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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 JUNE 30, 1998
--------------------------------------------
[ ] Transition report under Section 13 or 15(d) of the Exchange Act
For the transition period from ___________________ to _____________________
Commission file number 0-5703
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SIEBERT FINANCIAL CORP.
- --------------------------------------------------------------------------------
(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) 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 PRECEEDING 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 JULY 28, 1998 THERE
WERE 20,996,440 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
JUNE 30, 1998
(UNAUDITED)
ASSETS
Cash and cash equivalents $ 3,223,375
Cash equivalents - restricted 1,300,000
Receivable from broker-dealers 890,047
Securities owned, at market value 11,049,141
Secured demand note receivable from affiliate 2,000,000
Furniture, equipment and leasehold improvements, net 563,538
Investment in affiliate 3,392,000
Prepaid expenses and other assets 607,548
-----------
$23,025,649
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Securities sold, not yet purchased, at market value $ 2,091,406
Payable to clearing broker 2,567,764
Accounts payable and accrued liabilities 3,515,722
-----------
8,174,892
-----------
Commitments and contingent liabilities
Subordinated borrowings payable to affiliate 3,000,000
-----------
Stockholders' equity:
Common stock, $.01 par value; 49,000,000 shares authorized,
20,996,440 shares outstanding 209,964
Additional paid-in capital 6,643,264
Retained earnings 4,997,529
-----------
11,850,757
-----------
$23,025,649
===========
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 SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------------- -------------------------
1998 1997 1998 1997
----------- ----------- ----------- -----------
Revenues:
<S> <C> <C> <C> <C>
Commissions and fees $ 4,705,441 $ 4,350,814 $ 9,301,346 $ 9,095,253
Investment banking 1,473,171 1,061,811 2,965,726 1,348,860
Trading profits 428,377 671,966 767,441 1,183,220
Interest and dividends 154,484 147,335 317,892 283,837
----------- ----------- ----------- -----------
6,761,473 6,231,926 13,352,405 11,911,170
----------- ----------- ----------- -----------
Expenses:
Employee compensation and benefits 2,304,063 1,984,640 4,652,625 3,806,536
Clearing fees, including floor brokerage 295,848 1,039,429 1,360,789 2,172,279
Advertising and promotion 309,475 638,094 759,144 1,539,180
Communications 414,610 408,452 823,866 840,614
Occupancy 158,322 163,343 354,333 326,098
Interest 92,613 114,765 192,664 206,840
Other general and administrative 781,776 796,552 1,563,300 1,502,575
----------- ----------- ----------- -----------
4,356,707 5,145,275 9,706,721 10,394,122
----------- ----------- ----------- -----------
Income before income taxes 2,404,766 1,086,565 3,645,684 1,517,048
Provision for income taxes 1,041,000 491,000 1,477,000 673,000
----------- ----------- ----------- -----------
Net income $ 1,363,766 $ 595,565 $ 2,168,684 $ 844,048
=========== =========== =========== ===========
Net income per share of common stock - basic $ 0.06 $ 0.03 $ 0.10 $ 0.04
and diluted
Weighted average shares outstanding - basic 20,992,510 20,950,440 20,992,265 20,948,156
Weighted average shares outstanding - diluted 21,720,690 20,950,440 21,668,630 20,948,156
See notes to consolidated financial statements.
</TABLE>
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<PAGE>
SIEBERT FINANCIAL CORP. & SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
--------------------------
1998 1997
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 2,168,684 $ 844,048
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 79,711 71,772
Noncash compensation 43,961 --
Changes in operating assets and liabilities:
Net (increase) in securities owned, at market value (4,484,473) (276,920)
Net change in receivable from clearing broker 3,812,556 1,900,180
Decrease (increase) in prepaid expenses and other assets 12,839 (446,170)
Net increase (decrease) in securities sold, not yet purchased,
at market value 53,859 (194,081)
Increase in accounts payable and accrued liabilities 344,237 265,010
----------- -----------
Net cash provided by operating activities 2,031,374 2,163,839
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Loans to or investment in affiliate (3,000,000) (392,000)
Purchase of furniture, equipment and leasehold improvements (167,696) (37,430)
----------- -----------
Net cash (used in) investing activities (3,167,696) (429,430)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of stock options 14,800 --
Dividends on common stock (49,245) --
Issuance of shares, net of expenses -- (28,941)
----------- -----------
Net cash (used in) financing activities (34,445) (28,941)
----------- -----------
Net (decrease) increase in cash and cash equivalents (1,170,767) 1,705,468
Cash and cash equivalents - beginning of period 4,394,142 231,029
----------- -----------
Cash and cash equivalents - end of period $ 3,223,375 $ 1,936,497
=========== ===========
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Cash paid for:
Interest $ 192,664 $ 206,840
Income taxes 1,497,711 244,300
See notes to consolidated financial statements.
</TABLE>
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<PAGE>
SIEBERT FINANCIAL CORP. & SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 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.
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 June 30, 1998, Siebert had
net capital of approximately $6,854,000 as compared with net capital
requirements of $250,000.
On June 30, 1998 Siebert loaned $3,000,000 to an affiliate, Siebert
Brandford Shank & Co., LLC ("SBS LLC") pursuant to a temporary
subordination agreement with a maturity date of August 14, 1998. Such
loan resulted in a temporary reduction in regulatory net capital of
$3,000,000 as of June 30, 1998. The repayment of the loan will increase
the then regulatory net capital by $3,000,000. See also Note 5.
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>
SIEBERT FINANCIAL CORP. & SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 1998 (CONTINUED)
(UNAUDITED)
4. CLEARING AGREEMENT:
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. 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 is refundable under certain circumstances and,
accordingly, Siebert recognized pre-tax income of approximately $750,000
for the three month period ended June 30, 1998. The balance shall be
recognized in a future period after such balance is no longer refundable.
5. SUBSEQUENT EVENT:
Effective July 1, 1998, SBS LLC commenced operations and succeeded to the
tax exempt underwriting business of the Siebert Brandford Shank division
of Siebert. Siebert's investment in SBS LLC will be accounted for on the
equity method. See also Note 2.
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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 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 during the first six months of 1998 reflected a
continuation of the 1997 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. 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 for the sale of order flow.
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.
-7-
<PAGE>
Siebert utilizes both systems housed primarily on its own computer
network and systems housed on the computers of third parties, such as its
clearing broker and payroll vendor, to conduct its normal business activities.
Some of the systems on its network are proprietary and many are off the shelf
programs acquired from vendors. Siebert has inventoried those systems critical
to its operations and has received assurances from the developers, vendors and
third parties that those systems are, or will be prior to December 31, 1998,
year 2000 compliant. Although nothing has come to Siebert's attention which
would cause it to believe that the assurances it has received are not accurate,
the failure of one or more critical systems to be year 2000 compliant could have
a material adverse effect on the results of its operations. Siebert intends to
test all of the critical systems during 1999. The costs incurred to date and in
the future relating to this issue are not expected to be material in the
aggregate.
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. Such agreement provides for the retroactive effect of the new
charges and execution fees in an amount not to exceed $1,000,000. If the new
agreement had been effective for the entire calendar year 1997, Siebert would
have realized monthly savings of a minimum of $150,000. A pro rata portion of
the payment is refundable under certain circumstances and, accordingly, Siebert
recognized pre-tax income of approximately $750,000 in its financial statements
for the second quarter of 1998. The balance shall be recognized in a future
period after such balance is no longer refundable. In addition, Siebert will
have reduced clearing costs and execution fees for the remainder of the contract
term based on the volume of trades and customer account balances. The new
agreement also provides increasing volume discounts as the monthly number of
trades increases.
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 1998 COMPARED TO THREE MONTHS ENDED JUNE 30, 1997
Total revenues for the three months ended June 30, 1998 were $6.8
million, an increase of $530,000 or 8.5% over the same period in 1997.
Commission and fee income, investment banking and interest and dividend revenues
increased as compared to the prior year, however, trading profits decreased.
Commission and fee income increased $149,000 or 3.1% to $4.7 million
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.
Investment banking revenues increased $411,000 or 38% to $1.5 million
primarily due to the increased tax exempt underwriting activity by the Siebert,
Brandford, Shank division in 1998. This division had minimal operations for the
three months ended June 30, 1997, since it only began operations in late 1996.
Trading profits decreased $244,000 or 36% to $428,000 primarily due to
reduced income opportunities in trading of listed bond funds, the firm's
principal trading activity.
-8-
<PAGE>
Interest and dividends increased $7,000 or 4.9% to $154,000 primarily
due to trading strategies which generated higher dividend income.
Total expenses for the three months ended June 30, 1998 were $4.4
million, a decrease of $788,000 or 15% over the same period in 1997. Clearing
fees, advertising and promotion, occupancy, interest and general and
administrative costs decreased and all other expenses increased.
Employee compensation and benefit costs increased $319,000 or 16% to
$2.3 million primarily due to commissions paid to the Siebert, Brandford, Shank
division's sales personnel resulting from increased tax exempt underwriting
activity.
Clearing and floor brokerage fees decreased $743,000 or 72% to
$296,000. Such costs decreased primarily due to the retroactive effect of the
Company's new clearing agreement with its clearing broker (see "Current
Developments" above).
Advertising and promotion expense decreased $329,000 or 52% to $309,000
due to a decreased level of promotional advertising.
Communications expense increased $6,000 or 1.5% to $415,000 primarily
due to increased quote and news services.
Occupancy costs decreased $5,000 or 3.1% to $158,000 principally due to
a decrease in operating escalations.
Interest expense decreased $22,000 or 19% to $93,000 primarily due to
less use of short positions in proprietary trading activity.
Other general and administrative expenses decreased $15,000 or 1.9% to
$782,000 primarily due to small decreases in various operational expenses.
Provision for income taxes increased $550,000 or 112% to $1.0 million
primarily due to an increase in net income before income tax in the second
quarter of 1998 of $1.3 million or 121% to $2.4 million over the same period in
1997.
SIX MONTHS ENDED JUNE 30, 1998 COMPARED TO SIX MONTHS ENDED JUNE 30, 1997
Total revenues for the six months ended June 30, 1998 were $13.4
million, an increase of $1.4 million or 12% over the same period in 1997.
Commission and fee income, investment banking and interest and dividend revenues
increased as compared to the prior year, however, trading profits decreased.
Commission and fee income increased $206,000 or 2.3% to $9.3 million
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.
Investment banking revenues increased $1.6 million or 120% to $3.0
million 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 six months of 1997, since it only began operations in late 1996.
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<PAGE>
Trading profits decreased $416,000 or 35% to $767,000 primarily due to
reduced income opportunities in trading of listed bond funds, the firm's
principal trading activity.
Interest and dividends increased $34,000 or 12% to $318,000 primarily
due to trading strategies which generated higher dividend income.
Total expenses for the six months ended June 30,1998 were $9.7 million,
a decrease of $687,000 or 6.6% over the same period in 1997. Clearing fees,
advertising and promotion, communications and interest all decreased and all
other expenses increased.
Employee compensation and benefit costs increased $846,000 or 22% to
$4.7 million primarily due to commissions paid to the Siebert, Brandford, Shank
division's sales personnel resulting from increased tax exempt underwriting
activity.
Clearing and floor brokerage fees decreased $811,000 or 37.0% to $1.4
million. Such costs decreased primarily due to the retroactive effect of
Company's new clearing agreement with its clearing broker (see "Current
Developments" above).
Advertising and promotion expense decreased $780,000 or 51% to $759,000
due to a decreased level of promotional advertising.
Communications expense decreased $17,000 or 2.0% to $824,000 primarily
due to telephone contract price reductions.
Occupancy costs increased $28,000 or 8.7% to $354,000 principally due
to a lease extension option cancellation fee paid during 1998.
Interest expense decreased $14,000 or 6.9% to $193,000 primarily due to
less use of short positions in proprietary trading activity.
Other general and administrative expenses increased $61,000 or 4.0% to
$1.6 million primarily due to increased business development expenses related to
the municipal investment banking staff.
Provision for income taxes increased $804,000 or 119% to $1.5 million
primarily due to an increase in net income before income tax in the first six
months of 1998 of $2.2 million or 140% to $3.6 million over the same period in
1997, partially offset by a refund of local 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. Siebert's
total assets at June 30, 1998 were $23 million, of which $2 million took the
form of a secured demand note. $14 million or 62% of total assets were highly
liquid.
The Company has filed a Registration Statement with the Securities and
Exchange Commission for a discounted rights offering covering shares of its
Common Stock. The controlling stockholder of the Company has indicated that she
intends to waive the receipt of any such rights. There can be no assurance that
any such offering will be successfully consumated.
Siebert is subject to the net capital requirements of the SEC, the NYSE
and other regulatory authorities. At June 30, 1998, Siebert's regulatory net
capital was $6.9 million, $6.7 million in excess of its minimum capital
requirement of $250,000.
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<PAGE>
PART II - OTHER INFORMATION
ITEM 5. OTHER INFORMATION.
If the Company does not receive notice of any matter that is to come
before the shareholders at the next annual meeting of the shareholders on or
before Wednesday, September 23, 1998, which corresponds to forty-five days
before the date on which the Company first mailed its proxy materials for the
prior years' annual meeting of the shareholders. The proxy for the next annual
meeting of the shareholders may, pursuant to Rule 14a-4c of the Proxy Rules
under the Securities Exchange Act of 1934, confer discretionary authority to
vote on such matter.
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: July 30, 1998
By: /s/ RICHARD M. FELDMAN
---------------------------------
Richard M. Feldman
Executive Vice President,
Chief Financial Officer and
Assistant Secretary
(principal financial and
accounting officer)
Date: July 30, 1998
-11-
<TABLE> <S> <C>
<ARTICLE> BD
<CIK> 0000065596
<NAME> SIEBERT FINANCIAL CORP.
<MULTIPLIER> 1
<CURRENCY> USD
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> APR-01-1998
<PERIOD-END> JUN-30-1998
<EXCHANGE-RATE> 1
<CASH> 4,523,375
<RECEIVABLES> 890,047
<SECURITIES-RESALE> 0
<SECURITIES-BORROWED> 0
<INSTRUMENTS-OWNED> 11,049,141
<PP&E> 563,538
<TOTAL-ASSETS> 23,025,649
<SHORT-TERM> 0
<PAYABLES> 6,083,486
<REPOS-SOLD> 0
<SECURITIES-LOANED> 0
<INSTRUMENTS-SOLD> 2,091,406
<LONG-TERM> 3,000,000
0
0
<COMMON> 209,964
<OTHER-SE> 11,640,793
<TOTAL-LIABILITY-AND-EQUITY> 23,025,649
<TRADING-REVENUE> 767,441
<INTEREST-DIVIDENDS> 317,892
<COMMISSIONS> 9,301,346
<INVESTMENT-BANKING-REVENUES> 2,965,726
<FEE-REVENUE> 0
<INTEREST-EXPENSE> 192,664
<COMPENSATION> 4,652,625
<INCOME-PRETAX> 3,645,684
<INCOME-PRE-EXTRAORDINARY> 3,645,684
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,168,684
<EPS-PRIMARY> .10
<EPS-DILUTED> .10
</TABLE>
