FAIR VALUE OF ASSETS AND LIABILITIES

Authoritative accounting guidance defines fair value, establishes a framework for measuring fair value, and establishes a fair value hierarchy which prioritizes the inputs to valuation techniques. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. A fair value measurement assumes that the transaction to sell the asset or transfer the liability occurs in the principal market for the asset or liability or, in the absence of a principal market, the most advantageous market. Valuation techniques that are consistent with the market or income approach are used to measure fair value.

The fair value hierarchy ranks the quality and reliability of the information used to determine fair values. Financial assets and liabilities carried at fair value are classified and disclosed in one of the following three categories:

Level 1 - Unadjusted quoted prices in active markets for identical assets or liabilities.

Level 2 - Inputs other than quoted market prices that are observable, either directly or indirectly, and reasonably available. Observable inputs reflect the assumptions market participants would use in pricing the asset or liability and are developed based on market data obtained from sources independent of the Company.

Level 3 - Unobservable inputs which reflect the assumptions that the Company develops based on available information about what market participants would use in valuing the asset or liability.

The following tables present the carrying values and estimated fair values at March 31, 2018 and September 30, 2017 of financial assets and liabilities, excluding financial instruments that are carried at fair value on a recurring basis, and information is provided on their classification within the fair value hierarchy. Such instruments are carried at amounts that approximate fair value due to their short-term nature and generally negligible credit risk.



	March 31, 2018
Assets	Carrying Value		Level 1		Level 2		Total Estimated Fair Value
Cash	$	27,211,000	$	27,211,000	$	—	$	27,211,000
Cash deposits with clearing organizations	836,000		836,000		—		836,000
Receivables from broker-dealers and clearing organizations	2,709,000		—		2,709,000		2,709,000
Forgivable loans receivable	1,598,000		—		1,598,000		1,598,000
Other Receivables, net	6,033,000		—		6,033,000		6,033,000
	$	38,387,000	$	28,047,000	$	10,340,000	$	38,387,000

Liabilities
Accrued commissions and payroll payable	$	10,652,000	$	—	$	10,652,000	$	10,652,000
Accounts payable and accrued expenses (1)	7,564,000		—		7,564,000		7,564,000
	$	18,216,000	$	—	$	18,216,000	$	18,216,000

(1) Excludes contingent consideration liabilities of $889,000.



	September 30, 2017
Assets	Carrying Value		Level 1		Level 2		Total Estimated Fair Value
Cash	$	23,508,000	$	23,508,000	$	—	$	23,508,000
Cash deposits with clearing organizations	1,041,000		1,041,000		—		1,041,000
Receivables from broker-dealers and clearing organizations	2,850,000		—		2,850,000		2,850,000
Forgivable loans receivable	1,616,000		—		1,616,000		1,616,000
Other Receivables, net	5,180,000		—		5,180,000		5,180,000
	$	34,195,000	$	24,549,000	$	9,646,000	$	34,195,000

Liabilities
Accrued commissions and payroll payable	$	10,065,000	$	—	$	10,065,000	$	10,065,000
Accounts payable and accrued expenses (1)	8,404,000		—		8,404,000		8,404,000
	$	18,469,000	$	—	$	18,469,000	$	18,469,000

(1) Excludes contingent consideration liabilities of $311,000.

The following tables present the financial assets and liabilities measured at fair value on a recurring basis at March 31, 2018 and September 30, 2017:



	March 31, 2018
Assets	Carrying Value		Level 1		Level 2		Level 3		Total Estimated Fair Value
Securities owned:
Corporate stocks	$	32,000	$	32,000	$	—	$	—	$	32,000
Municipal bonds	1,183,000		1,183,000		—		—		1,183,000
Restricted stock	1,046,000		—		1,046,000		—		1,046,000
Warrants	5,215,000		—		5,215,000		—		5,215,000
	$	7,476,000	$	1,215,000	$	6,261,000	$	—	$	7,476,000

Liabilities
Contingent consideration	$	889,000	$	—	$	—	$	889,000	$	889,000
Warrants issued	—		—		—		—		—
Securities sold, but not yet purchased:
Corporate stocks	2,000		2,000		—		—		2,000
Corporate debt	6,000		6,000		—		—		6,000
	$	897,000	$	8,000	$	—	$	889,000	$	897,000



	September 30, 2017
Assets	Carrying Value		Level 1		Level 2		Level 3		Total Estimated Fair Value
Securities owned:
Corporate stocks	$	116,000	$	116,000	$	—	$	—	$	116,000
Municipal bonds	1,239,000		1,239,000		—		—		1,239,000
Restricted stock	82,000		—		82,000		—		82,000
Warrants	5,665,000		—		5,665,000		—		5,665,000
	$	7,102,000	$	1,355,000	$	5,747,000	$	—	$	7,102,000

Liabilities
Contingent consideration	$	311,000	$	—	$	—	$	311,000	$	311,000
Warrants issued	5,597,000		—		5,597,000		—		5,597,000
Securities sold, but not yet purchased:
Municipal bonds	151,000		151,000		—		—		151,000
	$	6,059,000	$	151,000	$	5,597,000	$	311,000	$	6,059,000

Certain positions in common stock and warrants were received as compensation for investment banking services. Restricted common stock and warrants may be freely traded only upon the effectiveness of a registration statement covering them or upon the satisfaction of the requirements of Rule 144, including the requisite holding period. The unrealized (loss)/gain for the change in fair value of such positions for the six months ended March 31, 2018 and 2017 amounted to approximately $(556,000) and $69,000, respectively, which is included in net dealer inventory gains.

Warrants are carried at fair value as determined by using the Black-Scholes option pricing model. This model takes into account the underlying securities current market values, the underlying securities market volatility, the terms of the warrants, exercise prices, and risk-free return rate. The market value of the underlying securities’ market value is discounted based on the value of a protective put, which reduces the current market price used as an input into the Black-Scholes option pricing model.

Debt securities are valued based on recently executed transactions.