UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2001
[ ] TRANSITION REPORT UNDER 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
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
885 Third Avenue, New York , New York 10022
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number (212) 644 - 2400
Securities registered under Section 12(b) of the Exchange Act:
Title of each class Name of each exchange on which registered
None None
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Securities registered under Section 12(g) of the Exchange Act:
Common Stock, par value $.01 per share
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(Title of class)
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 [ ]
Indicate by check mark if disclosure of delinquent filers in response
to Item 405 of Regulation S-K (ss. 229.405) is not contained herein, and will
not be contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. [ ]
The number of shares of the Registrant's outstanding Common Stock, as
of March 22, 2002, was 22,934,417 shares. The aggregate market value of the
Registrant's Common Stock held by non-affiliates of the Registrant (based on the
closing price of the Common Stock as reported by the NASDQ National Market on
March 22, 2002 and the assumption for this computation only that all directors
and executive officers are affiliates) was $13,693,229.
Documents Incorporated by Reference: Proxy Statement to be filed
pursuant to Regulation 14A of the Exchange Act on or before April 30, 2002,
incorporated by reference into Parts II and III.
Special Note Regarding Forward-Looking Statements
Except for historical information contained in this Annual Report on Form
10-K, the matters discussed in this report contain certain forward-looking
statements that involve risks and uncertainties that could cause actual results
to differ materially from those anticipated in the forward-looking statements.
Factors that may cause such differences include, but are not limited to: the
volume of trading of securities on stock exchanges and in the over-the-counter
markets; the method of placing trades by the Company's customers; computer and
telephone system failures; the effects of competitors' pricing and technology
developments, telephone waiting time for servicing of accounts; the effects of
industry regulation and changing industry practices and customs; changes in
revenues and profit margin due to the cyclical nature of the securities markets;
the level of the Company's spending on advertising and promotion; short or
long-term declines in securities prices and trading volumes; and the effect of
losses from customer non-payment of balances due.
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PART I
Item 1. BUSINESS
General
Siebert Financial Corp. (the "Company") is a holding company that
conducts its retail discount brokerage and investment banking business through
its wholly-owned subsidiary, Muriel Siebert & Co., Inc., a Delaware corporation
("Siebert"). Muriel Siebert, the first woman member of the New York Stock
Exchange, is the Chairwoman and President and owns approximately 88.8% of the
outstanding common stock, par value $.01 per share (the "Common Stock") of the
Company.
Business Overview
Siebert's principal activity is providing internet and traditional
discount brokerage and related services to retail investors. Through its Capital
Markets division, Siebert also offers institutional clients equity execution
services on an agency basis, as well as equity and fixed income underwriting and
investment banking services. The Company believes that it is the largest
Woman-Owned Business Enterprise ("WBE") in the capital markets business in the
country. In addition, Siebert, Brandford, Shank & Co., LLC ("SBS"), a company in
which Siebert holds a 49% ownership interest, is the largest Minority and
Women's Business Enterprise ("MWBE") in the tax-exempt underwriting business in
the country.
The Retail Division
Discount Brokerage and Related Services. Siebert became a discount broker
on May 1, 1975, a date that would later come to be known as "May Day." Siebert
believes that it has been in business and a member of The New York Stock
Exchange, Inc. (the "NYSE") longer than any other discount broker. In 1998,
Siebert began to offer its customers access to their accounts through
SiebertNet, its Internet website. Siebert's focus in its discount brokerage
business is to serve retail clients seeking a wide selection of quality
investment services, including trading through a broker on the telephone,
through a wireless device or via the Internet, at commissions that are
substantially lower than those of full-commission firms and competitive with the
national discount brokerage firms. Siebert clears all securities transactions on
a fully disclosed basis through National Financial Services Corp. ("NFSC"), a
wholly owned subsidiary of Fidelity Investments.
Siebert serves investors who make their own investment decisions. Siebert
seeks to assist its customers in their investment decisions by offering a number
of value added services, including easy access to account information. Siebert's
representatives are available to assist customers with information via toll-free
800 service Monday through Friday between 7:30 a.m. and 7:30 p.m. Eastern Time.
Through its SiebertNet, Mobile Broker, inter-active voice recognition and
Siebert MarketPhone services, 24-hour access is available to customers.
Independent Retail Execution Services. Siebert offers what it believes to
be the best possible trade executions for customers. Siebert does not make
markets in securities, nor does it take positions against customer orders.
Siebert's listed orders are routed in a manner intended to afford its customers
the opportunity for price improvement on all orders. Through a service called
NYSE PrimeTM, Siebert also has the ability to document to customers all price
improvements received on orders executed on the NYSE when orders are filled at
better than the National Best Bid/Offer.
Siebert's over the counter orders are executed through a network of
Nasdaq market makers with no single market maker executing all trades.
Additionally, the firm offers customers execution services through Nasdaq's
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SelectNetTM and Reuters' InstinetTM systems for an additional fee. These systems
give customers access to all Electronic Communication Networks listed on
SelectNet and to Instinet before and after regular market hours. Siebert
believes that its OTC executions afford its customers the best possible
opportunity for consistent price improvement. Siebert does not have any
affiliation with market makers and therefore does not execute OTC trades through
affiliated market makers.
Customers may also indicate online interest, in buying or selling fixed
income securities, including municipal bonds, corporate bonds, mortgage-backed
securities, Government Sponsored Enterprises, Unit Investment Trusts or
Certificates of Deposit. These transactions are executed by registered
representatives.
Retail Customer Service. Siebert believes that superior customer service
enhances its ability to compete with larger discount brokerage firms and
therefore provides retail customers, at no additional charge, with personal
service via toll-free access to dedicated customer support personnel for all of
its products and services. Customer service personnel are located in each of
Siebert's branch offices. Siebert presently has retail offices in New York City,
Jersey City, New Jersey, Boca Raton, Ft. Lauderdale, Surfside, Palm Beach and
Naples, Florida and Beverly Hills, California. During 2001 Siebert closed its
office in Fremont, California that catered to Mandarin Chinese speaking
customers. Siebert uses a proprietary Customer Relationship Management System
that enables representatives, no matter where located, to view a customer's
service requests and the response thereto. Eventually, it is intended that this
system will also allow customers to enter their requests directly into the
system and track the response. Siebert's telephone system permits the automatic
routing of calls to the next available agent having the appropriate skill set.
Retirement Accounts. Siebert offers customers a variety of self-directed
retirement accounts for which it acts as agent on all transactions. Custodial
services are provided through an affiliate of NFSC, the firm's clearing agent,
which also serves as trustee for such accounts. Each IRA, SEP IRA, ROTH IRA,
401(k) and KEOGH account can be invested in mutual funds, stocks, bonds and
other investments in a consolidated account.
Customer Financing. Customers margin accounts are carried through
Siebert's clearing agent, which lends customers a portion of the market value of
certain securities held in the customer's account. Margin loans are
collateralized by these securities. Customers also may sell securities short in
a margin account, subject to minimum equity and applicable margin requirements,
and the availability of such securities to be borrowed. In permitting a customer
to engage in margin, short sale or any transaction, Siebert assumes the risk of
its customers' failure to meet their obligations in the event of adverse changes
in the market value of the securities positions. Both Siebert and its clearing
agent reserve the right to set margin requirements higher than those established
by the Federal Reserve Board.
Siebert has established policies with respect to maximum purchase
commitments for new customers or customers with inadequate collateral to support
a requested purchase. Managers have some flexibility in the allowance of certain
transactions. When transactions occur outside normal guidelines, accounts are
monitored closely until their payment obligation is completed; if the customer
does not meet the commitment, steps are taken to close out the position and
minimize any loss. Siebert has not had significant credit losses in the last
five years.
Information and Communications Systems. Siebert's operations rely heavily
on information processing and communications systems. The system for processing
securities transactions is highly automated. Registered representatives are
equipped with computer terminals that can access customer account information,
obtain securities prices and related information and enter and confirm orders
online.
Siebert maintains a computer network to support its customer service
delivery systems, as well as other applications such as clearing functions,
account administration, record keeping and direct customer access to investment
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information. Through its clearing agent, Siebert's computers are also linked to
the major registered United States securities exchanges, the National Securities
Clearing Corporation and The Depository Trust Company. Failure of the
information processing or communication systems for a significant period of time
could limit the ability to process a large volume of transactions accurately and
rapidly. This could cause Siebert to be unable to satisfy its obligations to
customers and other securities firms, and could result in regulatory violations.
External events, such as an earthquake or power failure, loss of external
information feeds, such as security price information, as well as internal
malfunctions, such as those that could occur during the implementation of system
modifications, could render part or all of such systems inoperative.
To enhance the reliability of the system and integrity of data, Siebert
maintains carefully monitored backup and recovery functions. These include
logging of all critical files intra-day, duplication and storage of all critical
data outside of its central computer site each evening, and trading facilities
for backup and communications in each of its branches.
Siebert's communications systems include a voice system that allows calls
to be answered by the next available agent having the appropriate skill set for
the incoming call. Data is delivered to branches over a frame relay system. Call
center software provides for statistical reports such as time on hold, duration
of calls and the number of calls handled by each agent. The vendor of the
communications system monitors the system on a twenty-four hour a day, seven day
a week basis and can make certain repairs from its office.
Current Developments.
During 2000, the Company acquired the Women's Financial Network and
HerDollar.com, both websites in the development stage providing financial
information and education targeted primarily to women. The two websites were
combined to form WFN.com ("WFN at Siebert"), the Women's Financial Network at
Siebert. WFN at Siebert offers a broad range of investment information and
financial educational materials, as well as tools, small business center
community, investment club exchange, and online workbooks all intended to help
users to better understand and more effectively manage both their professional
and personal financial lives. A division of Siebert, WFNInvest, offers online
brokerage services similar to, and under similar terms and conditions as those
offered by Siebert. During 2001, WFN at Siebert launched its redesigned website
and in January 2002 launched a marketing partnership with AT&T WorldNet(R)
Services. Under the terms of this relationship, WFN at Siebert created a Women's
Finance channel for AT&T WorldNet(R) Services' ISP website and the WFNInvest
brokerage service is promoted regularly to all AT&T Worldnet ISP members.
The Capital Markets Division
In 1991, Siebert created its Capital Markets division, which serves as a
co-manager, underwriting syndicate member, or selling group member on a wide
spectrum of securities offerings for corporations and Federal agencies.
Principal activities of the Capital Markets Division are investment
banking and institutional equity execution services.
During 1996, Siebert formed the Siebert, Brandford, Shank division of the
investment banking group to enhance the activities of Siebert's tax exempt
underwriting. The operations of the Siebert, Brandford, Shank division were
moved on July 1, 1998 to a newly formed entity, SBS. Two individuals, Mr.
Napoleon Brandford and Ms. Suzanne F. Shank, own 51% of the equity and are
entitled to 51% of the net profits of SBS and Siebert is entitled to the
balance. Through its investment in SBS, Siebert has become a more significant
factor in the tax exempt underwriting area, and expects to enhance its
government and institutional relationships, as well as the breadth of products
that can be made available to retail clients. During 2001, SBS served as the
lead manager of over $2.5 billion of negotiated municipal new issues and served
as a co-manager in over $32.2 billion of negotiated municipal new issues.
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Since its inception, the Siebert, Brandford, Shank division and its
successor SBS have co-managed offerings of approximately $117 billion and lead
managed offerings of approximately $6 billion. Clients include the States of
California, Texas, Washington, Ohio, Michigan and the Cities of Chicago,
Detroit, Los Angeles, Houston, Dallas, Denver and St. Louis.
In addition to occupying a portion of Siebert's existing offices in New
York, SBS operates out of offices in San Francisco, Seattle, Houston, Chicago,
Detroit, Los Angeles, Washington, DC and Dallas.
Certain risks are involved in the underwriting of securities.
Underwriting syndicates agree to purchase securities at a discount from the
initial public offering price. If the securities must be sold below the cost to
the syndicate, an underwriter is exposed to losses on the securities that it has
committed to purchase. In the last several years, investment banking firms have
increasingly underwritten corporate and municipal offerings with fewer syndicate
participants or, in some cases, without an underwriting syndicate. In these
cases, the underwriter assumes a larger part or all of the risk of an
underwriting transaction. Under Federal securities laws, other laws and court
decisions, an underwriter is exposed to substantial potential liability for
material misstatements or omissions of fact in the prospectus used to describe
the securities being offered. While municipal securities are exempt from the
registration requirements of the Securities Act of 1933, underwriters of
municipal securities nevertheless are exposed to substantial potential liability
in connection with material misstatements or omissions of fact in the offering
documents prepared in connection with offerings of such securities.
Advertising, Marketing and Promotion
Siebert develops and maintains its retail customer base through printed
advertising in financial publications, broadcast commercials over national and
local cable TV channels, as well as promotional efforts and public appearances
by Ms. Siebert. Additionally, a significant number of the firm's new accounts
are developed directly from referrals by satisfied customers. WFN is intended to
target new retail customers for WFNInvest, a division of Siebert. WFN intends to
generate additional new accounts for WFNInvest through its marketing partnership
with AT&T WorldNet(R) Services.
Competition
Siebert encounters significant competition from full-commission, online
and discount brokerage firms, as well as from financial institutions, mutual
fund sponsors and other organizations, many of which are significantly larger
and better capitalized than Siebert. There are currently over 150 online
brokerage firms. The general financial success of the securities industry over
the past several years has strengthened existing competitors, although the
reduced volume of trading starting in late January 2001 is leading to
consolidation in the industry. Siebert believes that additional competitors such
as banks, insurance companies, providers of online financial and information
services and others will continue to be attracted to the online brokerage
industry as they expand their product lines. Many of these competitors are
larger, more diversified, have greater capital resources, and offer a wider
range of services and financial products than Siebert. Some such firms are
offering their services over the Internet and have devoted more resources to and
have more elaborate web sites than the Company. Siebert competes with a wide
variety of vendors of financial services for the same customers. Siebert
believes that its main competitive advantages are high quality customer service,
responsiveness, cost and products offered , the breadth of product line and
excellent executions.
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Regulation
The securities industry in the United States is subject to extensive
regulation under both Federal and state laws. The SEC is the Federal agency
charged with administration of the Federal securities laws. Siebert is
registered as a broker-dealer with the SEC, the NYSE and the National
Association of Securities Dealers ("NASD"). Much of the regulation of
broker-dealers has been delegated to self-regulatory organizations, principally
the NASD and national securities exchanges such as the NYSE, which is Siebert's
primary regulator with respect to financial and operational compliance. These
self-regulatory organizations adopt rules (subject to approval by the SEC)
governing the industry and conduct periodic examinations of broker-dealers.
Securities firms are also subject to regulation by state securities authorities
in the states in which they do business. Siebert is registered as a
broker-dealer in 49 states, the District of Columbia and Puerto Rico.
The principal purpose of regulations and discipline of broker-dealers
is the protection of customers and the securities markets, rather than
protection of creditors and stockholders of broker-dealers. The regulations to
which broker-dealers are subject cover all aspects of the securities business,
including training of personnel, sales methods, trading practices among
broker-dealers, uses and safekeeping of customers' funds and securities, capital
structure of securities firms, record keeping, fee arrangements, disclosure to
clients, and the conduct of directors, officers and employees. Additional
legislation, changes in rules promulgated by the SEC and by self-regulatory
organizations or changes in the interpretation or enforcement of existing laws
and rules may directly affect the method of operation and profitability of
broker-dealers and investment advisers. The SEC, self-regulatory organizations
and state securities authorities may conduct administrative proceedings which
can result in censure, fine, cease and desist orders or suspension or expulsion
of a broker-dealer or an investment adviser, its officers or its employees.
Neither the Company nor Siebert has been the subject of any such administrative
proceedings.
As a registered broker-dealer and NASD member organization, Siebert is
required by Federal law to belong to the Securities Investor Protection
Corporation ("SIPC") which provides, in the event of the liquidation of a
broker-dealer, protection for securities held in customer accounts held by the
firm of up to $500,000 per customer, subject to a limitation of $100,000 on
claims for cash balances. The SIPC is funded through assessments on registered
broker-dealers. In addition, Siebert, through its clearing agent, has purchased
from private insurers additional account protection up to the net asset value,
as defined, of each account. Stocks, bonds, mutual funds and money market funds
are included net asset value for purposes of SIPC protection and the additional
protection. Neither SIPC protection nor the additional protection applies to
fluctuations in the market value of securities.
Siebert is also authorized by the Municipal Securities Rulemaking Board
to effect transactions in municipal securities on behalf of its customers and
has obtained certain additional registrations with the SEC and state regulatory
agencies necessary to permit it to engage in certain other activities incidental
to its brokerage business.
Margin lending arranged by Siebert is subject to the margin rules of
the Board of Governors of the Federal Reserve System and the NYSE. Under such
rules, broker-dealers are limited in the amount they may lend in connection with
certain purchases and short sales of securities and are also required to impose
certain maintenance requirements on the amount of securities and cash held in
margin accounts. In addition, those rules and rules of the Chicago Board Options
Exchange govern the amount of margin customers must provide and maintain in
writing uncovered options.
Net Capital Requirements
As a registered broker-dealer, Siebert is subject to the SEC's Uniform
Net Capital Rule (Rule 15c3-1) (the "Net Capital Rule"), which has also been
adopted by the NYSE. Siebert is a member firm of the NYSE and the NASD. The Net
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Capital Rule specifies minimum net capital requirements for all registered
broker-dealers and is designed to measure financial integrity and liquidity.
Failure to maintain the required regulatory net capital may subject a firm to
suspension or expulsion by the NYSE and the NASD, certain punitive actions by
the SEC and other regulatory bodies and, ultimately, may require a firm's
liquidation.
Regulatory net capital is defined as net worth (assets minus
liabilities), plus qualifying subordinated borrowings, less certain deductions
that result from excluding assets that are not readily convertible into cash and
from conservatively valuing certain other assets. These deductions include
charges that discount the value of security positions held by Siebert to reflect
the possibility of adverse changes in market value prior to disposition.
The Net Capital Rule requires notice of equity capital withdrawals to
be provided to the SEC prior to and subsequent to withdrawals exceeding certain
sizes. The Net Capital Rule also allows the SEC, under limited circumstances, to
restrict a broker-dealer from withdrawing equity capital for up to 20 business
days.
Under applicable regulations, Siebert is required to maintain
regulatory net capital of at least $250,000. At December 31, 2001 and 2000,
Siebert had net capital of $20.9 million and $18.0 million, respectively.
Employees
As of March 20 2002, the Company had approximately 108 employees, five
of whom were corporate officers. None of the employees is represented by a
union, and the Company believes that relations with its employees are good.
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Item 2. PROPERTIES.
Siebert currently maintains eight retail discount brokerage offices.
Customers can visit the offices to obtain market information, place orders, open
accounts, deliver and receive checks and securities, and obtain related customer
services in person. Nevertheless, most of Siebert's activities are conducted on
the Internet or by, telephone and mail.
Siebert operates its business out of the following eight leased offices:
Approximate Expiration Date of
Office Area in Current Renewal
Location Square Feet Lease Terms
- -------- ----------- ----- -----
Corporate Headquarters, Retail and
Investment Banking Office
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885 Third Ave. 7,828 4/30/03 None
New York, NY 10022
2 year option
Retail Offices 1,000 12/31/02
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9693 Wilshire Boulevard
Beverly Hills, CA 90212
4400 North Federal Highway 1,038 2/28/05 None
Boca Raton, FL 33431
111 Pavonia Avenue (1) 6/30/04 and 5 year option on a
Jersey City, NJ 07310 6/30/05 portion of space
7,700
400 Fifth Avenue - South 1,008 4/30/02 3 year option
Naples, FL 33940
240A South County Road 770 10/14/02 None
Palm Beach, FL 33480
9569 Harding Avenue 1,150 12/31/03 None
Surfside, FL 33154
6210 N. Federal Highway 1,200 2/28/03 3 year option
Fort Lauderdale, FL 33308
(1) Certain of the Company's administrative and back office functions are
performed at this location.
The Company believes that its properties are in good condition and are
suitable for the Company's operations.
Item 3. LEGAL PROCEEDINGS
The Company is involved in various routine litigation matters that it
believes are customary and incidental to its business. In the opinion of
management, the ultimate disposition of these actions will not, in the
aggregate, have a material adverse effect on the financial position or results
of operations of the Company.
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Item 4. SUBMISSION OF MATTERS TO A VOTE OF SHAREHOLDERS
None.
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PART II
Item 5. PRICE RANGE OF COMMON STOCK
The Company's common stock trades on the Nasdaq Stock Market under the
symbol "SIEB". The high and low sales prices of the Company's common stock
reported by Nasdaq during the following calendar quarters were:
High Low
---- ---
First Quarter - 2000 .......................... $ 17.00 $ 9.00
Second Quarter - 2000 ......................... $ 14.00 $ 6.81
Third Quarter - 2000 .......................... $ 9.94 $ 6.81
Fourth Quarter - 2000 ......................... $ 8.00 $ 3.45
First Quarter - 2001 .......................... $ 6.50 $ 4.13
Second Quarter - 2001 ......................... $ 5.97 $ 4.00
Third Quarter - 2001 .......................... $ 5.05 $ 4.45
Fourth Quarter - 2001 ......................... $ 5.46 $ 3.73
January 1, 2002 - March 22, 2002 .............. $ 5.12 $ 3.80
As of March 22, 2002, the closing price of the Company's common
stock on the Nasdaq Stock Market was $4.49 per share and there were 170 holders
of record of the Company's common stock.
Dividend Policy
The Company paid no cash dividends to its shareholders in 2001 and paid
a dividend of $.04 per share to its shareholders on June 28, 2000, January 18,
1999, April 15, 1999, July 16, 1999 and October 29, 1999. Ms. Siebert, the
majority shareholder of the Company, has waived her right to receive the
dividends declared by the Company to date. The Board of Directors of the Company
periodically considers whether to declare dividends. In considering whether to
pay such dividends, the Company's Board of Directors will review the earnings of
the Company, its capital requirements, its economic forecasts and such other
factors as are deemed relevant. Some portion of the Company's earnings will be
retained to provide capital for the operation and expansion of its business.
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Item 6. SELECTED FINANCIAL INFORMATION
(In thousands except share and per share data)
The following selected financial information should be read in
conjunction with the Company's Consolidated Financial Statements and
the related notes thereto.
2001 2000 1999 1998 1997
---- ---- ---- ---- ----
Income statement data:
Total Revenues ............................................... $ 32,020 $ 44,341 $ 36,118 $ 30,491 $ 31,266
Net income ................................................... $ 2,488 $ 7,999 $ 4,603 $ 4,313 $ 2,618
Net income per share of common stock
Basic ..................................................... $ 0.11 $ 0.35 $ 0.20 $ 0.20 $ 0.12
Diluted ................................................... $ 0.11 $ 0.34 $ 0.20 $ 0.19 $ 0.12
Weighted average shares outstanding (basic) .................. 22,438,719 22,886,100 22,725,452 21,598,406 21,549,484
Weighted average shares outstanding (diluted) ................ 22,698,934 23,265,897 23,238,100 22,241,860 21,549,484
Statement of financial condition data (at year-end):
Total assets ............................................... $ 42,129 (1) $41,428 $ 32,305 $ 21,494 $ 18,510
Total liabilities excluding subordinated borrowings ........ $ 4,829 (1) $4,744 $ 2,851 $ 4,194 $ 5,493
Subordinated borrowings to majority shareholder ............ $ -- -- $ -- $ 3,000 $ 3,000
Stockholders' equity ....................................... $ 37,300 $ 36,684 $ 29,454 $ 14,300 $ 10,017
(1) As reclassified to conform to 2001 presentation.
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Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS
This discussion should be read in conjunction with the Company's audited
Consolidated Financial Statements and the Notes thereto contained elsewhere in
this Annual Report.
The economy slowed and sputtered during 2001 despite the many rate cuts
by the Federal Reserve Bank. Consequently, trading activity and new account
acquisitions slowed for the Company, as well as for the entire discount
brokerage industry. The events of September 11, 2001 cast a further pall over
Wall Street and the securities markets. However, signs of a recovery have
emerged in recent weeks.
Notwithstanding this slow down, competition continued to intensify among
all types of brokerage firms, including established discount brokers and new
firms entering the on-line brokerage business. Electronic trading continues to
account for an increasing amount of trading activity, with some firms offering
very low or even free flat rate trading execution fees that are difficult for
any conventional discount firm to meet. Some of these flat fee or free brokers,
however, impose asset based 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 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 Communications Networks, are expected to put continuing pressure
on fees earned by discount brokers for the sale of order flow while increasing
volatility.
On May 15, 2000, the Board of Directors of the Company authorized a buy
back of up to one million shares of the Company's common stock. Under this
program, shares are purchased from time to time, in the discretion of the
Company, in the open market and in private transactions. Through March 19, 2002,
542,800 shares have been purchased at an average price of $5.04 per share.
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 the prospect of changes in interest rates, and demand
for brokerage and investment banking services, all of which can affect the
Company's profitability. In addition, in periods of reduced financial market
activity, profitability is likely to be adversely affected because certain
expenses remain relatively fixed, including salaries and related costs, portions
of communications costs and occupancy expenses. Accordingly, earnings for any
period should not be considered representative of earnings to be expected for
any other period. Further, expenditures associated with the development and
promotion of the Company's financial website for women, WFN, the Women's
Financial Network at Siebert ("WFN"), had an adverse effect on the Company's
profitability during 2001, and may continue to have an adverse effect on future
profits. The Company believes that revenues from new accounts expected to be
generated by the website will be sufficient to offset the operating and
promotional cost for its website over the long term. However, there can be no
assurance that a sufficient number of new accounts will be generated to offset
the costs or produce significant profits.
The Company believes that its accounting policies appropriately reflect
its financial position and results of operations. The Company uses estimates in
the preparation of its financial statements. These estimates relate primarily to
revenue and expenses items in the normal course of business as to which no
confirmations, invoices, or other documentation, is received by the Company at
the time the books are closed. 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 confirmations, invoices or other documentation subsequently
received by the Company.
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Results of Operations
Year Ended December 31, 2001 Compared to Year Ended December 31, 2000
Revenues. Total revenues for 2001 were $32.0 million, a decrease of $12.3
million, or 27.8%, over 2000. Commission and fee income decreased $14.2 million,
or 35.3%, over the prior year to $25.2 million due to lower overall trading
volume and lower commissions earned per trade. Lower per trade commissions were
the result of smaller order sizes, reductions in fees from other related
services caused by increased competition from ultra low cost flat fee brokers,
and a reduction of per share order flow fees. Investment banking revenues
increased $392,000, or 22.7%, from the prior year to $2.1 million in 2001,
primarily due to the Company's participation, as a Woman Owned Business
Enterprise, in several public equity offerings and debt offerings.
Income from the Company's investment in Siebert, Brandford, Shank & Co.,
LLC ("SBS") was $2.3 million compared to the prior year's loss of $324,000 This
increase in profits was due in part to the increased number of municipal bond
offerings managed or co-managed by SBS as interest in Municipal Bonds increased
with the decline in activity in the equity markets and SBS' share of the
municipal bond underwriting market increased.
Trading profits increased $236,000, or 33.1%, from the prior year to
$950,000 primarily due to increased trading in municipal bonds within the
Company's proprietary trading group.
Income from interest and dividends decreased $514,000, or 27.1%, from the
prior year to $1.4 million primarily due to lower yields on money market funds
held by the Company during 2001.
Expenses. Total expenses for 2001 were $27.7 million, a decrease of $2.8
million, or 9.2%, from the prior year.
Employee compensation and benefit costs decreased $1.5 million, or 12%,
from the prior year to $11.3 million primarily due to a decrease in the number
of employees and a decrease in discretionary bonuses. This decrease was offset,
in part, by an increase in the compensation level of the Company's mid-level
management and the inclusion of management and operating personnel of WFN for a
full year.
Clearing and floor brokerage fees decreased $1.7 million, or 27.6%, from
the prior year to $4.4 million due to the decreased volume of trades executed.
Advertising and promotion expense decreased $237,000, or 8.5%, from the
prior year to $2.6 million primarily due to a decreased level of television
advertising.
Communications expense decreased $285,000, or 9.4%, from the prior year,
to $2.7 million primarily due lower call volumes and lower quote usage by
customers, partially offset by costs relating to temporary duplicate telephone
lines and costs during the installation of the Company's new telephone system.
Occupancy costs increased $221,000, or 28.4%, from the prior year to
$998,000 principally due to incurring a full year of rent expense associated
with two new leases entered into by the Company during 2000 in connection with
the move of certain of the Company's operations to Jersey City, New Jersey and
the opening of the Company's Fort Lauderdale call center.
-14-
General and Administrative. General and administrative expenses increased
$733,000, or 15%, from the prior year to $5.6 million primarily due to increased
legal, consulting and amortization expenses.
Taxes. Provision for income taxes decreased $4.0 million, or 68.4%, from
the prior year to $1.8 million due to a decrease in the Company's net income
before income tax to $4.3 million in 2001 from $13.9 million in 2000.
Year Ended December 31, 2000 Compared to Year Ended December 31, 1999
Revenues. Total revenues for 2000 were $44.3 million, an increase of $8.2
million, or 22.7%, over 1999. Commission and fee income increased $7.9 million,
or 24.2%, over the prior year to $40.3 million due to higher trading volume,
particularly in the first quarter. This increase was offset in part by lower
commissions earned per trade resulting from the increased lower priced
electronic trading, reductions in fees from other related services caused by
increased competition from ultra low cost flat fee brokers and a reduction of
per share order flow fees. Investment banking revenues increased $399,000
million, or 29.9%, from the prior year to $1.7 million in 2000, primarily due to
the Company's involvement at the co-manager level in fixed income securities
offerings.
Loss from the Company's investment in SBS was $324,000 compared to the
prior year's profit of $100,000, due in part to the decreased number of
municipal bond offerings as interest rate concerns affected this market.
Trading profits declined $324,000, or 31.2%, from the prior year to
$713,000 primarily due to reduced proprietary trading activity and investment of
the Company's capital in lower risk investments, including money market funds.
Income from interest and dividends increased $702,000, or 58.7%, from the
prior year to $1.9 million primarily due to higher cash balances as a result of
the Company's rights offering completed in January 1999.
Expenses. Total expenses for 2000 were $30.5 million, an increase of $2.3
million, or 8.2%, from the prior year.
Employee compensation and benefit costs increased $1.7 million, or 15.2%,
from the prior year to $12.9 million primarily due to an increase in management
personnel, as well as, and new management employees associated with WFN This
increase was offset in part by a reduction in line personnel.
Clearing and floor brokerage fees increased $146,000, or 2.5%, from the
prior year to $6.1 million due to the increased volume of trades executed,
offset in part by a lower per ticket charge to the Company under a new clearing
agreement entered into in 2000.
Advertising and promotion expense decreased $600,000, or 17.6%, from the
prior year to $2.8 million primarily due to a decreased level of promotional
advertising.
Communications expense increased $600,000, or 22.4%, over the prior year
to $3.0 million primarily due to increased quote usage by customers and news
services offered by the Company, coupled with an increase in the volume of the
Company's business and communication expenses after its acquisition of WFN.
-15-
Occupancy costs increased $225,000, or 40.5%, from the prior year to
$778,000 principally due to two new leases entered into by the Company in
connection with the planned move of the Company's operations to Jersey City, New
Jersey and the opening of the Company's Fort Lauderdale call center.
Interest expense decreased $132,000, from the prior year to $23,000,
primarily due to decreased activity in the Company's proprietary trading
accounts. In July 1999, management decided to reduce trading activity and
instead invest the Company's capital in lower risk investments, including money
market funds.
General and Administrative. General and administrative expenses increased
$400,000, or 9.1%, from the prior year to $4.9 million primarily due to higher
depreciation expense resulting from fixed asset purchases and higher consulting
costs.
Taxes. Provision for income taxes increased $2.5 million, or 75.7%, from
the prior year to $5.9 million due to an increase in net income before income
tax to $13.9 million in 2000 from $7.9 million in 1999.
Liquidity and Capital Resources
The Company's assets are highly liquid, consisting generally of cash,
money market funds and securities freely saleable in the open market. The
Company's total assets at December 31, 2001 were $42.1 million, of which, $33.3
million, or 79%, 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 December 31, 2001, Siebert's regulatory net
capital was $20.9 million, $20.6 million in excess of its minimum capital
requirement of $250,000.
Management believes that it has sufficient funds on hand to meet all cash
requirements for at least the next twelve months.
Siebert has entered into a Secured Demand Note Collateral Agreement with
SBS under which it is obligated to pay to SBS up to $1.2 million pursuant to a
secured promissory note on a subordinated basis. Amounts payable 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, 2003, at which time SBS is
obligated to repay to Siebert any amounts borrowed by SBS thereunder.
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 counterparties are unable to
fulfill their contractual obligations.
-16-
Item 7A. 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
positions held by Siebert at December 31, 2001 was approximately $6.1 million in
long positions and approximately $2,010 in short positions. Using a hypothetical
10% increase or decrease in prices, the potential loss in fair value,
respectively, could be approximately $610,000 and $0, respectively, due to the
offset of change in fair value in long and short positions. The Company does not
engage in derivative transactions, has no interest in any special purpose entity
and no liabilities, contingent or otherwise, for the debt of another entity,
except for Siebert's obligation under its Secured Demand Note Collateral
Agreement of $1.2 million executed in favor of SBS. SBS pays Siebert interest on
this amount at the rate of 10% per annum. Siebert earned interest of $120,000
from SBS in each of the years that Siebert's commitment has been outstanding.
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.
Item 8. FINANCIAL STATEMENTS.
See financial statements and supplementary data required pursuant to this
item beginning on page F-1 of this Report on Form 10-K.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS IN ACCOUNTING
AND FINANCIAL DISCLOSURE.
None.
-17-
PART III
Item 10. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT.
(a) Identification of Directors
This information is incorporated by reference from the Company's
definitive proxy statement to be filed by the Company pursuant to Regulation 14A
on or prior to April 30, 2002.
(b) Identification of Executive Officers
The executive officers of the Company are:
Name Age Position
---- --- --------
Muriel F. Siebert 69 Chairwoman and President
Daniel Jacobson 73 Vice Chairman
Nicholas P. Dermigny 44 Executive Vice President and
Chief Operating Officer
Mitchell M. Cohen 46 Executive Vice President,
Chief Financial Officer and
Assistant Secretary
Daniel Iesu 42 Secretary
Certain information regarding each executive officer's business
experience is set forth below.
Muriel F. Siebert has been Chairwoman, President and a director of
Siebert since 1967 and the Company since November 8, 1996. Ms. Siebert became
the first woman member of the New York Stock Exchange on December 28, 1967 and
served as Superintendent of Banks of the State of New York from 1977 to 1982.
Since November 2001, Ms. Siebert has served as a member of Mayor Michael
Bloomberg's Transition Committee. She is a director of the New York State
Business Council, the National Women's Business Council, the International
Women's Forum and the Boy Scouts of Greater New York.
Daniel Jacobson has been Vice Chairman and a director of the Company
since May 4, 1999. He was a partner in Richard A. Eisner & Company, LLP from
June 1, 1994 until May 1, 1999. He is a director and chairman of the audit
committee of Barnwell Industries, Inc. Mr. Jacobson is an attorney and certified
public accountant.
Nicholas P. Dermigny has been Executive Vice President and Chief
Operating Officer of Siebert since joining the firm in 1989 and of the Company
since November 8, 1996. Prior to 1993, he was responsible for Siebert's retail
division. Mr. Dermigny became an officer and director of the Company on November
8, 1996.
Mitchell M. Cohen has been Executive Vice President, Chief Financial
Officer and Assistant Secretary of Siebert since November 9, 1998. From December
1996 to October 1998, Mr. Cohen served as Chief Financial Officer of
Everything's Jake. From May 1994 to November 1996, Mr. Cohen served as Chief
Financial Officer of three firms, including two broker-dealers. From January
1993 to May 1994, Mr. Cohen was an audit manager for Goldstein, Golub, Kessler &
Co. P.C, a public accounting firm. Prior to these positions, Mr. Cohen was Chief
Financial Officer of Ehrlich Bober Financial Corp., an investment banking firm
listed on the American Stock Exchange.
Daniel Iesu has been Secretary of Siebert since October 1996 and the
Company since November 8, 1996. He has been Controller of Siebert since 1989.
-18-
Item 11. EXECUTIVE COMPENSATION.
The information required by this item is incorporated by reference from
the Company's definitive proxy statement to be filed by the Company pursuant to
Regulation 14A on or prior to April 30, 2002.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information required by this item is incorporated by reference from
the Company's definitive proxy statement to be filed by the Company pursuant to
Regulation 14A on or prior to April 30, 2002.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required by this item is incorporated by reference from
the Company's definitive proxy statement to be filed by the Company pursuant to
Regulation 14A on or prior to April 30, 2002.
Item 14. EXHIBITS AND REPORTS ON FORM 8-K.
` (a) Exhibits
The exhibits required by Item 601 of the Regulations S-K filed
as part of, or incorporated by reference in, this report are
listed in the accompanying Exhibit Index.
(b) Reports on Form 8-K
None.
-19-
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
----
SIEBERT FINANCIAL CORP.
Report of Independent Auditors F-1
Consolidated Statements of Financial Condition at December 31, 2001 and 2000 F-2
Consolidated Statements of Income for each of the years in the
three-year period ended December 31, 2001 F-3
Consolidated Statements of Changes in Stockholders' Equity for each
of the years in the three-year period ended December 31, 2001 F-4
Consolidated Statements of Cash Flows for each of the
years in the three-year period ended December 31, 2001 F-5
Notes to Consolidated Financial Statements F-6
SIEBERT, BRANDFORD, SHANK & CO., LLC
Report of Independent Auditors F-17
Consolidated Statements of Financial Condition at December 31, 2001 and 2000 F-18
Consolidated Statements of Operations for each of the years in the
three-year period ended December 31, 2001 F-19
Consolidated Statements of Changes in Members' Capital for each
of the years in the three-year period ended December 31, 2001 F-20
Consolidated Statements of Cash Flows for each of the
years in the three-year period ended December 31, 2001 F-21
Notes to Consolidated Financial Statements F-22
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Stockholders
Siebert Financial Corp.
New York, New York
We have audited the accompanying consolidated statements of financial condition
of Siebert Financial Corp. and its wholly owned subsidiaries as of December 31,
2001 and 2000, and the related consolidated statements of income, changes in
stockholders' equity and cash flows for each of the years in the three-year
period ended December 31, 2001. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Siebert
Financial Corp. and its wholly owned subsidiaries as of December 31, 2001 and
2000, and the consolidated results of their operations and their consolidated
cash flows for each of the years in the three-year period ended December 31,
2001 in conformity with accounting principles generally accepted in the United
States of America.
Richard A. Eisner & Company, LLP
New York, New York
February 20, 2002
F-1
SIEBERT FINANCIAL CORP. AND SUBSIDIARIES
Consolidated Statements of Financial Condition
December 31,
------------
2001 2000
---- ----
ASSETS
Cash and cash equivalents $ 25,670,000 $ 26,370,000
Cash equivalents - restricted 1,300,000 1,300,000
Receivable from clearing broker 1,572,000 124,000
Securities owned, at market value 6,079,000 6,271,000
Furniture, equipment and leasehold improvements, net 1,703,000 1,956,000
Investment in and advances to affiliate 2,702,000 981,000
Intangibles, net 2,250,000 3,032,000
Prepaid expenses and other assets 853,000 1,394,000
---------------- ----------------
$ 42,129,000 $ 41,428,000
================ ================
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Securities sold, not yet purchased, at market value $ 4,000 $ 2,000
Deferred tax liability 489,000 792,000
Accounts payable and accrued liabilities 4,336,000 3,950,000
---------------- ----------------
4,829,000 4,744,000
Commitments and contingent liabilities
Stockholders' equity:
Common stock, $.01 par value; 49,000,000 shares authorized, 22,932,047 shares
issued 22,389,247 outstanding at December 31, 2001 and 22,911,187 shares
issued and 22,762,487 shares outstanding at
December 31, 2000 229,000 229,000
Additional paid-in capital 17,796,000 17,736,000
Retained earnings 22,010,000 19,522,000
Less 542,800 at December 31, 2001 and 148,700 shares of treasury stock,
at December 31, 2000, at cost (2,735,000) (803,000)
---------------- ----------------
37,300,000 36,684,000
$ 42,129,000 $ 41,428,000
================ ================
See notes to consolidated financial statements.
F-2
SIEBERT FINANCIAL CORP. AND SUBSIDIARIES
Consolidated Statements of Income
Year Ended December 31,
-----------------------
2001 2000 1999
---- ---- ----
Revenues:
Commissions and fees $ 25,233,000 $ 40,322,000 $ 32,452,000
Investment banking 2,122,000 1,731,000 1,332,000
Trading profits 950,000 713,000 1,037,000
Income (loss) from equity investee 2,330,000 (324,000) 100,000
Interest and dividends 1,385,000 1,899,000 1,197,000
--------------- ---------------- ----------------
32,020,000 44,341,000 36,118,000
--------------- ---------------- ----------------
Expenses:
Employee compensation and benefits 11,338,000 12,884,000 11,183,000
Clearing fees, including floor brokerage 4,411,000 6,088,000 5,942,000
Advertising and promotion 2,553,000 2,790,000 3,386,000
Communications 2,738,000 3,022,000 2,470,000
Occupancy 998,000 778,000 553,000
Interest 11,000 23,000 155,000
Other general and administrative 5,634,000 4,901,000 4,492,000
--------------- ---------------- ----------------
27,683,000 30,486,000 28,181,000
--------------- ---------------- ----------------
Income before provision for income taxes 4,337,000 13,855,000 7,937,000
Provision for income taxes 1,849,000 5,856,000 3,334,000
--------------- ---------------- ----------------
Net income $ 2,488,000 $ 7,999,000 $ 4,603,000
=============== ================ ================
Net income per share of common stock - basic $.11 $.35 $.20
Net income per share of common stock - diluted $.11 $.34 $.20
Weighted average shares outstanding - basic 22,438,719 22,886,100 22,725,452
Weighted average shares outstanding - diluted 22,698,934 23,265,897 23,238,100
See notes to consolidated financial statements.
F-3
SIEBERT FINANCIAL CORP. AND SUBSIDIARIES
Consolidated Statements of Changes In Stockholders' Equity
Common Stock
------------
Number Additional
of $.01Par Paid-in Retained
Shares Value Capital Earnings
------ ----- ------- --------
Balance - January 1, 1999 21,604,960 $ 215,000 $ 6,714,000 $ 7,371,000
Net income 4,603,000
Issuance of shares in connection with rights
offering, net of expenses 961,087 10,000 6,919,000
Issuance of shares in connection with
Restricted Stock Award Plan, net of
850 shares forfeited 3,400 - - -
Non-cash compensation in connection
with Restricted Stock Award Plan 50,000
Issuance of shares in connection with
exercise of employee stock options 320,240 3,000 744,000 -
Tax benefit arising from exercise of employer
stock options 3,155,000
Dividends on common stock ($.12 per share) - - - (330,000)
------------- ----------- --------------- --------------
Balance - December 31, 1999 22,889,687 228,000 17,582,000 11,644,000
Net income 7,999,000
Treasury share purchases
Non-cash compensation in connection with
Restricted Stock Award Plan 40,000
Issuance of shares in connection with exercise
of employee stock options 21,500 1,000 57,000 -
Tax benefit arising from exercise of employee
stock options 57,000
Dividends on common stock ($.04 per share) - - - (121,000)
------------- ----------- --------------- --------------
Balance - December 31, 2000 22,911,187 229,000 17,736,000 19,522,000
Net income 2,488,000
Treasury share purchases
Issuance of shares in connection with
exercise of employee stock options 20,860 46,000
Tax benefit arising from exercise of employee
stock options 14,000
------------- ----------- --------------- --------------
Balance - December 31, 2001 22,932,047 $ 229,000 $ 17,796,000 $ 22,010,000
============= =========== =============== ==============
Treasury Stock
--------------
Number
of
Shares Amount Total
------ ------ -----
Balance - January 1, 1999 $ 14,300,000
Net income 4,603,000
Issuance of shares in connection with rights
offering, net of expenses 6,929,000
Issuance of shares in connection with
Restricted Stock Award Plan, net of
850 shares forfeited -
Non-cash compensation in connection
with Restricted Stock Award Plan 50,000
Issuance of shares in connection with
exercise of employee stock options 747,000
Tax benefit arising from exercise of employee
stock options 3,155,000
Dividends on common stock ($.12 per share) (330,000)
--------------
Balance - December 31, 1999 29,454,000
Net income 7,999,000
Treasury share purchases 148,700 $ (803,000) (803,000)
Non-cash compensation in connection with
Restricted Stock Award Plan 40,000
Issuance of shares in connection with exercise
of employee stock options 58,000
Tax benefit arising from exercise of employee
stock options 57,000
Dividends on common stock ($.04 per share) (121,000)
------------ -------------- --------------
Balance - December 31, 2000 148,700 (803,000) 36,684,000
Net income 2,488,000
Treasury share purchases 394,100 (1,932,000) (1,932,000)
Issuance of shares in connection with
exercise of employee stock options 46,000
Tax benefit arising from exercise of employee
stock options 14,000
------------ -------------- --------------
Balance - December 31, 2001 542,800 $ (2,735,000) $ 37,300,000
============ ============== ==============
See notes to consolidated financial statements.
F-4
SIEBERT FINANCIAL CORP. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Year Ended December 31,
-----------------------
2001 2000 1999
---- ---- ----
Cash flows from operating activities:
Net income $ 2,488,000 $ 7,999,000 $ 4,603,000
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 1,366,000 518,000 382,000
(Income) loss from equity investee (2,330,000) 325,000 (100,000)
Non-cash compensation 40,000 50,000
Tax benefit of exercised employee stock options 14,000 57,000 3,155,000
Deferred taxes (303,000)
Changes in operating assets and liabilities:
Net decrease (increase) in securities owned, at market
value 192,000 (3,618,000) 2,728,000
Net change in receivable from clearing broker (1,448,000) 2,234,000 342,000
Decrease (Increase) in prepaid expenses and other
assets 543,000 (154,000) (182,000)
Net increase (decrease) in securities sold, not yet
purchased, at market value 2,000 (48,000) (517,000)
Increase (decrease) in accounts payable and accrued
liabilities 384,000 1,149,000 (747,000)
--------------- --------------- ---------------
Net cash provided by operating activities 908,000 8,502,000 9,714,000
--------------- --------------- ---------------
Cash flows from investing activities:
Purchase of intangibles (2,310,000)
Purchase of furniture, equipment and leasehold improvements (331,000) (1,629,000) (318,000)
Distributions from affiliate 54,000 998,000
Net change in advances to equity investee 609,000 (263,000) (514,000)
--------------- --------------- ---------------
Net cash provided by (used in) investing activities 278,000 (4,148,000) 166,000
--------------- --------------- ---------------
Cash flows from financing activities:
Purchase of treasury shares (1,932,000) (803,000)
Issuance of shares, net of expenses 6,929,000
Proceeds from exercise of options 46,000 58,000 747,000
Dividend on common stock (121,000) (409,000)
Repayment of subordinated loan - stockholder (1,000,000)
--------------- --------------- ---------------
Net cash (used in) provided by financing activities (1,886,000) (866,000) 6,267,000
--------------- --------------- ---------------
Net (decrease) increase in cash and cash equivalents (700,000) 3,488,000 16,147,000
Cash and cash equivalents - beginning of year 26,370,000 22,882,000 6,735,000
--------------- --------------- ---------------
Cash and cash equivalents - end of year $ 25,670,000 $ 26,370,000 $ 22,882,000
=============== =============== ===============
Supplemental cash flow disclosures:
Cash paid for:
Interest $ 11,000 $ 23,000 $ 155,000
Income taxes $ 1,811,000 $ 5,812,000 $ 566,000
Noncash investing and financing activities:
Tax benefit of employee stock options $ 14,000 $ 57,000 $ 3,155,000
Return of secured demand note receivable and cancellation of
subordinated notes payable $ 2,000,000
Net deferred tax liability attributable to acquired companies $ 792,000
See notes to consolidated financial statements.
F-5
SIEBERT FINANCIAL CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE A - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
[1] Organization and basis of presentation:
Siebert Financial Corp. ("Financial"), through its wholly owned
subsidiary, Muriel Siebert & Co., Inc. ("Siebert"), engages in the
business of providing discount brokerage services for customers,
investment banking services for institutional clients and trading
securities for its own account, and, through its wholly owned subsidiary,
Siebert Women's Financial Network, Inc. ("WFN"), engages in providing
products, services and information all uniquely devoted to women's
financial needs. All significant intercompany accounts and transactions
have been eliminated. Financial, Siebert and WFN collectively are
referred to herein as the "Company".
The municipal bond investment banking business is being conducted by
Siebert Brandford Shank & Co., LLC ("SBS"), an investee, which is
accounted for by the equity method of accounting (see Note B). The equity
method provides that Siebert record its share of SBS' earnings or losses.
On May 28, 1999, the Company consummated a merger with 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 for
1999 have been restated to include the results of Peck.
The following information presents certain income statement data of the
separate companies for the period preceding the merger:
January 1, 1999
Through
May 28, 1999
(unaudited)
-----------
Revenues:
Company $ 12,929,000
Peck 2,504,000
-------------
$ 15,433,000
============
Net income:
Company $ 2,023,000
Peck 0
------------
$ 2,023,000
===========
There were no transactions between the Company and Peck prior to the
merger.
In several transactions during September and October of 2000, WFN
acquired the stock of WFN Women's Financial Network, Inc. and
HerDollar.com, Inc., respectively, companies in the development stage
which had yet to commence principal operations, had no significant
revenue and had assets consisting principally of websites, content and
domain names, for aggregate consideration of $2,310,000 including costs.
The transactions have been accounted for as purchases of assets
consisting of domain name, website and content, and a noncompete
agreement. Related deferred tax assets of $511,000 attributable to net
operating loss carryforwards of the acquired companies and deferred tax
liabilities of $1,303,000 attributable to the excess of the statement
bases of the acquired assets over their tax bases have been reflected in
the accompanying financial statements.
F-6
SIEBERT FINANCIAL CORP. AND SUBSIDIARIES
NOTE A - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
[2] Security transactions:
Security transactions, commissions, revenues and expenses are recorded on
a trade date basis.
Siebert clears all its security transactions through an unaffiliated
clearing firm on a fully disclosed basis. Accordingly, Siebert does not
hold funds or securities for or owe funds or securities to its customers.
Those functions are performed by the clearing firm which is highly
capitalized.
Marketable securities are valued at market value.
[3] Income taxes:
The Company accounts for income taxes utilizing the asset and liability
approach requiring the recognition of deferred tax assets and liabilities
for the expected future tax consequences of temporary differences between
the basis of assets and liabilities for financial reporting purposes and
tax purposes. Financial files a consolidated federal income tax return
which includes Siebert and WFN.
[4] Furniture, equipment and leasehold improvements:
Property and equipment is stated at cost and depreciation is calculated
using the straight-line method over the lives of the assets, generally
five years. Leasehold improvements are amortized over the period of the
lease.
[5] Cash equivalents:
For purposes of reporting cash flows, cash equivalents include money
market funds.
[6] Advertising costs:
Advertising costs are charged to expense as incurred.
[7] Use of estimates:
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
[8] Earnings per share:
Basic earnings per share is calculated by dividing net income by the
weighted average outstanding shares during the period. Diluted earnings
per share is calculated by dividing net income by the number of shares
outstanding under the basic calculation and adding all dilutive
securities, which consist of options. The treasury stock method is used
to reflect the dilutive effect of outstanding options, which, for 2001,
2000 and 1999 amounted to 260,215, 379,797 and 512,648 additional shares
respectively added to the basic weighted average outstanding shares of
22,438,719, 22,886,100 and 22,725,452 in 2001, 2000 and 1999,
respectively. Potentially dilutive securities consisting of outstanding
options at December 31, 2001, 2000 and 1999 amounted to 375,500, 37,500
and 29,500, respectively.
F-7
SIEBERT FINANCIAL CORP. AND SUBSIDIARIES
NOTE A - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
[9] Investment banking:
Investment banking revenues include gains and fees, net of syndicate
expenses, arising from underwriting syndicates in which the Company
participates. Investment banking management fees are recorded on the
offering date, sales concessions on the settlement date and underwriting
fees at the time the underwriting is completed and the income is
reasonably determinable.
[10] Cash equivalents - restricted:
Cash equivalents - restricted represents cash invested in a money market
account which is pledged as collateral for a secured demand note in the
amount of $1,200,000 executed in favor of SBS.
[11] Accounting for stock options:
The Company accounts for stock options in accordance with Accounting
Principles Board Opinion No. 25 ("APB Opinion 25"), "Accounting for Stock
Issued to Employees" using intrinsic values with appropriate disclosures
in conformity with the fair value based method of Statement of Financial
Accounting Standard No. 123 (See Note G).
[12] Software development cost:
In accordance with Statement of Position ("SOP") 98-1, "Accounting for
the Costs of Computer Software Developed or Obtained for Internal Use",
costs related to the development of software for use in operations and in
connection with the Company's internet websites, other than those costs
incurred during the application development stage, are expensed as
incurred. Costs incurred during the application development stage are
capitalized and amortized using the straight-line method over an
estimated useful life of three years beginning when the software is ready
for its intended use. Costs relating to the application development stage
during 2001, 2000 and 1999 were not material.
[13] Intangibles:
Purchased intangibles are principally being amortized using the
straight-line method over an assigned useful life of three years.
Accumulated amortization as of December 31, 2001 and 2000 amount to
$852,000 and $70,000, respectively.
[14] Valuation of long-lived assets:
The Company periodically evaluates the carrying value of long-lived
assets, including intangible assets, when events and circumstances
warrant such review. If the carrying value of a long-lived asset is
considered impaired, a loss is recognized based on the amount by which
the carrying value exceeds the fair market value of the long-lived asset.
F-8
SIEBERT FINANCIAL CORP. AND SUBSIDIARIES
NOTE A - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
[15] 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. Management does not
expect this statement to 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. Management does not expect this statement to 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 supercedes
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. Management does not expect this
statement to have a material impact on the Company's consolidated
financial position or results of operations.
[16] Reclassification:
Certain reclassifications have been made to the 2000 consolidated
statements of financial condition and cash flows to conform to the 2001
presentation.
NOTE B - INVESTMENT IN AFFILIATE
In March 1997, Siebert and two individuals (the "Principals") formed SBS to
succeed to the tax-exempt underwriting business of the Siebert Brandford Shank
division of Siebert when regulatory requirements permitted. The agreements with
the Principals provide that profits will be shared 51% to the Principals and 49%
to Siebert. Siebert invested $392,000 as its share of the members' capital of
SBS. Effective July 1, 1998, SBS met the regulatory requirements and commenced
operations.
F-9
SIEBERT FINANCIAL CORP. AND SUBSIDIARIES
NOTE B - INVESTMENT IN AFFILIATE (CONTINUED)
Summarized financial data of SBS is as follows:
2001 2000 1999
---- ---- ----
Total assets $ 8,351,000 $ 3,413,000 $ 10,519,000
Total liabilities including subordinated liabilities of
$1,200,000, $1,200,000 and $6,200,000 2,991,000 2,807,000 9,143,000
Total members' capital 5,360,000 605,000 1,376,000
Total revenues 13,968,000 5,568,000 6,535,000
Net income (loss) 4,755,000 (661,000) 204,000
During 2001, 2000 and 1999, Siebert charged SBS $240,000, $240,000 and $265,000
respectively, for rent and general and administrative services, which Siebert
believes approximates the cost of furnishing such services.
Undistributed earnings from SBS amounts to $2,234,000 at December 31, 2001.
NOTE C - SUBORDINATED BORROWINGS AND SECURED DEMAND NOTE RECEIVABLE
In 1999, Siebert returned $2,000,000 of secured demand notes receivable and
$1,000,000 in cash in exchange for the cancellation of $3,000,000 of
subordinated notes payable. Interest paid on subordinated borrowings was
$120,000 in 1999.
The subordinated borrowings were available in computing net capital under the
Securities and Exchange Commission's (the "SEC") Uniform Net Capital Rule.
NOTE D - FURNITURE, EQUIPMENT AND LEASEHOLD IMPROVEMENTS, NET
Furniture, equipment and leasehold improvements consist of the following:
December 31,
------------
2001 2000
---- ----
Equipment $ 2,179,000 $ 2,077,000
Leasehold improvements 536,000 504,000
Furniture and fixtures 188,000 196,000
------------- -------------
2,903,000 2,777,000
Less accumulated depreciation and amortization 1,200,000 821,000
------------- -------------
$ 1,703,000 $ 1,956,000
============= =============
Depreciation and amortization expense for the years ended December 31, 2001,
2000 and 1999 amounted to $584,000, $402,000 and $264,000, respectively.
F-10
SIEBERT FINANCIAL CORP. AND SUBSIDIARIES
NOTE E - INCOME TAXES
Income tax expense consists of the following:
Year Ended December 31,
2001 2000 1999
Federal income tax provision (benefit):
Current $ 1,442,000 $ 4,194,000 $ 2,388,000
Deferred (203,000)
-------------- -------------- --------------
1,239,000 4,194,000 2,388,000
-------------- -------------- --------------
State and local tax provision (benefit):
Current 710,000 1,662,000 946,000
Deferred (100,000)
-------------- -------------- --------------
610,000 1,662,000 946,000
-------------- -------------- --------------
Total tax provision (benefit):
Current 2,152,000 5,856,000 3,334,000
Deferred (303,000)
-------------- -------------- --------------
$ 1,849,000 $ 5,856,000 $ 3,334,000
============== ============== ==============
A reconciliation between the income tax expense and income taxes computed by
applying the statutory Federal income tax rate to income before taxes is as
follows:
Year Ended December 31,
2001 2000 1999
---- ---- ----
Expected income tax provision at statutory Federal
tax rate $ 1,475,000 $ 4,711,000 $ 2,699,000
State and local taxes, net of Federal tax effect 374,000 1,145,000 635,000
--------------- --------------- ---------------
Income tax expense $ 1,849,000 $ 5,856,000 $ 3,334,000
=============== =============== ===============
Deferred income taxes reflect the impact of temporary differences between the
amounts of assets and liabilities for financial reporting purposes and the tax
treatments of such amounts. The principal items giving rise to deferred tax
assets (liabilities) are as follows:
December 31,
2001 2000
Net operating loss carryforward of acquired companies $ 485,000 $ 511,000
Assets of acquired companies (974,000) (1,303,000)
-------------- ---------------
$(489,000) $ (792,000)
========== ===============
Management believes that it is more likely than not that the deferred tax asset
will be realized, and therefore no valuation allowance has been provided.
Net operating loss carryforwards of acquired companies amounting to $1,115,000
expire through 2020, utilization of which is subject to annual limitations under
Section 382 of the Internal Revenue Code. During 2001, the Company realized a
tax benefit of $26,000 relating to utilization of net operating loss
carryforwards.
F-11
SIEBERT FINANCIAL CORP. AND SUBSIDIARIES
NOTE E - INCOME TAXES (CONTINUED)
In 2001, 2000 and 1999, the Company reduced current taxes payable by $14,000,
$57,000 and $3,155,000, respectively, resulting from the deductibility of the
difference between the exercise price of nonqualifying stock options granted by
the Company and the market value of the stock on the dates of exercise. The tax
benefit was recorded as a credit to paid-in capital.
NOTE F - STOCKHOLDERS' EQUITY
Siebert is subject to the SEC'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. At
December 31, 2001 and 2000, Siebert had net capital of approximately $20,900,000
and $17,980,000, respectively, as compared with net capital requirements of
$250,000. Siebert claims exemption from the reserve requirement under Section
15c3-3(k)(2)(ii).
The principal shareholder waived her right to receive her portion of dividends
declared in 1999 and 2000.
On January 15, 1999, the Company completed a rights offering in which
shareholders received one right to purchase one share of the Company's common
stock at $7.50 for each share that they owned; approximately 961,000 rights were
exercised raising approximately $6,900,000 after the payment of offering
expenses of approximately $270,000.
The 1998 Restricted Stock Award Plan (the "Award Plan"), provides for awards of
not more than 60,000 shares of the Company's common stock, subject to
adjustments for stock splits, stock dividends and other changes in the Company's
capitalization, to key employees, to be issued either immediately after the
award or at a future date. As provided in the Award Plan and subject to
restrictions, shares awarded may not be disposed of by the recipients for a
period of one year from the date of the award. Cash dividends on shares awarded
are held by the Company for the benefit of the recipients and are paid upon
lapse of the restrictions.
During 1998 and 1999, respectively, the Company awarded employees 38,000 and
3,400 shares under the Award Plan, net of forfeiture of 7,200 and 850 shares.
The shares, which vest one year from the dates of grant, were valued at market
value on the dates of grant and are being charged to expense over the vesting
periods. The Company recorded non-cash compensation charges of $50,000 and
$40,000 in 1999 and 2000, respectively, relating to the shares awarded under the
Award Plan.
On May 15, 2000, the Board of Directors of the Company authorized a buy back of
up to one million shares of common stock. Shares will be purchased from time to
time in the open market and in private transactions. Through December 31, 2001,
542,800 shares were purchased at an average price of $5.04.
NOTE G - OPTIONS
The Company's 1997 Stock Option Plan (the "Plan") authorizes the grant of
options to purchase up to an aggregate of 2,100,000 shares, subject to
adjustment in certain circumstances. Both non-qualified options and options
intended to qualify as "Incentive Stock Options" under Section 422 of the
Internal Revenue Code, as amended, may be granted under the Plan. A Stock Option
Committee of the Board of Directors administers the Plan. The committee has the
authority to determine when options are granted, the term during which an option
may be exercised (provided no option has a term exceeding 10 years), the
exercise price and the exercise period. The exercise price shall generally be
not less than the fair market value on the date of grant. No option may be
granted under the Plan after December 2007. Generally, employee options vest 20%
per year for five years and expire ten years from the date of grant.
F-12
SIEBERT FINANCIAL CORP. AND SUBSIDIARIES
NOTE G - OPTIONS (CONTINUED)
A summary of the Company's stock option transactions for the three years ended
December 31, 2001 is presented below:
2001 2000 1999
---- ---- ----
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
------ ----- ------ ----- ------ -----
Outstanding - beginning of year 494,600 $3.93 521,700 $ 4.15 870,800 $ 2.39
Granted 350,000 $5.33 34,500 $ 27.33
Forfeited (23,920) $3.57 (5,600) $ 22.35 (63,360) $ 2.31
Exercised (20,860) $2.31 (21,500) $ 2.70 (320,240) $ 2.31
---------- ---------- ----------
Outstanding - end of year 799,820 $5.62 494,600 $ 3.93 521,700 $ 4.15
========== ========== ======== ==========
Exercisable at end of year 309,800 $3.32 182,250 $ 3.02 53,840 $ 2.69
========== ========== ======== ==========
Weighted average fair value
of options granted $3.99 $ 12.13
The following table summarizes information related to options outstanding at
December 31, 2001:
Options Outstanding Options Exercisable
------------------- -------------------
Weighted Weighted
Range Weighted Average Average Average
Exercise Number Remaining Exercise Number Exercise
Prices Outstanding Contractual Life Price Exercisable Price
------ ----------- ---------------- ----- ----------- -----
$ 2.31 388,000 5.42 Years $ 2.31 277,200 $ 2.31
$ 2.69 36,320 6.08 Years $ 2.69 17,600 $ 2.69
$ 5.33 340,000 9.08 Years $ 5.33
$ 6.63 8,000 6.83 Years $ 6.63 4,000 $ 6.63
$17.81 7,500 7.25 Years $17.81 3,000 $17.81
$32.50 20,000 7.33 Years $32.50 8,000 $32.50
------------ -----------
$2.31 - $32.50 799,820 7.12 Years $ 5.62 309,800 $ 3.32
============ ===========
The fair value of stock options is estimated at the grant date using the
Black-Scholes option pricing model with the following weighted average
assumptions.
2001 1999
---- ----
Risk free interest rate 4.98% 5.11%
Expected life of options in years 10.00 3.00
Expected dividend yield 0.00% 0.47%
Expected volatility 62.00% 62.00%
F-13
SIEBERT FINANCIAL CORP. AND SUBSIDIARIES
NOTE G - OPTIONS (CONTINUED)
The Company applies APB Opinion 25 and related Interpretations in accounting for
its employee/director option grants. Accordingly, no compensation cost has been
recognized for its stock option grants. The pro forma effect of applying SFAS
No. 123 on net income for the years ended December 31, 2001, 2000 and 1999 is
not necessarily representative of the effects on reported net income for future
years due to, among other things, (1) the vesting period of stock options and
(2) the fair value of additional stock options in future years. Had compensation
costs for the Company's stock option grants been determined based on the fair
value at the grant dates for awards, the Company's net income and earnings per
share would have reduced to the pro forma amounts indicated below.
Year Ended December 31,
-----------------------
2001 2000 1999
---- ---- ----
Net income As reported $2,488,000 $7,999,000 $4,603,000
Pro forma $2,217,000 $7,750,000 $4,334,000
Net income per share - basic As reported $.11 $.35 $.20
Pro forma $.10 $.34 $.19
Net income per share -diluted As reported $.11 $.34 $.20
Pro forma $.10 $.33 $.19
At December 31, 2001, approximately 1,739,000 shares of the Company's common
stock have been reserved for future issuance under the Plan, the Award Plan and
for options granted to directors.
NOTE H - FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK AND CONCENTRATIONS
OF CREDIT RISK
In the normal course of 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
statement of financial condition.
Retail customer transactions are cleared through clearing brokers on a fully
disclosed basis. In the event that customers are unable to 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 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 in the
event customers and other counterparties are unable to fulfill contractual
obligations. Securities transactions entered into as of December 31, 2001
settled with no adverse effect on Siebert's financial condition.
F-14
SIEBERT FINANCIAL CORP. AND SUBSIDIARIES
NOTE I - COMMITMENTS AND CONTINGENT LIABILITIES
The Company rents office space under long-term operating leases expiring in
various periods through 2005. These leases call for base rent plus escalations
for taxes and operating expenses.
Future minimum base rental payments under these operating leases are as follows:
Year Ending
December 31, Amount
2002 $ 696,000
2003 351,000
2004 223,000
2005 223,000
-------------
$ 1,493,000
=============
Rent expense, including escalations for operating costs, amounted to
approximately $905,000, $583,000 and $376,000 for the years ended December 31,
2001, 2000 and 1999, respectively. Rent is being charged to expense over the
entire lease term on a straight-line basis.
Siebert is party to certain claims, suits and complaints arising in the ordinary
course of business. In the opinion of management, all such claims, suits and
complaints are without merit, or involve amounts which would not have a
significant effect on the financial position of the Company.
Siebert sponsors a defined contribution retirement plan under Section 401(k) of
the Internal Revenue Code that covers substantially all employees. Participant
contributions to the plan are voluntary and are subject to certain limitations.
Siebert may also make discretionary contributions to the plan. No contributions
were made by Siebert in 2001, 2000 and 1999.
Siebert executed a demand note payable in favor of SBS in the amount of
$1,200,000 collaterized by approximately $1,300,000 of cash equivalents which
are reported as "cash equivalents - restricted". This obligation is not included
in the Company's statement of financial condition because it has not been drawn
down by SBS.
NOTE J - FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts reflected in the consolidated statements of financial
condition for cash, cash equivalents, receivable from broker, accounts payable
and accrued liabilities approximate fair value due to the short term maturities
of those instruments. Securities owned and securities sold, not yet purchased
are carried at market value, in accordance with industry practice for
broker-dealers in securities.
F-15
SIEBERT FINANCIAL CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE K - SUMMARIZED QUARTERLY FINANCIAL DATA (UNAUDITED)
2001 2000
---- ----
First Second Third Fourth First Second Third Fourth
Quarter Quarter Quarter Quarter Quarter Quarter Quarter Quarter
------- ------- ------- ------- ------- ------- ------- -------
Revenues $9,862,000 $8,555,000 $6,974,000 $6,629,000 $13,621,000 $10,598,000 $9,999,000 $10,122,000
Net income $ 803,000 $1,031,000 $ 225,000 $ 429,000 $ 3,206,000 $ 1,754,000 $1,754,000 $ 1,285,000
Earnings per share:
Basic $0.04 $0.05 $0.01 $0.02 $0.14 $0.08 $0.08 $0.06
Diluted $0.04 $0.05 $0.01 $0.02 $0.14 $0.08 $0.08 $0.06
F-16
INDEPENDENT AUDITORS' REPORT
Board of Managers
Siebert, Brandford, Shank & Co., L.L.C.
New York, New York
We have audited the accompanying statements of financial condition of Siebert,
Brandford, Shank & Co., L.L.C. as of December 31, 2001 and 2000 and the related
statements of operations, changes in members' capital, and cash flows for each
of the years in the three-year period ended December 31, 2001. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatements. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements enumerated above present fairly, in all
material respects, the financial position of Siebert, Brandford, Shank & Co.,
L.L.C. as of December 31, 2001 and 2000 and the results of its operations and
its cash flows for each of the years in the three-year period ended December 31,
2001 in conformity with accounting principles generally accepted in the United
States of America.
Richard A. Eisner & Company, LLP
New York, New York
February 20, 2002
F-17
SIEBERT, BRANDFORD, SHANK & CO., L.L.C.
Statements of Financial Condition
December 31,
------------
2001 2000
---- ----
ASSETS
Cash and cash equivalents $ 3,159,799 $ 1,578,293
Securities owned, at market value 2,065,717
Accounts receivable 1,714,607 423,158
Secured demand note 1,200,000 1,200,000
Furniture, equipment and leasehold improvements, net 87,784 76,509
Other assets 123,437 134,555
-------------- --------------
$ 8,351,344 $ 3,412,515
============== ==============
LIABILITIES AND MEMBERS' CAPITAL
Liabilities:
Payable to broker-dealer $ 6,904
Payable to member 76,350 $ 684,773
Accounts payable and accrued expenses 1,708,165 922,356
-------------- --------------
1,791,419 1,607,129
Subordinated debt 1,200,000 1,200,000
Members' capital 5,359,925 605,386
-------------- --------------
$ 8,351,344 $ 3,412,515
============== ==============
See notes to financial statements
F-18
SIEBERT, BRANDFORD, SHANK & CO., L.L.C.
Statements of Operations
Year Ended December 31,
-----------------------
2001 2000 1999
---- ---- ----
Revenues:
Investment banking $ 13,552,953 $ 5,035,926 $ 5,951,419
Trading profits 210,402 269,099 375,655
Interest and other 204,167 263,004 208,194
----------------- -------------- --------------
13,967,522 5,568,029 6,535,268
----------------- -------------- --------------
Expenses:
Employee compensation and benefits 6,611,201 3,827,488 3,941,264
Clearing fees 45,343 53,332 63,159
Communications 205,287 236,663 249,795
Occupancy 433,491 379,453 265,542
Professional fees 319,331 167,007 245,595
Interest 153,315 296,561 201,145
General and administrative 1,445,015 1,268,859 1,365,140
----------------- -------------- --------------
9,212,983 6,229,363 6,331,640
----------------- -------------- --------------
Net income (loss) $ 4,754,539 $ (661,334) $ 203,628
================= ============== ==============
See notes to financial statements
F-19
SIEBERT, BRANDFORD, SHANK & CO., L.L.C.
Statements of Changes in Members' Capital
Balance - January 1, 1999 $ 2,549,660
Distribution to members (1,377,296)
Net income 203,628
---------------
Balance - December 31, 1999 1,375,992
Distribution to members (109,272)
Net loss (661,334)
---------------
Balance - December 31, 2000 605,386
Net income 4,754,539
---------------
Balance - December 31, 2001 $ 5,359,925
===============
See notes to financial statements
F-20
SIEBERT, BRANDFORD, SHANK & CO., L.L.C.
Statements of Cash Flows
Year Ended December 31,
-----------------------
2001 2000 1999
---- ---- ----
Cash flows from operating activities:
Net income (loss) $ 4,754,539 $ (661,334) $ 203,628
Adjustments to reconcile net income (loss) to net cash provided
by (used in) operating activities:
Depreciation and amortization 51,892 47,166 33,071
Changes in:
Securities owned, at market value (2,065,717) 2,627,667 (1,723,433)
Accounts receivable (1,291,449) (63,571) 251,890
Receivable from/payable to member (608,423) 261,801 514,240
Other assets 11,118 (8,695) (35,652)
Accounts payable and accrued expenses 785,809 425,922 (1,193,755)
Payable to broker-dealer 6,904 (2,023,631) 1,229,205
--------------- --------------- ---------------
Net cash provided by (used in) operating activities 1,644,673 605,325 (720,806)
--------------- --------------- ---------------
Cash flows from investing activities:
Purchase of property and equipment (63,167) (33,085) (44,408)
--------------- --------------- ---------------
Cash flows from financing activities:
Borrowings of subordinated loans 4,000,000 10,000,000
Repayments of subordinated loans (4,000,000) (5,000,000) (5,000,000)
Distribution to members (109,272) (1,377,296)
--------------- --------------- ---------------
Net cash provided by (used in) financing activities 0 (5,109,272) 3,622,704
--------------- ---------------- ---------------
Net increase (decrease) in cash and cash equivalents 1,581,506 (4,537,032) 2,857,490
Cash and cash equivalents - beginning of year 1,578,293 6,115,325 3,257,835
--------------- --------------- ---------------
Cash and cash equivalents - end of year $ 3,159,799 $ 1,578,293 $ 6,115,325
=============== =============== ===============
Supplemental disclosures of cash flow information:
Taxes paid $ 34,672 $ 55,090 $ 67,311
Interest paid $ 153,315 $ 296,561 $ 201,145
See notes to financial statements
F-21
SIEBERT, BRANDFORD, SHANK & CO., L.L.C.
Notes to Financial Statements
December 31, 2001
NOTE A - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
[1] Organization and basis of presentation:
Siebert, Brandford, Shank & Co., L.L.C. ("SBS" or the "Company"), was
formed on March 10, 1997 to engage in the business of tax-exempt
underwriting and related trading activities. The Company qualifies as a
Minority and Women's Business Enterprise in certain states.
The Company was formed to succeed the tax-exempt underwriting activities
business of the Siebert, Brandford, Shank Division of Muriel Siebert &
Co., Inc. ("Siebert"), and commenced operations on July 1, 1998. Two
individuals (the "Principals") and Siebert are the equity members of the
Company. The business arrangement provides that profits will be shared
51% to the Principals and 49% to Siebert. Siebert invested $392,000 and
the Principals invested an aggregate of $408,000 as their share of the
members' capital of SBS.
[2] Security transactions:
Security transactions, commissions, revenues and expenses are recorded on
a trade date basis. Securities owned are valued at market value.
[3] Investment banking:
Investment banking revenues include gains and fees, net of syndicate
expenses, arising primarily from municipal bond offerings in which the
Company acts as an underwriter or agent. Investment banking management
fees are recorded on offering date, sales concessions on settlement date,
and underwriting fees at the time the underwriting is completed and the
income is reasonably determinable.
[4] Furniture, equipment and leasehold improvements, net:
Furniture and equipment is stated at cost and depreciation is calculated
using the straight-line method over the lives of the assets, generally
five years. Leasehold improvements are amortized over the period of the
lease.
[5] Cash equivalents:
For purposes of reporting cash flows, cash equivalents include money
market funds.
[6] Use of estimates:
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
[7] Income taxes:
The Company is not subject to federal income taxes. Instead, the members
are required to include in their income tax returns their respective
share of the Company's income. The Company is subject to tax in certain
state and local jurisdictions.
F-22
SIEBERT, BRANDFORD, SHANK & CO., L.L.C.
Notes to Financial Statements
December 31, 2001
NOTE B - SUBORDINATED DEBT AND SECURED DEMAND NOTE RECEIVABLE
The subordinated debt at December 31, 2001 and 2000 consists of a note under a
Secured Demand Note Collateral Agreement, as amended, payable to Siebert, in the
amount of $1,200,000, bearing 10% interest and due August 31, 2003. Interest
expense paid to Siebert for each of 2001, 2000, and 1999 amounts to $120,000.
The secured demand note receivable of $1,200,000 is due from Siebert and is
collateralized by cash equivalents of approximately $1,300,000 at December 31,
2001 and 2000. Interest earned on the collateral amounted to approximately
$69,000, $95,000 and $73,000 in 2001, 2000 and 1999, respectively.
The Company's Revolving Subordinated Loan Agreement with National Financial
Services Corporation in the amount of up to $5,000,000, bearing interest at the
rate of prime plus 2%, expired in May 2001 and all amounts outstanding have been
repaid. No amounts were outstanding as of December 31, 2000.
NOTE C - FURNITURE, EQUIPMENT AND LEASEHOLD IMPROVEMENTS, NET
Furniture, equipment and leasehold improvements consist of the following:
December 31,
------------
2001 2000
---- ----
Equipment $ 182,917 $ 162,246
Furniture and fixtures 39,398 23,466
Leasehold improvements 45,117 18,553
------------- -------------
267,432 204,265
Less accumulated depreciation and amortization 179,648 127,756
------------- -------------
$ 87,784 $ 76,509
============= =============
NOTE D - NET CAPITAL
The Company is subject to the Securities and Exchange Commission Uniform Net
Capital Rule 15c3-1, which requires the maintenance of minimum net capital and
requires that the ratio of aggregate indebtedness to net capital, both as
defined, shall not exceed 15 to 1. At December 31, 2001 and 2000, the Company
had net capital of $6,056,000 and $1,491,000, respectively, which was $5,937,000
and $1,384,000, respectively, in excess of its required net capital, and its
ratio of aggregate indebtedness to net capital was .29 to 1 and 1.08 to 1,
respectively. The Company claims exemption from the reserve requirements under
Section 15c-3-3(k)(2)(ii).
Subsequent to December 31, 2001, the Company distributed $820,000 to its
members.
F-23
SIEBERT, BRANDFORD, SHANK & CO., L.L.C.
NOTE E - COMMITMENTS AND CONTINGENCY
The Company rents office space under long-term operating leases expiring
through 2005. These leases call for base rent plus escalations for taxes and
operating expenses. Future minimum base rent under these operating leases are as
follows:
Year Amount
---- ------
2002 $ 310,252
2003 180,112
2004 53,389
2005 29,347
------------
$ 573,100
Rent expense including taxes and operating expenses for 2001, 2000 and 1999
amounted to $433,491, $379,453, and $265,542, respectively.
SBS, two of its three members and an affiliate of a member have been served in
an action relating primarily to a transaction of a firm with which two of the
members of SBS were affiliated prior to the formation of SBS. The parties have
filed a motion to dismiss the complaint. Based on knowledge of the allegations,
the Company is of the opinion that it is without merit and will not have a
material adverse effect on SBS.
NOTE F - OTHER
During 1999, 2000 and 2001, the Company was charged $265,000, $240,000 and
$240,000, respectively, by Siebert for rent and general and administrative
services.
F-24
SIGNATURES
In accordance with Section 13 or 15(d) 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
Date: March 28, 2002
In accordance with the Exchange Act, this report has been signed below
by the following persons on behalf of the registrant and in the capacities and
on the dates indicated.
Name Title Date
---- ----- ----
/s/ Muriel F. Siebert March 28, 2002
- --------------------------------------
Muriel F. Siebert Chair, President and Director
(principal executive officer)
/s/ Nicholas P. Dermigny March 28, 2002
- --------------------------------------
Nicholas P. Dermigny Executive Vice President,
Chief Operating Officer and
Director
/s/ Mitchell M. Cohen March 28, 2002
- --------------------------------------
Mitchell M. Cohen Chief Financial Officer
and Assistant Secretary
(principal financial and
accounting officer)
/s/ Daniel Jacobson March 28, 2002
- --------------------------------------
Daniel Jacobson Vice Chairman
/s/ Patricia L. Francy March 28, 2002
- --------------------------------------
Patricia L. Francy Director
/s/ Jane H. Macon March 28, 2002
- --------------------------------------
Jane H. Macon Director
/s/ Nancy S. Peterson March 28, 2002
- --------------------------------------
Nancy S. Peterson Director
SIEBERT FINANCIAL CORP. AND SUBSIDIARY
EXHIBIT INDEX
Exhibit No. Description of Document
- ----------- -----------------------
2.1 Plan and Agreement of Merger between J. Michaels, Inc. ("JMI") and Muriel
Siebert Capital Markets Group, Inc. ("MSCMG"), dated as of April 24, 1996
("Merger Agreement") (incorporated by reference to Siebert Financial
Corp.'s Form 10-K for the fiscal year ended December 31, 1996)
2.2 Amendment No. 1 to Merger Agreement, dated as of June 28, 1996
(incorporated by reference to Siebert Financial Corp.'s Form 10-K for the
fiscal year ended December 31, 1996)
2.3 Amendment No. 2 to Merger Agreement, dated as of September 30, 1996
(incorporated by reference to Siebert Financial Corp.'s Form 10-K for the
fiscal year ended December 31, 1996)
2.4 Amendment No. 3 to Merger Agreement, dated as of November 7, 1996
(incorporated by reference to Siebert Financial Corp.'s Form 10-K for the
fiscal year ended December 31, 1996)
3.1 Certificate of Incorporation of Siebert Financial Corp., formerly known
as J. Michaels, Inc. originally filed on April 9, 1934, as amended and
restated to date (incorporated by reference to Siebert Financial Corp.'s
Form 10-K for the fiscal year ended December 31, 1997)
3.2 By-laws of Siebert Financial Corp. (incorporated by reference to Siebert
Financial Corp.'s Registration Statement on Form S-1 (File No. 333-49843)
filed with the Securities and Exchange Commission on April 10, 1998)
10.1 Siebert Financial Corp. 1998 Restricted Stock Award Plan (incorporated by
reference to Siebert Financial Corp.'s Form 10-K for the fiscal year
ended December 31, 1997)
10.2 10(a) Siebert Financial Corp. 1997 Stock Option Plan (incorporated by
reference to Siebert Financial Corp.'s Form 10-K for the fiscal year
ended December 31, 1996)
10.4 LLC Operating Agreement, among Siebert, Brandford, Shank & Co., LLC,
Muriel Siebert & Co., Inc., Napoleon Brandford III and Suzanne F. Shank,
dated as of March 10, 1997 (incorporated by reference to Siebert
Financial Corp.'s Form 10-K for the fiscal year ended December 31, 1996)
10.5 Services Agreement, between Siebert, Brandford, Shank & Co., LLC and
Muriel Siebert & Co., Inc., dated as of March 10, 1997 (incorporated by
reference to Siebert Financial Corp.'s Form 10-K for the fiscal year
ended December 31, 1996)
10.6 Siebert Financial Corp. 1998 Restricted Stock Award Plan (incorporated by
reference to Siebert Financial Corp.'s Form 10-K for the fiscal year
ended December 31, 1997)
10.7 Stock Option Agreement, dated March 11, 1997, between the Company and
Patricia L. Francy (incorporated by reference to Siebert Financial
Corp.'s Registration Statement on Form S-8 (File No. 333-72939) filed
with the Securities and Exchange Commission on February 25, 1999)
10.8 Stock Option Agreement, dated March 11, 1997, between the Company and
Jane H. Macon (incorporated by reference to Siebert Financial Corp.'s
Registration Statement on Form S-8 (File No. 333-72939) filed with the
Securities and Exchange Commission on February 25, 1999)
10.9 Stock Option Agreement, dated March 11, 1997, between the Company and
Monte E. Wetzler (incorporated by reference to Siebert Financial Corp.'s
Registration Statement on Form S-8 (File No. 333-72939) filed with the
Securities and Exchange Commission on February 25, 1999)
10.10 Employment Agreement, dated as of April 9, 1999, between the Company and
Daniel Jacobson (incorporated by reference to Siebert Financial Corp.'s
Form 10-Q for the quarter ended September 30, 1999)
21 Subsidiaries of the registrant (incorporated by reference to Siebert
Financial Corp.'s Annual Report on Form 10-K for the year ended December
31, 2001
23 Consent of Independent Auditors