SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-QSB
Quarterly Report Pursuant to Section 13
or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended March 31, 1997 Commission file number 0-5703
SIEBERT FINANCIAL CORP.
---------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
New York 11-1796714
------------------------------- ---------------------
(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
Former name, former address and former fiscal year,
if changed since last report: None
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 May 8, 1997.
Transitional Small Business Disclosure Format: Yes X No
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<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
SIEBERT FINANCIAL CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
For the Three Months Ended
March 31,
--------------------------
1997 1996
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Revenues:
Commissions $4,954,280 $5,080,919
Trading profits 301,413 483,656
Interest and dividends 136,502 199,483
Investment banking 287,049 719,376
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Total revenues 5,679,244 6,483,434
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Expenses:
Salaries, commissions and employee benefits 1,821,896 1,747,867
Clearing fees, including floor brokerage 1,132,850 1,116,018
Advertising and promotion 901,086 1,214,722
Communications 432,162 315,065
Interest 92,075 69,386
Rent and occupancy 162,755 89,793
Other general and administrative 705,834 603,382
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Total expenses 5,248,658 5,156,233
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Income before provision for taxes 430,586
Provision for income taxes - current 182,103
----------
Net income $ 248,483
==========
Net income - historical 1,327,201
Pro forma provision for income taxes (1) 584,000
----------
Pro forma net income $ 743,201
==========
Per share of common stock:
Net income $ 0.05
==========
Pro forma net income $ 0.14
==========
Weighted average common
shares deemed outstanding 5,236,485 5,235,897
========== ==========
(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 thereof.
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<PAGE>
SIEBERT FINANCIAL CORP. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
(Unaudited)
ASSETS
March 31,
1997
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Cash and cash equivalents $3, 576,171
Securities owned, at market value 9,330,010
Receivable from brokers and dealers --
Secured demand note receivable from majority shareholder 2,000,000
Property and equipment, net 488,791
Investment in affiliate 392,000
Prepaid expenses and other assets 520,226
-----------
T O T A L $16,307,198
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LIABILITIES AND SHAREHOLDERS' EQUITY
Payable to brokers and dealers $ 2,976,365
Accounts payable and accrued liabilities 2,527,171
Securities sold, not yet purchased, at market value 482,555
-----------
T o t a l 5,986,091
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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 March 31, 1997 52,376
Additional paid-in capital 6,742,091
Retained earnings 526,640
-----------
Total shareholders' equity 7,321,107
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T O T A L $16,307,198
===========
The acocmpanying notes to financial statements are an integral part hereof,
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<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 shareholders rounding up
to nearest 100 shares, net
of proceeds of offering 1,713 17 (28,958) (28,941)
Net income for period 248,483 248,483
--------- ------- ---------- -------- ----------
Balance, March 31, 1997 5,237,610 $52,376 $6,742,091 $526,640 $7,321,107
========= ======= ========== ======== ==========
The accompanying notes to financial statements are an integral part hereof.
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</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SIEBERT FINANCIAL CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three months ended
March 31,
-------------------------
1997 1996
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<S> <C> <C>
Cash flows from operating activities:
Net income $ 248,483 $ 1,327,201
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 37,996 19,219
Changes in operating assets and liabilities:
(Increase) in prepaid expenses and other assets (86,488) (4,161)
Net decrease in securities owned, at market value 786,238 5,065,122
Net change in receivable from/payable to brokers
and dealers 4,117,804 (692,159)
(Decrease) in accounts payable and accrued liabilities (296,829) (5,253,581)
Net (decrease) in securities sold, net yet
purchased, at market value (964,588) (247,355)
----------- -----------
Net cash provided by operating activities 3,842,616 214,286
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Cash flows from investing activities:
Purchase of property and equipment (76,533) (10,091)
Investment in inactive affiliate (392,000)
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Net cash (used in) investing activities (468,533) (10,091)
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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 proceds of offering (28,941)
----------- -----------
NET INCREASE IN CASH AND CASH EQUIVALENTS 3,345,142 704,195
Cash and cash equivalents - beginning of period 231,029 164,071
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CASH AND CASH EQUIVALENTS - END OF PERIOD $ 3,576,171 $ 868,266
=========== ===========
Supplemental disclosure of cash flow information:
Cash paid for:
Interest totaled $92,075 in 1997 and $69,386 in 1996.
Income and franchise taxes totaled $50,075 in 1997 and $11,000 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
March 31, 1997
(Unaudited)
(1) Basis of Presentation
The consolidated financial statements include the accounts of Siebert
Financial Corp. (the "Company") 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 March 31, 1997 and 1996, Siebert had net capital of $7,604,150 and
$7,474,113, 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,
Siebert 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 Siebert of $16,059. Costs related
to the offering approximated $45,000.
(4) Investment in Inactive Affiliate
Siebert invested $392,000 and two of its officers 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
Siebert's Siebert, Brandford, Shank Division as soon as all regulatory
requirements have been completed. Siebert will also provide additional
regulatory capital in the form of a $1.2 million 10% secured demand note.
From April 1, 1997, any further net operating losses will be shared between
the principals (51%) and Siebert (49%) from the capital of the new company;
prior operating losses absorbed by Siebert, including the March quarter,
will be recovered before future profits, after interest on capital
contributions at 10%, are shared on a similar 51%/49% basis.
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<PAGE>
Item 2. Management's Discussion and Analysis or Plan of Operations
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 few 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 Siebert 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 Siebert's growth or even
lead to a decline in Siebert'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
For the three months ended March 31, 1997, revenues were $5.7 million and
net income and earnings per share were $248,000 and $.05, respectively. Revenues
for the three months ended March 31, 1996, were $6.5 million and pro forma net
income and earnings per share were $743,000 and $.14, respectively. The net
income and per share results for last year are pro forma for the merger effected
with J. Michaels, Inc. and reverse split in November 1996.
Overall revenue for the first quarter trailed last year by 12% while
overall expenses increased 2%. Decreases in trading profits, interest and
dividend income and corporate syndicate revenues contributed to the overall
decrease in revenues.
Retail discount brokerage operating income increased about 20% to
approximately $1.2 million before start-up operating losses of about $350,000
for the quarter for three branch offices which were opened in late 1996.
Tax exempt investment banking revenue increased to $300,000; however,
operations resulted in a pre-tax operating loss of $600,000, $350,000 more than
the prior quarter, because of the start-up of the newly formed Siebert,
Brandford, Shank Division which added the cost of 26 municipal investment
banking professionals and related offices. As planned, the operations of the
Division will be transferred to a jointly owned company with the principals,
formed as of April 1, 1997, and from that date any further net operating losses
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<PAGE>
will be shared between the principals (51%) and Siebert (49%); prior operating
losses absorbed by Siebert, including the March quarter, will be recovered
before future profits, after interest on capital contributions at 10%, are
shared on a similar 51%/49% basis. The new company, Siebert, Brandford, Shank
& Co., LLC, appears to be gathering momentum in its marketplace and improving
results are expected as the year progresses. Recent appointments as lead manager
for offerings anticipated to raise $160 million in the aggregate are expected to
take place in the second and third quarters of 1997; awarding clients include
Detroit Water, Detroit Public Schools and the State of California.
Results of Operations
Three Months ended March 31, 1997 Compared to Three Months ended March 31,
1996
Total revenues for the first three months of 1997 were approximately $5.7
million, a decrease of approximately $800,000 or 12 % over the first three
months of 1996. Revenues decreased in all categories although commissions
declined only slightly.
Commissions and fees decreased $127,000 or 2 % to approximately $5.0
million. Both quarters reflected strong bull markets but reduced advertising in
the current quarter may have contributed to the slight reduction in commissions.
Trading profits decreased $182,000 or 38 % to $301,000 continuing to
reflect less volatile markets and reduced trading opportunities in the firm's
principal proprietary trading activity, listed bond funds.
Interest and dividends decreased $63,000 or 32 % to $137,000 due to
decreases in long proprietary trading positions and in trading strategies which
generated dividend income.
Investment banking income decreased $432,000 or 60% to $287,000 due
primarily to decreased participation in equity underwritings over the prior year
period 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.
Total costs and expenses for the first three months of 1997 were $ 5.2
million, an increase of $92,000 or 2% over the first three months of 1996. Costs
increased in all categories except advertising and promotion.
Compensation and benefit costs increased $74,000 or 4% to $1.8 million due
to the addition of the additional tax exempt investment banking staff offset by
reduced incentive compensation provisions due to reduced contractual performance
incentives and discretionary staff bonuses.
Clearing and brokerage fees increased $17, 000 or 2% to $1.1 million. Such
costs increased slightly while commissions declined slightly because of a refund
of charges in the year ago quarter from a prior period and a small shift in the
current quarter to products having relatively higher clearing charges.
Advertising and promotion expense decreased $314,000 or 26% to $900,000
million due to reduced promotional charitable contributions related to the
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<PAGE>
decrease in equity syndicate business and reduced national advertising and
related production costs offset to some extent by a series of special
promotional mailing programs.
Communications expense increased $117,000 or 37% to $432,000 as more retail
client services were offered directly on-line and due to the activities of the
additional tax exempt investment banking staff.
Interest expense increased $23,000 or 33% to $92,000 due an increase in
subordinated borrowings and greater use of margin borrowings by proprietary
trading activities.
Rent and occupancy costs increased $73, 000 or 81% 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 $102,000 or 17% to
$705,000 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 68% due
to a similar decrease in income before provision for taxes.
Liquidity and Capital Resources
Siebert's assets are highly liquid, consisting generally of cash, money
market funds and securities freely salable in the open market. Siebert's total
assets at March 31, 1997 were $16.3 million, of which $2.0 million took the form
of a secured demand note. $12.9 million or 79% 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 March 31, 1997, Siebert's net capital was $ 7.6 million, $7.3
million in excess of its minimum capital requirement of $250,000.
Risk Management
The principal credit risk to which Siebert is exposed on a regular basis is
to customers who fail to pay for their purchases or who fail to maintain the
minimum required collateral for amounts borrowed against securities positions.
Siebert has established policies with respect to maximum purchase
commitments for new customers or customers with inadequate collateral to support
a requested purchase. Managers have some flexibility in allowing certain
transactions. When transactions occur outside normal guidelines, such accounts
are monitored closely until their payment obligation is completed; if the
customer does not meet the commitment, steps are taken to close out the purchase
and minimize any losses.
Siebert has a risk unit specifically responsible for monitoring all
customer positions for the maintenance of required collateral. The unit also
monitors accounts that may be concentrated unduly in one or more securities
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<PAGE>
whereby a significant decline in the value of a particular concentrated security
could reduce the value of the account's collateral below the account's loan
obligation.
Siebert has not had significant credit losses in the last five years.
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
On March 5, 1997, the Company filed a Current Report on Form 8-K disclosing
pursuant to Item 8 of such Form a change in the Company's fiscal year from March
31 to December 31 of each year, such change to take effect as of December 31,
1996.
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
SIEBERT FINANCIAL CORP.
Date: May 14, 1997 By: /s/ Muriel F. Siebert
----------------------------------------
Muriel F. Siebert
Chair and President
(on behalf of the
registrant)
Date: May 14, 1997 By: /s/ T. K. Flatley
----------------------------------------
T. K. Flatley
Executive Vice President
and Assistant Secretary
(Principal Financial and
Accounting Officer)
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<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 3,576,171
<SECURITIES> 9,330,010
<RECEIVABLES> 2,000,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 15,426,407
<PP&E> 778,119
<DEPRECIATION> 289,328
<TOTAL-ASSETS> 16,307,198
<CURRENT-LIABILITIES> 5,986,091
<BONDS> 3,000,000
0
0
<COMMON> 52,376
<OTHER-SE> 7,268,731
<TOTAL-LIABILITY-AND-EQUITY> 16,307,198
<SALES> 0
<TOTAL-REVENUES> 5,679,244
<CGS> 0
<TOTAL-COSTS> 5,248,658
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 430,586
<INCOME-TAX> 182,103
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 248,483
<EPS-PRIMARY> .05
<EPS-DILUTED> 0
</TABLE>
