SIEB Siebert Financial Corporation

Item 1. Financial Statements.

See notes to condensed consolidated financial statements.

See notes to condensed consolidated financial statements.

See notes to condensed consolidated financial statements.

Siebert Financial Corp. & Subsidiaries
Notes to Condensed Consolidated Financial Statements
Three Months Ended March 31, 2018
(Unaudited)

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 AdvisorNXT, Inc. (“NXT”) a New York corporation which is registered with the Securities and Exchange Commission as a Registered Investment Advisor (“RIA”) and its insurance business through its wholly-owned subsidiary, Park Wilshire Companies Inc., (“PWC”) a Texas corporation as a licensed insurance agency. For purposes of this Quarterly Report on Form 10-Q, the terms “Siebert,” “Company,” “we,” “us” and “our” refer to Siebert Financial Corp., MSCO, NXT and PWC 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, 2017 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, 2017. Due to the nature of our business, the results of operations for the three months ended March 31, 2018 are not necessarily indicative of operating results for the full year.

As further disclosed in our Form 10K for the year ended December 31, 2017, the Company acquired certain retail broker-dealer assets of StockCross Financial Services, Inc. (“StockCross”), an affiliate of the Company. The impact of this acquisition has resulted in a significant improvement in operations for the quarter ended March 31, 2018 as compared to the quarter ended March 31, 2017.

As further disclosed on our Form 10K for the year ended December 31, 2017, on March 1, 2018, SFC acquired all of the issued and outstanding shares of Park Wilshire Companies, Inc. from certain affiliates of SFC for $111,000. Beginning on March 1, 2018, Park Wilshire is a wholly owned subsidiary of the Company. The board’s Audit Committee reviewed the transaction and determined that the Company’s purchase of Park Wilshire was not material and that obtaining valuations under the circumstances where the purchase price equaled the net book value in Park Wilshire did not necessitate a valuation, as same was not material.

Basic earnings (loss) per share is calculated by dividing net income (loss) by the weighted average of 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 net income of $1,693,000 for the three months ended March 31, 2018 and had a net income of $58,000 for the three months ended March 31, 2017.

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, 2018, Siebert had net capital of approximately $6,100,000 as compared with net capital requirements of $250,000. Siebert claims exemption from the reserve requirement under section 15c3-3(k)(2)(ii).

On January 1, 2018, we adopted ASC Topic 606 by applying the modified retrospective method. Results for reporting periods beginning after January 1, 2018 are presented under Topic 606, while prior period amounts are not adjusted and continue to be reported under the accounting standards in effect for the prior period.

The adoption of ASC Topic 606 did not have an impact on the recognition of our primary sources of revenue, Principal transactions, Commissions and fees and Margin interest, marketing and distribution fees. Timing of recognition of substantially all of our remaining revenue was also not impacted, and we therefore did not record any cumulative effect adjustment to opening equity.

Principal transactions 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 complete the order.

Commission and fees, 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 brokers in distribution fees, and interest are recorded as earned.

Advisory fees are earned typically on a quarterly basis in accordance with the terms of the client agreements.

Interest is recorded on the accrual basis. Dividends are recorded as of the ex-dividend date.

FASB ASC 820 defines fair value, established a framework for measuring fair value, and established a hierarchy of fair value inputs. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. A fair value measurement assumes that the transaction to sell the asset or transfer the liability occurs in the principal market for the asset or liability or, in the absence of a principal market, the most advantageous market. Valuation techniques that are consistent with the market income or cost approach, as specified by FASB ASC 820, are used to measure fair value.

The fair value hierarchy prioritizes the inputs to valuation techniques used to measure fair value into three broad levels:

Level 1 - Quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company can assess at the measurement date.

Level 2 - Inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly or indirectly.

Level 3 - Unobservable inputs for the asset or liability.

The availability of observable inputs can vary from security to security and is affected by a wide variety of factors, including, for example, the type of security, the liquidity of markets, and other characteristics particular to the security. To the extent that the valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. Accordingly, the degree of judgment exercised in determining fair value is greatest for instruments categorized in Level 3.

The inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, for disclosure purposes, the level in the fair value hierarchy within which the fair value measurement falls in its entirety is determined based on the lowest level input that is significant to the fair value measurement.

Fair value is a market-based measure considered from the perspective of a market participant rather than an entity-specific measure. Therefore, even when market assumptions are not readily available; the Company’s own assumptions are set to reflect those that the Company believes market participants would use in pricing the asset or liability at the measurement date.

A description of the valuation techniques applied to the Company’s major categories of assets and liabilities measured at fair value on a recurring basis follows:

U.S. Government Securities . U.S. government securities are valued using quoted market prices. Valuation adjustments are not applied. Accordingly, U.S. government securities are generally categorized in level 1 of the fair value hierarchy.

Municipal Securities . The fair value of municipal securities are determined using recently executed transactions, market price quotations (when observable), bond spreads from independent external parties, such as vendors and brokers, adjusted for any basis difference between cash and derivative instruments. The spread data used is for the same maturity as the bond. Municipal Securities are generally categorized in level 2 of the fair value hierarchy.

Corporate Bonds and Convertible Preferred Stock . The fair value of corporate bonds and convertible preferred stock are determined using recently executed transactions, market price quotations (when observable), bond spreads or credit default swap spreads obtained from independent external parties, such as vendors and brokers, adjusted for any basis difference between cash and derivative instruments. The spread data used is for the same maturity as the bond. If the spread data does not reference the issuer, then data that reference a comparable issuer are used. When position-specific external price data is not observable, fair value is determined based on either benchmarking to similar instruments or cash flow models with yield curves, bond, or single-name credit default swap spreads and recovery rates as significant inputs. Corporate bonds and convertible preferred stocks are generally categorized in level 2 of the fair value hierarchy.

Exchange-Traded Equity Securities . Exchange-traded equity securities are generally valued based on quoted prices from the exchange. To the extent these securities are actively traded, valuation adjustments are not applied, and they are categorized in level 1 of the fair value hierarchy; otherwise, they are in level 2 or level 3 of the fair value hierarchy.

Certificate of Deposit . Certificates of deposit included in investments are valued at cost, which approximates fair value. These are included within segregated investments in level 2 of the fair value hierarchy.

Unit Investment Trusts . Units of unit investment trusts are carried at redemption value, which represents fair value. Units of unit investment trusts are classified as level 1 within the fair value hierarchy.

The following table presents the Company’s fair value hierarchy for those assets and liabilities measured at fair value on a recurring basis as of March 31, 2018:

Retail customer transactions are cleared through two (2) clearing brokers, one of which is a related party, on a fully disclosed basis. If customers do not fulfill their contractual obligations, either of our clearing brokers 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, 2018 and March 31, 2017.

For interim financial reporting, we estimate the effective tax rate for tax jurisdictions which is applied to the year-to-date income. For the quarter ended March 31, 2018, our effective tax rate was 20%. We recognized approximately a $224,000 reduction in taxable income during the quarter ended March 31, 2018 from net operating loss carry forwards expected to be realized during 2018 which resulted in $40,000 of tax benefits.

As of March 31, 2018, the Company has federal and state net operating loss carry-forwards of $23,104,733 and $16,281,250, which expire between 2029 and 2036. Utilization of the Company’s net operating loss carry-forwards are subject to annual limitations of approximately $900,000 per year under Internal Revenue Code section 382 due to a previous change in ownership.

Due to the cumulative previous losses incurred by the Company, the Company is unable to conclude that it is more likely than not that it will realize its deferred tax assets in excess of the deferred tax liability and, accordingly, has recorded a valuation allowance to fully offset such amounts at December 31, 2017 and March 31, 2018.

Included in the March 31, 2017 condensed and consolidated statement of income is approximately $233,000 of non-recurring charges primarily due to relocating the firm’s call center and costs affiliated with staff reductions.

The Company earned revenue and incurred expenses of $3,295,000 and $582,000, respectively, from StockCross during the quarter ended March 31, 2018.

As of March 31, 2018, the Company is owed a receivable from StockCross of $811,000 and owes StockCross $346,000 for the financing of securities.

As of March 31, 2018, the Company owes $111,000 to the principal owners of StockCross related to the sale of Park Wilshire Companies to the Company.

Included in the March 31, 2018 condensed and consolidated statements of financial condition is approximately $448,000 of commissions payable as part of accounts payable and accrued liabilities.