SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1999
OR
[ ] Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from __________ to __________
Commission File Number 0-5703
SIEBERT FINANCIAL CORP.
(Exact name of registrant as specified in its charter)
New York 11-1796714
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
885 Third Avenue, New York, New York 10022
(Address of principal executive offices)
(212) 644-2400
(Registrant's telephone number, including area code)
Former address: Not Applicable
------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 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 [ ]
The number of shares of the registrant's common stock outstanding as of November
8, 1999 was 22,883,005.
<PAGE>
Unless otherwise indicated, all information in this Form 10-Q has been
adjusted to reflect a 4-for-1 stock split effected April 7, 1998 (the "Stock
Split") and the acquisition on May 28, 1999, of Andrew Peck Associates, Inc.
("Peck") in a transaction accounted for as a pooling of interests. Accordingly,
all prior information has been adjusted to include historical statements of the
financial position and results of operations of Peck. Unless the context
otherwise requires, the "Company" shall mean Siebert Financial Corp. and its
wholly owned subsidiary.
The Company's quarterly and annual operating results are affected by a
wide variety of factors that could materially and adversely affect actual
results, including: changes in general economic and market conditions,
fluctuations in trading 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, changes in net capital or other regulatory requirements and risks
related to the Year 2000.
As a result of these and other factors, the Company may experience
material fluctuations in future operating results on a quarterly or annual
basis, which could materially and adversely affect its business, financial
condition, operating results, and stock price. Furthermore, this document and
other documents filed by the Company with the Securities and Exchange Commission
(the "SEC") contain certain forward looking statements with respect to the
business of the Company, including prospective financing arrangements. These
forward-looking statements are subject to certain risks and uncertainties,
including those mentioned above, which may cause actual results to differ
significantly from these forward-looking statements. The Company undertakes no
obligation to publicly release the results of any revisions to these
forward-looking statements which may be made to reflect events or circumstances
after the date when such statements were made or to reflect the occurrence of
unanticipated events. An investment in the Company involves various risks,
including those mentioned above and those which are detailed from time to time
in the Company's SEC filings.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
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<TABLE>
<CAPTION>
SIEBERT FINANCIAL CORP. & SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
SEPTEMBER 30, DECEMBER 31,
1999 1998
---- ----
(UNAUDITED)
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ASSETS
Cash and cash equivalents $20,790,000 $6,735,000
Cash equivalents - restricted 1,300,000 1,300,000
Receivable from clearing broker 2,155,000 2,700,000
Securities owned, at market value 2,623,000 5,381,000
Secured demand note receivable from stockholder - 2,000,000
Furniture, equipment and leasehold improvements, net 735,000 675,000
Investment in affiliate 838,000 1,572,000
Deferred financing costs - 270,000
Income taxes receivable 729,000 -
Prepaid expenses and other assets 1,081,000 861,000
----------- -----------
$30,251,000 $21,494,000
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Securities sold, not yet purchased, at market value $ 46,000 $567,000
Accounts payable and accrued liabilities 2,517,000 3,627,000
----------- -----------
2,563,000 4,194,000
----------- -----------
Commitments and contingent liabilities
Subordinated borrowings payable to stockholder - 3,000,000
----------- -----------
Stockholders' equity:
Common stock, $.01 par value; 49,000,000 shares authorized,
22,874,005 and 21,604,960 issued and outstanding at
September 30, 1999 and December 31,1998, respectively 229,000 215,000
Additional paid-in 17,375,000 6,714,000
capital
Retained earnings 10,084,000 7,371,000
----------- -----------
27,688,000 14,300,000
----------- -----------
$30,251,000 $21,494,000
=========== ===========
</TABLE>
See notes to consolidated financial statements.
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SIEBERT FINANCIAL CORP. & SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
------------------------------------- -----------------------------------
SEPTEMBER 30, SEPTEMBER 30,
1999 1998 1999 1998
--------------- ----------------- -------------- ---------------
Revenues:
<S> <C> <C> <C> <C>
Commissions and fees $7,139,000 $ 5,866,000 $22,762,000 $ 17,403,000
Investment banking 443,000 77,000 1,093,000 3,043,000
Trading profits 250,000 193,000 668,000 961,000
Income (loss) from equity investee (373,000) 427,000 263,000 427,000
Interest and dividends 323,000 269,000 802,000 683,000
---------- ------------ ----------- ------------
7,782,000 6,832,000 25,588,000 22,517,000
---------- ------------ ----------- ------------
Expenses:
Employee compensation and benefits 2,442,000 2,124,000 8,141,000 8,186,000
Clearing fees, including floor
brokerage 1,339,000 925,000 4,173,000 2,814,000
Advertising and promotion 1,058,000 600,000 2,469,000 1,539,000
Communications 598,000 481,000 1,813,000 1,380,000
Occupancy 140,000 135,000 404,000 462,000
Interest 44,000 75,000 148,000 268,000
Other general and administrative 1,052,000 588,000 3,090,000 2,318,000
---------- ------------ ----------- ------------
6,673,000 4,928,000 20,238,000 16,967,000
---------- ------------ ----------- ------------
Income before income taxes 1,109,000 1,904,000 5,350,000 5,550,000
Provision for income taxes 466,000 829,000 2,307,000 2,306,000
---------- ------------ ----------- ------------
Net income $ 643,000 $ 1,075,000 $ 3,043,000 $ 3,244,000
========== ============ =========== ============
Net income per share of common stock -
basic and diluted $0.03 $0.05 $0.13 $0.15
Weighted average shares outstanding -
basic 22,873,565 21,604,334 22,741,604 21,595,999
Weighted average shares outstanding -
diluted 23,370,233 22,269,704 23,247,901 22,274,383
</TABLE>
See notes to consolidated financial statements.
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SIEBERT FINANCIAL CORP. & SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
----------------------------------------
1999 1998
----------------- ----------------
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $3,043,000 $3,244,000
Adjustments to reconcile net income to net cash (used in) provided by
Operating activities:
Depreciation and amortization 310,000 126,000
Noncash compensation - 68,000
Utilization of deferred tax asset 2,307,000 -
Income from equity investee (263,000) -
Changes in operating assets and liabilities:
Net (increase) decrease in securities owned, at market value (2,150,000)
2,758,000
Net (increase) decrease in receivable from clearing broker (545,000) 386,000
(Increase) decrease in prepaid expenses and other assets (204,000) 179,000
Net increase (decrease) in securities sold, not yet purchased,
at market value (521,000) 1,400,000
Increase (decrease) in accounts payable and accrued
Liabilities (1,140,000) 264,000
Net cash provided by operating activities 6,835,000 3,717,000
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of furniture, equipment and leasehold improvements (627,000) (252,000)
Distribution from equity investee 997,000 (427,000)
Net cash provided by (used in) investing activities 6,835,000 (679,000)
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividend on common stock (300,000) (80,000)
Repayment of Subordinated debt (1,000,000)
Proceeds from exercise of options 710,000 39,000
Proceeds from rights offering 7,183,000 -
Net cash provided by (used in) financing activities 7,723,000 (41,000)
Net increase (decrease) in cash and cash equivalents 14,055,000 (2,997,000)
Cash and cash equivalents - beginning of period 6,735,000 4,527,000
Cash and cash equivalents - end of period $20,790,000 $7,524,000
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Cash paid for:
Interest $148,000 $193,000
Income taxes $567,000 1,498,000
NONCASH INVESTING AND FINANCING ACTIVITIES:
Dividends declared $120,000 $19,000
Tax benefit from stock options exercise (see note 4) $3,036,000 _
</TABLE>
See notes to consolidated financial statements.
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SIEBERT FINANCIAL CORP. & SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(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, 1998. 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 May 28, 1999, the Company consummated the acquisition of Andrew Peck
Associates, Inc. ("Peck"). Under the terms of the agreement, Peck was
merged with and into Siebert and the separate existence of Peck ceased. All
of the common stock of Peck outstanding was converted into 600,000 shares
of the Company's common stock. The merger is accounted for as a pooling of
interests. Accordingly, the Company's financial statements have been
restated to include the results of Peck for all periods presented.
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% 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% of aggregate debits.) As of September 30, 1999 and December 31,
1998, Siebert had net capital of approximately $ 13.1 million and $11.1
million respectively, as compared with net capital requirements of
$250,000.
3. TAX BENEFIT OF STOCK OPTION EXERCISES:
During the three quarters ended September 30, 1999, the Company recorded
income taxes receivable of, and increased additional paid-in capital by,
$3,036,000 arising from the deductibility of the difference between the
exercise price of non qualifying stock options and the market value of the
stock on the dates of exercise of the options. The amounts have been
utilized to offset currently payable income taxes and the excess has been
recorded as income taxes receivable.
<
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4. CAPITAL TRANSACTIONS:
On January 15, 1999 the Company issued 961,000 shares of its common stock
in connection with a rights offering to its shareholders. Proceeds were
$7.50 a share, or approximately $7,200,000. The proceeds after deducting
expenses of approximately $270,000 were credited $19,600 to common stock
and $7,176,000 to additional paid in capital.
During the quarter ended September 30, 1999 no employees or directors
exercised any options. Employees and directors exercised options to
purchase 78,020 shares of common stock during the quarter ended June 30,
1999 and 227,240 options during the quarter ended March 31, 1999. Proceeds
of the exercises, aggregating approximately $710,000 (180,000 for the
quarter ended June 30, 1999, and 530,000 for the quarter ended March 31,
1999) were credited $3,000 to common stock and $707,000 to additional paid
in capital.
Pursuant to its 1998 Restricted Stock Award Plan, the Company issued 4,250
shares of its common stock to 87 employees during the second quarter of
1999. The aggregate market value of the restricted stock, which vests one
year from the date of the grant, was approximately $122,000, which is
charged to expense over the vesting period.
5. RELATED PARTY TRANSACTIONS:
In September 1999, the Company returned $2,000,000 of secured demand notes
receivable and $1,000,000 in cash to its Chairwoman and principal
shareholder in exchange for the cancellation of $3,000,000 of subordinated
notes payable.
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Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
This discussion should be read in conjunction with the Company's
Consolidated Financial Statements and the Notes thereto contained elsewhere in
this Quarterly Report.
BUSINESS ENVIRONMENT
Market conditions during the first four months of 1999 reflected a
continuation of the 1996 bull market characterized by record volume, record high
market levels and large daily swings in the market averages while interest rate
concerns coupled with a slower market environment and normal seasonal summer
slowdown led to lower trading volume in the markets overall during the third
quarter. Meanwhile, competition continued to intensify among all types of
brokerage firms including discount brokers, as well as from new firms entering
the discount brokerage business. Electronic trading continues to account for an
increasing amount of trading activity with some firms offering very low flat
rate trading execution fees that are difficult for any conventional discount
firm to meet. Many of these flat fee brokers, however, impose charges for
services such as mailing, transfers and handling exchanges which the Company
does not currently impose, 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 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,
such as the advent of decimal pricing and the increasing use of Electronic
Communications Networks, are expected to put 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 trading 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 results of operations. 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 earnings to be expected for
any other period.
CURRENT DEVELOPMENTS
On January 15, 1999, the Company completed a rights offering in which
existing stockholders received the right to purchase one share of Common Stock
at $7.50 for each share of Common Stock owned of record as of July 29, 1998.
Approximately 961,000 shares of Common Stock were issued pursuant to the rights
offering, generating net proceeds to the Company of approximately $7,000,000,
after the payment of offering expenses of approximately $270,000.
In January 1999, the Company, through its clearing agent, unveiled its
new interactive palm-top service that allows Siebert clients to make equity
trades, receive confirmations, get real-time quotes and alerts, access account
data, send and receive e-mail and more; all without a phone or computer. Using
the newest wireless two-way interactive beeper technology, this beeper-sized,
4.9-ounce battery-operated device can be programmed to provide instant account
updates and real-time quotes.
On May 28, 1999, the Company consummated the acquisition of Andrew Peck
Associates, Inc. ("Peck"). Under the terms of the acquisition agreement, Peck
was merged with and into Siebert and the separate existence of Peck ceased. All
of the common stock of Peck outstanding was converted into 600,000 shares of the
Company's common stock. The merger is accounted for as a pooling of interests.
Accordingly, the Company's financial statements have been restated to include
the results of Peck for all periods presented.
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RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO THREE EONTHS ENDED SEPTEMBER
30, 1998
REVENUES. Total revenues for the three months ended September 30, 1999
were $7.8 million, an increase of $950,000, or 13.9%, over the same period in
1998.
Commission and fee income increased $1.3 million, or 21.7%, during the
three months ended September 30, 1999 to $7.1 million due to higher trading
volume, partially offset by lower commissions earned per trade resulting from
the increased use of lower priced electronic trading1, price reductions for
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
electronically continues to increase, amounting to approximately 47.9% of trades
executed for the quarter ended September 30, 1999 as compared to 19.5% in the
quarter ended September 30,1998. Of the electronic trades, 95.2% were executed
on the Company's SiebertNet Web site for the quarter ended September 30, 1999 as
compared to 79% for the quarter end September 30, 1998.
Investment banking revenues for the three months ended September 30,
1999 were $443,000, an increase of $366,000, or 475.3%, from the three months
ended September 30, 1998. The increase was primarily due to the Company's
increased participation in the number of underwritings completed during the
quarter.
The loss from equity investee Siebert, Brandford, Shank & Co., L.L.C.
("SBS") for the three months ended September 30, 1999 was $373,000, compared to
net income of $427,000 for the same period in 1998. The decrease was due in part
to the decreased number of municipal bond offerings as interest rates trended
higher.
Trading profits for the three months ended September 30, 1999 were
$250,000, an increase of $57,000, or 29.5% from the three months ended September
30, 1998. In July 1999, management decided to curtail proprietary trading
activity and invest the Company's funds in lower risk investments including
money market funds.
Income from interest and dividends for the three months ended September
30, 1999 was $323,000, an increase of $54,000, or 20.1%, from the three months
ended September 30, 1998 primarily due to higher cash balances as a result of
the Company's rights offering.
EXPENSES. Total expenses for the three months ended September 30, 1999
were $6.7 million, an increase of $1.7 million, or 35.4%, from the three months
ended September 30, 1998.
Employee compensation and benefit costs for the three months ended
September 30, 1999 were $2.4 million, an increase of $318,000, or 15 %, from the
three months ended September 30, 1998.
Clearing and floor brokerage fees for the three months ended September
30, 1999 were $1.3 million, an increase of $414,000, or 44.8% from the three
months ended September 30, 1998. The increase was due to the substantially
increased volume of tickets executed, approximately 69%, offset in part by a
lower per ticket charges to Siebert.
Advertising and promotion expenses for the three months ended September
30, 1999 were $1.1 million, an increase of $458,000, or 76.3% from the three
months ended September 30, 1998 due primarily to increased spot television
advertising and increased media costs.
Communications expense for the three months ended September 30, 1999
was $598,000, an increase of $117,000, or 24.3%, from the three months ended
September 30, 1998 primarily due to increased quote usage by customers and news
services offered by the Company coupled with an increase in the volume of the
Company business.
1 Electronic trading includes SiebertNet(TM), MarketPhone(TM), and
MobileBroker(TM).
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Occupancy costs for the three months ended September 30, 1999 were
$140,000, an increase of $5,000, or 3.7%, from the three months ended September
30, 1998.
Interest expense for the three months ended September 30, 1999 was
$44,000, a decrease of $31,000, or 41.3% from the three months ended September
30, 1998 primarily due to the decreased use of short positions in proprietary
trading activities, coupled with a decreased activity in proprietary trading
generally. This trading activity was curtailed by management in July 1999.
GENERAL AND ADMINISTRATIVE. General and administrative expenses for the
three months ended September 30, 1999 were $1.1 million, an increase of
$464,000, or 78.9% from the three months ended September 30, 1998 primarily due
to merger costs in connection with the Peck acquisition, higher consulting fees,
and increased fulfillment fees as new account leads increased and the Company
outsourced some of its mailings.
TAXES. Provision for income taxes decreased for the three months ended
September 30, 1999 to $466,000 a decrease of $363,000, or 43.8% from the three
months ended September 30, 1998, due to lower net income.
NINE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
1998
REVENUES. Total revenues for the nine months ended September 30, 1999
were $25.6 million, an increase of $3.1 million, or 13.6%, over the same period
in 1998.
Commission and fee income increased $5.4 million, or 30.8%, over the
nine months ended September 30, 1998 to $22.7 million due to higher trading
volume partially offset by lower commissions earned per trade resulting from the
increased use of lower priced electronic trading, price reductions for 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
electronically continues to increase, representing approximately 42.8% of trades
executed for the nine months ended September 30, 1999 as compared to 15.6%
during the nine months ended September 30, 1998. Of the electronic trades, 92%
were executed on the Company's SiebertNet Web site for the nine months ended
September 30, 1999 as compared to 72% during the nine months ended September 30,
1998.
Investment banking revenues for the nine months ended September 30,
1999 were $1.1 million, a decrease of $1.9 million, or 64.1% from the nine
months ended September 30, 1998, as the Company began reporting its investment
in, and the operations of, SBS using the equity method of accounting in July
1998. Prior to that time, the operations of what is now SBS were fully
consolidated with those of Siebert. SBS generates a majority of its revenues,
from tax exempt securities underwriting.
The income from equity investee (SBS) for the nine months ended
September 30, 1999 was $263,000, a decrease of $164,000, or 38.4%, from the nine
months ended September 30, 1998. The decrease reflects higher interest rates,
particularly in the third quarter, which resulted in fewer municipal bond
offerings.
Trading profits for the nine months ended September 30, 1999 were
$668,000, a decrease of $293,000, or 30.5%, from 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, coupled with the exclusion of
SBS trading profits in the current nine month period. Additionally, in July
1999, management decided to curtail proprietary trading activity and invest the
Company's funds in lower risk investments, including money market funds.
Income from interest and dividends for the nine months ended September
30, 1999 was $802,000, an increase of $119,000, or 17.4%, from the nine months
ended September 30, 1998 primarily due to higher cash balances as a result of
the Company's rights offering.
EXPENSES. Total expenses for the nine months ended September 30, 1999
were $20.2 million,
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an increase of $3.3 million, or 19.5%, from the nine months ended September 30,
1998.
Employee compensation and benefit costs for the nine months ended
September 30, 1999 were $8.1 million, a decrease of $45,000, or 1.0%, from the
nine months ended September 30, 1998 primarily due to the treatment of the
Company's investment in SBS using the equity method of accounting, thereby
decreasing the number of employees on the Company's payroll.
Clearing and floor brokerage fees for the nine months ended September
30, 1999 were $4.2 million, an increase of $1.4 million, or 48.3%, from the nine
months ended September 30, 1998. The increase was due to increased volume of
tickets executed, approximately 90%, offset in part by lower per ticket charges
to Siebert. During the 1998 period a refund of $750,000 was recorded in
connection with the renegotiated clearing agreement.
Advertising and promotion expenses for the nine months ended September
30, 1999 were $2.5 million, an increase of $930,000, or 60.4% from the nine
months ended September 30, 1998 primarily due to increased spot television
advertising and increased media costs.
Communications expense for the nine months ended September 30, 1999 was
$1.8 million, an increase of $433,000, or 31.4% from the nine months ended
September 30, 1998 primarily due to increased quote usage by customers and news
services offered by the Company, coupled with an increase in the volume of the
Company's business.
Occupancy expenses for the nine months ended September 30, 1999 were
$404,000, a decrease of $58,000, or 12.6% from the nine months ended September
30, 1998 principally due to the exclusion of SBS occupancy costs for the current
period.
Interest expense for the nine months ended September 30, 1999 was
$148,000, a decrease of $120,000, or 44.8%, from the nine months ended September
30, 1998 primarily due to the decreased use of short positions in proprietary
trading activities, coupled with decreased activity in the Company's proprietary
trading activities. In July 1999, management decided to curtail proprietary
trading activities and invest the Company's funds in lower risk investments
including money market funds.
GENERAL AND ADMINISTRATIVE. General and administrative expenses for the
nine months ended September 30, 1999 were $3.1 million, an increase of $772,000,
or 33.3%, from the nine months ended September 30, 1998 primarily due to merger
costs in connection with the Peck acquisition, higher consulting fees and
increased fulfillment fees as new account leads increased and the Company
outsourced some of its mailings.
TAXES. Provision for income taxes increased for the nine months ended
September 30, 1999 to $ 2.3 million, an increase of $1,000, from the nine months
ended September 30, 1998.
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, 1999 were $30.2 million. As of September 30, 1999,
$25.6 million, or 84.8%, of total assets were regarded by the Company as highly
liquid.
The Company generated a tax deduction of $3.0 million arising from the
exercise of employees' stock options during the nine months ended September 30,
1999. This asset was partially utilized to offset $2.3 million of current tax
liability and the balance was recorded as income taxes receivable since it will
be used to offset future tax liabilities or to claim a refund of previously paid
taxes.
Siebert is subject to the net capital requirements of the SEC, the NYSE
and other
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regulatory authorities. At September 30, 1999, Siebert's regulatory net capital
was $ 13.1 million, $12.9 million in excess of its minimum capital requirement
of $250,000.
YEAR 2000
Many existing computer programs use only two digits to identify a
specific year and therefore may not accurately recognize the upcoming change in
the century. If not corrected, many computer applications could fail or create
erroneous results by or at the Year 2000. Due to the Company's dependence on
computer technology in its operations, and the dependence of the financial
services industry on computer technology, the nature and impact of Year 2000
processing failures on the Company's business, financial position, results of
operations or cash flows could be material. The Company is currently modifying
its computer systems in order to enable its systems to process data and
transactions incorporating Year 2000 dates without material errors or
interruptions. Because systems critical to the Company's functioning other than
its computer systems also may be affected by the century change, the Company's
Year 2000 compliance efforts also encompass facilities and equipment which rely
on date-dependent technology, such as, building equipment that contains embedded
technology.
The Company 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 but many are off the shelf
programs acquired from vendors. The Company has inventoried those systems it
believes are 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, 1999, Year 2000 compliant. Although nothing has come to the
Company'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. The Company has tested and continues to test all critical systems
during 1999. The total costs incurred to date and in the future relating to this
issue are not expected to be material.
While the Company believes that its critical hardware and software is
Year 2000 compliant, the Company has adopted a contingency plan that addresses
critical systems such as communications, quotes, Internet site and backup
trading facility. The plan provides for redundant systems in case the Company's
primary systems fail. The Company's clearing agent, National Financial Services
Corporation ("NFSC") is certified as Year 2000 compliant through its parent
company, Fidelity Investments. NFSC's inability to operate and the Company's
lack of alternative clearing arrangements would have a material adverse effect
on our business operations.
IMPACT OF INFLATION
General inflation in the economy increases operating expenses of most
businesses. The Company has provided compensation increases generally in line
with the inflation rate and incurred higher prices for goods and services. While
the Company is subject to inflation as described above, management believes that
inflation currently does not have a material effect on the Company's operating
results, but there can be no assurance that this will continue to be so in the
future.
NEW ACCOUNTING PRINCIPLES
During 1997, and 1998, the Financial Accounting Standards Board issued
the following account standards: Statement of Financial Accounting Standards No.
130, "Reporting Comprehensive Income" (SFAS No. 130), Statement of Financial
Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and
Related Information" (SFAS No. 131), Statement of Financial Accounting Standards
No. 132 "Employers Disclosures about Pension and other Post retirement Benefit
Plans" (SFAS No. 132) and Statement of Financial Accounting Standards No. 133
"Accounting for Derivative Instruments and Hedging Activities. There was no
material effect from the adoption of SFAS 131 and 132 and Company does not
expect any material effect from adoption of SFAS Nos. 133, as amended, which is
effective for fiscal periods beginning after June 15, 2000.
-12-
<PAGE>
Item 3. Quantitative and Qualitative Disclosures About Market Risk
FINANCIAL INSTRUMENTS HELD FOR TRADING PURPOSES:
Through Siebert, the Company maintains inventories in exchange-listed
and Nasdaq equity securities on both a long and short basis. The fair value of
all securities at September 30, 1999 was approximately $2.6 million in long
positions and approximately $46,000 in short positions. The fair value of all
securities at September 30, 1998 was approximately $4.8 million in long
positions and approximately $638,000 in short positions. Using a hypothetical
10% increase or decrease in prices, the potential loss or gain in fair value,
respectively, is estimated to be approximately $258,000 and $412,000,
respectively, due to the offset of change in fair value in long and short
positions.
FINANCIAL INSTRUMENTS HELD FOR PURPOSES OTHER THAN TRADING:
Working capital is generally temporarily invested in dollar denominated
money market funds and overnight certificates of deposits. These investments are
not subject to material changes in value due to interest rate movements.
-13-
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
The Company is involved in various routine lawsuits of a nature deemed
by the Company customary and incidental to its business. In the opinion of
management, the ultimate disposition of such actions will not have a material
adverse effect on its financial position or results of operations.
Item 2. Changes in Securities and Use of Proceeds
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10.10 Employment Agreement, dated as of April 9, 1999,
between the Company and Daniel Jacobson
27 Financial Data Schedule
(b) Reports on Form 8-K
None
-14-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
NAME TITLE DATE
---- ----- ----
/s/Muriel F. Siebert Chair, President and Director November 12, 1999
- -----------------------
Muriel F. Siebert (principal executive officer)
/s/Mitchell M. Cohen Chief Financial Officer November 12, 1999
- -----------------------
Mitchell M. Cohen and Assistant Secretary
(principal financial and
accounting officer)
-15-
EMPLOYMENT AGREEMENT
AGREEMENT made and entered into on the 9th day of April , 1999, by and
between SIEBERT FINANCIAL CORP., a New York corporation with an office in New
York, New York (the "Company"), and DAN JACOBSON, a resident of the State of New
York ("Mr. Jacobson").
1. EMPLOYMENT. The Company will employ Mr. Jacobson, and Mr. Jacobson
will be employed by the Company, upon the terms and conditions set forth in this
Agreement.
2. TERM OF EMPLOYMENT. The term of Mr. Jacobson's employment under this
Agreement will begin on the date hereof and will continue through April 30,
2002. On each May 1 (beginning with May 1, 2000) prior to the termination of Mr.
Jacobson's employment under Section 7, the term will be extended by one
additional year.
3. POSITION, DUTIES AND RESPONSIBILITIES. On May 3, 1999, Mr. Jacobson
will begin serving as a full-time senior executive officer of the Company with
the title of Vice-Chair. As soon as practicable after the date hereof, Mr.
Jacobson will be appointed to serve as a member of the Company's Board of
Directors ("Board"). Mr. Jacobson will report directly to, and will perform such
duties consistent with his position as are assigned to him by and at the
discretion of, the Company's Chair or the Board. The duties to be assigned to
Mr. Jacobson under this Agreement may cover any aspect of the Company's
business, including, for example, matters relating to acquisitions, contract
negotiation, operations planning and structure, strategic planning for Internet,
general business coordination, management, coordination and prioritization of
projects, administrative supervision, business and financial reporting, and
compensation planning and negotiation. Mr. Jacobson's compensation will be
subject to annual review by the Compensation Committee of the Board. At the
request of the Chair or the Board, Mr. Jacobson will serve as a member of the
Executive Committee of the Board, and as an officer and director of the
Company's subsidiaries and other affiliates without additional compensation. Mr.
Jacobson will be a full-time employee of the Company; however, subject to
Company policies and industry standards, Mr. Jacobson may engage in incidental
personal, charitable, professional and investment activities to the extent such
activities do not conflict or interfere with his obligations to, or his ability
to perform the duties of his employment by, the Company hereunder.
4. ANNUAL COMPENSATION. The Company will pay salary to Mr. Jacobson at
an annual rate of $185,000 in accordance with its regular payroll practices. The
Board, acting in its discretion, may award bonuses to Mr. Jacobson, applying
standards substantially similar to those used with respect to other senior
officers of the Company (other than the Chair). Mr. Jacobson's compensation will
be subject to annual review by the Compensation Committee of the Board pursuant
to paragraph 3 above. The Board may increase (but may not decrease) the annual
rate of Mr. Jacobson's salary in effect at any time.
-1-
<PAGE>
5. EMPLOYEE BENEFITS. Mr. Jacobson will be entitled to participate in
such qualified and nonqualified employee pension plans, stock option or other
equity compensation plans, group health, long term disability and group life
insurance plans, and any other welfare and fringe benefit plans, arrangements,
programs and perquisites sponsored or maintained by the Company from time to
time for the benefit of its senior executive employees generally. Mr. Jacobson
will be entitled to receive a special stock option grant under the Company's
1997 Stock Option Plan for 20,000 shares of Company common stock, vesting in 20%
increments at the end of each of the first five years following the date hereof,
at the current fair market value exercise price prescribed by said Stock Option
Plan. A stock option agreement evidencing the 20,000 share option grant,
substantially in the form that is customarily used under the Company's stock
option plan, will be presented to Mr. Jacobson promptly after the execution of
this Agreement.
6. REIMBURSEMENT OF BUSINESS EXPENSES. Mr. Jacobson is authorized to
incur reasonable expenses in carrying out his duties and responsibilities under
this Agreement, and the Company will promptly reimburse him for all such
expenses that are so incurred upon presentation of appropriate vouchers or
receipts, subject to the Company's expense reimbursement policies applicable to
senior executive officers generally.
7. TERMINATION OF EMPLOYMENT.
(a) DEATH. If Mr. Jacobson's employment with the Company terminates
before the end of the term by reason of his death, then, as soon as practicable
thereafter, the Company will pay to his estate an amount equal to his "Accrued
Compensation" (defined below). For the purposes of this Agreement, the term
"Accrued Compensation" means, as of any date, the amount of any unpaid salary
earned by Mr. Jacobson through that date, plus any additional amounts and/or
benefits payable in accordance with the provisions of any employee plan, program
or arrangement under which Mr. Jacobson is covered immediately prior to his
death.
(b) DISABILITY. If the Company terminates Mr. Jacobson's employment by
reason of Mr. Jacobson's "disability" (defined below), then Mr. Jacobson will be
entitled to (1) his Accrued Compensation through his employment termination
date, (2) continuing salary payments for one year, reduced by the amount, if
any, of long term disability income payments to which Mr. Jacobson becomes
entitled, and (3) continuing participation in the Company's group health plan(s)
at the same benefit level at which he and his covered dependent(s) participated
immediately before the termination of his employment for a period of at least
one year after such termination or, if longer, for the balance remaining in the
then current term of this Agreement at the time of such termination of
employment, and, thereafter, for such additional continuation period as may be
available under COBRA. For purposes of this Agreement, the term "disability"
shall have the same meaning ascribed thereto for purposes of the Company's long
term disability plan or, if there is no such plan, the inability of Mr. Jacobson
to substantially perform the customary duties of his employment for the Company
for a period of at least 120 consecutive days by reason of a physical or mental
incapacity which is expected to last indefinitely, or result in death.
-2-
<PAGE>
(c) TERMINATION BY THE COMPANY FOR CAUSE OR VOLUNTARY TERMINATION BY
MR. JACOBSON. If the Company terminates Mr. Jacobson's employment for "Cause"
(defined below) or if Mr. Jacobson terminates his employment voluntarily, then,
in either of such events, Mr. Jacobson will be entitled to receive his Accrued
Compensation through the date his employment terminates, and nothing more. For
the purposes hereof, the term "Cause"means (1) the commission of an act of
dishonesty or other misconduct for substantial personal enrichment to the
material detriment or expense of the Company or any of its affiliates, (2) the
commission of a felony or other indictable offense involving fraud, dishonesty,
deceit, theft embezzlement, obtaining property under false pretenses or similar
acts of misconduct, (3) a willful violation of Company policy which is not
remedied or discontinued within 30 days' written notice thereof by the Company,
(4) an act which causes substantial harm to the ability of the Company or of any
of its affiliates to conduct its business by reason of Mr. Jacobson's being
named as a defendant in an injunctive action brought by a regulatory agency
alleging violation of applicable securities law, (5) any other willful conduct
or misconduct which causes substantial harm to the reputation or business of the
Company or any of its affiliates, or (6) wilful and repeated failure or refusal
by Mr. Jacobson to carry out the duties and responsibilities of his employment
which, if curable, is not cured within 30 days after receipt of written notice
by the Company.
(d) TERMINATION BY THE COMPANY WITHOUT CAUSE. If Mr. Jacobson's
employment is terminated by the Company without Cause, then Mr. Jacobson will be
entitled to receive (1) Accrued Compensation through the termination date; (2)
continued salary for the Severance Term (defined below) at his annual rate of
salary in effect immediately prior to the termination date; and (3) continued
participation in the Company's group health plan(s) during the Severance Period
or cash payments equal to the premium cost of such coverage if and to the extent
he cannot be covered under the Company's plan by reason of his no longer being
an active employee, subject to such additional continuation coverage as may be
available under COBRA. For the purposes hereof, the term Severance Period means
three years if Mr. Jacobson's employment ends within two years from the date
hereof, two years if Mr. Jacobson's employment ends more than two but not more
than four years from the date hereof, and one year if Mr. Jacobson's employment
ends more than four years from the date hereof.
(e) CHANGE IN CONTROL. A voluntary termination of employment by Mr.
Jacobson will be deemed to be a termination of Mr. Jacobson's employment by the
Company without Cause for the purposes of this Agreement if such voluntary
termination occurs within six months after the occurrence of a Change in Control
(as defined below). For the purposes hereof, the term "Change in Control" means
any transaction or series of related transactions which, upon consummation,
results in a change of ownership, directly or indirectly, of more than 50% of
the voting control and value of the Company and its businesses and in Ms. Muriel
Siebert's not serving as the Chair or a co-Chair of the Company. Transfers of
Company stock by the Chair to one or more entities controlled by her or to
members of her family (or trusts for the benefit of any members of her family)
or to the Muriel F. Siebert Foundation will be disregarded in determining
whether a Change in Control has occurred.
-3-
<PAGE>
(e) MITIGATION. In the event of the termination of Mr. Jacobson's
employment by the Company without Cause, Mr. Jacobson shall be under no
obligation to seek other employment in order to mitigate the Company's
obligations under subparagraph (d) of this paragraph 7; provided, however, that
amounts due Mr. Jacobson under said subparagraph (d) shall be offset by any
remuneration attributable to any subsequent employment that Mr. Jacobson may
obtain.
8. RESTRICTIVE COVENANTS.
(a) NONDISCLOSURE OF CONFIDENTIAL INFORMATION. Mr. Jacobson
acknowledges that, during the course of his employment hereunder, he will have
access to confidential and proprietary information, documents and other
materials relating to the Company which are not generally known to persons
outside the Company (whether conceived or developed by Mr. Jacobson or others)
and confidential information, documents and other materials entrusted to the
Company by third parties, including, without limitation, financial information,
trade secrets, techniques, know-how, marketing and other business plans,
customer lists, data, strategies and forecasts, and the substance of
arrangements and agreements with customers, suppliers and others (collectively,
"Confidential Information"). Information known by Mr. Jacobson prior to his
employment with the Company will not be considered to be Confidential
Information hereunder. Any Confidential Information conceived or developed by
Mr. Jacobson during the period of his employment will be the exclusive property
of the Company. Except as specifically authorized by the Company, Mr. Jacobson
will not (during or after his employment hereunder) disclose Confidential
Information to any third person, firm or entity or use Confidential Information
for his own purposes or for the benefit of any third person, firm or entity
other than (1) as may be legally required in response to any summons, order or
subpoena issued by a court or governmental agency, or (2) Confidential
Information which is or becomes available to the general public through no act
or failure to act by Mr. Jacobson.
(b) COMPANY DOCUMENTS. Upon the termination of his employment,
Mr. Jacobson will deliver to the Company all documents in whatever form and
other tangible property containing Confidential Information which are then in
his possession or control.
(c) NON-SOLICITATION. During employment and for a period of
one year after the termination of his employment, Mr. Jacobson will not,
directly or indirectly, solicit, induce or otherwise attempt to influence any
employee of the Company or any subsidiary or other affiliate thereof to leave
employment therewith.
(d) REMEDIES. Mr. Jacobson acknowledges and agrees that
damages in an action at law for breach of any of the provisions of this Section
will be difficult to determine and will not afford a full and adequate remedy
and, therefore, agrees that the Company, in addition to seeking damages in an
action at law, may seek specific performance and such equitable or other
remedies as may be available for breach of this Section, including, without
limitation, the issuance of a temporary or permanent injunction, without the
necessity of a bond.
-4-
<PAGE>
(e) SURVIVAL. The obligations set forth in this Section 8
shall survive the termination of Mr. Jacobson's employment.
9. LITIGATION ASSISTANCE. Mr. Jacobson will cooperate with the Company,
during the term of his employment and thereafter (including following Mr.
Jacobson's termination of employment for any reason), by making himself
reasonably available to testify on behalf of the Company or any subsidiary or
affiliate of the Company in any action, suit, or proceeding, whether civil,
criminal, administrative, or investigative, and to reasonably assist the Company
or any such subsidiary or affiliate in any such action, suit, or proceeding by
providing information and meeting and consulting with the Board or its
representatives or counsel, or representatives or counsel to the Company or any
such subsidiary or affiliate, as reasonably requested; PROVIDED, HOWEVER, that
the same does not materially interfere with his then current professional
activities. The Company will reimburse Mr. Jacobson, on an after-tax basis, for
all expenses reasonably incurred by him in connection with his provision of
testimony or assistance.
10. INDEMNIFICATION. To the extent permitted by its Certificate of
Incorporation and By-laws and subject to applicable law, the Company will
indemnify, defend and hold Mr. Jacobson harmless from and against any claim,
liability or expense (including reasonable attorneys' fees) made against or
incurred by Mr. Jacobson as a result of his employment with the Company or any
subsidiary or other affiliate of the Company, including service as an officer or
director of the Company or any subsidiary or other affiliate of the Company.
11. ASSIGNMENT; BINDING NATURE. The services and duties to be performed
by Mr. Jacobson hereunder are personal and may not be assigned. This Agreement
shall be binding upon and inure to the benefit of the Company, its successors
and assigns and Mr. Jacobson and his heirs and representatives.
12. NO IMPEDIMENT TO AGREEMENT. Mr. Jacobson covenants that he is not,
as of the date hereof, and will not be, during the period of his employment
hereunder, employed under contract, oral or written, by any other person, firm
or entity, and is not and will not be bound by the provisions of any other
restrictive covenant or confidentiality agreement, and is not aware of any other
circumstance or condition (legal, health or otherwise) which would constitute an
impediment to, or restriction upon, his ability to enter into this Agreement and
to perform the duties and responsibilities of his employment hereunder. Mr.
Jacobson will comply with any applicable registration or other regulatory
requirements that may be imposed in connection with the performance of his
duties under this Agreement.
13. AMENDMENT OR WAIVER. No provision in this Agreement may be amended
unless such amendment is agreed to in writing and signed by Mr. Jacobson and an
authorized officer of the Company. Except as set forth herein, no delay or
omission to exercise any right, power or remedy accruing to any party shall
impair any such right, power or remedy or shall be construed to be a waiver of
or an acquiescence to any breach hereof. No waiver by either party of any breach
by the
-5-
<PAGE>
other party of any condition or provision contained in this Agreement to be
performed by such other party shall be deemed a waiver of a similar or
dissimilar condition or provision at the same or any prior or subsequent time.
Any waiver must be in writing and signed by Mr. Jacobson or an authorized
officer of the Company, as the case may be.
14. SEVERABILITY. In the event that any provision or portion of this
Agreement shall be determined to be invalid or unenforceable for any reason, in
whole or in part, the remaining provisions of this Agreement shall be unaffected
thereby and shall remain in full force and effect to the fullest extent
permitted by law.
15. SURVIVORSHIP. The respective rights and obligations of the parties
hereunder shall survive any termination of Mr. Jacobson's employment to the
extent necessary to the intended preservation of such rights and obligations.
16. GOVERNING LAW. This Agreement shall be governed by and construed
and interpreted in accordance with the laws of [New York] without reference to
principles of conflict of laws.
17. NOTICES. Any notice given to a party shall be in writing and shall
be deemed to have been given when delivered personally or sent by certified or
registered mail, postage prepaid, return receipt requested, or express mail to
the recipient at his or its last known address.
18. ENTIRE AGREEMENT. This Agreement contains the entire understanding
and agreement between the parties concerning the subject matter hereof and
supersedes all prior agreements, understandings, discussions, negotiations and
undertakings, whether written or oral, between the parties with respect thereto.
IN WITNESS WHEREOF, the undersigned have executed this Agreement on the
date first above written.
SIEBERT FINANCIAL CORP.
By: /s/Muriel Siebert
------------------------------
Muriel Siebert, Chair
/s/Dan Jacobson
----------------------------------
Dan Jacobson
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