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 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 [ ] 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 [X] No [ ]o
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 9, 2000, there
were 22,896,345 shares of Common Stock, par value $.01 per share, outstanding.
Transitional Small Business Disclosure Format (check one):
Yes [ ] No [X]
<PAGE>
Unless otherwise indicated, all information in this Form 10-Q has been
adjusted to reflect 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 expense
and changes in net capital or other regulatory requirements.
As a result of these and other factors, the Company experiences
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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<PAGE>
Siebert Financial Corp. & Subsidiary
Consolidated Statements of Financial Condition
<TABLE>
<CAPTION>
March 31, 2000 December 31,
(unaudited) 1999
----------- ----
<S> <C> <C>
ASSETS
Cash and cash equivalents $27,730,000 $22,822,000
Cash equivalents - restricted 1,300,000 1,300,000
Receivable from clearing broker 3,593,000 2,358,000
Securities owned, at market value 2,645,000 2,653,000
Furniture, equipment and leasehold improvements, net 838,000 729,000
Investment in and advances to affiliate 1,155,000 1,097,000
Prepaid expenses and other assets 1,363,000 1,286,000
----------- ---------
$38,624,000 $32,305,000
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Securities sold, not yet purchased, at market value $11,000 $50,000
Taxes payable 2,221,000 -
Accounts payable and accrued liabilities 3,706,000 2,801,000
--------- ---------
5,938,000 2,851,000
--------- ---------
Commitments and contingent liabilities
Stockholders' equity:
Common stock, $.01 par value; 49,000,000 shares authorized, 22,896,345 and
22,522,769 issued and outstanding at March 31, 2000 and December 31,
1999, respectively 229,000 228,000
Additional paid-in capital 17,607,000 17,582,000
Retained earnings 14,850,000 11,644,000
---------- ----------
32,686,000 29,454,000
---------- ----------
$38,624,000 $32,305,000
=========== ===========
</TABLE>
See notes to consolidated financial statements
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<PAGE>
Siebert Financial Corp. & Subsidiary
Consolidated Statements of Income
(unaudited)
Three Months Ended
-------------------------------
March 31,
2000 1999
---- ----
Revenues:
Commissions and fees $ 12,652,000 $ 7,569,000
Investment banking 469,000 278,000
Trading profits 219,000 242,000
Income (loss) from equity investee (91,000) 176,000
Interest and dividends 372,000 285,000
------------ ------------
13,621,000 8,550,000
------------ ------------
Expenses:
Employee compensation and benefits 3,249,000 2,786,000
Clearing fees, including floor brokerage 2,004,000 1,448,000
Advertising and promotion 572,000 722,000
Communications 803,000 563,000
Occupancy 175,000 126,000
Interest 6,000 52,000
Other general and administrative 1,295,000 1,013,000
------------ ------------
8,104,000 6,710,000
------------ ------------
Income before income taxes 5,517,000 1,840,000
Provision for income taxes 2,311,000 809,000
------------ ------------
Net income $ 3,206,000 $ 1,031,000
============ ============
Net income per share of common stock -
Basic $ 0.14 $ 0.05
Diluted $ 0.14 $ 0.04
Weighted average shares outstanding - basic 22,896,604 22,522,769
Weighted average shares outstanding - diluted 23,335,314 23,092,822
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,
2000 1999
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 3,206,000 $ 1,031,000
Adjustments to reconcile net income to net cash (used in) provided by
operating activities:
Depreciation and amortization 103,000 86,000
Utilization of deferred tax asset -- 809,000
Income from equity investee 91,000 (176,000)
Changes in operating assets and liabilities:
Net (increase) decrease in securities owned, at market value 8,000 (74,000)
Net (increase) decrease in receivable from clearing broker (1,235,000) (483,000)
(Increase) decrease in prepaid expenses and other assets (226,000) (81,000)
Net increase (decrease) in securities sold, not yet purchased,
at market value (39,000) 641,000
Increase in taxes payable 2,221,000 --
Increase (decrease) in accounts payable and accrued
liabilities 905,000 (418,000)
------------ ------------
Net cash provided by operating activities 5,034,000 1,335,000
------------ ------------
Cash flows from investing activities:
Purchase of furniture, equipment and leasehold improvements (212,000) (103,000)
Distribution from equity investee -- 632,000
------------ ------------
Net cash provided by (used in) investing activities (212,000) 529,000
------------ ------------
Cash flows from financing activities:
Dividend on common stock -- (79,000)
Proceeds from exercise of options 26,000 530,000
Proceeds from rights offering -- 7,183,000
------------ ------------
Net cash provided by financing activities 26,000 7,634,000
------------ ------------
Net increase in cash and cash equivalents 4,848,000 9,498,000
Cash and cash equivalents - beginning of period 22,882,000 6,735,000
------------ ------------
Cash and cash equivalents - end of period $ 27,730,000 $ 16,233,000
============ ============
Supplemental cash flow disclosures:
Cash paid for:
Interest $ 6,000 $ 52,000
Income taxes $ 26,000 $ 464,000
Noncash investing and Financing activities:
Dividends declared -- 91,000
Deferred taxes (see note 3) -- $ 1,391,000
</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, 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.
On May 28,1999, the Company consummated a merger, accounted for as a
pooling of interests with Andrew Peck Associates, Inc. ("Peck").
Accordingly, all periods prior to the merger have been restated to include
the net assets and the operations of Peck.
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 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, 2000 and December
31, 1999, Siebert had net capital of approximately $17,600,000 and
$15,475,000, respectively, as compared with net capital requirements of
$250,000.
3. Deferred Taxes:
During the quarter ended March 31, 1999 the Company recorded a deferred tax
asset of, and increased additional paid-in capital by $ 2,200,000 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 quarter ended March 31, 1999 the Company utilized $
809,000 of the deferred tax asset to offset income taxes payable.
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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
audited Consolidated Financial Statements and the Notes thereto contained
elsewhere in this Quarterly Report.
Business Environment
The volume of trading during the first three months of 2000,
accompanied by large daily swings in the market averages, set all-time records.
Meanwhile, competition 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 percentage of trading volume 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 impose and also direct their executions to captive
market makers. Trading volume has declined significantly in the current quarter
and the Company currently anticipates that its revenue and net income for the
second quarter will not reach the levels attained in the first quarter.
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 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 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 quarter ended March 31,
2000, SiebertNet trades accounted for approximately of 57% of all retail trades
compared to 36% for the first quarter of 1999.
Results of Operations
Three Months Ended March 31, 2000 Compared to Three Months Ended March 31, 1999
Revenues. Total revenues for the three months ended March 31, 2000 were
$13.6 million, an increase of $5 million, or 59.3%, over the same period in
1999.
Commission and fee income increased $5 million, or 67.2%, over the
three months ended March 31, 1999 to $12.7 million due to higher trading volume
partially offset by lower commissions earned per trade resulting from the
increased use of lower priced electronic trading. The portion of trades executed
on the Company's SiebertNet Web site continues to increase at a rapid pace.
Investment banking revenues for the three months ended March 31, 2000
were $469,000, an increase of $191,000 or 68.7% over the three months ended
March 31, 1999.
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<PAGE>
Loss from equity investee for the three months ended March 31, 2000 was
$91,000, compared to income of $176,000 a decrease of 267,000, or 151.7% from
the three months ended March 31, 1999.
Trading profits for the three months ended March 31, 2000 were
$219,000, a decrease of $23,000, or 9.5% from the three months ended March 31,
1999.
Income from interest and dividends for the three months ended March 31,
2000 were $372,000, an increase of $87,000, or 30.5% from the three months ended
March 31, 1999 primarily due to additional funds available for temporary
investment.
Expenses. Total expenses for the three months ended March 31, 2000 were
$8.1 million, an increase of $1.4 million, or 20.8% from the three months ended
March 31, 1999.
Employee compensation and benefit costs for the three months ended
March 31, 2000 were $3.2 million, an increase of $463,000, or 16.6% from the
three months ended March 31, 1999 primarily due to additional registered
personnel to handle the substantially increased trading volume.
Clearing and floor brokerage fees for the three months ended March 31,
2000 were $2 million, an increase of $556,000, or 38.4% from the three months
ended March 31, 1999 primarily due to the large increase in the number of trade
executions.
Advertising and promotion expense for the three months ended March 31,
2000 were $572,000, a decrease of $150,000, or 20.8% from the three months ended
March 31, 1999 due to a decreased level of promotional advertising.
Communications expense for the three months ended March 31, 2000 were
$803,000, an increase of $240,000, or 42.6% from the three months ended March
31, 1998 primarily due increased trading volume and quote requests.
Occupancy costs for the three months ended March 31, 2000 were
$175,000, an increase of $49,000, or 38.9% from the three months ended March 31,
1998 principally due to additional office space in Jersey City, New Jersey.
General and administrative expenses for the three months ended March
31, 2000 were $1.3 million, an increase of $282,000, or 27.8% from the three
months ended March 31, 1999 primarily due to additional executive headcount.
Taxes. Provision for income taxes increased for the three months ended
March 31, 2000 were $2.3 million, an increase of $1.5 million, or 185.7% from
the three months ended March 31, 1999 due to an increase in net income before
income tax to $3.7 million for the first three months of 2000 over $1.8 million
for the same period of 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 March 31, 2000 were $38.6 million. As of March 31, 2000, $34.5
million, or 89.3%, 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 March 31, 1999, Siebert's regulatory net
capital was $17.6 million, $17.4 million in excess of its minimum capital
requirement of $250,000.
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<PAGE>
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 March 31, 2000 was approximately $2.6 million in long
positions and approximately $11,000 in short positions. The fair value of all
securities at March 31, 1999 was approximately $4.5 million in long positions
and approximately $1.2 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 $263,000 and $330,000, 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.
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<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 12, 2000
By: /s/ Mitchell M. Cohen
----------------------
Mitchell M. Cohen
Chief Financial Officer and
Assistant Secretary
(principal financial and accounting
officer)
Date: May 12, 2000
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<TABLE> <S> <C>
<ARTICLE> BD
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-END> MAR-31-2000
<CASH> 27,730,000
<RECEIVABLES> 3,593,000
<SECURITIES-RESALE> 0
<SECURITIES-BORROWED> 0
<INSTRUMENTS-OWNED> 2,645,000
<PP&E> 838,000
<TOTAL-ASSETS> 38,624,000
<SHORT-TERM> 0
<PAYABLES> 0
<REPOS-SOLD> 0
<SECURITIES-LOANED> 0
<INSTRUMENTS-SOLD> 11,000
<LONG-TERM> 0
0
0
<COMMON> 229,000
<OTHER-SE> 32,686,000
<TOTAL-LIABILITY-AND-EQUITY> 38,624,000
<TRADING-REVENUE> 219,000
<INTEREST-DIVIDENDS> 372,000
<COMMISSIONS> 12,652,000
<INVESTMENT-BANKING-REVENUES> 469,000
<FEE-REVENUE> 0
<INTEREST-EXPENSE> 6,000
<COMPENSATION> 3,249,000
<INCOME-PRETAX> 5,517,000
<INCOME-PRE-EXTRAORDINARY> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,206,000
<EPS-BASIC> .14
<EPS-DILUTED> .14
</TABLE>
