Siebert Financial Corp. — Q1 2018 Form 10-Q
Reporting period: Three months ended March 31, 2018. The unaudited consolidated results include the brokerage, investment advisory, and insurance subsidiaries. Comparisons are with Q1 2017 unless otherwise noted.
Financial performance and liquidity
- Revenue: $8.177 million, up 244% from $2.379 million. Principal transactions were $2.941 million; commissions and fees $2.674 million; margin interest, marketing and distribution fees $2.535 million.
- Profit: Pretax income was $2.106 million versus $61,000; net income was $1.693 million versus $58,000. Diluted earnings per share were $0.06 versus $0.00. Net margin was approximately 20.7% versus 2.4%.
- Expenses: $6.071 million, up 162%, chiefly reflecting added personnel, offices, and activity following the StockCross retail-asset acquisition.
- Cash flow: Operating activities provided $1.665 million, compared with $468,000 used in Q1 2017. Investing activities used $46,000. Cash increased $1.619 million to $5.384 million.
- Balance sheet and liquidity: Total assets were $9.024 million and liabilities $2.119 million at March 31, 2018. Cash was $5.384 million; stockholders’ equity was $6.905 million. Management said cash and working capital were sufficient for operations. The filing reports no borrowings or debt balance.
- Regulatory capital: MSCO reported net capital of approximately $6.1 million, about $5.9 million above its $250,000 minimum requirement.
Changes and significant events
- The company attributed the substantial year-over-year revenue and earnings increase primarily to retail assets acquired from StockCross and higher interest-bearing earnings. StockCross-attributed revenue was reported as $3.295 million.
- Retail trades rose to 96,219 from 59,370; average commission per retail trade increased to $23.14 from $20.01. Customer margin debit balances were $343.7 million versus $205.0 million.
- On March 1, 2018, the company acquired Park Wilshire Companies, Inc. from affiliates for $111,000; it became a wholly owned subsidiary.
- The company adopted ASC 606 on January 1, 2018; it reported no material effect on revenue recognition and no opening-equity adjustment.
Outlook, risks, and other matters
- No specific financial guidance was provided. Management cautioned that quarterly results are not necessarily indicative of full-year results and identified market conditions, interest rates, trading volumes, competition, systems failures, expenses, and regulatory capital requirements as risks.
- Customer and counterparty defaults could expose MSCO to losses on unsettled transactions; no material such losses were reported. The company disclosed that it currently has no formal contract with one clearing broker, StockCross.
- Management said ordinary-course legal claims were without merit or not expected to materially affect the company. No material changes to previously disclosed risk factors were reported.
- The company reported previously identified material weaknesses in internal control over financial reporting and said it was developing a remediation plan. It also concluded disclosure controls were effective; no material quarterly change in internal control was reported.
- Federal and state net operating loss carryforwards were approximately $23.1 million and $16.3 million, respectively, subject to annual use limits of about $900,000 under Section 382. A full valuation allowance remained against deferred tax assets.
Facts for investors to verify
- Tax expense discrepancy: The income statement reports a Q1 2018 income-tax provision of $413,000, while MD&A states $239,000. The figures do not reconcile in the provided filing text.
- StockCross relationship and acquisition: Review the acquired assets’ contribution to recurring results, related-party revenue and expenses, receivable/payable balances, and the absence of a formal clearing-broker contract.
- Control remediation: Follow progress addressing the material weaknesses identified in the 2017 Form 10-K.
- Profit sustainability: Assess the extent to which Q1 growth reflects the StockCross acquisition, market activity, and rising interest rates rather than comparable organic growth.