-----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, IdXWQAxc6kRl+1lsOl0fhYd0rYLsBUg26YM3N1tBIwwbzHfUD2lmSFwoiFj1gsK1 5LmmHd3SCPaH2y4MvXRySw== 0001089355-99-000020.txt : 19990817 0001089355-99-000020.hdr.sgml : 19990817 ACCESSION NUMBER: 0001089355-99-000020 CONFORMED SUBMISSION TYPE: 10-Q/A PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990630 FILED AS OF DATE: 19990816 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/A SEC ACT: SEC FILE NUMBER: 000-05703 FILM NUMBER: 99693883 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/A 1 AMENDMENT TO QUARTERLY REPORT SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q/A [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 1999 OR [ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from __________ to __________ Commission File Number 0-5703 SIEBERT FINANCIAL CORP. (Exact name of registrant as specified in its charter) New York 11-1796714 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 885 Third Avenue, New York, New York 10022 (Address of principal executive offices) (212) 644-2400 (Registrant's telephone number, including area code) Former address: Not Applicable ---------------------------------------------------- (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] The number of shares of the registrant's common stock outstanding as of August 11, 1999 was 22,873,565. The Company is filing this amendment to its quarterly report on Form 10-Q filed August 13, 1999 in order to correct a typographical error in that filing. The correct amount for "Accounts Payable and Accrued Liablities" in the Company's Consolidated Statements of Financial Condition should be $2,334,000,rather than $2,550,000. The corrected Consolidated Statements of Financial Condition are contained in this filing. Unless otherwise indicated, all information in this Form 10-Q has been adjusted to reflect a 4-for-1 stock split effected April 7, 1998 (the "Stock Split") and the acquisition on May 28, 1999, of Andrew Peck Associates, Inc. ("Peck") in a transaction accounted for as a pooling of interests. Accordingly, all prior information has been adjusted to include historical statements of the financial position and results of operations of Peck. Unless the context otherwise requires, the "Company" or "Siebert" shall mean Siebert Financial Corp. and its wholly owned subsidiaries. The Company's quarterly and annual operating results are affected by a wide variety of factors that could materially and adversely affect actual results, including: changes in general economic and market conditions, fluctuations in volume and prices of securities, changes and prospects for changes in interest rates and demand for brokerage and investment banking services, increases in competition within and without the discount brokerage business through broader services offerings or otherwise, competition from electronic discount brokerage firms offering greater discounts on commissions than the Company, prevalence of a flat fee environment, decline in participation in equity or municipal finance underwritings, decreased ticket volume in the discount brokerage division, limited trading opportunities, increases in expenses, changes in net capital or other regulatory requirements and risks related to the Year 2000. As a result of these and other factors, the Company may experience material fluctuations in future operating results on a quarterly or annual basis, which could materially and adversely affect its business, financial condition, operating results, and stock price. Furthermore, this document and other documents filed by the Company with the Securities and Exchange Commission (the "SEC") contain certain forward looking statements with respect to the business of the Company, including prospective financing arrangements. These forward-looking statements are subject to certain risks and uncertainties, including those mentioned above, which may cause actual results to differ significantly from these forward-looking statements. The Company undertakes no obligation to publicly release the results of any revisions to these forward-looking statements which may be made to reflect events or circumstances after the date when such statements were made or to reflect the occurrence of unanticipated events. An investment in the Company involves various risks, including those mentioned above and those which are detailed from time to time in the Company's SEC filings. Part I. Financial Information Item 1. Financial Statements -2- Siebert Financial Corp. & Subsidiary Consolidated Statements of Financial Condition
June 30, 1999 December 31, (unaudited) 1998 ----------- ---- Cash and cash equivalents $19,653,000 $6,735,000 Cash equivalents - restricted 1,300,000 1,300,000 Receivable from clearing broker 2,141,000 2,700,000 Securities owned, at market value 3,633,000 5,381,000 Secured demand note receivable from stockholder 2,000,000 2,000,000 Furniture, equipment and leasehold improvements, net 736,000 675,000 Investment in affiliate 1,211,000 1,572,000 Deferred financing costs - 270,000 Income taxes receivable 1,195,000 - Prepaid expenses and other assets 821,000 861,000 ----------- ---------- $32,690,000 $21,494,000 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY Liabilities: Securities sold, not yet purchased, at market value $ 216,000 $567,000 Accounts payable and accrued liabilities 2,334,000 3,627,000 ----------- ---------- 2,550,000 4,194,000 ----------- ---------- Commitments and contingent liabilities Subordinated borrowings payable to stockholder 3,000,000 3,000,000 ----------- ---------- Stockholders' equity: Common stock, $.01 par value; 49,000,000 shares authorized, 22,873,565 and 21,604,960 issued and outstanding at June 30, 1999 and December 31, 1998, respectively 229,000 215,000 Additional paid-in capital 17,375,000 6,714,000 Retained earnings 9,536,000 7,371,000 ----------- ---------- 27,140,000 14,300,000 ----------- ---------- $32,690,000 $21,494,000 =========== ===========
See notes to consolidated financial statements -3- Siebert Financial Corp. & Subsidiary Consolidated Statements of Income (unaudited)
Three Months Ended Six Months Ended --------------------------- ------------------------------ June 30, June 30, 1999 1998 1999 1998 --------- ---------- ----------- ----------- Revenues: Commissions and fees $8,053,000 $ 5,844,000 $15,624,000 $11,537,000 Investment banking 371,000 1,473,000 649,000 2,966,000 Trading profits 175,000 428,000 417,000 767,000 Income from equity investee 460,000 - 636,000 - Interest and dividends 196,000 212,000 479,000 415,000 ----------- ---------- ----------- ----------- 9,255,000 7,957,000 17,805,000 15,685,000 ----------- ---------- ----------- ----------- Expenses: Employee compensation and benefits 2,913,000 3,021,000 5,698,000 6,069,000 Clearing fees, including floor brokerage 1,387,000 580,000 2,834,000 1,889,000 Advertising and promotion 690,000 399,000 1,412,000 939,000 Communications 651,000 456,000 1,214,000 899,000 Occupancy 138,000 174,000 214,000 385,000 Interest 52,000 93,000 104,000 193,000 Other general and administrative 1,023,000 829,000 2,088,000 1,665,000 ----------- ---------- ----------- ----------- 6,854,000 5,552,000 13,564,000 12,039,000 ----------- ---------- ----------- ----------- Income before income taxes 2,401,000 2,405,000 4,241,000 3,646,000 Provision for income taxes 1,032,000 1,041,000 1,866,000 1,477,000 ----------- ---------- ----------- ----------- Net income $ 1,369,000 $ 1,364,000 $ 2,375,000 $ 2,169,000 =========== =========== =========== =========== Net income per share of common stock - basic and diluted $0.06 $0.06 $0.10 $0.10 Weighted average shares outstanding - basic 22,819,981 21,592,510 22,671,525 21,592,265 Weighted average shares outstanding - diluted 23,334,646 22,320,690 23,363,789 22,268,630
See notes to consolidated financial statements. -4- Siebert Financial Corp. & Subsidiary Consolidated Statements of Cash Flows (unaudited)
Six Months Ended June 30, --------------------------------------------- 1999 1998 --------------------- ------------------- Cash flows from operating activities: Net income $2,375,000 $2,169,000 Adjustments to reconcile net income to net cash (used in) provided by Operating activities: Depreciation and amortization 173,000 80,000 Noncash compensation - 44,000 Utilization of deferred tax asset 1,841,000 - Income from equity investee (636,000) - Changes in operating assets and liabilities: Net (increase) decrease in securities owned, at market value 1,748,000 (4,511,000) Net (increase) decrease in receivable from clearing broker (559,000) 3,798,000 (Increase) decrease in prepaid expenses and other assets (114,000) 15,000 Net increase (decrease) in securities sold, not yet purchased, At market value (351,000) 53,000 Increase (decrease) in accounts payable and accrued Liabilities (1,216,000) 346,000 ------------- ----------- Net cash provided by operating activities 4,379,000 1,994,000 ------------- ----------- Cash flows from investing activities: Purchase of furniture, equipment and leasehold improvements (170,000) (3,000,000) Distribution from equity investee 997,000 (165,000) ------------- ----------- Net cash provided by (used in) investing activities 816,000 (3,165,000) ------------- ----------- Cash flows from financing activities: Dividend on common stock (181,000) (49,000) Proceeds from exercise of options 710,000 15,000 Proceeds from rights offering 7,183,000 - ------------- ----------- Net cash provided by (used in) financing activities 7,723,000 (34,000) ------------- ----------- Net increase (decrease) in cash and cash equivalents 12,918,000 (1,205,000) Cash and cash equivalents - beginning of period 6,735,000 4,527,000 ------------- ----------- Cash and cash equivalents - end of period $19,653,000 $3,322,000 ============= =========== Supplemental cash flow disclosures: Cash paid for: Interest $104,000 $193,000 Income taxes $558,000 1,498,000 Noncash investing and financing activities: Dividends declared $19,000 $119,000 Deferred taxes (see note 4) $1,195,000 - See notes to consolidated financial statements
-5- Siebert Financial Corp. & Subsidiary Notes to Consolidated Financial Statements Three Months Ended June 31, 1999 (unaudited) 1. Organization and Basis of Presentation: The consolidated financial statements include the accounts of Siebert Financial Corp. (the "Company") and its wholly owned subsidiary, Muriel Siebert & Co., Inc. ("Siebert"). All material intercompany balances have been eliminated. The statements are unaudited; however, in the opinion of management, all adjustments considered necessary to reflect fairly the Company's financial position and results of operations, consisting of normal recurring adjustments, have been included. The accompanying consolidated financial statements do not include all of the information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles. Accordingly, the statements should be read in conjunction with the audited financial statements included in the Company's Annual Report on Form 10-KSB for the year ended December 31, 1998. Because of the nature of the Company's business, the results of any interim period are not necessarily indicative of results for a full year. On May 28, 1999, the Company consummated the acquisition of Andrew Peck Associates, Inc. ("Peck"). Under the terms of the agreement, Peck was merged with and into Siebert and the separate existence of Peck ceased. All of the common stock of Peck outstanding was converted into 600,000 shares of the Company's common stock. The merger is accounted for as a pooling of interests. Accordingly, the Company's financial statements have been restated to include the results of Peck for all periods presented. 2. Net Capital: Siebert is subject to the Securities and Exchange Commission's Uniform Net Capital Rule (Rule 15c3-1), which requires the maintenance of minimum net capital. Siebert has elected to use the alternative method, permitted by the rule, which requires that Siebert maintain minimum net capital, as defined, equal to the greater of $250,000 or 2% of aggregate debit balances arising from customer transactions, as defined. (The net capital rule of the New York Stock Exchange also provides that equity capital may not be withdrawn or cash dividends paid if resulting net capital would be less than 5 percent of aggregate debits.) As of June 30, 1999 and December 31, 1998, Siebert had net capital of approximately $14,448,000 and $11,124,000, respectively, as compared with net capital requirements of $250,000. 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. 4. Tax Benefit of Stock Option Exercises: During the quarters ended June 30, 1999, and March 31, 1999, the Company recorded income taxes receivable of, and increased additional paid-in capital by $836,000 and $2,200,000, respectively, arising from the deductibility of the difference between the exercise price of non qualifying stock options and the market value of the stock on the dates of exercise of the options. The amounts have been utilized to offset currently payable income taxes and the excess has been recorded as income taxes receivable. -6- 5. Capital Transactions: On January 15, 1999 the Company issued 961,000 shares of its common stock in connection with a rights offering to its shareholders. Proceeds were $7.50 a share, or approximately $7,200,000. The proceeds after deducting expenses of approximately $250,000 were credited $19,600 to common stock and $7,176,000 to additional paid in capital. Employees and directors exercised 78,020 options on common stock during the quarter ended June 30, 1999 and 227,240 options during the quarter ended March 31, 1999. Proceeds of the exercises, aggregating approximately $710,000 (180,000 for the quarter ended June 30, 1999, and 530,000 for the quarter ended March 31, 1999) were credited $3,000 to common stock and $707,000 to additional paid in capital. Pursuant to its 1998 Restricted Stock Award Plan, the Company issued 4,250 shares of its common stock to 87 employees. The aggregate market value of the restricted stock, which vests one year from the date of the grant, was approximately $122,000 which will be charged to expense over the vesting period. 6. Subsequent Event: On August 11,1999, the Company began trading on the NASDAQ National Market, retaining its SIEB trading symbol. -7- Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This discussion should be read in conjunction with the Company's Consolidated Financial Statements and the Notes thereto contained elsewhere in this Quarterly Report. Business Environment Market conditions during the first four months of 1999 reflected a continuation of the 1996 bull market characterized by record volume, record high market levels and large daily swings in the market averages while interest rate concerns led to lower trading volume in the markets overall during May and June. Meanwhile, competition has continued to intensify among all types of brokerage firms including discount brokers, as well as from new firms entering the discount brokerage business. Electronic trading continues to account for an increasing amount of trading activity with some firms offering very low flat rate trading execution fees that are difficult for any conventional discount firm to meet. Many of these flat fee brokers, however, impose charges for services such as mailing, transfers and handling exchanges which the Company does not currently impose, and also direct their executions to captive market makers. Continued competition from ultra low cost flat fee brokers and broader service offerings from other discount brokers could limit the Company's growth or even lead to a decline in the Company's customer base which would adversely affect its results of operations. Industry-wide changes in trading practices, such as the advent of decimal pricing and the increasing use of Electronic Crossing Networks, are expected to cause continuing pressure on fees earned by discount brokers for the sale of order flow. The Company, like other securities firms, is 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 electronically increases.1 For the six months ended June 30, 1999, electronic trades accounted for an average of 40% of all Siebert trades. This trend has continued, with electronic trading accounting for approximately 44% of all trades during the quarter ended June 30, 1999. On May 28, 1999, the Company consummated the acquisition of Andrew Peck Associates, Inc. ("Peck"). Under the terms of the acquisition agreement, Peck was merged with and into Siebert and the separate existence of Peck ceased. All of the common stock of Peck outstanding was converted into 600,000 shares of the Company's common stock. The merger is accounted for as a pooling of interests. Accordingly, the Company's financial statements have been restated to include the results of Peck for all periods presented. On January 15, 1999, the Company completed a rights offering in which existing stockholders received the right to purchase one share of Common Stock at $7.50 for each share of Common Stock owned of record as of July 29, 1998. Approximately 961,000 shares of Common Stock were issued pursuant to the rights offering, generating net proceeds to the Company of approximately $7,000,000, after the payment of offering expenses of approximately $270,000. - -------- 1 Electronic trading includes: SiebertNet(TM), MarketPhone(TM), and MobileBroker(TM). -8- In January 1999, the Company, through its clearing agent, unveiled its new interactive palm-top service that allows Siebert clients to make equity trades, receive confirmations, get real-time quotes and alerts, access account data, send and receive e-mail and more - all without a phone or computer. Using the newest wireless two-way interactive beeper technology, this beeper-sized, 4.9-ounce battery-operated device can be programmed to provide instant account updates and quotes. Results of Operations Three Months Ended June 30, 1999 Compared to Three Months Ended June 30, 1998 Revenues. Total revenues for the three months ended June 30, 1999 were $9.3 million, an increase of $1.3 million, or 16.3%, over the same period in 1998. Commission and fee income increased $2.2 million, or 37.8%, during the three months ended June 30, 1998 to $8.1 million due to higher trading volume, partially offset by lower commissions earned per trade resulting from the increased use of lower priced electronic trading, reductions on other related services caused by increased competition from ultra low cost flat fee brokers and a reduction of order flow fees. The portion of trades executed electronically continues to increase, representing approximately 44% of trades executed for the quarter ended June 30, 1999. Investment banking revenues for the three months ended June 30, 1999 were $371,000, a decrease of $1.1 million, or 74.8%, from the three months ended June 30, 1998, as the Company began reporting its investment in, and the operations of, Siebert, Brandford, Shank & Co., L.L.C. ("SBS") using the equity method of accounting in July 1998. Prior to that time, the operations of what is now SBS were fully consolidated with those of Siebert. SBS generates a majority of its revenues in the tax exempt underwriting area. Income from equity investee SBS for the three months ended June 30, 1999 increased $460,000, as the Company began accounting for its investment in SBS using the equity method of accounting in July 1998. Trading profits for the three months ended June 30, 1999 were $175,000, a decrease of $253,000, or 59.1% from the three months ended June 30, 1998, primarily due to reduced income opportunities in the trading of listed bond funds, the firm's principal trading activity, coupled with the treatment of SBS as a separate entity. In July 1999, management decided to curtail the proprietary trading activity and invest the Company's funds in lower risk investments including money market funds. Income from interest and dividends for the three months ended June 30, 1999 was $196,000, a decrease of $16,000, or 7.5%, from the three months ended June 30, 1998 primarily due to trading strategies which generated lower dividend income offset in part by higher cash balances as a result of the Company's rights offering. Expenses. Total expenses for the three months ended June 30, 1999 were $6.9 million, an increase of 1.3 million, or 23.5%, from the three months ended June 30, 1998. Employee compensation and benefit costs for the three months ended June 30, 1999 were $2.9 million, a decrease of $108,000, or 3.6%, from the three months ended June 30, 1998 primarily due to the treatment of the Company's investment in SBS using the equity method of accounting, thereby decreasing the number of employees on the Company's payroll. Clearing and floor brokerage fees for the three months ended June 30, 1999 were $1.4 million, an increase of $807,000, or 139.1% from the three months ended June 30, 1998. The increase was due to the substantially increased volume of tickets executed, approximately 102.2%, coupled in part by a lower per ticket charges and a $750,000 refund in connection with the renegotiated clearing agreement in the 1998 quarter. Advertising and promotion expense for the three months ended June 30, 1999 were $690,000, an increase of $291,000, or 72.9% from the three months ended June 30, 1998 due to an increased level of -9- advertising relating to the introduction of the Company's MobileBroker and the Company's enhanced publicity activities in connection with receiving recognition as Smart Money Magazine's #1 Discount Broker. Communications expense for the three months ended June 30, 1999 was $651,000, an increase of $195,000, or 42.8%, from the three months ended June 30, 1998 primarily due to increased quote and news services, coupled with an increase in the volume of the Company's general business. Occupancy costs for the three months ended June 30, 1999 were $138,000, a decrease of $36,000, or 20.7%, from the three months ended June 30, 1998 principally due to exclusion in 1999 of SBS rent expense. Interest expense for the three months ended June 30, 1999 was $52,000, a decrease of $41,000, or 44.1% from the three months ended June 30, 1998 primarily due to the decreased use of short positions in proprietary trading activities coupled with a decreased activity in proprietary trading generally. General and Administrative. General and administrative expenses for the three months ended June 30, 1999 were $1.0 million, an increase of $194,000, or 23.4% from the three months ended June 30, 1998 primarily due to higher consulting, professional fees and the treatment of the Company's investment in SBS using the equity method of accounting. Taxes. Provision for income taxes decreased for the three months ended June 30, 1999 to $1.0 million a decrease of $9,000, or 1.0% from the three months ended June 30, 1998. Six Months Ended June 30, 1999 Compared to Six Months Ended June 30, 1998 Revenues. Total revenues for the six months ended June 30, 1999 were $17.8 million, an increase of $2.1 million, or 13.5%, over the same period in 1998. Commission and fee income increased $4.1 million, or 35.4%, over the six months ended June 30, 1998 to $15.6 million due to higher trading volume partially offset by lower commissions earned per trade resulting from the increased use of lower priced electronic trading, reductions on other related services caused by increased competition from ultra low cost flat fee brokers and a reduction of order flow fees. The portion of trades executed on the Company's SiebertNet Web site continues to increase, representing approximately 40% of trades executed for the six months ended June 30, 1999. Investment banking revenues for the six months ended June 30, 1999 were $649,000, a decrease of $2.3 million, or 78.1% from the six months ended June 30, 1998, as the Company began reporting its investment in, and the operations of, Siebert, Brandford, Shank & Co., L.L.C. ("SBS") using the equity method of accounting in July 1998. Prior to that time, the operations of what is now SBS were fully consolidated with those of Siebert. SBS generates a majority of its revenues in the tax exempt underwriting area. Income from equity investee (SBS) for the six months ended June 30, 1999 increased $636,000, as the Company began accounting for its investment in SBS using the equity method of accounting starting in July 1998. Trading profits for the six months ended June 30, 1999 were $417,000, a decrease of $350,000, or 45.6%, from the six months ended June 30, 1998, primarily due to reduced income opportunities in the trading of listed bond funds, the firm's principal trading activity, coupled with the treatment of SBS as a separate entity. In July 1999, management decided to curtail the trading activity and invest the Company's funds in lower risk investments including money market funds. Income from interest and dividends for the six months ended June 30, 1999 was $479,000, an increase of $64,000, or 15.4%, from the six months ended June 30, 1998 primarily due to higher cash balances as a result of the Company's rights offering. Expenses. Total expenses for the six months ended June 30, 1999 were $13.6 million, an increase of $1.5 million, or 12.7%, from the six months ended June 30, 1998. -10- Employee compensation and benefit costs for the six months ended June 30, 1999 were $5.7 million, a decrease of $371,000, or 6.1% from the six months ended June 30, 1998 primarily due to the treatment of the Company's investment in SBS using the equity method of accounting, thereby decreasing the number of employees on the Company's payroll. Clearing and floor brokerage fees for the six months ended June 30, 1999 were $2.8 million, an increase of $945,000, or 50%, from the six months ended June 30, 1998. The increase was due to increased volume of tickets executed, approximately 102.7%, coupled with by a lower per ticket charges and a $750,000 refund in connection with the a renegotiated clearing agreement in the 1998 period. Advertising and promotion expense for the six months ended June 30, 1999 were $1.4 million, an increase of $473,000, or 50.4% from the six months ended June 30, 1998 due to a increased level of advertising of the Company's MobileBroker and the Company's receiving recognition as Smart Money Magazine's #1 Discount Broker. Communications expense for the six months ended June 30, 1999 was $1.2 million, an increase of $315,000, or 35.0% from the six months ended June 30, 1998 primarily due to increased quote and news services, coupled with an increase in the general business volume. Occupancy costs for the six months ended June 30, 1999 were $214,000, a decrease of $171,000, or 44.4% from the six months ended June 30, 1998 principally due to the exclusion of SBS costs for the current period. Interest expense for the six months ended June 30, 1999 was $104,000, a decrease of $89,000, or 46.1% from the six months ended June 30, 1998 primarily due to the decreased use of short positions in proprietary trading activities coupled with decrease activity in Firm trading. General and Administrative. General and administrative expenses for the six months ended June 30, 1999 were $2.1 million, an increase of $423,000, or 44.4%, from the six months ended June 30, 1998 primarily due to higher consulting, professional fees and due to the treatment of the Company's investment In SBS using the equity method of accounting. Taxes. Provision for income taxes increased for the six months ended June 30, 1999 to $ 1.9 million, an increase of $389,000, or 26.3% from the six months ended June 30, 1998 due to an increase in net income before income taxes to $4.2 million in the first six months in 1999 over $3.6 million for the same period in 1998. Liquidity and Capital Resources The Company's assets are highly liquid, consisting generally of cash, money market funds and securities freely saleable in the open market. Siebert's total assets at June 30, 1999 were $32.7 million, of which $2.0 million took the form of a secured demand note issued by Muriel Siebert bearing interest at an annual rate of 4%. As of June 30, 1999, $25.4 million, or 78.6%, of total assets were regarded by the Company as highly liquid. The Company generated a tax deduction of $3.0 million arising from the exercise of employees' stock options during the six months ended June 30, 1999. This asset was partially utilized to offset $1.8 million of current tax liability and the balance was recorded as income taxes receivable since it will be used to offset future tax liabilities or to claim a refund of previously paid taxes. Siebert is subject to the net capital requirements of the SEC, the NYSE and other regulatory authorities. At June 30, 1999, Siebert's regulatory net capital was $14.4 million, $14.2 million in excess of its minimum capital requirement of $250,000. -11- Year 2000 Many existing computer programs use only two digits to identify a specific year and therefore may not accurately recognize the upcoming change in the century. If not corrected, many computer applications could fail or create erroneous results by or at the Year 2000. Due to the Company's dependence on computer technology in its operations, and the dependence of the financial services industry on computer technology, the nature and impact of Year 2000 processing failures on the Company's business, financial position, results of operations or cash flows could be material. The Company is currently modifying its computer systems in order to enable its systems to process data and transactions incorporating Year 2000 dates without material errors or interruptions. Because systems critical to the Company's functioning other than its computer systems also may be affected by the century change, the Company's Year 2000 compliance efforts also encompass facilities and equipment which rely on date-dependent technology, such as, building equipment that contains embedded technology. The Company utilizes both systems housed primarily on its own computer network and systems housed on the computers of third parties, such as its clearing broker and payroll vendor, to conduct its normal business activities. Some of the systems on its network are proprietary but many are off the shelf programs acquired from vendors. The Company has inventoried those systems it believes are critical to its operations and has received assurances from the developers, vendors and third parties that those systems are, or will be prior to December 31, 1999, Year 2000 compliant. Although nothing has come to the Company's attention which would cause it to believe that the assurances it has received are not accurate, the failure of one or more critical systems to be Year 2000 compliant could have a material adverse effect on the results of its operations. The Company intends to test all critical systems during 1999. The total costs incurred to date and in the future relating to this issue are not expected to be material. While the Company believes that its critical hardware and software is Year 2000 compliant, the Company has adopted a contingency plan that addresses our critical systems such as communications, quotes, Internet site and backup trading facility. The plan provides for redundant systems in case our primary systems fail. Our clearing agent, National Financial Services Corporation is not currently certified to be Year 2000 compliant. They have assured us that they will be compliant in the near future and before December 31, 1999. We are developing an alternative option should National Financial Services Corporation miss their target date and expect to complete that plan by the end of October, 1999, should that be necessary. Our inability to make Year 2000 compliant clearing arrangements would have a material adverse effect on our business operations. Impact of Inflation General inflation in the economy increases operating expenses of most businesses. The Company has provided compensation increases generally in line with the inflation rate and incurred higher prices for goods and services. While the Company is subject to inflation as described above, management believes that inflation currently does not have a material effect on the Company's operating results, but there can be no assurance that this will continue to be so in the future. New Accounting Principles During 1997, and 1998, the Financial Accounting Standards Board issued the following account standards: Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income" (SFAS No. 130), Statement of Financial Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and Related Information" (SFAS No. 131), Statement of Financial Accounting Standards No. 132 "Employers Disclosures about Pension and other Post retirement Benefit Plans" (SFAS No. 132) and Statement of Financial Accounting Standards No. 133 "Accounting for Derivative Instruments and Hedging Activities. The Company does not expect any material effect from adoption of SFAS Nos. 131, 132 and 133. The Company will report comprehensive income as a component of equity. During the year ended December 31, 1998 and the six months ended June 30, 1999, the Company did not have any items that would be reportable as a component of comprehensive income other than its net income. -12- Item 3. Quantitative and Qualitative Disclosures About Market Risk Financial Instruments Held For Trading Purposes: Through Siebert, the Company maintains inventories in exchange-listed and Nasdaq equity securities on both a long and short basis. The fair value of all securities at June 30, 1999 was approximately $3.6 million in long positions and approximately $216,000 in short positions. The fair value of all securities at June 30, 1998 was approximately $11.0 million in long positions and approximately $2.1 million 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 $338,000 and $890,000, respectively, due to the offset of change in fair value in long and short positions. Financial Instruments Held For Purposes Other Than Trading: Working capital is generally temporarily invested in dollar denominated money market funds and overnight certificates of deposits. These investments are not subject to material changes in value due to interest rate movements. -13- 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 27 Financial Data Schedule (b) Reports on Form 8-K None -14- SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this amended report to be signed on its behalf by the undersigned thereunto duly authorized. Name Title Date /s/Muriel F. Siebert Chair, President and Director August 16, 1999 - --------------------------- (principal executive officer) Muriel F. Siebert /s/Mitchell M. Cohen Chief Financial Officer August 16, 1999 - --------------------------- and Assistant Secretary Mitchell M. Cohen (principal financial and accounting officer) EX-27 2 FDS FINANCIAL DATA SCHEDULE BD
BD 3-MOS Dec-31-1998 Jun-30-1999 20,953,000 0 0 0 3,633,000 736,000 32,690,000 0 0 0 0 216,000 3,000,000 0 0 229,000 27,140,000 32,690,000 175,000 196,000 8,053,000 371,000 0 52,000 2,913,000 2,401,000 2,401,000 0 0 1,369,000 .06 .06
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