About National Holdings

National Holdings Corporation, through its wholly-owned subsidiaries, operates as a full-service investment banking and asset management company that provides financial services. The company, through its broker-dealer and investment advisory subsidiaries, offers full service retail brokerage services to individual, corporate and institutional clients; provides investment banking, merger and acquisition and advisory services to high-growth micro-, small- and mid-cap companies; and trade securities, including making markets in micro- and small-cap stocks listed on the Nasdaq Capital Market (Nasdaq) and other exchanges. The company’s broker-dealer subsidiaries are National Securities Corporation, a Washington corporation (NSC); and Winslow, Evans & Crocker, Inc., a Massachusetts corporation (WEC). NSC conducts a national securities brokerage business through its main offices in New York City, New York and Boca Raton, Florida. NSC is an introducing broker and clears all transactions through clearing organizations on a fully disclosed basis. WEC is a Boston-based, full-service investment firm. NSC and WEC are registered with the Securities and Exchange Commission (SEC) and are members of the Financial Industry Regulatory Authority (FINRA), Municipal Securities Rulemaking Board (MSRB), and Securities Investor Protection Corporation (the ‘SIPC’). The company’s brokers, who it also refers to as its registered representatives, operate either as independent contractors or employees. The company’s wholly-owned subsidiary, National Asset Management, Inc., a Washington corporation (NAM), is a federally-registered investment advisor providing asset management advisory services to retail clients for a fee based upon a percentage of assets managed. The company’s wholly-owned subsidiaries, National Insurance Corporation, a Washington corporation (National Insurance); and Prime Financial Services, a Delaware corporation (Prime Financial), provide fixed insurance products to their clients, including life insurance, disability insurance, long-term care insurance and fixed annuities. The company’s wholly-owned subsidiary, National Tax and Financial Services, Inc. (National Tax), provides tax preparation services to individuals, predominantly in the middle- and upper-income tax brackets and accounting services to small and midsize companies. The company’s wholly-owned subsidiary, GC Capital Corporation, a Delaware corporation (GC), provides licensed mortgage brokerage services in New York and Florida. The company’s wholly-owned subsidiary, Winslow, Evans & Crocker Insurance Agency, Inc., a Massachusetts corporation (WIA), provides fixed insurance products to its clients; and the company’s wholly-owned subsidiary, Winslow Financial, Inc., a Massachusetts corporation (WF), is an SEC Registered Investment Advisor. The company’s wholly-owned subsidiary, United Advisors, LLC, a New Jersey limited liability company (UA), is a New York-based, advisor and wealth management firm. United Advisor Services, LLC, a New Jersey limited liability company (UAS), is an SEC registered investment advisor; and Financial Services International Corporation, a Washington corporation (FSIC), is a FINRA registered broker-dealer. Segments The company operates through two segments, Brokerage and Advisory Services; and Tax and Accounting Services. The Brokerage and Advisory Services segment includes broker-dealer and investment advisory services, the sale of insurance products and licensed mortgage brokerage services provided by NSC, NAM, National Insurance, Prime Financial, GC, WEC, WIA and WF. The Tax and Accounting Services segment includes tax preparation and accounting services provided by National Tax. Business Lines Brokerage Services NSC and WEC are each registered as broker-dealers with the SEC and licensed to conduct activities as a broker-dealer in all 50 states, the District of Columbia, Puerto Rico and the U.S. Virgin Islands. NSC and WEC are also members of FINRA, MSRB and SIPC. The brokerage services provided by the company’s registered representatives and investment advisors include execution of purchases and sales of stocks, options, bonds, mutual funds, annuities and various other securities for individual and institutional customers. NSC and WEC act as agents in executing customer orders to buy or sell listed and over-the-counter securities in which the company does not make a market and charge commissions based on the services that the company provides to its customers. In executing customer orders to buy or sell a security in which the company makes a market, the company may sell to, or purchase from, customers at a price that is substantially equal to the current inter-dealer market price plus or minus a mark-up or mark-down. The company may also act as agent and execute a customer’s purchase or sale order with another broker-dealer market-maker at the best inter-dealer market price available and charge a commission. The company’s operations include execution of orders, processing of transactions, internal financial controls, supervision and compliance with regulatory and legal requirements. Broker-Dealer Trading NSC and WEC buy and may maintain inventories in equity securities as ‘market-makers’ for sale of those securities to other dealers and the company’s customers. NSC and WEC may also maintain inventories in corporate, government and municipal debt securities for sale to the company’s customers. As of September 30, 2020, the company made markets in approximately 112 micro- and small-cap Nasdaq and other exchange-listed quoted stocks. Investment Banking The company provides corporate finance and investment banking services, including underwriting the sale of securities to the public in both initial and follow-on offerings and arranging for the private placement of securities with investors. The company’s investment banking services require a short-term commitment of its capital. The company’s corporate finance operations provide a broad range of financial and corporate advisory services, including mergers and acquisitions, project financing, capital structure and specific financing opportunities. Corporate finance revenues are generated from capital raising transactions of equity and debt securities and fees for strategic advisory services. Recognizing the diversity of the company’s clients, it plans to work with its independent advisors to identify key additional investment banking verticals that the company can strengthen to enhance its offerings to the company’s clients. Investment Advisory Services NAM, a wholly-owned subsidiary of the company and a SEC-registered investment advisor, offers advisory services to clients in various programs. Under such customized engagements, clients authorize NAM to purchase and sell securities on a discretionary or non-discretionary basis (depending on the program) pursuant to investment objectives chosen by the client. The client’s Investment Advisory Representative (IAR) obtains the essential facts from the client, and assists in determining the appropriate program. The IAR provides ongoing investment advice and management that is tailored to the individual needs of the client through a review of the investment profile and objectives of the client. Depending on the program selected and the client’s profile and objectives, the types of securities that may be purchased or sold include mutual funds, ETFs, equities, options, fixed income securities, structured notes and partnership interests in real estate, oil and gas, as well as management of variable annuity sub-accounts. Clients may impose reasonable restrictions on investing in certain securities or groups of securities. Programs offered by NAM include the Portfolio Advisor Program, pursuant to which the IAR manages individual client accounts on a discretionary basis, with an asset-based fee; the Portfolio Advisor Plus Program, in which the IAR manages individual client accounts on a discretionary basis, with an alternative pricing structure whereby qualified clients may pay a performance-based fee in addition to an asset-based fee; the Morningstar Managed Portfolios Program, a proprietary program offered through Morningstar Investment Services, Inc., consisting of multiple investment strategies with multiple portfolios intended for a range of clients based on such factors as age, financial situation, time horizon, risk tolerance and any reasonable restrictions that the client may place on the portfolio selected for the account. Fees in this program are asset-based; the Investment Advisor Program, pursuant to which IARs provide advisory services with respect to variable annuity products, plans such as 401(k)s, 403(b)s, mutual funds, and retirement funds, as well as individually managed client accounts (fees in this program are asset-based); financial planning, offered for a flat fee or an hourly rate; discretionary management services for private funds; retirement solutions provided to retirement plan providers, sponsors, and participants through various products, services and custodial platforms, including FOLIO Institutional, which is a custodian and financial technology firm; wrap programs, which are advisory programs in which advisory fees and execution fees are bundled, using a platform offered by Envestnet Asset Management, Inc., a SEC-registered investment adviser and ‘turnkey’ asset management platform provider (the Envestnet platform provides wealth management technology for registered investment advisers along with asset management programs); a unified managed account program (a unified managed account refers to an account that combines investment vehicles into a single or ‘unified’ account managed by one or more independent money managers) using Foliofn Investments, Inc., a custodian that offers a fractionalized share trading platform, which enables investors to diversify investments across multiple securities; and a program utilizing the FTJ FundChoice Program, in which NAM serves as the advisor for the client on a non-discretionary basis. Institutional Services A critical element of the company’s business strategy is to identify institutional quality investments that offer above market returns. The company offers fund managers access to investment opportunities and independent research products. Additionally, the company offers fund managers the ability to reduce their transaction costs by offering them access to its trading desk for illiquid securities and automated trading systems for their liquid transactions, as well as special execution services using volume weighted averages and average pricing for micro and small-cap stocks. The company’s registered representatives engaged in institutional services have a mutually beneficial relationship with its Investment Banking Division (IBD), as fund managers looking for investment opportunities participate in offerings by IBD’s corporate clients. Administration, Operations, Securities Transactions Processing and Customer Accounts NSC and WEC do not hold any funds or securities for customers. Rather, they use the services of clearing agents on a fully-disclosed basis. These clearing agents process securities transactions and maintain customer accounts. In addition to transactions executed through the company’s clearing agents, NSC and WEC conduct direct business. In addition to SIPC protection, National Financial Services, the company’s primary clearing agent, provides brokerage accounts additional ‘excess of SIPC’ coverage from Lloyd’s of London, together with other insurers. Tax Preparation and Accounting Services The company provides tax preparation and small business accounting services through National Tax. The tax preparation business is conducted predominantly during the period from February through April of each year. During the 2020 tax year season, National Tax prepared approximately 26,000 federal, state and local tax returns. Government Regulation and Supervision NSC, WEC and the company’s investment adviser businesses are subject to regulation by the SEC, FINRA, MSRB, state securities regulators and other governmental regulatory authorities. NSC and WEC are registered broker-dealers with the SEC and members of FINRA. NSC and WEC are each licensed to conduct activities as a broker-dealer in all 50 states, the District of Columbia, Puerto Rico and the U.S. Virgin Islands. NSC and WEC are subject to the Securities Investor Protection Act and are members of SIPC, whose primary function is to provide financial protection for the customers of failing brokerage firms. Margin lending by NSC and WEC are subject to the margin rules of the Board of Governors of the Federal Reserve System and FINRA. NSC, WEC and FSIC are exempt from the provisions of the SEC’s Customer Protection Rule 15c3-3. The company is also subject to the USA PATRIOT Act of 2001, which imposes obligations regarding the prevention and detection of money-laundering activities, including the establishment of customer due diligence, customer verification and other compliance policies and procedures. The Gramm-Leach-Bliley Act and related Federal Trade Commission regulations require the company to adopt and disclose customer privacy policies. Intellectual Property The company owns the federally registered mark, such as Gilman Ciocia Tax & Financial Planning. Competition The company competes with national tax return preparers, such as H&R Block, Jackson Hewitt, and Liberty Tax. History National Holdings Corporation was founded in 1947.