SIEBERT FINANCIAL CORP.
2016 Annual Report
May 2017
Dear Shareholders:
The final month of 2016 marked a dramatic change for Siebert Financial Corp. (the “Company,”
“we,” “us,” and “our”). Effective on December 16, 2016, the Company completed the
transaction in which Kennedy Cabot Acquisition, LLC (“KCA”), managed and majority owned
by Gloria E. Gebbia, acquired over ninety (90%) percent of the Company’s common stock. On
December 16, 2016, the Company’s prior board of directors resigned and Gloria E. Gebbia,
Francis V. Cuttita, Charles Zabatta and Andrew H. Reich were appointed as the new Board of
Directors. Later in December 2016, Jerry M. Schneider, CPA, was appointed to the Board of
Directors and was appointed Chairman of the Audit Committee. In February 2017, the Board of
Directors appointed John J. Gebbia as a special advisor to the Board of Directors. In or around
February 2017, John M. Gebbia, previously the Chief Executive Officer and President of
Kennedy Cabot & Co., Richard Gebbia, the Chief Executive Officer and President of StockCross
Financial Services, Inc. and David Gebbia, the Chief Executive Officer of KCA Technologies,
LLC, who is overseeing the development of the firm’s ROBO technology, each became part of
the Muriel Siebert & Co., Inc. team. The Gebbia family’s leadership success includes the
purchase of Kennedy Cabot & Co. for approximately $7 million and the subsequent sale to TD
Bank for $160 million.
Immediately following the change in ownership, under the direction of our strong management
team and Andrew Reich, we began to execute the Company’s strategic business plan, including
streamlining the firm’s operation, rebuilding the firm’s technological infrastructure to prepare for
growth, relocating the firm’s call center and adjusting the firm’s cost structure. The results of
these efforts were reported in the Company’s Quarterly Report on Form 10-Q for the first quarter
of 2017. We are proud of those results and our being profitable in the first quarter of 2017.
2016 Financial Performance
As of the end of the 2016 fiscal year, the Company reported assets of $3.8 million, 71.5% of
which are highly liquid, held in cash and cash equivalents. Muriel Siebert & Co., Inc., our
wholly owned broker-dealer subsidiary, reported net capital more than 4 times greater than our
required regulatory minimum.
Our total revenues for 2016 were $9.8 million and the net loss for 2016 was $5.6 million, or
$0.25 per share, compared with 2015’s net loss of $2.87 million, or $0.13 per share.
Initiatives
We are almost halfway through 2017 and we have embarked on a number of projects to increase
our overall revenues. For our broker-dealer business, conducted through Muriel Siebert & Co.,
Inc., as reported in a Current Report on Form 8-K filed in May 2017, we executed a letter of
intent to acquire certain retail assets of our affiliate, StockCross Financial Services, Inc. We are
expecting that we will clear all required regulatory approvals and complete the acquisition before
the end of the year.
Our registered investment advisor, Siebert Investment Advisors, Inc., has commenced the
process of analyzing our new “Robo” automated advisory system which we call
“advisorNEXT™.” The Company believes there are significant opportunities in the Robo arena
for the Company.
A Firm Legacy
Following the change of ownership, it is our goal to continue the storied legacy that Muriel
Siebert left behind. We intend to build upon that legacy. The Company continues to serve clients
throughout the United States and the world and our clients have remained loyal to us throughout
this transition. Muriel Siebert & Co., Inc. is relevant and active, serving its clients, maintaining
its position in the marketplace and proving its ongoing value and potential.
We will continue to build on and realize the value of the Siebert firm and its businesses in the
future while adhering to the principles and tenets adopted by Muriel Siebert from inception —
integrity, ethics, sound business practices, conservative management, investor security and fair
play. Additionally, I intend to continue my strong community leadership in philanthropic
activities which include raising over $16 million for breast and prostate cancer research for the
John Wayne Cancer Institute.
Finally, we thank our steadfast clients, fellow shareholders, and loyal employees. Looking
ahead, we expect growth in our ability to service our clients.
We appreciate your trust and confidence.
Sincerely,
Gloria E. Gebbia
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
(Mark One)
xx ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended: December 31, 2016
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)
120 Wall Street, New York, NY
(Address of principal executive offices)
11-1796714
(I.R.S. Employer
Identification No.)
10005
(Zip Code)
(212) 644-2400
Registrant’s telephone number, including area code
Securities registered pursuant to Section 12(b) of the Exchange Act:
Title of each class
COMMON STOCK, PAR VALUE $.01 PER SHARE
Name of each exchange on which registered
THE NASDAQ CAPITAL MARKET
Securities registered under Section 12(g) of the Exchange Act:
NONE
(Title of class)
Indicate by check mark if the registrant is a well- known seasoned issuer, as defined in Rule 405 of the Securities
Act. YES o NO x
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the
Act. YES o NO x
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 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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained
herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x
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. (Check one):
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 Act). YES o NO x
The aggregate market value of the Common Stock held by non-affiliates of the registrant (based upon the
last sale price of the Common Stock reported on the NASDAQ Capital Market as of the last business day of the
registrant’s most recently completed second fiscal quarter (June 30, 2016), was $2,625,647.
The number of shares of the registrant’s outstanding Common Stock, as of March 24, 2017, was
22,085,126 shares.
Documents Incorporated by Reference: None.
Special Note Regarding Forward-Looking Statements
Statements in this Annual Report on Form 10-K, as well as oral statements that may be made by the
Company or by officers, directors or employees of the Company acting on the Company’s 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 the actual results of the Company to be materially different from
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; changes in demand for brokerage services; competition
within and without the brokerage business, including the offer of broader services; competition from electronic
discount brokerage firms offering greater discounts on commissions than the Company; the prevalence of a flat fee
environment; the method of placing trades by the Company’s customers; computer and telephone system failures;
the level of spending by the Company 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.
PART I
Item 1.
BUSINESS
General
Siebert Financial Corp. (“SFC”), a New York corporation, incorporated in 1934, is a holding company that
conducts its retail discount brokerage business through its wholly-owned subsidiary, Muriel Siebert & Co., Inc.,
(“MSCO”) a Delaware corporation and a registered broker-dealer, and its investment advisory business through its
wholly-owned subsidiary Siebert Investment Advisors, Inc. (“SIA”) a New York corporation which is registered
with the Securities and Exchange Commission as a Registered Investment Advisor (“RIA”). For purposes of this
Annual Report on Form 10-K, the terms “Siebert,” “Company,” “we,” “us” and “our” refer to Siebert Financial
Corp., MSCO and SIA collectively, unless the context otherwise requires.
Our principal offices are located at 120 Wall Street, New York, New York 10005, and our phone number is
(212) 644-2400. Our Internet address is www.siebertnet.com. Our SEC filings are available through our website at
www.siebertnet.com, where you are able to obtain copies of the Company’s public filings free of charge. Our
common stock, par value $.01 per share (the “Common Stock”) trades on the NASDAQ Capital Market under the
symbol “SIEB.”
Recent Developments
In December 2016, pursuant to the terms of an Acquisition Agreement, dated September 1, 2016, as
amended (the “Acquisition Agreement”) by and among the Company, 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 the Company’s outstanding Common Stock. See discussion under “Historical Developments
- Change in Control.”
Effective December 16, 2016, upon the closing of the Acquisition Agreement, Patricia L. Francy, Nancy
Peterson Hearn, Jane H. Macon and Robert P. Mazzarella resigned as directors and Gloria E. Gebbia, Charles A.
Zabatta, Francis Cuttita and Andrew H. Reich were appointed as directors. Effective December 29, 2016, Jerry
Schneider, CPA, was appointed as a director of the Company and Chairman of the Audit Committee. In addition,
effective December 16, 2016, Joseph Ramos Jr. resigned from all offices he held with Siebert and Andrew H. Reich
was appointed Executive Vice President, Chief Operating Officer and Chief Financial Officer and Secretary of SFC
and Director, Chief Executive Officer, Chief Operating and Financial Officer of MSCO.
Effective February 7, 2017, John J. Gebbia, Gloria E. Gebbia’s husband, was appointed as an unsalaried
special advisor to the Company’s board of directors. John J. Gebbia commenced his employment in the brokerage
industry in 1959. In 1962, Mr. Gebbia became an executive vice president of Walston & Company. After becoming
CEO of Jesup & Lamont, an institutional brokerage firm, Mr. Gebbia purchased the company in 1983. Thereafter,
Mr. Gebbia owned various brokerage firms including Kennedy Cabot & Co. which was sold in 1997 to Toronto
Dominion Bank for $160,000,000. Mr. Gebbia through Gebbia Family controlled entities controls various
companies in the insurance, sports management and home building industries.
Following the Acquisition, the Company’s new owners and management have been focusing on improving
the Company’s results of operations by reducing costs and introducing new products.
Cost Improvement Efforts
Steps taken to increase cost efficiencies include closing the Company’s offices located at 885 Third
Avenue, New York, NY at the end of the lease for that location and relocating most of the functions that were
located there to newly leased space at 15 Exchange Place, Suite 615, Jersey City, New Jersey 07302 and moving our
principal executive offices to a space located at 120 Wall Street, New York, New York 10005. Prior to the
acquisition the Company closed its office in Beverly Hills, California. The Company intends to reopen an office in
Beverly Hills, California.
1
New management is continuing its analysis of various vendor contracts with a view to reducing costs.
Gloria E. Gebbia along with other members of the Gebbia family, control a privately owned broker dealer,
StockCross Financial Services, Inc. (“StockCross”). StockCross is a self-clearing discount broker dealer that has
many business lines that are similar to MSCO’s. New management is analyzing the business lines of StockCross and
MSCO in order to identify those lines of business where MSCO and StockCross may be able to realize certain
economies of scale and collective benefit which is intended to increase revenue and reduce relative costs for MSCO.
Management of the Company is currently exploring various alternatives to accomplish these goals.
In connection with such analysis and determination, Richard Gebbia and John M. Gebbia, Gloria E.
Gebbia’s sons, have both become registered as general securities principals of MSCO and remain in their executive
roles at StockCross. Richard Gebbia is a Director and the CEO and President of StockCross and John M. Gebbia is a
Director and the Executive Vice President of StockCross.
New Product
New management is working on developing and marketing a new “Robo” investment advisor platform
which will utilize a proprietary trading algorithm licensed from an affiliate, KCA Technologies, LLC, a wholly-
owned subsidiary of Kennedy Cabot Acquisition, LLC. The Company, consistent with industry developments,
intends to offer access to this technology to its customers as a registered investment advisor.
The Company believes that its Robo investment advisor platform will provide clients with a cost-efficient,
competitively priced, easy to use automated wealth management solution intended to maximize portfolio returns
based on a client’s specific risk tolerance. The platform utilizes Nobel Prize winning Modern Portfolio Theory
techniques to create optimal portfolios for each client. We will provide web and smartphone based tools to enable
our clients to monitor and interact with the Robo investment advisor platform’s automated portfolio manager
application. Access to the platform will be provided to clients that have established advisory accounts with SIA. It is
intended that clients utilizing the Robo investment advisor platform will also have access to traditional wealth
managers to either enhance or replace the Robo investment advisor platform where appropriate.
Modern Portfolio Theory optimizes expected portfolio returns for specific levels of risk. The technique is
referred to as Mean Variance Optimization (MVO) and it requires a series of highly complicated calculations in
which all possible combinations of the potential asset classes are evaluated to determine the optimal blend of
allocations for each individual client. Due to the complexity of the analysis, services like this have historically only
been available to clients with large account balances who were willing to pay high fees in excess of 1% of assets
under management. By combining state-of-the-art technology with rigorous quantitative research, we intend to
provide the same quality of service to clients with smaller account sizes at lower cost.
Research shows that historically, risk-optimized, diversified portfolios containing uncorrelated asset classes
outperform individual holdings. The Robo investment advisor platform selects low-cost, well-managed exchange
traded funds (ETF’s) and exchanged trade notes (ETN’s) that represent the asset classes that we believe will provide
our clients the necessary risk-adjusted exposure given current market conditions. In order to determine a client’s risk
tolerance, a prospective client answers a series of objective questions posed in the form of an interactive digital
interview. Once a client’s risk tolerance is determined, the Robo investment advisor platform algorithm will utilize
“Modern Portfolio Theory” to create a theoretically optimal allocation across a diverse selection of assets classes,
thus tailoring a portfolio to a client’s specific investment objectives and risk tolerance. The Robo investment advisor
platform program will continuously monitor client accounts and periodically adjust portfolios to address changes in
market and economic conditions.
The Company expects that beta testing of the Robo investment advisor platform will take approximately six
months to complete. The costs of developing the Robo investment advisor platform are being borne by the
Company’s affiliate and principal shareholder, Kennedy Cabot Acquisition, LLC. (“Acquisition”) and/or its
subsidiary, KCA Technologies, LLC. It is expected that licensing and related fees and expenses shall be charged by
Acquisition to the Company’s subsidiary, SIA. While specific licensing and related fees and expenses have not yet
been determined, they are expected to be consistent with industry norms. The Company believes that its customers
will be interested in the Robo investment advisor platform’s advisory and investment services that replace the
subjective personal choices of trading with non-subjective algorithmic based and directed trading replacing human
bias and subjective determinations with non-emotional calculable precision.
2
Business Overview
Muriel Siebert & Co., Inc.
Discount Brokerage and Related Services. MSCO became a discount broker on May 1, 1975 and the
Company believes that MSCO has been in business and a member of The New York Stock Exchange, Inc. (the
“NYSE”) longer than any other discount broker. In 1998, MSCO began to offer its customers access to their
accounts through SiebertNet, its Internet website. MSCO’s focus in its discount brokerage business is to serve retail
clients seeking a wide selection of quality investment services, including trading through a broker on the telephone,
through a wireless device or via the Internet, at commissions that are substantially lower than those of full-
commission firms. MSCO clears its securities transactions on a fully disclosed basis through National Financial
Services Corp. (“NFS”), a wholly owned subsidiary of Fidelity Investments. MSCO’s contract with NFS expires on
or about July 31, 2017. Management intends to negotiate a new contract with NFS and management expects to
realize economic benefit from the new contract with NFS.
MSCO serves investors who generally make their own investment decisions and seeks to assist its
customers in their investment decisions by offering a number of value added services, including easy access to
account information. MSCO’s representatives are available to assist customers with information via toll-free 800
service Monday through Friday between 7:30 a.m. and 7:30 p.m. Eastern Time. Customers have 24-hour access to
MSCO’s SiebertNet and Mobile Broker services.
Independent Retail Execution Services. MSCO and NFS monitor order flow in an effort to ensure that
customers are getting the best possible trade executions. MSCO does not make markets in securities, nor does it take
positions against customer orders.
MSCO’s equity orders are routed by NFS in a manner intended to afford MSCO’s customers the
opportunity for price improvement on all orders. MSCO also offers customers execution services through various
market centers for an additional fee, providing customers access to numerous market centers before and after regular
market hours.
Customers may also indicate online interest in buying or selling fixed income securities, including
municipal bonds, corporate bonds, mortgage-backed securities, government sponsored enterprises, unit investment
trusts or certificates of deposit. These transactions are serviced by registered representatives.
Retail Customer Service. Siebert believes that superior customer service enhances its ability to compete
with larger discount brokerage firms and therefore provides retail customers with personal service via toll-free
access to dedicated customer support personnel for all of its products and services. Customer service personnel are
located in each of Siebert’s offices. Siebert has retail offices in Jersey City, New Jersey, Boca Raton, Florida and
New York, New York. Siebert uses a proprietary Customer Relationship Management System that enables
representatives, no matter where located, to view a customer’s service requests and the response thereto. Siebert’s
telephone system permits the automatic routing of calls to the next available agent having the appropriate skill set.
Retirement Accounts. Siebert offers customers a variety of self-directed retirement accounts for which it
acts as agent on all transactions. Custodial services are provided through an affiliate of NFS, the firm’s clearing
agent, which also serves as trustee for such accounts. Each IRA, SEP IRA, ROTH IRA, 401(k) and KEOGH account
can be invested in mutual funds, stocks, bonds and other investments in a consolidated account. StockCross is a
qualified IRA custodian. Management intends to explore economies of scale and a relationship between the
Company and StockCross as an IRA Custodian.
Customer Financing. Customer margin accounts are carried through NFS which lends customers a portion
of the market value of certain securities held in the customer’s account. Margin loans are collateralized by these
securities. Customers also may sell securities short in a margin account, subject to minimum equity and applicable
margin requirements, and the availability of such securities to be borrowed. In permitting customers to engage in
margin, short sale or any other transaction, Siebert assumes the risk of its customers’ failure to meet their obligations
in the event of adverse changes in the market value of the securities positions. Both Siebert and NFS reserve the
right to set margin requirements higher than those established by the Federal Reserve Board.
3
Siebert has established policies with respect to maximum purchase commitments for new customers or
customers with inadequate collateral to support a requested purchase. Managers have some flexibility in the
allowance of certain transactions. When transactions occur outside normal guidelines, Siebert monitors accounts
closely until their payment obligations are completed; if the customer does not meet the commitment, Siebert takes
steps to close out the position and minimize any loss. In the last five years, Siebert has not had any significant losses
as a result of customers failing to meet commitments.
Information and Communications Systems. Siebert relies heavily on the data technology platform
provided by its clearing agent, NFS. This platform offers an interface to NFS’ main frame computing system where
all customer account records are kept and is accessible through Siebert’s data technology platform. Siebert’s systems
also utilize browser based access and other types of data communications. Siebert’s representatives use NFS
systems, by way of Siebert’s data technology platform, to perform daily operational functions which include trade
entry, trade reporting, clearing related activities, risk management and account maintenance.
Siebert’s data technology platform offers services used in direct relation to customer related activities as well as
support for corporate use. Some of these services include email and messaging, market data systems and third party
trading systems, business productivity tools and customer relationship management systems. Siebert’s offices are
connected to the office in Jersey City, New Jersey. Siebert’s data network is designed with redundancy in case a
significant business disruption occurs.
Siebert’s voice network offers a call center feature that can route and queue calls for certain departments within the
organization. Additionally, the system’s call manager offers reporting and tracking features which enable staff to
determine how calls are being managed, such as time on hold, call duration and total calls by agent.
To ensure reliability and to conform to regulatory requirements related to business continuity, Siebert maintains
backup systems and backup data. However, in the event of a wide-spread disruption, such as a massive natural
disaster, Siebert’s ability to satisfy the obligations to customers and other securities firms could be significantly
hampered or completely disrupted. For more information regarding Siebert’s Business Continuity Plan, please
review the Business Continuity Statement on our website at www.siebertnet.com or write to us at Muriel Siebert &
Co., Inc., Compliance Department, 15 Exchange Place, Jersey City, NJ 07302.
Website. Our website has design, navigation, and functionality features such as:
▪
Informative trading screens: Customers can stay in touch while trading, double-check balances,
positions and order status, see real time quotes, intraday and annual charts and news headlines –
automatically – as they place orders.
▪ Multiple orders: Customers can place as many as 10 orders at one time.
▪ Tax-lot trading: Our online equity order entry screen allows customers to specify tax lots which
display with cost basis and current gain/loss on a real-time positions page.
▪ Trailing stop orders: Customers can enter an order that trails the market as a percentage of share price
or with a flat dollar value and the system will execute their instructions automatically.
▪ Contingent orders: Customers can place One-Triggers-Two Bracket and One-Cancels-Other Bracket
orders.
▪ An easy-to-install desktop security program that may be installed to help protect against certain types
of online fraud such as “keylogging” and “phishing.”
MSCO intends to explore order flow payment issues in conformity with industry practices, providing best execution
for its customers.
Advertising, Marketing and Promotion
Siebert develops and maintains its retail customer base through internet advertising and social media.
Additionally, a significant number of the firm’s new accounts are developed directly from referrals by satisfied
customers.
4
Competition
Siebert encounters significant competition from full-commission, online and discount brokerage firms, as
well as from financial institutions, mutual fund sponsors and other organizations, many of which are significantly
larger and better capitalized than Siebert. Although there has been consolidation in the industry in both the online
and traditional brokerage business during recent years, Siebert believes that additional competitors such as banks,
insurance companies, providers of online financial and information services and others will continue to be attracted
to the online brokerage industry. Many of these competitors are larger, more diversified, have greater capital
resources, and offer a wider range of services and financial products than Siebert. Some of these firms are offering
their services over the Internet and have devoted more resources to and have more elaborate websites than Siebert.
Siebert competes with a wide variety of vendors of financial services for the same customers. Siebert believes that
its main competitive advantages are high quality customer service, responsiveness, cost and products offered, the
breadth of product line and excellent executions.
Regulation
The securities industry in the United States is subject to extensive regulation under both Federal and state
laws. The Securities and Exchange Commission (“SEC”) is the Federal agency charged with administration of the
Federal securities laws. Siebert is registered as a broker-dealer with the SEC, and is a member of the New York Stock
Exchange (“NYSE”) and the Financial Industry Regulatory Authority (“FINRA”). Much of the regulation of broker-
dealers has been delegated to self-regulatory organizations, principally FINRA and national securities exchanges such
as the NYSE, which is Siebert’s primary regulator with respect to financial and operational compliance. These self-
regulatory organizations adopt rules (subject to approval by the SEC) governing the industry and conduct periodic
examinations of broker-dealers. Securities firms are also subject to regulation by state securities authorities in the
states in which they do business. Siebert is registered as a broker-dealer in 50 states, and the District of Columbia.
The principal purpose of regulation and discipline of broker-dealers is the protection of customers and the
securities markets, rather than protection of creditors and stockholders of broker-dealers. The regulations to which
broker-dealers are subject cover all aspects of the securities business, including training of personnel, sales methods,
trading practices among broker-dealers, uses and safekeeping of customers’ funds and securities, capital structure of
securities firms, record keeping, fee arrangements, disclosure to clients, and the conduct of directors, officers and
employees. Additional legislation, changes in rules promulgated by the SEC and by self-regulatory organizations or
changes in the interpretation or enforcement of existing laws and rules may directly affect the method of operation
and profitability of broker-dealers. The SEC, self-regulatory organizations and state securities authorities may
conduct administrative proceedings which can result in censure, fine, cease and desist orders or suspension or
expulsion of a broker-dealer, its officers or its employees.
As a registered broker-dealer and FINRA member organization, Siebert is required by Federal law to
belong to the Securities Investor Protection Corporation (“SIPC”) which provides, in the event of the liquidation of a
broker-dealer, protection for securities held in customer accounts held by the firm of up to $500,000 per customer,
subject to a limitation of $250,000 on claims for cash balances. SIPC is funded through assessments on registered
broker-dealers. In addition, Siebert’s clearing firm NFS, has purchased from private insurers additional account
protection in the amount of $1 billion dollars in the event of liquidation up to the net asset value, as defined, of each
account. Stocks, bonds, mutual funds and money market funds are included at net asset value for purposes of SIPC
protection and the additional protection. Neither SIPC protection nor the additional protection insures against
fluctuations in the market value of securities.
Siebert is also authorized by the Municipal Securities Rulemaking Board (the “MSRB”) to effect
transactions in municipal securities on behalf of its customers and has obtained certain additional registrations with
the SEC and state regulatory agencies necessary to permit it to engage in certain other activities incidental to its
brokerage business.
Margin lending arranged by Siebert through third parties is subject to the margin rules of the Board of
Governors of the Federal Reserve System and the NYSE. Under such rules, broker-dealers are limited in the amount
they may lend in connection with certain purchases and short sales of securities and are also required to impose
certain maintenance requirements on the amount of securities and cash held in margin accounts. In addition, those
rules and rules of the Chicago Board Options Exchange govern the amount of margin customers must provide and
maintain in writing uncovered options.
5
Net Capital Requirements
As a registered broker-dealer MSCO is subject to the requirements of the Securities Exchange Act of 1934
(the “Exchange Act”) relating to broker-dealers, including, among other things, minimum net capital requirements
under the SEC Uniform Net Capital Rule (Rule 15c3-1), “best execution” requirements for client trades under SEC
guidelines and FINRA rules and segregation of client funds under the SEC Customer Protection Rule (Rule 15c3-3),
administered by the SEC and FINRA.
Net capital rules are designed to protect clients, counterparties and creditors by requiring a broker-dealer to
have sufficient liquid resources available to satisfy its financial obligations. Net capital is a measure of a broker-
dealers readily available liquid assets, reduced by its total liabilities other than approved subordinated debt. Under
the Uniform Net Capital Rule, a broker-dealer may not repay any subordinated borrowings, pay cash dividends or
make any unsecured advances or loans to its parent company or employees if such payment would result in a net
capital amount below required levels. Failure to maintain the required regulatory net capital may subject a firm to
suspension or expulsion by the NYSE and FINRA, certain punitive actions by the SEC and other regulatory bodies
ultimately may require a firm’s liquidation.
Under applicable regulations, MSCO is required to maintain regulatory net capital of at least $250,000. At
December 31, 2016 MSCO had net capital of $1.1 million. At December 31, 2015, MSCO had net capital of $8.1
million. During the last quarter of 2016 the Company paid cash dividends of approximately $4.5 million to its
shareholders. The source of the dividend payment was MSCO. MSCO claims exemption from the reserve
requirement under Section 15c3-3(k)(2)(ii).
Adjustments as audited by the Company’s auditors required certain adjustments which impacted the
Company’s year end performance and MSCO’s net capital. MSCO’s net capital as reported in its Focus Report filed
with FINRA for the period ended February 28, 2017 reflected that MSCO’s net capital was approximately $2
million with excess net capital of approximately $1.75 million.
As explained in SEC guidelines and FINRA rules, brokers are required to seek the “best execution”
reasonably available for their clients’ orders. In part, this requires brokers to use reasonable diligence so that the
price to the client is as favorable as possible under prevailing market conditions. MSCO sends client orders to a
number of market centers, including market makers and exchanges, which encourages competition and ensures
redundancy. For non-directed client orders, it is our policy to route orders to market centers based on a number of
factors that are more fully discussed in the Supplemental Materials of FINRA Rule 5310, including, where
applicable, but not necessarily limited to, speed of execution, price improvement opportunities, differences in price
disimprovement, likelihood of executions, the marketability of the order, size guarantees, service levels and support,
the reliability of order handling systems, client needs and expectations, transaction costs and whether the firm will
receive remuneration for routing order flow to such market centers. Price improvement is available under certain
market conditions and for certain order types and we regularly monitor executions to test for such improvement if
available.
Employees
As of March 23, 2017, we had approximately 31 employees, one of whom was a corporate officer. None of
our employees are represented by a union, and we believe that relations with our employees are good. Since new
management acquired control of the Company on December 16, 2016, 11 former employees are no longer
associated with the Company and 3 new employees have been hired, resulting in an annual net savings of
approximately $600,000.
Historical Developments
Former Capital Markets Division
Prior to November 2014, we operated a division referred to as Siebert Capital Markets Group (“SCM”),
through which the Company acted as a co-manager, underwriting syndicate member, or selling group member on a
wide spectrum of securities offerings for corporations and Federal agencies. The principal activities of SCM were
investment banking and institutional equity execution services. In addition, prior to November 2014, the Company
held a 49% membership interest in Siebert Brandford Shank & Co., LLC (“SBS”). The principal activities of SBS
were municipal investment banking.
6
On November 4, 2014, the Company and the other members of SBS contributed their SBS membership
interests to a newly formed Delaware limited liability company, Siebert Brandford Shank Financial, L.L.C. (“SBSF”)
(now known as Siebert Cisneros Shank Financial, LLC) in exchange for the same percentage membership interests in
SBSF. On the same day, the Company entered into an Asset Purchase Agreement (the “Capital Markets Agreement”)
with SBS and SBSF, pursuant to which the Company sold substantially all of the SCM assets to SBSF. Pursuant to
the Capital Markets Agreement, SBSF assumed post-closing liabilities relating to the transferred business and agreed
to pay to the Company an aggregate of $3,000,000, payable in annual installments commencing on March 1, 2016
and continuing on each of March 1, 2017, 2018, 2019 and 2020. The amount payable to the Company on each annual
payment date was equal to 50% of the net income attributable to the transferred business recognized by SBSF 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 was 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, amounted to $493,000 (the “SBSF Receivable”).
Transferred assets of SCM, consisted of customer accounts and goodwill, which had no carrying value to
the Company, and the Company recorded a gain on sale of $1,820,000, which reflected the fair value of the purchase
obligation. Such fair value 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%.
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, represented 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 had on the Company’s operations
and financial results and, accordingly, the Company’s share of operating results of the investment are reflected as
discontinued operations in the accompanying statement of operations. The investment was sold for approximately
$448,000 less than the carrying value of the investment at November 9, 2015, after adjusting the carrying value of
the investment for the Company’s equity in SBSF’s results of operations through such date. Such loss is also
included in discontinued operations.
The Company no longer has a relationship with its former affiliate, Siebert Cisneros Shank Financial, LLC.
Change in Control
In December 2016, pursuant to the terms of an acquisition agreement, dated September 1, 2016 (the
“Acquisition Agreement”), by and among the Company, Kennedy Cabot Acquisition, LLC (the “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 (the “Tender Offer Shares”) and 19,310,000 shares of Common
Stock owned by the Majority Shareholder (the “Majority Shares”). As a result of the acquisition of the Tender Offer
Shares and Majority Shares, effective December 16, 2016, KCA became the owner of 19,987,283 shares of
Common Stock representing approximately 90% of the Company’s outstanding Common Stock.
The purchase price paid by KCA in the tender offer to the minority shareholders for the Tender Offer
Shares was approximately $812,740. The purchase paid by KCA to the Majority Shareholder for the Majority
Shares was approximately $6,994,342 (the “Majority Share Purchase Price”). Of the amount payable to the Majority
Shareholder, $1 million was placed in escrow for one year and will be used to fund the Majority Shareholder’s
indemnification obligations to the Purchaser. In addition, the Majority Share Purchase Price is subject to adjustment
for fluctuations in SFC’s working capital and reduction for SFC’s transaction expenses in connection with the
Acquisition.
7
In addition, pursuant to the Acquisition Agreement, SFC’s Board of Directors declared a special dividend
in the amount of $.20 per share of outstanding Common Stock (an aggregate of $4,492,735) payable on October 24,
2016, to the shareholders of record on October 13, 2016.
In accordance with the Acquisition Agreement, pursuant to the terms of an assignment agreement (the
“Assignment”) dated December 16, 2016, SFC assigned to the Majority Shareholder, among other things, all of
SFC’s rights to receive the remaining amounts of the SBSF Receivables and the remaining amounts payable
pursuant to the SBSF Junior Note. The Company received approximately $610,000 from the Majority Shareholder
to adjust for the non-Estate controlled shares.
Item 1A.
RISK FACTORS
Securities market volatility and other securities industry risk could adversely affect our business
Most of our revenues are derived from our securities brokerage business. Like other businesses operating in
the securities industry, our business is directly affected by volatile trading markets, fluctuations in the volume of
market activity, economic and political conditions, upward and downward trends in business and finance at large,
legislation and regulation affecting the national and international business and financial communities, currency
values, inflation, market conditions, the availability and cost of short-term or long-term funding and capital, the
credit capacity or perceived credit-worthiness of the securities industry in the marketplace and the level and
volatility of interest rates. We also face risks relating to trading losses, losses resulting from the ownership or
underwriting of securities, counterparty failure to meet commitments, customer fraud, employee fraud, issuer fraud,
errors and misconduct, failures in connection with the processing of securities transactions and litigation. A
reduction in our revenues or a loss resulting from our ownership of securities or sales or trading of securities could
have a material adverse effect on our business, results of operations and financial condition. In addition, as a result
of these risks, our revenues and operating results may be subject to significant fluctuations from quarter to quarter
and from year to year.
Lower price levels in the securities markets may reduce our profitability.
Lower price levels of securities may result in (i) reduced volumes of securities, options and futures
transactions, with a consequent reduction in our commission revenues, and (ii) losses from declines in the market
value of securities we held in investment. In periods of low volume, our levels of profitability are further adversely
affected because certain of our expenses remain relatively fixed. Sudden sharp declines in market values of
securities and the failure of issuers and counterparties to perform their obligations can result in illiquid markets
which, in turn, may result in our having difficulty selling securities. Such negative market conditions, if prolonged,
may lower our revenues. A reduction in our revenues could have a material adverse effect on our business, results of
operations and financial condition.
There is intense competition in the brokerage industry.
Siebert encounters significant competition from full-commission, online and other discount brokerage
firms, as well as from financial institutions, mutual fund sponsors and other organizations many of which are
significantly larger and better capitalized than Siebert. Over the past several years, price wars and lower commission
rates in the discount brokerage business in general have strengthened our competitors. Siebert believes that such
changes in the industry will continue to strengthen existing competitors and attract additional competitors such as
banks, insurance companies, providers of online financial and information services, and others. Many of these
competitors are larger, more diversified, have greater capital resources, and offer a wider range of services and
financial products than Siebert. Siebert competes with a wide variety of vendors of financial services for the same
customers. Siebert may not be able to compete effectively with current or future competitors.
Some competitors in the discount brokerage business offer services which we may not. In addition, some
competitors have continued to offer flat rate execution fees that are lower than our published rates. Industry-wide
changes in trading practices are expected to cause continuing pressure on fees earned by discount brokers for the
sale of order flow. Continued or increased competition from ultra-low cost, flat fee brokers and broader service
offerings from other discount brokers could limit our growth or lead to a decline in Siebert’s customer base which
would adversely affect our business, results of operations and financial condition.
8
Failure to protect client data or prevent breaches of our information systems could expose us to liability or
reputational damage.
We are dependent on information technology networks and systems to securely process, transmit and store
electronic information and to communicate among our locations and with our clients and vendors. As the breadth
and complexity of this infrastructure continue to grow, the potential risk of security breaches and cyber-attacks
increases. As a financial services company, we are continuously subject to cyber-attacks by third parties. Any such
security breach could lead to shutdowns or disruptions of our systems and potential unauthorized disclosure of
confidential information. In addition, vulnerabilities of our external service providers and other third parties could
pose security risks to client information. The secure transmission of confidential information over public networks is
also a critical element of our operations.
In providing services to clients, we manage, utilize and store sensitive and confidential client data,
including personal data. As a result, we are subject to numerous laws and regulations designed to protect this
information, such as U.S. federal and state laws and foreign regulations governing the protection of personally
identifiable information. These laws and regulations are increasing in complexity and number, change frequently
and sometimes conflict. If any person, including any of our employees, negligently disregards or intentionally
breaches our established controls with respect to client data, or otherwise mismanages or misappropriates that data,
we could be subject to significant monetary damages, regulatory enforcement actions, fines and/or criminal
prosecution in one or more jurisdictions. Unauthorized disclosure of sensitive or confidential client data, whether
through systems failure, employee negligence, fraud or misappropriation, could damage our reputation and cause us
to lose clients. Similarly, unauthorized access to or through our information systems, whether by our employees or
third parties, including a cyber-attack by third parties who may deploy viruses, worms or other malicious software
programs, could result in negative publicity, significant remediation costs, legal liability, and damage to our
reputation and could have a material adverse effect on our results of operations. In addition, our liability insurance
might not be sufficient in type or amount to cover us against claims related to security breaches, cyber-attacks and
other related breaches.
Our advisory services subject us to additional risks.
We have provided investment advisory services to investors through our registered Registered Investment
Advisor, SIA. SIA intends to offer Robo advisory and investment services. The risks associated with these
investment advisory activities include those arising from possible conflicts of interest, unsuitable investment
recommendations, inadequate due diligence, inadequate disclosure and fraud. Realization of these risks could lead to
liability for client losses, regulatory fines, civil penalties and harm to our reputation and business.
We are subject to extensive government regulation.
Our business is subject to extensive regulation in the United States, at both the Federal and state level. We
are also subject to regulation by self–regulatory organizations and other regulatory bodies in the United States, such
as the SEC, the NYSE, FINRA and the MSRB. We are registered as a broker-dealer in 50 states and the District of
Columbia. The regulations to which we are subject as a broker-dealer cover all aspects of the securities business
including: training of personnel, sales methods, trading practices, uses and safe keeping of customers’ funds and
securities, capital structure, record keeping, fee arrangements, disclosure and the conduct of directors, officers and
employees. Failure to comply with any of these laws, rules or regulations, which may be subject to the uncertainties
of interpretation, could result in civil penalties, fines, suspension or expulsion and have a material adverse effect on
our business, results of operations and financial condition.
The laws, rules and regulations, as well as governmental policies and accounting principles, governing our
business and the financial services and banking industries generally have changed significantly over recent years and
are expected to continue to do so. We cannot predict which changes in laws, rules, regulations, governmental
policies or accounting principles will be adopted. Any changes in the laws, rules, regulations, governmental policies
or accounting principles relating to our business could materially and adversely affect our business, results of
operations and financial condition.
9
Legislation has and may continue to result in changes to rules and regulations applicable to our business, which
may negatively impact our business and financial results.
The Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”), enacted in
2010, requires many federal agencies to adopt new rules and regulations applicable to the financial services industry
and also calls for many studies regarding various industry practices. In particular, the Dodd-Frank Act gives the SEC
discretion to adopt rules regarding standards of conduct for broker-dealers providing investment advice to retail
customers. The U.S. Department of Labor (“DOL”) has enacted regulations changing the definition of who is an
investment advice fiduciary under the Employee Retirement Income Security Act of 1974 (ERISA) and how such
advice can be provided to account holders in retirement accounts such as 401(k) plans and Individual Retirement
Arrangements (IRAs). The DOL regulations will deem many of the investment, rollover and asset management
recommendations from us to our clients regarding their retirement accounts fiduciary “investment advice” under
ERISA. One of the most significant impacts on our business from the DOL regulations and related prohibited
transaction exemptions will be the impact on our fee and compensation practices. For example, the regulations make
investment advisors to retirement account clients subject to an ERISA fiduciary duty standard and the exemptions
seek to reduce conflicts of interest stemming from fee differentials and compensation incentives that could lead to a
misalignment of the interests of advisors and their retirement investor clients. The exemptions, when used, will also
require certain new client contracts, adherence to “impartial conduct standards” (including a requirement to act in
the “best interest” of retirement clients when providing investment advice), the adoption of related policies and
procedures and the making of extensive website and other disclosures to retirement investors and the DOL. One way
to comply is to use the best interest contract exemption in connection with certain advice activities, which will
subject us to an increased risk of class actions and other litigation and regulatory risks. Additional rulemaking or
legislative action could negatively impact our business and financial results. While we have not yet been required to
make other material changes to our business or operations as a result of the Dodd-Frank Act or other rulemaking or
legislative action, it is not certain what the scope of future rulemaking or interpretive guidance from the SEC,
FINRA, DOL, banking regulators and other regulatory agencies may be, how the courts and regulators might
interpret these rules and what impact this will have on our compliance costs, business, operations and profitability.
Our profitability could also be affected by new or modified laws that impact the business and financial
communities generally, including changes to the laws governing banking, the securities market, fiduciary duties,
conflicts of interest, taxation, electronic commerce, client privacy and security of client data.
We are subject to net capital requirements.
The SEC, FINRA, and various other securities and commodities exchanges and other regulatory bodies in
the United States have rules with respect to net capital requirements which affect us. These rules have the effect of
requiring that at least a substantial portion of a broker-dealer’s assets be kept in cash or highly liquid investments.
Our compliance with the net capital requirements could limit operations that require intensive use of capital, such as
underwriting or trading activities. These rules could also restrict our ability to withdraw our capital, even in
circumstances where we have more than the minimum amount of required capital, which, in turn, could limit our
ability to implement growth strategies. In addition, a change in such rules, or the imposition of new rules, affecting
the scope, coverage, calculation or amount of such net capital requirements, or a significant operating loss or any
unusually large charge against net capital, could have similar adverse effects.
Our customers may fail to pay us.
A principal credit risk to which we are exposed on a regular basis is that our customers may fail to pay for
their purchases or fail to maintain the minimum required collateral for amounts borrowed against securities positions
maintained by them. We cannot assure you that our practices and/or the policies and procedures we have established
will be adequate to prevent a significant credit loss.
An increase in volume on our systems or other events could cause them to malfunction.
During 2016, we received and processed approximately 61% of our trade orders electronically. This
method of trading is heavily dependent on the integrity of the electronic systems supporting it. While we have never
experienced a significant failure of our trading systems, heavy stress placed on our systems during peak trading
times could cause our systems to operate at unacceptably low speeds or fail altogether. Any significant degradation
10
or failure of our systems or the systems of third parties involved in the trading process (e.g., online and Internet
service providers, record keeping and data processing functions performed by third parties, and third party
software), even for a short time, could cause customers to suffer delays in trading. These delays could cause
substantial losses for customers and could subject us to claims from these customers for losses. There can be no
assurance that our network structure will operate appropriately in the event of a subsystem, component or software
failure. In addition, we cannot assure you that we will be able to prevent an extended systems failure in the event of
a power or telecommunications failure, an earthquake, terrorist attack, fire or any act of God. Any systems failure
that causes interruptions in our operations could have a material adverse effect on our business, financial condition
and operating results.
We rely on information processing and communications systems to process and record our transactions.
Our operations rely heavily on information processing and communications systems. Our system for
processing securities transactions is highly automated. Failure of our information processing or communications
systems for a significant period of time could limit our ability to process a large volume of transactions accurately
and rapidly. This could cause us to be unable to satisfy our obligations to customers and other securities firms, and
could result in regulatory violations. External events, such as an earthquake, terrorist attack or power failure, loss of
external information feeds, such as security price information, as well as internal malfunctions such as those that
could occur during the implementation of system modifications, could render part or all of these systems
inoperative.
Rapid market or technological changes may render our technology obsolete or decrease the attractiveness of our
products and services to our clients.
is characterized by significant structural changes,
We must continue to enhance and improve our technology and electronic services. The electronic financial
services industry
increasingly complex systems and
infrastructures, changes in clients’ needs and preferences and new business models. If new industry standards and
practices emerge and our competitors release new technology before us, our existing technology, systems and
electronic trading services may become obsolete or our existing business may be harmed. Our future success will
depend on our ability to:
•
•
•
•
enhance our existing products and services;
develop and/or license new products and technologies that address the increasingly sophisticated and
varied needs of our clients and prospective clients;
continue to attract highly-skilled technology personnel; and
respond to technological advances and emerging industry standards and practices on a cost-effective
and timely basis.
Developing our electronic services, our implementation and utilization of our use of the Robo investment
advisor platform and other technology entails significant technical and business risks. We may use new technologies
ineffectively or we may fail to adapt our electronic trading platform, information databases and network
infrastructure to client requirements or emerging industry standards. If we face material delays in introducing new
services, products and enhancements, our clients may forego the use of our products and use those of our
competitors.
Further, the adoption of new Internet, networking or telecommunications technologies may require us to
devote substantial resources to modify and adapt our services. We cannot assure you that we will be able to
successfully implement new technologies or adapt our proprietary technology and transaction-processing systems to
client requirements or emerging industry standards. We cannot assure you that we will be able to respond in a timely
manner to changing market conditions or client requirements.
We depend on our ability to attract and retain key personnel.
We are dependent upon our new and continuing senior management for our success and the loss of the
services of any of these individuals could significantly harm our business, financial condition and operating results.
11
We may be unable to realize the anticipated benefits of the change in control or it may take longer than
anticipated for us to realize any benefits from increased cost efficiencies or economies of scale, if at all.
Our realization of the benefits anticipated as a result of the Acquisition Agreement and change in control
will depend in part on the ability of our new management team, led by our new Executive Vice President and Chief
Financial Officer, Andrew H. Reich, to implement the Company’s business plan (See Recent Events). We cannot
assure shareholders that there will not be substantial costs associated with the transition process, the Company’s new
products or other negative consequences as a result of the change in management. These effects, including, but not
limited to, incurring unexpected costs or delays in connection with implantation of a modified business model, or the
failure of our business to perform as expected, could harm our results of operations.
Our principal shareholder has the ability to control key decisions submitted to a vote of our shareholders.
KCA currently owns approximately 90% of our outstanding common stock and Gloria E. Gebbia, who is a
director of the Company, and the managing member of KCA, has the power to elect the entire Board of Directors
and, except as otherwise provided by law or our Certificate of Incorporation or by-laws, to approve any action
requiring shareholder approval without a shareholders meeting.
There may be no public market for our common stock.
Only approximately 1,900,000 shares of common stock, or approximately 9% of our shares of Common
Stock outstanding, are currently held by the public. Although our Common Stock is traded in The NASDAQ Capital
Market, there can be no assurance that an active public market will continue.
Our future ability to pay dividends to holders of our Common Stock is subject to the discretion of our board of
directors and will be limited by our ability to generate sufficient earnings and cash flows.
Payment of future cash dividends on our Common Stock will depend on our ability to generate earnings
and cash flows. However, sufficient cash may not be available to pay such dividends. Payment of future dividends,
if any, will be at the discretion of our board of directors and will depend upon a number of factors that the board of
directors deems relevant, including future earnings, the success of our business activities, capital requirements, the
general financial condition and future prospects of our business and general business conditions. If we are unable to
generate sufficient earnings and cash flows from our business, we may not be able to pay dividends on our Common
Stock.
Our ability to pay cash dividends on our common stock is also dependent on the ability of our subsidiaries
to pay dividends to SFC. MSCO is subject to requirements of the SEC and FINRA relating to liquidity, capital
standards and the use of client funds and securities, which may limit funds available for the payment of dividends to
SFC.
Item 1B.
UNRESOLVED STAFF COMMENTS
None.
Item 2.
PROPERTIES
Siebert currently maintains three retail discount brokerage offices. Customers can visit these offices to
obtain market information, place orders, open accounts, deliver and receive checks and securities, and obtain related
customer services in person. Nevertheless, most of Siebert’s activities are conducted on the Internet or by telephone
and mail.
12
Siebert operates its business out of the following leased offices:
Location
Corporate Headquarters / Retail Office
120 Wall Street
New York, NY 10005
Retail Offices
15 Exchange Place, Suite 615
Jersey City, NJ 07302
4400 North Federal Highway
Boca Raton, FL 33431
Item 3.
LEGAL PROCEEDINGS
Approximate
Office Area in
Square Feet
Expiration Date
of
Current Lease
Renewal
Terms
250
9/2018
None
5,000
9/2018
None
2,438
Month to Month
None
In December 2015, a former employee of MSCO commenced an arbitration before FINRA against MSCO,
alleging a single cause of action for employment retaliation under the Sarbanes-Oxley Act of 2002. In February
2016, the employee amended his claim to replace the Sarbanes-Oxley claim with a substantially identical claim
arising under the Dodd-Frank Act of 2010. The matter was settled in February 2017.
The Company is party to certain claims, suits and complaints arising in the ordinary course of business. In
the opinion of management, all such matters are without merit, or involve amounts which would not have a
significant effect on the financial position of the Company.
Item 4.
MINE SAFETY DISCLOSURES
Not applicable
PART II
Item 5.
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER
MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Our common stock traded on the NASDAQ Global Market until June 29, 2011 when our common stock
started trading on the NASDAQ Capital Market, under the symbol “SIEB”. The high and low sales prices of our
common stock reported by NASDAQ during the following calendar quarters were:
First Quarter – 2015
Second Quarter – 2015
Third Quarter – 2015
Fourth Quarter – 2015
First Quarter – 2016
Second Quarter – 2016
Third Quarter – 2016
Fourth Quarter – 2016
High
Low
2.62
2.11
1.95
1.56
1.40
1.34
2.20
3.25
$
$
$
$
$
$
$
$
1.44
1.45
1.35
1.14
1.15
1.17
1.00
1.19
$
$
$
$
$
$
$
$
13
On March 24, 2017, the closing price of our common stock on the NASDAQ Capital Market was $3.08 per
share. There were 86 holders of record of our common stock and approximately 1,000 beneficial owners of our
common stock.
Dividend Policy
Our Board of Directors periodically considers whether to declare dividends. In considering whether to pay
such dividends, our Board of Directors will review our earnings capital requirements, economic forecasts and such
other factors as are deemed relevant. Some portion of our earnings will be retained to provide capital for the
operation and expansion of our business.
Pursuant to the Acquisition Agreement, our Board of Directors declared a special dividend in the amount of
$.20 per share of outstanding Common Stock (an aggregate of $4,492,735) payable on October 24, 2016, to the
shareholders of record on October 13, 2016. This dividend was a one-time event made pursuant to the terms of the
Acquisition Agreement. No other special dividends are currently contemplated.
Issuer Purchases of Equity Securities
Effective February 28, 2017, our Board of Directors terminated the stock repurchase program authorized on
January 23, 2008. No shares were purchased in 2016.
Equity Compensation Plan Information
In December 2016, our Board of Directors authorized the termination of our equity compensation plans.
Accordingly, as of December 31, 2016, we had no equity compensation plans.
14
Our Performance
The graph below compares our performance from December 31, 2011 through December 31, 2016 against
the performance of the NASDAQ Composite Index and a peer group. The peer group consists of Ameritrade
Holding Corporation, E*Trade Financial Corporation and the Charles Schwab Corporation.
Siebert Financial Corp.
Nasdaq Composite
Peer Group
Cumulative Total Return
2011
100.00
100.00
100.00
2012
116.78
116.41
122.36
2013
112.59
165.47
230.03
2014
153.85
188.69
272.01
2015
90.21
200.32
293.54
2016
241.73
216.54
359.57
15
Item 6.
SELECTED FINANCIAL DATA
(In thousands except share and per share data)
The Following Selected Financial Information Should Be Read In Conjunction with Our Consolidated
Financial Statements and the Related Notes Thereto.
Income statement data:
Total Revenues
Net loss
Net loss per share of common
stock
Basic
Diluted
$
$
$
$
2016
2015
2014
2013
2012
9,812
(5,578 )
$
10,096
(2,869 ) $
$
15,815
(6,557) $
$
16,401
(5,912 ) $
20,983
(171 )
(.25 )
(.25 )
(.13 ) $
(.13 ) $
(0.30) $
(0.30) $
(0.27 ) $
(0.27 ) $
(0.01 )
(0.01 )
Weighted average shares
outstanding (basic)
Weighted average shares
outstanding (diluted)
Statement of financial condition
data (at year end):
22,085,126
22,085,126
22,085,126
22,087,324
22,100,759
22,085,126
22,085,126
22,085,126
22,087,324
22,100,759
Total assets
Total liabilities excluding
subordinated borrowings
Stockholders’ equity
Cash dividends declared on
common shares
$
$
$
$
3,816
1,563
2,253
.20
17,785
2,102
15,683
0
$
$
$
$
20,728
2,176
18,552
0
$
$
$
$
27,970
2,861
25,109
0
$
$
$
$
33,456
2,416
31,040
0
Item 7.
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 and the
Notes thereto contained elsewhere in this Annual Report.
Our working capital is invested primarily in bank accounts. In November 2015, Siebert sold its 49% equity
interest in SBSF to our former affiliate resulting in discontinued operations. A loss resulted from the disposal of this
equity investment in the amount of $52,000 for 2015 which includes equity earnings of former affiliate of $671,000,
net of $448,000 loss related to disposal of investment in 2015, net of income tax of $275,000. Siebert also earned
interest income from the receivable from the SCM sale to SBSF of $207,000 in 2016. The receivable was sold by
Siebert in December 2016 in connection with the Acquisition Agreement. The Company’s professional expenses
during 2016 include the costs of associated with the Acquisition.
16
The following table sets forth certain metrics as of December 31, 2016, 2015 and 2014, respectively, which
we use in evaluating our business.
Retail Customer Activity:
Total retail trades:
Average commission per retail trade:
Retail customer balances:
Retail customer net worth (in billions):
Retail customer money market fund value (in billions):
Retail customer margin debit balances (in millions):
Retail customer accounts with positions:
* Based on new management’s analysis.
Description:
For the Twelve Months
ended December 31,
2015
2016
2014
229,720
$
20.27 * $
259,624
22.29
293,419
19.50
$
As of December 31,
2016
2015
$
$
$
7.0
1.0
214.0
28,430
$
$
$
6.8
.9
254.7
30,851
• Total retail trades represents 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 debit balances represents credit extended to our customers to finance their
purchases against current positions.
• Retail customer accounts with positions represent retail customers with cash and/or securities in their
accounts.
We, like other securities firms, are directly affected by general economic and market conditions including
fluctuations in volume and prices of securities, changes and the prospect of changes in interest rates, and demand for
brokerage and investment banking services, all of which can affect our profitability. In addition, in periods of
reduced financial market activity, profitability is likely to be adversely affected because certain expenses remain
relatively fixed, including salaries and related costs, portions of communications costs and occupancy expenses.
Accordingly, earnings for any period should not be considered representative of earnings to be expected for any
other period.
Competition continues to intensify among all types of brokerage firms, including established discount
brokers and new firms entering the on-line brokerage business. Electronic trading continues to account for an
increasing amount of trading activity, with some firms charging very low trading execution fees that are difficult for
any conventional discount firm to meet. Some of these brokers, however, impose asset based charges for services
such as mailing, transfers and handling exchanges which we do not currently impose, and also direct their orders to
market makers where they have a financial interest. Continued competition could limit our growth or even lead to a
decline in our customer base, which would adversely affect our results of operations. Industry-wide changes in
trading practices, such as the continued use of Electronic Communications Networks, are expected to put continuing
pressure on commissions/fees earned by brokers while increasing volatility.
17
The Company’s SIA subsidiary offers to its clients a number of Asset Management Programs (“Managed
Programs”) consisting of asset allocation, flexible asset management and focused or completion strategies. In these
Managed Programs, SIA acts as the co-adviser to clients. IA Representatives will assist each client in reviewing
information about the programs, completing a client questionnaire to determine the client’s risk tolerance, financial
situation and investment objectives and selecting an investment strategy. SIA does not ever act as portfolio manager
directly, SIA selects other investment advisers to act as portfolio manager on behalf of its clients. During 2016, the
results of SIA operations are immaterial to the operations of the Company.
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 revenue
transactions and expenses incurred, to estimate the amount of such revenue and expenses. We are not aware of any
material differences between the estimates used in closing our books for the last five years and the actual amounts of
revenue and expenses incurred when we subsequently receive the actual confirmations, invoices or other
documentation. Estimates are also used in determining the useful lives of intangibles assets, and the fair market
value of intangible assets. Our management believes that its estimates are reasonable.
Results of Operations
Year Ended December 31, 2016 Compared to Year Ended December 31, 2015
Revenues. Total revenues for 2016 were $9.8 million, a decrease of $284,000, or 2.8%, from 2015.
Commission and fee income decreased $861,000, or 9.4%, from the prior year to $8.3 million primarily due to a
decrease in retail trading.
Trading gains increased $346,000 or 60.2% to $921,000 primarily as a result of liquidating the Company’s
securities.
Income from interest and dividends increased $225,000, or 69%, from the prior year to $551,000 in 2016
primarily due to accrued interest on our receivable from business sold to affiliate and interest from a subordinated
note from our former affiliate.
Expenses. Total expenses for 2016 were $15.4 million, an increase of $2.2 million or 16.7% from the prior
year primarily due to expenses associated with the sale of the Company.
Employee compensation and benefit costs decreased $503,000, or 9.3%, from the prior year to $4.9 million
in 2016. This decrease was primarily due to a reduction in head count from the previous year.
Clearing and floor brokerage fees decreased $373,000, or 30.1%, from the prior year to $866,000 in 2016
primarily due to lower retail trading volume.
Professional fees increased $258,000, or 8.1% form the prior year to $3.5 million in 2016. This increase
was primarily due to increased professional fees incurred as a result of the change in control of the Company in
additional to the professional fees discussed below.
In December 2015, a then current employee of the Company commenced an arbitration before FINRA
against the Company alleging a single cause of action for employment retaliation under the Sarbanes-Oxley Act of
2002. In February 2016, the employee amended his claim to replace the Sarbanes-Oxley claim with a substantially
identical claim arising under the Dodd-Frank Act of 2010. In February 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 by Kennedy Cabot Acquisition, LLC.
18
Effective December 2016, the Company entered into an acquisition agreement with Kennedy Cabot
Acquisition, LLC. As a result of this transaction, the Company incurred $2,206,000 of professional fees and other
expenses related to change in control.
Communications expense decreased $133,000, or 22.4% from the prior year to $462,000 in 2016 primarily
due to a reduction in expenses associated with quote usage.
Occupancy costs decreased $30,000, or 3.9% from the prior year to $746,000 in 2016.
Other general and administrative expenses decreased $30,000, or 2.2%, from the prior year to $1.7 million
in 2016 due to expenses associated with the sale of the Company.
Income tax benefit for the year ended December 31, 2015 was $275,000. The benefit for income taxes for
2015 represents 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 former affiliate. The Company has recorded
a valuation allowance to fully offset our deferred tax asset at December 31, 2016 and 2015.
Results of Operations
Year Ended December 31, 2015 Compared to Year Ended December 31, 2014
Revenues. Total revenues for 2015 were $10.1 million, a decrease of $5.8 million, or 36.3%, from 2014.
Commission and fee income decreased $1.6 million, or 14.9%, from the prior year to $9.2 million primarily due to a
decrease in retail trading. The Capital Markets Division was sold to our former affiliate SBSF on November 4, 2014
resulting in reduced institutional trading commissions and investment banking revenues. Commission recapture
operations were shut down on September 30, 2014.
Investment banking revenues decreased $1.8 million or 97.8%, from the prior year to $40,000 in 2015 due
to the Capital Markets division being sold on November 4, 2014 to our former affiliate.
Trading profits decreased $776,000, or 57.4%, from the prior year to $575,000 in 2015 primarily due to an
overall decrease in trading volume primarily in the debt markets.
The Company recorded a gain on the sale of our Capital Markets Segment of $1,820,000, which reflected
the fair value of the purchase obligation (transferred assets of the Company’s capital markets business, consisted of
customer accounts and goodwill, which had no carrying value to the Company. Such fair value 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 sale was for $3,000,000 recorded at a discount.
The discount recorded for the purchase obligation will be amortized as interest income using an effective
yield initially calculated based on the original carrying amount of the obligation and estimated annual installments to
be received and adjusted in future periods to reflect actual installments received and changes in estimates of future
installments. Interest income recognized on the obligation for the period December 31, 2015 amounted to $235,000
based on a yield of approximately 12%.
Income from interest and dividends increased $232,000, or 246.8%, from the prior year to $326,000 in
2015 primarily due to accrued interest on our receivable from business sold to affiliate (see above paragraph) and
the sale of our equity interest to our former affiliate offset by secured demand note interest with our former affiliate
which expired on August 31, 2015.
Expenses. Total expenses for 2015 were $13.2 million, a decrease of $9.3 million, or 41.3%, from the prior
year.
Employee compensation and benefit costs decreased $2.9 million, or 34.9%, from the prior year to $5.4
million in 2015. This decrease was due to a reduction in head count from the previous year, as well as the Capital
Markets Division being sold to SBSF on November 4, 2014.
19
Clearing and floor brokerage fees decreased $426,000, or 25.6%, from the prior year to $1.2 million in
2015 primarily due to lower retail trading volumes, as well as shutting down our rebate recapture business on
September 30, 2014.
Professional fees decreased $1.1 million, or 25.8% from the prior year to $3.2 million in 2015 primarily
due to a decrease in legal fees relating to a dispute with a former employee (see settlement of case below).
In July 2014, the Company entered into a settlement agreement in regard 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.
Advertising and promotion expense increased $20,000, or 8.1%, from the prior year to $268,000 in 2015
due to an increase in social media advertising.
Communications expense decreased $270,000, or 31.2%, from the prior year to $595,000 in 2015 due to a
new phone system and phone vendor. Quote fees were down as well due to the reduction in Bloomberg terminals
due to the sale of our Capital Markets segment on November 4, 2014. Retail trading revenues were down causing
quotes to go down.
Occupancy costs decreased $12,000, or 1.5%, from the prior year to $776,000 in 2015 due to our Palm
Beach branch closing on March 31, 2014 and the Jersey City branch closing down on June 30, 2015, offset by
increases in rent at our Beverly Hills office due to our month to month status. Security deposits were written off to
rent for Jersey City and a former Beverly Hills location.
Other general and administrative expenses decreased $309,000, or 15.2%, from the prior year to $1.7
million in 2015 due decreases in office expense in travel, entertainment, computer security updates, and registration
expense.
Discontinued operations - Loss from our equity investment in SBSF, an entity which Siebert sold its 49%
equity interest to on November 9, 2015, for 2015 was $52,000 which includes equity earnings of former affiliate of
$671,000, net of $448,000 loss related to disposal of investment in 2015, net of income tax of $275,000, compared
to income of $84,000 net of income tax of $27,000 for 2014, a decrease of $139,000, primarily due to SBSF
participating in more municipal bond offerings as senior- and co-manager. Income from our equity investment in
SBSFPC, an entity in which we hold a 33% equity interest, for 2015 was $0 as compared to a loss of $17,000 from
the same period in 2014. This decrease was principally due to SBSFPC winding down and shutting down their
operations in 2014.
Income tax benefit for the year ended December 31, 2015 and 2014 was $275,000 and $27,000,
respectively. The benefit for income taxes for 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 former affiliate. The Company has recorded a valuation allowance to fully offset our deferred tax asset
at December 31, 2015 and 2014.
Liquidity and Capital Resources
Our working capital is invested in cash and money market funds. Our total assets at December 31, 2016
were $3.8 million, of which we regarded $2.7 million, or 72.0%, as highly liquid.
MSCO is subject to the net capital requirements of the SEC, the NYSE and other regulatory authorities. At
December 31, 2016, MSCO’s regulatory net capital was $1.1 million, which was $862,000 in excess of its minimum
capital requirement of $250,000. The Company’s year-end performance and the broker-dealer’s net capital was
negatively impacted by a $825,000 charge that the Company was required to take as a technical adjustment to reflect
the arbitration settlement.
20
Contractual Obligations
Below is a table that presents our obligations and commitments at December 31, 2016:
Contractual Obligations
Operating lease obligations
Off-Balance Sheet Arrangements
Total
$ 91,000
Less Than
1 Year
$
91,000
More Than
1-3 Years 3-5 Years Five Years
0
0
$
$
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 and other counterparties are unable to
fulfill their contractual obligations. There were no material losses for unsettled customer transactions in 2016.
Item 7A.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Financial Instruments Held For Trading Purposes:
The Company does not directly engage in derivative transactions, has no interest in any special purpose
entity and has no liabilities, contingent or otherwise, for the debt of another entity.
Financial Instruments Held For Purposes Other Than Trading:
We generally invest working capital temporarily in dollar denominated bank account(s). These investments
are not subject to material changes in value due to interest rate movements.
Retail customer transactions are cleared through a clearing broker on a fully disclosed basis. If customers
do not fulfill their contractual obligations, the clearing broker may charge 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 counterparties are unable to
fulfill their contractual obligations. There were no material losses for unsettled customer transactions in 2016.
Item 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See financial statements and supplementary data required pursuant to this item beginning on page F-1 of
this Annual Report on Form 10-K.
Item 9.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
Item 9A.
CONTROLS AND PROCEDURES
We carried out an evaluation, under the supervision and with the participation of management, including
our Executive Vice President 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 of
Securities Exchange of 1934, as amended. Based on that evaluation, our management, including our Executive Vice
President 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 Executive Vice President and Chief Financial
Officer, to allow timely decisions regarding timely disclosure.
21
Management’s Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial
reporting (as that term is defined in Exchange Act Rule 13a-15(f)). To evaluate the effectiveness of our internal
control over financial reporting, we use the 2013 framework in Internal Control—Integrated Framework issued by
the Committee of Sponsoring Organizations of the Treadway Commission (the “2013 COSO Framework”). Using
the 2013 COSO Framework, our management, including our Executive Vice President and Chief Financial Officer,
evaluated our internal control over financial reporting and concluded that our internal control over financial
reporting was effective as of December 31, 2016.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting during the most recently completed
fiscal quarter that materially affected, or are reasonably likely to materially affect, our internal control over financial
reporting.
Limitation of the Effectiveness of Internal Controls
None
Item 9B.
OTHER INFORMATION
None
PART III
Item 10.
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Identification of Directors
Effective December 16, 2016, Patricia L. Francy, Nancy Peterson Hearn, Jane H. Macon and Robert P.
Mazzarella (the “Prior Board of Directors”) resigned as directors and Gloria E. Gebbia, Charles A. Zabatta, Francis
Cuttita and Andrew H. Reich were appointed as directors. Effective December 29, 2016, Jerry Schneider, CPA, was
appointed as a director and chairman of the Audit Committee of the Company. The names of our directors and their
ages, positions, and biographies are set forth below.
Gloria E. Gebbia
Age 74
Director
Gloria Gebbia is the manager and owner of the majority issued and outstanding voting member interests of Kennedy
Cabot Acquisition, LLC. Ms. Gebbia is an owner of StockCross Financial Services, Inc., a global financial services
company (“StockCross”). Additionally, Ms. Gebbia also serves as the President of Associates for Breast and
Prostate Cancer Research, a non-profit organization that raises funds for the John Wayne Cancer Institute, which has
under Ms. Gebbia’s leadership raised over $15 million for breast and prostate cancer research.
Charles A. Zabatta
Age 74
Director
Charles A. Zabatta has been for the past five years, the head of Corporate Development at StockCross. Mr. Zabatta
has and continues to have a distinguished and successful career, predominately in the financial service industry,
including holding various positions with the New York Stock Exchange, Paine Webber, Securities Settlement Corp.,
Josephthal Lyon & Ross, Kennedy Cabot & Co. and TD Waterhouse. Mr. Zabatta’s creative business skills have
been instrumental in several acquisitions of small to midsize companies, in various industries. Mr. Zabatta currently
advises on capital raising, general business structure and management. Previously, Mr. Zabatta has served as a
member of the board of Knight Capital and Kennedy Cabot & Co. Currently, Mr. Zabatta serves on the board of
Paraco Gas Corporation, a large privately held independent energy company in the northeast. Mr. Zabatta holds a
BA in industrial psychology from Iona College.
22
Francis Cuttita
Age 48
Director
Francis V. Cuttita is a Senior Partner of Cuttita, LLP, a New York based law firm. Mr. Cuttita has over 23 years of
practicing law, and in the areas of real estate and business transactions, media, sports and entertainment. Mr.
Cuttita’s list of clients include Fortune 100 corporations, CEOs, hedge fund managers, legendary professional
athletes, entertainment icons and Grammy award winning musicians. Mr. Cuttita also serves as an advisor to several
national financial, insurance and sports businesses and is an active supporter and member of various nonprofit
organizations. Mr. Cuttita graduated from Swarthmore College and received his law degree from Fordham
University School of Law.
Andrew H. Reich
Age 61
Andrew H. Reich held various executive positions in StockCross from 2002 and was StockCross’ Chairman from
2015 to December 16, 2016. Additionally, Mr. Reich is the owner of Aarianna Realty Inc., a real estate company,
has previously served as the CFO of Gebbia Holding Co., a holding company for Ms. Gebbia’s family since 2013
and as CFO of Park Wilshire Insurance Company, a privately held insurance company since 2010. Mr. Reich has
more than 20 years of experience in the financial industry, including more than fourteen years in various senior
management roles at StockCross. Mr. Reich holds an MBA from the University of Southern California and a BBA
from the Bernard Baruch College.
Jerry Schneider, CPA
Age 72
Mr. Schneider, age 72, is a certified public accountant and has over 40 years of relevant accounting experience. Mr.
Schneider is licensed to practice public accounting in New York and Florida and is a member of the American
Institute of Certified Public Accountants, the New York State Society of Certified Public Accountants and the
Florida Society of Certified Public Accountants. Mr. Schneider was the Managing Partner of Schneider &
Associates LLP, a CPA firm with approximately 20 professional staff and was the driving force in that firm’s
growth and development until it merged with Marks Paneth LLP in 2008. Since January 2011, Mr. Schneider has
been a Partner Emeritus and Senior Consultant at Marks Paneth LLP. Mr. Schneider’s practice was concentrated in
the areas of business planning, high net worth individuals, manufacturing, retailing, securities broker-dealers, the
hospitality industry and private educational institutions.
Identification of Executive Officers*
Name
Age Position
Andrew H. Reich
61 Executive Vice President, Chief Operating Officer, Chief Financial Officer and
Secretary
Mr. Reich has served as Executive Vice President, Chief Financial Officer and
Assistant Secretary of the Company and Chief Executive Officer of MSCO since
December 16, 2016. Prior thereto, Andrew H. Reich served in a variety of
executive positions with StockCross Financial Services, Inc., a global financial
services company (“StockCross”) since 2002 and from 2015 until his resignation
effective as of the Closing Date, he served as the Chairman of StockCross.
Additionally, Mr. Reich is the owner of Aarianna Realty Inc., a real estate
company, has previously served as the CFO of Gebbia Holding Co., a holding
company for Gloria E. Gebbia’s family since 2013 and as CFO of Park Wilshire
Insurance Company, a privately held insurance company since 2010. Mr. Reich has
more than 20 years of experience in the financial industry, including more than
fourteen years as senior management of StockCross. Mr. Reich holds a MBA from
the University of Southern California and a BBA from the Bernard Baruch College.
*Joseph M. Ramos, Jr., resigned from all offices held with the Company effective December 16, 2016.
23
Corporate Governance
Board Meetings
The Prior Board of Directors held 16 regular meetings during 2016 and the Company’s current board of
directors held two special meetings during 2016. Each incumbent director attended at least 75% of his or her Board
of Directors meetings and all of his or her committee meetings.
Controlled Company
We are a “Controlled Company” as defined in Rule 5615(c)(1) of The Nasdaq Stock Market because KCA
holds more than 50% of our voting power for the election of directors. As a “Controlled Company” we are not
required to have a majority of our Board of Directors comprised of independent directors, a compensation
committee comprised solely of independent directors or a nominating committee comprised solely of independent
directors.
Audit Committee of the Board of Directors
The Audit Committee of our Board of Directors currently consists of Mr. Schneider, Chairman, Mr. Zabatta
and Mr. Cuttita. The Board of Directors has determined that Mr. Schneider, Mr. Zabatta and Mr. Cuttita is each an
“independent director” within the meaning of Rule 5605(a)(2) of The Nasdaq Stock Market and within the meaning
of the applicable rules and regulations of the Securities and Exchange Commission.
The prior Audit Committee held 6 meetings during 2016. The current Audit Committee held no meetings
during 2016.
The Board of Directors has determined that Mr. Schneider qualifies as an “audit committee financial
expert” under the applicable rules of the Securities and Exchange Commission.
The Audit Committee was established to (i) assist the Board of Directors in its oversight responsibilities
regarding the integrity of our financial statements, our compliance with legal and regulatory requirements and our
auditor’s qualifications and independence, (ii) prepare the report of the Audit Committee contained herein, (iii) retain,
consider the continued retention and terminate our independent auditors, (iv) approve audit and non-audit services
performed by our independent auditors and (v) perform any other functions from time to time delegated by the Board
of Directors. The Board of Directors has adopted a written charter for the Audit Committee, which is available on the
website of Muriel Siebert & Co., Inc. at https://www.siebertnet.com/html/StartAboutAuditCommittee.aspx.
Compensation Committee of the Board of Directors
The Compensation Committee of our Board of Directors currently consists of Mr. Zabatta and Mr. Cuttita.
The Compensation Committee reviews and determines all forms of compensation provided to our executive officers
and directors. The Compensation Committee will administer a stock option and other employee benefit plans if and
when adopted. The Compensation Committee does not function pursuant to a formal written charter and as a
“Controlled Company” we are not required to comply with The NASDAQ Stock Market’s independence
requirements. The Compensation Committee held no meetings during 2016.
The Compensation Committee will evaluate the performance of our executive officers in terms of our
operating results and financial performance and will determine their compensation in connection therewith.
In accordance with general practice in the securities industry, our executive compensation includes base
salaries, an annual discretionary cash bonus, and stock options and other equity incentives that are intended to align
the financial interests of our executives with the returns to our shareholders. The Compensation Committee will
determine compensation of our executive officers. The Compensation Committee and our sole executive officer
were appointed to such positions effective December 16, 2016, and, accordingly, such reviews shall commence
during the 2017 fiscal year.
24
As part of its oversight of the Company’s executive compensation, the Compensation Committee will
consider the impact of the Company’s executive compensation, and the incentives created by the compensation
awards that it administers, on the Company’s risk profile. In addition, the Compensation Committee will review the
Company’s compensation policies and procedures, including the incentives that they create and factors that may
reduce the likelihood of excessive risk taking, to determine whether they present a significant risk to the Company.
Nominating Committee of the Board of Directors
The Nominating Committee of the Board of Directors currently consists of Mr. Zabatta and Mr. Cuttita.
The Nominating Committee does not function pursuant to a formal written charter and as a “Controlled Company”
we are not required to comply with The NASDAQ Stock Market’s independence requirements. The Nominating
Committee did not meet in 2016.
The purpose of the Nominating Committee is to identify individuals qualified to become members of our
Board of Directors and to recommend to the Board of Directors or the shareholders that such individuals be selected
for directorship. In identifying and evaluating nominees for director, the Nominating Committee considers each
candidate’s experience, integrity, background and skills as well as other qualities that the candidate may possess and
factors that the candidate may be able to bring to the Board of Directors. We do not have a formal policy with regard
to the consideration of diversity in identifying director nominees. However, the Board of Directors believes that it is
essential that its members represent diverse viewpoints, with a broad array of experiences, professions, skills,
geographic representation and backgrounds that, when considered as a group, provide a sufficient mix of perspectives
to allow the Board of Directors to best fulfill its responsibilities to the long-term interests of our shareholders.
The Nominating Committee will consider shareholder nominees for election to our Board of Directors. In
evaluating such nominees, the Nominating Committee will use the same selection criteria the Nominating
Committee uses to evaluate other potential nominees.
Indemnification of Officers and Directors
We indemnify our executive officers and directors to the extent permitted by applicable law against
liabilities incurred as a result of their service to us and against liabilities incurred as a result of their service as
directors of other corporations when serving at our request. We have a director’s and officer’s liability insurance
policy, underwritten by Illinois National Insurance Company, a member of the American International Group, Inc.,
in the annual aggregate amount of $5 million dollars. As to reimbursements by the insurer of our indemnification
expenses, the policy has a $250,000 deductible; there is no deductible for covered liabilities of individual directors
and officers.
Pursuant to the terms of the Acquisition Agreement, we obtained a director’s and officer’s liability policy
for the Prior Board of Directors in the aggregate amount of $15 million.
Annual Shareholders Meeting Attendance Policy
It is the policy of our Board of Directors that all of our directors are strongly encouraged to attend each
annual shareholders meeting. All of our directors, other than Mr. Schneider, attended the 2016 annual meeting of
shareholders.
Code of Ethics
We have adopted a Code of Ethics for Senior Financial Officers applicable to our chief executive officer,
chief financial officer, treasurer, controller, principal accounting officer, and any of our other employees performing
similar functions. A copy of the Code of Ethics for Senior Financial Officers is available on our website
https://www.siebertnet.com/html/StartAboutGovernance.aspx.
Board Leadership Structure and Board of Directors
Our Board of Directors does not have a chairman nor a lead independent director. The Company believes
this structure allows all of the directors to participate in the full range of the Board’s responsibilities with respect to
its oversight of the Company’s management. The Board of Directors has determined that this leadership structure is
appropriate given the size of the Company, the number of directors overseeing the Company and the Board of
Directors’ oversight responsibilities.
25
The Board of Directors intends to hold at least four regular meetings each year to consider and address
matters involving the Company. The Board of Directors also may hold special meetings to address matters arising
between regular meetings. These meetings may take place in person or by telephone. The independent directors also
regularly meet in executive sessions outside the presence of management. The Board of Directors has access to legal
counsel for consultation concerning any issues that may occur during or between regularly scheduled Board
meetings. As discussed above, the Board has established an Audit Committee, a Compensation Committee and a
Nominating Committee to assist the Board in performing its oversight responsibilities.
The Board of Directors’ Role in Risk Oversight
Consistent with its responsibility for oversight of the Company, the Board of Directors, among other things,
oversees risk management of the Company’s business affairs directly and through the committee structure that it has
established. The principal risks associated with the Company are risks related to securities market volatility and the
securities industry, lower price levels in the securities markets, intense competition in the brokerage industry,
extensive government regulation, net capital requirements, customers’ failure to pay, investment banking activities,
an increase in volume on our systems or other events which could cause them to malfunction, reliance on
information processing and communications systems, continuing changes in technology, dependence on the ability
to attract and retain key personnel, the ability of our principal shareholder to control many key decisions and there
may be no public market for our common stock.
The Board of Directors’ role in the Company’s risk oversight process includes regular reports from senior
management on areas of material risk to the Company, including operational, financial, legal, regulatory, strategic
and reputational risks. The full Board of Directors (or the appropriate committee) receives these reports from
management to identify and discuss such risks.
The Board of Directors periodically reviews with management its strategies, techniques, policies and
procedures designed to manage these risks. Under the overall supervision of the Board of Directors, management
has implemented a variety of processes, procedures and controls to address these risks.
The Board of Directors requires management to report to the full Board of Directors on a variety of matters
at regular meetings of the Board of Directors and on an as-needed basis, including the performance and operations
of the Company and other matters relating to risk management. The Audit Committee also receives reports from the
Company’s independent registered public accounting firm on internal control and financial reporting matters. These
reviews are conducted in conjunction with the Board of Directors’ risk oversight function and enable the Board of
Directors to review and assess any material risks facing the Company.
Compliance with Section 16(a) of the Exchange Act
Section 16(a) of the Exchange Act requires our executive officers and directors and persons who
beneficially own more than 10% of our common stock to file initial reports of ownership and reports of changes in
ownership with the Securities and Exchange Commission. These executive officers, directors and shareholders are
required by the Securities and Exchange Commission to furnish us with copies of all forms they file pursuant to
Section 16(a).
Other than Form 3’s filed by the current members of the Board of Directors and our current executive
officer and Form 4’s filed by the members of the Prior Board of Directors and prior executive officers, no forms
were filed under Section 16(a) or were furnished to us during fiscal 2016. Based solely upon this review, we believe
that during fiscal 2016 all Section 16(a) filing requirements applicable to our executive officers, directors and
greater than 10% beneficial owners were complied with on a timely basis.
Advisers to the Company
Special Adviser to the Board of Directors
In February 2017, the Board of Directors appointed John J. Gebbia as a Special Advisor to the Board of
Directors. John J. Gebbia commenced his employment in the brokerage industry in 1959. In 1962, Mr. Gebbia
became an executive vice president of Walston & Company. After becoming CEO of Jesup & Lamont, an
26
institutional brokerage firm, Mr. Gebbia purchased the company in 1983. Thereafter, Mr. Gebbia owned various
brokerage firms including Kennedy Cabot & Co., which was sold in 1997 to Toronto Dominion Bank for
$160,000,000. Mr. Gebbia controls various companies in the insurance, sports management & home building
industries.
Senior Advisers
John M. Gebbia and Richard Gebbia, sons of Gloria E. Gebbia and John J. Gebbia, are registered with
MSCO and will be serving as registered principals and associated persons of MSCO. They are also serving as
executive officers and directors of StockCross. Both Richard and John M. Gebbia have extensive experience in the
securities industry and will be working with MSCO and senior management of the Company to identify cost saving
opportunities and improvements of the Company’s business.
John M. Gebbia has been in the brokerage industry in various capacities since 1990. Mr. Gebbia was the
President and CEO of Kennedy Cabot & Co., from 1992 to 1997 when it was acquired by Toronto Dominion Bank.
Thereafter he was active with various Gebbia family businesses. Since 2007, Mr. Gebbia has been associated with
StockCross, most recently as a Director and its Executive Vice President.
Richard S. Gebbia has been in the brokerage industry since 1993. Since 2002, Mr. Gebbia has been
associated with StockCross in various capacities. Mr. Gebbia is currently the CEO and a Director of StockCross.
Item 11.
EXECUTIVE COMPENSATION
Summary Compensation Table
The following table shows, during the years ended December 31, 2016 and 2015, the annual compensation
paid to or earned by (1) our Acting Chief Executive Officer and (2) Executive Vice President, Chief Operating in
Chief Financial Officer (collectively, the “Named Executive Officers”).
Name and principal
position
Suzanne Shank (2)
Acting
Chief Executive Officer
Joseph
M. Ramos, Jr.(3)
Executive
Vice President,
Chief Operating Officer
and Chief Financial
Officer
Salary
($)
Bonus
($)
Stock
Awards
($)
Option
Awards
($)(1)
Non-Equity
Incentive Plan
Compensation
($)
Non-qualified
Deferred
Compensation
Earnings
($)
All Other
Compensation
($)
Total
($)
Year
2016
—
2015
41,669
—
—
2016 378,000 100,000
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
41,669
—
— 485,000
2015 385,000 100,000
—
—
—
2016
Andrew H. Reich(4)
Executive Vice President,
Chief Operating Officer
and Chief Financial
Officer
2015
—
—
—
—
—
—
—
—
(1) Represents the dollar amount recognized for financial statement reporting in accordance with ASC Topic 718.
(2) Ms. Shank was named Acting Chief Executive Officer effective September 16, 2013 at a salary of $250,000
annually. Ms. Shank resigned from her position as Acting Chief Executive Officer of Siebert Financial
Corporation effective as of February 27, 2015.
(3) Mr. Ramos was named to the additional position of Chief Operating Officer effective June 17, 2013. Mr. Ramos
resigned as Executive Vice President, Chief Operating Officer and Chief Financial Officer effective December
16, 2016.
(4) Mr. Reich was named to the positions of Executive Vice President, Chief Operating Officer and Chief Financial
Officer effective December 16, 2016.
27
Grants of Plan-Based Awards
Our Compensation Committee did not approve grants of options to purchase our common stock or other
equity awards under our 2007 Long-Term Incentive Plan to any of our Named Executive Officers in 2016. This plan
has been terminated.
Outstanding Equity Awards at December 31, 2016
As of December 31, 2016, the Company had no outstanding equity awards.
Termination of Employment and Change-in-Control Arrangements
Employment Agreements.
We are not a party to an employment agreement with any Named Executive Officer. All of our Named
Executive Officers are employees at will.
Option Agreements.
As of December 31, 2016, we had no option agreements with our Named Executive Officers.
Compensation of Directors
In December 2016, the annual fee payable to all directors for service on our Board of Directors was set at
$25,000. The Chairman of the Audit Committee will also be reimbursed expenses estimated at $15,000 annually.
Director’s fees and expenses are paid on a quarterly basis.
The following table discloses the cash, equity awards, and other compensation earned, paid, or awarded, as
the case may be, to each of the Company’s directors during the fiscal year ended December 31, 2016.
Fees
Earned
or Paid
in
Cash ($)
60,000
60,000
60,000
60,000
—
—
—
—
—
Stock
Awards
($)
Option
Awards
($)
Non-Equity
Incentive
Plan
Compensation
($)
Nonqualified
Deferred
Compensation
Earnings
($)
All Other
Compensation
($)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
100,000
100,000
100,000
100,000
—
—
—
—
—
Total
($)
160,000
160,000
160,000
160,000
—
—
—
—
—
Name
Patricia L. Francy(1)
Nancy Peterson Hearn(1)
Jane H. Macon(1)
Robert P. Mazzarella(1)
Gloria E. Gebbia
Andrew H. Reich
Francis V. Cuttita
Charles Zabatta
Jerry M. Schneider
(1) Ms. Francy, the former Chairwoman of the Audit Committee, Ms. Hearn, the former Chairwoman of the
Nominating Committee, Ms. Macon, the former Chairwomen of the Board and Compensation Committee and
Mr. Mazzarella, the former Audit Committee Financial Expert, each resigned from the Board effective
December 16, 2016, upon the closing of the Acquisition Agreement with KCA. In addition to the $60,000
annual fee, as compensation for extraordinary services rendered to the Company in connection with the
evaluation and negotiation of strategic alternatives for the Company, each member of the Company’s Board of
Directors will receive a fee in the amount of $100,000 payable at the closing of the transactions contemplated by
the Acquisition Agreement with Kennedy Cabot Acquisition.
(2) Ms. Gebbia, Mr. Reich, Mr. Cuttita and Mr. Zabatta were appointed to the Board of Directors on December 16,
2016, upon the closing of the Acquisition Agreement with KCA. Mr. Schneider, the Chairman of the Audit
Committee, was appointed to the Board of Directors on December 29, 2016.
28
Audit Committee Report to Shareholders
The Audit Committee has reviewed and discussed with management the audited financial statements for
the fiscal year ended December 31, 2016. The Audit Committee has also discussed with our independent registered
public accounting firm the matters required to be discussed by Auditing Standards No. 16, adopted by the Public
Company Accounting Oversight Board (United States) regarding, “Communications with Audit Committees,”
including our critical accounting policies and our interests, if any, in “off balance sheet” entities. Additionally, the
Audit Committee has received the written disclosures and representations from the independent registered public
accounting firm required by applicable requirements of the Public Company Accounting Oversight Board (United
States) regarding “Communication with Audit Committees concerning Independence” and has discussed with the
independent registered public accounting firm the independent registered public accounting firm’s independence.
Based on the review and discussions referred to within this report, the Audit Committee recommended to
the Board of Directors that the audited financial statements for the fiscal year ended December 31, 2016 be included
in Siebert Financial Corp.’s Annual Report on Form 10-K for filing with the Securities and Exchange Commission.
Audit Committee,
Jerry M. Schneider, CPA, Chairman
Charles Zabatta
Francis V. Cuttita
Item 12.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
AND RELATED STOCKHOLDER MATTERS
The following table lists share ownership of our common stock as of March 24, 2017. The information
includes beneficial ownership by each of our directors, the persons named in the Summary Compensation Table, all
directors and executive officers as a group and beneficial owners known by our management to hold at least 5% of
our common stock. To our knowledge, each person named in the table has sole voting and investment power with
respect to all shares of common stock shown as beneficially owned by such person. Except for Kennedy Cabot
Acquisition, LLC and Gloria E. Gebbia, no persons or groups filed statements with the Securities and Exchange
Commission during 2016 disclosing that they held more than 5% of our common stock.
Name and Address of Beneficial Owner(1)
Gloria E. Gebbia
Andrew H. Reich
Francis V. Cuttita
Charles Zabatta
Jerry M. Schneider
Kennedy Cabot Acquisition, LLC
24005 Ventura Blvd
Suite 200
Calabasas CA 91302
Directors and current executive officers as a group (5 persons)
* Less than 1%
Shares of
Common
Stock
20,142,220 (2)
Percent
of Class
91.2 %
*
*
*
*
19,987,283
90.5 %
20,142,220 (2)
91.2 %
(1) Unless otherwise indicated, the business address each individual is c/o Siebert Financial Corp., 120 Wall Street,
New York, NY 10005.
(2) Includes 19,987,283 shares of our common stock owned by Kennedy Cabot Acquisition, LLC, 136,537 shares
of our common stock owned by StockCross Financial Services, Inc. and 18,400 shares of our common stock
owned by the Gebbia Family Trust.
29
Item 13.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
Review and Approval of Related Party Transactions
As set forth in our Amended and Restated Audit Committee Charter, the Audit Committee is responsible
for reviewing and approving all related party transactions.
Our Code of Ethics for Senior Financial Officers, applicable to our chief executive officer, chief financial
officer, controller, treasurer, principal accounting officer and other employees performing similar functions,
provides that our Senior Financial Officers should endeavor to avoid any actual or potential conflict of interest
between their personal and professional relationships and requires them to promptly report and disclose all material
facts relating to any such relationships or financial interests which give rise, directly or indirectly, to an actual or
potential conflict of interest to the Audit Committee. The Code of Ethics also provides that no Senior Financial
Officer should knowingly become involved in any actual or potential conflict of interest without the relationship or
financial interest having been approved by the Audit Committee. Our Code of Ethics does not specify the standards
that the Audit Committee would apply to a request for a waiver of this policy.
Item 14.
PRINCIPAL ACCOUNTING FEES AND SERVICES
EisnerAmper LLP currently serves as our independent registered public accounting firm.
Audit Fees
Our Audit Committee has determined that the services described below that were rendered by EisnerAmper
LLP are compatible with the maintenance of EisnerAmper LLP’s independence from our management.
Audit Fees
The aggregate fees billed by EisnerAmper LLP for professional services rendered for the audit of our
annual financial statements and reviews of our quarterly financial statements were $289,000 for the year ended
December 31, 2016 and $264,000 for the year ended December 31, 2015.
Audit-Related Fees
EisnerAmper LLP did not perform any audit-related services during the years ended December 31, 2016
and December 31, 2015.
Tax Fees
EisnerAmper LLP billed aggregate fees of $50,000 and $57,000 during each the years ended December 31,
2016 and December 31, 2015 for tax compliance services, respectively.
All Other Fees. EisnerAmper LLP rendered no other products or services during the year ended December
31, 2016. The aggregate fees billed by EisnerAmper LLP during the year ended December 31, 2015 for other
products and services totaled $11,000 related to examination of agreements.
Pre-Approval Policy
The Audit Committee pre-approves all audit and non-audit services provided by our independent auditors
prior to the engagement of the independent auditors with respect to such services. With respect to audit services and
permissible non-audit services not previously approved, the Audit Committee has authorized the Chairwoman of the
Audit Committee to approve such audit services and permissible non-audit services, provided the Chairwoman
informs the Audit Committee of such approval at the next regularly scheduled meeting. All “Audit Fees”, “Tax
Fees” and “All Other Fees” set forth above were pre-approved by the Audit Committee in accordance with its pre-
approval policy.
30
PART IV
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:
1. Financial Statements
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.
3. Exhibits
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.
31
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
SIEBERT FINANCIAL CORP.
Report of Independent Registered Public Accounting Firm
Consolidated Statements of Financial Condition at December 31, 2016 and 2015
Consolidated Statements of Operations for each of the years in the three-year period ended December 31,
2016
Page
F-1
F-2
F-3
Consolidated Statements of Changes in Stockholders’ Equity for each of the years in the three-year period
F-4
ended December 31, 2016
Consolidated Statements of Cash Flows for each of the years in the three-year period ended December 31,
F-5
2016
Notes to Consolidated Financial Statements
SIEBERT BRANDFORD SHANK FINANCIAL, LLC AND SUBSIDIARY AT 2015 AND 2014
Report of Independent Registered Public Accounting Firm
Consolidated Statements of Financial Condition at December 31, 2015 and 2014
F-6
F-17
F-18
Consolidated Statements of Operations for the period from January 1, 2015 to November 9, 2015 and for the
F-19
years ended December 31, 2014
Consolidated Statements of Changes in Members’ Capital for the period from January 1, 2015 to November
F-20
9, 2015 and for the years ended December 31, 2014
Consolidated Statements of Cash Flows for the period from January 1, 2015 to November 9, 2015 and for
F-21
the years ended December 31, 2014
Notes to Consolidated Financial Statements
F-22
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
F-1
SIEBERT FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
ASSETS
Cash and cash equivalents
Receivable from brokers
Receivable from business sold to former affiliate net of unamortized discount
$ 2,730,000
606,000
$ 9,420,000
626,000
December 31,
2016
2015
of $908,000
Other receivable from former affiliate, including accrued interest of $46,000
Securities owned, at fair value
Furniture, equipment and leasehold improvements, net
Prepaid expenses and other assets
Intangible assets, net
LIABILITIES AND STOCKHOLDERS’ EQUITY
Liabilities:
Accounts payable and accrued liabilities, including $171,000 payable to former
affiliate in 2015
Accrued settlement liability
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
Additional paid-in capital
(Accumulated deficit) / Retained earnings
Less: 1,126,720 shares of treasury stock, at cost
—
—
92,000
46,000
342,000
—
2,092,000
4,046,000
593,000
374,000
634,000
—
$ 3,816,000
$ 17,785,000
$
738,000
825,000
$ 1,563,000
$ 2,102,000
—
$ 2,102,000
221,000
6,889,000
(4,857,000 )
—
232,000
19,490,000
721,000
(4,760,000 )
2,253,000
15,683,000
$ 3,816,000
$ 17,785,000
See notes to consolidated financial statements.
F-2
CONSOLIDATED STATEMENTS OF OPERATIONS
Year Ended December 31,
2015
2016
2014
Revenue:
Commissions and fees
Investment banking
Trading gains, net
Gain on the disposition of business to former affiliate
Interest and dividends
Expenses:
Employee compensation and benefits
Clearing fees, including floor brokerage
Professional fees
Professional fees and other expenses related to change in
control
Loss related to arbitration settlement
Advertising and promotion
Communications
Occupancy
Other general and administrative
$ 8,294,000
46,000
921,000
—
551,000
$ 9,155,000
40,000
575,000
—
326,000
$ 10,757,000
1,830,000
1,351,000
1,820,000
94,000
9,812,000
10,096,000
15,852,000
4,883,000
866,000
3,458,000
2,206,000
825,000
258,000
462,000
746,000
1,686,000
5,386,000
1,239,000
3,200,000
—
—
268,000
595,000
776,000
1,724,000
8,267,000
1,665,000
4,310,000
—
4,300,000
248,000
865,000
788,000
2,033,000
15,390,000
13,188,000
22,476,000
Loss before items shown below
Loss from continuing operations before income taxes
(Benefit) provision for income taxes
Loss from continuing operations
(5,578,000 )
(5,578,000 )
(275,000 )
(5,578,000 )
(3,092,000 )
(27,000 )
(2,817,000 )
(6,624,000 )
(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
Discontinued operations
Basic and diluted
$
$
$
(.25 ) $
$
(.25 ) $
—
(.13 ) $
$
(.13 ) $
—
(.30 )
—
(.30 )
Weighted average shares outstanding
22,085,126
22,085,126
22,085,126
See notes to consolidated financial statements.
F-3
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
23,211,846 $
232,000 $ 19,490,000 $
23,211,846
232,000
19,490,000
10,147,000
(6,557,000)
3,590,000
(2,869,000)
Balance – January 1, 2014
Net loss
Balance – 12/31/2014
Net loss
Balance - December 31,
Amount
Number
Of
Shares
1,126,720 $ (4,760,000 ) $ 25,109,000
(6,557,000 )
18,552,000
(2,869,000 )
(4,760,000 )
1,126,720
Total
2015
23,211,846
232,000
19,490,000
721,000
1,126,720
(4,760,000 )
15,683,000
Retirement of Treasury
Stock
Net Loss
Dividends
Capital Contribution
Balance - December 31,
(1,126,720 )
(11,000 )
(4,749,000 )
(1,126,720 )
4,760,000
(5,578,000)
(10,668,000 )
2,816,000
—
(5,578,000 )
(10,668,000 )
2,816,000
2016
22,085,126 $
221,000 $
6,889,000 $
(4,857,000)
— $
— $
2,253,000
See notes to consolidated financial statements.
F-4
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended December 31,
2015
2014
2016
Cash Flows From Operating Activities:
Net loss
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization
Gain on the disposition of business sold to former affiliate
Equity in (earnings) of former affiliate
Loss on sale of investment in former affiliate
Non-cash interest on receivable from former affiliate
Loss on disposal of fixed assets
Expenses paid by former shareholder
Amortization of discount on receivable from former affiliate
Accrued interest on note receivable from former affiliate
Distributions from former affiliate
Changes in:
Cash equivalent – restricted
Securities owned, at fair value
Receivable from former affiliate investee equity interest
Receivable from clearing and other brokers
Prepaid expenses and other assets
Accounts payable and accrued liabilities
$ (5,578,000 ) $ (2,869,000 ) $ (6,557,000 )
277,000
—
—
—
(207,000 )
89,000
2,206,000
—
(322,000 )
—
—
501,000
—
20,000
292,000
(539,000 )
284,000
—
(671,000 )
448,000
—
—
—
(235,000 )
(46,000 )
98,000
1,532,000
(105,000 )
—
162,000
84,000
(74,000 )
267,000
(1,820,000 )
(67,000 )
—
—
—
—
(37,000 )
—
13,000
—
(82,000 )
(76,000 )
317,000
33,000
(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
Distributions from equity investees
Payment received from business sold to former affiliate
Proceeds from sale of investment in former affiliate
Collection of advances to former affiliate
(38,000 )
—
493,000
—
—
(41,000 )
—
(154,000 )
173,000
4,000,000
104,000
—
—
Net cash provided by investing activities
455,000
4,063,000
19,000
Cash Flows From Financing Activities:
Cash dividend
Contribution from principal stockholder
Cash flows used in financing activities
Net (decrease) increase in cash and cash equivalents
(4,494,000 )
610,000
(3,884,000 )
(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
Cancellation of treasury shares
Non-cash dividend (transferred receivable and note) to principal
shareholder
$
—
4,760,000
$ 4,000,000
—
$
—
—
6,174,000
See notes to consolidated financial statements.
F-5
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.
F-6
NOTE C - SALE OF BUSINESS (CONTINUED)
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.
F-7
NOTE D - SALE OF INVESTMENT IN AFFILIATE (CONTINUED)
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
[1]
Cash Equivalents:
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.
[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 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.
[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:
Financial Instrument
Cash equivalents
Securities
2016
Level 1
$ 2,532,000
92,000
$ 2,624,000
2015
Level 1
$ 9,053,000
593,000
$ 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.
F-8
NOTE E - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
[4]
Income Taxes:
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.
[6]
Advertising Costs:
Advertising costs are charged to expense as incurred.
[7]
Use of Estimates:
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.
[8]
Per Share Data:
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.
[9]
Revenue:
Commission revenues and related clearing expenses are recorded on a trade-date basis. Fees, consisting
principally of revenue participation with the Company’s clearing broker in distribution fees and interest are
recorded as earned. 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.
F-9
NOTE E - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
[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
Income from equity investee
Distributions
December 31, 2014
Investment and advances
Income (loss) from equity investees
Distributions
SBSF
SBSFPC
TOTAL
$ 671,000
98,000
$
—
—
671,000
98,000
SBSF
SBSFPC
TOTAL
$ 7,979,000
—
7,979,000
$
$
84,000
13,000
(17,000 )
173,000
67,000
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.
F-10
NOTE F - INVESTMENT IN FORMER AFFILIATES (CONTINUED)
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:
Total assets, including secured demand note of $1,200,000 in 2014 due from
Siebert
Total liabilities, including obligations to Siebert of $6,051,000 in 2015 and
2015
2014
$ 30,903,000
$ 28,518,000
$3,057,000 in 2014
Total members’ capital
Regulatory minimum net capital requirement
Total revenue
Net income
23,254,000
7,649,000
250,000
27,774,000
1,369,000 (a)
12,458,000
16,060,000
250,000
24,806,000
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).
Summarized financial data of SBSFPC is as follows:
Total Assets
Total liabilities
Total members’ capital
Total revenue
Net loss
2014
$ 26,000
26,000
—
—
(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.
F-11
NOTE F - FURNITURE, EQUIPMENT AND LEASEHOLD IMPROVEMENTS, NET
Furniture, equipment and leasehold improvements consist of the following:
Equipment
Leasehold improvements
Furniture and fixtures
December 31,
2016
2015
$
28,000
318,000
$
346,000
375,000
549,000
44,000
968,000
Less accumulated depreciation and amortization
(300,000 )
(594,000 )
Depreciation and amortization expense for the years ended December 31, 2016, 2015 and 2014 amounted to
$277,000, $276,000 and $257,000, respectively.
$
46,000
$
374,000
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,
2015
2016
2014
Federal income tax (benefit) expense:
Current
Deferred
State and local:
Current
Deferred
Total:
Current
Deferred
$
$
—
—
—
$
(228,000 ) $
—
(228,000 )
(22,000 )
(22,000 )
—
—
—
—
—
—
(47,000 )
—
(47,000 )
(5,000 )
—
(5,000 )
(275,000 )
—
(275,000 ) $
$
(27,000 )
—
(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.
F-12
NOTE G - INCOME TAXES (CONTINUED)
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,
2015
2014
2016
Expected income tax (benefit) at statutory Federal tax rate (34%)
State and local taxes, net of Federal tax effect
Increase in valuation allowance
Nondeductible transaction costs related to change in control
Expiration of contribution carryforward
Permanent difference
Other
(400,000 )
1,704,000 (1)
482,000
85,000
19,000
7,000
$ (1,897,000 ) $ (1,051,000 ) $ (2,251,000 )
(464,000 )
2,551,000
(68,000 )
784,000
13,000
47,000
39,000
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.
The principal items giving rise to deferred tax assets (liabilities) are as follows:
Deferred tax assets:
Net operating loss credit carryforwards
Capital loss carryforwards
Employee stock based compensation
Retail brokerage accounts (b)
Contribution carryover
Furniture, equipment and leasehold improvements
Accrued settlement liability
Investment in former affiliate (a)
Other
Total
Valuation allowance
Net deferred tax assets
Deferred tax liability:
Receivable from affiliate (a)
December 31,
2016
2015
$ 10,316,000
$
237,000
71,000
158,000
312,000
340,000
—
8,000
11,442,000
9,456,000
395,000
—
237,000
140,000
178,000
181,000
252,000
—
44,000
10,883,000
(11,442,000 )
—
(10,002,000 )
881,000
—
—
(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.
F-13
NOTE G - INCOME TAXES (CONTINUED)
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:
Outstanding - beginning of the year
Cancelled
Forfeited
Expired
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.
2016
Weighted
Average
Exercise
Price
3.02
3.02
—
3.02
—
—
Shares
265,000
(240,000 )
—
(25,000 )
—
—
F-14
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 broker 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 closing of the transaction contemplated by the Acquisition
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
release provisions. The severance payment was funded from the proceeds of closing received by the Siebert
Estate which has been accounted for a capital contribution. 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 December 2015, a then current employee of the Company commenced an arbitration before FINRA against
the Company alleging a single cause of action for employment retaliation under the Sarbanes-Oxley Act of
2002. In February 2016, the employee amended his claim to replace the Sarbanes-Oxley claim with a
substantially identical claim arising under the Dodd- Frank Act of 2010. On January 31, 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 Note 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 accounted for as a capital contribution.
(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.
F-15
NOTE L - SUMMARIZED QUARTERLY FINANCIAL DATA (UNAUDITED)
2016
First
Quarter
Second
Quarter
$ 2,078,000 2,462,000 2,223,000
(728,000 ) (1,140,000 )
$
Third
Quarter
(501,000 )
Revenue
Net income (loss)
Net income (loss) per
share:
Fourth
Quarter
3,049,000
(3,209,000 )(b) $ (1,534,000 )
First
Quarter
$ 2,264,000 2,104,000 2,536,000 2,832,000
(407,000 )
(728,000 )
(200,000 )(a)
2015
Second
Quarter
Third
Quarter
Fourth
Quarter
Continuing operations
$
Discontinued operations $
(.02 )
—
(.03 )
—
(.05 )
—
(.15 )
—
$
$
(.07 )
—
(.02 )
—
(.04 )
.01
(.00 )
(.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.
F-16
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
F-17
Siebert Brandford Shank Financial, LLC and Subsidiary
Consolidated Statement of Financial Condition
December 31, 2014
ASSETS
Cash and cash equivalents
Accounts receivable
Due from broker
Secured demand note
Goodwill - Note B
Issuer relationships, net of amortization of $41,212 - Note B
Furniture, equipment and leasehold improvements, net
Other assets
$ 20,065,062
1,593,614
2,522,557
1,200,000
1,001,000
777,788
684,736
673,276
$ 28,518,033
LIABILITIES AND MEMBERS’ CAPITAL
Liabilities:
Payable to affiliate
Asset purchase obligation payable to affiliate, net of unamortized discount of $1,143,359
Accounts payable and accrued expenses
Deferred rent
$
104,320
1,856,641
4,747,648
549,287
7,257,896
5,200,000
Subordinated debt
Total liabilities
Commitments (Note G)
Members’ capital
12,457,896
16,060,137
$ 28,518,033
See notes to consolidated financial statements
F-18
Statements of Operations
Investment banking
Trading profits
Commissions
Interest and other
Employee compensation and benefits
Clearing fees
Communications
Occupancy
Professional fees
Interest, including amortization of discount (including
$200,745, 84,691 and 48,000 to affiliate)
State and local income tax
General and administrative (including $100,000, 100,000 and
100,000 to affiliate)
Period from
January 1, 2015
to
November 9, 2015
Siebert Brandford
Shank Financial,
LLC and Subsidiary
23,786,122
$
3,888,139
473,117
4,116
Year Ended
December 31,
2014
Siebert Brandford
Shank Financial,
LLC and Subsidiary
20,949,508
$
3,670,726
182,771
3,395
28,151,494
24,806,400
19,044,368
469,014
1,015,599
898,897
1,187,892
248,637
66,818
3,850,900
26,782,125
17,819,595
383,538
929,496
1,186,967
895,951
136,936
31,901
3,251,269
24,635,653
Net income
$
1,369,369
$
170,747
See notes to financial statements
F-19
SIEBERT BRANDFORD SHANK FINANCIAL, LLC AND SUBSIDIARY
Consolidated Statements of Changes in Members’ Capital
Balance – December 31, 2013 (a)
Distributions to members
Net income
Balance - December 31, 2014
Distributions to members
Net income
Balance - November 9, 2015 (b)
$ 15,915,862
(26,472 )
170,747
16,060,137
(200,000 )
1,369,369
$ 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
F-20
Statements of Cash Flows
Cash flows from operating activities:
Net income
Adjustments to reconcile net income to net cash (used in) provided by
$
1,369,369
$
170,747
Period from
January 1, 2015
To November 9, 2015
SIEBERT BRANDFORD
SHANK FINANCIAL, LLC
AND SUBSIDIARY
Year Ended
December 31, 2014
SIEBERT BRANDFORD
SHANK FINANCIAL, LLC
AND SUBSIDIARY
operating activities:
Amortization of discount on obligation due affiliate
Depreciation and amortization
Changes in:
Accounts receivable
Due to clearing broker
Securities owned, at fair value
Other assets
Payable to (receivable from) former affiliate
Accounts payable and accrued expenses
Bank overdraft
Deferred rent
Net cash (used in) /provided by operating activities
Cash flows from investing activities:
Purchase of leasehold improvements and equipment
Cash flows from financing activities:
Distributions to members
Subordinated borrowings
Subordinated repayments
Net cash provided by/ (used in) financing activities
Net increase/(decrease) in cash and cash equivalents
Cash and cash equivalents - beginning of period
Cash and cash equivalents - end of period
Supplemental disclosures of cash flow information:
Taxes paid
Interest paid
Non-cash investing and financing activities:
Note payable for purchase of business from affiliate
194,581
408,577
(750,051)
9,410,526
(8,603,054)
(28,001)
(52,898)
1,699,037
—
(95,936)
3,552,150
(41,746)
(200,000)
—
(4,000,000)
(4,200,000)
(689,596)
20,065,062
19,375,466
39,068
46,176
$
$
$
$
$
$
Intangible assets acquired related to business acquired from affiliate:
Issuer relationships
Goodwill
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
36,641
267,973
(1,031,467 )
(2,514,399 )
—
(54,533 )
76,056
741,040
(1,225,779 )
(72,788 )
(3,606,509 )
(89,364 )
(26,472 )
9,000,000
(5,000,000 )
3,973,528
277,655
19,787,407
20,065,062
24,323
100,295
1,820,000
(819,000 )
(1,001,000 )
F-21
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
Net Income
$ 27,729,000
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.
F-22
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.
[2]
Revenues:
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.
[3]
Fair value:
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.
[4]
Cash equivalents:
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.
F-23
SIEBERT BRANDFORD SHANK FINANCIAL, LLC AND SUBSIDIARY
Notes to Financial Statements
NOTE C - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
[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.
[6]
Intangible Assets:
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.
[7]
Goodwill:
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.
[8]
Use of estimates:
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.
[9]
Income taxes:
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.
F-24
SIEBERT BRANDFORD SHANK FINANCIAL, LLC AND SUBSIDIARY
Notes to Financial Statements
NOTE D - SUBORDINATED BORROWINGS AND SECURED DEMAND NOTE RECEIVABLE
The subordinated debt at December 31, 2014 consists of the following:
Payable to affiliate (a)
Payable to clearing broker (b)
2014
$ 1,200,000
4,000,000
$ 5,200,000
(a)
(b)
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.
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.
NOTE E - FURNITURE, EQUIPMENT AND LEASEHOLD IMPROVEMENTS, NET
Furniture, equipment, and leasehold improvements consist of the following:
Equipment
Furniture and leasehold improvements
Less accumulated depreciation and amortization
12/31/2014
$
926,654
1,718,826
2,645,480
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).
F-25
SIEBERT BRANDFORD SHANK FINANCIAL, LLC AND SUBSIDIARY
Notes to Financial Statements
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
2015
2016
2017
2018
2019
Thereafter
Amount
$ 1,043,000
886,000
639,000
627,000
587,000
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.
NOTE H - ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consist of the following:
Accounts payable
Accrued bonus and other employee compensation
Other accrued expenses
December 31,
2014
313,285
4,233,521
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.
F-26
Exhibit
No.
2.1
2.2
2.3
2.4
3.1
3.2
10.1
10.2
10.3
EXHIBIT INDEX
Description Of Document
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)
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)
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)
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)
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)
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)
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)
Assignment dated December 16, 2016 by and between the Estate of Muriel Siebert and Siebert
Financial Corp.
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.
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)
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)
21
Subsidiaries of the registrant
31.1
32.1
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
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.
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
(principal executive, financial and accounting officer)
Date: April 6, 2017
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.
Name
Title
Date
/s/ Andrew H. Reich
Andrew H. Reich
Executive Vice President, Chief Operating Officer and
April 6, 2017
Chief Financial Officer, Secretary (principal financial and
accounting officer) and Director
/s/ Gloria E. Gebbia
Gloria E. Gebbia
Director
/s/ Charles Zabatta
Charles Zabatta
Director
/s/ Francis V. Cuttita
Francis V. Cuttita
Director
/s/ Jerry Schneider
Jerry Schneider
Director
April 6, 2017
April 6, 2017
April 6, 2017
April 6, 2017
Exhibit 31.1
CERTIFICATION
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
I Andrew H. Reich, certify that:
1. I have reviewed this annual report on Form 10-K of Siebert Financial Corp.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light of the circumstances under which such statements were
made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly
present in all material respects the financial condition, results of operations and cash flows of the registrant as of,
and for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over
financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to
be designed under our supervision, to ensure that material information relating to the registrant, including
its consolidated subsidiaries, is made known to us by others within those entities, particularly during the
period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial
reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with
generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this
report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the
period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that
occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case
of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s
internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal
control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of
directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over
financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process,
summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a
significant role in the registrant’s internal control over financial reporting.
/s/ Andrew H. Reich
Andrew H. Reich
Executive Vice President, Chief Operating Oficer,
Chief Financial Officer and Secretary
(principal executive, financial and accounting officer)
Date: April 6, 2017
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 32.1
In connection with the Annual Report of Siebert Financial Corp. (the “Company”) on Form 10-K for the year ended
December 31, 2016, as filed with the Securities and Exchange Commission (the “Report”), I, Andrew H. Reich, in
my capacity as Executive Vice President, Chief Operating Officer, Chief Financial Officer and Secretary hereby
certify, pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that
to my knowledge:
(1) The Report filed by the Company with the Securities and Exchange Commission fully complies with the
requirements of Section 13(a) of the Securities and Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and
results of operations of the Company for the period covered by the report.
/s/ Andrew H. Reich
Andrew H. Reich
Executive Vice President, Chief Operating Officer,
Chief Financial Officer and Secretary
(principal executive, financial and accounting officer)
Date: April 6, 2017
A signed original of this written statement required by Section 906, or other documents authenticating,
acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this
written statement required by section 906, has been provided to Siebert Financial Corp. and will be retained by
Siebert Financial Corp. and furnished to the Securities and Exchange Commission or its staff upon request.