SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-QSB
Quarterly Report Under Section 13
or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended Commission file number 0-5703
September 30, 1997
SIEBERT FINANCIAL CORP.
(Exact name of small business issuer as specified in its charter)
New York 1-1796714
(State or other jurisdiction of I.R.S. Employer Identification Number)
incorporation or organization)
885 Third Avenue, Suite 1720
New York, New York 10022
(Address of principal executive offices)
Issuer's telephone number, including area code: (212) 644-2400
Former name, former address and former fiscal year, if changed since last
report: Not Applicable
Check whether the issuer: (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 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 ____
State the number of shares outstanding of each of the issuer's classes of common
stock, as of the latest practical date: 5,237,610 shares of Common Stock
outstanding on November 7, 1997.
Transitional Small Business Disclosure Format: Yes ___ No _X_
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
SIEBERT FINANCIAL CORP. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1997
(Unaudited)
ASSETS
Cash and cash equivalents $ 461,236
Cash equivalents - restricted 1,300,000
Securities owned, at market value 11,574,447
Receivables from brokers and dealers 344,735
Secured demand notes receivable 3,300,000
Property and equipment, net 398,202
Investment in affiliate 392,000
Prepaid expenses and other assets 623,542
-----------
$18,394,162
===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable and accrued liabilities $ 3,486,917
Securities sold, not yet purchased, at market value 1,657,250
-----------
5,144,167
-----------
Commitments and contingencies
Liabilities to majority shareholder and affiliate
subordinated to claims of general creditors 4,300,000
-----------
Shareholders' equity:
Common stock, $.01 par value, 49,000,000
shares authorized, 5,237,610 shares
outstanding at September 30, 1997 52,376
Additional paid-in capital 6,742,091
Retained earnings 2,155,528
-----------
8,949,995
-----------
$18,394,162
===========
The accompanying notes to financial statements are an integral part hereof.
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<PAGE>
SIEBERT FINANCIAL CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months Ended For the Nine Months Ended
September 30, September 30,
---------------------------- -------------------------------
1997 1996 1997 1996
---------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues:
Commissions $5,040,511 $4,185,811 $14,499,306 $15,049,674
Trading gains, net 328,032 195,679 1,147,709 645,345
Interest and dividends 246,646 152,206 530,484 498,060
Investment banking 1,627,056 717,569 2,975,917 1,880,730
---------- ---------- ----------- -----------
Total revenues 7,242,245 5,251,265 19,153,416 18,073,809
---------- ---------- ----------- -----------
Expenses:
Compensation and benefits 2,019,456 1,454,083 5,825,992 4,759,256
Clearing fees and floor brokerage 1,242,845 1,014,741 3,415,125 3,431,071
Advertising and promotion 641,413 724,621 2,180,593 2,700,392
Communications 371,088 303,698 1,211,702 968,164
Interest 99,586 73,365 306,427 212,368
Rent and occupancy 163,927 90,354 490,025 271,436
Other general and administrative 869,122 339,033 2,371,610 1,478,062
---------- ---------- ----------- -----------
Total expenses 5,407,437 3,999,895 15,801,474 13,820,749
---------- ---------- ----------- -----------
Income before provision for taxes 1,834,808 3,351,942
Provision for income taxes - current 801,485 1,474,571
----------- -----------
Net income $ 1,033,323 $ 1,877,371
=========== ===========
Net income - historical 1,251,370 4,253,060
Pro forma provision for income taxes (1) 550,603 1,871,346
---------- -----------
Net income - pro forma $ 700,767 $ 2,381,714
========== ===========
Per share of common stock:
Net income $ 0.20 $ 0.36
Net Income - pro forma $ 0.13 $ 0.45
Weighted average common shares
deemed outstanding 5,237,610 5,235,897 5,237,290 5,235,897
</TABLE>
(1) The pro forma provision for income taxes represents income taxes which
would have been provided had Siebert operated as a C corporation.
The accompanying notes to financial statements are an integral part hereof.
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<PAGE>
SIEBERT FINANCIAL CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
(Unaudited)
<TABLE>
<CAPTION>
Common Stock
-----------------------
Number Additional
of Par Paid-in Retained
Shares Value Capital Earnings Total
------ ----- ------- -------- -----
<S> <C> <C> <C> <C> <C>
Balance, January 1, 1997 5,235,897 $ 52,359 $6,771,049 $ 278,157 $7,101,565
Cost of issuance of shares to shareholders
rounding up to nearest 100 shares,
net of proceeds of offering 1,713 17 (28,958) -- (28,941)
Net income for period -- -- -- 1,877,371 1,877,371
--------- -------- ---------- ---------- ----------
Balance, September 30, 1997 5,237,610 $ 52,376 $6,742,091 $2,155,528 $8,949,995
========= ======== ========== ========== ==========
</TABLE>
The accompanying notes to financial statements are an integral part hereof.
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<PAGE>
SIEBERT FINANCIAL CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended
September 30,
---------------------------
1997 1996
---------- -----------
Cash flows from operating activities:
Net income - pro forma $ 2,381,714
Pro forma provision for income taxes 1,871,346
-----------
Net income - historical $1,877,371 4,253,060
Adjustments to reconcile net
income to net cash provided by
operating activities:
Depreciation and amortization 108,334 59,774
Changes in operating assets
and liabilities:
(Increase) in prepaid expenses
and other assets (189,804) (57,061)
(Increase) decrease in securities owned,
at market value (1,458,199) 5,827,005
Net (increase) decrease in receivable
from/payable to brokers 796,704 (8,671,713)
Increase in accounts payable
and accrued liabilities 662,917 29,887
Net increase in securities
sold, not yet purchased,
at market value 210,107 806,216
---------- -----------
Net cash provided by operating
activities 2,007,430 2,247,168
---------- -----------
Cash flows from investing activities:
Increase in restricted cash equivalents (1,300,000) --
Purchase of property and equipment (56,282) (50,720)
Investment in affiliate (392,000) --
---------- -----------
Net cash (used in) investing
activities (1,748,282) (50,720)
---------- -----------
Cash flows from financing activities:
Subordinated loan borrowings from
majority shareholder -- 500,000
Cost of issuance of shares to
shareholders rounding up to
nearest 100 shares, net of
proceeds of offering (28,941)
---------- -----------
Net cash (used in) provided by financing
activities (28,941) 500,000
---------- -----------
Net increase in cash and cash equivalents 230,207 2,696,448
Cash and cash equivalents -
beginning of period 231,029 164,071
---------- -----------
Cash and cash equivalents - end of period $ 461,236 $ 2,860,519
========== ===========
Supplemental disclosure of cash flow information:
Cash paid for:
Interest totaled $306,427 in 1997 and $212,368
in 1996.
Income and franchise taxes totaled $868,900 in
1997 and $49,897 in 1996.
The accompanying notes to financial statements are an integral part hereof.
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<PAGE>
SIEBERT FINANCIAL CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997
(Unaudited)
(1) Basis of Presentation
The consolidated financial statements include the accounts of Siebert Financial
Corp. (the "Company") and its wholly-owned subsidiary, Muriel Siebert & Co.,
Inc. ("Siebert"). All material intercompany balances have been eliminated. The
statements are unaudited; however, in the opinion of management, all adjustments
considered necessary to reflect fairly the Company's financial position and
results of operations, consisting of normal recurring adjustments, have been
included.
The accompanying consolidated financial statements do not include all of the
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles.
Accordingly, the statements should be read in conjunction with the audited
financial statements included in the Company's Annual Report on Form 10-K for
the year ended December 31, 1996. Because of the nature of the Company's
business, the results of any interim period are not necessarily indicative of
results for a full year.
(2) Net Capital
Siebert is subject to the net capital requirements of the Securities and
Exchange Commission, the New York Stock Exchange and other regulatory
authorities. At September 30, 1997 and 1996, Siebert had regulatory net capital
of $7,822,216 and $10,294,872, respectively, as compared with regulatory net
capital requirements of $250,000.
(3) Issuance of Shares
In an offering commenced January 23, 1997 and extended to March 21, 1997, the
Company offered existing shareholders with "odd lots" following the merger
effected with J. Michaels, Inc. and reverse split in November, 1996 the
opportunity to "round up" their shares to the next nearest 100 shares. 1,713
shares were issued with proceeds to the Company of $16,059. Costs related to the
offering approximated $45,000.
(4) Investment in Affiliate
In April 1997, the Company and two individuals (the "Principals") formed
Siebert, Brandford, Shank & Co., LLC ("SBS") to succeed to the business of the
Siebert, Brandford, Shank Division of the Company when regulatory requirements
have been met. The business arrangement with the Principals provides that
profits will be shared 51% to the Principals and 49% to the Company. Losses
incurred in the amount of $832,357 through September 30, 1997 will be recouped
by the Company prior to any profit allocation to the Principals. The Company
invested $392,000 as its share of the members' capital of SBS and provided
additional regulatory capital of $1.3 million in the form of a 10% secured
demand note.
(5) Cash Equivalents - Restricted
Included in Cash equivalents - restricted is cash pledged to an affiliate to
secure a subordinated loan.
(6) Options
On March 11, 1997, the Company granted to non-employee directors options to
purchase 30,000 shares of the Company's Common Stock at an exercise price of
$9.25 per share. The directors' options are exercisable six months from the date
of grant and expire 5 years from the date of grant. On May 16, 1997, the Company
granted options to certain of its employees to purchase 199,750 shares of the
Company's Common Stock at an exercise price of $9.25 per share. On November 6,
1997, the Company granted options to an employee to purchase 10,000 shares of
the Company's Common Stock at an exercise price of $8.875 per share. All such
employee options vest 20% per year for five years and expire ten years from the
date of grant. No employee options are currently exercisable.
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<PAGE>
Item 2. Management's Discussion and Analysis or Plan of Operation
This discussion should be read in conjunction with the Company's unaudited
Consolidated Financial Statements and the Notes thereto contained elsewhere in
this Quarterly Report.
Statements in this "Management's Discussion and Analysis or Plan of
Operation" and elsewhere in this document 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 known and unknown factors that could cause the
actual results of the Company to be materially different from the 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, fluctuations in volume and prices of securities, changes and
prospects for changes in interest rates and demand for brokerage and investment
banking services, increases in competition within and without the discount
brokerage business through broader services offerings or otherwise, competition
from electronic discount brokerage firms offering greater discounts on
commissions then the Company, prevalence of a flat fee environment, decline in
participation in equity or municipal finance underwritings, decrease ticket
volume in the discount brokerage division, limited trading opportunities,
increases in expenses, and changes in net capital or other regulatory
requirements.
Business Environment
Market conditions during the first nine months of 1997 reflected a
continuation of the 1996 bull market characterized by record volume and record
high market levels. At the same time, competition has continued to intensify
both among all classes of brokerage firms and within the discount brokerage
business as well as from new firms not previously in the discount brokerage
business. Electronic trading continues to grow as a retail discount market
segment with some firms offering very low flat rate trading execution fees that
are difficult for any conventional discount firm to meet. Many of the flat fee
brokers, however, impose charges for services such as mailing, transfers and
handling exchanges which the Company does not and also direct their executions
to captive market makers. Increased competition, broader service offerings or
the prevalence of a flat fee environment could also limit the Company's growth
or even lead to a decline in the Company's customer base which would adversely
affect its results of operations.
The Company, like other securities firms, is 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 the Company's
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. Accordingly, earnings for any period should not be considered
representative of any other period.
Recent Developments
During the third quarter of 1997, the Company, through it's Siebert,
Brandford, Shank Division acted as Senior Manager for a $244 million offering of
Detroit Water Supply System Revenue Bonds, its largest offering since the
formation of the Division. In addition, the Company has been appointed as lead
manager for several large planned offerings including the State of California
($175 million), the City of Houston ($150 million) and the Detroit Public
Schools ($145 million). There can be no assurance that these transactions will
take place as planned.
During the third quarter of 1997, the Company acquired the retail brokerage
accounts of The Stock Mart, the discount brokerage arm of William O'Neil + Co.
Incorporated of Los Angeles, California.
Results of Operations
Three Months ended September 30, 1997 Compared to Three Months ended
September 30, 1996
Total revenues for the three months ended September 30, 1997 were
approximately $7.2 million, a increase of $2.0 million or 38% over the same
period in 1996. Commissions, trading gains, interest and dividends and
investment banking revenues all increased.
Commissions increased $855,000 or 20% to approximately $5.0 million
primarily due to a corresponding increase in ticket volume in the discount
brokerage division.
Trading gains increased $132,000 or 68% to $328,000 from $196,000 in the
prior year period reflecting improved trading opportunities in the firm's
principal proprietary trading activity, listed bond funds.
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<PAGE>
Interest and dividends increased $94,000 or 62% to $247,000 primarily due
to trading strategies which generated dividend income.
Investment banking income increased $909,000 or 127% to $1.6 million
primarily due to increased revenues of the municipal investment banking division
offset by a continuing decline in participation in equity underwritings over the
prior year period. The latter is due to a sharp fall off in large underwritings
and a trend to smaller syndicates that make it difficult for non-originating
firms to participate in offerings. The Company expects the latter condition will
continue.
Total expenses for the third quarter of 1997 were $5.4 million, an increase
of $1.4 million or 35% over the third quarter of 1996. Expenses increased in all
categories except advertising and promotion.
Compensation and benefit costs increased $565,000 or 39% to $2.0 million
primarily due to additional municipal investment banking staff and
commission-based municipal trading personnel.
Clearing and floor brokerage fees increased $228,000 or 22% to $1.2 million
primarily due to the increase in ticket volume compared to the prior year.
Advertising and promotion expense decreased $83,000 or 11% to $641,000
primarily due to lower public relations expenditures and lower promotional
activity related to the decrease in equity syndicate business in the current
period.
Communications expense increased $67,000 or 22% to $371,000 primarily due
to the increase in ticket volume and the offices and activities of the municipal
investment banking staff.
Interest expense increased $26,000 or 36% to $100,000 due to an increase in
subordinated borrowings and greater use of margin borrowings and short positions
in proprietary trading activities.
Rent and occupancy costs increased $74,000 or 81% to $164,000 due to the
opening of three new retail offices and seven new municipal investment banking
offices in the fourth quarter of 1996.
Other general and administrative expenses increased $530,000 or 156% to
$869,000 primarily due to travel and entertainment expenses related to the new
municipal investment banking staff and a range of miscellaneous costs associated
with opening new retail offices.
The provision for income taxes and net income compared to the pro forma
provision for income taxes and pro forma net income each increased approximately
46% due to a similar increase in income before provision for income taxes.
Nine Months ended September 30, 1997 Compared to Nine Months ended
September 30, 1996
Total revenues for the nine months ended September 30, 1997 were
approximately $19.2 million, an increase of $1.1 million or 6% over the same
period in 1996. Commission revenues decreased while trading gains, interest and
dividends and investment banking revenues increased.
Commissions decreased $550,000 or 4% to approximately $14.5 million
primarily due to a lower ticket volume in the discount brokerage division during
the first and second quarters of the year.
Trading profits increased $502,000 or 78% to $1.1 million reflecting
improved trading opportunities in the firm's principal proprietary trading
activity, listed bond funds.
Interest and dividends increased $32,000 or 7% to $530,000 primarily due to
trading strategies which generated dividend income.
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<PAGE>
Investment banking income increased $1.1 million or 58% to $3.0 million
primarily due to the increased activity noted above in the municipal investment
banking division offset by the continuing decline in participation in equity
underwritings.
Total expenses for the first nine months of 1997 were $ 15.8 million, an
increase of $2 million or 14% over the same period in 1996. Expenses increased
in all categories except clearing fees and floor brokerage and advertising and
promotion.
Compensation and benefit costs increased $1.1 million or 22% to $5.8
million primarily due to the addition of the municipal investment banking staff
and commission-based municipal trading personnel.
Clearing and floor brokerage fees decreased $16,000 or 0.5% to $3.4 million
primarily due to the decrease in ticket volume as noted above compared to the
prior year.
Advertising and promotion expense decreased $520,000 or 19% to $2.2 million
primarily due to reduced promotional charitable contributions related to the
decrease in equity syndicate business.
Communications expense increased $244,000 or 25% to $1.2 million primarily
due to the opening of three new retail branches and the offices and activities
of the municipal investment banking staff.
Interest expense increased $94,000 or 44% to $306,000 primarily due to an
increase in subordinated borrowings and greater use of margin borrowings and
short positions in proprietary trading activities.
Rent and occupancy costs increased $219,000 or 81% to $490,000 primarily
due to the opening of three new retail offices and seven new municipal
investment banking offices in the fourth quarter of 1996.
Other general and administrative expenses increased $894,000 or 60% to $2.4
million primarily due to travel and entertainment expenses related to the new
municipal investment banking staff and a range of miscellaneous costs associated
with opening new retail offices.
The provision for income taxes and net income compared to the pro forma
provision for income taxes and pro forma net income each decreased approximately
21% due to a similar decrease in income before provision for taxes.
Liquidity and Capital Resources
The Company's assets are highly liquid, consisting generally of cash, money
market funds and securities freely saleable in the open market. The Company's
total assets at September 30, 1997 were $18.4 million, of which $3.3 million
took the form of secured demand notes. $12.4 million or 67% of total assets were
highly liquid.
Siebert is subject to the net capital requirements of the Securities and
Exchange Commission, the New York Stock Exchange and other regulatory
authorities. At September 30, 1997, Siebert's net capital was $7.9 million, $7.6
million in excess of its minimum capital requirement of $250,000.
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<PAGE>
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27 - Financial Data Schedule (Edgar filing only)
(b) Reports on Form 8-K
None
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
SIEBERT FINANCIAL CORP.
Date: November 14, 1997 By: /s/ Muriel F. Siebert
--------------------------------------
Muriel F. Siebert
Chair and President
(on behalf of the
registrant)
Date: November 14, 1997 By: /s/ Richard M. Feldman
--------------------------------------
Richard M. Feldman
Executive Vice President
and Chief Financial Officer
(Principal Financial and
Accounting Officer)
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