NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Organization and Basis of Presentation
Organization
Siebert Financial Corp., a New York corporation incorporated in 1934, is a holding company that conducts its retail
discount brokerage business through its wholly-owned subsidiary, Muriel Siebert & Co., Inc. (“MSCO”), a Delaware corporation and registered broker-dealer, its investment advisory business through its wholly-owned subsidiary, Siebert AdvisorNXT,
Inc. (“AdvisorNXT”), a New York corporation registered with the SEC as a Registered Investment Advisor under the Investment Advisers Act of 1940, as amended, and its insurance business through its wholly-owned subsidiary, Park Wilshire Companies,
Inc. (“PWC”), a Texas corporation and licensed insurance agency. It also conducts operations through a fourth subsidiary, KCA Technologies, LLC. (“KCAT”), a Nevada limited liability company and developer of robo-advisory technology. For purposes of
this Quarterly Report on Form 10-Q, the terms “Siebert,” “Company,” “we,” “us,” and “our” refer to Siebert Financial Corp., MSCO, AdvisorNXT, PWC, and KCAT collectively, unless the context otherwise requires.
The Company is headquartered in New York, NY, with primary operations in New Jersey and California. The Company has
offices throughout the United States of America (“U.S.”) and clients around the world. The Company’s SEC filings are available through the Company’s website at www.siebertnet.com, where investors are able to obtain copies of the Company’s public
filings free of charge. The Company’s common stock (“Common Stock”), par value $.01 per share, trades on the Nasdaq Capital Market under the symbol “SIEB.”
The Company primarily operates in the securities brokerage and asset management industry and has no other reportable
segments. All of the Company's revenues for the three months ended March 31, 2019 and 2018 were derived from its operations in the U.S.
Basis of Presentation
Basis of Presentation
The unaudited condensed consolidated financial statements of the Company have been prepared in accordance with accounting
principles generally accepted in the U.S. (GAAP) for interim financial information with the instructions for Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all the information and footnotes required by GAAP for
complete annual financial statements. In the opinion of the Company’s management, the accompanying unaudited financial statements contain all adjustments (consisting of normal recurring entries) necessary to fairly present such interim results.
Interim results are not necessarily indicative of the results of operations which may be expected for a full year or any subsequent period. These unaudited condensed consolidated financial statements should be read in conjunction with the financial
statements and notes thereto in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018 (“2018 Form 10-K”). The consolidated financial statements include the accounts of Siebert and its wholly-owned subsidiaries and upon
consolidation, all intercompany balances and transactions are eliminated. The U.S. dollar is the functional currency of the Company.
Certain prior period amounts have been reclassified to conform to the current year’s presentation. These
reclassifications have no effect on previously reported net income or total assets or total liabilities.
Significant Accounting Policies
The Company’s significant accounting policies are included in Note 2 in the Company’s 2018 Form 10-K. There have been no
significant changes to these accounting policies for the three months ended March 31, 2019 except as described in the sections “Equity Method Investment” and the “Note 2 – New Accounting Standards” below.
Equity Method Investments
Investments in which the Company has the ability to exercise significant influence, but does not control,
are accounted for under the equity method of accounting and are included in the investment in related party asset in the condensed consolidated statements of financial condition. Under this method of accounting, the Company’s share of the net
earnings or losses of the investee is presented below the income tax line on the condensed consolidated statements of operations. The Company evaluates its equity method investments whenever events or changes in circumstance indicate that the
carrying amounts of such investments may be impaired. If a decline in the value of an equity method investment is determined to be other than temporary, a loss is recorded in earnings in the current period.
2. New Accounting Standards
Recently Adopted Accounting Pronouncements
ASU 2016-02
– In
February 2016, the FASB established Topic 842, Leases, by issuing Accounting Standards Update (“ASU”) No. 2016-02, which requires lessees to recognize leases on-balance sheet and disclose key information about leasing arrangements. The new standard
establishes a right-of-use model that requires a lessee to recognize a lease right-of-use asset and lease liability on the statement of financial condition for all leases with a term longer than 12 months. Leases will be classified as finance or
operating, with classification affecting the pattern and classification of expense recognition in the statement of operations. The new standard is effective for the Company on January 1, 2019, with early adoption permitted. The Company adopted the
new standard on its effective date. A modified retrospective transition approach is required, applying the new standard to all leases existing at the date of initial application. An entity may choose to use either (1) its effective date or (2) the
beginning of the earliest comparative period presented in the financial statements as its date of initial application. The Company adopted the new standard on January 1, 2019 and used the effective date as the date of initial application.
Consequently, financial information will not be updated and the disclosures required under the new standard will not be provided for dates and periods before January 1, 2019. As of March 31, 2019, the Company recognized lease right-of-use assets of
approximately $2.3 million and corresponding lease liabilities of approximately $2.5 million. This accounting pronouncement had no material impact to the condensed consolidated statement of operations for the three months ended March 31, 2019.
The new standard provides a number of optional practical expedients in transition. The Company elected the
“package of practical expedients,” which permits the Company not to reassess under the new standard the Company’s prior conclusions about lease identification, lease classification and initial direct costs. The Company has not elected the hindsight
practical expedient at transition.
The new standard also provides practical expedients for an entity’s ongoing accounting. The Company
elected the short-term lease recognition exemption for all leases that qualify. This means, for those leases that qualify, the Company will not recognize lease right-of-use assets or lease liabilities, and this includes not recognizing lease
right-of-use assets or lease liabilities for existing short-term leases of those assets in transition.
3. Capital Requirements
MSCO is subject to the SEC’s Uniform Net Capital Rule (Rule 15c3-1 or “Uniform Net Capital Rule”), which requires the
maintenance of minimum net capital. MSCO has elected to use the alternative method, permitted by the Uniform Net Capital Rule, which requires that MSCO maintain minimum net capital, as defined, equal to the greater of $250,000 or 2% of aggregate
debit balances arising from customer transactions, as defined. The Uniform Net Capital Rule also provides that equity capital may not be withdrawn or cash dividends paid if the resulting net capital would be less than 5% of aggregate debits. As of
March 31, 2019, MSCO had net capital of approximately $5.1 million, which was approximately $4.8 million in excess of required net capital of $250,000. As of December 31, 2018, MSCO had net capital of approximately $8.9 million, which was
approximately $8.7 million in excess of required net capital of $250,000.
MSCO claims exemption from the reserve requirements under the SEC’s Rule 15c 3-3 pursuant to paragraph (k)(2)(ii) as it
clears its customer transactions through one unaffiliated and one affiliated clearing firm on a fully disclosed basis.
The Company’s cash and cash equivalents are unrestricted and are used to fund working capital needs. The Company’s total
assets as of March 31, 2019 were approximately $21.5 million, of which $3.8 million, or approximately 17%, is highly liquid. The Company’s total assets as of December 31, 2018 were approximately $18.2 million, of which $7.2 million, or
approximately 40%, is highly liquid.
4. Receivables from and Payable to Brokers, Dealers and Clearing Organizations
The Company evaluates
receivables from clearing organizations and other brokers for collectability noting no amount was
considered uncollectable as of March 31, 2019 and the year ended December 31, 2018
. No valuation allowance is recognized for receivables from clearing and other brokers as the Company does not have a history of losses from receivables from clearing and other brokers and does not
anticipate losses in the future.
Amounts receivable from / payable to brokers, dealers and clearing organizations consisted of the following as of the
periods indicated:
|
|
As of
March 31, 2019
(unaudited)
|
|
|
As of
December 31, 2018
|
|
Receivables from clearing and other brokers
|
|
|
|
|
|
|
National Financial Services (“NFS”)
|
|
$
|
1,408,000
|
|
|
$
|
1,664,000
|
|
StockCross Financial Services, Inc. (“StockCross”)
|
|
|
708,000
|
|
|
|
310,000
|
|
Other receivables
|
|
|
117,000
|
|
|
|
31,000
|
|
Citibank
|
|
|
42,000
|
|
|
|
25,000
|
|
Total Receivables from clearing and other brokers
|
|
$
|
2,275,000
|
|
|
$
|
2,030,000
|
|
|
|
|
|
|
|
|
|
|
Receivable from related party
|
|
|
|
|
|
|
|
|
StockCross
|
|
$
|
1,000,000
|
|
|
$
|
1,000,000
|
|
Total Receivable from related party
|
|
$
|
1,000,000
|
|
|
$
|
1,000,000
|
|
|
|
|
|
|
|
|
|
|
Due to clearing brokers and related parties
|
|
|
|
|
|
|
|
|
Kennedy Cabot Acquisition, LLC (“KCA”)
|
|
$
|
33,000
|
|
|
$
|
—
|
|
StockCross
|
|
|
21,000
|
|
|
|
46,000
|
|
MSCO
|
|
|
10,000
|
|
|
|
29,000
|
|
NFS
|
|
|
—
|
|
|
|
58,000
|
|
Total Due to clearing brokers and related parties
|
|
$
|
64,000
|
|
|
$
|
133,000
|
|
5. Leases
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 2024, and the Company has no financing
leases. The leases call for base rent plus escalations as well as other operating expenses. The following table represents the Company’s lease right-of-use assets and lease liabilities on the condensed consolidated statements of financial
condition. 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.
|
As of
March 31, 2019
(unaudited)
|
|
As of
December 31, 2018
|
|
Assets
|
|
|
|
|
Lease right-of-use assets
|
|
$
|
2,257,000
|
|
|
|
—
|
|
Liabilities
|
|
|
|
|
|
|
|
|
Lease liabilities
|
|
$
|
2,530,000
|
|
|
|
—
|
|
The calculated amount of the lease right-of-use assets and lease liabilities in the table above are impacted by the length
of the lease term and the discount rate used to present value the minimum lease payments. As of March 31, 2019, the Company does not believe that any of the renewal options under the existing leases are reasonably certain to be exercised; however,
the Company will continue to assess and monitor the lease renewal options on an ongoing basis. The Company also leases some miscellaneous office equipment, but they are immaterial and therefore the Company records the costs associated with this
office equipment on the condensed consolidated statements of operations rather than capitalized as lease right-of-use assets. The Company determined a discount rate of 5.0% would approximate the Company’s cost to obtain financing given its size,
growth, and risk profile.
Lease Term and Discount Rate
|
|
|
|
Weighted average remaining lease term – operating leases (in years)
|
|
|
4.3
|
|
Weighted average discount rate – operating leases
|
|
|
5.0
|
%
|
The following table represents lease costs and other lease information. The Company elected to separate the lease and
non-lease components, and as such, the variable lease cost primarily represents variable payments such as common area maintenance and utilities.
|
|
Three Months Ended
March 31, 2019
|
|
Operating lease cost
|
|
$
|
148,000
|
|
Short-term lease cost
|
|
|
130,000
|
|
Variable lease cost
|
|
|
17,000
|
|
Sublease income
|
|
|
—
|
|
Total lease cost
|
|
$
|
295,000
|
|
|
|
|
|
|
Cash paid for amounts included in the measurement of lease liabilities
|
|
|
|
|
Operating cash flows from operating leases
|
|
$
|
147,000
|
|
|
|
|
|
|
Lease right-of-use assets obtained in exchange for new lease liabilities
|
|
|
|
|
Operating leases
|
|
$
|
1,680,000
|
|
Lease Commitments
Future annual minimum payments for operating leases with initial terms of greater than one year as of March 31, 2019 were
as follows:
Year
|
|
Amount
|
|
2019
|
|
$
|
676,000
|
|
2020
|
|
|
891,000
|
|
2021
|
|
|
728,000
|
|
2022
|
|
|
489,000
|
|
2023
|
|
|
468,000
|
|
2024
|
|
|
39,000
|
|
Thereafter
|
|
|
—
|
|
Remaining balance of lease payments
|
|
|
3,291,000
|
|
Lease payments related to leases not commenced as of
March 31, 2019
|
|
|
480,000
|
|
Difference between undiscounted cash flows and
discounted cash flows
|
|
|
304,000
|
|
Other reconciling items
|
|
|
(23,000
|
)
|
Lease liabilities
|
|
$
|
2,530,000
|
|
Rent and related operating expenses were $295,000 and $242,000 for the three months ended March 31, 2019 and 2018,
respectively. As of March 31, 2019, the Company had an operating lease agreement for an office space in Miami, FL with a term of 2 years. The total commitment of the lease is approximately $480,000 and the lease will commence on April 1, 2019.
6.
Equity Method Investments
In January 2019, the Company purchased approximately 15% of StockCross’ outstanding shares. The number of shares purchased
by the Company was 922,875 at a per share price of approximately $3.97. The Company’s ownership in StockCross is accounted for under the equity method of accounting.
In determining whether the investment in StockCross should be accounted for under the equity method of accounting, the
Company leveraged the guidance under
ASC 323, Investments – Equity Method and Joint Venture
s. Although the Company maintains approximately 15%
ownership interest in StockCross, the Company evaluated the positive evidence related to criteria such as common representation on the board of directors, participation in policy-making processes, material intra-entity transactions, interchange of
managerial personnel and technological interdependency of the Company and StockCross. Based on these criteria, the Company determined that it was able to exercise significant influence of StockCross, and therefore the equity method of accounting
was used for this transaction.
Under the equity method, the Company recognizes its share of StockCross’ net income in the earnings of equity method
investment line item in the condensed consolidated statements of operations. The Company has elected to classify distributions received from equity method investees using the cumulative earnings approach. For the three months ended March 31, 2019,
the amount of net income recognized from the Company’s investment in StockCross was approximately $39,000. This investment is reported in the investment in related party line item in the condensed consolidated statements of financial condition. As
of March 31, 2019, the carrying amount of the investment in StockCross was approximately $3,704,000.
The Company evaluates its equity method investments for impairment when events or changes indicate the carrying value may
not be recoverable. If the impairment is determined to be other-than-temporary, the Company will recognize an impairment loss equal to the difference between the expected realizable value and the carrying value of the investment. As of March 31,
2019, the fair value of the investment in StockCross is not estimated because there were no identified events or changes in circumstances that may have a significant adverse effect on the fair value of the investment and thus, no impairment was
recorded.
Below is a table showing illustrating the summary from the condensed consolidated statements of operations for StockCross
for the period indicated:
|
|
Three Months Ended March 31, 2019
(unaudited)
|
|
Revenue
|
|
$
|
4,014,000
|
|
Gross profit
|
|
$
|
285,000
|
|
Net income
|
|
$
|
246,000
|
|
7. Commitments, Contingencies, and Other
Legal and Regulatory Matters
The Company is party to certain claims, suits and complaints arising in the ordinary course of business. In the opinion of
the Company, all such matters are without merit, or involve amounts which would not have a significant effect on the financial statements of the Company.
General Contingencies
The Company is party to certain claims, suits and complaints arising in the ordinary course of business. In the opinion of
the Company’s management, all such matters are without merit, or involve amounts which would not have a significant effect on the financial statements of the Company.
In the normal course of its business, the Company indemnifies and guarantees certain service providers against specified
potential losses in connection with their acting as an agent of, or providing services to, the Company. The maximum potential amount of future payments that the Company could be required to make under these indemnifications cannot be estimated.
However, the Company believes that it is unlikely it will have to make material payments under these arrangements and has not recorded any contingent liability in the financial statements for these indemnifications.
The Company provides representations and warranties to counterparties in connection with a variety of commercial
transactions and occasionally indemnifies them against potential losses caused by the breach of those representations and warranties. The Company may also provide standard indemnifications to some counterparties to protect them in the event
additional taxes are owed or payments are withheld, due either to a change in or adverse application of certain tax laws. These indemnifications generally are standard contractual terms and are entered into in the normal course of business. The
maximum potential amount of future payments that the Company could be required to make under these indemnifications cannot be estimated. However, the Company believes that it is unlikely it will have to make material payments under these
arrangements and has not recorded any contingent liability in the financial statements for these indemnifications.
The Company is self-insured with respect to employee health claims. The Company maintains stop-loss insurance for certain
risks and has a health claim reinsurance limit capped at approximately $50,000 per employee. The estimated liability for self-insurance claims is initially recorded in the year in which the event of loss occurs, and may be subsequently adjusted
based upon new information and cost estimates. Reserves for losses represent estimates of reported losses and estimates of incurred but not reported losses based on past and current experience. Actual claims paid and settled may differ, perhaps
significantly, from the provision for losses. This adds uncertainty to the estimated reserves for losses. Accordingly, it is at least possible that the ultimate settlement of losses may vary significantly from the amounts included in the financial
statements.
As part of this plan, the Company recognized expenses totaling $289,000 and $240,000 for the three months ended March 31,
2019 and 2018, respectively. The Company had an accrual of $75,000 and $70,000 as of the three months ended March 31, 2019 and 2018, respectively, which represents the historical estimate of future claims to be recognized for claims incurred prior
to March 31, 2019 and 2018, respectively.
The Company believes that its present insurance coverage and reserves are sufficient to cover currently estimated
exposures, but there can be no assurance that the Company will not incur liabilities in excess of recorded reserves or in excess of its insurance limits.
8. Revenue Recognition
The primary sources of revenue for the Company are as follows: revenue from contracts with customers which includes
commissions and fees, principal transactions, and advisory fees as well as other income which includes margin interest, marketing, and distribution fees. The recognition and measurement of revenue is based on the assessment of individual contract
terms. The amount of revenue recognized by the Company is based on the consideration specified in contracts with its clients. The Company recognizes revenue when a performance obligation is satisfied over time as the services are performed or at a
point in time depending on the nature of the services provided as further discussed below. Significant judgment is required to determine whether performance obligations are satisfied at a point in time or over time; how to allocate transaction
prices where multiple performance obligations are identified; when to recognize revenue based on the appropriate measure of the Company’s progress under the contract; and whether constraints on variable consideration should be applied due to
uncertain future events. For the three months ended March 31, 2019 and 2018, there were no costs capitalized related to obtaining or fulfilling a contract with a customer and thus the Company has no balances for contract assets or contract
liabilities.
Categorization of Revenue by Service
The following table presents the major revenue categories and when each category is recognized:
|
|
Three Months Ended
March 31,
|
|
|
Revenue Category
|
|
2019
(unaudited)
|
|
|
2018
(unaudited)
|
|
Timing of Recognition
|
Trading Execution and Clearing Services
|
|
|
|
|
|
|
|
Commissions and fees
|
|
$
|
1,864,000
|
|
|
$
|
2,674,000
|
|
Recorded on trade date
|
Principal transactions
|
|
$
|
1,610,000
|
|
|
$
|
2,941,000
|
|
Recorded on trade date
|
Advisory fees and additional income
|
|
$
|
183,000
|
|
|
$
|
27,000
|
|
Recorded as earned
|
|
|
|
|
|
|
|
|
|
|
Other Income
|
|
|
|
|
|
|
|
|
|
Margin interest, marketing and distribution fees
|
|
|
|
|
|
|
|
|
|
Margin interest
|
|
$
|
2,066,000
|
|
|
$
|
1,635,000
|
|
Recorded as earned
|
12b1 fees
|
|
|
706,000
|
|
|
|
900,000
|
|
Recorded as earned
|
Total Margin interest, marketing and distribution fees
|
|
$
|
2,772,000
|
|
|
$
|
2,535,000
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Revenue
|
|
$
|
6,429,000
|
|
|
$
|
8,177,000
|
|
|
The following table presents each revenue category and its related performance obligation:
Revenue Stream
|
Performance Obligation
|
Commissions and fees, Principal transactions, Advisory fees and additional income
|
Provide security trading services to customer and act as agent
|
Margin interest, marketing and distribution fees
|
n/a
|
Disaggregation of Revenue – Legacy Siebert vs. StockCross Accounts
The following table presents a breakdown of the Company’s revenue between the amounts attributed to the accounts that were
originally part of Siebert (“Legacy Siebert”) vs. the accounts acquired from StockCross (“StockCross accounts”):
|
|
Three Months Ended
March 31,
|
|
|
|
2019
(unaudited)
|
|
|
2018
(unaudited)
|
|
Revenue from Principal transactions:
|
|
|
|
|
|
|
Principal transactions – Legacy Siebert
|
|
$
|
379,000
|
|
|
$
|
572,000
|
|
Principal transactions – StockCross accounts
|
|
|
1,231,000
|
|
|
|
2,369,000
|
|
Total Revenue from Principal transactions
|
|
$
|
1,610,000
|
|
|
$
|
2,941,000
|
|
|
|
|
|
|
|
|
|
|
Revenue from Commissions and fees:
|
|
|
|
|
|
|
|
|
Commissions and fees – Legacy Siebert
|
|
$
|
1,580,000
|
|
|
$
|
1,955,000
|
|
Commissions and fees – StockCross accounts
|
|
|
284,000
|
|
|
|
719,000
|
|
Total Revenue from Commissions and fees
|
|
$
|
1,864,000
|
|
|
|
2,674,000
|
|
|
|
|
|
|
|
|
|
|
Revenue from Margin interest, marketing and distribution fees:
|
|
|
|
|
|
|
|
|
Margin interest, marketing and distribution fees – Legacy Siebert
|
|
$
|
2,445,000
|
|
|
$
|
2,328,000
|
|
Margin interest, marketing and distribution fees – StockCross accounts
|
|
|
327,000
|
|
|
|
207,000
|
|
Total Revenue from Margin interest, marketing and distribution fees
|
|
$
|
2,772,000
|
|
|
$
|
2,535,000
|
|
|
|
|
|
|
|
|
|
|
Additional Revenue:
|
|
|
|
|
|
|
|
|
Advisory fees – Legacy Siebert
|
|
|
168,000
|
|
|
|
16,000
|
|
Interest – Legacy Siebert
|
|
|
15,000
|
|
|
|
11,000
|
|
|
|
|
|
|
|
|
|
|
Total Revenue
|
|
$
|
6,429,000
|
|
|
$
|
8,177,000
|
|
|
|
|
|
|
|
|
|
|
9. Provision for Income Tax
Provision for income tax consists of the following:
Current income tax expense, which represents the amount of federal tax and state and local tax currently payable,
including interest and penalties and amounts accrued for unrecognized tax benefits, if any, and;
Deferred income tax, which represents the net change in the deferred tax assets balance during the year, including any
change in the valuation allowance.
|
|
Three Months Ended
March 31,
|
|
|
|
2019
(unaudited)
|
|
|
2018
(unaudited)
|
|
Current income tax expense
|
|
|
|
|
|
|
Federal
|
|
$
|
203,000
|
|
|
$
|
272,000
|
|
State
|
|
|
76,000
|
|
|
|
141,000
|
|
|
|
|
279,000
|
|
|
|
413,000
|
|
|
|
|
|
|
|
|
|
|
Deferred income tax
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
47,000
|
|
|
$
|
—
|
|
State
|
|
|
43,000
|
|
|
|
—
|
|
|
|
|
90,000
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Total Provision for income tax
|
|
$
|
369,000
|
|
|
$
|
413,000
|
|
For interim financial reporting, the Company estimates the effective tax rate for tax jurisdictions which is
applied to the year to date income before tax. For the three months ended March 31, 2019 and 2018, the Company’s effective tax rate was 28% and 20%, respectively. The increase in the effective tax rate was due to an increase in deferred income tax
expense. As of December 31, 2018, the Company recorded an income tax benefit related to the recognition of deferred tax assets of $5,576,000. For the three months ended March 31, 2019, the Company incurred deferred income tax expense corresponding
to the decrease in the deferred tax assets. Deferred income tax expense was $90,000 for the three months ended March 31, 2019 compared to zero for the three months ended March 31, 2018.
10. Earnings Per Share
Basic earnings per share is calculated by dividing net income by the weighted average of the number of outstanding common
shares during the period. The Company had net income of $1,006,000 for the three months ended March 31, 2019 as compared to net income of $1,693,000 for the three months ended March 31, 2018.
11. Related Party Disclosures
StockCross
StockCross and the Company are under common ownership and StockCross serves as one of the two clearing brokers for the
Company. StockCross has a clearing agreement with MSCO in which StockCross passes through all revenue and charges MSCO for related clearing expenses. Outside of the clearing agreement, MSCO has an expense sharing agreement with StockCross for its
Beverly Hills office and StockCross pays some of the vendors for miscellaneous expenses which it passes through to MSCO. As of March 31, 2019 and December 31, 2018, MSCO had receivables from StockCross totaling approximately $1.7 million and $1.3
million, respectively, consisting of financing for inventory positions, the net monthly clearing fees StockCross owes MSCO, and a clearing deposit. As of March 31, 2019 and December 31, 2018, MSCO had a payable to StockCross totaling $21,000 and
$46,000, respectively
.
In January 2019, the Company purchased approximately 15% of StockCross’ outstanding shares.
Please see Item 4. Financial Statements and Supplementary Data – “Note 6 – Equity Method Investments” for additional detail on the transaction with StockCross.
KCA
KCA is an affiliate of the Company and StockCross. To gain efficiencies and economies of scale with billing and
administrative functions, KCA serves as a paymaster for the Company and StockCross for compensation and benefits expenses, the entirety of which KCA passes through to the Company and StockCross proportionally. In addition, KCA has purchased the
naming rights for the Company for the Company to use.
PWC
PWC brokers the insurance policies for related parties. Revenue for PWC from related parties was approximately $22,000 for
the three months ended March 31, 2019.
12. Subsequent Events
The Company has evaluated events that have occurred subsequent to March 31, 2019 and through May 15,
2019, the date of the filing of this report. There have been no additional material subsequent events that occurred during such period that would require disclosure in this report or would be required to be recognized in the financial statements
as of March 31, 2019.