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SIEB > SEC Filings for SIEB > Form 10-Q on 14-Nov-2013All Recent SEC Filings

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Form 10-Q for SIEBERT FINANCIAL CORP


14-Nov-2013

Quarterly Report


Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

This discussion should be read in conjunction with our audited consolidated financial statements as of and for the year ended December 31, 2012, and the unaudited consolidated financial statements and the notes thereto contained elsewhere in this Quarterly Report.

Business Environment

Our working capital is invested primarily in money market funds, so that liquidity has not been materially affected. The recent financial crisis did have the effect of reducing participation in the securities market by our retail and institutional customers, which had an adverse effect on our revenues. The stock market has improved in the nine months ended September 30, 2013, however our revenue has not improved during this period. Our affiliate, Siebert, Brandford, Shank & Co., L.L.C. ("SBS") had a loss for the current nine months period of approximately $380,000 as compared to income of $1.8 million for the same period last year. This resulted in a loss to the Company of $186,000 for the current nine month period. Our expenses include the costs of an arbitration proceeding commenced by a former employee following the termination of his employment, which remains unresolved. The Company believes that the action is without merit, but the costs of defense, which are included as professional expenses, have adversely affected the Company's results of operation and may continue to affect the results of operations until the action is completed. Competition in the brokerage industry remains intense.

The following table sets forth certain metrics as of September 30, 2013 and 2012 and for the three and nine months ended September 30, 2013 and 2012, respectively, which we use in evaluating our business.

                                           For the Three Months ended          For the Nine Months ended
                                                 September 30,                       September 30,
     Retail Customer Activity:               2013              2012              2013              2012


Total retail trades:                            80,693            71,177           256,069           260,396
Average commission per retail trade:    $        22.48    $        20.65    $        23.56    $        28.19




                                                           As of September 30,

Retail customer balances:                                   2013          2012

Retail customer net worth (in billions):                 $       6.9    $    6.7
Retail customer money market fund value (in billions):   $       1.0    $    1.0
Retail customer margin debit balances (in million):      $     198.1    $  202.6
Retail customer accounts with positions:                      38,160      42,185


Description:

Total retail trades represent retail trades that generate commissions.

Average commission per retail trade represents the average commission generated for all types of retail customer trades.

Retail customer net worth represents the total value of securities and cash in the retail customer accounts before deducting margin debits.

Retail customer money market fund value represents all retail customers accounts invested in money market funds.

Retail customer margin debits balances represent credit extended to our customers to finance their purchases against current positions.

Retail customer accounts with positions represent retail customers with cash and/or securities in their accounts.

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

Recent Developments

On January 23, 2008, the Board of Directors of the Company authorized a buy back of up to 300,000 shares of common stock. During the nine months ended September 30, 2013, the Company purchased 12,266 shares at an average price of $1.56.

Critical Accounting Policies

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


Results of Operations

We had net loss of $1,644,000 for the three months ended September 30, 2013 and net loss of $4,366,000 for the nine months ended September 30, 2013.

Three Months Ended September 30, 2013 Compared to Three Months Ended September 30, 2012

Total revenues for the three months ended September 30, 2013 were $3.7 million, a decrease of $407,000 or 10.0% from the same period in 2012.

Commission and fee income for the three months ended September 30, 2013 was $2.8 million, an increase of $172,000 or 6.6% from the same period in 2012 due to an increase in retail trading volume.

Investment banking revenues for the three months ended September 30, 2013 were $464,000, a decrease of $411,000 or 47.0% from the same period in 2012 due to our participation in fewer new issues in the equity and debt capital markets.

Trading profits were $420,000 for the three months ended September 30, 2013, a decrease of $165,000 or 28.2% from the same period in 2012 due to an overall decrease in trading volume primarily in the debt markets.

Interest and dividends for the three months ended September 30, 2013 were $15,000, a decrease of $3,000 or 16.7% from the same period in 2012 primarily due to lower cash and cash equivalents balances from the previous year.

Total expenses for the three months ended September 30, 2013 were $6.1 million, an increase of $856,000 or 16.5% from the same period in 2012.

Employee compensation and benefit costs for the three months ended September 30, 2013 were $2.0 million, a decrease of $346,000 or 14.8% from the same period in 2012 due to a decrease in commission and bonus paid based on production in the capital markets and retail operations.

Clearing and floor brokerage costs for the three months ended September 30, 2013 were $595,000, an increase of $87,000 or 17.1% from the same period in 2012 primarily due to the increase in volume of trade executions for retail customers.

Professional fees for the three months ended September 30, 2013 were $2.1 million, an increase of $1.0 million or 97.1% from the same period in 2012 primarily due to an increase in legal fees relating to a dispute with a former employee.

Advertising and promotion expenses for the three months ended September 30, 2013 were $122,000, an increase of $18,000 or 17.3% from the same period in 2012 due to a increase in local media and print advertising.

Communications expense for the three months ended September 30, 2013, was $317,000, no change from the same period in 2012.

Occupancy costs for the three months ended September 30, 2013 were $266,000, an increase of $42,000 or 18.8% from the same period in 2012 due to the increase in our New York office rents.


Other general and administrative expenses for the three months ended September 30, 2013 were $651,000, an increase of $17,000 or 2.7% from the same period in 2012 due to an increase in travel and entertainment and registration fees.

Income from Siebert's equity investment in SBS, an entity in which Siebert holds a 49% equity interest, for the three months ended September 30, 2013 was $765,000, an increase of $579,000 or 311.3% from the same period in 2012 due to SBS participating in more senior managed or co-managed transactions. Income from our equity investment in SBSFPC, an entity in which the Company holds a 33.33% equity interest, for the three months ended September 30, 2013 was a loss of $23,000, a decrease of $81,000 from the same period in 2012 due to mark to market gains in positions. Income from equity investees is considered to be integral to our operations and material to the results of operations.

No tax benefit related to the pre-tax loss was recorded for the three months ended September 30, 2013 due to the recording of a full valuation allowance to offset deferred tax assets based on recent cumulative losses and the likelihood of realization of such assets. The provision for income taxes for the three months ended September 30, 2012 represents a state tax assessment of $34,000 relating to years 2007, 2008 and 2009 based on a tax examination completed by New York State in 2012.

Nine Months Ended September 30, 2013 Compared to Nine Months Ended September 30, 2012

Total revenues for the nine months ended September 30, 2013 were $12.2 million, a decrease of $4.0 million or 24.9% from the same period in 2012.

Commission and fee income for the nine months ended September 30, 2013 was $8.7 million, a decrease of $3.0 million or 25.6% from the same period in 2012 primarily due to a decrease in average commissions charged per trade and reduced retail and institutial trading volumes. In 2012, commissions included retail options trading by one customer, which accounted for approximately 21% of total commissions and fees.

Investment banking revenues for the nine months ended September 30, 2013 were $1.9 million, a decrease of $637,000 or 24.7% from the same period in 2012 due to our participation in fewer issues in the equity and debt capital markets.

Trading profits for the nine months ended September 30, 2013 were $1.6 million, a decrease of $417,000 or 21.1% from the same period in 2012 due to an overall decrease in customer trading volume in the debt markets.

Interest and dividends for the nine months ended September 30, 2013 were $47,000, a decrease of $11,000 or 19.0% from the same period in 2012 primarily due to lower cash and cash equivalents balances from the previous year.

Total expenses for the nine months ended September 30, 2013 were $16.2 million, a decrease of $740,000 or 4.4% from the same period in 2012.

Employee compensation and benefit costs for the nine months ended September 30, 2013 were $6.5 million, a decrease of $958,000 or 12.8% from the same period in 2012 due to a decrease in commissions paid based on production in the capital markets.

Clearing and floor brokerage costs for the nine months ended September 30, 2013 were $1.9 million, a decrease of $288,000 or 13.5% from the same period in 2012, due to lower retail trading volumes.

Professional fees for the nine months ended September 30, 2013 were $4.1 million, an increase of $1.4 million or 51.6% from the same period in 2012 primarily due to an increase in legal fees relating to a dispute with a former employee.


Advertising and promotion expenses for the nine months ended September 30, 2013 were $297,000, a decrease of $34,000 or 10.3% from the same period in 2012 primarily due to a decrease in online advertising.

Communications expense for the nine months ended September 30, 2013 was $992,000, a decrease of $311,000 or 23.9% from the same period in 2012 due to the elimination of costs associated with the discontinuance of our website developed and maintained by a software vendor as of June 2012.

Occupancy costs for the nine months ended September 30, 2013 were $782,000, an increase of $81,000 or 11.6% from the same period in 2012 due to the increase in our New York office rents.

Write off of software development costs of $433,000 was due to the Company's discontinuation of its relationship with a software vendor on June 30, 2012, which had developed and maintained our website. As a result, the Company wrote off its remaining unamortized carrying value of development costs of $433,000. Effective July 1, 2012, such services are provided by our clearing broker.

Other general and administrative expenses for the nine months ended September 30, 2013 were $1.8 million, a decrease of $178,000 or 9.2% from the same period in 2012 due to a decrease in depreciation, training, subscriptions, computer updates and data storage costs.

Income from Siebert's equity investment in SBS, an entity in which Siebert holds a 49% equity interest, for the nine months ended September 30, 2013 was a loss of $186,000, compared to a gain of $888,000 from the same period in 2012 due to SBS participating in fewer senior managed or co-managed transactions. Income from our equity investment in SBSFPC, an entity in which the Company holds a 33.33% equity interest, for the nine months ended September 30, 2013 was a loss of $143,000 as compared to a gain of $42,000 from the same period in 2012 due to the mark to market of positions. We consider income and loss from equity investees to be integral to our operations and material to the results of operations.

No tax benefit related to the pre-tax loss was recorded for the nine months ended September 30, 2013 due to the recording of a full valuation allowance to offset deferred tax assets based on recent cumulative losses and the likelihood of realization of such assets. The provision for income taxes for the nine months ended September 30, 2012 represents a state tax assessment of $34,000 relating to years 2007, 2008 and 2009 based on a tax examination completed by New York State in 2012.

Liquidity and Capital Resources

Our assets are highly liquid, consisting generally of cash in money market funds. Our total assets at September 30, 2013 were $30.8 million. As of that date, we regarded $18.4 million, or 60.0%, of total assets as highly liquid.

Siebert is subject to the net capital requirements of the SEC, the Financial Industry Regulatory Authority (FINRA) and other regulatory authorities. At September 30, 2013, Siebert's regulatory net capital was $14.6 million, $14.3 million in excess of its minimum capital requirement of $250,000.

On January 22, 2008, the Board of Directors of the Company authorized a buy back of up to 300,000 shares of common stock. During the nine months ended September 30, 2013, 12,266 shares were purchased at an average price of $1.56 per share.

Siebert has entered into a Secured Demand Note Collateral Agreement with SBS under which Siebert is obligated to lend to SBS up to $1.2 million on a subordinated basis collateralized by cash equivalents of approximately $1.5 million as of September 30, 2013. Amounts pledged by Siebert under the facility are reflected on our balance sheet as "cash equivalents - restricted". SBS pays Siebert interest on this amount at the rate of 4% per annum. The facility expires on August 31, 2014, at which time SBS is obligated to repay to Siebert any amounts borrowed by SBS thereunder.


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