SIEBERT FINANCIAL CORP

We reviewed our business practices and operating models in light of the Regulation Best Interest Rules and made structural, technological and operational changes to our business leading up to the effective date of June 30, 2020 for compliance with the Regulation Best Interest Rules. As a result, we conducted thorough training of all our employees with respect to the requirements of Regulation Best Interest. Additionally, we created the Regulation Best Interest Rule’s required documents and completed each of the required mailings (both electronic and conventional) prior to the effective date. We believe that the changes made to our business processes will result in compliance with these new requirements. As business continues to be conducted under the Regulation Best Interest Rules, it is likely that additional changes may be necessary. It is noteworthy that the newly elected Congress is calling for additional regulation of the securities industry and calling for full fiduciary rules in lieu of Regulation Best Interest.

Since our Common Stock started trading on the Nasdaq Capital Market, our Common Stock has been relatively thinly traded and at times been subject to price volatility. Recently our Common Stock has experienced extreme price volatility. From January 1, 2021 to January 28, 2021, the average close price of our Common Stock was $3.93 per share. On January 29, 2021, the price increased to a high of $18.50 per share and 33,821,000 shares were traded. From February 1, 2021 to February 28, 2021, the average close price was $5.60 per share. The average daily trading volume from March 1, 2020 to March 1, 2021 was approximately 200,000 shares per day. We have not experienced any material changes in our financial condition or results of operations that explain such price volatility or trading volume.

We believe that the trading price of our Common Stock has at times been influenced by trading factors other than industry or Company-specific fundamentals, including, without limitation, the sentiment of retail investors (including as may be expressed on financial trading and other social media sites), speculation in the press, in the investment community, or on the internet, including on online forums and social media, about Siebert, our industry or our securities access to margin debt, trading in options and other derivatives on our Common Stock, and the amount and status of short interest in our securities (including a “short squeeze”). A “short squeeze” is a technical market condition that occurs when the price of a stock increases substantially, forcing market participants who had taken a position that its price would fall (i.e., who had sold the stock “short”), to buy it, which in turn may create significant, short-term demand for the stock not for fundamental reasons, but rather due to the need for such market participants to acquire the stock in order to forestall the risk of even greater losses. A “short squeeze” condition in the market for a stock can lead to short-term conditions involving very high volatility and trading that may or may not track fundamental valuation models.

As described in Note 16 to the consolidated financial statements, the Company’s consolidated net deferred tax asset balance of $4,857,000 primarily related to net operating loss carryforwards. As disclosed by management, the Company has evaluated whether it is more likely than not that some portion or the entire deferred tax asset will be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income in those periods in which temporary differences become deductible and/or net operating losses can be utilized. The Company considered all positive and negative evidence when determining the amount of the net deferred tax assets that are more likely than not to be realized. This evidence includes, but is not limited to, historical earnings, scheduled reversal of taxable temporary differences, tax planning strategies, and projected future taxable income. We identified the valuation allowance over the deferred tax asset as a critical audit matter. The assessment of future realization, particularly auditing management’s forecast of future operating results, involves significant judgment by management and, in turn, a high degree of auditor judgment, subjectivity, and effort.

As described in Notes 1 and 3 to the consolidated financial statements, the Company acquired the remaining 85% interest in StockCross Financial Services, Inc. Management has concluded that this is an entity under common control with Siebert Financial Corp. and that the transaction represented a change in the reporting unit, and as such, the companies have been presented on a combined basis for all periods presented in the consolidated financial statements. We identified the accounting for this transaction as a critical audit matter. The determination of common control requires management to evaluate the direct and indirect ownership of each entity and elements of control, as well as the period for which common control existed. The determination of a change in reporting unit requires management to exercise significant judgment regarding whether there is a change in the specific subsidiaries that make up the group of entities for which consolidated financial statements are presented. Auditing these aspects of the transaction involved a high degree of subjectivity and complexity.