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 June 30, 1997 Commission file number 0-5703
SIEBERT FINANCIAL CORP.
---------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
New York 1-1796714
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
885 Third Avenue, Suite 1720
New York, New York 10022
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(Address of principal executive offices)
Issuer's telephone number, including area code: (212) 644-2400
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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
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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 August 8, 1997.
Transitional Small Business Disclosure Format: Yes X No
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<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
<CAPTION>
SIEBERT FINANCIAL CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
For the Three Months Ended For the Six Months Ended
June 30, June 30,
1997 1996 1997 1996
------------ ------------ ------------ ------------
Revenues:
<S> <C> <C> <C> <C>
Commissions $ 4,504,516 $ 5,782,943 $ 9,458,796 $ 10,863,862
Trading profits 518,263 (33,990) 819,677 449,666
Interest and dividends 147,335 146,371 283,837 345,855
Investment banking 1,061,812 443,785 1,348,860 1,163,161
------------ ------------ ------------ ------------
Total revenues 6,231,926 6,339,109 11,911,170 12,822,544
------------ ------------ ------------ ------------
Expenses:
Compensation and benefits 1,984,640 1,557,306 3,806,536 3,305,173
Clearing fees and floor brokerage 1,039,430 1,300,312 2,172,279 2,416,330
Advertising and promotion 638,094 761,050 1,539,180 1,975,772
Communications 408,452 349,401 840,614 664,466
Interest 114,766 69,618 206,840 139,004
Rent and occupancy 163,343 91,289 326,098 181,082
Other general and administrative 796,653 535,645 1,502,489 1,139,029
------------ ------------ ------------ ------------
Total expenses 5,145,378 4,664,621 10,394,036 9,820,856
------------ ------------ ------------ ------------
Income before provision for taxes 1,086,548 1,517,134
Provision for income taxes - current 490,983 673,086
------------ ------------
Net income $ 595,565 $ 844,048
============ ============
Net income - historical 1,674,488 3,001,688
Pro forma provision for income taxes (1) 736,775 1,320,743
------------ ------------
Pro forma net income $ 937,713 $ 1,680,945
============ ============
Per share of common stock:
Net income $ 0.11 $ 0.16
============ ============
Pro forma net income $ 0.18 $ 0.32
============ ============
Weighted average common shares
deemed outstanding 5,237,610 5,235,897 5,237,039 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.
-2-
<PAGE>
SIEBERT FINANCIAL CORP. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
(Unaudited)
ASSETS
June 30,
1997
-----------
Cash and cash equivalents $ 1,936,497
Securities owned, at market value 10,393,168
Receivable from brokers and dealers --
Secured demand note receivable from
majority shareholder 2,000,000
Property and equipment, net 415,912
Investment in affiliate 274,502
Prepaid expenses and other assets 997,406
-----------
T O T A L $16,017,485
===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Payable to brokers and dealers $ 758,741
Accounts payable and accrued liabilities 3,089,010
Securities sold, not yet purchased,
at market value 1,253,062
-----------
T O T A L 5,100,813
-----------
Commitments and contingencies
Liabilities to majority shareholder
subordinated to claims of general creditors 3,000,000
Shareholders' equity:
Common stock, $.01 par value 49,000,000 shares
authorized, 5,237,610 shares outstanding
at June 30, 1997 52,375
Additional paid-in capital 6,742,091
Retained earnings 1,122,205
-----------
Total shareholders' equity 7,916,672
-----------
T O T A L $16,017,485
===========
The accompanying notes to financial statements are an integral part hereof.
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<PAGE>
<TABLE>
<CAPTION>
SIEBERT FINANCIAL CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
(Unaudited)
Common Stock
---------------------------
Number Additional
of $.01 Par Paid-in Retained
Shares Value Capital Earnings Total
------ ----- ------- -------- -----
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1996 5,235,897 $ 52,359 $ 6,771,049 $ 278,157 $ 7,101,565
Cost of issuance of shares
to sharehodlers rounding
up to nearest 100 shares,
net of proceeds of offering 1,713 17 (28,958) (28,941)
Net income for period 844,048 844,048
----------- ----------- ----------- ----------- -----------
Balance, June 30, 1997 5,237,610 $ 52,376 $ 6,742,091 $ 1,122,205 $ 7,916,672
=========== =========== =========== =========== ===========
</TABLE>
The accompanying notes to financial statements are an integral part hereof.
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<PAGE>
<TABLE>
<CAPTION>
SIEBERT FINANCIAL CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six months ended
June 30,
------------------------------------
1997 1996
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Cash flows from operating activities:
<S> <C> <C>
Net income $ 844,049 $ 3,001,690
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 71,772 38,915
Changes in operating assets and liabilities:
(Increase) in prepaid expenses and other assets (563,668) (6,028)
Net decrease in securities owned, at market value (276,920) 4,273,763
Net change in receivable from/payable to brokers 1,900,180 (6,048,367)
Increase (decrease) in accounts payable
and accrued liabilities 265,010 (89,263)
Net increase (decrease) in securities sold, not yet
purchased, at market value (194,081) 391,585
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Net cash provided by operating activities 2,046,342 1,562,295
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Cash flows from investing activities:
Purchase of property and equipment (37,431) (42,195)
Investment in affiliate (274,502)
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Net cash (used in) investing activities (311,933) (42,195)
----------- -----------
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 INCREASE IN CASH AND CASH EQUIVALENTS 1,705,468 2,020,100
Cash and cash equivalents - beginning of period 231,029 164,071
----------- -----------
CASH AND CASH EQUIVALENTS - END OF PERIOD $ 1,936,497 $ 2,184,171
=========== ===========
Supplemental disclosure of cash flow information:
Cash paid for:
Interest totaled $206,840 in 1997 and $139,004 in 1996.
Income and franchise taxes totaled $339,025 in 1997 and $13,350 in 1996.
The accompanying notes to financial statements are an integral part hereof.
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</TABLE>
<PAGE>
SIEBERT FINANCIAL CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1997
(Unaudited)
(1) Basis of Presentation
The consolidated financial statements include the accounts of Siebert Financial
Corp. (the "Company" or "Siebert") and subsidiary. 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
At June 30, 1997 and 1996, Siebert had net capital of $8,368,299 and $8,921,653,
respectively, as compared with 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
The Company invested $392,000 and two principals invested $408,000 in Members'
Capital in Siebert, Brandford, Shank & Co., LLC, a new limited liability company
and broker dealer which will succeed to the business of the Company's Siebert,
Brandford, Shank Division as soon as all regulatory requirements have been
completed. On July 25,1997, the Company provided additional regulatory capital
in the form of a $1.2 million 10% secured demand note. Effective from April 1,
1997, operating losses have been shared between the principals (51%) and The
Company (49%); during the second quarter, the Company's share of net operating
losses was $117,000. Cumulative operating and start up losses absorbed by The
Company, amounting to $1.1 million through June 30, 1997, are to be recovered
before future profits, after interest on capital contributions at 10%, are to be
shared on a similar 51% / 49% basis.
(5) Options
On March 11, 1997, the Company granted to outside directors options to purchase
30,000 shares at $9.25. 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 to employees options to purchase 199,750 shares at $9.25.
The 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 of Financial Condition 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.
Business Environment
Market conditions during the first half 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
On August 7, 1997, the unit acted as Senior Manager for a $244 million
offering of Detroit Water Supply System Revenue Bonds, its largest offering
since formation of the Division October 1, 1996. Other recent appointments as
lead manager for offerings now expected in the fourth quarter include Detroit
Public Schools, $145 million, and the State of California, $175 million. There
can be no assurance that these transactions will take place as planned.
On August 11, 1997, the Company announced the acquisition of 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 June 30, 1997 Compared to Three Months ended June 30, 1996
- -----------------------------------------------------------------------------
Total revenues for the three months ended June 30, 1997 were approximately
$6.2 million, a decrease of $107,000 or 1.7% over the same period in 1996.
Commission revenues decreased while trading and investment banking revenues
increased.
Commissions decreased $1.3 million or 22% to approximately $4.5 million as
the retail full service discount business of the Company faced increasing
competition from ultra low cost flat fee brokers.
Trading profits increased $552,000 to $518,000 from a loss of $34,000 in
the prior year period reflecting improved trading opportunities in the firm's
principal proprietary trading activity, listed bond funds.
Interest and dividends decreased $1,000 or .7% to $147,000 with little
change in trading strategies which generated dividend income.
- 7 -
<PAGE>
Investment banking income increased $618,000 or 139% to $1.1 million due to
increased revenues of the tax exempt 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 costs and expenses for the second three months of 1997 were $5.2
million, an increase of $481,000 or 10% over the second three months of 1996.
Costs increased in all categories except clearing fees and floor brokerage and
advertising and promotion.
Compensation and benefit costs increased $427,000 or 27% to $2.0 million
due to additional tax exempt investment banking staff and commission-based
municipal trading personnel.
Clearing and brokerage fees decreased $260,000 or 20% to $1.1 million
reflecting the decrease in commission income compared to the prior year.
Advertising and promotion expense decreased $123,000 or 16% to $638,000 due
to reduced promotional activity related to the decrease in equity syndicate
business and reduced public relations expenditures in the current period.
Communications expense increased $59,000 or 17% to $408,000 due to the
activity of three new retail branches and the offices and activities of the
additional tax exempt investment banking staff.
Interest expense increased $45,000 or 65% to $115,000 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 $72,000 or 79% to $163,000 due to
opening three new retail offices and seven new tax exempt investment banking
offices in the fourth quarter of 1996.
Other general and administrative expenses increased $261,000 or 49% to
$796,000 primarily reflecting travel and related expenses related to the new
business activity of the much larger tax exempt 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 about 35% due
to a similar decrease in income before provision for income taxes.
Six Months ended June 30, 1997 Compared to Six Months ended June 30, 1996
- -------------------------------------------------------------------------
Total revenues for the six months ended June 30, 1997 were approximately
$11.9 million, a decrease of $911,000 or 7.1% over the same period in 1996.
Commission revenues and interest and dividends decreased while trading and
investment banking revenues increased.
Commissions decreased $1.4 million or 13% to approximately $9.5 million
largely reflecting the decrease in the current quarter from the prior year
period noted above.
Trading profits increased $370,000 or 82% to $820,000 reflecting improved
trading opportunities in the firm's principal proprietary trading activity,
listed bond funds.
Interest and dividends decreased $62,000 or 18% to $284,000 due to reduced
long proprietary trading positions and in trading strategies which generated
dividend income.
Investment banking income increased $186,000 or 16% to $1.3 million due to
the strong tax exempt investment banking improvement noted above offset by the
continuing decline in participation in equity underwritings.
- 8 -
<PAGE>
Total costs and expenses for the first six months of 1997 were $ 10.4
million, an increase of $573,000 or 5.8% over the same period in 1996. Costs
increased in all categories except clearing fees and floor brokerage and
advertising and promotion.
Compensation and benefit costs increased $501,000 or 15% to $3.8 million
due to the addition of the additional tax exempt investment banking staff and
commission based municipal trading personnel.
Clearing and brokerage fees decreased $244,000 or 10% to $2.2 million
reflecting the decrease in commission income compared to the prior year.
Advertising and promotion expense decreased $437,000 or 22% to $1.5 million
due to reduced promotional charitable contributions related to the decrease in
equity syndicate business and reduced public relations expenditures in the
current period.
Communications expense increased $176,000 or 17% to $841,000 with three new
retail branches and the offices and activities of the additional tax exempt
investment banking staff.
Interest expense increased $68,000 or 49% to $207,000 due an increase in
subordinated borrowings and greater use of margin borrowings and short positions
in proprietary trading activities.
Rent and occupancy costs increased $145,000 or 80% to $326,000 due to
opening three new retail offices and seven new tax exempt investment banking
offices in the fourth quarter of 1996.
Other general and administrative expenses increased $363,000 or 32% to $1.5
million primarily reflecting travel and related expenses related to the new
business activity of the much larger tax exempt 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 about 49% 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 salable in the open market. The Company's
total assets at June 30, 1997 were $16.0 million, of which $2.0 million took the
form of a secured demand note. $14.3 million or 89% of total assets were highly
liquid.
The Company is subject to the net capital requirements of the Securities
and Exchange Commission, the New York Stock Exchange and other regulatory
authorities. At June 30, 1997, The Company's net capital was $8.4 million, $8.1
million in excess of its minimum capital requirement of $250,000.
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
- 9 -
<PAGE>
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: August 13, 1997 By: /s/ Muriel F. Siebert
----------------------
Muriel F. Siebert
Chair and President
(on behalf of the
registrant)
Date: August 13, 1997 By: /s/ T. K. Flatley
------------------
T. K. Flatley
Executive Vice President
and Assistant Secretary
(Principal Financial and
Accounting Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 1,936,497
<SECURITIES> 10,393,168
<RECEIVABLES> 2,000,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 14,329,665
<PP&E> 487,684
<DEPRECIATION> 71,772
<TOTAL-ASSETS> 16,017,485
<CURRENT-LIABILITIES> 5,100,813
<BONDS> 3,000,000
0
0
<COMMON> 52,376
<OTHER-SE> 7,864,296
<TOTAL-LIABILITY-AND-EQUITY> 16,017,485
<SALES> 0
<TOTAL-REVENUES> 11,911,170
<CGS> 0
<TOTAL-COSTS> 10,394,036
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,517,134
<INCOME-TAX> 673,086
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 844,048
<EPS-PRIMARY> .16
<EPS-DILUTED> 0
</TABLE>
