Item
1. Financial Statements
Siebert
Financial Corp. & Subsidiaries
Condensed
Consolidated Statements of Financial Condition
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September
30,
2016
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December
31,
2015
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(Unaudited)
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Cash and cash equivalents
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$
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6,836,000
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$
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9,420,000
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Receivable from brokers
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580,000
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626,000
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Receivable from business sold to former affiliate net of unamortized discount of $746,000 and $908,000
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1,761,000
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2,092,000
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Other receivable from former affiliate, including accrued interest of $295,000 and $46,000
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4,295,000
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4,046,000
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Securities owned, at fair value
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689,000
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593,000
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Furniture, equipment and leasehold improvements, net
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206,000
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374,000
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Prepaid expenses and other assets
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397,000
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634,000
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$
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14,764,000
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$
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17,785,000
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LIABILITIES AND STOCKHOLDERS’ EQUITY
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Liabilities:
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Accounts payable and accrued
liabilities, including $171,000 payable to former affiliate on December 31, 2015
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$
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1,450,000
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$
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2,102,000
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Commitments and contingent liabilities - Note 12
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Stockholders’ equity:
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Common stock, $.01 par value; 49,000,000 shares authorized, 23,215,692 shares issued and 22,088,972 shares outstanding at September 30, 2016 and December 31, 2015, respectively
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232,000
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232,000
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Additional paid-in capital
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19,490,000
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19,490,000
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(Deficit) Retained earnings
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(1,648,000
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)
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721,000
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Less: 1,126,720 shares of treasury stock, at cost at September 30, 2016 and December 31, 2015, respectively
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(4,760,000
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)
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(4,760,000
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)
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13,314,000
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15,683,000
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$
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14,764,000
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$
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17,785,000
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See
notes to condensed consolidated financial statements.
Siebert
Financial Corp. & Subsidiaries
Condensed
Consolidated Statements of Operations
(Unaudited)
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Three
Months Ended
September 30,
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Nine
Months Ended
September 30,
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2016
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2015
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2016
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2015
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Revenues:
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Commissions and fees
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$
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1,940,000
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$
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2,293,000
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$
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6,206,000
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$
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6,588,000
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Investment banking
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11,000
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8,000
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34,000
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27,000
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Trading profits
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131,000
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164,000
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521,000
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435,000
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Interest and dividends
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141,000
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71,000
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422,000
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214,000
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2,223,000
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2,536,000
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7,183,000
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7,264,000
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Expenses:
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Employee compensation and benefits
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1,236,000
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1,289,000
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3,723,000
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4,000,000
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Clearing fees, including floor brokerage
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203,000
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298,000
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677,000
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983,000
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Professional fees
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1,178,000
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796,000
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2,763,000
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2,584,000
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Advertising and promotion
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38,000
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72,000
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171,000
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193,000
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Communications
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120,000
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153,000
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382,000
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475,000
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Occupancy
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179,000
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174,000
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558,000
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580,000
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Other general and administrative
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409,000
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463,000
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1,278,000
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1,342,000
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3,363,000
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3,245,000
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9,552,000
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10,157,000
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Loss from continuing operations before income tax benefit
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(1,140,000
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(709,000
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(2,369,000
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(2,893,000
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Income tax benefit
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—
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92,000
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Loss from continuing operations
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(1,140,000
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(709,000
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(2,369,000
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(2,801,000
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Discontinued operations:
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Share of income (loss) from former affiliate, including $ 564,000 loss related to disposal of investment for the three and nine month periods, and net of income tax of $ 92,000 for the nine month period.
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(19,000
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132,000
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Net loss
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($
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1,140,000
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($
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728,000
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($
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2,369,000
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($
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2,669,000
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Net loss per share of common stock –
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Continuing operations
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($
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.05
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($
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.03
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($
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.11
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($
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.13
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Discontinued operations
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$
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—
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($
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—
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$
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—
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$
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.01
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Basic and diluted
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($
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.05
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)
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($
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.03
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)
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($
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.11
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($
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.12
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Weighted average shares outstanding -
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Basic and diluted
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22,088,972
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22,088,972
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22,088,972
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22,088,972
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See
notes to condensed consolidated financial statements.
Siebert
Financial Corp. & Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited)
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Nine
Months Ended
September 30,
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2016
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2015
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Cash flows from operating activities:
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Net loss
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($
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2,369,000
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)
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($
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2,669,000
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)
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Adjustments to reconcile net loss to net cash used in operating activities:
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Depreciation and amortization
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205,000
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214,000
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Income from former affiliate
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(224,000
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Distribution from former affiliate
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98,000
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Interest accrued on note receivable from business sold to former affiliate
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(411,000
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)
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(174,000
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)
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Changes in:
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Cash equivalents - restricted
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1,532,000
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Securities owned, at fair value
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(96,000
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)
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(56,000
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Receivable from brokers
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46,000
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192,000
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Prepaid expenses and other assets
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237,000
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220,000
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Accounts payable and accrued liabilities
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(652,000
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)
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107,000
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Net cash used in operating activities
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(3,040,000
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)
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(760,000
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)
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Cash flows from investing activities:
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Purchase of furniture, equipment and leasehold improvements
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(37,000
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)
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(41,000
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)
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Collection of receivable from former affiliate
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493,000
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79,000
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Net cash provided by investing activities
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456,000
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38,000
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Net decrease in cash and cash equivalents
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(2,584,000
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)
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(722,000
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)
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Cash and cash equivalents - beginning of period
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9,420,000
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6,749,000
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Cash and cash equivalents - end of period
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$
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6,836,000
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$
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6,027,000
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Supplemental cash flow disclosures:
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Cash paid for:
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Income taxes, net of refund received
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$
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10,000
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15,000
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See
notes to condensed consolidated financial statements.
Siebert Financial Corp. & Subsidiaries
Notes to Condensed Consolidated Financial Statements
Nine Months Ended September 30, 2016 and 2015
(Unaudited)
1.
Business
and Basis of Presentation:
Siebert
Financial Corp. (the “Company”) is a holding company that conducts its retail discount brokerage business through its
wholly-owned subsidiary, Muriel Siebert & Co., Inc. (“Siebert”), a Delaware corporation. Siebert’s principal
activity is providing online and traditional discount brokerage and related services to retail investors. In addition, in 2014
the Company began business as a registered investment advisor through a wholly-owned subsidiary, Siebert Investment Advisors, Inc.
(“SIA”).
The consolidated
financial statements include the accounts of the Company and its wholly owned subsidiaries Siebert, Women’s Financial Network,
Inc. (“WFN”) and SIA. All material intercompany balances and transactions have been eliminated.
The condensed
consolidated interim financial statements presented herein are unaudited and include all adjustments (consisting of normal recurring
adjustments) which are, in the opinion of management, necessary for a fair presentation of the financial position and results of
operations of the interim periods pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”).
Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with generally
accepted accounting principles (“GAAP”) in the United States of America (“U.S.”) have been condensed or
omitted pursuant to SEC rules and regulations, although the Company believes that the disclosures made are adequate to make the
information not misleading. The balance sheet at December 31, 2015 has been derived from the audited consolidated statement of
financial condition at that date, but does not include all information and footnotes required by U.S. GAAP for complete financial
statements. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements
included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2015. Because of the nature of the Company’s
business, the results of operations for the nine months ended September 30, 2016 are not necessarily indicative of operating results
for the full year.
2
.
Material
Definitive Agreement:
On September
1, 2016, the Company entered into an acquisition agreement (the “Acquisition Agreement”) with Kennedy Cabot Acquisition,
LLC (“Kennedy Cabot Acquisition”), and the Estate of Muriel F. Siebert (the “Siebert Estate”), pursuant
to which, among other things:
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▪
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the Siebert Estate, which currently owns beneficially and of record approximately 87.4% of the
Company’s outstanding common stock, will sell all such common stock to Kennedy Cabot Acquisition for an aggregate purchase
price of $12,650,000, or approximately $0.66 per share;
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▪
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Kennedy Cabot Acquisition will make a tender offer (the “Offer”) for all of the Company’s
outstanding common stock not owned by the Siebert Estate at an offer price per share of $1.20 (the “Offer Price”).
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The consummation
of the Offer is conditioned on, among other conditions (i) approval of the transaction by the Financial Industry Regulatory Authority,
and (ii) the tender and non-withdrawal in the Offer by the Muriel F. Siebert Foundation (the “Siebert Foundation”)
of all the Company’s common stock it owns, which represents approximately 2.6% of the Company’s outstanding common
stock. The closing of the Offer is a condition to the closing of the sale by the Siebert Estate of all of its Shares to Kennedy
Cabot Acquisition, which sale shall close immediately following the closing of the Offer. The transactions are expected to close
during the fourth quarter of 2016.
The purchase
price that Kennedy Cabot Acquisition will actually pay to the Siebert Estate is subject to adjustment for fluctuations in the Company’s
working capital and reduction for the Company’s transaction expenses. In addition, $1,000,000 of the purchase price payable
to the Siebert Estate by Kennedy Cabot Acquisition will be held in escrow for one year after the closing and will be used to fund
the Siebert Estate’s indemnification obligations to Kennedy Cabot Acquisition under the Acquisition Agreement. The Offer
Price payable to the shareholders other than the Siebert Estate (the “Minority Shareholders”) is not subject to adjustment,
reduction or escrow.
In accordance
with the Acquisition Agreement, on October 3, 2016, the Company’s Board of Directors declared a special dividend of $.20
per share on common stock of the Company, which was paid October 24 2016 to shareholders of record as of October 13, 2016 in the
aggregate amount of $4,417,794. As a result of the dividend payment, the aggregate purchase price payable to the Siebert Estate
at closing by Kennedy Cabot Acquisition pursuant to the Acquisition Agreement will be
reduced by $3,599,951 to $9,050,751, or approximately
$0.47 per share. The Offer Price payable to the Minority Shareholders will not be reduced in connection with the payment of such
dividend. As a result, the Minority Shareholders who held the Company’s common stock as of October 13, 2016, the record date
for the pre-closing dividend, and who tender their shares in the Offer would receive $1.40 per share comprised of $0.20 per share
from the pre-closing dividend and $1.20 per share from the Offer.
Immediately prior to the closing
of the transactions, the Siebert Estate will purchase the Company’s rights to receive deferred purchase price payments of
$2,507,265 in connection with the Company’s disposition of its capital markets business in 2014 and the $4,000,000 secured
junior subordinated promissory note issued to Siebert Financial in connection with the disposition of its minority interest in
a former affiliate in 2015 (together, the “Transferred Receivable and Note”). The aggregate purchase price payable
by the Siebert Estate for the Transferred Receivable and Note will be $610,262, representing 10% of the projected value of these
assets as of the projected date of closing (which percentage corresponds to the percentage of the Company’s outstanding common
stock owned by the Minority Shareholders). The Offer Price includes approximately $0.22 per share, or $610,262 in the aggregate,
which is intended to provide the Minority Shareholders with their proportional share of the payment by the Siebert Estate for the
Transferred Receivable and Note.
Assuming
that the Siebert Estate is able to collect all amounts due from the Transferred Receivable and Note, the Siebert Estate will receive
aggregate proceeds of $8,466,648 in increments through March 2021. These proceeds include (a) $4,000,000 of principal and $1,959,383
of accrued interest payable on the junior subordinated promissory note at maturity on November 9, 2020, and (b) $2,507,265 payable
on the deferred purchase price receivable in annual installments, subject to payment in full no later than March 1, 2021.
As
compensation for extraordinary services rendered to the Company in connection with the evaluation and negotiation
of strategic alternatives for the Company, the four members of the Company’s Board of Directors will each receive a fee
in the amount of $100,000 payable at the closing of the transactions contemplated by the Acquisition Agreement. Such
fees will be funded from the proceeds of closing to be received by the Siebert Estate.
3. Sale of Capital
Markets Group Business:
On November 4, 2014, the Company,
which held a 49% membership interest in, and the other members of, Siebert Cisneros Shank., LLC, formerly known as Siebert Brandford
Shank & Co., LLC (“SCS”), contributed their SCS membership interests into Siebert Cisneros Shank LLC formerly known
as Siebert Brandford Shank Financial, LLC (“SBSF”), a newly formed Delaware limited liability company, in exchange
for the same percentage interests in SBSF. On the same day, the Company entered into an Asset Purchase Agreement (the “SCM
Purchase Agreement”) with SCS and SCSF, pursuant to which the Company sold substantially all of the Siebert Capital Markets
Group (“SCM”) assets to SCSF. Pursuant to the SCM Purchase Agreement, SCSF assumed post-closing liabilities relating
to the transferred business.
The SCM
Purchase Agreement provides for an aggregate purchase price for the disposition of $3,000,000, payable by SCSF after closing in
annual installments commencing on March 1, 2016 and continuing on each of March 1, 2017, 2018, 2019 and 2020. The transferred business
was contributed by SCSF to, and operated by, SCS. The amount payable to the Company on each annual payment date will equal 50%
of the net income attributable to the transferred business recognized by SCS in accordance with generally accepted accounting principles
during the fiscal year ending immediately preceding the applicable payment date; provided that, if net income attributable to the
transferred business generated prior to the fifth annual payment date is insufficient to pay the remaining balance of the purchase
price in full on the fifth annual payment date, then the unpaid amount of the purchase price will be paid in full on March 1, 2021.
The annual installment payable on March 1, 2016 which amounted to $493,000, was based on the net income attributable to the capital
markets business for the year ended December 31, 2015. The SCSF payment obligation comprises part of the Transferred Receivable
and Note described in Note 2.
The fair
value of the purchase obligation was based on the present value of estimated annual installments to be received during 2016 through
2020 from forecasted net income of the transferred business plus a final settlement in 2021, discounted at 11.5% (representing
SCS’s weighted average cost of capital). The discount recorded for the purchase obligation will be amortized as interest
income using an effective yield, initially calculated based on the original carrying amount of the obligation and estimated annual
installments to be received and adjusted in future periods to reflect actual installments received and changes in estimates of
future installments. Interest income recognized on the obligation for the three and nine month period ended September 30, 2016
amounted to approximately $52,000 and $162,000, respectively, based on a yield of approximately 12%.
4.
Discontinued
Operations:
On November
9, 2015, the Company sold its 49% membership investment in SCSF back to SCSF for $8,000,000 of which $4,000,000 was paid in cash
and the balance of which was paid in the form of a secured junior subordinated promissory note of $4,000,000 (the “SCSF Junior
Note”). The sale of the investment in SCSF, which was accounted for by the equity method, represents a strategic shift for
the Company based on its significance to the Company’s financial condition and results of operations and the major effect
it will have on the Company’s operations and financial results and, accordingly, the Company’s share of operating results
of the investment are reflected as discontinued operations in the accompanying 2015 statements of operations. The investment was
sold for approximately $448,000 less than the carrying value of the
investment at November 9, 2015, after adjusting the carrying
value of the investment for the Company’s equity in SCSF’s results of operations through such date.
The SCSF
Junior Note ranks junior in right of payment to up to $5.0 million of subordinated indebtedness incurred by SCSF at the time of
the repurchase closing (the “SCSF Senior Debt”). The SCSF Junior Note is secured by a pledge by SCSF’s post-closing
members of a number of the outstanding membership interests of SCSF that at all times will equal no less than 49% of the outstanding
SCSF membership interests on a fully diluted basis. The SCSF Junior Note matures on November 9, 2020 and bears interest at a rate
per year equal to 8% compounding monthly and payable in full at maturity. Interest accrued on the note for the three and nine months
ended September 30, 2016 amounted to $85,000 and $249,000, respectively. The SCSF Junior Note does not require any principal amortization
before maturity; however, SCSF has the option to prepay the interest or principal without penalty. The SCSF Junior Note contains
covenants and events of defaults that are substantially equivalent to those applicable to the SCSF Senior Debt, including covenants
restricting debt and lien incurrence by SCS and SCSF; provided that the SCSF Junior Note is subject to customary intercreditor
arrangements with the holders of the SCSF Senior Debt. Immediately upon the dissolution, liquidation, termination or expiration
of SCSF or SCS, or a change of control of SCSF or SCS, or sale of all or substantially all of their consolidated assets, SCSF is
obligated to prepay all of the then outstanding balance of the SCSF Junior Note. The SCSF Junior Note comprises part of the Transferred
Receivable and Note described in Note 2.
5.
Securities:
Securities owned are carried
at fair value with realized and unrealized gains and losses reflected in trading profits. Siebert clears all its security transactions
through unaffiliated clearing firms on a fully disclosed basis. Accordingly, Siebert does not hold funds or securities for, or
owe funds or securities to, its customers. Those functions are performed by the clearing firms.
6.
Fair Value
of Financial Instruments:
Authoritative accounting guidance
defines fair value, establishes a framework for measuring fair value and establishes a fair value hierarchy. Fair value is the
price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between participants at
the measurement date. Fair value measurements are not adjusted for transaction costs. The fair value hierarchy prioritizes inputs
to valuation techniques used to measure fair value into three levels:
Level 1 – Unadjusted quoted
prices in active markets for identical assets or liabilities.
Level 2 – Inputs other
than quoted prices that are observable, either directly or indirectly, and reasonably available.
Level 3 – Unobservable
inputs which reflect the assumptions that management develops based on available information about the assumptions market participants
would use in valuing the asset or liability.
The classification of financial
instruments valued at fair value at September 30, 2016 is as follows:
|
|
|
|
|
Financial
Instruments
|
|
Level
1
|
|
Cash equivalents
|
|
$
|
6,630,000
|
|
Securities
|
|
|
689,000
|
|
Total
|
|
$
|
7,319,000
|
|
Cash equivalents primarily represent
investments in money market funds. Securities consist of common stock valued on the last business day of the period at the last
available reported sales price on the primary securities exchange. As of September 30, 2016, the Company did not hold any Level
2 or Level 3 financial instruments.
7.
Per
Share Data:
Basic earnings
(loss) per share is calculated by dividing net income (loss) by the weighted average outstanding common shares during the period.
Diluted earnings per share is calculated by dividing net income by the number of shares outstanding under the basic calculation
and adding all dilutive securities, which consist of options. The Company incurred a net loss for the three and nine months ended
both September 30, 2016 and September 30, 2015. Accordingly, basic and diluted net loss per common share are the same for each
period as the effect of stock options is anti-dilutive. Shares underlying stock options not included in the diluted computation
amounted to 240,000 in 2016 and 265,000 in 2015.
8.
Net
Capital:
Siebert
is subject to the SEC’s Uniform Net Capital Rule (Rule 15c3-1), which requires the maintenance of minimum net capital. Siebert
has elected to use the alternative method, permitted by the Rule, which requires that Siebert maintain minimum net capital, as
defined, equal to the greater of $250,000 or two percent of aggregate debit balances arising from customer transactions, as defined.
The Net Capital Rule of the New York Stock Exchange also provides that equity capital may not be withdrawn or cash dividends paid
if resulting net capital would be less than 5% of aggregate debits. As of
September 30, 2016, Siebert had net capital of approximately
$2,169,000 as compared with net capital requirements of $250,000. Siebert claims exemptions from the reserve requirement under
section 15c3-3(k)(2)(ii).
9.
Revenue:
Commission
revenues and related clearing expenses are recorded on a trade-date basis. Fees, consisting principally of revenue participation
with the Company’s clearing broker in distribution fees, and interest are recorded as earned.
Investment
banking revenue includes advisory fees charged clients thru SIA.
Trading
profits are also recorded on a trade-date basis and principally represent riskless principal transactions in which the Company,
after receiving an order, buys or sells securities as principal and at the same time sells or buys the securities with a markup
or markdown to satisfy the order.
Interest
is recorded on an accrual basis and dividends are recorded on the ex-dividend date.
10.
Capital
Transactions:
On January
22, 2008, the Board of Directors of the Company authorized a buy back of up to 300,000 shares of common stock. Shares will be purchased
from time to time, at management’s discretion, in the open market and in private transactions. The Company did not purchase
any shares during the three and nine months ended September 30, 2016.
Other than
the expiration of options referred to below, there were no stock option transactions during the nine months ended September 30,
2016. At September 30, 2016, there were 240,000 outstanding options at a weighted average exercise price of $3.05, all of which
were fully vested and exercisable. There were 25,000 options at a weighted average exercise price of $2.75 that expired in the
third quarter ended September 30, 2016. As of September 30, 2016, there were no unrecognized compensation costs.
11. Results of
former affiliate:
Summarized financial data of
Siebert Cisneros Shank, LLC (“SCSF”) follows:
|
|
September
30,
2015
|
|
|
|
|
|
|
Nine months ended:
|
|
|
|
|
Total revenues
|
|
|
24,291,000
|
|
Net income
|
|
|
1,607,000
|
|
Three months ended:
|
|
|
|
|
Total revenues
|
|
|
10,322,000
|
|
Net income (loss)
|
|
|
1,114,000
|
|
Siebert’s share of SCSF’s
consolidated net income for the three and nine months ended September 30, 2015, respectively amounted to $545,000 and $788,000.
Siebert charged SCS $0 for the
three months ended September 30, 2016 and $25,000 for the three months ended September 30, 2015, and $23,000 for the nine months
ended September 30, 2016 and $75,000 for the nine months ended September 30, 2015, respectively, for general and administrative
services, which Siebert believes approximates the cost of furnishing such services.
Siebert did not make any advances
to SCSF during the nine month period ended September 30, 2016. Siebert made collections of $79,000, net of advances from SCS, during
the nine months ended September 30, 2015. As of September 30, 2015, Siebert had a receivable of approximately $26,000 due from
SCS. Siebert received a distribution from SCSF of $98,000 during the nine months ended September 30, 2015.
12. Contingencies
and Commitments:
Retail customer
transactions are cleared through clearing brokers on a fully disclosed basis. If customers do not fulfill their contractual obligations,
the clearing broker may charge Siebert for any loss incurred in connection with the purchase or sale of securities at prevailing
market prices to satisfy the customer obligations. Siebert regularly monitors the activity in its customer accounts for compliance
with its margin requirements. Siebert is exposed to the risk of loss on unsettled customer transactions if customers are unable
to fulfill their contractual obligations. There were no material losses for unsettled customer transactions for the nine months
ended September 30, 2016 and 2015.
In December
2015, a current employee of Siebert commenced an arbitration before FINRA against Siebert, alleging a single cause of action for
employment retaliation under the Sarbanes-Oxley Act of 2002. In February 2016, the employee amended his claim to replace the Sarbanes-Oxley
claim with a substantially identical claim arising under the Dodd-Frank Act of 2010. In the opinion of management, this matter
is without merit, and its ultimate outcome will not have a significant effect on the financial position of the Company.
13.
Income
Taxes:
No tax benefit
has been recognized for the loss in the nine month periods ended September 30, 2016 and 2015 as the Company has fully offset the
related deferred tax asset for the loss carry forward by a valuation allowance due to cumulative losses incurred by the Company
and its subsidiaries during the prior three years.
14
.
Subsequent
Events:
On October 3, 2016, the Company’s
Board of Directors declared a special dividend of $.20 per share on common stock of the Company (in accordance with the Acquisition
Agreement described in Note No. 2), which was paid October 24, 2016 to shareholders of record as of October 13, 2016.
On
October 24, 2016, the Principal Executive Officer of the Company entered into a separation agreement pursuant to the
Acquisition Agreement (see Note 2). Upon closing of the transaction contemplated by the Acquisition Agreement, the
Principal Executive Officer will receive a severance payment of $635,000 and be subject to the customary future
cooperation, non-disparagement, confidentiality, employee and customer non-solicitation and release provisions. The
severance payment will be funded from the proceeds of closing to be received by the Siebert Estate.
Item 2. Management’s Discussion and Analysis of
Financial Condition and Results of Operations
This discussion should be read
in conjunction with our audited consolidated financial statements as of and for the year ended December 31, 2015, and the unaudited
condensed consolidated financial statements and the notes thereto contained elsewhere in this Quarterly Report.
Business Environment
Our working
capital is invested primarily in money market funds, so that liquidity has not been materially affected. The recent financial crisis
did have the effect of reducing participation in the securities market by our retail customers, which had an adverse effect on
our revenues.
On November
9, 2015, the Company sold its 49% membership investment in SCSF back to SCSF for $8,000,000 of which $4,000,000 was paid in cash
and the balance of which was paid in the form of a secured junior subordinated promissory note of $4,000,000 (the “SCSF Junior
Note”). The sale of the investment in SCSF, which was accounted for by the equity method, represents a strategic shift for
the Company based on its significance to the Company’s financial condition and results of operations and the major effect
it will have on the Company’s operations and financial results and, accordingly, the Company’s share of operating results
of the investment are reflected as discontinued operations in the accompanying statement of operations. The investment was sold
for approximately $448,000 less than the carrying value of the investment at November 9, 2015, after adjusting the carrying value
of the investment for the Company’s equity in SCSF’s results of operations through such date.
On January
23, 2008, our Board of Directors authorized a buyback of up to 300,000 shares of common stock. Under this program, shares are purchased
from time to time, at our discretion, in the open market and in private transactions. The Company did not purchase shares in 2016.
The following
table sets forth certain metrics as of and for the nine months ended September 30, 2016 and 2015, respectively, which we use in
evaluating our business.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months
ended September 30,
|
|
For the Nine Months
ended September 30,
|
|
Retail Customer Activity:
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total retail trades:
|
|
|
54,636
|
|
|
63,160
|
|
|
156,649
|
|
|
191,554
|
|
Average commission per retail trade:
|
|
$
|
21.95
|
|
$
|
21.90
|
|
$
|
23.00
|
|
$
|
20.72
|
|
|
|
|
|
|
|
|
|
|
|
As of September
30,
|
|
Retail customer balances:
|
|
|
2016
|
|
|
2015
|
|
Retail customer net worth (in billions):
|
|
$
|
6.9
|
|
$
|
6.6
|
|
Retail customer money market fund value (in billions):
|
|
$
|
.9
|
|
$
|
1.0
|
|
Retail customer margin debit balances (in million):
|
|
$
|
247.6
|
|
$
|
246.3
|
|
Retail customer accounts with positions:
|
|
|
29,493
|
|
|
31,481
|
|
•
|
Total retail trades represent retail trades that generate commissions.
|
|
|
•
|
Average commission per retail trade represents the average commission generated for all types of retail customer trades.
|
|
|
•
|
Retail customer net worth represents the total value of securities
and cash in the retail customer accounts before deducting margin debits.
|
|
|
•
|
Retail customer money market fund value represents all retail
customers accounts invested in money market funds.
|
|
|
•
|
Retail customer margin debits balances represent credit extended
to our customers to finance their purchases against current positions.
|
|
|
•
|
Retail customer accounts with positions represent retail customers
with cash and/or securities in their accounts.
|
|
|
|
We, like other securities
firms, are directly affected by general economic and market conditions including fluctuations in volume and prices of securities,
changes and prospects for changes in interest rates and demand for brokerage and investment banking services, all of which
can affect our relative profitability. In periods of reduced financial market activity, profitability is likely to be adversely
affected because certain expenses remain relatively fixed, including salaries and related costs, portions of communications
costs and occupancy expenses. Accordingly, earnings or loss for any period should not be considered representative of any
other period.
|
|
|
|
Recent
Developments
|
On September
1, 2016, the Company entered into an acquisition agreement (the “Acquisition Agreement”) with Kennedy Cabot Acquisition,
LLC (“Kennedy Cabot Acquisition”), and the Estate of Muriel F. Siebert (the “Siebert Estate”), pursuant
to which, among other things:
|
▪
|
the Siebert Estate, which currently owns beneficially and of record approximately 87.4% of the
Company’s outstanding common stock, will sell all such common stock to Kennedy Cabot Acquisition for an aggregate purchase
price of $12,650,000, or approximately $0.66 per share;
|
|
▪
|
Kennedy Cabot Acquisition will make a tender offer (the “Offer”) for all of the Company’s
outstanding common stock not owned by the Siebert Estate at an offer price per share of $1.20 (the “Offer Price”).
|
The consummation
of the Offer is conditioned on, among other conditions (i) approval of the transaction by the Financial Industry Regulatory Authority,
and (ii) the tender and non-withdrawal in the Offer by the Muriel F. Siebert Foundation (the “Siebert Foundation”)
of all the Company’s common stock it owns, which represents approximately 2.6% of the Company’s outstanding common
stock. The closing of the Offer is a condition to the closing of the sale by the Siebert Estate of all of its Shares to Kennedy
Cabot Acquisition, which sale shall close immediately following the closing of the Offer. The transactions are expected to close
during the fourth quarter of 2016.
The purchase
price that Kennedy Cabot Acquisition will actually pay to the Siebert Estate is subject to adjustment for fluctuations in the Company’s
working capital and reduction for the Company’s transaction expenses. In addition, $1,000,000 of the purchase price payable
to the Siebert Estate by Kennedy Cabot Acquisition will be held in escrow for one year after the closing and will be used to fund
the Siebert Estate’s indemnification obligations to Kennedy Cabot Acquisition under the Acquisition Agreement. The Offer
Price payable to the shareholders other than the Siebert Estate (the “Minority Shareholders”) is not subject to adjustment,
reduction or escrow.
In
accordance with the Acquisition Agreement, on October 3, 2016, the Company’s Board of Directors declared a special
dividend of $.20 per share on common stock of the Company, which was paid October 24 2016 to shareholders of record as of
October 13, 2016 in the aggregate amount of $4,417,794. As a result of the dividend payment, the aggregate purchase price
payable to the Siebert Estate at closing by Kennedy Cabot Acquisition pursuant to the Acquisition Agreement will be reduced
by $3,599,951 to $9,050,751, or approximately $0.47 per share. The Offer Price payable to the Minority Shareholders will not
be reduced in connection with the payment of such dividend. As a result, the Minority Shareholders who held the
Company’s common stock as of October 13, 2016, the record date for the pre-closing dividend, and who tender their
shares in the Offer would receive $1.40 per share comprised of $0.20 per share from the pre-closing dividend and $1.20 per
share from the Offer.
Immediately prior to the closing
of the transactions, the Siebert Estate will purchase the Company’s rights to receive deferred purchase price payments of
$2,507,265 in connection with the Company’s disposition of its capital markets business in 2014 and the $4,000,000 secured
junior subordinated promissory note issued to Siebert Financial in connection with the disposition of its minority interest in
a former affiliate in 2015 (together, the “Transferred Receivable and Note”). The aggregate purchase price payable
by the Siebert Estate for the Transferred Receivable and Note will be $610,262, representing 10% of the projected value of these
assets as of the projected date of closing (which percentage corresponds to the percentage of the Company’s outstanding common
stock owned by the Minority Shareholders). The Offer Price includes approximately $0.22 per share, or $610,262 in the aggregate,
which is intended to provide the Minority Shareholders with their proportional share of the payment by the Siebert Estate for the
Transferred Receivable and Note.
Assuming
that the Siebert Estate is able to collect all amounts due from the Transferred Receivable and Note, the Siebert Estate will receive
aggregate proceeds of $8,466,648 in increments through March 2021. These proceeds include (a) $4,000,000 of principal and $1,959,383
of accrued interest payable on the junior subordinated promissory note at maturity on November 9, 2020, and (b) $2,507,265 payable
on the deferred purchase price receivable in annual installments, subject to payment in full no later than March 1, 2021.
As
compensation for extraordinary services rendered to the Company in connection with the evaluation and negotiation
of strategic alternatives for the Company, the four members of the Company’s Board of Directors will each receive a fee
in the amount of $100,000 payable at the closing of the transactions contemplated by the Acquisition Agreement. Such fees
will be funded from the proceeds of closing to be received by the Siebert Estate.
Critical
Accounting Policies
We
generally follow accounting policies standard in the brokerage industry and believe that our policies appropriately reflect our
financial position and results of operations. Our management makes significant “estimates” that affect the reported
amounts of assets, liabilities, revenues and expenses and the related disclosure of contingent assets and liabilities included
in the financial statements. The estimates relate primarily to revenue and expense items in the normal course of business as to
which we receive no confirmations, invoices, or other documentation at the time the books are closed for a period. We use our
best judgment, based on our knowledge of these revenue transactions and expenses incurred, to estimate the amounts of such revenue
and expense. Estimates are also used in determining the useful lives of intangible assets, and the fair market value of intangible
assets and securities. Our management believes that its estimates are reasonable.
Results
of Operations
We
had a net loss of $1,140,000 for the three months ended September 30, 2016 and a net loss of $728,000 for the three months ended
September 30, 2015.
Three
Months Ended September 30, 2016 Compared to Three Months Ended September 30, 2015
Total
revenues for the three months ended September 30, 2016 were $2.2 million, a decrease of $313,000 or 12.3 % from the same period
in 2015.
Commission
and fee income for the three months ended September 30, 2016 was 1.9 million, a decrease of $353,000 or 15.4% from the same period
in 2015 due to a decrease in retail trading volume.
Investment
banking revenues for the three months ended September 30, 2016 were $11,000, an increase of $3,000 or 37.5% from the same period
in 2015 due to an increase in SIA advisory fees.
Trading
profits were $131,000 for the three months ended September 30, 2016, a decrease of $33,000 or 20.1% from the same period in 2015
due to an overall decrease in trading volume primarily in the debt markets.
Interest
and dividends were $141,000 for the three months ended September 30, 2016, an increase of $70,000 or 98.6% from the same corresponding
period primarily due to accrued interest on our receivable from business sold to affiliate, the sale of our equity interest to
our former affiliate, offset by and reduction of interest from the expiration of a secured demand note with our former affiliate
on August 31, 2015.
Total
expenses for the three months ended September 30, 2016 were $3.4 million, an increase of $118,000 or 3.6% from the same period
in 2015.
Employee
compensation and benefit expenses for the three months ended September 30, 2016 were $1.2 million, a decrease of $53,000 or 4.1%
from the same period in 2015 due to a lower head count and lower benefit expenses.
Clearing
and floor brokerage expenses for the three months ended September 30, 2016 were $203,000, a decrease of $95,000 or 31.9% from
the same period in 2015 primarily due to lower ticket volumes.
Professional
fees for the three months ended September 30, 2016 were $1.2 million, an increase of $382,000 or 48.0% from the same period in
2015 primarily due to an increase in employee arbitration and Kennedy Cabot acquisition legal fees.
Advertising
and promotion expenses for the three months ended September 30, 2016 were $38,000, a decrease of $34,000 or 47.2% from the same
period in 2015 due to a decrease in local media, online content and print advertising.
Communications
expense for the three months ended September 30, 2016, was $120,000, a decrease of $33,000 or 21.6% from the same period in 2015
primarily due to savings in communication and line charges with our new phone vendor and a reduction in quote services.
Occupancy
expenses for the three months ended September 30, 2016 were $179,000, an increase of $5,000 or 2.9% from the same period in 2015.
Other
general and administrative expenses for the three months ended September 30, 2016 were $409,000, a decrease of $54,000 or 11.7%
from the same period in 2015
due to a decrease in computer security, registration fees, and printing
offset by transportation, travel and entertainment, office expense, training, use tax and a reduction in general and administrative
services billed to our former affiliate
.
Discontinued
operations - Loss
from our equity investment in SCSF, an entity which Siebert sold its 49% equity
interest to on November 9, 2015, for the three months ended September 30, 2015 was $19,000 which represents share of income from
former affiliate.
No
tax benefit related to the pre-tax loss was recorded for the three months ended September 30, 2016 and September 30, 2015 due
to the recording of a full valuation allowance to offset deferred tax assets based on recent losses and the unlikelihood of realization
of such assets.
Nine
Months Ended September 30, 2016 Compared to Nine Months Ended September 30, 2015
Total
revenues for the nine months ended September 30, 2016 were $7.2 million, a decrease of $81,000 or 1.1% from the same period in
2015.
Commission
and fee income for the nine months ended September 30, 2016 was $6.2 million, a decrease of $382,000 or 5.8% from the same period
in 2015 primarily due to a decrease in retail trading volumes.
Investment
banking revenues for the nine months ended September 30, 2016 were $34,000, an increase of $7,000 or 25.9% from the same period
in 2015. SIA advisory fees increased in 2016.
Trading
profits for the nine months ended September 30, 2016 were $521,000, an increase of $86,000 or 19.8% from the same period in 2015
due to an overall decrease in trading volumes in the debt markets.
Interest
and dividends for the nine months ended September 30, 2016 were $422,000, an increase of $208,000 or 97.2% from the same corresponding
period primarily due to accrued interest on our receivable from business sold to affiliate, the sale of our equity interest to
our former affiliate, offset by and reduction of interest from the expiration of a secured demand note with our former affiliate
on August 31, 2015.
Total
expenses for the nine months ended September 30, 2016 were $9.5 million, a decrease of $605,000 or 6.0% from the same period in
2015.
Employee
compensation and benefit expense for the nine months ended September 30, 2016 were $3.7 million, a decrease of $277,000 or 6.9%
due to a lower head count and lower benefit expenses.
Clearing
and floor brokerage expenses for the nine months ended September 30, 2016 were $677,00, a decrease of $306,000 or 31.1% from the
same period in 2015 primarily due to lower retail customer trading volumes. In addition other clearing charges are down like inactivity
fees which are now picked up by the customer directly.
Professional
fees for the nine months ended September 30, 2016 were $2.8 million, an increase of $179,000 or 6.9% from the same period in 2015
primarily due to an increase in employee arbitration and Kennedy Cabot acquisition legal fees.
Advertising
and promotion expenses for the nine months ended September 30, 2016 were $171,000, a decrease of $22,000 or 11.4% from the same
period in 2015 due to a decrease in local media, online content and print advertising.
Communications
expense for the nine months ended September 30, 2016 was $382,000, a decrease of $93,000 or 19.6% from the same period in 2015
primarily due to savings in communication and line charges with our new phone vendor and a reduction in quote services.
Occupancy
expenses for the nine months ended September 30, 2016 were $558,000, a decrease of $22,000 or 3.8% from the same period in 2015
due to our Jersey City branch closing on June 30, 2015 offset by an increase in operating expenses.
Other
general and administrative expenses for the nine months ended September 30, 2016 were $1.3 million, a decrease of $64,000 or 4.8%
from the same period in 2015
due to a decrease in computer security, registration fees, and printing
offset by transportation, travel and entertainment, office expense, training, use tax and a reduction in general and administrative
services billed to our former affiliate
.
Discontinued
Operations - Income from our equity investment in SCSF, an entity which Siebert sold its 49% equity interest to on November 9,
2015, for the nine months ended September 30, 2015 was $132,000 which represents share of income from former affiliate
.
Other
than income tax benefits representing the utilization of the loss from continuing operations against income from discontinued
operations for the nine months ended September 30, 2016, no tax benefit related to the pre-tax loss was recorded for the nine
months ended September 30, 2016 and September 30, 2015
due to the recording of a full valuation
allowance to offset deferred tax assets based on recent losses and the likelihood of realization of such assets
.
Liquidity
and Capital Resources
Our
assets are highly liquid, consisting of cash in money market funds. Our total assets at September 30, 2016 were $14.8 million.
As of that date, we regarded $6.8 million, or 46.3%, of total assets as highly liquid.
On October 3, 2016, the Board of Directors
declared a special dividend of $.20 per share on common stock of the Company, which was paid October 24 2016 to shareholders of
record as of October 13, 2016.
Siebert
is subject to the net capital requirements of the SEC, the Financial Industry Regulatory Authority (FINRA) and other regulatory
authorities. At September 30, 2016, Siebert’s regulatory net capital was $2.2 million, $1.9 million in excess of its minimum
capital requirement of $250,000.
On
January 22, 2008, the Board of Directors of the Company authorized a buy back of up to 300,000 shares of common stock. During
the nine months ended September 30, 2016, no shares were purchased and 170,863 shares may be purchased under the plan as of September
30, 2016.