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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
[X] Quarterly report under Section 13 or 15(d) of the Securities Exchange Act
of 1934
For the quarterly period ended June 30, 2002
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[ ] Transition report under Section 13 or 15(d) of the Exchange Act
For the transition period from ____________ to ________________
Commission file number 0-5703
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Siebert Financial Corp.
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(Exact Name of Small Business Issuer as Specified in its Charter)
New York 11-1796714
(State or Other Jurisdiction of (IRS Employer
Incorporation or Organization) Identification No.)
885 Third Avenue, New York, NY 10022
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(Address of Principal Executive Offices)
(212) 644-2400
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(Issuer's Telephone Number, Including Area Code)
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(Former Name, Former Address and Former Fiscal Year, if Changed Since Last
Report)
Indicate by check mark whether the registrant: (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes _X_ No___
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Indicate by check mark whether the registrant has filed all documents
and reports required to be filed by Section 12,13 or 15(d) of the Securities and
Exchange of 1934 Act subsequent to the distribution of securities under a plan
confirmed by a court.
Yes ___ No___
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date: As of August 12, 2002,
there were 22,415,967 shares of Common Stock, par value $.01 per share,
outstanding.
Transitional Small Business Disclosure Format (check one):
Yes ___ No _X_
Unless the context otherwise requires, the "Company" or "Siebert"
shall mean Siebert Financial Corp. and its wholly owned subsidiaries.
The Company's quarterly and annual operating results are affected by a
wide variety of factors that could materially and adversely affect actual
results, including: changes in general economic and market conditions,
fluctuations in volume and prices of securities, changes and prospects for
changes in interest rates and demand for brokerage and investment banking
services, competition within and without the discount brokerage business through
broader services offerings or otherwise, competition from electronic discount
brokerage firms offering greater discounts on commissions than the Company,
prevalence of a flat fee environment, decline in participation in equity or
municipal finance underwritings, decreased ticket volume in the discount
brokerage industry, limited trading opportunities, increases in expenses,
changes in net capital or other regulatory requirements.
As a result of these and other factors, the Company may experience
material fluctuations in future operating results on a quarterly or annual
basis, which could materially and adversely affect its business, financial
condition, operating results, and stock price. Furthermore, this document and
other documents filed by the Company with the Securities and Exchange Commission
(the "SEC") contain certain forward-looking statements with respect to the
business of the Company. These forward-looking statements are subject to certain
risks and uncertainties, including those mentioned above, which may cause actual
results to differ significantly from these forward-looking statements. The
Company undertakes no obligation to publicly release the results of any
revisions to these forward-looking statements which may be made to reflect
events or circumstances after the date when such statements were made or to
reflect the occurrence of unanticipated events. An investment in the Company
involves various risks, including those mentioned above and those which are
detailed from time to time in the Company's SEC filings.
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
Siebert Financial Corp. & Subsidiaries
Consolidated Statements of Financial Condition
Rounded to whole thousands (000)
June 30, 2002 December 31,
(unaudited) 2001
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ASSETS
Cash and cash equivalents $24,323 $25,670
Cash equivalents - restricted 1,300 1,300
Receivable from clearing broker 1,545 1,572
Securities owned, at market value 5,713 6,079
Furniture, equipment and leasehold improvements, net 2,409 1,703
Investment in and advances to equity investee 1,753 2,702
Intangibles, net 2,809 2,250
Prepaid expenses and other assets 1,126 853
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$40,978 $42,129
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LIABILITIES AND STOCKHOLDERS' EQUITY
Securities sold, not yet purchased, at market value $ 4 $ 4
Deferred tax liability 305 489
Accounts payable and accrued liabilities 3,922 4,336
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4,231 4,829
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Commitments and contingent liabilities
Stockholders' equity:
Common stock, $.01 par value; 49,000,000 shares authorized, 22,968,167 and
22,932,047 shares issued and 22,419,367 and 22,389,247
shares outstanding at June 30, 2002 and December 31, 2001, respectively 229 229
Additional paid-in capital 17,880 17,796
Retained earnings 21,397 22,010
Less: 548,800 and 542,800 shares of treasury stock, at cost at June 30, 2002
and December 31, 2001, respectively (2,759) (2,735)
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36,747 37,300
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$40,978 $42,129
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See notes to consolidated financial statements.
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Siebert Financial Corp. & Subsidiaries
Consolidated Statements of Operations
(unaudited) Rounded to whole thousands (000)
except for per share and number of shares information
Three Months Ended Six Months Ended
June 30, June 30,
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2002 2001 2002 2001
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Revenues:
Commissions and fees $5,072 $6,192 $10,297 $14,599
Investment banking 278 910 802 1,100
Trading profits 316 203 527 474
Income from equity investee 503 884 625 1,458
Interest and dividends 202 366 340 786
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6,371 8,555 12,591 18,417
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Expenses:
Employee compensation and benefits 2,226 2,559 4,578 5,635
Clearing fees, including floor brokerage 938 1,068 1,870 2,371
Advertising and promotion 682 929 1,094 1,945
Communications 592 754 1,142 1,553
Occupancy 224 238 461 497
Interest - 2 1 9
Other general and administrative 3,199 1,116 4,498 3,058
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7,861 6,666 13,644 15,068
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Income (loss) before income taxes (1,490) 1,889 (1,053) 3,349
Provision (benefit) for income taxes (622) 858 (440) 1,516
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Net Income (loss) ($868) $1,031 ($613) $1,833
======================================================
Net income (loss) per share of common stock -
Basic and Diluted $(.04) $.05 $(.03) $.08
Weighted average shares outstanding -
Basic 22,406,220 22,483,438 22,397,828 22,432,910
Weighted average shares outstanding -
Diluted 22,406,220 22,760,996 22,397,828 22,716,446
See notes to consolidated financial statements.
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Siebert Financial Corp. & Subsidiaries
Consolidated Statements of Cash Flows
(unaudited) Rounded to whole thousands (000)
Six Months Ended
June 30,
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2002 2001
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Cash flows from operating activities:
Net income (loss) ($ 613) $ 1,833
Adjustments to reconcile net income (loss) to net cash used in
operating activities:
Depreciation and amortization 805 635
Income from equity investee (625) (1,458)
Changes in operating assets and liabilities:
Net decrease (increase) in securities owned, at market value 366 (127)
Net decrease (increase) in receivable from clearing broker 27 (2,294)
(Increase) decrease in prepaid expenses and other assets (273) 183
Net increase in securities sold, not yet purchased,
at market value -- 6
Net increase in deferred tax liability (184) --
Decrease in accounts payable and accrued liabilities (414) (9)
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Net cash used in operating activities (911) (1,231)
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Cash flows from investing activities:
Purchase of furniture, equipment and leasehold improvements (1,070) (235)
Purchase of customer accounts from TradeStation Securities, Inc. (1,000) --
Distribution from equity investee 1,566 --
Net repayment of advances to equity investee 8 420
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Net cash (used in) provided by investing activities (496) 185
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Cash flows from financing activities:
Proceeds from exercise of options 84 2
Repurchase of common stock (24) (1,483)
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Net cash provided by (used in) financing activities 60 (1,481)
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Net decrease in cash and cash equivalents (1,347) (2,527)
Cash and cash equivalents - beginning of period 25,670 26,370
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Cash and cash equivalents - end of period $ 24,323 $ 23,843
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Supplemental cash flow disclosures:
Cash paid for:
Interest $ 1 $ 9
Income taxes $ 305 $ 793
See notes to consolidated financial statements.
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Siebert Financial Corp. & Subsidiaries
Notes to Consolidated Financial Statements
Six Months Ended June 30, 2002 and 2001
(Unaudited)
1. Organization and Basis of Presentation:
The consolidated financial statements include the accounts of Siebert
Financial Corp. (the "Company") and its wholly owned subsidiaries Muriel
Siebert & Co., Inc. ("Siebert") and Siebert Women's Financial Network, Inc.
("WFN"). All material intercompany balances have been eliminated. The
statements are unaudited; however, in the opinion of management, all
adjustments considered necessary to reflect fairly the Company's financial
position and results of operations, consisting of normal recurring
adjustments, have been included.
The accompanying consolidated financial statements do not include all of
the information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles. Accordingly, the statements should be read in conjunction with
the audited financial statements included in the Company's Annual Report on
Form 10-K for the year ended December 31, 2001. Because of the nature of
the Company's business, the results of any interim period are not
necessarily indicative of results for a full year.
2. Net Capital:
Siebert is subject to the Securities and Exchange Commission's Uniform Net
Capital Rule (Rule 15c3-1), which requires the maintenance of minimum net
capital. Siebert has elected to use the alternative method, permitted by
the rule, which requires that Siebert maintain minimum net capital, as
defined, equal to the greater of $250,000 or two percent of aggregate debit
balances arising from customer transactions, as defined. (The net capital
rule of the New York Stock Exchange also provides that equity capital may
not be withdrawn or cash dividends paid if resulting net capital would be
less than five percent of aggregate debits.) As of June 30, 2002, Siebert
had net capital of approximately $19,100,000 as compared with net capital
requirements of $250,000.
3. Capital Transactions:
On May 15, 2000, the board of directors of the Company authorized a stock
buy back program of up to one million common shares. Shares will be
purchased from time to time in the open market and in private transactions.
Through June 30, 2002, 548,800 shares have been purchased at an average
price of $5.03 per share.
4. Recent Developments
On April 30, 2002, Siebert signed a Strategic Alliance Agreement with
Intuit Inc. ("Intuit) to offer a full line of online and telephone based
brokerage services to customers of Quicken and Quicken.com (the
"Alliance"). Pursuant to the Alliance, Siebert and Intuit will share the
revenue from, and certain expenses of, the Alliance. During the three
months ended June 30, 2002, Siebert recognized as an expense one-time
start-up costs of $1,346,000 for advisory and legal fees, and costs of
$948,000 for the development and marketing of the Alliance.
On April 30, 2002, Siebert signed a fully disclosed clearing agreement (the
"Clearing Agreement") with the Pershing Division of Donaldson, Lufkin, &
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Jenrette Securities Corporation ("Pershing"). Pursuant to the Clearing
Agreement and the Alliance, Siebert and Intuit will advance Pershing
$1,500,000 which they are entitled to recoup from Pershing in equal
installments, without interest, over the initial three years of the
Clearing Agreement. In addition, Siebert and Intuit will incur one-time
charges aggregating approximately $423,000 for the setup of the
Alliance's website and related matters. Siebert and Intuit will share
equally in the advance and the one-time charges. As of June 30, 2002, the
advance and one-time charges have not been billed by or paid to Pershing.
5. Account Purchases:
In May 2002 Siebert agreed to acquire certain retail discount brokerage
accounts from TradeStation Securities, Inc.'s. In July 2002, Siebert
agreed to acquire the retail brokerage accounts of the Boca Raton office
of State Discount Brokers, Inc. These accounts will be serviced from
Siebert's Boca Raton office when the transfers are completed in August
2002 and October 2002, respectively. As of June 30, 2002, the purchase
price for the TradeStation customer accounts has been recorded in
"Intangibles" and will be amortized over a three-year period.
6. New Accounting Standards:
In June 2001, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 141, "Business Combinations." SFAS No. 141 requires that the
purchase method of accounting be used for all business combinations
initiated after June 30, 2001. This statement specifies that certain
acquired intangible assets in a business combination be recognized as
assets separately from goodwill and that existing intangible assets and
goodwill be evaluated for these new separation requirements. The adoption
of this standard did not have a material impact on the Company's
consolidated financial position or results of operations.
In June 2001, the FASB issued SFAS No. 142, "Goodwill and Other Intangible
Assets." SFAS No. 142 changes the accounting for goodwill from an
amortization method to an impairment-only approach. Amortization of
goodwill, including goodwill recorded in past business combinations, will
cease upon adoption of this statement. In addition, this statement
requires that goodwill be tested for impairment at least annually at the
reporting unit level. The Company implemented SFAS No. 142 on January 1,
2002. Implementation of this statement did not have a material impact on
the Company's consolidated financial position or results of operations.
In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset
Retirement Obligations." This statement addresses financial accounting and
reporting for obligations associated with the retirement of tangible
long-lived assets and the associated asset retirement costs. The Company
is required to implement SFAS No. 143 on January 1, 2003. Management does
not expect this statement to have a material impact on the Company's
consolidated financial position or results of operations.
In August 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets." This statement 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. Implementation of this statement did not have a material
impact on the Company's consolidated financial position or results of
operations.
In April 2002, the FASB issued SFAS No. 145 "Rescission of FASB
Statements No. 4, 44 and 64, Amendment of FASB Statement No 13, and
Technical Corrections." SFAS No. 145 rescinds SFAS No. 4, "Reporting
Gains and Losses from Extinguishment of Debt," SFAS No. 64,
"Extinguishments of Debt Made to Satisfy Sinking-Fund Requirements," and
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SFAS No. 44, "Accounting for Intangible Assets of Motor Carriers." SFAS
No. 145 also amends SFAS No. 13, "Accounting for Leases," to eliminate an
inconsistency between the required accounting for sale-leaseback
transactions and the required accounting for certain lease modifications
that have economic effects that are similar to sale-leaseback
transactions. SFAS No. 145 also amends other existing authoritative
pronouncements to make various technical corrections, clarify meanings or
describe their applicability under changed conditions. The provisions of
SFAS No. 145 related to the rescission of SFAS No. 4 are effective for
fiscal years beginning after May 15, 2002. The provisions of SFAS No. 145
related to SFAS No. 13 are effective for transactions occurring after May
15, 2002. All other provisions of SFAS No. 145 are effective for
financial statements issued on or after May 15, 2002. Early application
of the provisions of SFAS No. 145 is encouraged and may be as of the
beginning of the fiscal year or as of the beginning of the interim period
in which SFAS No. 145 was issued. The Company adopted the provisions of
SFAS No. 145 during the quarter ended June 30, 2002. Adoption of SFAS No.
145 did not have a material effect on the Company's financial condition,
results of operations or liquidity.
7. Siebert, Brandford, Shank & Co., LLC:
Summarized financial data (presented in thousands) of Siebert, Brandford,
Shank & Co., LLC, ("SBS") as of and for the six months ended June 30 is as
follows. Siebert holds a 49% ownership interest in SBS.
2002 2001
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Total assets $12,192 $6,085
Total liabilities, including subordinated liabilities of
$1,200 $8,752 $2,505
Total members' capital $3,439 $3,580
Total revenues $5,514 $7,350
Net income $1,276 $2,974
Siebert charged SBS $120,000 during each period for rent and general and
administrative services, which Siebert believes approximates the cost of
furnishing such services.
Siebert's share of undistributed earnings from SBS amounted to $1,293,000
and $1,362,000 at June 30, 2002 and 2001 respectively.
8. Commitments and Contingent Liabilities:
The Company is involved in various routine lawsuits of a nature deemed by
the Company customary and incidental to its business. In the opinion of
management, the ultimate disposition of such actions will not have a
material adverse effect on its financial position or results of
operations.
Pursuant to the Clearing Agreement and the Alliance, Siebert and Intuit
will advance Pershing $1.5 million which they are entitled to recoup from
Pershing in equal installments, without interest, over the initial three
years of the Clearing Agreement. In addition, Siebert and Intuit will
incur one-time charges aggregating approximately $423,000 for the setup of
the Alliance's website and related matters. Siebert and Intuit will share
equally in the advance and the one-time charges. As of June 30, 2002, the
advance and one-time charges have not been billed by or paid to Pershing
(see Note 4).
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Item 2. Management's Discussion and Analysis or Plan of Operation.
This discussion should be read in conjunction with the Company's audited and the
unaudited Consolidated Financial Statements and the Notes thereto contained
elsewhere in this Quarterly Report.
Statements in this "Management's Discussion and Analysis" and elsewhere in this
document, as well as oral statements that may be made by the Company or by
officers, directors or employees of the Company acting on the Company's behalf,
that are not statements of historical or current fact constitute "forward
looking statements" within the meaning of the Private Securities Litigation
Reform Act of 1995. Such forward looking statements involve risks and
uncertainties and known and unknown factors that could cause the actual results
of the Company to be materially different from the historical results or from
any future results expressed or implied by such forward looking statements,
including, without limitation: changes in general economic and market
conditions, fluctuations in volume and prices of securities, changes and
prospects for changes in interest rates and demand for brokerage and investment
banking services, competition within and without the discount brokerage business
through broader services offerings or otherwise, competition from electronic
discount brokerage firms offering greater discounts on commissions than the
Company, prevalence of a flat fee environment, decline in participation in
equity or municipal finance underwritings, decreased ticket volume in the
discount brokerage industry, limited trading opportunities, increases in
expenses and changes in net capital or other regulatory requirements.
Critical Accounting Policies
The Company generally follows accounting policies standard in the brokerage
industry and believes that its policies appropriately reflect its financial
position and results of operations. Management has identified the use of
"Estimates" as its critical policy. The estimates relate primarily to revenue
and expense items in the normal course of business as to which no confirmations,
invoices or other documentation is received by the Company at the time the books
are closed for a period. The Company uses its best judgment, based on its
knowledge of revenue transactions and expenses incurred, to estimate the amounts
of such revenue and expense. The Company is not aware of any material
differences between the estimates used in closing its books for the last five
years and the actual amounts of revenue received and expenses incurred when the
actual confirmations, invoices or other documentation is subsequently received
by the Company. Estimates are also used in determining the useful lives of
tangible and intangible assets, and the fair market value of intangible assets.
Management believes that its estimates are reasonable.
Business Environment
The bear market continued unabated through the second quarter and into July. The
averages are near their post September 11, 2001 lows. Recent corporate and
accounting scandals also have taken a toll on the public's confidence in the
reliability of corporate information and the result has been a lack of interest
in buying stocks. Competition in the brokerage industry remains intense.
The Company, like other securities firms, is directly affected by general
economic and market conditions including fluctuations in volume and prices of
securities, changes and prospects for changes in interest rates and demand for
brokerage and investment banking services, all of which can affect the Company's
relative profitability. In periods of reduced market activity, profitability is
likely to be adversely affected because certain expenses, including salaries and
related costs, portions of communications costs and occupancy expenses remain
relatively fixed. Earnings, or loss, for any period should not be considered
representative of any other period.
-8-
Recent Developments
On April 30, 2002, Siebert signed a Strategic Alliance Agreement with Intuit
Inc. ("Intuit") to offer a full line of online and telephone based brokerage
services to customers of Quicken and Quicken.com (the "Alliance"). Pursuant to
the Alliance, Siebert and Intuit will share the revenue from and certain
expenses of the Alliance. During the three months ended June 30, 2002 Siebert
recognized as an expense one-time start-up costs of $1.3 million for advisory
and legal fees and costs of $948,000 for the development and marketing of the
new offering.
On April 30, 2002, Siebert signed a fully disclosed clearing agreement (the
"Clearing Agreement") with the Pershing Division of Donaldson, Lufkin, &
Jenrette Securities Corporation ("Pershing"). Pursuant to the Clearing Agreement
and the Alliance, Siebert and Intuit will advance Pershing $1.5 million which
they are entitled to recoup from Pershing in equal installments, without
interest, over the initial three years of the Clearing Agreement. In addition,
Siebert and Intuit will incur one-time charges aggregating approximately
$423,000 for the setup of the Alliance's website and related matters. Siebert
and Intuit will share equally in the advance and the one-time charges. As of
June 30, 2002, the advance and one-time charges have not been billed by or paid
to Pershing.
On May 15, 2000, the board of directors of the Company authorized the repurchase
of up to 1,000,000 shares of the Company's common stock. Shares will be
purchased from time to time, in the discretion of the Company, in the open
market and in private transactions. Through June 30, 2002, 548,800 shares have
been purchased at an average price of $5.03 per share. The Company intends to
continue acquiring shares pursuant to its stock repurchase program based upon
the price of the stock and in accordance with applicable rules and regulations.
Results of Operations
The Company's results of operations for the three and six months ended June 30,
2002 have been adversely impacted by the planned investment in the Alliance that
the Company believes provides a significant long-term growth opportunity for the
Company. The Company believes that its core business is performing well, given
the current difficult business environment for discount and online brokers.
The Company has reduced expenses in its WFN subsidiary for the three and
six-month periods ended June 30, 2002 by $199,000 and $470,000, respectively,
over the same periods in 2001. These expense reductions occurred primarily in
the "Advertising and Promotion" and "Communication" expense categories. The
Company anticipates making further reductions in the expenses of WFN later this
year.
Development and marketing costs for the next 12 months for the Alliance are
expected to exceed revenues generated from the new accounts, which may result in
losses for the Company.
Three Months Ended June 30, 2002 Compared to Three Months Ended June 30, 2001
Total revenues for the three months ended June 30, 2002 were $6.4 million, a
decrease of $2.2 million, or 26% over the same period in 2001.
Commission and fee income for the three months ended June 30, 2002 was $5.1
million, a decrease of $1.1 million or 18% over the same period in 2001 due to a
substantial reduction in trading volume as result of the bear market conditions
prevailing during 2002.
Investment banking revenues for the three months ended June 30, 2002 were
$278,000, a decrease of $632,000 or 69% over the same period in 2001 due to less
activity in the new issue market generally.
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Income from the Company's equity investee, Siebert, Brandford Shank & Co., LLC,
an entity in which the Company holds a 49% equity interest ("SBS"), for the
three months ended June 30, 2002 was $503,000 compared to income of $884,000, a
decrease of $381,000 or 43% over the same period in 2001 due to decreased
activity in the municipal bond market. SBS serves as an underwriter for
municipal bond offerings.
Trading profits were $316,000 for the three months ended June 30, 2002, an
increase of $113,000 or 56% over the same period in 2001 due to increased
transactional volume in fixed-income securities.
Interest and dividends for the three months ended June 30, 2002 were $202,000, a
decrease of $164,000 or 45% over the same period in 2001 primarily due to
slightly lower cash balances available for temporary investment coupled with
lower interest rates.
Total expenses for the three months June 30, 2002 were $7.9 million, an increase
of $1.2 million or 18% over the same period in 2001.
Employee compensation and benefit costs for the three months ended June 30, 2002
were $2.2 million, a decrease of $333,000 or 13% over the same period in 2001.
This decrease was primarily due to a decrease in personnel due to the low
trading volumes, a decrease in commission payouts and a decrease in
discretionary payments to employees.
Clearing and floor brokerage fees for the three months ended June 30, 2002 were
$938,000, a decrease of $130,000 or 12% over the same period in 2001 primarily
due to the decreased volume of trade executions.
Advertising and promotion expenses for the three months ended June 30, 2002 were
$682,000, a decrease of $247,000 or 27% over the same period in 2001 due to
decreased advertising and promotion expenditures by Siebert that were offset, in
part, by an increase in promotional expenses for the Alliance.
Communications expense for the three months ended June 30, 2002, was $592,000, a
decrease of $162,000 or 21% over the same period in 2001 due primarily to the
lower volume of call traffic as a result of low trading volumes and savings
derived from the phased installation of a new telephone system starting in 2001.
Occupancy costs for the three months ended June 30, 2002 was $224,000, a
decrease of $14,000 or 6% over the same period in 2001. This decrease was due
primarily due to the closure of the Freemont, California branch office, as well
as the consolidation of office space in New York City as a result of taking
additional office space in Jersey City, New Jersey.
Other general and administrative expenses were $3.2 million, an increase of $2.1
million or 187% from the same period in 2001. This increase was primarily the
result of the one-time start-up costs of $1.3 million for advisory and legal
fees incurred in connection with the Alliance and costs of $541,000 for the
development of the full line of online and telephone based brokerage services
pursuant to the Alliance to customers of Quicken and Quicken.com. This increase
was offset, in part, by net savings in other general and administrative expense
categories.
For the three months ended June 30, 2002, there was a tax benefit of $622,000
due to the Company's loss before income tax of $1.5 million. For the three
months ended June 30, 2001, the provision for income taxes was $858,000.
Six Months Ended June 30, 2002 Compared to Six Months Ended June 30, 2001
Total revenues for the six months ended June 30, 2002 were $12.6 million, a
decrease of $5.8 million, or 32%, over the same period in 2001.
Commission and fee income for the six months ended June 30, 2002 was $10.3
million, a decrease of $4.3 million or 30% over the same period in 2001 due to a
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substantial reduction in trading volume as result of the bear market conditions
prevailing during 2002.
Investment banking revenues for the six months ended June 30, 2002 were
$802,000, a decrease of $298,000 or 27% over the same period in 2001 due to
decreased activity in the new issue market generally.
Income from the Company's equity investee, SBS, for the six months ended June
30, 2002 was $625,000, compared to income of $1.5 million for the six months
ended June 30, 2001 due to depressed municipal bond market conditions.
Trading profits for the six months ended June 30, 2002 were $527,000, an
increase of $53,000 or 11% over the same period in 2001.
Interest and dividends for the six months ended June 30, 2002 were $340,000, a
decrease of $446,000 or 57% over the same period in 2001 primarily due to
slightly lower cash balances available for temporary investment coupled with
lower interest rates.
Total expenses for the six months June 30, 2002 were $13.6 million, a decrease
of $1.4 million or 9% over the same period in 2001.
Employee compensation and benefit costs for the six months ended June 30, 2002
were $4.6 million, a decrease of $1.1 million or 19% over the same period in
2001. This decrease was primarily due to a decrease in personnel due to the low
trading volumes, a decrease in commission payouts and a decrease in
discretionary payments to employees.
Clearing and floor brokerage fees for the six months ended June 30, 2002 were
$1.9 million, a decrease of $501,000 or 21% over the same period in 2001
primarily due to the decreased volume of trade executions.
Advertising and promotion expenses for the six months ended June 30, 2002 were
$1.1 million, a decrease of $851,000 or 44% over the same period in 2001 due to
decreased advertising and promotion expenditures by Siebert that were offset, in
part, by an increase in promotional expenses for the Alliance.
Communications expense for the six months ended June 30, 2002 was $1.1 million,
a decrease of $411,000 or 26% over the same period in 2001 due primarily to the
lower volume of call traffic as a result of low trading volumes and savings
derived from the phased installation of a new telephone system during 2001.
Occupancy costs for the six months ended June 30, 2002 was $461,000, a decrease
of $36,000 or 7% over the same period in 2001. This decrease was due primarily
to the closure of the Freemont, California branch office, as well as the
consolidation of office space in New York City as a result of taking additional
office space in Jersey City, New Jersey.
Other general and administrative expenses were $4.5 million, an increase of $1.4
million or 47% over the same period in 2001. This increase was primarily the
result of the one-time start-up costs of $1.3 million for advisory and legal
fees incurred in connection with the Strategic Alliance Agreement with Intuit
Inc. and costs of $541,000 for the development of the full line of online and
telephone based brokerage services pursuant to the Alliance to customers of
Quicken and Quicken.com. This increase was offset in part by net savings in
other general and administrative expense categories.
For the six months ended June 30, 2002, there was as tax benefit of $440,000 due
to the Company's loss before income tax of $1.1 million. For the six months
ended June 30, 2001, the provision for income taxes was $1.5 million.
-11-
Liquidity and Capital Resources
The Company's assets are highly liquid, consisting generally of cash, money
market funds and marketable securities. Siebert's total assets at June 30, 2002
were $40.1 million. As of that date, $31.6 million, or 77%, of total assets were
regarded by the Company as highly liquid.
Siebert is subject to the net capital requirements of the SEC, the NYSE and
other regulatory authorities. At June 30, 2002, Siebert's regulatory net capital
was $19.1 million, $18.9 million in excess of its minimum capital requirement of
$250,000.
Pursuant to the Clearing Agreement and the Alliance, Siebert and Intuit will
advance Pershing $1.5 million which they are entitled to recoup from Pershing in
equal installments, without interest, over the initial three years of the
Clearing Agreement. In addition, Siebert and Intuit will incur one-time charges
aggregating approximately $423,000 for the setup of the Alliance's website and
related matters. Siebert and Intuit will share equally in the advance and the
one-time charges. As of June 30, 2002, the advance and one-time charges have not
been billed by or paid to Pershing. Development and marketing costs for the next
12 months for the Alliance are expected to exceed revenues generated from the
new accounts, which may result in losses for the Company. The Company also
intends to acquire additional shares of its common stock pursuant to its share
buy back program.
Siebert has entered into a Secured Demand Note Collateral Agreement with SBS
under which it is obligated to lend to SBS up to $1.2 million pursuant to a
secured promissory note on a subordinated basis. Amounts pledged by Siebert
under the facility are reflected on the Company's balance sheet as "cash
equivalents - restricted". SBS pays Siebert interest on this amount at the rate
of 10% per annum. The facility expires on August 31, 2004, at which time SBS is
obligated under the terms of the facility to repay to Siebert any amounts
borrowed.
Impact of Inflation
General inflation in the economy increases operating expenses of most
businesses. The Company has provided compensation increases generally in line
with the inflation rate and incurred higher prices for goods and services. While
the Company is subject to inflation as described above, management believes that
inflation currently does not have a material effect on the Company's operating
results, but there can be no assurance that this will continue to be so in the
future.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Working capital is generally temporarily invested in dollar denominated money
market funds and overnight certificates of deposits. These investments are not
subject to material changes in value due to interest rate movements. The Company
also invests in certain short-term municipal bonds, the values of which may
fluctuate during the period they are held by the Company.
In the normal course of its business, Siebert enters into transactions in
various financial instruments with off-balance sheet risk. This risk includes
both market and credit risk, which may be in excess of the amounts recognized in
the Company's financial statements. Retail customer transactions are cleared
through clearing brokers on a fully disclosed basis. If customers do not fulfill
their contractual obligations, the clearing broker may charge Siebert for any
loss incurred in connection with the purchase or sale of securities at
prevailing market prices to satisfy the customers' obligations. Siebert
regularly monitors the activity in its customer accounts for compliance with its
margin requirements. Siebert is exposed to the risk of loss on unsettled
customer transactions if customers and other counter parties are unable to
fulfill their contractual obligations.
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Part II - OTHER INFORMATION
Item 1. Legal Proceedings
The Company is involved in various routine lawsuits of a nature deemed by the
Company customary and incidental to its business. In the opinion of management,
the ultimate disposition of such actions will not have a material adverse effect
on its financial position or results of operations.
Item 2. Changes in Securities and Use of Proceeds
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
The Company held its annual meeting on June 4, 2002. At that meeting, the
following matters were voted on and received the votes indicated:
(1) Election of Directors For % Withheld
--- - --------------
Muriel F. Siebert 22,198,202 98.7 286,417
Nicholas P. Dermigny 22,198,202 98.7 286,417
Patricia L. Francy 22,198,202 98.7 286,417
Daniel Jacobson 22,198,202 98.7 286,417
Leonard M. Leiman 22,198,202 98.7 286,417
Jane H. Macon 22,198,202 98.7 286,417
(2) Proposal to adopt the Amendment of the 1997 Stock Option Plan to (a)
increase the aggregate number of shares available for issuance thereunder from
2,100,000 to 4,200,000, (b) increase the aggregate number of shares that may be
covered by option grants to any particular participant from 400,000 to 750,000,
(c) permit the Board of Directors to grant options to non-employee directors, an
(d) make certain other changes to the terms of the 1997 Stock Option Plan, all
as fully disclosed in the Proxy Statement. The proposal received the votes
indicated:
For: 20,330,270, or 98%, Against: 397,511, Abstained 17,233
Item 5. Other Information
None
-13-
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
10.11 Strategic Alliance Agreement, dated as of April 29,
2002, by and between Intuit Inc, Muriel Siebert & Co., Inc. and
Investment Solution, Inc.
10.12 Fully Disclosed Clearing Agreement, dated April 30,
2002, by and between the Pershing Division of Donaldson, Lufkin
and Jenrette Securities Corporation and Muriel Siebert & Co., Inc.
(b) Reports on Form 8-K
None
-14-
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Name Title Date
/s/ Muriel F. Siebert Chair, President and Director August 14, 2002
- ------------------------ (principal executive officer)
Muriel F. Siebert
/s/ Stephen G. Baker Chief Financial Officer August 14, 2002
- ------------------------ and Assistant Secretary
Stephen G. Baker (principal financial and
accounting officer)
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