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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
(Mark One)
[X] Quarterly report under Section 13 or 15(d) of the Securities Exchange Act of
1934
For the quarterly period ended SEPTEMBER 30, 1998
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[ ] Transition report under Section 13 or 15(d) of the Exchange Act
For the transition period from or
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Commission file number 0-5703
SIEBERT FINANCIAL CORP.
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(Exact Name of Small Business Issuer as Specified in its Charter)
NEW YORK 11-1796714
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(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
885 THIRD AVENUE, NEW YORK, NY 10022
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(Address of Principal Executive Offices)
(212) 644-2400
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(Issuer's Telephone Number, Including Area Code)
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(Former Name, Former Address and Former Fiscal Year,
if Changed Since Last Report)
Check whether the issuer: (1) has 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 [ ]
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether registrant filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court.
Yes [ ] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date: As of November 1, 1998 there
were 21,004,960 shares of Common Stock, par value $.01 per share, outstanding.
Transitional Small Business Disclosure Format (check one):
Yes [ ] No [X]
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<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
SIEBERT FINANCIAL CORP. & SUBSIDIARY
CONSOLIDATED STATEMENT OF FINANCIAL CONDITION
SEPTEMBER 30, 1998
(UNAUDITED)
ASSETS
Cash and cash equivalents $ 7,417,039
Cash equivalents - restricted 1,300,000
Receivable from broker-dealers 2,522,722
Securities owned, at market value 3,870,848
Secured demand note receivable from affiliate 2,000,000
Furniture, equipment and leasehold improvements, net 606,881
Investment in affiliate 819,419
Prepaid expenses and other assets 449,879
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Total Assets $18,986,788
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LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Securities sold, not yet purchased, at market value $ 638,460
Accounts payable and accrued liabilities 2,405,679
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Total accounts payable and accrued liabilities 3,044,139
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Commitments and contingent liabilities
Subordinated borrowings payable to affiliate 3,000,000
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Stockholders' equity:
Common stock, $.01 par value; 49,000,000 shares authorized,
21,004,960 shares outstanding 210,049
Additional paid-in capital 6,691,002
Retained earnings 6,041,598
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Total Stockholders' Equity 12,942,649
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Total Liabilities and Stockholders' Equity $18,986,788
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See notes to consolidated financial statements.
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<PAGE>
SIEBERT FINANCIAL CORP. & SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-----------------------------------------------------
1998 1997 1998 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues:
Commissions and fees $ 4,696,669 $ 4,720,267 $13,998,015 $13,815,520
Investment banking 77,161 1,627,057 3,042,887 2,975,917
Income from equity investee 427,419 -- 427,419 --
Trading profits 193,217 521,756 960,658 1,704,976
Interest and dividends 217,415 224,980 535,307 508,817
----------- ----------- ----------- -----------
Total revenues 5,611,881 7,094,060 18,964,286 19,005,230
----------- ----------- ----------- -----------
Expenses:
Employee compensation and benefits 1,388,736 2,019,456 6,041,361 5,825,992
Clearing fees, including floor brokerage 627,057 1,242,846 1,987,846 3,415,125
Advertising and promotion 509,941 641,413 1,269,085 2,180,593
Communications 445,154 371,088 1,269,020 1,211,702
Occupancy 58,679 163,927 413,012 490,025
Interest 75,251 77,920 267,915 284,760
Other general and administrative 603,434 742,602 2,166,734 2,245,177
----------- ----------- ----------- -----------
Total expenses 3,708,252 5,259,252 13,414,973 15,653,374
----------- ----------- ----------- -----------
Income before income taxes 1,903,629 1,834,808 5,549,313 3,351,856
Provision for income taxes 828,935 801,485 2,305,935 1,474,485
----------- ----------- ----------- -----------
Net income $ 1,074,694 $ 1,033,323 $ 3,243,378 $ 1,877,371
=========== =========== =========== ===========
Net income per share of common stock - basic
and diluted $ 0.05 $ 0.05 $ 0.15 $ 0.09
Weighted average shares outstanding - basic
21,004,334 20,950,440 20,995,999 20,949,160
Weighted average shares outstanding - diluted
21,669,704 20,950,440 21,674,383 20,949,160
</TABLE>
See notes to consolidated financial statements.
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<PAGE>
SIEBERT FINANCIAL CORP. & SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
--------------------------
1998 1997
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 3,243,378 $ 1,877,371
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 125,798 108,334
Noncash compensation 68,381 --
Income from equity investee (427,419) --
Changes in operating assets and liabilities:
Net decrease (increase) in securities owned, at market value 2,693,820 (1,458,199)
Net change in receivable from broker-dealers (387,883) 796,704
Decrease (increase) in prepaid expenses and other assets 170,508 (189,804)
Net increase (decrease) in securities sold, not yet purchased,
at market value (1,399,087) 210,107
(Decrease) increase in accounts payable and accrued liabilities (765,806) 662,917
----------- -----------
Net cash provided by operating activities 3,321,690 2,007,430
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CASH FLOWS FROM INVESTING ACTIVITIES:
Increase in restricted cash equivalents -- (1,300,000)
Loan to or investment in affiliate (3,000,000) (392,000)
Repayment of loan to affiliate 3,000,000 --
Purchase of furniture, equipment and leasehold improvements (257,126) (56,282)
----------- -----------
Net cash (used in) investing activities (257,126) (1,748,282)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of stock options 38,203 --
Dividends on common stock (79,870) --
Issuance of shares, net of expenses -- (28,941)
----------- -----------
Net cash (used in) financing activities (41,667) (28,941)
----------- -----------
Net increase in cash and cash equivalents 3,022,897 230,207
Cash and cash equivalents - beginning of period 4,394,142 231,029
----------- -----------
Cash and cash equivalents - end of period $ 7,417,039 $ 461,236
=========== ===========
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Cash paid for:
Interest $ 267,915 $ 306,427
Income taxes 2,829,649 868,900
</TABLE>
See notes to consolidated financial statements.
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<PAGE>
SIEBERT FINANCIAL CORP. & SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 30, 1998
(UNAUDITED)
1. ORGANIZATION AND 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-KSB for the year ended December 31, 1997. 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.
On July 1, 1998, Siebert, Brandford, Shank & Co., LLC ("SBS LLC")
commenced operations and succeeded to the tax exempt underwriting
business of the Siebert, Brandford, Shank division of Siebert. SBS LLC is
49% owned by Siebert. Effective July 1, 1998, Siebert's investment in SBS
LLC is accounted for on the equity method.
Statements of Operations for the three and nine months ended September
30, 1997 have been reclassified to conform to 1998 classifications.
2. NET CAPITAL:
Siebert is subject to the Securities and Exchange Commission's Uniform
Net Capital Rule (Rule 15c3-1) which requires the maintenance of minimum
net capital. Siebert has elected to use the alternative method, permitted
by the rule, which requires that Siebert maintain minimum net capital, as
defined, equal to the greater of $250,000 or 2 percent of aggregate debit
balances arising from customer transactions, as defined. (The net capital
rule of the New York Stock Exchange also provides that equity capital may
not be withdrawn or cash dividends paid if resulting net capital would be
less than 5 percent of aggregate debits.) At September 30, 1998, Siebert
had net capital of approximately $11,223,000 as compared with net capital
requirements of $250,000.
3. STOCK SPLIT:
On April 7, 1998, the Company split its stock 4 for 1 in order to comply
with the rules of The Nasdaq Stock Market, Inc. relating to listings on
the Nasdaq SmallCap Market. All share and per share data contained herein
have been retroactively adjusted to reflect this stock split.
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<PAGE>
4. CLEARING AGREEMENT:
In 1998, Siebert signed a new one year agreement with its clearing broker
which provides, among other things, for reduced ticket charges and
execution fees. Such arrangement provides for retroactive effect of the
new charges and execution fees, not to exceed $1,000,000. A pro rata
portion of the payment was refundable under certain circumstances and,
accordingly, Siebert recognized pre-tax income of approximately $750,000
for the six month period ended June 30, 1998. The balance was recognized
in the third quarter.
5. RIGHTS OFFERING
The Company is offering its shareholders the right to purchase one new
share for $7.50 for each share held by them on July 29, 1998. The rights
will expire on December 15, 1998.
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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
Consolidated Financial Statements and the Notes thereto contained elsewhere in
this document.
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 and 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 than the Company, prevalence of a flat fee environment, decline in
participation in equity or municipal finance underwritings, decreased 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 since September 1998 have been extremely volatile, with
swings in the market averages approaching daily and intraday records. Meanwhile,
competition has continued to intensify among all classes of brokerage firms.
Electronic trading continues to grow as a retail discount market segment with
some firms charging very low flat trading execution fees that are difficult for
any conventional discount brokerage firm to match. Many of the low flat fee
firms, however, impose charges for services such as mailing, transfers and
handling exchange transactions for which the Company does not currently charge
its customers. Some of those firms also direct customer orders to captive market
makers that earn a "spread" on the order. The Company does not have a captive
market maker. Continued competition from ultra low cost, flat fee brokers and
broader service offerings from other discount brokers 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. Industry-wide changes in
trading practices are expected to cause continuing pressure on fees earned by
discount brokers, including the Company, for the sale of order flow.
CURRENT DEVELOPMENTS
In June 1998, Siebert signed a new one-year agreement with its clearing
broker, which provides, among other things, for reduced ticket charges and
execution fees. The clearing broker is also paying to Siebert $1,000,000 in
monthly installments through December 31, 1998. Siebert recognized $750,000 of
that amount as pre-tax income in the quarter ended June 30, 1998 and $250,000 in
the quarter ended September 30, 1998 when all contingencies relating to the
payments lapsed. Siebert realized the projected clearing cost savings for the
quarter ended
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<PAGE>
September 30, 1998.
In July 1998, Siebert, Brandford, Shank & Co., L.L.C. ("SBS") began
operating as a separate broker-dealer and, accordingly, the Company began
reporting its investment in and the operations of SBS using the equity method of
accounting. Prior to July 1998, the operations of what is now SBS were fully
consolidated with those of Siebert.
Siebert's commission income per customer trade is trending down as the
number of trades done on SiebertNet increases. For the month of October 1998,
SiebertNet trades were approximately 21% of all Siebert trades. Siebert's online
trading system was in the early stage of implementation in October 1997.
In November 1998, Siebert agreed to acquire the retail customer accounts
of Donald K. Cowles and of Cowles, Sabol & Co., Inc. of Encino, California. The
acquisition is expected to be completed before the end of 1998.
In July 1998, the Company distributed to its shareholders transferable
rights to subscribe for and purchase one share of Common Stock for each share
held on the Record Date, at an exercise price of $7.50 a share. The offer as
extended will expire on December 15, 1998. If this offering is successful, the
Company currently intends to use approximately $5,000,000 of the net proceeds to
further build up and promote its SiebertNet trading service.
NINE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
1997
Total revenues for the nine months ended September 30, 1998 were $19
million, a decrease of $41,000, or .2 %, over the same period in 1997.
Commission and fee income, investment banking revenues, income from equity
investee, and interest and dividend revenues increased as compared to the prior
year; however, trading profits decreased.
Commission and fee income increased $182,000, or 1%, to $14 million for
the nine months ended September 30, 1998 due to higher volume partially offset
by lower commissions earned per trade resulting from the increase of lower
priced electronic trading, price reductions on other related services caused by
increased competition from ultra low cost, flat fee brokers and a reduction of
order flow fees. The portion of trades executed on the Company's SiebertNet web
site is increasing at a rapid rate.
Investment banking revenues increased $67,000, or 2%, to $3 million for
the nine months ended September 30, 1998 primarily due to the increased tax
exempt underwriting activity by the Siebert, Brandford, Shank division in 1998.
This division had minimal operations for the first nine months of 1997, since it
began operations in late 1996. Siebert, Brandford, Shank & Co., LLP began
operations as a separate broker-dealer in July 1998 and, accordingly, the
Company began to account for its forty-nine percent interest in Siebert,
Brandford, Shank & Co., LLP on the equity method in the third quarter of 1998.
Income from equity investee increased $427,000, or 100%, to $427,000 for
the nine months ended September 30, 1998.
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<PAGE>
Trading profits decreased $744,000, or 44%, to $961,000 for the nine
months ended September 30, 1998 primarily due to reduced income opportunities in
the trading of listed bond funds, the firm's principal trading activity.
Interest and dividends increased $26,000, or 5%, to $535,000 for the nine
months ended September 30, 1998 primarily due to trading strategies which
generated higher dividend income.
Total expenses for the nine months ended September 30, 1998 were $13.4
million, a decrease of $2.2 million, or 14%, over the same period in 1997.
Clearing fees, advertising and promotion, rent and occupancy, interest and
general and administrative expenses all decreased and all other expenses
increased.
Employee compensation and benefit costs increased $215,000, or 4%, to $6
million for the nine months ended September 30, 1998, primarily due to
commissions paid to the Siebert, Brandford, Shank division's sales personnel
resulting from increased tax exempt underwriting activity prior to July 1, 1998.
Clearing and floor brokerage fees decreased $1.4 million, or 42%, to $2
million for the nine months ended September 30, 1998. Such costs decreased
primarily due to the retroactive effect of Company's new clearing agreement with
its clearing broker.
Advertising and promotion expense decreased $912,000, or 42%, to $1.3
million for the nine months ended September 30, 1998, due to a decreased level
of promotional advertising.
Communications expense increased $57,000, or 5%, to $1.3 million for the
nine months ended September 30, 1998, primarily due to increased quote and news
services.
Occupancy costs decreased $77,000, or 16%, to $413,000 for the nine
months ended September 30, 1998, principally due to commencement of operations
of SBS as a separate entity partially offset by a lease extension option
cancellation fee paid during 1998.
Interest expense decreased $17,000, or 6%, to $268,000 for the nine
months ended September 30, 1998, primarily due to the decrease in the use of
short positions in proprietary trading activity.
Other general and administrative expenses decreased $78,000, or 4%, to
$2.2 million for the nine months ended September 30, 1998, primarily due to
increased business development expenses related to the municipal investment
banking staff.
Provision for income taxes increased $831,000, or 56%, to $2.3 million
for the nine months ended September 30, 1998, primarily due to an increase in
net income before income tax in the first nine months of 1998 of $2.2 million,
or 66%, to $5.5 million over the same period in 1997, partially offset by a
refund of local taxes.
THREE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED TO THREE MONTHS ENDED SEPTEMBER
30, 1997
Total revenues for the three months ended September 30, 1998 were $5.6
million, a
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<PAGE>
decrease of $1.5 million, or 21%, over the same period in 1997. Commission and
fee income, investment banking, interest, trading profits and dividend revenues
decreased as compared to the prior year period, while income from equity
investee increased.
Commission and fee income decreased $24,000, or 1%, to $4.7 million due
to lower commissions earned per trade resulting from the increase of
lower-priced electronic trading, price reductions on other related services
caused by increased competition from ultra low cost, flat fee brokers and a
reduction of order flow fees.
Investment banking revenues decreased $1,550,000, or 95%, to $77,000
primarily due to the Siebert, Brandford, Shank division commencing operations as
a separate entity under Siebert, Brandford, Shank & Co., LLC on July 1, 1998.
SBS LLC is 49% owned by Siebert and is accounted for under the equity method of
accounting.
Income from equity investee increased $427,000, or 100%, to $427,000 for
the three months ended September 30, 1998. Trading profits decreased $329,000,
or 63%, to $193,000 primarily due to reduced income opportunities in trading of
listed bond funds, the firm's principal trading activity.
Interest and dividends decreased $8,000, or 3%, to $217,000 primarily due
to trading strategies, which generated lower dividend income.
Total expenses for the three months ended September 30, 1998 were $3.7
million, a decrease of $1,551,000, or 30%, over the same period in 1997.
Employee compensation and benefit costs, clearing fees, advertising and
promotion, occupancy, interest and general and administrative costs decreased
while communication expenses increased.
Employee compensation and benefit costs decreased $631,000, or 31%, to
$1.4 million primarily due to SBS LLC's commencement of operations as a separate
entity, reduced equity underwriting profits, reduced trading profits, reduced
institutional equity profits, and reduced discretionary staff bonuses.
Clearing and floor brokerage fees decreased $616,000, or 50%, to
$627,000. Such costs decreased primarily due to the retroactive effect of the
Company's new clearing agreement with its clearing broker.
Advertising and promotion expense decreased $131,000, or 21%, to $510,000
due to a decreased level of promotional advertising.
Communications expense increased $74,000, or 20%, to $445,000 primarily
due to increased quote and news services.
Occupancy costs decreased $105,000, or 64%, to $59,000 principally due to
the SBS LLC commencement of operations on July 1, 1998.
Interest expense decreased $3,000, or 3%, to $75,000, primarily due to
the decrease in the use of short positions in proprietary trading activity.
Other general and administrative expenses decreased $139,000, or 19%, to
$603,000 primarily due to small decreases in various operational expenses and
the SBS LLC commencement of operations as a separate entity.
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<PAGE>
Provision for income taxes increased $27,000, or 3%, to $829,000
primarily due to an increase in net income before income tax in the third
quarter of 1998 of $69,000, or 4%, to $1.9 million over the same period in 1997.
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. Siebert's
total assets at September 30, 1998 were $19 million, of which $2 million took
the form of a secured demand note. $13.8 million, or 73%, of total assets were
highly liquid.
Siebert is subject to the net capital requirements of the SEC, the NYSE
and other regulatory authorities. At September 30, 1998, Siebert's regulatory
net capital was $11.2 million, $11 million in excess of its minimum capital
requirement of $250,000.
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<PAGE>
PART II - OTHER INFORMATION
ITEM 5. OTHER INFORMATION.
On October 1, 1998, Richard M. Feldman resigned as Executive Vice
President, Chief Financial Officer and Assistant Secretary of the Company. On
November 9, 1998, Mitchell M. Cohen joined the Company as Chief Financial
Officer and Assistant Secretary.
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.
By: /s/ MURIEL F. SIEBERT
-----------------------------------
Muriel F. Siebert
Chair and President (principal
executive officer)
Date: November 12, 1998
By: /s/ MITCHELL M. COHEN
-----------------------------------------
Mitchell M. Cohen
Chief Financial Officer and Assistant
Secretary (principal financial
and accounting officer)
Date: November 12, 1998
-12-
<TABLE> <S> <C>
<ARTICLE> BD
<CIK> 0000065596
<NAME> SIEBERT FINANCIAL CORP.
<MULTIPLIER> 1
<CURRENCY> USD
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<EXCHANGE-RATE> 1
<CASH> 7,417,039
<RECEIVABLES> 2,522,722
<SECURITIES-RESALE> 0
<SECURITIES-BORROWED> 0
<INSTRUMENTS-OWNED> 3,870,848
<PP&E> 606,881
<TOTAL-ASSETS> 18,986,788
<SHORT-TERM> 0
<PAYABLES> 0
<REPOS-SOLD> 0
<SECURITIES-LOANED> 0
<INSTRUMENTS-SOLD> 638,460
<LONG-TERM> 3,000,000
0
0
<COMMON> 210,049
<OTHER-SE> 12,732,600
<TOTAL-LIABILITY-AND-EQUITY> 12,942,649
<TRADING-REVENUE> 5,611,881
<INTEREST-DIVIDENDS> 217,415
<COMMISSIONS> 4,696,669
<INVESTMENT-BANKING-REVENUES> 77,161
<FEE-REVENUE> 0
<INTEREST-EXPENSE> 75,251
<COMPENSATION> 1,388,736
<INCOME-PRETAX> 1,903,629
<INCOME-PRE-EXTRAORDINARY> 1,903,629
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,074,694
<EPS-PRIMARY> .05
<EPS-DILUTED> .05
</TABLE>
