Item
15.
|
EXHIBITS,
FINANCIAL STATEMENT SCHEDULES
|
The
exhibits required by Item 601 of Regulation S-K filed as part of, or incorporated by reference in, this Annual Report are listed
in the accompanying Exhibit Index.
|
(a)
|
The following
documents are filed as part of this report:
|
The
consolidated Financial statements for the year ended December 31, 2016 commence on page F-1 of this Annual Report on Form 10-K.
|
2.
|
Financial
Statement Schedules
|
None.
The exhibits
required by Item 601 of Regulation S-K filed as part of, or incorporated by reference in, this report are listed in the accompanying
Exhibit Index. Exhibit Numbers 10.1, 10.2 and 10.6 are management contracts, compensatory plans or arrangements.
INDEX TO CONSOLIDATED
FINANCIAL STATEMENTS
SIEBERT
FINANCIAL
CORP.
|
|
Page
|
|
|
|
Report of Independent Registered Public Accounting Firm
|
|
F-1
|
|
|
|
Consolidated Statements of Financial Condition at December 31, 2016 and 2015
|
|
F-2
|
|
|
|
Consolidated Statements of Operations for each of the years in the three-year period ended December 31, 2016
|
|
F-3
|
|
|
|
Consolidated Statements of Changes in Stockholders’ Equity for each of the years in the three-year period ended December 31, 2016
|
|
F-4
|
|
|
|
Consolidated Statements of Cash Flows for each of the years in the three-year period ended December 31, 2016
|
|
F-5
|
|
|
|
Notes to Consolidated Financial Statements
|
|
F-6
|
|
|
|
SIEBERT
BRANDFORD SHANK FINANCIAL, LLC AND SUBSIDIARY AT 2015 AND 2014
|
|
|
|
|
|
Report of Independent Registered Public Accounting Firm
|
|
F-16
|
|
|
|
Consolidated Statements of Financial Condition at December 31, 2015 and 2014
|
|
F-17
|
|
|
|
Consolidated Statements of Operations for the period from January 1, 2015 to November 9, 2015 and for the years ended December 31, 2014
|
|
F-18
|
|
|
|
Consolidated Statements of Changes in Members’ Capital for the period from January 1, 2015 to November 9, 2015 and for the years ended December 31, 2014
|
|
F-19
|
|
|
|
Consolidated Statements of Cash Flows for the period from January 1, 2015 to November 9, 2015 and for the years ended December 31, 2014
|
|
F-20
|
|
|
|
Notes to Consolidated Financial Statements
|
|
F-21
|
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board
of Directors and Shareholders
Siebert Financial Corp.
We
have audited the accompanying consolidated statements of financial condition of Siebert Financial Corp. and subsidiaries (the
“Company”) as of December 31, 2016 and 2015, and the related consolidated statements of operations, changes in stockholders’
equity, and cash flows for each of the years in the three-year period ended December 31, 2016. These financial statements are
the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based
on our audits.
We
conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control
over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing
audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness
of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining,
on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing
the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our opinion.
In
our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position
of Siebert Financial Corp. and subsidiaries as of December 31, 2016 and 2015, and the consolidated results of their operations
and their cash flows for each of the years in the three-year period ended December 31, 2016, in conformity with accounting principles
generally accepted in the United States of America.
/s/
EisnerAmper LLP
New York, New
York
April 4, 2017
SIEBERT
FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF FINANCIAL CONDITION
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and
cash equivalents
|
|
$
|
2,730,000
|
|
|
$
|
9,420,000
|
|
Receivable from brokers
|
|
|
606,000
|
|
|
|
626,000
|
|
Receivable from business
sold to former affiliate net of unamortized discount of $908,000
|
|
|
—
|
|
|
|
2,092,000
|
|
Other receivable from
former affiliate, including accrued interest of $46,000
|
|
|
—
|
|
|
|
4,046,000
|
|
Securities owned,
at fair value
|
|
|
92,000
|
|
|
|
593,000
|
|
Furniture, equipment
and leasehold improvements, net
|
|
|
46,000
|
|
|
|
374,000
|
|
Prepaid expenses and
other assets
|
|
|
342,000
|
|
|
|
634,000
|
|
Intangible
assets,
net
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
3,816,000
|
|
|
$
|
17,785,000
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS’
EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable and
accrued liabilities, including $171,000 payable to former affiliate in 2015
|
|
$
|
738,000
|
|
|
$
|
2,102,000
|
|
Accrued
settlement liability
|
|
|
825,000
|
|
|
|
—
|
|
|
|
$
|
1,563,000
|
|
|
$
|
2,102,000
|
|
Commitments, contingencies
and other - Note K
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders’
equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock, $.01 par value; 49,000,000
shares authorized, 22,085,126 shares issued as of December 31, 2016 and 23,211,846 shares issued as of December 31, 2015 and
22,085,126 outstanding shares at both December 31, 2016 and 2015
|
|
|
221,000
|
|
|
|
232,000
|
|
Additional paid-in
capital
|
|
|
6,889,000
|
|
|
|
19,490,000
|
|
(Accumulated deficit)
/ Retained earnings
|
|
|
(4,857,000
|
)
|
|
|
721,000
|
|
Less:
1,126,720 shares of treasury stock, at cost
|
|
|
—
|
|
|
|
(4,760,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
2,253,000
|
|
|
|
15,683,000
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
3,816,000
|
|
|
$
|
17,785,000
|
|
|
|
|
|
|
|
|
|
|
See notes to consolidated financial statements.
CONSOLIDATED
STATEMENTS OF OPERATIONS
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
Commissions and fees
|
|
$
|
8,294,000
|
|
|
$
|
9,155,000
|
|
|
$
|
10,757,000
|
|
Investment banking
|
|
|
46,000
|
|
|
|
40,000
|
|
|
|
1,830,000
|
|
Trading gains, net
|
|
|
921,000
|
|
|
|
575,000
|
|
|
|
1,351,000
|
|
Gain on the disposition of business to former affiliate
|
|
|
—
|
|
|
|
—
|
|
|
|
1,820,000
|
|
Interest and dividends
|
|
|
551,000
|
|
|
|
326,000
|
|
|
|
94,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,812,000
|
|
|
|
10,096,000
|
|
|
|
15,852,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee compensation and benefits
|
|
|
4,883,000
|
|
|
|
5,386,000
|
|
|
|
8,267,000
|
|
Clearing fees, including floor brokerage
|
|
|
866,000
|
|
|
|
1,239,000
|
|
|
|
1,665,000
|
|
Professional fees
|
|
|
3,458,000
|
|
|
|
3,200,000
|
|
|
|
4,310,000
|
|
Professional fees and other expenses related to change in control
|
|
|
2,206,000
|
|
|
|
—
|
|
|
|
—
|
|
Loss related to arbitration settlement
|
|
|
825,000
|
|
|
|
—
|
|
|
|
4,300,000
|
|
Advertising and promotion
|
|
|
258,000
|
|
|
|
268,000
|
|
|
|
248,000
|
|
Communications
|
|
|
462,000
|
|
|
|
595,000
|
|
|
|
865,000
|
|
Occupancy
|
|
|
746,000
|
|
|
|
776,000
|
|
|
|
788,000
|
|
Other general and administrative
|
|
|
1,686,000
|
|
|
|
1,724,000
|
|
|
|
2,033,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15,390,000
|
|
|
|
13,188,000
|
|
|
|
22,476,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before items shown below
|
|
|
(5,578,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations before income taxes
|
|
|
(5,578,000
|
)
|
|
|
(3,092,000
|
)
|
|
|
(6,624,000
|
)
|
(Benefit) provision for income taxes
|
|
|
|
|
|
|
(275,000
|
)
|
|
|
(27,000
|
)
|
Loss from continuing operations
|
|
|
(5,578,000
|
)
|
|
|
(2,817,000
|
)
|
|
|
(6,597,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discontinued operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income from equity in earnings of former affiliate, net of $448,000 loss related to disposal of investment in former affiliate in 2015, and income net of income taxes of $275,000 in 2015 and $27,000 in 2014
|
|
|
—
|
|
|
|
(52,000
|
)
|
|
|
40,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Loss
|
|
$
|
(5,578,000
|
)
|
|
$
|
(2,869,000
|
)
|
|
$
|
(6,557,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share of common stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
$
|
(.25
|
)
|
|
$
|
(.13
|
)
|
|
$
|
(.30
|
)
|
Discontinued operations
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Basic and diluted
|
|
$
|
(.25
|
)
|
|
$
|
(.13
|
)
|
|
$
|
(.30
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding
|
|
|
22,085,126
|
|
|
|
22,085,126
|
|
|
|
22,085,126
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See
notes to consolidated financial statements.
CONSOLIDATED
STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY
|
|
Common
Stock
|
|
|
Treasury
Stock
|
|
|
|
|
|
|
Number
Of
Shares
|
|
|
$.01
Par
Value
|
|
|
Additional
Paid-In
Capital
|
|
|
(Accumulated
Deficit)
Retained
Earnings
|
|
|
Number
Of
Shares
|
|
|
Amount
|
|
|
Total
|
|
Balance – January 1, 2014
|
|
|
23,211,846
|
|
|
$
|
232,000
|
|
|
$
|
19,490,000
|
|
|
$
|
10,147,000
|
|
|
|
1,126,720
|
|
|
$
|
(4,760,000
|
)
|
|
$
|
25,109,000
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6,557,000
|
)
|
|
|
|
|
|
|
|
|
|
|
(6,557,000
|
)
|
Balance – 12/31/2014
|
|
|
23,211,846
|
|
|
|
232,000
|
|
|
|
19,490,000
|
|
|
|
3,590,000
|
|
|
|
1,126,720
|
|
|
|
(4,760,000
|
)
|
|
|
18,552,000
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,869,000
|
)
|
|
|
|
|
|
|
|
|
|
|
(2,869,000
|
)
|
Balance - December 31, 2015
|
|
|
23,211,846
|
|
|
|
232,000
|
|
|
|
19,490,000
|
|
|
|
721,000
|
|
|
|
1,126,720
|
|
|
|
(4,760,000
|
)
|
|
|
15,683,000
|
|
Retirement of Treasury Stock
|
|
|
(1,126,720
|
)
|
|
|
(11,000
|
)
|
|
|
(4,749,000
|
)
|
|
|
|
|
|
|
(1,126,720
|
)
|
|
|
4,760,000
|
|
|
|
—
|
|
Net
Loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,578,000
|
)
|
|
|
|
|
|
|
|
|
|
|
(5,578,000
|
)
|
Dividends
|
|
|
|
|
|
|
|
|
|
|
(10,668,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(10,668,000
|
)
|
Capital Contribution
|
|
|
|
|
|
|
|
|
|
|
2,816,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,816,000
|
|
Balance - December 31, 2016
|
|
|
22,085,126
|
|
|
$
|
221,000
|
|
|
$
|
6,889,000
|
|
|
$
|
(4,857,000
|
)
|
|
|
—
|
|
|
$
|
—
|
|
|
$
|
2,253,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See
notes to consolidated financial statements.
CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
|
Year
Ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Cash
Flows From Operating Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(5,578,000
|
)
|
|
$
|
(2,869,000
|
)
|
|
$
|
(6,557,000
|
)
|
Adjustments
to reconcile net loss to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
277,000
|
|
|
|
284,000
|
|
|
|
267,000
|
|
Gain
on the disposition of business sold to former affiliate
|
|
|
—
|
|
|
|
—
|
|
|
|
(1,820,000
|
)
|
Equity
in (earnings) of former affiliate
|
|
|
—
|
|
|
|
(671,000
|
)
|
|
|
(67,000
|
)
|
Loss
on sale of investment in former affiliate
|
|
|
—
|
|
|
|
448,000
|
|
|
|
—
|
|
Non-cash
interest on receivable from former affiliate
|
|
|
(207,000
|
)
|
|
|
—
|
|
|
|
—
|
|
Loss
on disposal of fixed assets
|
|
|
89,000
|
|
|
|
—
|
|
|
|
—
|
|
Expenses
paid by former shareholder
|
|
|
2,206,000
|
|
|
|
—
|
|
|
|
—
|
|
Amortization
of discount on receivable from former affiliate
|
|
|
—
|
|
|
|
(235,000
|
)
|
|
|
(37,000
|
)
|
Accrued
interest on note receivable from former affiliate
|
|
|
(322,000
|
)
|
|
|
(46,000
|
)
|
|
|
—
|
|
Distributions
from former affiliate
|
|
|
—
|
|
|
|
98,000
|
|
|
|
13,000
|
|
Changes
in:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
equivalent – restricted
|
|
|
—
|
|
|
|
1,532,000
|
|
|
|
—
|
|
Securities
owned, at fair value
|
|
|
501,000
|
|
|
|
(105,000
|
)
|
|
|
(82,000
|
)
|
Receivable
from former affiliate investee equity interest
|
|
|
—
|
|
|
|
—
|
|
|
|
(76,000
|
)
|
Receivable
from clearing and other brokers
|
|
|
20,000
|
|
|
|
162,000
|
|
|
|
317,000
|
|
Prepaid
expenses and other assets
|
|
|
292,000
|
|
|
|
84,000
|
|
|
|
33,000
|
|
Accounts
payable and accrued liabilities
|
|
|
(539,000
|
)
|
|
|
(74,000
|
)
|
|
|
(685,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
cash used in operating activities
|
|
|
(3,261,000
|
)
|
|
|
(1,392,000
|
)
|
|
|
(8,694,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
Flows From Investing Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase
of furniture, equipment and leasehold improvements
|
|
|
(38,000
|
)
|
|
|
(41,000
|
)
|
|
|
(154,000
|
)
|
Distributions
from equity investees
|
|
|
—
|
|
|
|
—
|
|
|
|
173,000
|
|
Payment
received from business sold to former affiliate
|
|
|
493,000
|
|
|
|
|
|
|
|
|
|
Proceeds
from sale of investment in former affiliate
|
|
|
—
|
|
|
|
4,000,000
|
|
|
|
—
|
|
Collection of advances to former affiliate
|
|
|
—
|
|
|
|
104,000
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
cash provided by investing activities
|
|
|
455,000
|
|
|
|
4,063,000
|
|
|
|
19,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
Flows From Financing Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
dividend
|
|
|
(4,494,000
|
)
|
|
|
—
|
|
|
|
—
|
|
Contribution
from principal stockholder
|
|
|
610,000
|
|
|
|
|
|
|
|
|
|
Cash
flows used in financing activities
|
|
|
(3,884,000
|
)
|
|
|
|
|
|
|
|
|
Net
(decrease) increase in cash and cash equivalents
|
|
|
(6,690,000
|
)
|
|
|
2,671,000
|
|
|
|
(8,675,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents - beginning of year
|
|
|
9,420,000
|
|
|
|
6,749,000
|
|
|
|
15,424,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents - end of year
|
|
$
|
2,730,000
|
|
|
$
|
9,420,000
|
|
|
$
|
6,749,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental
cash flow disclosure:
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash
investing activity:
|
|
|
|
|
|
|
|
|
|
|
|
|
Note
received on sale of investment in former affiliate
|
|
$
|
—
|
|
|
$
|
4,000,000
|
|
|
$
|
—
|
|
Cancellation
of treasury shares
|
|
|
4,760,000
|
|
|
|
—
|
|
|
|
—
|
|
Non-cash
dividend (transferred receivable and note) to principal shareholder
|
|
|
6,174,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See
notes to consolidated financial statements.
SIEBERT FINANCIAL
CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
NOTE
A - BUSINESS
Siebert
Financial Corp. (the “Company” or “Financial”) 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 brokerage and related services to retail investors. In
addition, in 2014 Financial began business as a registered investment advisor through a wholly-owned subsidiary, Siebert Investment
Advisors, Inc. (“SIA”). SIA offers advice to clients regarding asset allocation and the selection of investments.
On November 4, 2014, Siebert sold its capital markets business to an affiliate Siebert Brandford Shank Financial, LLC (“SBSF”)
(see Note C). The accompanying consolidated financial statements include the accounts of Financial and its subsidiaries. All significant
intercompany accounts and transactions have been eliminated. Financial, Siebert and SIA collectively are referred to herein
as the “Company”.
The
municipal bond investment banking business was conducted by Siebert Brandford Shank & Co., LLC, a wholly-owned subsidiary
of SBSF and related derivatives transactions were conducted by SBS Financial Products Company, LLC (“SBSFP”), non
- controlled investees in which the Company held a 49% and 33% equity interest respectively. Such investees are accounted for
by the equity method of accounting (see Note F). The equity method provides that the Company records its share of the investees’
earnings or losses in its results of operations with a corresponding adjustment to the carrying value of its investment. In addition,
the investment is adjusted for capital contributions to and distributions from the investees. Operations of SBSFP ceased in December
2014 and on November 9, 2015, the Company sold its 49% membership investment in SBSF back to SBSF (see Note C). The Company’s
share of income (loss) from its investees is classified as discontinued operations in the accompanying statements of operations.
NOTE
B – CHANGE IN OWNERSHIP
On
December 16, 2016, pursuant to the terms of an Acquisition Agreement, dated September 1, 2016, as amended (the “Acquisition
Agreement”) by and among Financial, Kennedy Cabot Acquisition, LLC (“KCA”), a Nevada limited liability company,
and the Estate of Muriel F. Siebert (the “Majority Shareholder”), KCA acquired 677,283 shares of Common Stock in a
cash tender offer and 19,310,000 shares owned by the Majority Shareholder (the “Acquisition”). As a result of the
Acquisition, effective December 16, 2016, KCA became the owner of approximately 90% of Financials outstanding Common Stock.
Pursuant to
the terms of the Acquisition Agreement, prior to the closing of the transaction, (1) the Company paid a cash dividend
of approximately $.20 per share aggregating to $4,494,000 and (2) the Majority Shareholder was assigned the Company’s
right to receive a deferred purchase price payment 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 promissory note issued to the Company in connection
with disposition of its minority interest in a former affiliate in 2015 (together tine “Transferred Receivable
and Note”). The Majority Shareholder paid into the Company $610,262 for the Transferred Receivable and Note
representing 10% of the projected fair value of these assets as of the projected date of the closing (which percentage
corresponds to the percentage of the Company’s outstanding stock owned by the Minority Shareholders). The carrying
value of the transferred receivable ($1,806,000) and the Note ($4,368,000) immediately prior to the transfer to the majority
stockholder, which approximates fair value, has been recorded as a dividend and the $610,262 paid by the majority stockholder
has been recorded as a capital contribution in the accompanying financial statements. Additionally, the Estate of Muriel F.
Siebert paid $2,206,000 of professional fees, severance and other Company expenses in connection with the Acquisition which
were recorded as capital contribution in the accompanying financial statements.
NOTE
C – SALE OF BUSINESS
On
November 4, 2014, the Company, which held a 49% membership interest in, and the other members of, Siebert Brandford Shank &
Co., LLC (“SBS”), contributed their SBS membership interest into a newly formed Delaware limited liability company,
SBSF, in exchange for the same percentage interests in SBSF. On the same day the Company entered an Asset Purchase Agreement (the
“Purchase Agreement”) with SBS and SBSF, pursuant to which the Company sold substantially all of the assets relating
to the Company’s capital markets business to SBSF. Pursuant to the Purchase Agreement, SBSF assumed post-closing liabilities
relating to the transferred business.
The
Purchase Agreement provides for an aggregate purchase price for the disposition of $3,000,000, payable by SBSF 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 SBSF to, and operated by SBS. 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 SBS 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, based on the net income attributable to the capital markets business
for the year ended December 31, 2015, which amounted to $493,000 and was paid on March 3, 2016.
Transferred
assets of the Siebert’s capital markets business, consisted of customer accounts and goodwill, which assets had no carrying
value to the Siebert, and the Siebert recorded a gain on sale of $ 1,820,000, which reflected the fair value of the purchase obligation.
Such fair value (Level 3) 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 SBS’s
weighted average cost of capital).
The
discount recorded for the purchase obligation is being 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 year ended December 31, 2016 amounted to $207,000 based on a yield of approximately 12%.
As
a result of the Siebert’s continuing involvement in the capital markets business through its then 49% ownership in SBSF,
results of operations of the capital markets business and the gain on sale were not reflected as discontinued operations in the
accompanying financial statements.
NOTE
D - SALE OF INVESTMENT IN AFFILIATE
Discontinued
Operations:
In
April 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”)
ASU No. 2014-08, Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity. ASU No. 2014-08 changes
the definition of a discontinued operation to include only those disposals of components of an entity that represent a strategic
shift that has (or will have) a major effect on the entity’s operations and financial results. ASU No. 2014-08 is effective
prospectively to all new disposals of components (including equity method investees) and new classification as held for sale beginning
in fiscal years beginning after December 15, 2014 with early adoption permitted. The company adopted this update in 2015.
The
revised standard cannot be applied to a component that was previously disposed of that was initially precluded from discontinued
operations because of significant continuing involvement even where there are subsequent changes in the activities with a disposed
component that would no longer preclude discontinued operations (See Note C).
On
November 9, 2015, the Company sold its 49% membership investment in SBSF back to SBSF 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 “SBSF
Junior Note”). The sale of the investment in SBSF, 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 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 SBSF’s results of operations through such date. Such loss is also
included in discontinued operations.
The SBSF Junior
Note ranks junior in right of payment to up to $5.0 million of subordinated indebtedness incurred by SBSF at the time of the repurchase
closing (the “SBSF Senior Debt”). The SBSF Junior Note is secured by a pledge by SBSF”s post-closing members
of a number of the outstanding membership interests of SBSF that at all times will equal no less than 49% of the outstanding SBSF
membership interests on a fully diluted basis. The SBSF 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 amounted to $322,000 in 2016
and $46,000 in 2015. The SBSF Junior Note does not require any principal amortization before maturity; however, SBSF has the option
to prepay the interest or principal without penalty. The SBSF Junior Note contains covenants and events of defaults that are substantially
equivalent to those applicable to the SBSF Senior Debt, including covenants restricting debt and lien incurrence by SBS and SBSF;
provided that the SBSF Junior Note is subject to customary intercreditor arrangements with the holders of the SBSF Senior Debt.
Immediately upon the dissolution, liquidation, termination or expiration of SBSF or SBS, or a change of control of SBSF or SBS,
or sale of all or substantially all of their consolidated assets, SBSF is obligated to prepay all of the then outstanding balance
of the SBSF Junior Note.
NOTE
E - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
|
Cash equivalents consist
of highly liquid investments purchased with an original maturity of 3 months or less. Cash equivalents
are carried at fair value and amount to $2,532,000 and $9,053,000 at December 31, 2016 and 2015,
respectively, consisting of money market funds.
|
|
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 firm 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 firm.
|
NOTE E - SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
[3]
|
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 market 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 as of December 31 is as follows:
|
|
|
2016
|
|
|
2015
|
|
Financial
Instrument
|
|
Level
1
|
|
|
Level
1
|
|
Cash equivalents
|
|
$
|
2,532,000
|
|
|
$
|
9,053,000
|
|
Securities
|
|
|
92,000
|
|
|
|
593,000
|
|
|
|
$
|
2,624,000
|
|
|
$
|
9,646,000
|
|
|
Securities
consist of common stock,
which is valued on the last business day of the year at the last available reported sales price on the primary securities exchange.
|
|
The
Company accounts for income
taxes utilizing the asset and liability approach requiring the recognition of deferred tax assets and liabilities for the expected
future tax consequences of net operating loss carryforwards and temporary differences between the basis of assets and liabilities
for financial reporting purposes and tax purposes and for net operating loss and other carryforwards. A valuation allowance is
provided for deferred tax assets based on the likelihood of realization.
|
[5]
|
Furniture, Equipment and
Leasehold Improvements:
|
|
Furniture,
equipment and
leasehold improvements are stated at cost, net of accumulated depreciation and amortization. Depreciation is calculated using
the straight-line method over the estimated useful lives of the assets, generally five years. Leasehold improvements are
amortized over the shorter of the estimated useful life of the improvements or period of the lease.
|
|
Advertising costs are charged to expense
as incurred.
|
|
The preparation of financial
statements in conformity with accounting principles generally accepted in the United States of America requires management to
make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
|
|
Basic earnings (loss) per share
is calculated by dividing net income (loss) by the weighted average outstanding common shares during the year. 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 loss from continuing operations and a net loss for each
of the years ended December 31, 2016, 2015 and 2014. Accordingly, basic and diluted per share data are the same for each year
as the effect of stock options is anti-dilutive. In 2016, 2015 and 2014, 0, 265,000 and 265,000 common shares, respectively, issuable
upon the exercise of options were not included in the computation.
|
NOTE
E - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
|
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. Fees also include investment advisory fees, which are recorded
as earned.
|
|
Investment banking revenue, which relates
to the capital markets business which was sold in 2014 (See Note B), includes gains and fees, net of syndicate expenses, arising
from underwriting syndicates in which the Company participates. Investment banking management fees are recorded on the offering
date, sales concessions on the settlement date and underwriting fees at the time the underwriting is completed and the income
is reasonably determinable.
|
|
Trading gains and losses are also recorded on a trade-date basis and
principally represent riskless principal transactions 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]
|
Valuation of Long-Lived
Assets:
|
|
The Company evaluates
the recoverability of its long-lived assets including amortizable intangibles and recognizes an impairment
loss in the event the carrying value of these assets exceeds the estimated future undiscounted cash
flows attributable to these assets. The Company assesses potential impairment to its long-lived assets
when events or changes in circumstances indicate that its carrying value may not be recoverable. Should
impairment exist, the impairment loss would be measured based on the excess of the carrying value of
the assets over their fair value.
|
[11]
|
Certain
new accounting guidance:
|
|
In May 2014, the Financial Accounting Standards Board (“FASB”) issued an accounting standard update on revenue recognition (ASU 2014-09). The new guidance creates a single, principle based model for revenue recognition and expands and improves disclosures about revenue. The new guidance is effective for fiscal years beginning on or after December 15, 2017 and interim periods within those fiscal years. The Company is currently assessing the impact the adoption of ASU 2014-09 will have on its financial statements.
|
|
In February 2016, the
FASB issued ASU 2016-02, leases (Topic 842), which supersedes the existing guidance for lease accounting,
Leases (Topic 840). ASU 2016-2 requires lessees to recognize leases on their balance sheets, and leaves
lessor accounting largely unchanged. The amendments in this ASU are effective for fiscal years beginning
after December 15, 2018 and interim periods within those fiscal years. Early application is permitted
for all entities. ASU 2016-02 requires a modified retrospective approach for all leases existing at,
or entered into after the date of initial application, with an option to elect to use certain transaction
relief. The Company is currently assessing the impact that the adaption of ASU 2016-02 will have on
its financial statements.
|
|
In August 2014, the FASB
issued ASU No. 2014-15, Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going
Concern. ASU 2014-15 will explicitly require management to assess an entity’s ability to continue as
a going concern, and to provide related footnote disclosure in certain circumstances. The new standard
was effective for all entities in the first annual period ending after December 15, 2016 and did not have
any impact on the Company’s financial statement disclosures.
|
NOTE F - INVESTMENT
IN FORMER AFFILIATES
Investment in and advances
to, equity in income / (loss) of, and distributions received from, affiliates consist of the following:
|
|
|
|
|
|
|
|
|
|
December 31, 2015
|
|
SBSF
|
|
|
SBSFPC
|
|
|
TOTAL
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from equity investee
|
|
$
|
671,000
|
|
|
|
—
|
|
|
|
671,000
|
|
Distributions
|
|
$
|
98,000
|
|
|
|
—
|
|
|
|
98,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2014
|
|
SBSF
|
|
|
SBSFPC
|
|
|
TOTAL
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment and advances
|
|
$
|
7,979,000
|
|
|
|
—
|
|
|
|
7,979,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from equity investees
|
|
$
|
84,000
|
|
|
|
(17,000
|
)
|
|
|
67,000
|
|
Distributions
|
|
$
|
13,000
|
|
|
|
173,000
|
|
|
|
186,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
Company and two individuals (the “Principals”) formed SBS to succeed to the tax-exempt underwriting business of the
Siebert Brandford Shank division of Siebert. The agreements with the Principals provide that profits will be shared 51% to the
Principals and 49% to Siebert.
Pursuant
to the terms of the Operating Agreement, Financial and each of the Principals owned a 33.33% interest in SBSFPC which engaged
in derivatives transactions related to the municipal underwriting business. The Operating Agreement provided that income/(loss)
be shared 66.66% by the Principals and 33.33% by Financial. SBSFPC ceased operations in December 2014.
Summarized consolidated
financial data of SBSF and SBS in 2015 and 2014 follows:
|
|
2015
|
|
|
2014
|
|
Total assets, including secured demand note of $1,200,000 in 2014 due from Siebert
|
|
$
|
30,903,000
|
|
|
$
|
28,518,000
|
|
Total liabilities, including obligations to Siebert of $6,051,000 in 2015 and $3,057,000 in 2014
|
|
|
23,254,000
|
|
|
|
12,458,000
|
|
Total members’ capital
|
|
|
7,649,000
|
|
|
|
16,060,000
|
|
Regulatory minimum net capital requirement
|
|
|
250,000
|
|
|
|
250,000
|
|
Total revenue
|
|
|
27,774,000
|
|
|
|
24,806,000
|
|
Net income
|
|
|
1,369,000
|
(a)
|
|
|
171,000
|
|
|
|
|
|
|
|
|
|
|
(a) Includes interest expense on purchase obligation payable to Siebert of $195,000.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
sheet data for 2015 is as of November 9 subsequent to the redemption of the Company’s interest, Revenue and net income for
2015 is for the period from January 1 through November 9.
During
2016, 2015 and 2014 Siebert charged SBS $23,100, $100,000 and $100,000, respectively, for each year, respectively,
for general and administrative services, which Siebert believes approximates the cost of furnishing such services.
In
2016, 2015 and 2014 Siebert earned interest income of $0, $32,000 and $48,000, respectively, from SBS in connection with subordinated
loans available or made to SBS and Siebert paid SBS interest earned on restricted cash equivalents of $0, $1,000 and $1,028 in
2016, 2015 and 2014, respectively. In addition, in 2016 and 2015, Siebert earned interest income of $207,000 and $265,000, respectively
from SBSF on the purchase obligation in connection with the sale of the capital markets business (see Note B) and in 2016, Siebert
earned interest income of $322,000 from SBSF on the receivable arising from the redemption of its ownership interest (see Note
D).
NOTE F - INVESTMENT
IN FORMER AFFILIATES (CONTINUED)
Summarized financial
data of SBSFPC is as follows:
|
|
2014
|
|
Total Assets
|
|
$
|
26,000
|
|
Total liabilities
|
|
|
26,000
|
|
Total members’ capital
|
|
|
—
|
|
Total revenue
|
|
|
—
|
|
Net loss
|
|
|
(51,000
|
)
|
On
March 3, 2015, Ms. Shank completed her role as acting chief executive officer of the Company to devote full time to her continuing
position as chief executive officer of SBSF.
NOTE
F - FURNITURE, EQUIPMENT AND LEASEHOLD IMPROVEMENTS, NET
Furniture,
equipment and leasehold improvements consist of the following:
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
Equipment
|
|
$
|
28,000
|
|
|
$
|
375,000
|
|
Leasehold improvements
|
|
|
318,000
|
|
|
|
549,000
|
|
Furniture and fixtures
|
|
|
|
|
|
|
44,000
|
|
|
|
|
346,000
|
|
|
|
968,000
|
|
|
|
|
|
|
|
|
|
|
Less accumulated depreciation and amortization
|
|
|
(300,000
|
)
|
|
|
(594,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
46,000
|
|
|
$
|
374,000
|
|
|
|
|
|
|
|
|
|
|
Depreciation and
amortization expense for the years ended December 31, 2016, 2015 and 2014 amounted to $277,000, $276,000 and $257,000, respectively.
NOTE
G - INCOME TAXES
Financial files
a consolidated federal income tax return with its subsidiaries.
Income tax (benefit) expense consists of the following:
|
|
Year Ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
|
|
|
|
|
|
|
|
|
Federal income tax (benefit) expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
$
|
—
|
|
|
$
|
(228,000
|
)
|
|
$
|
(22,000
|
)
|
Deferred
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
—
|
|
|
|
(228,000
|
)
|
|
|
(22,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
State and local:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
—
|
|
|
|
(47,000
|
)
|
|
|
(5,000
|
)
|
Deferred
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
—
|
|
|
|
(47,000
|
)
|
|
|
(5,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total:
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
—
|
|
|
|
(275,000
|
)
|
|
|
(27,000
|
)
|
Deferred
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
$
|
—
|
|
|
$
|
(275,000
|
)
|
|
$
|
(27,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
tax benefit in 2015 and 2014 represent the utilization of the loss from continuing operations against income from discontinued
operations, exclusive in 2015 of the capital loss from disposal of the investment in the former affiliate.
Reconciliation
between the income tax (benefit) provision and income taxes computed by applying the statutory Federal income tax rate to loss
before income taxes is as follows:
|
|
Year Ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
|
|
|
|
|
|
|
|
|
Expected income tax (benefit) at statutory Federal tax rate (34%)
|
|
$
|
(1,897,000
|
)
|
|
$
|
(1,051,000
|
)
|
|
$
|
(2,251,000
|
)
|
State and local taxes, net of Federal tax effect
|
|
|
(400,000
|
)
|
|
|
(68,000
|
)
|
|
|
(464,000
|
)
|
Increase in valuation allowance
|
|
|
1,704,000
|
(1)
|
|
|
784,000
|
|
|
|
2,551,000
|
|
Nondeductible transaction costs related to change in control
|
|
|
482,000
|
|
|
|
|
|
|
|
|
|
Expiration of contribution carryforward
|
|
|
85,000
|
|
|
|
|
|
|
|
|
|
Permanent difference
|
|
|
19,000
|
|
|
|
13,000
|
|
|
|
39,000
|
|
Other
|
|
|
7,000
|
|
|
|
47,000
|
|
|
|
98,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax (benefit)
|
|
$
|
—
|
|
|
$
|
(275,000
|
)
|
|
$
|
(27,000
|
)
|
(1)
|
Reflects
a $264,000 reduction to the valuation allowance and related deferred tax assets
as of December 31, 2015.
|
NOTE G - INCOME TAXES (CONTINUED)
The principal items giving rise to
deferred tax assets (liabilities) are as follows:
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Net operating loss credit carryforwards
|
|
$
|
10,316,000
|
|
|
$
|
9,456,000
|
|
Capital loss carryforwards
|
|
|
|
|
|
|
395,000
|
|
|
|
|
|
|
|
|
—
|
|
Employee stock based compensation
|
|
|
237,000
|
|
|
|
237,000
|
|
Retail brokerage accounts (b)
|
|
|
71,000
|
|
|
|
140,000
|
|
Contribution carryover
|
|
|
158,000
|
|
|
|
178,000
|
|
Furniture, equipment and leasehold improvements
|
|
|
312,000
|
|
|
|
181,000
|
|
Accrued settlement liability
|
|
|
340,000
|
|
|
|
252,000
|
|
Investment in former affiliate (a)
|
|
|
—
|
|
|
|
—
|
|
Other
|
|
|
8,000
|
|
|
|
44,000
|
|
Total
|
|
|
11,442,000,
|
|
|
|
10,883,000
|
|
|
|
|
|
|
|
|
|
|
Valuation allowance
|
|
|
(11,442,000
|
)
|
|
|
(10,002,000
|
)
|
Net deferred tax assets
|
|
|
—
|
|
|
|
881,000
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liability:
|
|
|
|
|
|
|
|
|
Receivable from affiliate (a)
|
|
|
—
|
|
|
|
(881,000
|
)
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
Relates
to receivable from business sold to affiliate treated as an installment sale for tax
purposes.
|
|
(b)
|
Related
to acquired retail discount brokerage accounts, which are being amortized over 15 years
for tax purposes and have been fully amortized for financial reporting purposes.
|
Due
to cumulative losses incurred by the Company during the current and prior two years, the Company is unable to conclude that it
is more likely than not that it will realize its deferred tax asset in excess of the deferred tax liability and, accordingly,
has recorded a valuation allowance to fully offset such amount at December 31, 2016 and 2015.
At
December 31, 2016, the Company has state net operating loss carryforwards aggregating $17.4 million, which expires from 2029 through
2036. In addition, the Company has federal net operating loss carryforwards of $24.2 million at December 31, 2016, which expires
from 2030 through 2036. Utilization of the Company’s net operating loss carryforwards are subject to annual limitations
under Internal Revenue Code section 382 due to the change in ownership.
The
Company applied the “more-likely-than not” recognition threshold to all tax positions taken or expected to be taken
in a tax return which resulted in no unrecognized tax benefits reflected in the financial statements as of December 31, 2016.
The Company classifies interest and penalties that would accrue according to the provisions of relevant tax law as income taxes.
Tax years 2013 and
thereafter are subject to examination by federal and certain tax authorities. For other states the 2010 through 2013 tax years
remain open to examination. The Company is currently under tax examination by New York State for the years 2012 to 2014 and by
the state of Illinois for the years 2012 and 2013.
NOTE
H - STOCKHOLDERS’ EQUITY
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 2 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. At December 31, 2016 and 2015, Siebert had net capital of
approximately $1,112,000 and $8,131,000, respectively, as compared with net capital requirements of $250,000. Siebert claims exemption
from the reserve requirement under Section 15c3-3(k)(2)(ii) as it clears its customer transactions through an unaffiliated clearing
firm on a fully disclosed basis.
NOTE
I - OPTIONS
The
Company’s 2007 Long-Term Incentive Plan (the “Plan”) authorizes the grant of options to purchase up to an aggregate
of 2,000,000 shares, subject to adjustment in certain circumstances. Both non-qualified options and options intended to qualify
as “Incentive Stock Options” under Section 422 of the Internal Revenue Code may be granted under the Plan. A Stock
Option Committee of the Board of Directors administers the Plan. The committee has the authority to determine when options are
granted, the term during which an option may be exercised (provided no option has a term exceeding 10 years), the exercise price
and the exercise period. The exercise price shall not be less than the fair market value on the date of grant. No option may be
granted under the Plan after December 2017. Generally, employee options vest 20% per year for five years and expire ten years
from the date of grant. The Plan was terminated in 2016 in connection with the change in ownership (see Note B).
A
summary of the Company’s stock option transactions for the year ended December 31, 2016 is presented below:
|
|
2016
|
|
|
|
Shares
|
|
|
Weighted
Average
Exercise
Price
|
|
Outstanding - beginning of the year
|
|
|
265,000
|
|
|
|
3.02
|
|
Cancelled
|
|
|
(240,000
|
)
|
|
|
3.02
|
|
Forfeited
|
|
|
—
|
|
|
|
—
|
|
Expired
|
|
|
(25,000
|
)
|
|
|
3.02
|
|
Outstanding - end of year
|
|
|
—
|
|
|
|
—
|
|
Fully vested and exercisable at end of year
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
For the years
ended December 31, 2016, 2015 and 2014, no stock options were granted.
NOTE K - COMMITMENTS, CONTINGENCIES
AND OTHER
|
(1)
|
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 in 2016, 2015 or 2014. Credit risk represents the potential loss
that would occur if counterparties fail to perform pursuant to the terms of their obligations.
The Company is subject to credit risk to the extent a custodian or broker with whom it
conducts business is unable to fulfill contractual obligations.
|
|
(2)
|
In
the ordinary course of business the Company is named a party to certain claims, suits
and complaints. In the opinion of management, pending matters are without merit, and
their ultimate outcome will not have a significant effect on the financial position or
results of operations of the Company.
|
|
(3)
|
In
July 2013
,
the
Company extended its fully disclosed clearing agreement with its clearing b
r
oker
through July 2017
.
|
|
(4)
|
On
October 24
,
2016
the Principal Executive Officer of the Company entered into a separation agreement pursuant
to the Acquisition Agreement. Upon clos
i
ng
of the transact
i
on
con
t
emplated
by the Acquisit
i
on
Agreement,
the
Principal Executive Officer received a severance payment of $635
,
000
and is subject to the customary future cooperation
,
non-disparagement
,
confidentiality
,
employee and customer non-solicitation
and re
l
ease
provisions
.
The
severance payment was funded from the proceeds of closing received by t
h
e
Siebert Estate which has been a
c
counted
for a capital contribut
i
on.
The severance payment is included in professional fees and other expenses related to
change in control in the income statement. (See Note B)
|
|
(5)
|
In
D
ecember
2015
,
a
t
hen
current employee of the Com
p
any
commenced an arbitrat
i
on
before F
I
NRA
against the Company alleging a single cause of action for employment reta
l
iation
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
.
On January 3
1
,
2017, a settlement agreement was
entered into pursuant to which the arbitration was dismissed with prejudice and the employee
was paid $825
,
000
which was funded in January 2017 by KCA
,
which acquired controlling interest
in Company (See
N
ote
B). The settlement has been reflected as a loss in the accompanying financial statements
with a corresponding liability
.
The payment of the liability by
KCA will be accoun
t
e
d
fo
r
as a capital contribution
.
|
NOTE K - COMMITMENTS,
CONTINGENCIES AND OTHER (CONTINUED)
|
(6)
|
In
July 2014, the Company entered into a settlement agreement in regards to a dispute with
a former employee, in which the former employee sought, among other things, damages arising
from his separation from the Company. The Company asserted counter claims in the arbitration.
Pursuant to the settlement, the Company paid $4,300,000 to the former employee, and the
claims and counterclaims have been dismissed and released. The accompanying 2014 statement
of operations reflects a charge to give effect to the settlement.
|
|
(7)
|
The
Company rents discount retail brokerage and other office space under long-term operating
leases expiring in various periods through 2017. These leases call for base rent plus
escalations for taxes and operating expenses. In February 2017 the Company closed its
New York office at end of its lease term and relocated to newly lease office space. The
leases for the newly leased office space expire in September 2018.
|
|
|
The 2017 and 2018 aggregate
future minimum base rental payments under these operating leases are approximately $342,000 and $180,000 respectively.
|
|
|
Rent expense, including escalations
for operating costs, amounted to approximately $650,000, $776,000, $788,000 and for the years ended December 31, 2016, 2015 and
2014, respectively. Rent is being charged to expense over the entire lease term on a straight-line basis.
|
|
(8)
|
Siebert
sponsors a defined contribution retirement plan under Section 401(k) of the Internal
Revenue Code that covers substantially all employees. Participant contributions to the
plan are voluntary and are subject to certain limitations. Siebert may also make discretionary
contributions to the plan. No contributions were made by Siebert in 2016, 2015 and 2014.
|
NOTE L - SUMMARIZED
QUARTERLY FINANCIAL DATA (UNAUDITED)
|
|
2016
|
|
|
2015
|
|
|
|
First
Quarter
|
|
|
Second
Quarter
|
|
|
Third
Quarter
|
|
|
Fourth
Quarter
|
|
|
First
Quarter
|
|
|
Second
Quarter
|
|
|
Third
Quarter
|
|
|
Fourth
Quarter
|
|
Revenue
|
|
$
|
2,078,000
|
|
|
|
2,462,000
|
|
|
|
2,223,000
|
|
|
|
3,049,000
|
|
|
$
|
2,264,000
|
|
|
|
2,104,000
|
|
|
|
2,536,000
|
|
|
|
2,832,000
|
|
Net
income (loss)
|
|
$
|
(501,000
|
)
|
|
|
(728,000
|
)
|
|
|
(1,140,000
|
)
|
|
|
(3,209,000
|
)(b)
|
|
$
|
(1,534,000
|
)
|
|
|
(407,000
|
)
|
|
|
(728,000
|
)
|
|
|
(200,000
|
)(a)
|
Net
income (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing
operations
|
|
$
|
(.02
|
)
|
|
|
(.03
|
)
|
|
|
(.05
|
)
|
|
|
(.15
|
)
|
|
$
|
(.07
|
)
|
|
|
(.02
|
)
|
|
|
(.04
|
)
|
|
|
(.00
|
)
|
Discontinued
operations
|
|
$
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
$
|
—
|
|
|
|
—
|
|
|
|
.01
|
|
|
|
(.01
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
(a)
|
Includes
$448,000 loss ($0.02 per share) related to disposal of investment in former affiliate.
|
|
(b)
|
Includes
$825,000 loss ($0.04 per share) related to the arbitration settlement and $2,206,000
($0.10 per share) of expenses related to the change in ownership.
|
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board
of Managers of
Siebert
Brandford Shank Financial, LLC
We
have audited the accompanying consolidated statement of financial condition of Siebert Brandford Shank Financial, LLC and subsidiary
(the "Company") as of December 31, 2014 and the related consolidated statements of operations, changes in members' capital,
and cash flows for the period from January 1, 2015 to November 9, 2015 and for the year ended December 31, 2014. The financial
statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We
conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control
over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing
audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness
of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining,
on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing
the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our opinion.
In
our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position
of Siebert Brandford Shank Financial, LLC and subsidiary as of December 31, 2014 and the consolidated results of their operations
and their cash flows for the period from January 1, 2015 to November 9, 2015 and for the year ended December 31, 2014, in conformity
with accounting principles generally accepted in the United States of
America.
/s/
EisnerAmper LLP
New York, New
York
March 30, 2016
Siebert Brandford
Shank Financial, LLC and Subsidiary
Consolidated Statement of Financial Condition
December
31, 2014
|
|
|
|
ASSETS
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
20,065,062
|
|
Accounts
receivable
|
|
|
1,593,614
|
|
Due
from broker
|
|
|
2,522,557
|
|
Secured
demand note
|
|
|
1,200,000
|
|
Goodwill
- Note B
|
|
|
1,001,000
|
|
Issuer
relationships, net of amortization of $41,212 - Note B
|
|
|
777,788
|
|
Furniture,
equipment and leasehold improvements, net
|
|
|
684,736
|
|
Other
assets
|
|
|
673,276
|
|
|
|
|
|
|
|
|
$
|
28,518,033
|
|
|
|
|
|
|
LIABILITIES
AND MEMBERS’ CAPITAL
|
|
|
|
|
Liabilities:
|
|
|
|
|
Payable
to affiliate
|
|
$
|
104,320
|
|
Asset
purchase obligation payable to affiliate, net of unamortized discount of $1,143,359
|
|
|
1,856,641
|
|
Accounts
payable and accrued expenses
|
|
|
4,747,648
|
|
Deferred
rent
|
|
|
549,287
|
|
|
|
|
7,257,896
|
|
|
|
|
|
|
Subordinated
debt
|
|
|
5,200,000
|
|
|
|
|
|
|
Total
liabilities
|
|
|
12,457,896
|
|
Commitments
(Note G)
|
|
|
|
|
Members’
capital
|
|
|
16,060,137
|
|
|
|
|
|
|
|
|
$
|
28,518,033
|
|
|
|
|
|
|
See
notes to consolidated financial statements
Statements of Operations
|
|
Period from
January 1, 2015
to
November 9, 2015
|
|
|
Year Ended
December 31,
2014
|
|
|
|
Siebert Brandford
Shank Financial,
LLC and Subsidiary
|
|
|
Siebert Brandford
Shank Financial,
LLC and Subsidiary
|
|
Investment banking
|
|
$
|
23,786,122
|
|
|
$
|
20,949,508
|
|
Trading profits
|
|
|
3,888,139
|
|
|
|
3,670,726
|
|
Commissions
|
|
|
473,117
|
|
|
|
182,771
|
|
Interest and other
|
|
|
4,116
|
|
|
|
3,395
|
|
|
|
|
|
|
|
|
|
|
|
|
|
28,151,494
|
|
|
|
24,806,400
|
|
|
|
|
|
|
|
|
|
|
Employee compensation and benefits
|
|
|
19,044,368
|
|
|
|
17,819,595
|
|
Clearing fees
|
|
|
469,014
|
|
|
|
383,538
|
|
Communications
|
|
|
1,015,599
|
|
|
|
929,496
|
|
Occupancy
|
|
|
898,897
|
|
|
|
1,186,967
|
|
Professional fees
|
|
|
1,187,892
|
|
|
|
895,951
|
|
Interest, including amortization of discount (including $200,745, 84,691 and 48,000 to affiliate)
|
|
|
248,637
|
|
|
|
136,936
|
|
State and local income tax
|
|
|
66,818
|
|
|
|
31,901
|
|
General and administrative (including $100,000, 100,000 and 100,000 to affiliate)
|
|
|
3,850,900
|
|
|
|
3,251,269
|
|
|
|
|
26,782,125
|
|
|
|
24,635,653
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
1,369,369
|
|
|
$
|
170,747
|
|
|
|
|
|
|
|
|
|
|
See
notes to financial statements
SIEBERT BRANDFORD SHANK FINANCIAL, LLC AND SUBSIDIARY
Consolidated Statements of Changes in Members’ Capital
|
|
|
|
|
|
Balance – December 31, 2013 (a)
|
|
$
|
15,915,862
|
|
Distributions to members
|
|
|
(26,472
|
)
|
Net income
|
|
|
170,747
|
|
Balance - December 31, 2014
|
|
|
16,060,137
|
|
Distributions to members
|
|
|
(200,000
|
)
|
Net income
|
|
|
1,369,369
|
|
Balance - November 9, 2015 (b)
|
|
$
|
17,229,506
|
|
|
|
|
|
|
|
(a)
|
Represents
members’ capital of Siebert, Brandford, Shank & Co., L.L.C.
|
|
(b)
|
Represents
members’ capital prior to giving effect to redemption of interest of Muriel Siebert
& Co., Inc. and other member and related capital contributions which in part funded
such redemptions.
|
See
notes to consolidated financial statements
Statements of Cash
Flows
|
|
Period from
January 1, 2015
To November 9, 2015
|
|
|
Year Ended
December 31, 2014
|
|
|
|
SIEBERT BRANDFORD
SHANK FINANCIAL, LLC
AND SUBSIDIARY
|
|
|
SIEBERT BRANDFORD
SHANK FINANCIAL, LLC
AND SUBSIDIARY
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
1,369,369
|
|
|
$
|
170,747
|
|
Adjustments to reconcile net income to net cash (used in) provided by operating activities:
|
|
|
|
|
|
|
|
|
Amortization of discount on obligation due affiliate
|
|
|
194,581
|
|
|
|
36,641
|
|
Depreciation and amortization
|
|
|
408,577
|
|
|
|
267,973
|
|
Changes in:
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(750,051
|
)
|
|
|
(1,031,467
|
)
|
Due to clearing broker
|
|
|
9,410,526
|
|
|
|
(2,514,399
|
)
|
Securities owned, at fair value
|
|
|
(8,603,054
|
)
|
|
|
—
|
|
Other assets
|
|
|
(28,001
|
)
|
|
|
(54,533
|
)
|
Payable to (receivable from) former affiliate
|
|
|
(52,898
|
)
|
|
|
76,056
|
|
Accounts payable and accrued expenses
|
|
|
1,699,037
|
|
|
|
741,040
|
|
Bank overdraft
|
|
|
—
|
|
|
|
(1,225,779
|
)
|
|
|
|
|
|
|
|
|
|
Deferred rent
|
|
|
(95,936
|
)
|
|
|
(72,788
|
)
|
Net cash (used in) /provided by operating activities
|
|
|
3,552,150
|
|
|
|
(3,606,509
|
)
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
Purchase of leasehold improvements and equipment
|
|
|
(41,746
|
)
|
|
|
(89,364
|
)
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
Distributions to members
|
|
|
(200,000
|
)
|
|
|
(26,472
|
)
|
Subordinated borrowings
|
|
|
—
|
|
|
|
9,000,000
|
|
Subordinated repayments
|
|
|
(4,000,000
|
)
|
|
|
(5,000,000
|
)
|
Net cash provided by/ (used in) financing activities
|
|
|
(4,200,000
|
)
|
|
|
3,973,528
|
|
Net increase/(decrease) in cash and cash equivalents
|
|
|
(689,596
|
)
|
|
|
277,655
|
|
Cash and cash equivalents - beginning of period
|
|
|
20,065,062
|
|
|
|
19,787,407
|
|
Cash and cash equivalents - end of period
|
|
$
|
19,375,466
|
|
|
$
|
20,065,062
|
|
Supplemental disclosures of cash flow information:
|
|
|
|
|
|
|
|
|
Taxes paid
|
|
$
|
39,068
|
|
|
$
|
24,323
|
|
Interest paid
|
|
$
|
46,176
|
|
|
$
|
100,295
|
|
Non-cash investing and financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note payable for purchase of business from affiliate
|
|
|
|
|
|
|
1,820,000
|
|
|
|
|
|
|
|
|
|
|
Intangible assets acquired related to business acquired from affiliate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuer relationships
|
|
|
|
|
|
|
(819,000
|
)
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
|
|
|
|
|
(1,001,000
|
)
|
|
|
|
|
|
|
|
|
|
Non cash investing and financing activities:
|
|
|
|
|
|
|
|
|
Repayment of subordinated borrowing from former affiliate by cancellation of related secured demand note receivable from former affiliate
|
|
$
|
1,200,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See
notes to financial statements
SIEBERT
BRANDFORD SHANK FINANCIAL, LLC AND SUBSIDIARY
Notes
to Financial Statements
NOTE
A – BUSINESS ORGANIZATION:
Siebert
Brandford Shank Financial, LLC (“SBSF” or the “Company”) was organized on November 4, 2014 and through
its wholly owned subsidiary, Siebert, Brandford, Shank & Co., L.L.C. (“SBS”), engages in the business of tax-exempt
underwriting and related trading activities and, commencing on November 4, 2014, the capital markets business (see Note B). The
Company qualifies as a Minority and Women Owned Business Enterprise in certain municipalities.
On
November 9, 2015, SBSF redeemed Muriel Siebert & Co., Inc., 49% membership interest in addition to the 25.5% membership interest
of another member. The accompanying 2015 financial statements are prepared immediately prior to, and do not give effect to such
transactions or the related debt and equity financing funding such transactions.
NOTE
B – BUSINESS ACQUISITION
On
November 4, 2014, the members of SBS contributed their membership interest into a newly formed Delaware limited liability company,
Siebert Brandford Shank Financial, LLC (“SBSF”), in exchange for the same percentage interests in SBSF. On the same
day Muriel Siebert & Co., Inc., (“Siebert”) entered an Asset Purchase Agreement (the “Purchase Agreement”)
with SBS and SBSF, pursuant to which Siebert sold substantially all of the assets relating to Siebert’s capital markets
business to SBSF. Pursuant to the Purchase Agreement, SBSF assumed post-closing liabilities relating to the transferred business.
An individual having a 25.5% membership interest in SBS prior to the contribution of membership interests to SBSF, was Siebert’s
chief executive officer.
The
Purchase Agreement provides for an aggregate purchase price for the disposition of $3,000,000, payable by SBSF 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 SBSF to, and operated by SBS. The amount payable on each annual payment date will equal 50% of the
net income attributable to the transferred business recognized by SBS 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 is based on the net income attributable to the capital markets
business for the year ended December 31, 2015, and amounted to $493,000.
Transferred
assets of Siebert’s capital markets business, consisted of issuer relationships and goodwill. Issuer relationships, were
recorded at $819,000 representing their fair value at the date of acquisition determined based on a discounted cash flow analysis
(Level 3). Goodwill, which includes employees of Siebert who transferred to SBS, was recorded at $1,001,000, representing the
excess of the fair value ($1,820,000) of SBSF’s purchase obligation to Siebert over the fair value of the issuer relationships.
Since
the date of acquisition, revenue of $199,000 and net loss of $129,000 attributable to the capital markets business is included
in the accompanying statement of operations for the year ended December 31, 2014.
The
following represents the unaudited pro forma amounts of revenue and net income of the Company for the year ended December 31,
2014, assuming the capital markets business had been acquired as of January 1, 2014:
Revenue
|
|
$
|
27,729,000
|
|
Net Income
|
|
$
|
672,000
|
|
The above
net income reflects the additional amortization that would have been charged assuming the fair value adjustment to customer accounts
had been applied as of January 1, 2014 and amortization of discount on the purchase obligation for the entire year.
SIEBERT
BRANDFORD SHANK FINANCIAL, LLC AND SUBSIDIARY
Notes
to Financial Statements
NOTE
C – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
[1]
|
Principles of Consolidation:
|
|
Commencing on November 4,
2014, the accompanying financial statements include the accounts of SBSF and its wholly-owned subsidiary SBS after elimination
of intercompany balances and transactions. Prior thereto, the financial statements represent those of SBS. The creation of SBSF
and related transfer thereto of the members’ interest in SBS did not result in any change in the carrying value of the existing
assets or liabilities of SBS in the consolidated financial statements as both entities were under common control.
|
|
Investment
banking revenues include gains and fees, net of syndicate expenses, arising primarily
from municipal bond offerings in which the Company acts as an underwriter or agent. Investment
banking management fees are recorded on the offering date, sales concessions on the settlement
date, and underwriting fees at the time the underwriting is completed and the income
is reasonably determinable.
|
|
Security transactions are
recorded on a trade-date basis. Securities owned are valued at fair value. The resulting realized and unrealized gains and losses
are reflected as trading profits.
|
|
Commission revenue which
relates to the capital market business are recorded on a trade date basis.
Dividends are recorded on the ex-dividend date, and
interest income is recognized on an accrual basis.
|
|
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 market
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
market prices that are observable, either directly or indirectly, and reasonably available.
|
|
Level 3
|
Unobservable inputs which
reflect the assumptions that the managing members develop based on available information about the assumptions market participants
would use in valuing the asset or liability.
|
|
See Note C (4) for financial
instruments measured at fair value.
|
SIEBERT BRANDFORD
SHANK FINANCIAL, LLC AND SUBSIDIARY
Notes to Financial Statements
NOTE C – SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
|
Cash equivalents represent
short-term, highly liquid investments which are readily convertible to cash and have maturities of three months or less at time
of purchase. Cash equivalents, which are valued at fair value, consist of money market funds which amounted to $15,965,885 at
December 31, 2014 (Level 1). The Company maintains its assets with financial institutions which may at times exceed federally
insured limits. In the event of financial institutions insolvency, recovery of the assets may be limited.
|
[5]
|
Furniture, equipment and
leasehold improvements, net:
|
|
Furniture, equipment and
leasehold improvements are stated at cost, net of accumulated depreciation and amortization. Depreciation is calculated using
the straight-line method over the estimated useful lives of the assets, generally five years. Leasehold improvements are amortized
over the period of the lease.
|
|
Issuer relationships, which
were recorded in connection with the acquisition of the capital markets business (see Note B), are being amortized by the straight-line
method over 2.9 years.
|
|
Intangible assets with finite
lives are tested for recoverability whenever events or changes in circumstances indicate that the carrying amount may not be recoverable.
The Company assesses the recoverability of its intangible assets by determining whether the unamortized balance can be recovered
over the assets’ remaining useful life through undiscounted estimated future cash flows. If undiscounted estimated future
cash flows indicate that the unamortized amounts will not be recovered, an adjustment will be made to reduce such amounts to fair
value based on estimated future cash flows discounted at a rate commensurate with the risk associated with achieving such cash
flows.
|
|
Goodwill, which was recorded
in connection with the acquisition of the capital markets business (see Note B), is not subject to amortization and is tested
for impairment annually, or more frequently if events or changes in circumstances indicate that the asset may be impaired. The
impairment test consists of a comparison of the fair value of the reporting unit with the carrying amount its net assets, including
goodwill. Fair value is typically based upon estimated future cash flows discounted at a rate commensurate with the risk involved
or market-based comparables. If the carrying amount of the Company’s net assets exceeds the fair value of the reporting
unit, then an analysis will be performed to compare the implied fair value of goodwill with the carrying amount of goodwill. An
impairment loss will be recognized in an amount equal to the excess of the carrying amount over its implied fair value.
|
|
The preparation of financial
statements in conformity with accounting principles generally accepted in the United States of America requires management to
make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
|
|
The Company is not subject
to federal income taxes. Instead, the members are required to include in their income tax returns their respective share of the
Company’s income or loss. The Company is subject to tax in certain state and local jurisdictions. Deferred taxes are not
significant.
|
NOTE D - SUBORDINATED
BORROWINGS AND SECURED DEMAND NOTE RECEIVABLE
|
|
|
|
The subordinated debt at December 31, 2014 consists of the following:
|
|
|
|
|
|
2014
|
|
Payable to affiliate (a)
|
|
$
|
1,200,000
|
|
Payable to clearing broker (b)
|
|
|
4,000,000
|
|
|
|
$
|
5,200,000
|
|
|
(a)
|
Consists
of a Secured Demand Note Collateral Agreement payable to Siebert, an indirect member
of the Company, bearing 4% interest and which expired and was repaid on August 31, 2015
through an offset against a $1,200,000 secured demand note receivable due from Siebert.
Interest expense paid to Siebert in each of 2015 and 2014 amounted to $32,000 and 48,000
respectively.
|
The
secured demand note receivable of $1,200,000 was collateralized by cash equivalents of Siebert of approximately $1,532,000 which
expired and was repaid on August 31, 2015. Interest earned on the collateral amounted to approximately $1,000 and $1,028 in 2015
and 2014, respectively.
|
(b)
|
On
December 9, 2014, SBS entered into a temporary subordinated loan agreement with National
Financial Services, its clearing broker, in the amount of $4,000,000 bearing interest
at the federal funds rate plus 6% and maturing January 22, 2015. The note was repaid
on January 22, 2015. Interest expense accrued in 2014 amounted to approximately $16,000.
|
The
subordinated borrowings are available in computing net capital under the Securities and Exchange Commission’s (“SEC”)
Uniform Net Capital Rule. To the extent that such borrowing is required for the Company’s continued compliance with minimum
net capital requirements, it may not be repaid.
On
March 24, 2014, SBS entered into a temporary subordinated loan agreement with National Financial Services, its clearing broker,
in the amount of $5,000,000 bearing interest at the federal funds rate plus 6% and maturing May 5, 2014. The note was repaid on
May 5, 2014. Interest expense paid was $36,542.
SIEBERT BRANDFORD SHANK FINANCIAL, LLC AND SUBSIDIARY
Notes to Financial Statements
NOTE E - FURNITURE, EQUIPMENT AND LEASEHOLD IMPROVEMENTS, NET
Furniture, equipment, and leasehold improvements consist of the following:
|
|
|
|
|
|
12/31/2014
|
|
Equipment
|
|
$
|
926,654
|
|
Furniture and leasehold improvements
|
|
|
1,718,826
|
|
|
|
|
2,645,480
|
|
Less accumulated depreciation and amortization
|
|
|
1,960,744
|
|
|
|
$
|
684,736
|
|
|
|
|
|
|
Depreciation
and amortization expense for the period ended November 9, 2015 amounted to $160,046, For the period ended December 31, 2014 the
expense amounted to $226,761.
NOTE
F - NET CAPITAL
SBS
is subject to the SEC’s Uniform Net Capital Rule 15c3-1, which requires the maintenance of minimum net capital and that
the ratio of aggregate indebtedness to net capital, both as defined, shall not exceed 15 to 1. At December 31, 2014, SBS had net
capital of $22,807,796 which was $22,557,796, in excess of its required net capital and its ratio of aggregate indebtedness to
net capital was 0.16 to 1. SBS claims exemption from the reserve requirements under Section 15c3-3(k)(2)(ii).
NOTE
G - COMMITMENTS
SBS
rents office space under long-term operating leases expiring through 2026. These leases call for base rent plus escalations for
property taxes and other operating expenses.
SBSF
rents office space under long-term operating leases expiring through 2020. These leases call for base rent plus escalations for
property taxes and other operating expenses. Future minimum base rent under these operating leases as of December 31, 2014 are
as follows:
December 31, 2014
|
|
Amount
|
|
2015
|
|
$
|
1,043,000
|
|
2016
|
|
|
886,000
|
|
2017
|
|
|
639,000
|
|
2018
|
|
|
627,000
|
|
2019
|
|
|
587,000
|
|
Thereafter
|
|
|
185,000
|
|
|
|
$
|
3,967,000
|
|
Rent
expense, including taxes and operating expenses for 2015 and 2014 amounted to $1,055,944 and $1,186,967, respectively.
In
prior years, SBS purchased leasehold improvements of approximately $620,000 which were reimbursed by the landlord. SBS recorded
such reimbursement as a credit to deferred rent liability, which is being recognized as a reduction of rental expense on a straight-line
basis over the term of the lease.
Rent
expense is being charged to operations on a straight-line basis resulting in a deferred rent liability which, including the reimbursement
discussed above amounted to $549,287 at December 31, 2014.
SIEBERT BRANDFORD SHANK FINANCIAL, LLC AND SUBSIDIARY
Notes to Financial Statements
NOTE H - ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consist of the following:
|
|
|
|
|
|
December 31,
|
|
|
|
2014
|
|
Accounts payable
|
|
$
|
313,285
|
|
Accrued bonus and other employee compensation
|
|
|
4,233,521
|
|
Other accrued expenses
|
|
|
200,842
|
|
|
|
$
|
4,747,648
|
|
NOTE I - OTHER
During each of 2015, 2014
SBS was charged $100,000 by Siebert for general and administrative services.
SIGNATURES
Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report
to be signed on its behalf by the undersigned, thereunto duly authorized.
SIEBERT FINANCIAL
CORP.
|
|
|
|
By:
|
/s/
Andrew H. Reich
|
|
|
Andrew H. Reich
|
|
|
Executive Vice President,
Chief Operating Officer, Chief Financial Officer, Secretary and Director
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(principal executive,
financial and accounting officer)
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Date:
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April 6,
2017
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Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf
of the registrant and in the capacities and on the dates indicated.
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Name
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Title
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Date
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/s/
Andrew H. Reich
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Executive
Vice President, Chief Operating Officer and Chief Financial Officer,
Secretary (principal financial and accounting officer) and Director
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Andrew
H. Reich
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|
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April 6,
2017
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|
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/s/
Gloria E. Gebbia
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Director
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|
April 6,
2017
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Gloria
E. Gebbia
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|
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/s/
Charles Zabatta
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Director
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|
April 6,
2017
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Charles
Zabatta
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|
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/s/
Francis V. Cuttita
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Director
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April 6,
2017
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Francis
V. Cuttita
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|
|
|
|
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|
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/s/
Jerry Schneider
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Director
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April
6, 2017
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Jerry
Schneider
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|
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EXHIBIT
INDEX
Exhibit
No.
|
|
Description
Of Document
|
|
|
|
2.1
|
|
Plan and Agreement of Merger between J.
Michaels, Inc. and Muriel Siebert Capital Markets Group, Inc., dated as of April 24, 1996 (“Merger Agreement”)
(incorporated by reference to Siebert Financial Corp.’s Annual Report on Form 10-K for the fiscal year ended December
31, 1996)
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|
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2.2
|
|
Amendment No. 1 to Merger Agreement, dated
as of June 28, 1996 (incorporated by reference to Siebert Financial Corp.’s Annual Report on Form 10-K for the fiscal
year ended December 31, 1996)
|
|
|
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2.3
|
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Amendment No. 2 to Merger Agreement, dated
as of September 30, 1996 (incorporated by reference to Siebert Financial Corp.’s Annual Report on Form 10-K for the
fiscal year ended December 31, 1996)
|
|
|
|
2.4
|
|
Amendment No. 3 to Merger Agreement, dated
as of November 7, 1996 (incorporated by reference to Siebert Financial Corp.’s Annual Report on Form 10-K for the fiscal
year ended December 31, 1996)
|
|
|
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3.1
|
|
Certificate of Incorporation of Siebert
Financial Corp., formerly known as J. Michaels, Inc. originally filed on April 9, 1934, as amended and restated to date (incorporated
by reference to Siebert Financial Corp.’s Annual Report on Form 10-K for the fiscal year ended December 31, 1997)
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|
|
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3.2
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|
By-laws of Siebert Financial Corp. (incorporated
by reference to Siebert Financial Corp.’s Registration Statement on Form S- 1 (File No. 333-49843) filed with the Securities
and Exchange Commission on April 10, 1998)
|
|
|
|
10.1
|
|
Acquisition Agreement, dated September
1, 2016, by and among, Siebert Financial Corp., the Estate of Muriel F. Siebert and Kennedy Cabot Acquisition, LLC (incorporated
by reference to Siebert Financial Corp.’s Current Report on Form 8-K filed with the Securities and Exchange Commission
on September 2, 2016)
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|
|
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10.2
|
|
Assignment dated December 16, 2016 by and
between the Estate of Muriel Siebert and Siebert Financial Corp.
|
|
|
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10.3
|
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Consent and Waiver dated as of December
16, 2016 by and among Siebert Cisneros Shank Financial, LLC, Siebert Cisneros Shank & Co. L.L.C. and Siebert Financial
Corp.
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|
|
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10.6**
|
|
Siebert Financial Corp. 2007 Long-Term
Incentive Plan (incorporated by reference to Siebert Financial Corp.’s Registration Statement on Form S-8 (File No.
333-144680) filed with the Securities and Exchange Commission on July 18, 2007)
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|
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10.7*
|
|
Fully Disclosed Clearing Agreement, by
and between National Financial Services LLC and Muriel Siebert & Co., Inc. dated May 5, 2010. (incorporated by reference
to Siebert Financial Corp.’s Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on August
16, 2010)
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|
|
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21
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Subsidiaries of the registrant
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|
|
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31.1
|
|
Certification of Andrew H. Reich pursuant
to Securities Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of
2002
|
|
|
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32.1
|
|
Certification of Andrew H. Reich of Periodic
Financial Report under Section 906 of the Sarbanes-Oxley Act of 2002
|
|
|
|
101.INS
|
|
XBRL Instance Document
|
|
|
|
101.SCH
|
|
XBRL Taxonomy Extension Schema
|
|
|
|
101.CAL
|
|
XBRL Taxonomy Extension Calculation
Linkbase
|
|
|
|
101.DEF
|
|
XBRL Taxonomy Extension Definition Linkbase
|
|
|
|
101.LAB
|
|
XBRL Taxonomy Extension Label Linkbase
|
|
|
|
101.PRE
|
|
XBRL Taxonomy Extension Presentation
Linkbase
|
*
|
Portions of the indicated document have been afforded confidential treatment and have been filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the General Rules and Regulations promulgated under the Securities Exchange Act of 1934, as amended.
|
**
|
Management contract or compensatory plan or arrangement.
|
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