-----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, I3lQYyw0ZAqVNXbygCfm+BorpRxcykr0+r1ca6Bkz01HPPSMmz5qCFGPB2nvHHJc +4NLPAlEpvmps7igMSL1fQ== 0001089355-02-000626.txt : 20021114 0001089355-02-000626.hdr.sgml : 20021114 20021114145553 ACCESSION NUMBER: 0001089355-02-000626 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20020930 FILED AS OF DATE: 20021114 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: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-05703 FILM NUMBER: 02824605 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: 885 THIRD AVENUE STREET 2: SUITE 1720 CITY: NEW YORK STATE: NY ZIP: 10022 FORMER COMPANY: FORMER CONFORMED NAME: MICHAELS J INC DATE OF NAME CHANGE: 19950221 10-Q 1 siebert10q3q20028072.txt QUARTERLY REPORT ================================================================================ U.S. SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-Q (Mark One) [X] Quarterly report under Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended September 30, 2002 -------------------------------------------- [ ]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 Issuer as Specified in its Charter) New York 11-1796714 - ------------------------------- ----------- (State or Other Jurisdiction of Incorporation) (I.R.S. Employer ) 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) 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 PRECEDING 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 November 13, 2002, there were 22,412,067 shares of Common Stock, par value $.01 per share, outstanding. Transitional Small Business Disclosure Format (check one): Yes No X ------------ --------- Unless the context otherwise requires, the "Company" shall mean Siebert Financial Corp. and its wholly owned subsidiaries and "Siebert" shall mean Muriel Siebert & Co., Inc., a wholly owned subsidiary of the Company. 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, 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 industry, limited trading opportunities, increases in expenses, changes in net capital or other regulatory requirements. 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. 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. Siebert Financial Corp. & Subsidiaries Consolidated Statements of Financial Condition Rounded to whole thousands (000)
September 30, December 31, 2002 (unaudited) 2001 --------------------------------- ASSETS Cash and cash equivalents $22,694 $25,670 Cash equivalents - restricted 1,300 1,300 Receivable from clearing broker 1,740 1,572 Securities owned, at market value 5,452 6,079 Furniture, equipment and leasehold improvements, net 2,594 1,703 Investment in and advances to equity investee 2,156 2,702 Intangibles, net 2,585 2,250 Prepaid expenses and other assets 1,728 853 Deferred tax asset 433 - --------------------------------- $40,682 $42,129 ================================= LIABILITIES AND STOCKHOLDERS' EQUITY Securities sold, not yet purchased, at market value $ - $ 4 Deferred tax liability - 489 Accounts payable and accrued liabilities 4,682 4,336 --------------------------------- 4,682 4,829 --------------------------------- Commitments and contingent liabilities Stockholders' equity: Common stock, $.01 par value; 49,000,000 shares authorized, 22,968,167 and 22,932,047 shares issued and 22,412,067 and 22,389,247 shares outstanding at September 30, 2002 and December 31, 2001, respectively 229 229 Additional paid-in capital 17,880 17,796 Retained earnings 20,673 22,010 Less: 556,100 and 542,800 shares of treasury stock, at cost at September 30, 2002 and December 31, 2001, respectively (2,782) (2,735) --------------------------------- 36,000 37,300 --------------------------------- $40,682 $42,129 =================================
See notes to consolidated financial statements. Siebert Financial Corp. & Subsidiaries Consolidated Statements of Operations (unaudited) Rounded to whole thousands (000) except for per share and number of shares information
Three Months Ended Nine Months Ended September 30, September 30, ------------------------------------------------------------------------- 2002 2001 2002 2001 ------------------------------------------------------------------------- Revenues: Commissions and fees $ 4,671 $ 5,882 $ 14,968 $ 20,481 Investment banking 408 422 1,210 1,522 Trading profits 92 243 619 717 Income from equity investee 397 78 1,023 1,536 Interest and dividends 129 349 470 1,135 ----------------------------------------------------------------------- 5,697 6,974 18,290 25,391 ----------------------------------------------------------------------- Expenses: Employee compensation and benefits 2,193 2649 6,772 8,285 Clearing fees, including floor brokerage 954 944 2,823 3,315 Advertising and promotion 915 475 2,009 2,420 Communications 568 685 1,710 2,237 Occupancy 223 261 684 757 Interest -- 1 1 11 Other general and administrative 2,053 1,487 6,550 4,544 ----------------------------------------------------------------------- 6,906 6,502 20,549 21,569 ----------------------------------------------------------------------- Income (loss) before income taxes (1,209) 472 (2,259) 3,822 Provision (benefit) for income taxes (483) 247 (922) 1,764 ----------------------------------------------------------------------- Net Income (loss) $ (726) $ 225 $ (1,337) $ 2,058 ======================================================================= Net income (loss) per share of common stock - Basic and Diluted $ (.03) $ .01 $ (.06) $ .09 Weighted average shares outstanding - Basic 22,415,907 22,489,171 22,393,771 22,451,664 Weighted average shares outstanding - Diluted 22,415,907 22,731,302 22,393,771 22,721,412
See notes to consolidated financial statements. Siebert Financial Corp. & Subsidiaries Consolidated Statements of Cash Flows (unaudited) Rounded to whole thousands (000)
Nine Months Ended September 30, ---------------------------------- 2002 2001 ---------------------------------- Cash flows from operating activities: Net income (loss) ($ 1,337) $ 2,058 Adjustments to reconcile net income (loss) to net cash (used in) provided by operating activities: Depreciation and amortization 1,301 1,002 Income from equity investee (1,023) (1,536) Changes in operating assets and liabilities: Net decrease in securities owned, at market value 627 2,838 Net increase in receivable from clearing broker (168) (1,275) (Increase) decrease in prepaid expenses and other assets (875) 247 Net (decrease) increase in securities sold, not yet purchased, at market value (4) 15 Net change in deferred taxes (922) -- Increase (decrease) in accounts payable and accrued liabilities 346 355 ----------------------------- Net cash (used in) provided by operating activities (2,055) 3,704 ----------------------------- Cash flows from investing activities: Purchase of furniture, equipment and leasehold improvements (1,482) (293) Purchase of customer accounts (1,045) -- Net repayments of advances by equity investee 3 633 Distribution from equity investee 1,566 ----------------------------- Net cash (used in) provided by investing activities (958) 340 ----------------------------- Cash flows from financing activities: Proceeds from exercise of options 84 45 Repurchase of common stock (47) (1,694) ----------------------------- Net cash provided by (used in) financing activities 37 (1,649) ----------------------------- Net (decrease) increase in cash and cash equivalents (2,976) 2,395 Cash and cash equivalents - beginning of period 25,670 26,370 ----------------------------- Cash and cash equivalents - end of period $ 22,694 $ 28,765 ============================= Supplemental cash flow disclosures: Cash paid for: Interest $ 1 $ 11 Income taxes $ 404 $ 793
See notes to consolidated financial statements. Siebert Financial Corp. & Subsidiaries Notes to Consolidated Financial Statements Nine Months Ended September 30, 2002 and 2001 (Unaudited) 1. Organization and Basis of Presentation: The consolidated financial statements include the accounts of Siebert Financial Corp. (the "Company") and its wholly owned subsidiaries Muriel Siebert & Co., Inc. ("Siebert") and Siebert Women's Financial Network, Inc. ("WFN"). 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, 2001. 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 two 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 five percent of aggregate debits.) As of September 30, 2002, Siebert had net capital of approximately $17,400,000 as compared with net capital requirements of $250,000. 3. Capital Transactions: On May 15, 2000, the board of directors of the Company authorized a stock buy back program of up to one million common shares. Shares will be purchased from time to time in the open market and in private transactions. Through September 30, 2002, 556,100 shares have been purchased at an average price of $5.00 per share. 4. Option Grants: During the period ended September 30, 2002, the Company's Board of Directors granted options to officers, employees and directors of the Company to purchase an aggregate of 1,145,000 shares of the Company's common stock at exercise prices ranging from $2.90 to $4.60 per share, in each case, the fair market value on the dates of grant. 5. Recent Developments On April 30, 2002, Siebert signed a Strategic Alliance Agreement with Intuit Inc. ("Intuit) to offer a full line of online and telephone based brokerage services to customers of Quicken and Quicken.com (the "Alliance"). Pursuant to the Alliance, Siebert and Intuit will share the revenue from, and certain expenses of, the Alliance. The online product was launched on September 16, 2002. For the quarter ended and the nine-month period ended September 30, 2002, revenues related to the Alliance were nominal. For the quarter ended September 30, 2002, the Company realized a pre-tax loss related to the Alliance of $1.2 million. For the nine-month period ended September 30, 2002, the Company realized a pre-tax loss related to the Alliance of $3.5 million, which included one-time start-up costs of $1.3 million for advisory fees and legal fees in addition to costs for the development and marketing of the new product offering. On April 30, 2002, Siebert signed a fully disclosed clearing agreement (the "Clearing Agreement") with the Pershing Division of Donaldson, Lufkin, & Jenrette Securities Corporation ("Pershing"). Pursuant to the Clearing Agreement and the Alliance, Siebert and Intuit will advance Pershing $1,500,000 which they are entitled to recoup from Pershing in equal installments, without interest, over the initial three years of the Clearing Agreement. In addition, Siebert and Intuit will incur one-time charges aggregating approximately $485,000 for the setup of the Alliance's website and related matters. Siebert and Intuit will share equally in the advance and the one-time charges. 6. Account Purchases: In May 2002 Siebert agreed to acquire certain retail discount brokerage accounts from TradeStation Securities, Inc. These accounts, which were transferred to Siebert on August 2002, are being serviced from Siebert's Boca Raton office. In July 2002, Siebert agreed to acquire the retail brokerage accounts of the Boca Raton office of State Discount Brokers, Inc. These accounts, which were transferred to Siebert in October 2002, are also being serviced from Siebert's Boca Raton office. As of September 30, 2002, the purchase price for the customer accounts has been recorded in "Intangibles" and is being amortized over a three-year period. 7. New Accounting Standards: In June 2001, the Financial Accounting Standards Board ("FASB") issued SFAS No. 141, "Business Combinations." SFAS No. 141 requires that the purchase method of accounting be used for all business combinations initiated after June 30, 2001. This statement specifies that certain acquired intangible assets in a business combination be recognized as assets separately from goodwill and that existing intangible assets and goodwill be evaluated for these new separation requirements. The adoption of this standard did not have a material impact on the Company's consolidated financial position or results of operations. In June 2001, the FASB issued SFAS No. 142, "Goodwill and Other Intangible Assets." SFAS No. 142 changes the accounting for goodwill from an amortization method to an impairment-only approach. Amortization of goodwill, including goodwill recorded in past business combinations, will cease upon adoption of this statement. In addition, this statement requires that goodwill be tested for impairment at least annually at the reporting unit level. The Company implemented SFAS No. 142 on January 1, 2002. Implementation of this statement did not have a material impact on the Company's consolidated financial position or results of operations. In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement Obligations." This statement addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. The Company is required to implement SFAS No. 143 on January 1, 2003. Management does not expect this statement to have a material impact on the Company's consolidated financial position or results of operations. In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." This statement supersedes SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." The statement retains the previously existing accounting requirements related to the recognition and measurement of the impairment of long-lived assets to be held and used while expanding the measurement requirements of long-lived assets to be disposed of by sale to include discontinued operations. It also expands the previously existing reporting requirements for discontinued operations to include a component of an entity that either has been disposed of or is classified as held for sale. The Company implemented SFAS No. 144 on January 1, 2002. Implementation of this statement did not have a material impact on the Company's consolidated financial position or results of operations. In April 2002, the FASB issued SFAS No. 145 "Rescission of FASB Statements No. 4, 44 and 64, Amendment of FASB Statement No 13, and Technical Corrections." SFAS No. 145 rescinds SFAS No. 4, "Reporting Gains and Losses from Extinguishment of Debt," SFAS No. 64, "Extinguishments of Debt Made to Satisfy Sinking-Fund Requirements," and SFAS No. 44, "Accounting for Intangible Assets of Motor Carriers." SFAS No. 145 also amends SFAS No. 13, "Accounting for Leases," to eliminate an inconsistency between the required accounting for sale-leaseback transactions and the required accounting for certain lease modifications that have economic effects that are similar to sale-leaseback transactions. SFAS No. 145 also amends other existing authoritative pronouncements to make various technical corrections, clarify meanings or describe their applicability under changed conditions. The provisions of SFAS No. 145 related to the rescission of SFAS No. 4 are effective for fiscal years beginning after May 15, 2002. The provisions of SFAS No. 145 related to SFAS No. 13 are effective for transactions occurring after May 15, 2002. All other provisions of SFAS No. 145 are effective for financial statements issued on or after May 15, 2002. Early application of the provisions of SFAS No. 145 is encouraged and may be as of the beginning of the fiscal year or as of the beginning of the interim period in which SFAS No. 145 was issued. The Company adopted the provisions of SFAS No. 145 during the quarter ended June 30, 2002. Adoption of SFAS No. 145 did not have a material effect on the Company's financial condition, results of operations or liquidity. In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities". Under SFAS 146, a cost associated with an exit or disposal activity shall be recognized and measured initially at its fair value in the period in which the liability is incurred. The provisions of SFAS No. 146 shall be effective for exit or disposal activities initiated after December 31, 2002. Management does not expect this statement to have a material impact on the Company's consolidated financial position or results of operations. 8. Siebert Brandford Shank & Co., LLC: Summarized financial data (presented in thousands) of Siebert Brandford Shank & Co., LLC, ("SBS") as of and for the nine months ended September 30 is as follows. Siebert holds a 49% ownership interest in SBS. 2002 2001 ---- ---- Total assets $8,766 $5,960 Total liabilities, including subordinated liabilities of $1,200 $4,754 $2,221 Total members' capital $4,012 $3,739 Total revenues $8,850 $9,127 Net income $2,087 $3,134 Siebert charged SBS $180,000 during each period for rent and general and administrative services, which Siebert believes approximates the cost of furnishing such services. Siebert's share of undistributed earnings from SBS amounted to $1,573,000 and $1,440,000 at September 30, 2002 and 2001 respectively. 9. Commitments and Contingent Liabilities: 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. Pursuant to the Clearing Agreement and the Alliance, Siebert and Intuit will advance Pershing $1.5 million which they are entitled to recoup from Pershing in equal installments, without interest, over the initial three years of the Clearing Agreement. In addition, Siebert and Intuit will incur one-time charges aggregating approximately $485,000 for the setup of the Alliance's website and related matters. Siebert and Intuit will share equally in the advance and the one-time charges. As of September 30, 2002, the advance and one-time charges have not been billed by or paid to Pershing (see Note 4). Item 2. Management's Discussion and Analysis or Plan of Operation. This discussion should be read in conjunction with the Company's audited and the unaudited Consolidated Financial Statements and the Notes thereto contained elsewhere in this Quarterly Report. Statements in this "Management's Discussion and Analysis" 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, 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 industry, limited trading opportunities, increases in expenses and changes in net capital or other regulatory requirements. Critical Accounting Policies The Company generally follows accounting policies standard in the brokerage industry and believes that its policies appropriately reflect its financial position and results of operations. Management has identified the use of "Estimates" as its critical policy. The estimates relate primarily to revenue and expense items in the normal course of business as to which the Company receives no confirmations, invoices, or other documentation at the time the books are closed for a period. The Company uses its best judgment, based on its knowledge of revenue transactions and expenses incurred, to estimate the amounts of such revenue and expense. The Company is not aware of any material differences between the estimates used in closing its books for the last five years and the actual amounts of revenue received and expenses incurred when the Company subsequently receives the actual confirmations, invoices or other documentation. Estimates are also used in determining the useful lives of tangible and intangible assets, and the fair market value of intangible assets. Management believes that its estimates are reasonable. Business Environment The bear market continued unabated through the third quarter and saw the averages break through their September 11, 2001 lows. Recent corporate and accounting scandals also have taken a toll on the public's confidence in the reliability of corporate information and the result has been a lack of interest in buying stocks. Competition in the brokerage industry remains intense although many of Siebert's competitors have been consolidated or have gone out of business. 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. Earnings, or loss, for any period should not be considered representative of any other period. Recent Developments In May 2002 Siebert agreed to acquire certain retail discount brokerage accounts from TradeStation Securities, Inc. These accounts, which were transferred to Siebert in August 2002, are being serviced from Siebert's Boca Raton office. In July 2002, Siebert agreed to acquire the retail brokerage accounts of the Boca Raton office of State Discount Brokers, Inc. These accounts, which were transferred to Siebert in October 2002, are also being serviced from Siebert's Boca Raton office. As of September 30, 2002, the purchase price for the customer accounts has been recorded in "Intangibles" and will be amortized over a three-year period. On April 30, 2002, Siebert signed a Strategic Alliance Agreement with Intuit Inc. ("Intuit) to offer a full line of online and telephone based brokerage services to customers of Quicken and Quicken.com (the "Alliance"). Pursuant to the Alliance, Siebert and Intuit will share the revenue from, and certain expenses of, the Alliance. The online product was launched on September 16, 2002 and as a result of the market conditions, new account openings have been slower than expected. Management is monitoring the results of the Alliance and will reduce costs if appropriate. For the quarter ended and the nine-month period ended September 30, 2002, revenues related to the Alliance were nominal. For the quarter ended September 30, 2002, the Company realized a pre-tax loss related the Alliance of $1.2 million. For the nine- month period ended September 30, 2002, the Company realized a pre-tax loss related to the Alliance of $3.5 million, which included one-time start-up costs of $1.3 million for advisory fees and legal fees in addition to costs for the development and marketing of the new product offering. On April 30, 2002, Siebert signed a fully disclosed clearing agreement (the "Clearing Agreement") with the Pershing Division of Donaldson, Lufkin, & Jenrette Securities Corporation ("Pershing"). Pursuant to the Clearing Agreement and the Alliance, Siebert and Intuit will advance Pershing $1.5 million which they are entitled to recoup from Pershing in equal installments, without interest, over the initial three years of the Clearing Agreement. In addition, Siebert and Intuit will incur one-time charges aggregating approximately $485,000 for the setup of the Alliance's website and related matters. Siebert and Intuit will share equally in the advance and the one-time charges. As of September 30, 2002, the advance and one-time charges have not been billed by or paid to Pershing. On May 15, 2000, the board of directors of the Company authorized the repurchase of up to 1,000,000 shares of the Company's common stock. Shares will be purchased from time to time, in the discretion of the Company, in the open market and in private transactions. Through September 30, 2002, 556,100 shares have been purchased at an average price of $5.00 per share. The Company intends to continue acquiring shares pursuant to its stock repurchase program based upon the price of the stock and in accordance with applicable rules and regulations. Results of Operations The Company believes that its core business is performing well, given the current difficult business environment for discount and online brokers. Excluding the loss of $1.2 million attributable to the Alliance and the loss of $400,000 generated by WFN, the Company would have been profitable for the three months ended September 30, 2002. The Company's results of operations for the three and nine months ended September 30, 2002 have been reduced by the investment in the Alliance that the Company believes provides a significant long-term growth opportunity for the Company. To date, all amounts invested by the Company in the Alliance have been recorded as a current expense. The Company expects that development and marketing costs over the next 12 months relating to the Alliance will exceed revenues generated by the Alliance, which may result in losses for the Company. The Company has reduced expenses in its WFN subsidiary for the three and nine-month periods ended September 30, 2002 by $26,000 and $495,000, respectively, over the same periods in 2001. These expense reductions occurred primarily in the "Advertising and Promotion", "Communication" and "Employee Salaries and Benefits" expense categories. The Company is continuing to make reductions in the expenses of WFN. Three Months Ended September 30, 2002 Compared to Three Months Ended September 30, 2001 Total revenues for the three months ended September 30, 2002 were $5.7 million, a decrease of $1.3 million, or 18.3% over the same period in 2001. Commission and fee income for the three months ended September 30, 2002 was $4.7 million, a decrease of $1.2 million or 20.6% over the same period in 2001 due to a substantial reduction in trading volume as result of the bear market conditions prevailing during 2002. Investment banking revenues for the three months ended September 30, 2002 were $408,000, a decrease of $14,000 or 3.3% over the same period in 2001 due to less activity in the new issue market. Income from the Company's equity investee, Siebert Brandford Shank & Co., LLC, an entity in which the Company holds a 49% equity interest ("SBS"), for the three months ended September 30, 2002 was $397,000 compared to income of $78,000, an increase of $319,000 or 408.9% from the same period in 2001 due to increased activity in the municipal bond market. SBS serves as an underwriter for municipal bond offerings. Trading profits were $92,000 for the three months ended September 30, 2002, a decrease of $151,000 or 62.2% over the same period in 2001 due to an overall decrease in trading volume. Interest and dividends for the three months ended September 30, 2002 were $129,000, a decrease of $220,000 or 63.0% over the same period in 2001 primarily due to slightly lower cash balances available for temporary investment coupled with lower interest rates. Total expenses for the three months ended September 30, 2002 were $6.9 million, an increase of $404,000 or 6.2% over the same period in 2001. Employee compensation and benefit costs for the three months ended September 30, 2002 were $2.2 million, a decrease of $456,000 or 17.2% over the same period in 2001. This decrease was primarily due to a decrease in personnel due to the low trading volumes, a decrease in commission payouts and a decrease in discretionary payments to employees partially offset by increased personnel hired during the quarter for the Alliance. Clearing and floor brokerage fees for the three months ended September 30, 2002 were $954,000, an increase of $10,000 or 1.0% over the same period in 2001 primarily due to the costs associated with the Company's temporary use of two clearing firms as a result of the Alliance, partially offset by the decreased volume of trade executions. Advertising and promotion expenses for the three months ended September 30, 2002 were $915,000, an increase of $440,000 or 92.7% over the same period in 2001 due to the increase advertising and promotion expenditures in connection with the launch of the Alliance. Communications expense for the three months ended September 30, 2002, was $568,000, a decrease of $117,000 or 17.1% over the same period in 2001 due primarily to the lower volume of call traffic as a result of low trading volumes and savings derived from the phased installation of a new telephone system starting in 2001. Occupancy costs for the three months ended September 30, 2002 was $223,000, a decrease of $38,000 or 14.54% over the same period in 2001. This decrease was due primarily due to the closure of the Company's Freemont, California, branch office. Other general and administrative expenses were $2.1 million, an increase of $566,000 or 38.0% from the same period in 2001. This increase was primarily due to costs related to the Alliance coupled with the increase in other general and administrative expense categories including advisory and legal fees and depreciation and amortization. Depreciation and amortization, a non-cash item, increased primarily due to expenses related to the purchase of the accounts of TradeStation and State Discount Brokers and the Company's purchase of a new Customer Relationship Management system. For the three months ended September 30, 2002, there was a tax benefit of $483,000 due to the Company's loss before income tax of $1.2 million. For the three months ended September 30, 2001, the provision for income taxes was $247,000. Nine Months Ended September 30, 2002 Compared to Nine Months Ended September 30, 2001 Total revenues for the nine months ended September 30, 2002 were $18.3 million, a decrease of $7.1 million, or 28.0%, over the same period in 2001. Commission and fee income for the nine months ended September 30, 2002 was $15.0 million, a decrease of $5.5 million or 26.9% over the same period in 2001 due to a substantial reduction in trading volume as result of the bear market conditions prevailing during 2002. Investment banking revenues for the nine months ended September 30, 2002 were $1.2 million, a decrease of $312,000 or 20.5% over the same period in 2001 due to decreased activity in the new issue market. Income from the Company's equity investee, SBS, for the nine months ended September 30, 2002 was $1.0 million, compared to income of $1.5 million a decrease of $500,000 for the nine months ended September 30, 2001 primarily due to a decrease in offerings for which SBS served as senior manager, partially offset by an increase in offerings for which SBS served as a co-manager. Trading profits for the nine months ended September 30, 2002 were $619,000, a decrease of $98,000 or 13.7% over the same period in 2001 due to an overall decrease in transactional volume. Interest and dividends for the nine months ended September 30, 2002 were $470,000, a decrease of $665,000 or 58.6% over the same period in 2001 primarily due to lower cash balances available for temporary investment coupled with lower interest rates. Total expenses for the nine months ended September 30, 2002 were $20.5 million, a decrease of $1.0 million or 4.7% over the same period in 2001. Employee compensation and benefit costs for the nine months ended September 30, 2002 were $6.8 million, a decrease of $1.5 million or 18.3 over the same period in 2001. This decrease was primarily due to a decrease in personnel due to the low trading volumes, a decrease in commission payouts and a decrease in discretionary payments to employees partially offset by increased personnel hired during the period for the Alliance. Clearing and floor brokerage fees for the nine months ended September 30, 2002 were $2.8 million, a decrease of $492,000 or 14.8% over the same period in 2001 primarily due to the decreased volume of trade executions. Advertising and promotion expenses for the nine months ended September 30, 2002 were $2.0 million, a decrease of $411,000 or 17.0% over the same period in 2001 due to decreased advertising and promotion expenditures by the Company that were offset, in part, by an increase in promotional expenses for the Alliance. Communications expense for the nine months ended September 30, 2002 was $1.7 million, a decrease of $527,000 or 23.6% over the same period in 2001 due primarily to the lower volume of call traffic as a result of low trading volumes and savings derived from the phased installation of a new telephone system during 2001. Occupancy costs for the nine months ended September 30, 2002 was $684,000, a decrease of $73,000 or 9.6% over the same period in 2001. This decrease was due primarily to the closure of the Company's Freemont, California, branch office, as well as the consolidation of office space in New York City as a result of taking additional office space in Jersey City, New Jersey. Other general and administrative expenses were $6.5 million, an increase of $2.0 million or 44.2% over the same period in 2001. This increase was primarily the result of the one-time start-up costs of $1.3 million for advisory and legal fees incurred in connection with the Alliance and costs of for the development of the full line of online and telephone based brokerage services pursuant to the Alliance to customers of Quicken and Quicken.com coupled with an increase in other general and administrative expense categories including legal fees and depreciation and amortization. Depreciation and amortization, a non-cash item, increased primarily due to the purchase of the accounts of TradeStation and State Discount Brokers, Inc. and the Company's purchase of a new Customer Relationship Management system. For the nine months ended September 30, 2002, there was a tax benefit of $922,000 due to the Company's loss before income tax of $2.3 million. For the nine months ended September 30, 2001, the provision for income taxes was $1.8 million. Liquidity and Capital Resources The Company's assets are highly liquid, consisting generally of cash, money market funds and marketable securities. The Company's total assets at September 30, 2002 were $40.7 million. As of that date, $29.9 million, or 73.5%, 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 September 30, 2002, Siebert's regulatory net capital was $17.4 million, $17.2 million in excess of its minimum capital requirement of $250,000. Pursuant to the Clearing Agreement and the Alliance, Siebert and Intuit will advance Pershing $1.5 million which they are entitled to recoup from Pershing in equal installments, without interest, over the initial three years of the Clearing Agreement. In addition, Siebert and Intuit will incur one-time charges aggregating approximately $485,000 for the setup of the Alliance's website and related matters. Siebert and Intuit will share equally in the advance and the one-time charges. As of September 30, 2002, the advance and one-time charges have not been billed by or paid to Pershing. Development and marketing costs for the next 12 months for the Alliance are expected to exceed revenues generated from the new accounts, which may result in losses for the Company. The Company also intends to acquire additional shares of its common stock pursuant to its share buy back program. Siebert has entered into a Secured Demand Note Collateral Agreement with SBS under which it is obligated to lend to SBS up to $1.2 million pursuant to a secured promissory note on a subordinated basis. Amounts pledged by Siebert under the facility are reflected on the Company's balance sheet as "cash equivalents - restricted". SBS pays Siebert interest on this amount at the rate of 10% per annum. The facility expires on August 31, 2004, at which time SBS is obligated under the terms of the facility to repay to Siebert any amounts borrowed. 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 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. The Company also invests in certain short-term municipal bonds, the values of which may fluctuate during the period they are held by the Company. In the normal course of its business, Siebert enters into transactions in various financial instruments with off-balance sheet risk. This risk includes both market and credit risk, which may be in excess of the amounts recognized in the Company's financial statements. Retail customer transactions are cleared through clearing brokers on a fully disclosed basis. If customers do not fulfill their contractual obligations, the clearing broker may charge Siebert for any loss incurred in connection with the purchase or sale of securities at prevailing market prices to satisfy the customers' obligations. Siebert regularly monitors the activity in its customer accounts for compliance with its margin requirements. Siebert is exposed to the risk of loss on unsettled customer transactions if customers and other counter parties are unable to fulfill their contractual obligations. Item 4. Controls and Procedures Within 90 days of the date of this report an evaluation was performed by the Company under the supervision and with the participation of management, including the President of the Company, of the effectiveness of the design and operation of the Company's disclosure controls and procedures. Based on that evaluation, the Company's management, including the President, concluded that the Company's disclosure controls and procedures are effective in timely alerting them to material information relating to the Company that is required to be included in the Company's periodic filings with the Securities and Exchange Commission. There have been no significant changes in the Company's internal controls or in other factors that could significantly affect those internal controls subsequent to the date the Company carried out its evaluation. 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. 99.1 Certificaton of Periodical Financial Report under Section 906 of Sarbanes-Oxley Act of 2002 (b) Reports on Form 8-K. None 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 November 14, 2002 - ------------------------------- Chairwoman, President and Director Muriel F. Siebert (principal executive officer and principal financial and accounting officer)
CERTIFICATIONS I, Muriel F. Siebert, the principal executive officer and principal financial and accounting officer of the registrant, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Siebert Financial Corp.; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and I have: a.) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to me by others within those entities, particularly during the period in which this quarterly report is being prepared; b.) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c.) presented in this quarterly report my conclusions about the effectiveness of the disclosure controls and procedures based on my evaluation as of the Evaluation date; 5. I have disclosed, based on my most recent evaluation, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and; b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of my most recent review evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: November 14, 2002 Signature: /s/ Muriel F. Siebert --------------------- Name: Muriel F. Siebert Title: Chairwoman and President (principal executive officer and financial and accounting officer) EX-99.1 3 x99-1.txt CERTIFICATION CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of Siebert Financial Corp. (the "Company") on Form 10-Q for the quarterly period ended September 30, 2002, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Muriel F. Siebert, in my capacity as Chair and President of the Company (and also having responsibilities equivalent to Chief Financial Officer of the Company), hereby certify, pursuant to 18 U.S.C. ss.1350, as adopted pursuant to ss.906 of the Sarbanes-Oxley Act of 2002, that to my knowledge: 1. the Report fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934; and 2. the information contained in the Report fairly presents, in all material respects, the financial condition of the Company at the end of the period covered by the Report and the results of operations of the Company for the period covered by the Report. /s/ Muriel F. Siebert Dated: November 14, 2002 - ------------------------------------------------ Muriel F. Siebert Chairwoman and President (principal executive officer and principal financial and accounting officer) -----END PRIVACY-ENHANCED MESSAGE-----