8-K/A
SIEBERT FINANCIAL CORP (SIEB)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
(Amendment No. 1)
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): December 2, 2019
SIEBERT FINANCIAL CORP.
(Exact name of registrant as specified in its charter)
| New York | 0-5703 | 11-1796714 |
|---|---|---|
| (State or other jurisdiction of | (Commission File Number) | (IRS Employer Identification Number) |
| incorporation) | ||
| 120 Wall Street, New York, New York | 10005 | |
| --- | --- | |
| (Address of principal executive offices) | (Zip Code) |
Registrant’s telephone number, including area code: (212) 644-2400
(Former name or former address, if changed since last report.)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):
☐ Written communications pursuant to Rule 425 under the Securities Act
☐ Soliciting material pursuant to Rule 14a-12 under the Exchange Act
☐ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act
☐ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
| Emerging growth company ☐ |
|---|
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
EXPLANATORY NOTE
On December 4, 2019, Siebert Financial Corp. (the “Company”) (NASDAQ: SIEB), filed a Current Report on Form 8-K (the “Original Form 8-K”) reporting, among other items, that on December 2, 2019 the Company completed its acquisition of all of the member interests of Weeden Prime Services, LLC, a broker-dealer registered with the SEC offering prime brokerage services.
This Amendment No. 1 to the Original Form 8-K is being filed solely to include the financial statements and financial information required under Item 9.01, which statements and information were excluded from the Original Form 8-K in reliance on paragraphs (a)(4) and (b)(2) of Item 9.01 of Form 8-K. Except as stated in this Explanatory Note, no other information contained in the Original Form 8-K is changed.
Forward-Looking Statements.
This Current Report on Form 8-K/A contains forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements typically are identified by use of terms such as “may,” “project,” “should,” “plan,” “expect,” “anticipate,” “believe,” “estimate” and similar words. Except as required by law, the Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. The Company’s actual results could differ materially from those contained in forward-looking statements due to a number of factors, including the statements under “Risk Factors” found in the Company’s Annual Reports on Form 10-K and its Quarterly Reports on Form 10-Q filed with the SEC.
Item 9.01. Financial Statements and Exhibits.
(a) Financial statements of businesses acquired.
Audited financial statements and the accompanying notes of Weeden Prime Services, LLC for the year ended December 31, 2018, attached hereto as Exhibit 99.2 and incorporated herein by reference.
(b) Pro forma financial information.
Unaudited pro forma financial statements and the accompanying notes for the nine months ended September 30, 2019 and the fiscal year ended December 31, 2018 attached hereto as Exhibit 99.3 and incorporated herein by reference.
(d) Exhibits
a52173804ex99_3.htm
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
| Dated: February 14, 2020 | ||
|---|---|---|
| By: | /s/ Andrew H. Reich | |
| Andrew H. Reich | ||
| EVP, Chief Operating Officer, Chief Financial Officer and Secretary |
Exhibit 99.2
WEEDEN PRIME SERVICES, LLC
FINANCIAL STATEMENTS WITH SUPPLEMENTARY INFORMATION
AND
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
DECEMBER 31, 2018
(CONFIDENTIAL PURSUANT TO RULE 17a-5(e)(3)
AND CFTC REGULATION 1.10)
| CONFIDENTIAL TREATMENT REQUESTED | UNITED STATES<br><br> <br>SECURITIES AND EXCHANGE COMMISSION<br><br> <br>Washington, D.C. 20549 | 0MB APPROVAL<br><br> <br>* * *<br>0MB Number : 3235-0123<br><br> <br>Expires: August 31 , 2020<br><br> <br>Estimated average burden<br><br> <br>hours per response.......12.00 |
|---|---|---|
| ANNUAL AUDITED REPORT | ||
| --- | --- | |
| FORM X-17A-5 | SEC FILE NUMBER<br><br> <br>8-67787 | |
| PART Ill |
FACING PAGE
Information Required of Brokers and Dealers Pursuant to Section 17 of the
Securities Exchange Act of 1934 and Rule 17a-5 Thereunder
| REPORT FOR THE PERIOD BEGINNING | 1/1/2018 | AND ENDING | 12/31/2018 |
|---|---|---|---|
| MM/DD/YY | M/DD/YY | ||
| A. REGISTRANT IDENTIFICATION | |||
| --- | |||
| NAME OF BROKER-DEALER: Weeden Prime Services, LLC | OFFICIAL USE ONLY<br><br> <br>* * *<br><br> <br>FIRM 1.0. NO. | ||
| --- | --- |
ADDRESS OF PRINCIPAL PLACE OF BUSINESS : \(Do not use P.O. Box No .\)
| 145 Mason Street | ||
|---|---|---|
| (No. and Street) | ||
| Greenwich | CT | 06830 |
| --- | --- | --- |
| (City) | (State) | (Zip Code) |
NAME AND TELEPHONE NUMBER OF PERSON TO CONTACT IN REGARD TO THIS REPORT
| Justyna Keilty | 203-861-7605 |
|---|---|
| (Area Code - Telephone Number ) | |
| B. ACCOUNTANT IDENTIFICATION | |
| --- |
INDEPENDENT PUBLIC ACCOUNTANT whose opinion is contained in this Report*
| CohnReznick LLP | |||
|---|---|---|---|
| (Name - if individual , state last. first. middle name) | |||
| 1301 Avenue of the Americas, | New York | NY | 10019 |
| --- | --- | --- | --- |
| (Address) | (City) | (State) | (Zip Code) |
CHECK ONE:
☐ Certified Public Accountant
☑ Public Accountant
☐ Accountant not resident in United States or any of its possessions.
FOR OFFICIAL USE ONLY
*Claims for exemption from the requirement that the annual report be covered by the opinion of an independent public accountant must be supported by a statement of facls and circumstances relied on as the basis for the exemplio n. See Section 240. J7a-5( e)(2)
| SEC 1410 (11-05) | Potential persons who are to respond to the collection of<br><br> <br>information contained in this form are not required to respond<br><br> <br>unless the form displays a currently valid 0MB control number. |
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WEEDEN PRIME SERVICES, LLC
| Facing Page | |
|---|---|
| Report of Independent Registered Public Accounting Firm | 1 |
| Financial Statements | |
| Statement of Financial Condition | 2 |
| Statement of Operations | 3 |
| Statement of Changes in Members' Equity | 4 |
| Statement of Cash Flows | 5 |
| Notes to Financial Statements | 6 - 13 |
| Supplementary Information | |
| --- | --- |
| Schedule I - Computation of Net Capital Under Rule 15c3-1 of the Securities and Exchange Commission and Regulation 1.17 of the Commodity<br><br> <br>Futures Trading Commission | 14 |
| Schedule II - Computation for Determination of Reserve Requirements and Information Relating to Possession or Control Requirements Under<br><br> <br>Rule 15c3-3 of the Securities and Exchange Commission | 15 |
| CohnReznick LLP<br> <br>cohnreznlck.com |
|---|
Report of Independent Registered Public Accounting Firm
To the Board of Managers and Shareholders
of Weeden Prime Services, LLC
Opinion on the Financial Statements
We have audited the accompanying statement of financial condition of Weeden Prime Services, LLC as of December 31, 2018, and the related statements of operations, changes in members' equity, and cash flows for the year then ended, and the related notes and schedules (collectively referred to as the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of Weeden Prime Services, LLC as of December 31, 2018, and the results of its operations and its cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of Weeden Prime Services, LLC's management. Our responsibility is to express an opinion on Weeden Prime Services, LLC's financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to Weeden Prime Services, LLC in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatemen,twhether due to error or fraud. Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion.
Auditor's Report. on Supplemental Information
The supplemental information contained in Schedules I and II has been subjected to audit procedures performed in conjunction with the audit of Weeden Prime Services, LLC's financial statements. The supplemental information is the responsibility of Weeden Prime Services, LLC's management. Our audit procedures included determining whether the supplemental information reconciles to the financial statements or the underlying accounting and other records, as applicable, and performing procedures to test the completeness and accuracy of the information presented in the supplemental information. In forming our opinion on the supplemental information, we evaluated whether the supplemental information, including its form and content, is presented in conformity with 17 C.F.R. §240.17a-5. In our opinion, the supplemental information is fairly stated, in all material respects, in relation to the financial statements as a whole.
We have served as Weeden Prime Services, LLC's auditor since 2012.
New York, New York
March 1, 2019
WEEDEN PRIME SERVICES, LLC
STATEMENT OF FINANCIAL CONDITION
DECEMBER 31, 2018
ASSETS
| Cash | $ | 452,731 |
|---|---|---|
| Cash segregated under Federal regulations | 189,644 | |
| Receivable from clearing brokers, net | 4,293,655 | |
| Furnishings, computers and software, net | 98,752 | |
| Other assets and security deposits | 273,346 | |
| Total | $ | 5,308,128 |
LIABILITIES AND MEMBERS' EQUITY
Liabilities :
| Accounts payable, accrued expenses and other liabilities | $ | 1,714,049 |
|---|---|---|
| Due to related parties | 22,765 | |
| Total liabilities | 1,736,814 | |
| Commitments | ||
| Members' equity | 3,571,314 | |
| Total | $ | 5,308,128 |
See Notes to Financial Statements.
2
WEEDEN PRIME SERVICES, LLC
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 2018
Revenue:
| Commissions | $ | 9,869,162 | |
|---|---|---|---|
| Interest income | 2,610,990 | ||
| Other income | 1,086,443 | ||
| Gross revenue | 13,566,595 | ||
| Reseach | (610,734 | ) | |
| Net Revenue | 12,955,861 |
Expenses:
| Employee compensation, commissions and benefits | 5,268,793 | ||
|---|---|---|---|
| Floor brokerage, exchange and clearing charges | 3,620,652 | ||
| Professional fees | 665,073 | ||
| Communications, quotation and electronic services | 531,787 | ||
| Occupancy | 483,094 | ||
| Referral fees | 1,548,028 | ||
| Registration | 53,891 | ||
| Insurance | 18,363 | ||
| Legal contingency | 600,000 | ||
| Depreciation and amortization | 122,183 | ||
| Other | 439,021 | ||
| Total expenses | 13,350,885 | ||
| Net Loss | $ | (395,024 | ) |
See Notes to Financial Statements.
3
WEEDEN PRIME SERVICES, LLC
STATEMENT OF CHANGES IN MEMBERS' EQUITY
YEAR ENDED DECEMBER 31, 2018
| Balance, beginning of year | $ | 3,966,338 | |
|---|---|---|---|
| Capital contributions | 0 | ||
| Net loss | (395,024 | ) | |
| Balance, end of year | $ | 3,571,314 |
See Notes to Financial Statements.
4
WEEDEN PRIME SERVICES, LLC
STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 2018
Operating activities:
| Net Loss | $ | (395,024 | ) |
|---|---|---|---|
| Adjustments to reconcile net loss to net cash<br><br> <br>provided by operating activities: | |||
| Depreciation and amortization | 122,183 | ||
| Changes in operating assets and liabilities: | |||
| Receivable from clearing brokers, net | (304,748 | ) | |
| Other assets and security deposits | (28 ,660 | ) | |
| Accounts payable, accrued expenses and other liabilities | 931,898 | ||
| Due to related parties | (98,600 | ) | |
| Net cash provided by operating activities | 227,049 |
Investing activities:
| Purchases of fixed assets and capitalized software development costs | (9,161 | ) | |
|---|---|---|---|
| Net cash used in investing activities | (9,161 | ) | |
| Net increase in cash | 217,888 | ||
| Cash and cash segregated, beginning of year | 424,487 | ||
| Cash and cash segregated, end of year | $ | 642,375 |
See Notes to Financial Statements.
5
WEEDEN PRIME SERVICES, LLC
Note 1 - Organization
Weeden Prime Services, LLC (the "Company") is a Delaware limited liability company, originally organized as a corporation under the laws of the State of Florida on April 6, 2007. The Company is a registered broker-dealer with the Securities and Exchange Commission ("SEC") and Commodity Futures Trading Commission ("CFTC"), and is a member of the Financial Industry Regulatory Authority, Inc. ("FINRA"), National Futures Association ("NFA"), and Securities Investor Protection Corporation ("SIPC"). The Company's operations consist primarily of trade execution and risk management services for customers and is an introducing broker for the transactions of institutional customers.
The Company is comprised of two members, Weeden Securities Corporation ("WSC"), and Weeden Investors, L.P. ("WILP"). The Company is managed by a Board of Managers which has the authority and discretion to conduct and oversee all aspects of its business and affairs.
As of December 31, 2018 the Company has agreements with four broker-dealers ("clearing brokers") to clear transactions, carry customers' accounts on a fully disclosed basis and perform record keeping functions, and consequently operates under the exemptive provisions of SEC rule 15c3-3(k)(2)(ii).
Note 2 - Summary of significant accounting policies
Basis of Presentation
The financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America ("GAAP").
These financial statements were approved by management and available for issuance on March 1, 2019 .
Subsequent events have been evaluated from the date these statements were approved by management and available for issuance.
The Company has a history of recurring losses from operations and of using cash in operating activities. For the year ended December 31, 2018, the Company's net loss was $395,024; however cash was provided by operating activities in the amount of $227,049. Revenues have increased 7% and 23% in 2017 and 2018, respectively. Cash and receivable from clearing brokers total $4,936,030 and the Company continues to meet all current obligations. Regulatory net capital at December 31, 2018 was $3,199,216. Based on its cash and receivable from clearing brokers balance at December 31, 2018, its cash usage expectations for the remainder of 2019, the availability of capital contributions from WILP and WSC as well as the ability to curtail expenses and discontinue its relationships with certain of its clearing brokers if the need arises, management believes the Company will have sufficient liquidity to fund itsoperations and meet its obligations as they become due for at least the next 12 month period from the date of issuance.
6
WEEDEN PRIME SERVICES, LLC
NOTES TO FINANCIAL STATEMENTS
Furnishings, Computers, and Software
Amortization of internally created software is provided for using the straight-line method over five years. Depreciation for all other capitalized assets is provided for over the estimated useful lives of the related assets, generally five to seven years, using the straight-line method.
The Company accounts for costs incurred in connection with the development of software in accordance with guidance on accounting for costs of computer software developed or obtained for internal use. Accordingly, all costs in the preliminary project stage are expensed as incurred. Internal and external costs incurred to develop internal use computer software during the application's development state are capitalized. Upgrades and enhancements that result in additional functionality are also capitalized.
Revenue Recognition
The Company has adopted ASU 2014-09 as defined below and all related amendments and applied is provisions using the modified retrospective method. There was no cumulative effect of retrospectively applying ASC 606 as defined below and no adjustments to members' capital as of January 1, 2018.
Commission income is earned and related clearing expenses are incurred from execution of customer's securities transactions and are recorded on a trade date basis. Interest income, which predominantly represents interest charged on debit balances in customer margin accounts, and other income, including referral fees, are recorded when incurred or in accordance with associated agreements.
In May 2014, the Financial Accounting Standards Board ("FASS") issued ASU 2014-09, Revenue from Contracts with Customers, as a new Topic, ASC 606. The new revenue recognition standard provides a five-step analysis of transactions to determine when and how revenue is recognized. The core principle is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Revenue from contracts with customers includes commission income. Commissions and related clearing expenses are recorded on the trade date (the date that the Company fills the trade order by finding and contracting with a counterparty and confirms the trade with the customer). The Company believes that the performance obligation 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. The adoption of this standard did not change the accounting for the majority of the Company's revenue arrangements except as disclosed below as it relates to soft dollar arrangements.
7
WEEDEN PRIME SERVICES, LLC
NOTES TO FINANCIAL STATEMENTS
Income Taxes
The Company is a multi-member limited liability company and files a U.S. Partnership return.
The Internal Revenue Code ("IRC") provides that any income or loss, for either a single member or multi-member limited liability company, is passed through to the members for Federal and state income tax purposes. Accordingly, the Company has not provided for Federal or state income taxes. The Company is subject to the New York City Unincorporated Business Tax ("UBT").
At December 31, 2018, management has determined that the Company had no uncertain tax positions that would require financial statement recognition . This determination will be subject to ongoing reevaluation as facts and circumstances may require. The Company remains subject to U.S. Federal and state income tax audits for all periods subsequent to 2015.
Soft Dollar Arrangements
The Company has soft dollar and commission sharing arrangements with customers that fall both within, and outside of, the safe harbor provisions of Rule 28(e) of the Securities Exchange Act of 1934 ("Rule 28(e)"), as amended, which provides for the payment of research, brokerage, quote services and other expenses.
Research services provided by the Company to customers in soft-dollar arrangements were determined to be a separate performance obligation that should be allocated a portion of the transaction price. Research services provided by a broker-dealer may be internally generated or provided by a third party and paid directly by the broker-dealer on the customer's behalf. It was determined that the Company is considered an agent as it does not control the research services before they are transferred to the customer. Therefore, fees received for research services should be recorded net of amounts paid for the soft dollar arrangement. These amounts paid by the Company were previously recorded as an expense and beginning January 1, 2018 were recorded as an offset with the associated revenue recorded. The amounts recorded as a net to revenue during 2018 were $610,734.
Amounts relating to all customers with a positive total balance are reflected in the accompanying statement of financial condition in accrued expenses. Such amounts represent the estimated third-party research services and other services to be provided to all customers from whom the Company has earned commissions for execution of brokerage transactions or revenue from direct sales. The provision for uncollectible commissions is determined under the direct write-off method, which is not materially different from the allowance method. As of December 31, 2018, no allowance for uncollectible commissions was necessary as management believes all commissions receivable and prepaid research costs will be realized.
8
WEEDEN PRIME SERVICES, LLC
NOTES TO FINANCIAL STATEMENTS
The amount of third-party research and other services that the Company will furnish to its customers is based on the amount of commissions that the Company receives or expects to receive for execution of brokerage transactions and is measured by the Company in terms of commission total balance (commissions paid less service provided). It is understood by the customers and the Company that the commission total balance is not redeemable in cash and, when redeemed, may only be used to obtain third-party research and other approved services through the Company. The accumulated commission total balance of customers is reduced when such customers request the Company to provide third-party services.
New Accounting Pronouncements
In February 2016, the FASS issued ("ASU 2016-02 ") Leases (ASC Topic 842), which establishes the principles for the recognition, measurement, presentation and disclosure of leases for both lessees and lessors. ASU 2016-02 requires lessees to recognize most leases on their balance sheets but recognize expenses in the income statement in a manner similar to current treatment. For lessees, lease classification will determine the manner lease-related expenses are recognized. ASC Topic 842 and all subsequent amendments thereto are effective for reporting periods beginning after December 15, 2019 (January 1, 2019 for the Company) for nonpublic reporting entities, with early adoption permitted. Management is currently evaluating the impact of adopting ASC Topic 842 on the Company's financial 2019 statements.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires the Company's management to make estimates and assumptions that affect the amounts disclosed in the financial statements. Actual results could differ from those estimates.
Note 3 - Cash
During 2018, the Company maintained cash accounts in excess of FDIC and SIPC limits. The Company monitors the solvency of the institutions in which these cash accounts are maintained.
Note 4 - Cash segregated under Federal regulations
Cash of $189,644 has been segregated in a special reserve bank account for the benefit of customers.
9
WEEDEN PRIME SERVICES, LLC
NOTES TO FINANCIAL STATEMENTS
Note 5 - Furnishings, computers and software
Details of furnishings, computers and software at December 31, 2018 are as follows:
| Furnishings | $ | 14,609 |
|---|---|---|
| Computers | 8,588 | |
| Software | 631,503 | |
| Sub-total | 654,700 | |
| Less accumulated depreciation and amortization | 555,948 | |
| Total | $ | 98,752 |
Note 6 - Net capital requirement
The Company, as a member of FINRA, is subject to the SEC Uniform Net Capital Rule 15c3-1 . This rule requires the maintenance of minimum net capital and that the ratio of aggregate indebtedness to net capital, both as defined, shall not exceed 15 to 1 and that equity capital may not be withdrawn or cash dividends paid if the resulting net capital ratio would exceed 10 to 1. The Company is also subject to the CFTC's minimum financial requirements which require that the Company maintain net capital, as defined, equal to the greater of its requirements under Regulation 1.17 under the Commodity Exchange Act or Rule 15c3-1. At December 31, 2018, the Company's net capital was $3,199,216 which was $2,949,216 in excess of its minimum requirement of $250,000 under 15c3-1.
Note 7 - Receivable from clearing brokers
The clearing and depository operations for the Company's transactions are provided by four brokers. For financial reporting purposes, amounts due to brokers have been offset against amounts due from brokers. The total net receivable from brokers at December 31, 2018 was $4,293,655.
In addition, the receivables from the clearing brokers are subject to these clearance agreements and include required clearing deposits of $250,000, $250,000, and $1,000 ,000 , as well as an additional $750,000 minimum equity requirement to ensure the clearing brokers' obligations.
Note 8 - Off-balance-sheet risk
Pursuant to the clearance agreements, the Company introduces all of its securities transactions to clearing brokers on a fully-disclosed basis. All of the customers' money balances and long and short security positions are carried on the books of the clearing brokers. In accordance with the clearance agreements, the Company has agreed to indemnify the clearing brokers for losses, if any, which the clearing brokers may sustain from carrying securities transactions introduced by the Company. In accordance with industry practice and regulatory requirements, the Company and the clearing brokers monitor collateral on the customer's accounts.
10
WEEDEN PRIME SERVICES, LLC
NOTES TO FINANCIAL STATEMENTS
In the normal course of business, the Company's customer activities involve the execution, settlement, and financing of the 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 obligation and the Company has to purchase or sell the financial instrument underlying the contract at a loss.
Note 9 - Commitments
The Company has agreements with various third parties to share commissions and pay fees as defined in the respective agreements. Approximately $1,548,000 was expensed for the year ended December 31, 2018 under these agreements.
On June 1, 2013, the Company entered into a lease with a related party, Weeden & Co, LP (the "affiliate"). The terms of the lease were amended in March 2014, renewed on June 1, 2015 and amended again in September 2016. Provided no notice is given, the lease will continue to auto-renew for one year terms until the final auto-renewal beginning on June 1, 2026. On December 1, 2013, the Company entered into a second lease with a non-related party whose term began on February 21, 2014 and will expire on April 30, 2020. The Company has paid a security deposit of $73,081 in accordance with that lease. On June 1, 2018 the Company entered into a third lease with a non- related party whose term began on November 1, 2018 and will expire on May 31, 2019. The aggregate minimum rental commitments under these leases are as follows:
| Year Ending | ||
|---|---|---|
| December 31, | Amount | |
| 2019 | $ | 511,967 |
| 2020 | 267,647 | |
| 2021 | 151,200 | |
| 2022 | 151,200 | |
| 2023 | 151,200 | |
| Thereafter | 604,800 | |
| Total | $ | 1,838,014 |
The Company has entered into two sublease agreements, one with a related party which will expire in 2019 and one with a non-related party which will also expire in 2019. For the year ended December 31, 2018, total sublease income amounted to $195,188. Future sublease income of $76,686 for calendar year 2019 is anticipated.
11
WEEDEN PRIME SERVICES, LLC
NOTES TO FINANCIAL STATEMENTS
Note 10 - Concentrations of credit risk
The Company maintains its cash balances at one financial institution. These balances are insured by the Federal Deposit Insurance Corporation up to $250,000 per institution. The Company is subject to credit risk to the extent that the financial institution with which it conducts business is unable to fulfill its contractual obligations.
During the year ended December 31, 2018, approximately 75% of the Company's commission revenues were derived from twenty customers. There was a $73,355 direct receivable due from customers as of December 31, 2018 which is included in other assets and security deposits on the statement of financial condition. All other outstanding commissions are included in receivable from clearing brokers on the statement of financial condition.
Note 11 - Related party transactions
The Company has an expense sharing agreement with the affiliate where each company may provide various accounting, technology, and administrative services. For the year ended December 31, 2018, the Company incurred expenses of approximately $279,951 for services and provided services in the amount of $47,643. In addition, the Company also capitalized approximately $9,200 of software costs related to the aforementioned expense sharing arrangement. The Company also has a cross referral agreement , whereby each company may refer clients to the other in exchange for a share of the commissions generated. The Company generated approximately $150,600 to the affiliate and received approximately $510,000. The Company also sub-leases office space from the affiliate. The Company recorded $151,200 of occupancy expense under this lease in 2018. During the year, approximately $142,000 of various miscellaneous expenses were incurred on behalf of the affiliate and $535,000 of miscellaneous expenses were provided to the Company by the affiliate. There is an outstanding balance of $22,765 due to the affiliate as of December 31, 2018.
Note 12 - Income taxes
The Company is subject to a 4% New York City UBT, with an approximate net operating loss carryforward $2.1 million (tax credit of $87,000) which will expire starting in 2033. The Company has recorded a full valuation allowance against the New York City UBT loss on the basis of management's assessment that the amount is more likely than not to be realized.
Note 13 - Soft dollar transactions
The Company entered into soft dollar and comm1ss1on sharing arrangements with certain clients which fell both within, and outside of, the provision of Rule28(e). Under this program, the Company charges additional dollars on customer trades made with the Company and uses these fees to pay market data, research related and other expenses on behalf of clients. During 2018, the Company paid client expenses totaling approximately $611,000 and has an outstanding receivable and liability of approximately $57,000 and $158,000, respectively, as of December 31, 2018.
12
WEEDEN PRIME SERVICES, LLC
NOTES TO FINANCIAL STATEMENTS
Note 14 - Legal Contingency
In the fourth quarter of 2018, a court-appointed receiver has threatened to commence FINRA arbitration against the Company in connection with an alleged fraud perpetrated by a money manager customer of the Company. In February 2019, the receiver indicated it was prepared to seek leave of court to file a claim against the Company and its affiliate (a company related through common ownership) through FINRA arbitration. The Company has engaged in settlement negotiations to determine whether a pre- dispute resolution can be achieved. The initial claims against the Company were $20 million and while the Company believes it has a meritorious defense against this claim, it has offered to settle the matter for $600,000 which is included accounts payable, accrued expenses and other liabilities on the statement of financial condition. The Company cannot predict the ultimate resolution of the matter or the amount the Company will be liable. The ultimate resolution of this matter could be materially different than the $600,000 accrued at December 31, 2018.
Note 15 - Members' equity
At December 31, 2018, members' equity is comprised of the following:
| Weeden Securities Corporation | $ | 35,713 |
|---|---|---|
| Weeden Investors, L.P. | 3,535,601 | |
| Total | $ | 3,571,314 |
Note 16 - Subsequent event
On February 24, 2019, the Company's affiliate and Piper Jaffray Companies (NYSE: PJC), a leading investment bank and asset management firm, executed a definitive agreement whereby Piper Jaffray Companies will acquire 100% of the affiliate. The acquisition is subject to FINRA approval. Upon closing, the affiliate will convert to and operate as Piper Jaffray & Co. The acquisition is expected to close in June 2019. In conjunction with the sale, the Company's cross referral agreement with the affiliate is expected to continue with the purchaser. The Company's expense sharing agreement with the affiliate will terminate at closing which will increase rent and other expenses by an estimated $200,000 annually.
13
WEEDEN PRIME SERVICES, LLC
SCHEDULE 1- COMPUTATION OF NET CAPITAL UNDER RULE 15c3-1 OF THE SECURITIES AND
EXCHANGE COMMISSION AND REGULATION 1.17 OF THE COMMODITY FUTURES TRADING
COMMISSION
DECEMBER 31, 2018
Net capital:
| Total members' equity | $ | 3,571,314 | |
|---|---|---|---|
| Deduct nonallowable assets: | |||
| Other assets and security deposits | 273,346 | ||
| Furnishings, computers and software, net | 98,752 | ||
| Total | 372,098 | ||
| Net capital | $ | 3,199,216 | |
| Aggregate indebtedness | $ | 1,736,814 | |
| Computed minimum net capital required<br><br> <br>(6 2/3% of aggregate indebtedness) | $ | 115,788 | |
| Minimum net capital required (under SEC Rule 15c3-1) | $ | 250,000 | |
| Minimum net capital required (under CFTC Regulation 1.17) | $ | 250,000 | |
| Excess net capital ($3,199,216 - 250,000) | $ | 2,949,216 | |
| Percentage of aggregate indebtedness to net capital | 54 | % |
There were no material differences existing between the above computation and computation included in the Company's corresponding unaudited amended Focus X-17A-5 Part II filing submitted March 1, 2019
See Report of Independent Registered Public Accounting Firm .
14
WEEDEN PRIME SERVICES, LLC
SCHEDULE II - COMPUTATION FOR DETERMINATION OF RESERVE REQUIREMENTS AND
INFORMATION RELATING TO POSSESSION OR CONTROL REQUIREMENTS UNDER RULE
15c3-3 OF THE SECURITIES AND EXCHANGE COMMISSION
DECEMBER 31, 2018
The Company is exempt from the provisions of Rule 15c3-3 as of December 31, 2018 under the Securities and Exchange Act of 1934, in that the Company's activities are limited to those set forth in the conditions for exemption appearing in paragraph (k)(2)(ii).
See Report of Independent Registered Public Accounting Firm.
15
Exhibit 99.3
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
The unaudited pro forma combined financial statements (“Pro Forma Financial Statements”) of Siebert Financial Corp. (“Siebert”) and Weeden Prime Services, LLC (“Weeden”) reflect various adjustments to give effect to the following transaction:
| • | Siebert acquired all of the member interests in Weeden, pursuant to the terms of an Equity Interests Purchase Agreement (the “Agreement”) for a purchase price of $7,124,996, which was paid through cash and effective December 2, 2019,<br> Weeden became a wholly-owned subsidiary of Siebert (“the Transaction”). |
|---|
The Transaction will be accounted for using the acquisition method of accounting for business combinations per ASC 805 under U.S. generally accepted accounting principles (“GAAP”). Based on the Agreement, Siebert has been identified as the accounting acquirer.
The unaudited pro forma combined balance sheet as of September 30, 2019 (“Pro Forma Balance Sheet”) is based on the historical consolidated balance sheets of Siebert and Weeden after giving effect to the Transaction as if it had occurred on January 1, 2018.
The unaudited pro forma 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 Siebert and Weeden 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 Financial 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. The accompanying Pro Forma Income Statements do 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 Siebert and Weeden for the pertinent reporting periods |
|---|---|
| 2. | Annual Reports on Form 10-K and Quarterly Reports on Form 10-Q filings filed by Siebert for the pertinent reporting periods |
| --- | --- |
| 3. | Form 17A-5 filings filed by Weeden for the pertinent reporting periods |
| --- | --- |
SIEBERT FINANCIAL CORP. & WEEDEN PRIME SERVICES, LLC
UNAUDITED PRO FORMA COMBINED STATEMENT OF FINANCIAL CONDITION
As of September 30, 2019
| Weeden | Pro Forma<br><br> <br>Adjustments | Note<br><br> <br>Reference | Pro Forma<br><br> <br>Combined<br><br> <br>Siebert | |||||||
|---|---|---|---|---|---|---|---|---|---|---|
| ASSETS | ||||||||||
| Cash and cash equivalents | 4,231,000 | $ | 300,000 | $ | (2,125,000 | ) | (i) | $ | 2,406,000 | |
| Cash segregated | — | 144,000 | — | 144,000 | ||||||
| Receivables from clearing broker dealers | 2,436,000 | 5,094,000 | — | 7,530,000 | ||||||
| Receivable from related party | 1,000,000 | — | — | 1,000,000 | ||||||
| Other receivables | 103,000 | 120,000 | — | 223,000 | ||||||
| Prepaid expenses and other assets | 302,000 | 184,000 | 147,000 | (v) | 633,000 | |||||
| Escrow deposit | 2,000,000 | — | (2,000,000 | ) | (i) | — | ||||
| Furniture, equipment and leasehold improvements, net | 1,000,000 | 26,000 | (4,000 | ) | (ii) | 1,022,000 | ||||
| Software, net | 1,806,000 | 57,000 | 30,000 | (ii) | 1,893,000 | |||||
| Intangible assets, net | — | — | 1,698,000 | (iii) | 1,698,000 | |||||
| Lease right-of-use-assets | 2,501,000 | 85,000 | — | 2,586,000 | ||||||
| Equity method investment in related party | 3,509,000 | — | — | 3,509,000 | ||||||
| Deferred tax assets | 5,105,000 | — | — | 5,105,000 | ||||||
| Goodwill | — | — | 484,000 | (iii) | 484,000 | |||||
| 23,993,000 | $ | 6,010,000 | $ | (1,770,000 | ) | $ | 28,233,000 | |||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||||
| Accounts payable and accrued liabilities | 744,000 | $ | 1,532,000 | $ | — | $ | 2,276,000 | |||
| Due to clearing brokers dealers and related parties | 27,000 | — | — | 27,000 | ||||||
| Income taxes payable | 38,000 | — | — | 38,000 | ||||||
| Lease liabilities | 2,817,000 | 85,000 | — | 2,902,000 | ||||||
| Notes payable | — | — | 3,000,000 | (i) | 3,000,000 | |||||
| Other liabilities | 91,000 | — | — | 91,000 | ||||||
| 3,717,000 | 1,617,000 | 3,000,000 | 8,334,000 | |||||||
| Commitments and Contingencies | ||||||||||
| Stockholders’ equity: | ||||||||||
| Common stock, .01 par value | 271,000 | — | — | 271,000 | ||||||
| Additional paid-in capital | 7,641,000 | 5,356,000 | (5,356,000 | ) | (iv) | 7,641,000 | ||||
| Retained earnings / (Accumulated deficit) | 12,364,000 | (963,000 | ) | 586,000 | (iv) | 11,987,000 | ||||
| 20,276,000 | 4,393,000 | (4,770,000 | ) | 19,899,000 | ||||||
| 23,993,000 | $ | 6,010,000 | $ | (1,770,000 | ) | $ | 28,233,000 |
All values are in US Dollars.
SIEBERT FINANCIAL CORP. & WEEDEN PRIME SERVICES, LLC
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
For the year ended December 31, 2018
| Siebert | Weeden | Pro Forma<br><br> <br>Adjustments | Note<br><br> <br>Reference | Pro Forma<br><br> <br>Combined<br><br> <br>Siebert | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| REVENUE | |||||||||||||
| Margin interest, marketing and distribution fees | $ | 10,928,000 | $ | 1,550,000 | $ | — | $ | 12,478,000 | |||||
| Commissions and fees | 9,504,000 | 9,258,000 | — | 18,762,000 | |||||||||
| Principal transactions | 9,020,000 | — | — | 9,020,000 | |||||||||
| Interest | 106,000 | 1,160,000 | (5,000 | ) | (i) | 1,261,000 | |||||||
| Other income | — | 987,000 | — | 987,000 | |||||||||
| Advisory fees | 478,000 | — | — | 478,000 | |||||||||
| 30,036,000 | 12,955,000 | (5,000 | ) | 42,986,000 | |||||||||
| EXPENSES | |||||||||||||
| Employee compensation and benefits | 13,817,000 | 5,269,000 | — | 19,086,000 | |||||||||
| Referral fees | — | 1,548,000 | — | 1,548,000 | |||||||||
| Other general and administrative | 1,859,000 | 1,059,000 | — | 2,918,000 | |||||||||
| Professional fees | 1,963,000 | 665,000 | — | 2,628,000 | |||||||||
| Clearing fees, including execution costs | 2,852,000 | 3,621,000 | — | 6,473,000 | |||||||||
| Rent and occupancy | 988,000 | 483,000 | — | 1,471,000 | |||||||||
| Technology and communications | 1,008,000 | 537,000 | — | 1,545,000 | |||||||||
| Depreciation and amortization | 144,000 | 122,000 | 294,000 | (ii) | 560,000 | ||||||||
| Interest expense | — | 5,000 | 115,000 | (i) | 120,000 | ||||||||
| Advertising and promotion | 45,000 | 42,000 | — | 87,000 | |||||||||
| 22,676,000 | 13,351,000 | 409,000 | 36,436,000 | ||||||||||
| Income (loss) before provision (benefit) for (from) income taxes | 7,360,000 | (396,000 | ) | (414,000 | ) | 6,550,000 | |||||||
| Provision (benefit) for (from) income taxes | (4,602,000 | ) | — | (116,000 | ) | (iii) | (4,718,000 | ) | |||||
| Net income / (loss) | $ | 11,962,000 | $ | (396,000 | ) | $ | (298,000 | ) | $ | 11,268,000 | |||
| Net income / (loss) per share of common stock | |||||||||||||
| --- | --- | --- | --- | --- | |||||||||
| Basic and diluted | $ | 0.44 | $ | 0.41 | |||||||||
| Weighted average shares outstanding | |||||||||||||
| Basic and diluted | 27,157,188 | 27,157,188 |
SIEBERT FINANCIAL CORP. & WEEDEN PRIME SERVICES, LLC
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
For the nine months ended September 30, 2019
| Siebert | Weeden | Pro Forma<br><br> <br>Adjustments | Note<br><br> <br>Reference | Pro Forma Combined Siebert | |||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| REVENUE | |||||||||||
| Margin interest, marketing and distribution fees | $ | 8,499,000 | $ | 1,080,000 | $ | — | $ | 9,579,000 | |||
| Commissions and fees | 6,030,000 | 6,724,000 | — | 12,754,000 | |||||||
| Principal transactions | 5,479,000 | — | — | 5,479,000 | |||||||
| Interest | 54,000 | 990,000 | (7,000 | ) | (i) | 1,037,000 | |||||
| Other income | — | 687,000 | — | 687,000 | |||||||
| Advisory fees | 572,000 | — | — | 572,000 | |||||||
| 20,634,000 | 9,481,000 | (7,000 | ) | 30,108,000 | |||||||
| EXPENSES | |||||||||||
| Employee compensation and benefits | 8,882,000 | 3,697,000 | — | 12,579,000 | |||||||
| Referral fees | — | 1,637,000 | — | 1,637,000 | |||||||
| Other general and administrative | 1,861,000 | 1,479,000 | — | 3,340,000 | |||||||
| Professional fees | 1,388,000 | 670,000 | (273,000 | ) | 1,785,000 | ||||||
| Clearing fees, including execution costs | 1,849,000 | 1,959,000 | — | 3,808,000 | |||||||
| Rent and occupancy | 995,000 | 341,000 | — | 1,336,000 | |||||||
| Technology and communications | 800,000 | 602,000 | — | 1,402,000 | |||||||
| Depreciation and amortization | 670,000 | 43,000 | 292,000 | (ii) | 1,005,000 | ||||||
| Interest expense | — | 7,000 | 83,000 | (i) | 90,000 | ||||||
| Advertising and promotion | — | 10,000 | 10,000 | ||||||||
| 16,445,000 | 10,445,000 | 102,000 | 26,992,000 | ||||||||
| Earnings of equity method investment in related party | 84,000 | — | — | 84,000 | |||||||
| Income (loss) before provision (benefit) for (from) income taxes | 4,273,000 | (964,000 | ) | (109,000 | ) | 3,200,000 | |||||
| Provision (benefit) for (from) income taxes | 1,171,000 | — | (31,000 | ) | (iii) | 1,140,000 | |||||
| Net income / (loss) | $ | 3,102,000 | $ | (964,000 | ) | $ | (78,000 | ) | $ | 2,060,000 | |
| Net income per share of common stock | |||||||||||
| Basic and diluted | $ | 0.11 | $ | 0.08 | |||||||
| Weighted average shares outstanding | |||||||||||
| Basic and diluted | 27,157,188 | 27,157,188 |
| 1. | Basis of Presentation |
|---|
All financial data in the Pro Forma Financial Statements are presented in U.S. dollars and have been prepared in accordance with Siebert’s accounting policies that conform to U.S. GAAP and the rules and regulations of SEC Regulation S-X. Numbers are rounded for presentation purposes.
Financial information in the Siebert and Weeden columns of the Pro Forma Balance Sheets represents the historical condensed consolidated balance sheets of Siebert and Weeden as of September 30, 2019. Financial information presented in the Siebert and Weeden columns in the Pro Forma Income Statements represents the historical consolidated income statements of Siebert and Weeden for the year ended December 31, 2018 and the nine months ended September 30, 2019.
The merger will be accounted for under the acquisition method of accounting for business combinations pursuant to Accounting Standards Codification (“ASC”) No. 805- Business Combinations. ASC No. 805, requires, among other things, that the assets acquired and liabilities assumed be recognized at their fair values as of the proposed merger date. ASC No. 820 - Fair Value Measurements, which establishes a framework for measuring fair values, defines fair value as ‘‘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.’’
| 2. | Purchase Conditions |
|---|
Pursuant to the terms of the Agreement, Siebert entered into an unsecured promissory note (the “Promissory Note”) with Gloria E. Gebbia, pursuant to which Siebert borrowed $3,000,000 to finance part of the Transaction. Interest on the note accrues at the rate of 4% per annum and all principal and accrued unpaid interest is due and payable by Siebert in full on December 2, 2020. Siebert may prepay the Note at any time without a penalty.
| 3. | Purchase Consideration and Purchase Price Allocation |
|---|
Siebert acquired all of the member interests in Weeden, pursuant to the terms of an Equity Interests Purchase Agreement (the “Agreement”), for a purchase price of $7,124,996, which was paid through cash and effective December 2, 2019, Weeden became a wholly-owned subsidiary of Siebert.
Siebert is required to allocate the Weeden purchase price to tangible and identifiable intangible assets acquired and liabilities assumed based on their fair values as of November 30, 2019. The excess of the purchase price over those fair values is recorded as goodwill. As of date of the filing of this report, the Company has completed its allocation of the Weeden purchase price.
Siebert has performed valuation analysis of the fair market values of Weeden’s assets acquired and liabilities assumed. Using the total consideration, the Company has allocated the purchase price to such assets and liabilities. The excess of the fair value of net identifiable assets, on the date of acquisition, was allocated to goodwill. Adjustments were made for tax considerations.
The following table summarizes Siebert’s allocation of the purchase price as of November 30, 2019:
| Purchase Price Allocation | Estimated<br><br> <br>Fair Value | Note<br><br> <br>Reference | |
|---|---|---|---|
| Cash and cash equivalents | $ | 301,000 | (i) |
| Cash segregated | 152,000 | (i) | |
| Receivable from clearing broker dealers | 4,616,000 | (i) | |
| Furniture, equipment and leasehold improvements, net | 41,000 | (ii) | |
| Software, net | 51,000 | (ii) | |
| Intangible assets, net | 2,248,000 | (iii) | |
| Lease right-of-use assets | 214,000 | (ii) | |
| Other assets | 271,000 | (ii) | |
| Total Assets acquired | 7,894,000 | ||
| Accounts payable and accrued liabilities | 1,353,000 | (ii) | |
| Lease liabilities | 214,000 | (ii) | |
| Total Liabilities acquired | 1,567,000 | ||
| Net Assets acquired | 6,327,000 | ||
| Goodwill | 798,000 | (iv) | |
| Purchase Price | $ | 7,125,000 |
Notes to Purchase Price Allocation
| (i) | Given the short-term nature of these items, the book values are assumed to be representative of their estimated fair values | ||||
|---|---|---|---|---|---|
| (ii) | Carrying values of these items are assumed to be representative of their estimated fair values | ||||
| --- | --- | ||||
| (iii) | As part of the acquisition, Siebert acquired certain intangible assets from Weeden, consisting of Weeden’s customer relationships and their trade name. The fair value for the intangible assets were determined based on discounted cash<br> flow analyses and market approaches. The intangible assets are generally amortized over their estimated useful lives. The useful life of the customer relationships was determined based on quantitative analysis and qualitative<br> considerations. The useful life of the trade name was determined based on the provisions of the Transaction surrounding Siebert’s use of the trade name. Below is a table with details on the intangible assets acquired. | ||||
| --- | --- | ||||
| Intangible Asset | Estimated<br><br> <br>Fair Value | Estimated Useful<br><br> <br>Life | Annual<br><br> <br>Amortization | ||
| --- | --- | --- | --- | --- | --- |
| Customer relationships | $ | 2,174,000 | 8 years | $ | 272,000 |
| Trade name | 74,000 | 0.5 years | 74,000 | ||
| Total | $ | 2,248,000 | $ | 346,000 | |
| (iv) | For the purposes of these Pro Forma Financial Statements, the difference between the purchase price and the net assets acquired is allocated to goodwill. | ||||
| --- | --- | ||||
| 4. | Notes to Pro Forma Balance Sheet Adjustments | ||||
| --- | --- |
The following summarizes the adjustments included in the “Pro Forma Adjustments” column in the accompanying Pro Forma Balance Sheet as of September 30, 2019:
| (i) | Represents an adjustment as of September 30, 2019 to reflect the method of payment of the purchase price of $7,124,996 via cash of $2,125,000, the Promissory Note of $3,000,000, and the elimination of an escrow deposit of $2,000,000<br> transferred to seller of Weeden in a prior period. |
|---|
| (ii) | Represents the recalculation of Weeden’s depreciation and amortization of its furniture, equipment and lease hold improvements as well as software to align with Siebert’s accounting policies and assumptions for useful lives. |
|---|---|
| (iii) | Represents the fair value increase of intangible assets, net of accumulated amortization and goodwill as described in Note 3 |
| --- | --- |
| (iv) | Represents the elimination of the Weeden’s historical additional paid-in capital and retained earnings balances upon consummation of the Transaction as well as the change in retained earnings from the adjustments detailed in the Pro<br> Forma Income Statements for year ended December 31, 2018 and the nine months ended September 30, 2019. |
| --- | --- |
| (v) | Represents adjustment for income tax payable related to the change in retained earnings from the adjustments detailed in the Pro Forma Income Statements for year ended December 31, 2018 and the nine months ended September 30, 2019. |
| --- | --- |
| 5. | Notes to Pro Forma Income Statements Adjustments |
| --- | --- |
The following summarizes the adjustments included in the “Pro Forma Adjustments” column in the accompanying Pro Forma Income Statements for the year ended December 31, 2018 and the nine months ended September 30, 2019.
| (i) | In relation to interest paid on clients’ credit balances, Weeden reported gross interest revenue and a corresponding expense while Siebert’s accounting policy is to report interest revenue net of interest expense. To align Weeden’<br> reporting to Siebert’s accounting policy, Weeden’ interest expense was deducted from the Interest Expense line item and deducted from the Interest line item. Adjustment also accounts for the interest expense resulting from the Promissory<br> Note. |
|---|---|
| (ii) | Adjustment reflects expense corresponding to recalculation of Weeden’s depreciation and amortization to align with Siebert’s accounting policies and assumptions for useful lives. Adjustment also reflects pro forma amortization of the<br> intangible assets acquired in the Transaction. |
| --- | --- |
| (iii) | Reflects the tax effect of pro forma adjustments at the estimated combined statutory rate of 28.0%. |
| --- | --- |
| 6. | Reclassification Adjustments |
| --- | --- |
Reclassification adjustments represent adjustments to conform the presentation of Weeden’s historical financial statements to that of Siebert. A summary of reclassifications from Weeden’s to Siebert’s line items is summarized below:
Statement of Financial Condition Adjustments
| Weeden Reported Line Item | Siebert Line Item Reclassification | As of<br><br> <br>09/30/19 | Description |
|---|---|---|---|
| Other assets and security deposits | Other receivables | 120,000 | Additional breakout not segregated by Weeden |
| Other assets and security deposits | Prepaid expenses and other assets | 184,000 | Additional breakout not segregated by Weeden |
| Other assets and security deposits | Lease right-of-use assets | 85,000 | Additional breakout not segregated by Weeden |
| Accounts payable, accrued expenses<br><br> <br>and other liabilities | Lease liabilities | 85,000 | Additional breakout not segregated by Weeden |
Statements of Operations Adjustments
| Weeden Reported<br><br> <br>Line Item | Siebert Line Item<br><br> <br>Reclassification | Year Ended<br><br> <br>12/31/18 | Nine Months<br><br> <br>Ended 09/30/19 | Explanation |
|---|---|---|---|---|
| Revenue | ||||
| Interest income | Margin interest, marketing, and distribution fees | 1,448,000 | 1,000,000 | Additional breakout not segregated by Weeden |
| Other income | Margin interest, marketing, and distribution fees | 102,000 | 80,000 | Additional breakout not segregated by Weeden |
| Research | Commissions | 611,000 | 471,000 | Reported commissions net of research expense to align<br><br> <br>to Siebert’s accounting policy |
| Expense | ||||
| Other | Advertising | 42,000 | 10,000 | Additional breakout not segregated by Weeden |
| Other | Technology and communications | 64,000 | 137,000 | Additional breakout not segregated by Weeden |
| Other | Interest expense | 5,000 | 7,000 | Additional breakout not segregated by Weeden |