Siebert Financial Corp. — FY2016 Form 10-K
Reporting period: Fiscal year ended December 31, 2016. Siebert is a holding company operating a retail discount brokerage through Muriel Siebert & Co. and an investment-advisory business through Siebert Investment Advisors. The filing is an annual report; it also provides unaudited fourth-quarter results.
Financial results and key metrics
| Metric | FY2016 | FY2015 |
|---|---|---|
| Revenue | $9.812 million | $10.096 million |
| Expenses | $15.390 million | $13.188 million |
| Net loss | $5.578 million | $2.869 million |
| Net loss per share | $0.25 | $0.13 |
| Cash and cash equivalents, year-end | $2.730 million | $9.420 million |
| Total assets, year-end | $3.816 million | $17.785 million |
| Total liabilities, year-end | $1.563 million | $2.102 million |
| Stockholders’ equity, year-end | $2.253 million | $15.683 million |
- Commissions and fees were $8.294 million, down 9.4%, primarily reflecting lower retail trading. Trading gains rose 60.2% to $921,000; interest and dividends increased to $551,000.
- Operating cash flow was negative $3.261 million, versus negative $1.392 million in 2015. Investing activities provided $455,000; financing activities used $3.884 million, including the cash dividend. Cash declined by $6.690 million during the year.
- The company reported $2.7 million of highly liquid assets, or 72% of total assets. No funded debt is shown on the year-end balance sheet; reported liabilities were principally accounts payable/accruals and the arbitration settlement accrual.
- MSCO’s regulatory net capital was approximately $1.112 million against a $250,000 minimum, about $862,000 in excess. The filing separately says its February 2017 Focus Report showed approximately $2 million of net capital and $1.75 million excess.
- Retail activity weakened: commission-generating trades fell to 229,720 from 259,624; average commission per trade was $20.27 versus $22.29. Customer accounts with positions declined to 28,430 from 30,851. Customer margin debit balances were $214.0 million, down from $254.7 million; these are customer balances, not company borrowings.
Material changes versus the prior comparable period
- Revenue decreased 2.8%, while expenses increased 16.7%, resulting in a substantially larger annual loss. Professional fees and other change-in-control expenses included $2.206 million related to the acquisition; the company also recognized an $825,000 arbitration-settlement loss.
- Fourth-quarter revenue was $3.049 million versus $2.832 million a year earlier; the quarterly net loss widened to $3.209 million from $200,000. FY2016 Q4 included the $825,000 settlement charge and $2.206 million of change-in-control costs.
- After a special dividend of $0.20 per share, totaling approximately $4.494 million in cash, the company also assigned receivables and a note with a combined carrying value of approximately $6.174 million to the former majority shareholder. These items are reflected in the filing’s $10.668 million total dividends in the equity rollforward; the $6.174 million transfer was noncash.
- In December 2016, Kennedy Cabot Acquisition, LLC acquired approximately 90% of the outstanding shares and assumed control. The board and senior management changed. The filing reports approximately 91.2% beneficial ownership for Gloria E. Gebbia, including shares held by related entities.
- Management said 11 former employees had left and three had been hired since the change in control, producing estimated annual net savings of approximately $600,000. Offices were consolidated or relocated as part of cost-reduction efforts.
Outlook, risks, contingencies and unusual items
- New management is pursuing further expense reductions and examining possible operating efficiencies with StockCross, a broker-dealer controlled by members of the Gebbia family. The filing says alternatives are being explored; no completed integration or quantified savings from such a relationship are reported.
- The company is developing a “Robo” advisory platform for SIA using an algorithm licensed from an affiliate. Beta testing was expected to take about six months. Development costs were being borne by the affiliate, while future licensing fees had not been determined and were expected to be consistent with industry norms. The launch, economics and customer uptake remain uncertain.
- The clearing agreement with National Financial Services was due to expire on or about July 31, 2017. Management intended to negotiate a new agreement and expected economic benefit, but the filing gives no terms or assurance of renewal.
- Key risks include trading-volume and market fluctuations, intense low-cost brokerage competition and pressure on commissions, dependence on third-party clearing and technology, cybersecurity and operational disruptions, regulatory and net-capital requirements, and customers’ failure to meet obligations. The company also warns that the controlling shareholder can determine shareholder-vote outcomes and that the public float is limited.
- The $825,000 employee-retaliation arbitration was settled in January 2017, dismissed with prejudice, and funded by KCA; the liability had been recorded in 2016. Management described other ordinary-course claims as not expected to materially affect financial position or results. The filing also notes ongoing New York State and Illinois tax examinations.
- Deferred tax assets were fully offset by a valuation allowance. Federal net operating loss carryforwards were $24.2 million and state carryforwards $17.4 million, with utilization subject to annual limitations following the ownership change.
- The independent auditor gave an unqualified opinion on the financial statements. Management reported effective disclosure controls and internal control over financial reporting; the auditor was not engaged to express an opinion on internal-control effectiveness.
Important facts for investors to verify
- Whether the reduced cash balance and recurring operating cash outflows are sustainable, especially after the special dividend and transfer of affiliate-related assets.
- The basis and timing of MSCO’s regulatory net capital figures, including the difference between the December 2016 audited figure and the February 2017 Focus Report figure.
- Renewal terms for the NFS clearing agreement and any resulting changes in costs, service or operational dependence.
- Robo-platform launch progress, customer adoption, affiliate licensing charges and any related-party governance safeguards.
- Whether stated staffing and facilities savings are realized, and whether any StockCross-related arrangements deliver measurable benefits on appropriate terms.
- The effects of the change in control on tax-loss carryforwards, public float, governance and potential conflicts of interest.