-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, OCnVa4iz7xcTz5Msaqqgqg1UMPVEW8gx0YnHqcGcqtC7txMyiVgYwh1FbbFZiv1f A3K1evROK2B7qkcIliWSwA== 0001019056-98-000458.txt : 19980803 0001019056-98-000458.hdr.sgml : 19980803 ACCESSION NUMBER: 0001019056-98-000458 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980630 FILED AS OF DATE: 19980730 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: SIEBERT FINANCIAL CORP CENTRAL INDEX KEY: 0000065596 STANDARD INDUSTRIAL CLASSIFICATION: SECURITY BROKERS, DEALERS & FLOTATION COMPANIES [6211] IRS NUMBER: 111796714 STATE OF INCORPORATION: NY FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10QSB SEC ACT: SEC FILE NUMBER: 000-05703 FILM NUMBER: 98674337 BUSINESS ADDRESS: STREET 1: 885 THIRD AVENUE STREET 2: SUITE 1720 CITY: NEW YORK STATE: NY ZIP: 10022 BUSINESS PHONE: 2126442400 MAIL ADDRESS: STREET 1: 182 SMITH ST CITY: BROOKLYN STATE: NY ZIP: 11201 FORMER COMPANY: FORMER CONFORMED NAME: MICHAELS J INC DATE OF NAME CHANGE: 19950221 10QSB 1 FORM 10QSB ================================================================================ U.S. SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-QSB (Mark One) [X] Quarterly report under Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended JUNE 30, 1998 -------------------------------------------- [ ] Transition report under Section 13 or 15(d) of the Exchange Act For the transition period from ___________________ to _____________________ Commission file number 0-5703 ----------------------------------------------------- SIEBERT FINANCIAL CORP. - -------------------------------------------------------------------------------- (Exact Name of Small Business Issuer 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, NY 10022 - -------------------------------------------------------------------------------- (Address of Principal Executive Offices) (212) 644-2400 - -------------------------------------------------------------------------------- (Issuer's Telephone Number, Including Area Code) - -------------------------------------------------------------------------------- (Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report) Check whether the issuer: (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEEDING FIVE YEARS Check whether registrant filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of securities under a plan confirmed by a court. Yes [ ] No [ ] APPLICABLE ONLY TO CORPORATE ISSUERS State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date: AS OF JULY 28, 1998 THERE WERE 20,996,440 SHARES OF COMMON STOCK, PAR VALUE $.01 PER SHARE, OUTSTANDING. Transitional Small Business Disclosure Format (check one): Yes [ ] No [X] ================================================================================ PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS. SIEBERT FINANCIAL CORP. & SUBSIDIARY CONSOLIDATED STATEMENT OF FINANCIAL CONDITION JUNE 30, 1998 (UNAUDITED) ASSETS Cash and cash equivalents $ 3,223,375 Cash equivalents - restricted 1,300,000 Receivable from broker-dealers 890,047 Securities owned, at market value 11,049,141 Secured demand note receivable from affiliate 2,000,000 Furniture, equipment and leasehold improvements, net 563,538 Investment in affiliate 3,392,000 Prepaid expenses and other assets 607,548 ----------- $23,025,649 =========== LIABILITIES AND STOCKHOLDERS' EQUITY Liabilities: Securities sold, not yet purchased, at market value $ 2,091,406 Payable to clearing broker 2,567,764 Accounts payable and accrued liabilities 3,515,722 ----------- 8,174,892 ----------- Commitments and contingent liabilities Subordinated borrowings payable to affiliate 3,000,000 ----------- Stockholders' equity: Common stock, $.01 par value; 49,000,000 shares authorized, 20,996,440 shares outstanding 209,964 Additional paid-in capital 6,643,264 Retained earnings 4,997,529 ----------- 11,850,757 ----------- $23,025,649 =========== See notes to consolidated financial statements. -2- SIEBERT FINANCIAL CORP. & SUBSIDIARY CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, ------------------------- ------------------------- 1998 1997 1998 1997 ----------- ----------- ----------- ----------- Revenues: Commissions and fees $ 4,705,441 $ 4,350,814 $ 9,301,346 $ 9,095,253 Investment banking 1,473,171 1,061,811 2,965,726 1,348,860 Trading profits 428,377 671,966 767,441 1,183,220 Interest and dividends 154,484 147,335 317,892 283,837 ----------- ----------- ----------- ----------- 6,761,473 6,231,926 13,352,405 11,911,170 ----------- ----------- ----------- ----------- Expenses: Employee compensation and benefits 2,304,063 1,984,640 4,652,625 3,806,536 Clearing fees, including floor brokerage 295,848 1,039,429 1,360,789 2,172,279 Advertising and promotion 309,475 638,094 759,144 1,539,180 Communications 414,610 408,452 823,866 840,614 Occupancy 158,322 163,343 354,333 326,098 Interest 92,613 114,765 192,664 206,840 Other general and administrative 781,776 796,552 1,563,300 1,502,575 ----------- ----------- ----------- ----------- 4,356,707 5,145,275 9,706,721 10,394,122 ----------- ----------- ----------- ----------- Income before income taxes 2,404,766 1,086,565 3,645,684 1,517,048 Provision for income taxes 1,041,000 491,000 1,477,000 673,000 ----------- ----------- ----------- ----------- Net income $ 1,363,766 $ 595,565 $ 2,168,684 $ 844,048 =========== =========== =========== =========== Net income per share of common stock - basic $ 0.06 $ 0.03 $ 0.10 $ 0.04 and diluted Weighted average shares outstanding - basic 20,992,510 20,950,440 20,992,265 20,948,156 Weighted average shares outstanding - diluted 21,720,690 20,950,440 21,668,630 20,948,156 See notes to consolidated financial statements.
-3- SIEBERT FINANCIAL CORP. & SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
SIX MONTHS ENDED JUNE 30, -------------------------- 1998 1997 ----------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 2,168,684 $ 844,048 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 79,711 71,772 Noncash compensation 43,961 -- Changes in operating assets and liabilities: Net (increase) in securities owned, at market value (4,484,473) (276,920) Net change in receivable from clearing broker 3,812,556 1,900,180 Decrease (increase) in prepaid expenses and other assets 12,839 (446,170) Net increase (decrease) in securities sold, not yet purchased, at market value 53,859 (194,081) Increase in accounts payable and accrued liabilities 344,237 265,010 ----------- ----------- Net cash provided by operating activities 2,031,374 2,163,839 ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES: Loans to or investment in affiliate (3,000,000) (392,000) Purchase of furniture, equipment and leasehold improvements (167,696) (37,430) ----------- ----------- Net cash (used in) investing activities (3,167,696) (429,430) ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from exercise of stock options 14,800 -- Dividends on common stock (49,245) -- Issuance of shares, net of expenses -- (28,941) ----------- ----------- Net cash (used in) financing activities (34,445) (28,941) ----------- ----------- Net (decrease) increase in cash and cash equivalents (1,170,767) 1,705,468 Cash and cash equivalents - beginning of period 4,394,142 231,029 ----------- ----------- Cash and cash equivalents - end of period $ 3,223,375 $ 1,936,497 =========== =========== SUPPLEMENTAL CASH FLOW DISCLOSURES: Cash paid for: Interest $ 192,664 $ 206,840 Income taxes 1,497,711 244,300 See notes to consolidated financial statements.
-4- SIEBERT FINANCIAL CORP. & SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SIX MONTHS ENDED JUNE 30, 1998 (UNAUDITED) 1. ORGANIZATION AND BASIS OF PRESENTATION: The consolidated financial statements include the accounts of Siebert Financial Corp. (the "Company") and its wholly-owned subsidiary, Muriel Siebert & Co., Inc. ("Siebert"). All material intercompany balances have been eliminated. The statements are unaudited; however, in the opinion of management, all adjustments considered necessary to reflect fairly the Company's financial position and results of operations, consisting of normal recurring adjustments, have been included. The accompanying consolidated financial statements do not include all of the information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles. Accordingly, the statements should be read in conjunction with the audited financial statements included in the Company's Annual Report on Form 10-KSB for the year ended December 31, 1997. Because of the nature of the Company's business, the results of any interim period are not necessarily indicative of results for a full year. 2. NET CAPITAL: Siebert is subject to the Securities and Exchange Commission's Uniform Net Capital Rule (Rule 15c3-1) which requires the maintenance of minimum net capital. Siebert has elected to use the alternative method, permitted by the rule, which requires that Siebert maintain minimum net capital, as defined, equal to the greater of $250,000 or 2 percent of aggregate debit balances arising from customer transactions, as defined. (The net capital rule of the New York Stock Exchange also provides that equity capital may not be withdrawn or cash dividends paid if resulting net capital would be less than 5 percent of aggregate debits.) At June 30, 1998, Siebert had net capital of approximately $6,854,000 as compared with net capital requirements of $250,000. On June 30, 1998 Siebert loaned $3,000,000 to an affiliate, Siebert Brandford Shank & Co., LLC ("SBS LLC") pursuant to a temporary subordination agreement with a maturity date of August 14, 1998. Such loan resulted in a temporary reduction in regulatory net capital of $3,000,000 as of June 30, 1998. The repayment of the loan will increase the then regulatory net capital by $3,000,000. See also Note 5. 3. STOCK SPLIT: On April 7, 1998, the Company split its stock 4 for 1 in order to comply with the rules of The Nasdaq Stock Market, Inc. relating to listings on the Nasdaq SmallCap Market. All share and per share data contained herein have been retroactively adjusted to reflect this stock split. -5- SIEBERT FINANCIAL CORP. & SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SIX MONTHS ENDED JUNE 30, 1998 (CONTINUED) (UNAUDITED) 4. CLEARING AGREEMENT: In June 1998, Siebert signed a new one year agreement with its clearing broker which provides, among other things, for reduced ticket charges and execution fees. Such arrangement provides for retroactive effect of the new charges and execution fees, not to exceed $1,000,000. A pro rata portion of the payment is refundable under certain circumstances and, accordingly, Siebert recognized pre-tax income of approximately $750,000 for the three month period ended June 30, 1998. The balance shall be recognized in a future period after such balance is no longer refundable. 5. SUBSEQUENT EVENT: Effective July 1, 1998, SBS LLC commenced operations and succeeded to the tax exempt underwriting business of the Siebert Brandford Shank division of Siebert. Siebert's investment in SBS LLC will be accounted for on the equity method. See also Note 2. -6- ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION. This discussion should be read in conjunction with the Company's unaudited Consolidated Financial Statements and the Notes thereto contained elsewhere in this Quarterly Report. Statements in this "Management's Discussion and Analysis or Plan of Operation" and elsewhere in this document as well as oral statements that may be made by the Company or by officers, directors or employees of the Company acting on the Company's behalf that are not statements of historical or current fact constitute "forward looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward looking statements involve risks and uncertainties and known and unknown factors that could cause the actual results of the Company to be materially different from the historical results or from any future results expressed or implied by such forward looking statements, including, without limitation: changes in general economic and market conditions, fluctuations in volume and prices of securities, changes and prospects for changes in interest rates and demand for brokerage and investment banking services, increases in competition within and without the discount brokerage business through broader services offerings or otherwise, competition from electronic discount brokerage firms offering greater discounts on commissions than the Company, prevalence of a flat fee environment, decline in participation in equity or municipal finance underwritings, decreased ticket volume in the discount brokerage division, limited trading opportunities, increases in expenses and changes in net capital or other regulatory requirements. BUSINESS ENVIRONMENT Market conditions during the first six months of 1998 reflected a continuation of the 1997 bull market characterized by record volume and record high market levels. At the same time, competition has continued to intensify both among all classes of brokerage firms and within the discount brokerage business as well as from new firms not previously in the discount brokerage business. Electronic trading continues to grow as a retail discount market segment with some firms offering very low flat rate trading execution fees that are difficult for any conventional discount firm to meet. Many of the flat fee brokers, however, impose charges for services such as mailing, transfers and handling exchanges which the Company does not and also direct their executions to captive market makers. Continued competition from ultra low cost, flat fee brokers and broader service offerings from other discount brokers could also limit the Company's growth or even lead to a decline in the Company's customer base which would adversely affect its results of operations. Industry-wide changes in trading practices are expected to cause continuing pressure on fees earned by discount brokers for the sale of order flow. The Company, like other securities firms, is directly affected by general economic and market conditions including fluctuations in volume and prices of securities, changes and prospects for changes in interest rates and demand for brokerage and investment banking services, all of which can affect the Company's relative profitability. In periods of reduced market activity, profitability is likely to be adversely affected because certain expenses, including salaries and related costs, portions of communications costs and occupancy expenses, remain relatively fixed. Accordingly, earnings for any period should not be considered representative of any other period. -7- Siebert utilizes both systems housed primarily on its own computer network and systems housed on the computers of third parties, such as its clearing broker and payroll vendor, to conduct its normal business activities. Some of the systems on its network are proprietary and many are off the shelf programs acquired from vendors. Siebert has inventoried those systems critical to its operations and has received assurances from the developers, vendors and third parties that those systems are, or will be prior to December 31, 1998, year 2000 compliant. Although nothing has come to Siebert's attention which would cause it to believe that the assurances it has received are not accurate, the failure of one or more critical systems to be year 2000 compliant could have a material adverse effect on the results of its operations. Siebert intends to test all of the critical systems during 1999. The costs incurred to date and in the future relating to this issue are not expected to be material in the aggregate. CURRENT DEVELOPMENTS In June 1998, Siebert signed a new one year agreement with its clearing broker which provides, among other things, for reduced ticket charges and execution fees. Such agreement provides for the retroactive effect of the new charges and execution fees in an amount not to exceed $1,000,000. If the new agreement had been effective for the entire calendar year 1997, Siebert would have realized monthly savings of a minimum of $150,000. A pro rata portion of the payment is refundable under certain circumstances and, accordingly, Siebert recognized pre-tax income of approximately $750,000 in its financial statements for the second quarter of 1998. The balance shall be recognized in a future period after such balance is no longer refundable. In addition, Siebert will have reduced clearing costs and execution fees for the remainder of the contract term based on the volume of trades and customer account balances. The new agreement also provides increasing volume discounts as the monthly number of trades increases. RESULTS OF OPERATIONS THREE MONTHS ENDED JUNE 30, 1998 COMPARED TO THREE MONTHS ENDED JUNE 30, 1997 Total revenues for the three months ended June 30, 1998 were $6.8 million, an increase of $530,000 or 8.5% over the same period in 1997. Commission and fee income, investment banking and interest and dividend revenues increased as compared to the prior year, however, trading profits decreased. Commission and fee income increased $149,000 or 3.1% to $4.7 million due to higher volume partially offset by lower commissions earned per trade resulting from the increase of lower-priced electronic trading, price reductions on other related services caused by increased competition from ultra low cost, flat fee brokers and a reduction of order flow fees. Investment banking revenues increased $411,000 or 38% to $1.5 million primarily due to the increased tax exempt underwriting activity by the Siebert, Brandford, Shank division in 1998. This division had minimal operations for the three months ended June 30, 1997, since it only began operations in late 1996. Trading profits decreased $244,000 or 36% to $428,000 primarily due to reduced income opportunities in trading of listed bond funds, the firm's principal trading activity. -8- Interest and dividends increased $7,000 or 4.9% to $154,000 primarily due to trading strategies which generated higher dividend income. Total expenses for the three months ended June 30, 1998 were $4.4 million, a decrease of $788,000 or 15% over the same period in 1997. Clearing fees, advertising and promotion, occupancy, interest and general and administrative costs decreased and all other expenses increased. Employee compensation and benefit costs increased $319,000 or 16% to $2.3 million primarily due to commissions paid to the Siebert, Brandford, Shank division's sales personnel resulting from increased tax exempt underwriting activity. Clearing and floor brokerage fees decreased $743,000 or 72% to $296,000. Such costs decreased primarily due to the retroactive effect of the Company's new clearing agreement with its clearing broker (see "Current Developments" above). Advertising and promotion expense decreased $329,000 or 52% to $309,000 due to a decreased level of promotional advertising. Communications expense increased $6,000 or 1.5% to $415,000 primarily due to increased quote and news services. Occupancy costs decreased $5,000 or 3.1% to $158,000 principally due to a decrease in operating escalations. Interest expense decreased $22,000 or 19% to $93,000 primarily due to less use of short positions in proprietary trading activity. Other general and administrative expenses decreased $15,000 or 1.9% to $782,000 primarily due to small decreases in various operational expenses. Provision for income taxes increased $550,000 or 112% to $1.0 million primarily due to an increase in net income before income tax in the second quarter of 1998 of $1.3 million or 121% to $2.4 million over the same period in 1997. SIX MONTHS ENDED JUNE 30, 1998 COMPARED TO SIX MONTHS ENDED JUNE 30, 1997 Total revenues for the six months ended June 30, 1998 were $13.4 million, an increase of $1.4 million or 12% over the same period in 1997. Commission and fee income, investment banking and interest and dividend revenues increased as compared to the prior year, however, trading profits decreased. Commission and fee income increased $206,000 or 2.3% to $9.3 million due to higher volume partially offset by lower commissions earned per trade resulting from the increase of lower priced electronic trading, price reductions on other related services caused by increased competition from ultra low cost, flat fee brokers and a reduction of order flow fees. Investment banking revenues increased $1.6 million or 120% to $3.0 million primarily due to the increased tax exempt underwriting activity by the Siebert, Brandford, Shank division in 1998. This division had minimal operations for the first six months of 1997, since it only began operations in late 1996. -9- Trading profits decreased $416,000 or 35% to $767,000 primarily due to reduced income opportunities in trading of listed bond funds, the firm's principal trading activity. Interest and dividends increased $34,000 or 12% to $318,000 primarily due to trading strategies which generated higher dividend income. Total expenses for the six months ended June 30,1998 were $9.7 million, a decrease of $687,000 or 6.6% over the same period in 1997. Clearing fees, advertising and promotion, communications and interest all decreased and all other expenses increased. Employee compensation and benefit costs increased $846,000 or 22% to $4.7 million primarily due to commissions paid to the Siebert, Brandford, Shank division's sales personnel resulting from increased tax exempt underwriting activity. Clearing and floor brokerage fees decreased $811,000 or 37.0% to $1.4 million. Such costs decreased primarily due to the retroactive effect of Company's new clearing agreement with its clearing broker (see "Current Developments" above). Advertising and promotion expense decreased $780,000 or 51% to $759,000 due to a decreased level of promotional advertising. Communications expense decreased $17,000 or 2.0% to $824,000 primarily due to telephone contract price reductions. Occupancy costs increased $28,000 or 8.7% to $354,000 principally due to a lease extension option cancellation fee paid during 1998. Interest expense decreased $14,000 or 6.9% to $193,000 primarily due to less use of short positions in proprietary trading activity. Other general and administrative expenses increased $61,000 or 4.0% to $1.6 million primarily due to increased business development expenses related to the municipal investment banking staff. Provision for income taxes increased $804,000 or 119% to $1.5 million primarily due to an increase in net income before income tax in the first six months of 1998 of $2.2 million or 140% to $3.6 million over the same period in 1997, partially offset by a refund of local taxes. LIQUIDITY AND CAPITAL RESOURCES The Company's assets are highly liquid, consisting generally of cash, money market funds and securities freely salable in the open market. Siebert's total assets at June 30, 1998 were $23 million, of which $2 million took the form of a secured demand note. $14 million or 62% of total assets were highly liquid. The Company has filed a Registration Statement with the Securities and Exchange Commission for a discounted rights offering covering shares of its Common Stock. The controlling stockholder of the Company has indicated that she intends to waive the receipt of any such rights. There can be no assurance that any such offering will be successfully consumated. Siebert is subject to the net capital requirements of the SEC, the NYSE and other regulatory authorities. At June 30, 1998, Siebert's regulatory net capital was $6.9 million, $6.7 million in excess of its minimum capital requirement of $250,000. -10- PART II - OTHER INFORMATION ITEM 5. OTHER INFORMATION. If the Company does not receive notice of any matter that is to come before the shareholders at the next annual meeting of the shareholders on or before Wednesday, September 23, 1998, which corresponds to forty-five days before the date on which the Company first mailed its proxy materials for the prior years' annual meeting of the shareholders. The proxy for the next annual meeting of the shareholders may, pursuant to Rule 14a-4c of the Proxy Rules under the Securities Exchange Act of 1934, confer discretionary authority to vote on such matter. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. (a) Exhibits 27 - Financial Data Schedule (Edgar Filing Only) (b) Reports on Form 8-K None. SIGNATURES In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. SIEBERT FINANCIAL CORP. By: /s/ MURIEL F. SIEBERT --------------------------------- Muriel F. Siebert Chair and President (principal executive officer) Date: July 30, 1998 By: /s/ RICHARD M. FELDMAN --------------------------------- Richard M. Feldman Executive Vice President, Chief Financial Officer and Assistant Secretary (principal financial and accounting officer) Date: July 30, 1998 -11- EX-27 2 FDS --
BD 0000065596 SIEBERT FINANCIAL CORP. 1 USD 6-MOS DEC-31-1998 APR-01-1998 JUN-30-1998 1 4,523,375 890,047 0 0 11,049,141 563,538 23,025,649 0 6,083,486 0 0 2,091,406 3,000,000 0 0 209,964 11,640,793 23,025,649 767,441 317,892 9,301,346 2,965,726 0 192,664 4,652,625 3,645,684 3,645,684 0 0 2,168,684 .10 .10
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