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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 June 30, 2000
--------------
[ ] Transition Report Pursuant to 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
incorporation or organization) Identification No.)
885 Third Avenue, New York, New York 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)
Indicate by check mark whether the registrant: (1) has filed all
reports required to be filed by Section 13 or 15(d) of the 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 [ ]
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEEDING FIVE YEARS
Indicate by check mark whether the registrant has filed all documents
and reports required to be filed by Section 12,13 or 15(d) of the Securities and
Exchange of 1934 Act subsequent to 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 August 9, 2000, there
were 22,892,515 shares of Common Stock, par value $.01 per share, outstanding.
Transitional Small Business Disclosure Format (check one):
Yes [ ] No [X]
<PAGE>
Unless the context otherwise requires, the "Company" or "Siebert"
shall mean Siebert Financial Corp. and its wholly owned subsidiaries.
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 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
<PAGE>
Siebert Financial Corp. & Subsidiary
Consolidated Statements of Financial Condition
<TABLE>
<CAPTION>
June 30, 2000 December 31,
(unaudited) 1999
--------- ----
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 27,065,000 $ 22,882,000
Cash equivalents - restricted 1,300,000 1,300,000
Receivable from clearing broker 2,399,000 2,358,000
Securities owned, at market value 4,447,000 2,653,000
Furniture, equipment and leasehold improvements, net 1,367,000 729,000
Investment in affiliate 960,000 1,097,000
Prepaid expenses and other assets 1,093,000 1,286,000
------------ ------------
$ 38,631,000 $ 32,305,000
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Securities sold, not yet purchased, at market value $ -- $ 50,000
Taxes payable 1,439,000 --
Accounts payable and accrued liabilities 2,982,000 2,801,000
------------ ------------
4,421,000 2,851,000
------------ ------------
Commitments and contingent liabilities
Stockholders' equity
Common stock, $.01 par value; 49,000,000 shares authorized,
22,892,515 and 22,889,687 issued and outstanding at June 30, 2000
and December 31, 1999, respectively
Additional paid-in capital 17,627,000 17,582,000
Retained earnings 16,483,000 11,644,000
Less: 18,100 shares of treasury stock, at cost (129,000) --
------------ ------------
34,210,000 29,454,000
------------ ------------
$ 38,631,000 $ 32,305,000
============ ============
</TABLE>
See notes to consolidated financial statements.
-3-
<PAGE>
Siebert Financial Corp. & Subsidiary
Consolidated Statements of Income
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
------------------------------------ --------------------------------
June 30, June 30,
------------------------------------ --------------------------------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues:
Commissions and fees $ 9,830,000 $ 8,053,000 $ 22,482,000 $15,624,000
Investment banking 349,000 371,000 818,000 649,000
Trading profits 174,000 175,000 393,000 417,000
Income (loss) from equity investee (250,000) 460,000 (341,000) 636,000
Interest and dividends 495,000 196,000 867,000 479,000
------------ ----------- ------------ -----------
10,598,000 9,255,000 24,219,000 17,805,000
------------ ----------- ------------ -----------
Expenses:
Employee compensation and benefits 2,969,000 2,913,000 6,218,000 5,698,000
Clearing fees, including floor
brokerage 1,775,000 1,387,000 3,779,000 2,834,000
Advertising and promotion 686,000 690,000 1,258,000 1,412,000
Communications 779,000 651,000 1,582,000 1,214,000
Occupancy 198,000 138,000 373,000 214,000
Interest 3,000 52,000 9,000 104,000
Other general and administrative 1,164,000 1,023,000 2,459,000 2,088,000
------------ ----------- ------------ -----------
7,574,000 6,854,000 15,678,000 13,564,000
------------ ----------- ------------ -----------
Income before income taxes 3,024,000 2,401,000 8,541,000 4,241,000
Provision for income taxes 1,270,000 1,032,000 3,581,000 1,866,000
------------ ----------- ------------ -----------
Net income $ 1,754,000 $ 1,369,000 $ 4,960,000 $ 2,375,000
============ =========== ============ ===========
Net income per share of common stock -
basic $ 0.08 $ 0.06 $ 0.22 $ 0.10
diluted $ 0.08 $ 0.06 $ 0.21 $ 0.10
Weighted average shares outstanding -
22,895,537 22,819,981 22,896,070 22,671,525
Weighted average shares outstanding -
diluted 23,308,878 23,334,646 23,322,096 23,363,789
</TABLE>
See notes to consolidated financial statements.
-4-
<PAGE>
Siebert Financial Corp. & Subsidiary
Consolidated Statements of Cash Flows
(unaudited)
<TABLE>
<CAPTION>
Six Months Ended
-------------------------------------
June 30,
--------------------------------------
2000 1999
------------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 4,960,000 $ 2,375,000
Adjustments to reconcile net income to net cash provided by
Operating activities:
Depreciation and amortization 232,000 173,000
Utilization of deferred tax asset -- 1,841,000
(Income) loss from equity investee 341,000 (636,000)
Changes in operating assets and liabilities:
Net (increase) decrease in securities owned, at market value (1,794,000) 1,748,000
Net (increase) decrease in receivable from clearing broker (41,000) 559,000
(Increase) decrease in prepaid expenses and other assets 134,000 (114,000)
Net increase (decrease) in securities sold, not yet purchased,
at market value (50,000) (351,000)
Increase (decrease) in accounts payable, taxes payable
and accrued liabilities 1,620,000 (1,216,000)
------------ ------------
Net cash provided by operating activities 5,402,000 4,379,000
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of furniture, equipment and leasehold improvements (811,000) (181,000)
Distribution from equity investee 53,000 997,000
Advances to equity investee (257,000) --
------------ ------------
Net cash provided by (used in) investing activities (1,015,000) 816,000
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividend on common stock (121,000) (170,000)
Proceeds from exercise of options 46,000 710,000
Repurchase of Company Stock (129,000) --
Proceeds from rights offering -- 7,183,000
------------ ------------
Net cash provided by (used in) financing activities (204,000) 7,723,000
------------ ------------
Net increase in cash and cash equivalents 4,183,000 12,918,000
Cash and cash equivalents - beginning of period 22,882,000 6,735,000
------------ ------------
Cash and cash equivalents - end of period $ 27,065,000 $ 19,653,000
============ ============
Supplemental cash flow disclosures:
Cash paid for:
Interest $ 9,000 $ 104,000
Income taxes $ 2,152,000 $ 558,000
Noncash investing and financing activities:
Dividends declared -- $ 119,000
Deferred taxes (see note 3) -- $ 1,195,000
</TABLE>
See notes to consolidated financial statements.
-5-
<PAGE>
Siebert Financial Corp. & Subsidiary
Notes to Consolidated Financial Statements
Six Months Ended June 30, 2000
(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-K for the year ended December 31, 1999. 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% 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.) As of June 30, 2000 and December 31,
1999, Siebert had net capital of approximately $19.2 million and $15.5
million, respectively, as compared with net capital requirements of
$250,000.
3. Deferred Taxes:
During the quarters ended June 30, 1999, and March 31, 1999, the Company
recorded a deferred tax asset of, and increased additional paid-in capital
by $836,000 and $2,200,000, respectively, arising from the deductibility of
the difference between the exercise price of the options and the market
value of the stock on the dates of exercise of the options. During the
quarters end June 30, 1999 and March 31, 1999 the Company utilized
approximately $1.0 million and $809,000 respectively of the deferred tax
asset to offset income taxes payable.
4. Capital Transactions:
On May 15, 2000, the board of directors of the Company authorized a buy
back of up to 1 million common shares. Shares will be purchased from time
to time in the open market and in private transactions. Through June 30,
2000, 18,100 shares have been purchased at prices ranging between $6.875 to
$7.97.
-6-
<PAGE>
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 quarter of 2000 reflected a
continuation of the 1996 bull market characterized by record volume, record high
market levels and large daily swings in the market averages. Interest rate
concerns, however, led to lower trading volume in the markets overall during the
latter part of April, May and June. Meanwhile, competition has 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 Communication Networks, 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 affected directly 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
Siebert's commission per customer trade is trending down as the number
of trades executed on SiebertNet increases. For the six months ended June 30,
2000, SiebertNet trades accounted for approximately 60% of all retail trades
compared to 40% for the six months ended June 30, 1999. Lower trading volume in
the second quarter of 2000 from record high volume experienced in the first
quarter of 2000 affected the Company's net income, which was $.08 per share
during the quarter ended June 30, 2000 versus $.14 per share during the quarter
ended March 31, 2000.
On May 15, 2000, the board of directors of the Company authorized a buy
back of up to 1 million common shares. Shares will be purchased from time to
time in the open market and in private transactions. Through June 30, 2000,
18,100 shares have been purchased at prices ranging between $6.875 to $7.97.
Results of Operations
Three Months Ended June 30, 2000 Compared to Three Months Ended June 30, 1999
Revenues. Total revenues for the three months ended June 30, 2000 were
$10.6 million, an increase of $1.3 million, or 14.5%, over the same period in
1999.
Commission and fee income increased $1.8 million, or 22.1%, during the
three months ended June 30, 2000 to $9.8 million due to higher trading volume,
partially offset by lower commissions earned per trade resulting from the
increased use of lower priced electronic trading. The portion of trades executed
on the Company's SiebertNet web site continues to increase, representing
approximately 60% of trades executed for the quarter ended June 30, 2000 as
compared to 44% for the quarter ended June 30, 1999.
-7-
<PAGE>
Investment banking revenues for the three months ended June 30, 2000
were $349,000, a decrease of $22,000, or 5.9%, from the three months ended June
30, 1999.
Loss from equity investee for the three months ended June 30, 2000 was
$250,000, compared to income of $460,000, or a decrease of 154.3% from the three
months ended June 30, 1999.
Trading profits for the three months ended June 30, 2000 were $174,000,
a decrease of $1,000, or .6% from the three months ended June 30, 1999.
Income from interest and dividends for the three months ended June 30,
2000 was $495,000, an increase of $299,000, or 152.6%, from the three months
ended June 30, 1999 primarily due to additional funds available for temporary
investment.
Expenses. Total expenses for the three months ended June 30, 2000 were
$7.6 million, an increase of $720,000 or 10.5%, from the three months ended June
30, 1999.
Employee compensation and benefit costs for the three months ended June
30, 2000 were $3.0 million, an increase of $56,000, or 1.9%, from the three
months ended June 30, 1999 primarily due to additional registered personnel to
handle increased trading volume.
Clearing and floor brokerage fees for the three months ended June 30,
2000 were $1.8 million, an increase of $388,000, or 28.0% from the three months
ended June 30, 1999. The increase was due to the increased volume of trades
executed, offset in part by a lower per ticket charge to the Company under a new
clearing agreement in 2000.
Advertising and promotion expense remained approximately unchanged at
$686,000 compared to $690,000, or a decrease of .6% from the three months ended
June 30, 1999.
Communications expense for the three months ended June 30, 2000 was
$779,000, an increase of $128,000, or 19.7%, from the three months ended June
30, 1999 primarily due to an increase in the volume of the Company's general
business.
Occupancy costs for the three months ended June 30, 2000 was $198,000,
an increase of $60,000, or 43.5%, from the three months ended June 30, 1999
primarily due to the execution of two new leases entered into by the Company in
connection with the planned move of the Company's operations to Jersey City, New
Jersey.
Interest expense for the three months ended June 30, 2000 was $3,000, a
decrease of $49,000, or 94.2% from the three months ended June 30, 1999
primarily due to the elimination of short positions in proprietary trading
activities.
General and Administrative. General and administrative expenses for the
three months ended June 30, 1999 were $1.2 million, an increase of $141,000, or
13.8% from the three months ended June 30, 1998 primarily due to expansion of
Company's customer service capacity.
Taxes. Provision for income taxes increased for the three months ended
June 30, 2000 to $1.3 million an increase of $238,000, or 23.1% from the three
months ended June 30, 1999 due to an increase in income before taxes of
$623,000, to $3.0 million or 25.9% for the three months ended June 30, 2000,
compared to $2.4 million for the three months ended June 30, 1999.
-8-
<PAGE>
Six Months Ended June 30, 2000 Compared to Six Months Ended June 30, 1999
Revenues. Total revenues for the six months ended June 30, 2000 were
$24.2 million, an increase of $6.4 million, or 36.0%, over the same period in
1999.
Commission and fee income increased $6.9 million, or 43.9%, over the
six months ended June 30, 1999 to $22.5 million due to higher trading volume
partially offset by lower commissions earned per trade resulting from the
increased use of lower priced electronic trading. The portion of trades executed
on the Company's SiebertNet web site continues to increase, representing
approximately 60% of trades executed for the six months ended June 30, 2000 as
compared to 40% for the six months ended June 30, 1999.
Investment banking revenues for the six months ended June 30, 2000 were
$818,000, an increase of $169,000, or 26.0% from the six months ended June 30,
1999.
Loss from equity investee for the six months ended June 30, 2000 was
$341,000, compared to income of $636,000 a decrease of $977,000, or 153.6% from
the six months ended June 30, 1999.
Trading profits for the six months ended June 30, 2000 were $393,000, a
decrease of $24,000, or 5.8%, from the six months ended June 30, 1999.
Income from interest and dividends for the six months ended June 30,
2000 was $867,000, an increase of $388,000, or 81.0%, from the six months ended
June 30, 1999 primarily due to higher cash balances available for temporary
investment at generally higher interest rates than the prior period.
Expenses. Total expenses for the six months ended June 30, 2000 were
$15.7 million, an increase of $2.1 million, or 15.6%, from the six months ended
June 30, 1999.
Employee compensation and benefit costs for the six months ended June
30, 2000 were $6.2 million, an increase of $520,000, or 9.1% from the six months
ended June 30, 1999 primarily due to additional registered personnel to handle
the substantially increased trading volume, particularly in the first quarter of
2000.
Clearing and floor brokerage fees for the six months ended June 30,
2000 were $3.8 million, an increase of $945,000, or 33.3%, from the six months
ended June 30, 1999. The increase was due to increased volume of trades
executed, offset in part by a lower per ticket charge to the Company under a new
clearing agreement in 2000.
Advertising and promotion expense for the six months ended June 30,
2000 were $1.3 million, a decrease of $154,000, or 10.9% from the six months
ended June 30, 1999 due to a decreased level of promotional advertising.
Communications expense for the six months ended June 30, 1999 was $1.6
million, an increase of $368,000, or 30.3% from the six months ended June 30,
1999 primarily due to an increase in the general business volume.
Occupancy costs for the six months ended June 30, 2000 were $373,000,
an increase of $159,000, or 74.3% from the six months ended June 30, 1999
primarily due to the execution of two new leases entered into by the Company in
connection with the planned move of the Company's operations to Jersey City, New
Jersey.
Interest expense for the six months ended June 30, 2000 was $9,000, a
decrease of $95,000, or 91.3% from the six months ended June 30, 1999 primarily
due to the elimination of short positions in proprietary trading activities.
General and Administrative. General and administrative expenses for the
six months ended June 30, 2000 were $2.5 million, an increase of $371,000, or
17.8%, from the six months ended June 30, 1999 primarily due to expansion of
Company's customer service capacity.
-9-
<PAGE>
Taxes. Provision for income taxes increased for the six months ended
June 30, 2000 to $ 3.6 million, an increase of $1.7 million, or 91.9% from the
six months ended June 30, 1999 due to an increase in net income before income
taxes to $8.5 million in the first six months in 2000 over $4.2 million for the
same period in 1999.
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 June 30, 2000 were $38.6 million. As of June 30, 2000, $33.9
million, or 87.8%, of total assets were regarded by the Company as highly
liquid.
Siebert is subject to the net capital requirements of the SEC, the NYSE
and other regulatory authorities. At June 30, 2000, Siebert's regulatory net
capital was $19.2 million, $18.9 million in excess of its minimum capital
requirement of $250,000.
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.
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 June 30, 2000 was approximately $4.4 million in long
positions. The fair value of all securities at June 30, 1999 was approximately
$3.6 million in long positions and approximately $216,000 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 $445,000 and
$338,000, respectively, due to the offset of change in fair value of 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.
-10-
<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
The Company held its annual meeting on June 15, 2000. At that meeting,
the following matter was voted on and received the votes indicated:
(1) Election of Directors For Against Withheld
--- ------- --------
Muriel F. Siebert 22,552,498 0 343,847
Nicholas P. Dermigny 22,552,498 0 343,847
Patricia L. Francy 22,552,498 0 343,847
Jane H. Macon 22,552,498 0 343,847
Daniel Jacobson 22,552,498 0 343,847
Item 5. Other Information
None
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
<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 August 10, 2000
------------------------- (principal executive officer)
Muriel F. Siebert
/s/Mitchell M. Cohen Chief Financial Officer August 10, 2000
------------------------- and Assistant Secretary
Mitchell M. Cohen (principal financial and
accounting officer)
