SIEBERT FINANCIAL CORP — Interim / Quarterly Report 2014

Nov 14, 2014

10-Q 1 n14459_10-q.htm QUARTERLY REPORT

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.
20549

FORM 10-Q

| (Mark One) — x | QUARTERLY REPORT PURSUANT
TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
| --- | --- | --- |
| | For the quarterly period ended | September
30, 2014 |
| or | | |
| o | TRANSITION REPORT PURSUANT
TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
| | For the transition period from
____to ____ | |
| | Commission file number | 0-5703 |
| Siebert Financial Corp. | | |
| (Exact Name of
Registrant as Specified in its Charter) | | |

| New
York | |
| --- | --- |
| (State or Other Jurisdiction of Incorporation or Organization) | (I.R.S. Employer
Identification No.) |

| 885
Third Avenue, New York, NY 10022 |
| --- |
| (Address of Principal
Executive Offices) (Zip Code) |
| (212)
644-2400 |
| (Registrant’s Telephone
Number, Including Area Code) |
| (Former Name, Former
Address and Former Fiscal Year, if Changed Since Last Report) |

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes x No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer o	Accelerated Filer o
Non-Accelerated Filer o	Smaller Reporting Company x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes o No x

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: As of November 9, 2014, there were 22,085,126 shares of Common Stock, par value $.01 per share, outstanding.

1

Unless the context otherwise requires, the “Company” shall mean Siebert Financial Corp. and its wholly owned subsidiaries and “Siebert” shall mean Muriel Siebert & Co., Inc., a wholly owned subsidiary of the Company.

Certain statements contained in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” below and elsewhere in this report, as well as oral statements that may be made by us or by our officers, directors or employees acting on our behalf, that are not statements of historical or current fact constitute “forward looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward looking statements involve risks and uncertainties and known and unknown factors that could cause our actual results to be materially different from our historical results or from any future results expressed or implied by such forward looking statements, including, without limitation: changes in general economic and market conditions; changes and prospects for changes in interest rates; fluctuations in volume and prices of securities; demand for brokerage and investment banking services; competition within and without the discount brokerage business, including the offer of broader services; competition from electronic discount brokerage firms offering greater discounts on commissions than we do; the prevalence of a flat fee environment; decline in participation in corporate or municipal finance underwritings; limited trading opportunities; the method of placing trades by our customers; computer and telephone system failures; our level of spending on advertising and promotion; trading errors and the possibility of losses from customer non-payment of amounts due; other increases in expenses and changes in net capital or other regulatory requirements. We undertake no obligation to publicly release the results of any revisions to these forward-looking statements which may be made to reflect events or circumstances after the date when such statements were made or to reflect the occurrence of unanticipated events. An investment in us involves various risks, including those mentioned above and those which are detailed from time to time in our Securities and Exchange Commission filings.

2

Part I - FINANCIAL INFORMATION

Item 1. Financial Statements

Siebert Financial Corp. & Subsidiaries Condensed Consolidated Statements of Financial Condition

| | September
30, 2014 | | | |
| --- | --- | --- | --- | --- |
| | (Unaudited) | | | |
| ASSETS | | | | |
| Cash and cash equivalents | $ 8,280,000 | $ | 15,424,000 | |
| Cash equivalents – restricted | 1,532,000 | | 1,532,000 | |
| Receivable from brokers | 879,000 | | 1,105,000 | |
| Securities owned, at fair value | 433,000 | | 406,000 | |
| Furniture, equipment and leasehold improvements,
net | 584,000 | | 712,000 | |
| Investment in and advances to affiliates | 8,075,000 | | 8,022,000 | |
| Prepaid expenses and other assets | 526,000 | | 751,000 | |
| Intangibles, net | 10,000 | | 18,000 | |
| | $ 20,319,000 | $ | 27,970,000 | |
| LIABILITIES AND STOCKHOLDERS’ EQUITY | | | | |
| Liabilities: | | | | |
| Accounts payable and accrued liabilities | $ 2,715,000 | $ | 2,861,000 | |
| Contingencies (Note 9) | | | | |
| Stockholders’ equity: | | | | |
| Common stock, $.01 par value; 49,000,000
shares authorized, 23,211,846 shares issued and 22,085,126 shares outstanding
at September 30, 2014 and December 31, 2013, respectively | 232,000 | | 232,000 | |
| Additional paid-in capital | 19,490,000 | | 19,490,000 | |
| Retained earnings | 2,642,000 | | 10,147,000 | |
| Less: 1,126,720 shares of treasury stock,
at cost at September 30, 2014 and December 31, 2013, respectively | (4,760,000 | ) | (4,760,000 | ) |
| | 17,604,000 | | 25,109,000 | |
| | $ 20,319,000 | $ | 27,970,000 | |

See notes to condensed consolidated financial statements.

3

Siebert Financial Corp. & Subsidiaries Condensed Consolidated Statements of Operations (Unaudited)

| | Three
Months Ended | | | | | | Nine
Months Ended | | | | | |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| | September
30, | | | | | | September
30, | | | | | |
| | 2014 | | | 2013 | | | 2014 | | | 2013 | | |
| Revenues: | | | | | | | | | | | | |
| Commissions and fees | $ | 2,410,000 | | $ | 2,767,000 | | $ | 8,027,000 | | $ | 8,656,000 | |
| Investment banking | | 558,000 | | | 464,000 | | | 1,703,000 | | | 1,945,000 | |
| Trading profits | | 472,000 | | | 420,000 | | | 1,104,000 | | | 1,562,000 | |
| Interest and dividends | | 14,000 | | | 15,000 | | | 43,000 | | | 47,000 | |
| | | 3,454,000 | | | 3,666,000 | | | 10,877,000 | | | 12,210,000 | |
| Expenses: | | | | | | | | | | | | |
| Employee compensation and benefits | | 1,942,000 | | | 1,994,000 | | | 5,875,000 | | | 6,502,000 | |
| Clearing fees, including floor brokerage | | 441,000 | | | 595,000 | | | 1,416,000 | | | 1,854,000 | |
| Professional fees | | 1,086,000 | | | 2,107,000 | | | 3,421,000 | | | 4,060,000 | |
| Loss related to arbitration settlement | | 0 | | | | | | 4,300,000 | | | | |
| Advertising and promotion | | 74,000 | | | 122,000 | | | 196,000 | | | 297,000 | |
| Communications | | 236,000 | | | 317,000 | | | 758,000 | | | 992,000 | |
| Occupancy | | 206,000 | | | 266,000 | | | 658,000 | | | 782,000 | |
| Other general and administrative | | 529,000 | | | 651,000 | | | 1,756,000 | | | 1,760,000 | |
| | | 4,514,000 | | | 6,052,000 | | | 18,380,000 | | | 16,247,000 | |
| (Loss) income from equity investees | | (396,000 | ) | | 742,000 | | | (2,000 | ) | | (329,000 | ) |
| Net loss | ($ | 1,456,000 | ) | ($ | 1,644,000 | ) | ($ | 7,505,000 | ) | ($ | 4,366,000 | ) |
| Net loss per
share of common stock – | | | | | | | | | | | | |
| Basic and diluted | | | | | | | | | | | | |
| | ($ | .07 | ) | ($ | .07 | ) | ($ | .34 | ) | ($ | .20 | ) |
| Weighted
average shares outstanding - | | | | | | | | | | | | |
| Basic and diluted | | 22,085,126 | | | 22,085,126 | | | 22,085,126 | | | 22,088,065 | |

See notes to condensed consolidated financial statements.

4

Siebert Financial Corp. & Subsidiaries Condensed Consolidated Statements of Cash Flows (Unaudited)

	Nine Months Ended
	September 30,
	2014			2013
Cash flows from operating activities:
Net loss	($	7,505,000	)	($	4,366,000	)
Adjustments to reconcile net loss to net
cash (used in) provided by operating activities:
Depreciation and amortization		284,000			96,000
Loss from equity investees		2,000			329,000
Distribution from
equity investee		13,000			1,212,000
Changes in:
Securities owned, at fair value		(27,000	)		(73,000	)
Receivable from brokers		226,000			894,000
Prepaid expenses and other assets		225,000			202,000
Accounts payable and accrued liabilities		(146,000	)		1,746,000
Net cash (used in) provided by operating
activities		(6,928,000	)		40,000
Cash flows from investing activities:
Purchase of furniture, equipment and
leasehold improvements		(148,000	)		(437,000	)
Distribution from equity investee		—			6,000
(Advances) collection to equity investee		(68,000	)		(104,000	)
Net cash used in investing activities		(216,000	)		(535,000	)
Cash flows from financing activities:
Purchase of treasury shares		—			(19,000	)
Net cash used in financing activities		—			(19,000	)
Net decrease in cash and cash equivalents		(7,144,000	)		(514,000	)
Cash and cash equivalents - beginning of
period		15,424,000			18,902,000
Cash and cash equivalents - end of period	$	8,280,000		$	18,388,000
Supplemental cash flow disclosures:
Cash paid for:
Income taxes	$	51,000

See notes to condensed consolidated financial statements.

5

Siebert Financial Corp. & Subsidiaries

Notes to Condensed Consolidated Financial Statements Nine Months Ended September 30, 2014 and 2013 (Unaudited)

| 1. | Organization and Basis of
Presentation: |
| --- | --- |
| | The consolidated
financial statements include the accounts of Siebert Financial Corp. (the
“Company”) and its wholly owned subsidiaries Muriel Siebert & Co., Inc.
(“Siebert”) and Siebert Women’s Financial Network, Inc. (“WFN”). All material
intercompany balances and transactions have been eliminated. Investment in
two entities in which the Company has ownership interests of 49% and 33.33%,
respectively, are accounted for by the equity method and included in
investment in and advances to affiliates in the consolidated statements of
financial condition. |
| | 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, 2013 has been derived from the audited consolidated statements
of financial condition at that date, but does not include all information and
footnotes required by U.S. GAAP for complete financial statements. These
condensed consolidated financial statements should be read in conjunction
with the consolidated financial statements included in the Company’s Annual
Report on Form 10-K for the year ended December 31, 2013. Because of the
nature of the Company’s business, the results of operations for the three and
nine months ended September 30, 2014 are not necessarily indicative of
operating results for the full year. |
| 2. | Securities: |
| | Securities owned are
carried at fair value with realized and unrealized gains and losses reflected
in trading profits. Siebert clears all its security transactions through
unaffiliated clearing firms on a fully disclosed basis. Accordingly, Siebert
does not hold funds or securities for, or owe funds or securities to, its
customers. Those functions are performed by the clearing firms. |
| 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 prices that are observable, either directly or indirectly, and
reasonably available. |

6

| Level 3 – Unobservable
inputs which reflect the assumptions that management develops based on
available information about the assumptions market participants would use in
valuing the asset or liability. |
| --- |
| The classification of
financial instruments valued at fair value at September 30, 2014 is as
follows: |

Financial Instruments	Level 1
Cash equivalents	$ 9,183,000
Securities	433,000
Total	$ 9,616,000

| | Cash equivalents
primarily represent investments in money market funds. Securities consist of
common stock valued on the last business day of the period at the last
available reported sales price on the primary securities exchange (Level 1).
As of September 30, 2014, the Company did not hold any Level 2 or Level 3
financial instruments. |
| --- | --- |
| 4. | Per Share Data: |
| | Basic
earnings (loss) per share is calculated by dividing net income (loss) by the
weighted average outstanding common shares during the period. Diluted
earnings per share is calculated by dividing net income by the number of
shares outstanding under the basic calculation and adding all dilutive
securities, which consist of options. The Company incurred a net loss for the
three and nine months ended September 30, 2014 and September 30, 2013
respectively. Accordingly, basic and diluted net loss per common share are
the same for each period as the effect of stock options is anti-dilutive.
Shares of underlying stock options not included in the diluted computation
amounted to 265,000 at September 30, 2014 and 375,000 at September 30, 2013. |
| 5. | Net Capital: |
| | Siebert is subject to
the SEC’s Uniform Net Capital Rule (Rule 15c3-1), which requires the
maintenance of minimum net capital. Siebert has elected to use the
alternative method, permitted by the Rule, which requires that Siebert
maintain minimum net capital, as defined, equal to the greater of $250,000 or
two percent of aggregate debit balances arising from customer transactions,
pursuant to the Rule. As of September 30, 2014, Siebert had net capital of
approximately $6,142,000 as compared with net capital requirements of
$250,000. Siebert claims exemptions from the reserve requirement under
section 15c3-3(k)(2)(ii). |
| 6. | Revenue: |
| | Commission
revenues and related clearing expenses are recorded on a trade-date basis.
Fees, consisting principally of revenue participation with the Company’s
clearing broker in distribution fees and interest, are recorded as earned. |
| | Trading
profits 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. |

7

| | Investment
banking revenue 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. |
| --- | --- |
| | Interest
is recorded on an accrual basis and dividends are recorded on the ex-dividend
date. |
| 7. | Capital Transactions: |
| | On
January 22, 2008, the Board of Directors of the Company authorized a buy back
of up to 300,000 shares of common stock. Shares will be purchased from
time to time, at management’s discretion, in the open market and in private
transactions. During the nine months ended September 30, 2014, there were no
shares purchased. |
| | During
the nine months ended September 30, 2014, 25,000 employee stock options
expired in June 2014 with an exercise price of $4.04 and 60,000 stock options
were cancelled in January 2014 at an exercise price of $3.05 with the passing
of Director Leonard M. Leiman. At September 30, 2014, there are 265,000
outstanding options at a weighted average exercise price of $3.02, which were
fully vested and exercisable. As of September 30, 2014, there was no
unrecognized compensation cost. |
| 8. | Investment in and Advances to
Affiliates: |
| | Siebert, Brandford, Shank &
Co., L.L.C. (“SBS”) |
| | During the nine months ended September 30, 2014, Siebert held a 49% ownership interest in SBS
which is engaged in municipal bond underwritings (see note 12). Income or loss from SBS is considered to be integral to
Siebert’s operations and material to its results of operations. See note 13 for a description of a subsequent event in
which Siebert and the other members of SBS contributed their SBS membership interests into a newly formed entity in exchange
for equal percentage interests in the new entity and then Siebert sold substantially all of the assets of its capital markets
business to the newly formed entity. |
| | Summarized financial
data of SBS is set forth below. |

2014		2013
Total assets
including secured demand note of $1,200,000 due from Siebert	25,802,000
Total
liabilities including subordinated liabilities of $1,200,000 due to Siebert	9,905,000
Total members’
capital	15,897,000
Regulatory
minimum net capital requirement	250,000
Nine months
ended:
Total revenues	16,661,000		16,991,000
Net income
(loss)	8,000		(380,000	)
Three months
ended:
Total revenues	4,277,000		7,962,000
Net (loss)
income	(802,000	)	1,562,000

| Siebert charged SBS
$75,000 for the nine months ended September 30, 2014 and 2013 respectively,
and $25,000 for the three months ended September 30, 2014 and 2013,
respectively, for general and administrative services, which Siebert believes
approximates the cost of furnishing such services. |
| --- |
| Siebert’s share of net
(loss) income for the three months ended September 30, 2014 and 2013 amounted
to ($393,000) and $765,000, respectively, and for the nine months ended
September 30, 2014 and 2013 amounted to $4,000 and ($186,000), respectively. |

8

| Siebert received
distributions from SBS of $13,000 during the nine months ended September 30,
2014, and Siebert’s share of undistributed earnings from SBS amounted to
$7,793,000 at September 30, 2014. Such amount may not be immediately
available for distribution to Siebert for various reasons including the
amount of SBS’s available cash, the provisions of the agreement among Siebert
and the principals of SBS and SBS’s continued compliance with its regulatory
and net capital requirements. |
| --- |
| SBS Financial Products Company, LLC
(“SBSFPC”) |
| The Company has a 33.33% ownership interest in, and the two
individual principals of SBS have an aggregate 66.66% ownership interest in,
SBSFPC which engages in derivatives transactions related to the municipal underwriting
business (see note 12). As of September 30, 2014, SBSFPC’s
operations were being phased out. |
| Summarized financial data of SBSFPC is set forth
below. |

2014		2013
Total assets	551,000
Total liabilities	—
Total members’ capital	551,000
Nine months ended:
Total revenues	0		(226,000	)*
Net loss	(18.000	)	(430,000	)
Three months ended:
Total revenues	0		(18,000	)*
Net loss	(7,000	)	(70,000	)
*Negative balance was attributable to unrealized
loss on derivative contracts.

| | The Company’s share of net
loss of SBSFPC for the three months ended September 30, 2014 and 2013
amounted to ($3,000) and ($23,000), respectively. The Company’s share of net
income (loss) of SBSFPC for the nine months ended September 30, 2014 and 2013
amounted to ($6,000) and ($143,000), respectively. |
| --- | --- |
| | The Company did not receive a
distribution from SBSFPC during the nine months ended September 30, 2014. |
| | In
July 2013, as a result of the filing of a bankruptcy petition by the City of
Detroit, SBSFPC unwound certain derivative contracts with a financial
institution pursuant to the terms of the contracts. The contracts were
recorded as liabilities with a carrying value of $123,063,000. In connection
therewith, SBSFPC assigned certain derivative contracts with the City of
Detroit to the financial institution, which were recorded as assets with a
carrying value of $123,063,000. No gain or loss was recognized by SBSFPC as a
result of the unwinding and assignment of these derivative contracts and
SBSFPC has no continuing obligations or rights with respect to the derivative
contracts. During the quarter ended March 31, 2013, SBSFPC incurred a loss of
$241,000 on the write-down in value of the derivative contracts with the City
of Detroit to adjust their carrying value to the carrying value of the
derivative contracts with the financial institution. |
| 9. | Contingencies and Commitments: |
| | 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
counterclaims in the arbitration. Pursuant to the settlement, the Company
paid $4,300,000 |

9

| | to the former employee,
and all claims and counterclaims have been dismissed and released. The
accompanying financial statements for the nine months ended September 30,
2014 reflect a charge to give effect to the settlement. |
| --- | --- |
| | Retail customer transactions are cleared through
clearing brokers on a fully disclosed basis. If customers do not fulfill
their contractual obligations, the clearing broker may charge Siebert for any
loss incurred in connection with the purchase or sale of securities at prevailing
market prices to satisfy the customer obligations. Siebert regularly monitors
the activity in its customer accounts for compliance with its margin
requirements. Siebert is exposed to the risk of loss on unsettled customer
transactions if customers are unable to fulfill their contractual
obligations. There were no material losses for unsettled customer
transactions for the nine months ended September 30, 2014 and 2013. |
| | Siebert is party to certain claims, suits and
complaints arising in the ordinary course of business. In the opinion of
management all such claims, suits and complaints are without merit, or
involve amounts which would not have a material effect on the financial
position or results of operations of the Company. |
| | Siebert
is party to a Secured Demand Note Collateral Agreement, as amended on July
29, 2014, with SBS which obligates Siebert to lend SBS, on a subordinated
basis, up to $1,200,000. The secured demand note payable held by SBS and a
related $1,200,000 receivable due from SBS are included in investments in and
advances to equity investees in the accompanying condensed consolidated
statements of financial condition. Amounts that Siebert is obligated to lend
under this arrangement are collateralized by cash equivalents of $1,532,000.
Any amounts loaned will bear interest at 4% per annum and are repayable on
August 31, 2015. |
| | In July 2013, the Company extended its fully disclosed
clearing agreement with its clearing broker through July 2017. |
| 10. | Income Taxes: |
| | No
tax benefit has been recognized for the loss in the 2014 and 2013 periods as
the Company has provided a valuation allowance to fully reserve the related
deferred tax asset as realization of such asset is not considered more likely
than not due to cumulative losses incurred by the Company and its
subsidiaries during the prior three years. |
| 11. | Reclassification: |
| | For
the three and nine months ended September 30, 2013, the Company previously
reported various minimum state taxes based on capital as income taxes on the
condensed consolidated statement of operations. The Company has reclassified
such taxes to general and administrative expenses to conform to the 2014
presentation. |
| 12. | Related Parties: |
| | Effective September 16, 2013, an
individual having 25.5% ownership interest in SBS and 33.33% ownership interest in SBSFPC became the company’s chief
executive officer (See note 8). |
| 13. | Subsequent Event: |
| | On November 4, 2014, Siebert and the other members of SBS contributed their SBS membership
interests into a newly formed Delaware limited liability company, Siebert Brandford Shank Financial, L.L.C.
(“SBSF”), in exchange for the same percentage interests in SBSF. On the same day 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 |

10

| |
| --- |
| 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 will be 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 GAAP 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 payable in full on March 1, 2021. |
| Item 2. Management’s Discussion and
Analysis of Financial Condition and Results of Operations |
| This discussion should
be read in conjunction with our audited consolidated financial statements as
of and for the year ended December 31, 2013, and the unaudited condensed
consolidated financial statements and the notes thereto contained elsewhere
in this Quarterly Report. |
| Business Environment |
| Our
working capital is invested primarily in money market funds, so that
liquidity has not been materially affected. The financial crisis did have the
effect of reducing participation in the securities market by our retail and
institutional customers, which had an adverse effect on our revenues. The
stock market has improved in the nine months ended September 30, 2014,
however our revenue has not improved during this period. Our affiliate,
Siebert, Brandford, Shank & Co., L.L.C. (“SBS”) had a gain for the
current nine months period of approximately $8,000 as compared to a loss of
$380,000 for the same period last year. This
resulted in a gain to the Company of
$4,000 for the current nine month period. Our expenses include the
costs and loss related to an arbitration proceeding commenced by a former
employee following the termination of his employment which was settled in
July 2014. The costs of defense, which are included as professional expenses
during 2014 and 2013 periods and related loss on settlement for the
period ended September 30, 2014, have adversely affected the Company’s result
of operations. Competition in the brokerage industry remains intense. |
| The following table sets forth certain metrics for the three and nine months ended September
30, 2014 and 2013, respectively, which we use in evaluating our business. |

Retail Customer Activity:	For the Three Months ended September 30, — 2014	2013	For the Nine Months ended September 30, — 2014	2013
Total
retail trades:	65,595	80,693	213,444	256,069
Average commission per retail trade:	19.57	$ 22.48	19.82	$ 23.56
	As of September 30,
Retail customer balances:	2014	2013
Retail customer net worth (in billions):	$ 7.3	$ 6.9
Retail customer money market fund value (in
billions):	$ 1.0	$ 1.0
Retail customer margin debit balances (in
million):	$ 241.3	$ 198.1
Retail customer accounts with positions:	33,799	38,160

11

Description:

| • | Total retail trades represent retail trades that generate
commissions. |
| --- | --- |
| • | Average commission per retail trade represents the average commission
generated for all types of retail customer trades. |
| • | Retail customer net worth represents the total value of securities
and cash in the retail customer accounts before deducting margin debits. |
| • | Retail customer money market fund value represents all retail
customers accounts invested in money market funds. |
| • | Retail customer margin debits balances represent credit extended to
our customers to finance their purchases against current positions. |
| • | Retail customer accounts with positions represent retail customers
with cash and/or securities in their accounts. |

Like other securities firms, we are directly affected by general economic and market conditions including fluctuations in volume and prices of securities, changes and prospects for changes in interest rates and demand for brokerage and investment banking services, all of which can affect our relative profitability. In periods of reduced market activity, profitability is likely to be adversely affected because certain expenses, including salaries and related costs, portions of communications costs and occupancy expenses remain relatively fixed. Earnings, or loss, for any period should not be considered representative of any other period.

Recent Developments

On January 23, 2008, the Board of Directors of the Company authorized a buy back of up to 300,000 shares of common stock. Shares will be purchased from time to time, in our discretion, in the open market and in private transactions. During the nine months ended September 30, 2014, the Company did not purchase any shares.

On November 4, 2014, Siebert and the other members of Siebert, Brandford, Shank & Co., L.L.C. (“SBS”) contributed their SBS membership interests into a newly formed Delaware limited liability company, Siebert Brandford Shank Financial, L.L.C. (“SBSF”), in exchange for the same percentage interests in SBSF. On the same day 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.

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 will be 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 GAAP 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

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price in full on the fifth annual payment date, then the unpaid amount of the purchase price will be payable in full on March 1, 2021.

Critical Accounting Policies

We generally follow accounting policies standard in the brokerage industry and believe that our policies appropriately reflect our financial position and results of operations. Our management makes significant “estimates” that affect the reported amounts of assets, liabilities, revenues and expenses and the related disclosure of contingent assets and liabilities included in the financial statements. The estimates relate primarily to revenue and expense items in the normal course of business as to which we receive no confirmations, invoices, or other documentation at the time the books are closed for a period. We use our best judgment, based on our knowledge of these revenue transactions and expenses incurred, to estimate the amounts of such revenue and expense. Estimates are also used in determining the useful lives of intangible assets, and the fair market value of intangible assets and securities. Our management believes that its estimates are reasonable.

Results of Operations

We had net loss of $1,456,000 for the three months ended September 30, 2014 and net loss of $1,644,000 for the three months ended September 30, 2013.

Three Months Ended September 30, 2014 Compared to Three Months Ended September 30, 2013

Total revenues for the three months ended September 30, 2014 were $3.5 million, a decrease of $212,000 or 5.8% from the same period in 2013.

Commission and fee income for the three months ended September 30, 2014 was $2.4 million, a decrease of $357,000 or 12.9% from the same period in 2013 due to an decrease in retail trading volume.

Investment banking revenues for the three months ended September 30, 2014 were $558,000, an increase of $94,000 or 20.3% from the same period in 2013 due to our participation in more new issues in the debt capital markets.

Trading profits were $472,000 for the three months ended September 30, 2014, an increase of $52,000 or 12.4% from the same period in 2013 due to an overall increase in trading volume primarily in the debt markets.

Interest and dividends for the three months ended September 30, 2014 were $14,000, a decrease of $1,000 or 6.7% from the same period in 2013 primarily due to lower cash and cash equivalents balances from the previous year.

Total expenses for the three months ended September 30, 2014 were $4.5 million, a decrease of $1,538,000 or 25.4% from the same period in 2013.

Employee compensation and benefit expenses for the three months ended September 30, 2014 were $1.9 million, a decrease of $52,000 or 2.6% from the same period in 2013 due to a decrease in commission and bonus paid based on production in the capital markets and retail operations. We also had a reduction in head count from the previous year.

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Clearing and floor brokerage expenses for the three months ended September 30, 2014 were $441,000, a decrease of $154,000 or 25.9% from the same period in 2013 primarily due to the decrease in volume of trade executions for retail customers.

Professional fees for the three months ended September 30, 2014 were $1.1 million, a decrease of $1.0 million or 48.5% from the same period in 2013 primarily due to an decrease in legal fees relating to a dispute with a former employee.

Advertising and promotion expenses for the three months ended September 30, 2014 were $74,000, a decrease of $48,000 or 39.3% from the same period in 2013 due to a decrease in local media and print advertising.

Communications expense for the three months ended September 30, 2014, was $236,000, a decrease of $81,000 or 25.6% from the same period in 2013 due to a new phone system and phone vendor.

Occupancy expenses for the three months ended September 30, 2014 were $206,000, a decrease of $60,000 or 22.6% from the same period in 2013 due to our Palm Beach branch closing on March 31, 2014, reduction in our Jersey City branch operating expenses, and New York rent rebates as per our new lease.

Other general and administrative expenses for the three months ended September 30, 2014 were $529,000, a decrease of $122,000 or 18.7% from the same period in 2013 due to a decrease in travel and entertainment and registration fees.

Loss from Siebert’s equity investment in SBS, an entity in which Siebert holds an indirect 49% equity interest, for the three months ended September 30, 2014 was a loss of $393,000, as compared to net income of $765,000 from the same period in 2013 due to SBS participating in fewer senior managed or co-managed transactions. Loss from our equity investment in SBSFPC, an entity in which the company holds a 33.33% equity interest, for the three months ended September 30, 2014 was a loss of $3,000 as compared to a loss of $23,000 from the same period in 2013 due to the business winding down.

No tax benefit related to the pre-tax loss was recorded for the three months ended September 30, 2014 and September 30, 2013 due to the recording of a full valuation allowance to offset deferred tax assets based on recent losses and the likelihood of realization of such assets.

Nine Months Ended September 30, 2014 Compared to Nine Months Ended September 30, 2013

Total revenues for the nine months ended September 30, 2014 were $10.9 million, a decrease of $1.3 million or 10.9% from the same period in 2013.

Commission and fee income for the nine months ended September 30, 2014 was $8.0 million, a decrease of $629,000 or 7.3% from the same period in 2013 primarily due to a decrease in average commissions charged per trade and reduced retail and institutial trading volumes.

Investment banking revenues for the nine months ended September 30, 2014 were $1.7 million, a decrease of $242,000 or 12.4% from the same period in 2013 due to our participation in fewer issues in the equity and debt capital markets.

Trading profits for the nine months ended September 30, 2014 were $1.1 million, a decrease of $458,000 or 29.3% from the same period in 2013 due to an overall decrease in customer trading volume in the debt markets.

Interest and dividends for the nine months ended September 30, 2014 were $43,000, a decrease of $4,000 or 8.5% from the same period in 2013 primarily due to lower cash and cash equivalents balances from the previous year.

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Total expenses for the nine months ended September 30, 2014 were $18.4 million, an increase of $2.1 million or 13.1% from the same period in 2013.

Employee compensation and benefit expense for the nine months ended September 30, 2014 were $5.9 million, a decrease of $627,000 or 9.6% from the same period in 2013 due to a decrease in commissions paid based on production in the capital markets. We also had a reduction in head count from the previous year.

Clearing and floor brokerage expenses for the nine months ended September 30, 2014 were $1.4 million, a decrease of $438,000 or 23.6% from the same period in 2013, due to lower retail trading volumes.

Professional fees for the nine months ended September 30, 2014 were $3.4 million, a decrease of $639,000 or 15.7% from the same period in 2013 primarily due to a decrease in legal fees relating to a dispute with a former employee and a final settlement in the case totaling $4.3 million, which was recorded as a loss related to arbitration settlement on the condensed consolidated statement of operations.

Advertising and promotion expenses for the nine months ended September 30, 2014 were $196,000, a decrease of $101,000 or 34.0% from the same period in 2013 primarily due to a decrease in online advertising.

Communications expense for the nine months ended September 30, 2014 was $758,000, a decrease of $234,000 or 23.6% from the same period in 2013 due to a new phone system and phone vendor.

Occupancy expenses for the nine months ended September 30, 2014 were $658,000, a decrease of $124,000 or 15.9% from the same period in 2013 due to our Palm Beach branch closing on 3/31/14, reduction in our Jersey City branch operating expenses, and New York rent rebates as per our new lease.

Other general and administrative expenses for the nine months ended September 30, 2014 were $1.8 million, a decrease of $4,000 or 0.2% from the same period in 2013.

Income from Siebert’s equity investment in SBS, an entity in which Siebert holds an indirect 49% equity interest, for the nine months ended September 30, 2014 was a gain of $4,000, compared to a loss of $186,000 from the same period in 2013 due to SBS participating in more senior managed or co-managed transactions. Income from our equity investment in SBSFPC, an entity in which the company holds a 33.33% equity interest, for the nine months ended September 30, 2014 was a loss of $6,000 a as compared to a loss of $143,000 from the same period in 2013 due to the business winding down.

No tax benefit related to the pre-tax loss was recorded for the nine months ended September 30, 2014 due to the recording of a full valuation allowance to offset deferred tax assets based on recent cumulative losses and the likelihood of realization of such assets.

Liquidity and Capital Resources

Our assets are highly liquid, consisting generally of cash in money market funds. Our total assets at September 30, 2014 were $20.3 million. As of that date, we regarded $8.3 million, or 40.8%, of total assets as highly liquid.

Siebert is subject to the net capital requirements of the SEC, the Financial Industry Regulatory Authority (FINRA) and other regulatory authorities. At September 30, 2014, Siebert’s regulatory net capital was $6.1 million, $5.8 million in excess of its minimum capital requirement of $250,000.

On January 22, 2008, the Board of Directors of the Company authorized a buy back of up to 300,000 shares of common stock. During the nine months ended September 30, 2014 no shares were purchased.

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Siebert has entered into a Secured Demand Note Collateral Agreement with SBS under which Siebert is obligated to lend to SBS up to $1.2 million on a subordinated basis collateralized by cash equivalents of approximately $1.5 million as of September 30, 2014. Amounts pledged by Siebert under the facility are reflected on our balance sheet as “cash equivalents – restricted”. SBS pays Siebert interest on this amount at the rate of 4% per annum. The facility expires on August 31, 2015, at which time SBS is obligated to repay to Siebert any amounts borrowed by SBS thereunder.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Working capital is generally invested temporarily in dollar denominated money market funds. These investments are not subject to material changes in value due to interest rate movements.

Retail customer transactions are cleared through clearing brokers on a fully disclosed basis. If customers do not fulfill their contractual obligations, the clearing broker may charge Siebert for any loss incurred in connection with the purchase or sale of securities at prevailing market prices to satisfy the customers’ 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 and other counter-parties are unable to fulfill their contractual obligations. There were no material losses for unsettled customer transaction as of September 30, 2014.

Item 4. Controls and Procedures

We carried out an evaluation, under the supervision and with the participation of management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this report pursuant to Rule 13a-15(e) or Rule 15d-15(e) of the Securities Exchange of 1934, as amended. Based on that evaluation, our management, including the Chief Executive Officer and Chief Financial Officer, concluded that our disclosure controls and procedures are effective to ensure that the information we are required to disclose in reports that we file or submit under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission and to ensure that information required to be disclosed is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding timely disclosure.

There were no changes in our internal control over financial reporting that occurred during our most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Part II - OTHER INFORMATION

Item 1. Legal Proceedings

We are involved in various routine lawsuits of a nature we deem to be customary and incidental to our business. In the opinion of management, the ultimate disposition of such actions will not have a material adverse effect on the Company’s financial position or results of operations.

In July 2014, the Company entered into a settlement agreement with respect to a dispute with a former employee, which arose in a prior year. Pursuant to the settlement, the Company paid $4,300,000 to the former employee, and all claims and counterclaims have been dismissed and released.

Item 1A. Risk Factors

In addition to the other information set forth in this report, you should carefully consider the factors discussed in Part I, Item 1A. “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2013, which could materially affect our business, financial position and results of operations. There are no material changes from the risk

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factors set forth in Part I, Item 1A, “Risk Factors,” of our Annual Report on Form 10-K for the year ended December 31, 2013.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

On January 23, 2008, our Board of Directors authorized the repurchase of up to 300,000 shares of our common stock. Shares will be purchased from time to time, in our discretion, in the open market and in private transactions. There is no expiration date for our stock repurchase plan. We did not purchase any shares in the third quarter of 2014.

A summary of our repurchase activity for the three months ended September 30, 2014 is as follows:

Issuer Purchases of Equity Securities

Period — July 2014	Total Number Of Shares Purchased — --	Average Price Paid Per Share — --	129,137	170,863
August 2014	--	--	129,137	170,863
September 2014	--	--	129,137	170,863
Total			129,137	170,863

All of the purchases were made in open market transactions.

Item 6. Exhibits

| 31.1 | Certification of
Suzanne Shank pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as
adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
| --- | --- |
| 31.2 | Certification of Joseph
M. Ramos, Jr. pursuant to Exchange Act Rule 13a-14(a) and 15d-14(a), as
adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
| 32.1 | Certification of
Suzanne Shank of Periodic Financial Report under Section 906 of the
Sarbanes-Oxley Act of 2002. |
| 32.2 | Certification of Joseph
M. Ramos, Jr. of Periodic Financial Report under Section 906 of the
Sarbanes-Oxley Act of 2002. |

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SIGNATURES

Pursuant to the requirements 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/ Suzanne
Shank
	Suzanne Shank
	Chief Executive Officer
	(principal executive officer)
Dated: November 14, 2014
By:	/s/
Joseph M. Ramos, Jr.
	Joseph M. Ramos, Jr.
	Executive Vice President, Chief Operating Officer,
	Chief Financial Officer and Secretary
	(Principal financial and accounting officer)
Dated: November 14, 2014

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