SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ended MARCH 31, 1998
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[ ] 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.
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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 Identification No.)
Incorporation or Organization)
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.
[X] Yes [ ] No
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Check whether the registrant filed all documents and reports to be filed by
Sections 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 MAY 8, 1998, THERE WERE
20,993,640 SHARES OF COMMON STOCK, PAR VALUE $.01 PER SHARE, OUTSTANDING.
Transitional Small Business Disclosure Format (check one):
[ ] Yes [X] No
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
SIEBERT FINANCIAL CORP. & SUBSIDIARY
CONSOLIDATED STATEMENT OF FINANCIAL CONDITION
MARCH 31, 1998
(UNAUDITED)
ASSETS
Cash and cash equivalents $ 3,808,287
Cash equivalents - restricted 1,300,000
Securities owned, at market value 11,125,733
Secured demand note receivable from affiliate 2,000,000
Furniture, equipment and leasehold improvements, net 548,065
Investment in affiliate 392,000
Prepaid expenses and other assets 825,260
----------------
$ 19,999,345
================
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Securities sold, not yet purchased, at market value $ 382,018
Payable to clearing broker 2,332,531
Accounts payable and accrued liabilities 3,801,810
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6,516,359
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Commitments and contingent liabilities
Subordinated borrowings payable to affiliate 3,000,000
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Stockholders' equity:
Common stock, $.01 par value; 49,000,000 shares authorized,
20,993,640 shares outstanding 209,936
Additional paid-in capital 6,609,182
Retained earnings 3,663,868
----------------
10,482,986
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$ 19,999,345
================
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
March 31,
---------------------------------
1998 1997
--------------- ----------------
Revenues:
<S> <C> <C>
Commissions and fees $ 4,595,905 $ 4,744,439
Investment banking 1,492,555 287,049
Trading profits 339,064 511,254
Interest and dividends 163,408 136,502
--------------- ----------------
6,590,932 5,679,244
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Expenses:
Employee compensation and benefits 2,348,562 1,821,896
Clearing fees, including floor brokerage 1,064,941 1,132,850
Advertising and promotion 449,669 901,086
Communications 409,256 432,162
Occupancy 196,011 162,755
Interest 100,051 92,075
Other general and administrative 781,524 705,937
--------------- ----------------
5,350,014 5,248,761
--------------- ----------------
Income before income taxes 1,240,918 430,483
Provision for income taxes 436,000 182,000
--------------- ----------------
Net income $ 804,918 $ 248,483
=============== ================
Net income per share of common stock - basic and
diluted $ 0.04 $ 0.01
Weighted average shares outstanding - basic 20,992,018 20,945,940
Weighted average shares outstanding - diluted 21,608,615 20,945,940
</TABLE>
See notes to consolidated financial statements.
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<PAGE>
SIEBERT FINANCIAL CORP. & SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
--------------------------
1998 1997
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 804,918 $ 248,483
Adjustments to reconcile net income to net cash (used in) provided by
operating activities:
Depreciation and amortization 38,822 37,996
Noncash compensation 24,651 --
Changes in operating assets and liabilities:
Net (increase) decrease in securities owned, at market value (4,561,065) 786,238
Net change in receivable from clearing broker 4,467,370 4,117,804
(Increase) in prepaid expenses and other assets (204,873) (86,488)
Net (decrease) in securities sold, not yet purchased,
at market value (1,655,529) (964,588)
Increase (decrease) in accounts payable and accrued
liabilities 630,325 (296,829)
----------- -----------
Net cash (used in) provided by operating activities (455,381) 3,842,616
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of furniture, equipment and leasehold improvements (111,334) (76,533)
Investment in affiliate -- (392,000)
----------- -----------
Net cash (used in) investing activities (111,334) (468,533)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Dividend on common stock (19,140) --
Issuance of shares, net of expenses -- (28,941)
----------- -----------
Net cash (used in) financing activities (19,140) (28,941)
----------- -----------
Net (decrease) increase in cash and cash equivalents (585,855) 3,345,142
Cash and cash equivalents - beginning of period 4,394,142 231,029
----------- -----------
Cash and cash equivalents - end of period $ 3,808,287 $ 3,576,171
=========== ===========
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Cash paid for:
Interest $ 100,051 $ 92,075
Income taxes 337,290 50,075
</TABLE>
See notes to consolidated financial statements.
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<PAGE>
SIEBERT FINANCIAL CORP. & SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 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 March 31, 1998, Siebert had
net capital of approximately $8,967,000 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>
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 three 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.
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<PAGE>
Siebert's clearing broker has represented that its computer systems
will be year 2000 operable and fully tested by December 31, 1998. The Company's
own systems are presently being modified or replaced. The Company believes its
cost for meeting this problem will not be material.
CURRENT DEVELOPMENTS
During the first three months of 1998, the Company, through its
Siebert, Brandford, Shank division, acted as either senior manager or co-manager
for a total of over $6.1 billion of municipal bond offerings. In addition, the
Company was appointed as senior manager for several large planned offerings
including Detroit Metro Wayne County Airport ($1 billion). There is no assurance
that such offerings will occur as planned.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1998 COMPARED TO THREE MONTHS ENDED MARCH 31, 1997
Total revenues for the first three months of 1998 were $6.6 million, an
increase of $912,000 or 16% over the same period in 1997. Investment banking and
interest and dividend revenues increased as compared to the prior year, however,
commission and fee income and trading profits decreased.
Commission and fee income decreased $149,000 or 3.1% to $4.6 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 increased $1.2 million or 420% 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 first three months of 1997, since it only began operations in late 1996.
Trading profits decreased $172,000 or 34% to $339,000 primarily due to
reduced income opportunities in trading of listed bond funds, the firm's
principal trading activity.
Interest and dividends increased $27,000 or 20% to $163,000 primarily
due to trading strategies which generated lower dividend income.
Total expenses for the first three months of 1998 were $5.3 million, an
increase of $101,000 or 1.9% over the same period in 1997. Employee compensation
and benefits, occupancy, interest and other general and administrative costs
increased and all other expenses decreased.
Employee compensation and benefit costs increased $527,000 or 29% 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 $68,000 or 6.0% to $1.1
million. Such costs decreased primarily due to a one-time rebate from the
clearing broker.
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<PAGE>
Advertising and promotion expense decreased $451,000 or 50% to $450,000
due to decreased branch and service promotion.
Communications expense decreased $23,000 or 5.3% to $409,000 primarily
due to telephone contract price reductions.
Occupancy costs increased $33,000 or 20% to $196,000 principally due to
a lease extension option cancellation fee paid during 1998.
Interest expense increased $8,000 or 8.7% to $100,000 primarily due to
greater use of margin borrowings and short positions in proprietary trading
activity.
Other general and administrative expenses increased $76,000 or 11% to
$781,000 primarily due to increased business development expenses related to the
municipal investment banking staff.
Provision for income taxes increased $254,000 or 140% to $436,000
primarily due to an increase in net income before tax in the first quarter of
1998 of $810,000 or 188% to $1.3 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 March 31, 1998 were $20 million, of which $2 million took the
form of a secured demand note. $15 million or 75% of total assets were highly
liquid. The Company has filed a Registration Statement with the Securities and
Exchange Commission covering shares of its Common Stock. The Company intends to
file an Amendment to the Registration Statement to change the form of the
offering to a discounted rights offering to stockholders of the Company. 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 consummated.
Siebert is subject to the net capital requirements of the SEC, the NYSE
and other regulatory authorities. At March 31, 1998, Siebert's regulatory net
capital was $9.0 million, $8.7 million in excess of its minimum capital
requirement of $250,000.
-8-
<PAGE>
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
27 - Financial Data Schedule (Edgar Filing Only)
(b) Reports on Form 8-K.
None
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
SIEBERT FINANCIAL CORP.
By: /s/ MURIEL F. SIEBERT
---------------------
Muriel F. Siebert
Chair and President
(principal executive officer)
Date: May 14, 1998
By: /s/ RICHARD M. FELDMAN
-----------------------
Richard M. Feldman
Executive Vice President,
Chief Financial Officer and
Assistant Secretary
(principal financial and
accounting officer)
Date: May 14, 1998
-9-
<TABLE> <S> <C>
<ARTICLE> BD
<LEGEND>
(Replace this text with the legend)
</LEGEND>
<CIK> 0000065596
<NAME> SIEBERT FINANCIAL CORP.
<MULTIPLIER> 1
<CURRENCY> USD
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<EXCHANGE-RATE> 1
<CASH> 5,108,287
<RECEIVABLES> 0
<SECURITIES-RESALE> 0
<SECURITIES-BORROWED> 0
<INSTRUMENTS-OWNED> 13,125,733
<PP&E> 548,065
<TOTAL-ASSETS> 19,999,345
<SHORT-TERM> 0
<PAYABLES> 6,134,341
<REPOS-SOLD> 0
<SECURITIES-LOANED> 0
<INSTRUMENTS-SOLD> 382,018
<LONG-TERM> 3,000,000
0
0
<COMMON> 209,936
<OTHER-SE> 10,273,050
<TOTAL-LIABILITY-AND-EQUITY> 19,999,345
<TRADING-REVENUE> 339,064
<INTEREST-DIVIDENDS> 163,408
<COMMISSIONS> 4,595,905
<INVESTMENT-BANKING-REVENUES> 1,492,555
<FEE-REVENUE> 0
<INTEREST-EXPENSE> 100,051
<COMPENSATION> 2,348,562
<INCOME-PRETAX> 1,241,048
<INCOME-PRE-EXTRAORDINARY> 1,421,048
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 804,918
<EPS-PRIMARY> .04
<EPS-DILUTED> .04
</TABLE>
