894,000
|
|
Cash segregated
|
|
|
—
|
|
|
|
194,369,000
|
|
|
|
—
|
|
|
|
|
194,369,000
|
|
Receivables from customers
|
|
|
—
|
|
|
|
95,246,000
|
|
|
|
—
|
|
|
|
|
95,246,000
|
|
Receivables from non-customers
|
|
|
—
|
|
|
|
103,000
|
|
|
|
—
|
|
|
|
|
103,000
|
|
Receivables from clearing and other brokers
|
|
|
2,436,000
|
|
|
|
2,703,000
|
|
|
|
(693,000
|
)
|
(i)
|
|
|
4,446,000
|
|
Receivable from related party
|
|
|
1,000,000
|
|
|
|
—
|
|
|
|
(1,000,000
|
)
|
(ii)
|
|
|
—
|
|
Other receivables
|
|
|
103,000
|
|
|
|
587,000
|
|
|
|
—
|
|
|
|
|
690,000
|
|
Securities borrowed
|
|
|
—
|
|
|
|
254,585,000
|
|
|
|
—
|
|
|
|
|
254,585,000
|
|
Securities owned-marketable, at fair value
|
|
|
—
|
|
|
|
4,064,000
|
|
|
|
—
|
|
|
|
|
4,064,000
|
|
Escrow deposit
|
|
|
2,000,000
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
2,000,000
|
|
Equity method investment in related party
|
|
|
3,509,000
|
|
|
|
—
|
|
|
|
(3,509,000
|
)
|
(iii)
|
|
|
—
|
|
Furniture, equipment and leasehold improvements, net
|
|
|
1,000,000
|
|
|
|
19,000
|
|
|
|
—
|
|
|
|
|
1,019,000
|
|
Software, net
|
|
|
1,806,000
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
1,806,000
|
|
Lease right-of-use assets
|
|
|
2,501,000
|
|
|
|
1,501,000
|
|
|
|
(162,000
|
)
|
(iv)
|
|
|
3,840,000
|
|
Prepaid expenses and other assets
|
|
|
302,000
|
|
|
|
633,000
|
|
|
|
—
|
|
|
|
|
935,000
|
|
Deferred tax assets
|
|
|
5,105,000
|
|
|
|
101,000
|
|
|
|
66,000
|
|
(v)
|
|
|
5,272,000
|
|
|
|
$
|
23,993,000
|
|
|
$
|
555,574,000
|
|
|
$
|
(5,298,000
|
)
|
|
|
$
|
574,269,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payables to customers
|
|
$
|
—
|
|
|
$
|
274,243,000
|
|
|
$
|
—
|
|
|
|
$
|
274,243,000
|
|
Payables to non-customers
|
|
|
—
|
|
|
|
12,483,000
|
|
|
|
(1,000,000
|
)
|
(vi)
|
|
|
11,483,000
|
|
Drafts payable
|
|
|
—
|
|
|
|
2,778,000
|
|
|
|
—
|
|
|
|
|
2,778,000
|
|
Due to clearing brokers and related parties
|
|
|
27,000
|
|
|
|
1,805,000
|
|
|
|
(693,000
|
)
|
(vii)
|
|
|
1,139,000
|
|
Income taxes payable
|
|
|
38,000
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
38,000
|
|
Accounts payable and accrued liabilities
|
|
|
744,000
|
|
|
|
701,000
|
|
|
|
—
|
|
|
|
|
1,445,000
|
|
Securities loaned
|
|
|
—
|
|
|
|
240,334,000
|
|
|
|
—
|
|
|
|
|
240,334,000
|
|
Securities sold, not yet purchased
|
|
|
—
|
|
|
|
43,000
|
|
|
|
—
|
|
|
|
|
43,000
|
|
Lease liabilities
|
|
|
2,817,000
|
|
|
|
1,519,000
|
|
|
|
—
|
|
|
|
|
4,336,000
|
|
Long term debt
|
|
|
—
|
|
|
|
5,000,000
|
|
|
|
—
|
|
|
|
|
5,000,000
|
|
Other liabilities
|
|
|
91,000
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
91,000
|
|
|
|
|
3,717,000
|
|
|
|
538,906,000
|
|
|
|
(1,693,000
|
)
|
|
|
|
540,930,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments and Contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders’ equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock, $.01 par value
|
|
|
271,000
|
|
|
|
10,000
|
|
|
|
23,000
|
|
(ix)
|
|
|
304,000
|
|
Additional paid-in capital
|
|
|
7,641,000
|
|
|
|
12,436,000
|
|
|
|
774,000
|
|
(ix)
|
|
|
20,851,000
|
|
Retained earnings
|
|
|
12,364,000
|
|
|
|
4,222,000
|
|
|
|
(4,402,000
|
)
|
(ix)
|
|
|
12,184,000
|
|
|
|
|
20,276,000
|
|
|
|
16,668,000
|
|
|
|
(3,605,000
|
)
|
|
|
|
33,339,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
23,993,000
|
|
|
$
|
555,574,000
|
|
|
$
|
(5,298,000
|
)
|
|
|
$
|
574,269,000
|
|
SIEBERT FINANCIAL CORP. & STOCKCROSS FINANCIAL SERVICES, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
For the nine months ended September 30, 2019
|
|
Siebert
|
|
|
StockCross
|
|
|
Pro Forma
Adjustments
|
|
Note
Reference
|
|
Pro Forma
Combined Siebert
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
REVENUE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Margin interest, marketing and distribution fees
|
|
$
|
8,499,000
|
|
|
$
|
2,662,000
|
|
|
$
|
—
|
|
|
|
$
|
11,161,000
|
|
Commissions and fees
|
|
|
6,030,000
|
|
|
|
1,102,000
|
|
|
|
—
|
|
|
|
|
7,132,000
|
|
Principal transactions
|
|
|
5,479,000
|
|
|
|
659,000
|
|
|
|
—
|
|
|
|
|
6,138,000
|
|
Interest
|
|
|
54,000
|
|
|
|
3,657,000
|
|
|
|
(357,000
|
)
|
(i)
|
|
|
3,354,000
|
|
Market making
|
|
|
—
|
|
|
|
1,303,000
|
|
|
|
—
|
|
|
|
|
1,303,000
|
|
Stock loan / stock borrow
|
|
|
—
|
|
|
|
1,353,000
|
|
|
|
—
|
|
|
|
|
1,353,000
|
|
Other income
|
|
|
—
|
|
|
|
816,000
|
|
|
|
(219,000
|
)
|
(ii)
|
|
|
597,000
|
|
Advisory fees
|
|
|
572,000
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
572,000
|
|
|
|
|
20,634,000
|
|
|
|
11,552,000
|
|
|
|
(576,000
|
)
|
|
|
|
31,610,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EXPENSES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee compensation and benefits
|
|
|
8,882,000
|
|
|
|
4,930,000
|
|
|
|
—
|
|
|
|
|
13,812,000
|
|
Other general and administrative
|
|
|
1,861,000
|
|
|
|
926,000
|
|
|
|
—
|
|
|
|
|
2,787,000
|
|
Professional fees
|
|
|
1,388,000
|
|
|
|
1,180,000
|
|
|
|
—
|
|
|
|
|
2,568,000
|
|
Clearing fees, including execution costs
|
|
|
1,849,000
|
|
|
|
659,000
|
|
|
|
(219,000
|
)
|
(ii)
|
|
|
2,289,000
|
|
Rent and occupancy
|
|
|
995,000
|
|
|
|
759,000
|
|
|
|
162,000
|
|
(iv)
|
|
|
1,916,000
|
|
Data processing
|
|
|
—
|
|
|
|
1,487,000
|
|
|
|
—
|
|
|
|
|
1,487,000
|
|
Technology and communications
|
|
|
800,000
|
|
|
|
464,000
|
|
|
|
—
|
|
|
|
|
1,264,000
|
|
Depreciation and amortization
|
|
|
670,000
|
|
|
|
19,000
|
|
|
|
—
|
|
|
|
|
689,000
|
|
Interest expense
|
|
|
—
|
|
|
|
375,000
|
|
|
|
(357,000
|
)
|
(i)
|
|
|
18,000
|
|
|
|
|
16,445,000
|
|
|
|
10,799,000
|
|
|
|
(414,000
|
)
|
|
|
|
26,830,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings of equity method investment in related party
|
|
|
84,000
|
|
|
|
—
|
|
|
|
(84,000
|
)
|
(v)
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before provision (benefit) for (from) income taxes
|
|
|
4,273,000
|
|
|
|
753,000
|
|
|
|
(246,000
|
)
|
|
|
|
4,780,000
|
|
Provision (benefit) for (from) income taxes
|
|
|
1,171,000
|
|
|
|
218,000
|
|
|
|
(66,000
|
)
|
(vi)
|
|
|
1,323,000
|
|
Net income
|
|
$
|
3,102,000
|
|
|
$
|
535,000
|
|
|
$
|
(180,000
|
)
|
|
|
$
|
3,457,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per share of common stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
$
|
0.11
|
|
|
$
|
0.09
|
|
|
|
—
|
|
|
|
$
|
0.11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
|
27,157,188
|
|
|
|
6,152,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro Forma shares used to compute net income per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30,455,962
|
|
All financial data in the Pro Forma Financial Statements are presented in U.S. dollars and have been prepared in accordance with SIEB’s accounting policies that conform to U.S. GAAP and the rules and regulations of SEC Regulation S-X.
Financial information in the SIEB and StockCross columns of the Pro Forma Balance Sheets represents the historical condensed consolidated balance sheets of SIEB and StockCross as of December 31, 2018 and September 30, 2019. Financial
information presented in the SIEB and StockCross columns in the Pro Forma Income Statements represents the historical consolidated Income Statements of SIEB and StockCross for the year ended December 31, 2018 and the nine months ended
September 30, 2019.
The merger will be accounted for under the common-control method of accounting for business combinations pursuant to Accounting Standards Codification (“ASC”) No. 805-50 – Transactions Between Entities
Under Common Control. ASC No. 805, Subsection 805-50, requires that assets and liabilities be accounted for at carrying cost when under common control.
Pursuant to the terms of the Merger Agreement, SIEB issued 3,298,774 shares of the Company’s restricted common stock to the shareholders of StockCross.
3.
|
Notes to Pro Forma Balance Sheets Adjustments
|
The following summarizes the adjustments included in the “Pro Forma Adjustments” column in the accompanying Pro Forma Balance Sheets as of December 31, 2018 and September 30, 2019:
(i)
|
As part of the clearing relationship between MSCO and StockCross, SIEB had a receivable from StockCross for a $75,000 clearing deposit as well as month-end profits generated through StockCross as the clearing broker dealer.
This item was eliminated upon consolidation as the receivable was from StockCross.
|
(ii)
|
As part of the clearing relationship between MSCO and StockCross, SIEB had a receivable from StockCross of $1.0M for a margin deposit held by StockCross for the clearing function. This item was eliminated upon consolidation as
the receivable was from StockCross.
|
(iii)
|
The equity method investment in related party of approximately $3.5M represented MSCO’s 15% investment in StockCross as of September 30, 2019. This asset was eliminated upon consummation of the merger.
|
(iv)
|
Adjustment to align StockCross’ Lease right-of-use assets to SIEB’s accounting policy per the guidance under ASC 842.
|
(v)
|
Increase to the deferred tax assets due to the income tax benefit from the adjustments detailed in the Pro Forma Income Statement for the nine months ended September 30, 2019
|
(vi)
|
As part of the clearing relationship between MSCO and StockCross, StockCross had a payable to SIEB of $1.0M for a margin deposit held by StockCross for the clearing function. This item was eliminated upon consolidation as the
payable was to SIEB.
|
(vii)
|
As part of the clearing relationship between MSCO and StockCross, StockCross had a payable to SIEB for a $75,000 clearing deposit and month-end profits generated through StockCross as the clearing broker dealer. This item was
eliminated upon consolidation as the payable was to SIEB.
|
(viii)
|
Represents an adjustment to increase the common stock of SIEB by the par value of the shares issued in connection with the Transaction and to eliminate the par value of common stock of StockCross, as well as to increase
additional paid-in capital for the net difference.
|
(ix)
|
Represents an adjustment to increase the common stock of SIEB by the par value of the shares issued in connection with the Transaction and to eliminate the par value of common stock of StockCross, as well as to increase
additional paid-in capital for the net difference. Adjustment also reflects the elimination of the 15% ownership of StockCross by MSCO, a fully-owned subsidiary of SIEB, as well as the change in retained earnings from the
adjustments detailed in the Pro Forma Income Statement for the nine months ended September 30, 2019.
|
4.
|
Notes to Pro Forma Income Statements Adjustments
|
(i)
|
In relation to interest paid on clients’ credit balances, StockCross reported gross interest revenue and a corresponding expense while SIEB’s accounting policy is to report interest revenue net of interest expense. To align
StockCross’ reporting to SIEB’s accounting policy, StockCross’ interest expense was deducted from the Interest Expense line item and deducted from the Interest line item.
|
(ii)
|
Reflects the elimination of StockCross’ other income and the corresponding SIEB clearing fees resulting from the fully disclosed clearing relationship between MSCO and StockCross. The income and expense items represented fees
paid by SIEB to StockCross for custody and clearing services.
|
(iii)
|
In June 2018, StockCross ceased being an investment advisory company and all accounts began being serviced by Siebert AdvisorNXT, Inc., a wholly-owned subsidiary of SIEB. StockCross had reported the income under discontinued
operations, which was reclassified to Advisory fees as SIEB was the subsequent owner of the business line through its subsidiary Siebert AdvisorNXT, Inc.
|
(iv)
|
Adjustment reflects expense impact corresponding to alignment of StockCross’ Lease right-of-use assets to SIEB’s accounting policy per the guidance under ASC 842.
|
(v)
|
The earnings that SIEB recognized as part of its equity method investment in StockCross for the nine months ended September 30, 2019 was eliminated upon consolidation.
|
(vi)
|
The adjustment to pre-tax income was tax affected using an estimated effective tax rate of 27.0%.
|
5.
|
Reclassification Adjustments
|
Reclassification adjustments represent adjustments to conform the presentation of StockCross’ historical financial statements to that of SIEB. A summary of reclassifications from StockCross’ to SIEB’s
classifications is summarized below:
Statement of Financial Condition Adjustments
StockCross
Reported Line Item
|
SIEB Line Item
Reclassification
|
Amount
12/31/18
|
Amount
09/30/19
|
|
Explanation
|
Other assets
|
Other receivables
|
691,000
|
587,000
|
|
Additional breakout not segregated by StockCross
|
Other assets
|
Prepaid expenses and other assets
|
545,000
|
633,000
|
|
Additional breakout not segregated by StockCross
|
Statement of Operations Adjustments
StockCross
Reported Line Item
|
SIEB Line Item
Reclassification
|
Amount
12/31/18
|
Amount
09/30/19
|
|
Explanation
|
|
|
|
|
|
|
Revenue
|
|
|
|
|
|
Commissions
|
Commissions and fees
|
1,548,000
|
1,102,000
|
|
Conform to SIEB line item title
|
Interest income
|
Interest
|
4,568,000
|
3,658,000
|
|
Conform to SIEB line item title
|
Interest income*
|
Margin interest, marketing, and distribution fees
|
2,942,000
|
2,662,000
|
|
Additional breakout not segregated by StockCross
|
Other income
|
Commissions and fees
|
78,000
|
—
|
|
Additional breakout not segregated by StockCross
|
Other income
|
Advisory fees
|
192,000
|
—
|
|
Additional breakout not segregated by StockCross
|
Other income
|
Stock loan / stock borrow
|
1,131,000
|
1,353,000
|
|
Additional breakout not segregated by StockCross
|
Expense
|
|
|
|
|
|
Clearing costs
|
Clearing fees, including execution costs
|
839,000
|
659,000
|
|
Conform to SIEB line item title
|
Occupancy
|
Technology and communications
|
214,000
|
121,000
|
|
Additional breakout not segregated by StockCross
|
Occupancy
|
Rent and occupancy
|
1,023,000
|
759,000
|
|
Conform to SIEB titling of line item
|
Occupancy
|
Other general and administrative
|
200,000
|
163,000
|
|
Additional breakout not segregated by StockCross
|
Other expenses
|
Technology and Communications
|
540,000
|
343,000
|
|
Additional breakout not segregated by StockCross
|
Other expenses
|
Other general and administrative
|
2,222,000
|
763,000
|
|
Conform to SIEB line item title
|
Other expenses
|
Professional fees
|
1,352,000
|
1,180,000
|
|
Additional breakout not segregated by StockCross
|
*See “Notes to Pro Forma Income Statements Adjustments” for further Pro Forma adjustments