Part I - FINANCIAL
INFORMATION
Item 1. Financial Statements.
Siebert Financial Corp. &
Subsidiaries
Condensed Consolidated Statements
of Financial Condition
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March 31,
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2017
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December 31,
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(unaudited)
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2016
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ASSETS
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Cash and cash equivalents
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$
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2,047,000
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$
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2,730,000
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Receivable from brokers
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733,000
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606,000
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Securities owned, at fair value
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—
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92,000
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Furniture, equipment and leasehold improvements, net
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215,000
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46,000
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Prepaid expenses and other assets
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403,000
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342,000
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$
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3,398,000
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$
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3,816,000
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LIABILITIES AND STOCKHOLDERS’ EQUITY
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Liabilities:
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Accounts payable and accrued liabilities
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$
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284,000
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$
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738,000
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Accrued settlement liability
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—
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825,000
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284,000
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1,563,000
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Commitments and Contingencies
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Stockholders’ equity:
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Common stock, $.01 par value; 49,000,000 shares authorized, 22,085,126 shares issued and outstanding as of March 31, 2017 and 22,085,126 shares issued and outstanding as of December 31, 2016
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221,000
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221,000
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Additional paid-in capital
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7,692,000
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6,889,000
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(Accumulated deficit)
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(4,799,000
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)
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(4,857,000
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)
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3,114,000
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2,253,000
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$
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3,398,000
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$
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3,816,000
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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
March 31,
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2017
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2016
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Revenues:
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Commissions and fees
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$
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1,183,000
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$
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1,210,000
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Margin interest, marketing and distribution fees
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1,080,000
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868,000
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Investment banking
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5,000
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12,000
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Trading profits
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109,000
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265,000
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Interest and dividends
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2,000
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143,000
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2,379,000
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2,498,000
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Expenses:
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Employee compensation and benefits
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1,039,000
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1,287,000
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Clearing fees, including floor brokerage
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263,000
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238,000
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Professional fees
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425,000
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670,000
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Advertising and promotion
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20,000
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66,000
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Communications
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80,000
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130,000
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Occupancy
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142,000
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182,000
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Other general and administrative
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352,000
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426,000
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2,321,000
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2,999,000
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Net income (loss)
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$
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58,000
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$
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(501,000
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)
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Net income (loss) per share of common stock
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Continuing operations
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$
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.00
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$
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(.02
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Basic and diluted
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$
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.00
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$
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(.02
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)
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Weighted average shares outstanding
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Basic
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22,085,126
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22,085,126
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Diluted
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22,085,126
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22,085,126
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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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Three Months Ended
March 31,
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2017
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2016
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Cash Flows From Operating Activities:
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Net income (loss)
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$
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58,000
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$
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(501,000
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)
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Adjustments to reconcile net income (loss) to net cash used in operating activities:
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Depreciation and amortization
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46,000
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68,000
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Interest accrued on note receivable from business sold to former affiliate
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—
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(140,000
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Changes in:
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Securities owned, at fair value
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92,000
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(84,000
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Advance to former affiliate
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—
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(82,000
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Receivable from brokers
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(127,000
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101,000
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Prepaid expenses and other assets
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(61,000
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(12,000
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Accounts payable and accrued liabilities
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(476,000
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(606,000
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Net cash used in operating activities
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(468,000
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(1,256,000
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Purchase of furniture, equipment and leasehold improvements
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(215,000
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(18,000
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Collection of receivable from former affiliate
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—
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493,000
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Net cash (used in) provided by investing activities
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(215,000
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475,000
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Net decrease in cash and cash equivalents
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(683,000
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(781,000
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Cash and cash equivalents - beginning of period
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2,730,000
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9,420,000
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Cash and cash equivalents - end of period
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$
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2,047,000
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$
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8,639,000
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Supplemental Schedule Of Non-Cash Financing Activities:
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Payment by parent of expenses
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$
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803,000
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—
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See notes to
condensed consolidated financial statements.
Siebert Financial Corp. &
Subsidiaries
Notes to Condensed Consolidated Financial Statements
Three Months Ended March 31, 2017 and 2016
(Unaudited)
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1.
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Business
and Basis of Presentation:
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Siebert
Financial Corp. (“SFC”), a New York corporation, incorporated in 1934, is a holding company that conducts its retail
discount brokerage business through its wholly-owned subsidiary, Muriel Siebert & Co., Inc., (“MSCO”) a Delaware
corporation and a registered broker-dealer, and its investment advisory business through its wholly-owned subsidiary Siebert Investment
Advisors, Inc. (“SIA”) a New York corporation which is registered with the Securities and Exchange Commission as a
Registered Investment Advisor (“RIA”). For purposes of this Quarterly Report on Form 10-Q/A, the terms “Siebert,”
“Company,” “we,” “us” and “our” refer to Siebert Financial Corp., MSCO and SIA
collectively, unless the context otherwise requires.
Our
principal offices are located at 120 Wall Street, New York, New York 10005, and our phone number is (212) 644-2400. Our Internet
address is www.siebertnet.com. Our SEC filings are available through our website at
www.siebertnet.com
, where you are able
to obtain copies of the Company’s public filings free of charge. Our common stock, par value $.01 per share (the “Common
Stock”) trades on the NASDAQ Capital Market under the symbol “SIEB.”
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, 2016 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 our Annual Report on Form 10-K for the year ended December 31, 2016. Because of
the nature of our business, the results of operations for the three months ended March 31, 2017 are not necessarily indicative
of operating results for the full year.
Certain
reclassifications have been made to the 2016 balances to conform to the presentation used in 2017. These classifications had no
effect on operating results previously reported.
Securities
owned are carried at fair value with realized and unrealized gains and losses reflected in trading profits. SFC clears all its
security transactions through an unaffiliated clearing firm on a fully disclosed basis. Accordingly, SFC does not hold funds or
securities for, or owe funds or securities to, its customers. Those functions are performed by its clearing firm.
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3.
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Fair
Value of Financial Instruments:
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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
Company estimates that fair value approximates carrying value for cash and cash equivalents, receivable from broker, and accounts
payable and accrued liabilities due to the relatively short maturity of the instruments.
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 had income of $58,000 for the three months
ended March 31, 2017 and incurred a net loss of $501,000 for the three months ended March 31, 2016 respectively. 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 0 in 2017 and 265,000 in 2016.
MSCO
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 MSCO 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 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 March 31, 2017, Siebert had net capital of approximately $2,500,000
as compared with net capital requirements of $250,000. Siebert claims exemption from the reserve requirement under section 15c3-3(k)(2)(ii).
Commission
revenues, margin interest, marketing and distribution fees 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. Revenues are earned typically on a monthly or quarterly basis
in accordance with terms of the contract.
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.
SFC’s
control entity, Kennedy Cabot Acquisition, LLC made a net payment of $803,000 to satisfy certain obligations of the Company. This
amount is treated as a capital contribution.
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8.
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Commitments
and Commitments:
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Retail
customer transactions are cleared through a clearing broker on a fully disclosed basis. If customers do not fulfill their contractual
obligations, the clearing broker may charge MSCO for any loss incurred in connection with the purchase or sale of securities at
prevailing market prices to satisfy the customer obligations. MSCO regularly monitors the activity in its customer accounts for
compliance with its margin requirements. MSCO is exposed to the risk of loss on unsettled customer transactions if customers fail
to fulfill their contractual obligations. There were no material losses for unsettled customer transactions for the three months
ended March 31, 2017 and 2016.
In
December 2015, a former employee of MSCO commenced an arbitration before FINRA against MSCO, 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. The matter was settled for
$825,000 in February 2017 which was paid by the Company’s control entity Kennedy Cabot Acquisitions LLC.
No
tax benefit has been recognized for the gain/loss in the three month periods ended March 31, 2017 and 2016 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.
10.
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Non Recurring Changes:
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Included
in the first-quarter net income is approximately $233,000 of non-recurring expenses primarily due to relocating the firm’s
call center and costs affiliated with staff reductions.
Item 2. Management’s Discussion
and Analysis of Financial Condition and Results of Operations
This
discussion should be read in conjunction with our audited consolidated financial statements as of and for the year ended December
31, 2016, and our unaudited condensed consolidated financial statements and the notes thereto contained elsewhere in this Quarterly
Report.
Business Environment
Our
cash is invested primarily in bank accounts with large financial institutions. Our cash and working
capital
is sufficient to service the firm’s operations.
The
following table sets forth certain metrics as of and for the three months ended March 31, 2017 and 2016, respectively, which we
use in evaluating our business.
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For the Three Months
ended March 31,
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Retail Customer Activity:
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2017*
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2016
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Total retail trades:
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59,370
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52,697
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Average commission per retail trade:
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$
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20.01
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$
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21.68
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Retail customer balances:
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Retail customer net worth (in billions):
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7.3
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$
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6.8
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Retail customer money market fund value (in billions):
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.9
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$
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1.0
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Retail customer margin debit balances (in millions):
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205.0
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$
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247.0
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Retail customer accounts with positions:
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29,739
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30,396
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*
Based on new management analysis
Description
:
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·
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Total
retail trades represent retail trades that generate commissions.
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·
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Average
commission per retail trade represents the average commission generated for all types of retail customer trades.
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·
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Retail
customer net worth represents the total value of securities and cash in the retail customer accounts before deducting margin
debits.
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·
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Retail
customer money market fund value represents all retail customers accounts invested in money market funds.
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·
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Retail
customer margin debit balances represent credit extended to our customers to finance their purchases against current positions.
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·
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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.
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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 amount of such revenue and expense. We are not aware of any
material differences between the estimates used in closing our books for the last five years and the actual amounts of revenue
and expenses incurred when we subsequently receive the actual confirmations, invoices or other documentation. Estimates are also
used in determining the useful lives of intangible assets, and the fair market value of intangible assets. Our management believes
that its estimates are reasonable.
Results of Operations
Three
Months Ended March 31, 2017 Compared to Three Months Ended March 31, 2016
There were no material changes in the Company’s customer base and the firm streamlined operations in the first quarter.
We
had a net income of $58,000 and a net loss of $501,000 for the three months ended March 31, 2017 and 2016, respectively.
Included in the first quarter 2017 net income is approximately $233,000 of non-recurring expenses primarily due to relocating
the firm’s call center and costs associated with staff reductions.
Total
revenues for the three months ended March 31, 2017 were $2.4 million, a $119,000 reduction or 4.8% from the same corresponding
period in 2016.
Commission
and fee income for the three months ended March 31, 2017 was $1.2 million, a decrease of $27,000 or 2.2% from the same corresponding
period in 2016.
Margin
interest, marketing and distribution fees for the three months ended March 31, 2017, was $1,080,000, an increase of $212,000 or
24.4% primarily due to rising interest rates.
Investment
banking revenues for the three months ended March 31, 2017 was $5,000, a $7,000 decrease from the same corresponding period in
2016.
Trading
profits were $109,000 for the three months ended March 31, 2017, a decrease of $156,000 or 58.8% from the same corresponding period
in 2016 due to an overall decrease in customer trading volume in the debt markets.
Income
from interest and dividends for the three months ended March 31, 2017 were $2,000, a decrease of $141,000 or 98.6% from the same
corresponding period due to the distribution of the subordinated notes and capital market notes in 2016 to the former majority
shareholder.
Total
expenses for the three months ended March 31, 2017 were $2.3 million, a decrease of $678,000 or 22.6% from the same corresponding
period in 2016 due to streamlining the firm’s operations.
Employee
compensation and benefit costs for the three months ended March 31, 2017 was $1.0 million, a decrease of $248,000 or 19.2% from
the same corresponding period in 2016 due to a lower head count and lower benefit expenses.
Clearing
and floor brokerage costs for the three months ended March 31, 2017 were $263,000, an increase of $25,000 or 10.5% from the same
corresponding period in 2016 primarily due to increased retail customer trading volumes.
Professional
fees were $425,000 for the three months ended March 31, 2017, a decrease of $245,000, or 36.5% from the same corresponding period
in 2016 primarily due to a decrease in legal fees and consulting fees.
Advertising
and promotion expenses for the three months ended March 31, 2017 were $20,000, a decrease of $46,000 or 69.6% from the same corresponding
period in 2016 due to a reduction in print media.
Communications
expense for the three months ended March 31, 2017 was $80,000, a decrease of $50,000 or 38.4% from the same corresponding period
in 2016 primarily due to savings in streamlining operations.
Occupancy
costs for the three months ended March 31, 2017 were $142,000, a decrease of $40,000 or 21.9% from the same corresponding period
in 2016 due to moving the firm’s call center.
Other
general and administrative expenses were $352,000, a decrease of $74,000 or 17.3% from the same corresponding period in 2016 due
to streamlining the firm’s operations.
No
tax benefit related to the pre-tax gain loss was recorded for the three months ended March 31, 2017 and March 31, 2016 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
working capital is invested in cash and money market funds. Our total assets at March 31, 2017 were $3.4 million, of which we
regarded $2.0 million, or 60.0%, as highly liquid.
MSCO
is subject to the net capital requirements of the SEC, the NYSE and other regulatory authorities. At March 31, 2017, MSCO’s
regulatory net capital was $2.5 million, which was $2.27 million in excess of its minimum capital requirement of $250,000.
Item 3. Quantitative and Qualitative
Disclosures About Market Risk
Working
capital is generally invested temporarily in dollar denominated money market funds. These investments are not subject to material
changes in value due to interest rate movements.
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 MSCO for any loss incurred in connection with the purchase or sale of securities at
prevailing market prices to satisfy the customers’ obligations. MSCO regularly monitors the activity in its customer accounts
for compliance with its margin requirements. MSCO is exposed to the risk of loss on unsettled customer transactions if customers
and other counterparties are unable to fulfill their contractual obligations. There were no material losses for unsettled customer
transactions as of March 31, 2017.
Item 4. Controls and Procedures
We
carried out an evaluation, under the supervision and with the participation of management, including our Chief Financial Officer,
of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered
by this report pursuant to Rule 13a-15(e) or Rule 15d-15(e) of the Securities Exchange Act of 1934, as amended. Based on that
evaluation, our management, including the Chief Financial Officer, concluded that our disclosure controls and procedures are effective
to ensure that the information we are required to disclose in reports that we file or submit under the Securities Exchange Act
of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the rules and forms
of the Securities and Exchange Commission and to ensure that information required to be disclosed is accumulated and communicated
to our management, including our Chief Financial Officer, to allow timely decisions regarding timely disclosure.
There
were no changes in our internal control over financial reporting during the most recently completed fiscal quarter that have materially
affected, or are reasonably likely to materially affect, our internal control over financial reporting.