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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 September 30, 2002
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[ ]Transition report under Section 13 or 15(d) of the Exchange Act
For the transition period from to
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Commission file number 0-5703
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Siebert Financial Corp.
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(Exact Name of Issuer as Specified in its Charter)
New York 11-1796714
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(State or Other Jurisdiction of Incorporation) (I.R.S. Employer )
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
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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
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APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date: As of November 13, 2002,
there were 22,412,067 shares of Common Stock, par value $.01 per share,
outstanding.
Transitional Small Business Disclosure Format (check one):
Yes No X
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Unless the context otherwise requires, the "Company" shall mean Siebert
Financial Corp. and its wholly owned subsidiaries and "Siebert" shall mean
Muriel Siebert & Co., Inc., a wholly owned subsidiary of the Company.
The Company's quarterly and annual operating results are affected by a
wide variety of factors that could materially and adversely affect actual
results, including: changes in general economic and market conditions,
fluctuations in volume and prices of securities, changes and prospects for
changes in interest rates and demand for brokerage and investment banking
services, competition within and without the discount brokerage business through
broader services offerings or otherwise, competition from electronic discount
brokerage firms offering greater discounts on commissions than the Company,
prevalence of a flat fee environment, decline in participation in equity or
municipal finance underwritings, decreased ticket volume in the discount
brokerage industry, limited trading opportunities, increases in expenses,
changes in net capital or other regulatory requirements.
As a result of these and other factors, the Company may experience
material fluctuations in future operating results on a quarterly or annual
basis, which could materially and adversely affect its business, financial
condition, operating results, and stock price. Furthermore, this document and
other documents filed by the Company with the Securities and Exchange Commission
(the "SEC") contain certain forward-looking statements with respect to the
business of the Company. These forward-looking statements are subject to certain
risks and uncertainties, including those mentioned above, which may cause actual
results to differ significantly from these forward-looking statements. The
Company undertakes no obligation to publicly release the results of any
revisions to these forward-looking statements which may be made to reflect
events or circumstances after the date when such statements were made or to
reflect the occurrence of unanticipated events. An investment in the Company
involves various risks, including those mentioned above and those which are
detailed from time to time in the Company's SEC filings.
Part I - FINANCIAL INFORMATION
Item 1. Financial Statements.
Siebert Financial Corp. & Subsidiaries
Consolidated Statements of Financial Condition
Rounded to whole thousands (000)
September 30, December 31,
2002
(unaudited) 2001
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ASSETS
Cash and cash equivalents $22,694 $25,670
Cash equivalents - restricted 1,300 1,300
Receivable from clearing broker 1,740 1,572
Securities owned, at market value 5,452 6,079
Furniture, equipment and leasehold improvements, net 2,594 1,703
Investment in and advances to equity investee 2,156 2,702
Intangibles, net 2,585 2,250
Prepaid expenses and other assets 1,728 853
Deferred tax asset 433 -
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$40,682 $42,129
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LIABILITIES AND STOCKHOLDERS' EQUITY
Securities sold, not yet purchased, at market value $ - $ 4
Deferred tax liability - 489
Accounts payable and accrued liabilities 4,682 4,336
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4,682 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 22,412,067 and 22,389,247
shares outstanding at September 30, 2002 and December 31, 2001, respectively 229 229
Additional paid-in capital 17,880 17,796
Retained earnings 20,673 22,010
Less: 556,100 and 542,800 shares of treasury stock, at cost at September 30, 2002
and December 31, 2001, respectively (2,782) (2,735)
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36,000 37,300
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$40,682 $42,129
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See notes to consolidated financial statements.
Siebert Financial Corp. & Subsidiaries
Consolidated Statements of Operations
(unaudited) Rounded to whole thousands (000)
except for per share and number of shares information
Three Months Ended Nine Months Ended
September 30, September 30,
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2002 2001 2002 2001
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Revenues:
Commissions and fees $ 4,671 $ 5,882 $ 14,968 $ 20,481
Investment banking 408 422 1,210 1,522
Trading profits 92 243 619 717
Income from equity investee 397 78 1,023 1,536
Interest and dividends 129 349 470 1,135
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5,697 6,974 18,290 25,391
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Expenses:
Employee compensation and benefits 2,193 2649 6,772 8,285
Clearing fees, including floor brokerage 954 944 2,823 3,315
Advertising and promotion 915 475 2,009 2,420
Communications 568 685 1,710 2,237
Occupancy 223 261 684 757
Interest -- 1 1 11
Other general and administrative 2,053 1,487 6,550 4,544
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6,906 6,502 20,549 21,569
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Income (loss) before income taxes (1,209) 472 (2,259) 3,822
Provision (benefit) for income taxes (483) 247 (922) 1,764
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Net Income (loss) $ (726) $ 225 $ (1,337) $ 2,058
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Net income (loss) per share of common stock -
Basic and Diluted $ (.03) $ .01 $ (.06) $ .09
Weighted average shares outstanding -
Basic 22,415,907 22,489,171 22,393,771 22,451,664
Weighted average shares outstanding -
Diluted 22,415,907 22,731,302 22,393,771 22,721,412
See notes to consolidated financial statements.
Siebert Financial Corp. & Subsidiaries
Consolidated Statements of Cash Flows
(unaudited) Rounded to whole thousands (000)
Nine Months Ended
September 30,
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2002 2001
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Cash flows from operating activities:
Net income (loss) ($ 1,337) $ 2,058
Adjustments to reconcile net income (loss) to net cash (used in) provided by
operating activities:
Depreciation and amortization 1,301 1,002
Income from equity investee (1,023) (1,536)
Changes in operating assets and liabilities:
Net decrease in securities owned, at market value 627 2,838
Net increase in receivable from clearing broker (168) (1,275)
(Increase) decrease in prepaid expenses and other assets (875) 247
Net (decrease) increase in securities sold, not yet purchased, at
market value (4) 15
Net change in deferred taxes (922) --
Increase (decrease) in accounts payable and accrued liabilities 346 355
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Net cash (used in) provided by operating activities (2,055) 3,704
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Cash flows from investing activities:
Purchase of furniture, equipment and leasehold improvements (1,482) (293)
Purchase of customer accounts (1,045) --
Net repayments of advances by equity investee 3 633
Distribution from equity investee 1,566
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Net cash (used in) provided by investing activities (958) 340
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Cash flows from financing activities:
Proceeds from exercise of options 84 45
Repurchase of common stock (47) (1,694)
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Net cash provided by (used in) financing activities 37 (1,649)
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Net (decrease) increase in cash and cash equivalents (2,976) 2,395
Cash and cash equivalents - beginning of period 25,670 26,370
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Cash and cash equivalents - end of period $ 22,694 $ 28,765
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Supplemental cash flow disclosures:
Cash paid for:
Interest $ 1 $ 11
Income taxes $ 404 $ 793
See notes to consolidated financial statements.
Siebert Financial Corp. & Subsidiaries
Notes to Consolidated Financial Statements
Nine Months Ended September 30, 2002 and 2001
(Unaudited)
1. Organization and Basis of Presentation:
The consolidated financial statements include the accounts of Siebert
Financial Corp. (the "Company") and its wholly owned subsidiaries Muriel
Siebert & Co., Inc. ("Siebert") and Siebert Women's Financial Network, Inc.
("WFN"). All material intercompany balances have been eliminated. The
statements are unaudited; however, in the opinion of management, all
adjustments considered necessary to reflect fairly the Company's financial
position and results of operations, consisting of normal recurring
adjustments, have been included.
The accompanying consolidated financial statements do not include all of
the information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles. Accordingly, the statements should be read in conjunction with
the audited financial statements included in the Company's Annual Report on
Form 10-K for the year ended December 31, 2001. Because of the nature of
the Company's business, the results of any interim period are not
necessarily indicative of results for a full year.
2. Net Capital:
Siebert is subject to the Securities and Exchange Commission's Uniform Net
Capital Rule (Rule 15c3-1), which requires the maintenance of minimum net
capital. Siebert has elected to use the alternative method, permitted by
the rule, which requires that Siebert maintain minimum net capital, as
defined, equal to the greater of $250,000 or two percent of aggregate debit
balances arising from customer transactions, as defined. (The net capital
rule of the New York Stock Exchange also provides that equity capital may
not be withdrawn or cash dividends paid if resulting net capital would be
less than five percent of aggregate debits.) As of September 30, 2002,
Siebert had net capital of approximately $17,400,000 as compared with net
capital requirements of $250,000.
3. Capital Transactions:
On May 15, 2000, the board of directors of the Company authorized a stock
buy back program of up to one million common shares. Shares will be
purchased from time to time in the open market and in private transactions.
Through September 30, 2002, 556,100 shares have been purchased at an
average price of $5.00 per share.
4. Option Grants:
During the period ended September 30, 2002, the Company's Board of
Directors granted options to officers, employees and directors of the
Company to purchase an aggregate of 1,145,000 shares of the Company's
common stock at exercise prices ranging from $2.90 to $4.60 per share, in
each case, the fair market value on the dates of grant.
5. Recent Developments
On April 30, 2002, Siebert signed a Strategic Alliance Agreement with
Intuit Inc. ("Intuit) to offer a full line of online and telephone based
brokerage services to customers of Quicken and Quicken.com (the
"Alliance"). Pursuant to the Alliance, Siebert and Intuit will share the
revenue from, and certain expenses of, the Alliance. The online product was
launched on September 16, 2002. For the quarter ended and the nine-month
period ended September 30, 2002, revenues related to the Alliance were
nominal. For the quarter ended September 30, 2002, the Company realized a
pre-tax loss related to the Alliance of $1.2 million. For the nine-month
period ended September 30, 2002, the Company realized a pre-tax loss
related to the Alliance of $3.5 million, which included one-time start-up
costs of $1.3 million for advisory fees and legal fees in addition to costs
for the development and marketing of the new product offering.
On April 30, 2002, Siebert signed a fully disclosed clearing agreement (the
"Clearing Agreement") with the Pershing Division of Donaldson, Lufkin, &
Jenrette Securities Corporation ("Pershing"). Pursuant to the Clearing
Agreement and the Alliance, Siebert and Intuit will advance Pershing
$1,500,000 which they are entitled to recoup from Pershing in equal
installments, without interest, over the initial three years of the
Clearing Agreement. In addition, Siebert and Intuit will incur one-time
charges aggregating approximately $485,000 for the setup of the Alliance's
website and related matters. Siebert and Intuit will share equally in the
advance and the one-time charges.
6. Account Purchases:
In May 2002 Siebert agreed to acquire certain retail discount brokerage
accounts from TradeStation Securities, Inc. These accounts, which were
transferred to Siebert on August 2002, are being serviced from Siebert's
Boca Raton office. In July 2002, Siebert agreed to acquire the retail
brokerage accounts of the Boca Raton office of State Discount Brokers, Inc.
These accounts, which were transferred to Siebert in October 2002, are also
being serviced from Siebert's Boca Raton office. As of September 30, 2002,
the purchase price for the customer accounts has been recorded in
"Intangibles" and is being amortized over a three-year period.
7. New Accounting Standards:
In June 2001, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 141, "Business Combinations." SFAS No. 141 requires that the purchase
method of accounting be used for all business combinations initiated after
June 30, 2001. This statement specifies that certain acquired intangible
assets in a business combination be recognized as assets separately from
goodwill and that existing intangible assets and goodwill be evaluated for
these new separation requirements. The adoption of this standard did not
have a material impact on the Company's consolidated financial position or
results of operations.
In June 2001, the FASB issued SFAS No. 142, "Goodwill and Other Intangible
Assets." SFAS No. 142 changes the accounting for goodwill from an
amortization method to an impairment-only approach. Amortization of
goodwill, including goodwill recorded in past business combinations, will
cease upon adoption of this statement. In addition, this statement requires
that goodwill be tested for impairment at least annually at the reporting
unit level. The Company implemented SFAS No. 142 on January 1, 2002.
Implementation of this statement did not have a material impact on the
Company's consolidated financial position or results of operations.
In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset
Retirement Obligations." This statement addresses financial accounting and
reporting for obligations associated with the retirement of tangible
long-lived assets and the associated asset retirement costs. The Company is
required to implement SFAS No. 143 on January 1, 2003. Management does not
expect this statement to have a material impact on the Company's
consolidated financial position or results of operations.
In August 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets." This statement supersedes
SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of." The statement retains the previously
existing accounting requirements related to the recognition and measurement
of the impairment of long-lived assets to be held and used while expanding
the measurement requirements of long-lived assets to be disposed of by sale
to include discontinued operations. It also expands the previously existing
reporting requirements for discontinued operations to include a component
of an entity that either has been disposed of or is classified as held for
sale. The Company implemented SFAS No. 144 on January 1, 2002.
Implementation of this statement did not have a material impact on the
Company's consolidated financial position or results of operations.
In April 2002, the FASB issued SFAS No. 145 "Rescission of FASB Statements
No. 4, 44 and 64, Amendment of FASB Statement No 13, and Technical
Corrections." SFAS No. 145 rescinds SFAS No. 4, "Reporting Gains and Losses
from Extinguishment of Debt," SFAS No. 64, "Extinguishments of Debt Made to
Satisfy Sinking-Fund Requirements," and SFAS No. 44, "Accounting for
Intangible Assets of Motor Carriers." SFAS No. 145 also amends SFAS No. 13,
"Accounting for Leases," to eliminate an inconsistency between the required
accounting for sale-leaseback transactions and the required accounting for
certain lease modifications that have economic effects that are similar to
sale-leaseback transactions. SFAS No. 145 also amends other existing
authoritative pronouncements to make various technical corrections, clarify
meanings or describe their applicability under changed conditions. The
provisions of SFAS No. 145 related to the rescission of SFAS No. 4 are
effective for fiscal years beginning after May 15, 2002. The provisions of
SFAS No. 145 related to SFAS No. 13 are effective for transactions
occurring after May 15, 2002. All other provisions of SFAS No. 145 are
effective for financial statements issued on or after May 15, 2002. Early
application of the provisions of SFAS No. 145 is encouraged and may be as
of the beginning of the fiscal year or as of the beginning of the interim
period in which SFAS No. 145 was issued. The Company adopted the provisions
of SFAS No. 145 during the quarter ended June 30, 2002. Adoption of SFAS
No. 145 did not have a material effect on the Company's financial
condition, results of operations or liquidity.
In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities". Under SFAS 146, a cost
associated with an exit or disposal activity shall be recognized and
measured initially at its fair value in the period in which the liability
is incurred. The provisions of SFAS No. 146 shall be effective for exit or
disposal activities initiated after December 31, 2002. Management does not
expect this statement to have a material impact on the Company's
consolidated financial position or results of operations.
8. Siebert Brandford Shank & Co., LLC:
Summarized financial data (presented in thousands) of Siebert Brandford
Shank & Co., LLC, ("SBS") as of and for the nine months ended September 30
is as follows. Siebert holds a 49% ownership interest in SBS.
2002 2001
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Total assets $8,766 $5,960
Total liabilities, including subordinated
liabilities of $1,200 $4,754 $2,221
Total members' capital $4,012 $3,739
Total revenues $8,850 $9,127
Net income $2,087 $3,134
Siebert charged SBS $180,000 during each period for rent and general and
administrative services, which Siebert believes approximates the cost of
furnishing such services.
Siebert's share of undistributed earnings from SBS amounted to $1,573,000
and $1,440,000 at September 30, 2002 and 2001 respectively.
9. Commitments and Contingent Liabilities:
The Company is involved in various routine lawsuits of a nature deemed by
the Company customary and incidental to its business. In the opinion of
management, the ultimate disposition of such actions will not have a
material adverse effect on its financial position or results of operations.
Pursuant to the Clearing Agreement and the Alliance, Siebert and Intuit
will advance Pershing $1.5 million which they are entitled to recoup from
Pershing in equal installments, without interest, over the initial three
years of the Clearing Agreement. In addition, Siebert and Intuit will incur
one-time charges aggregating approximately $485,000 for the setup of the
Alliance's website and related matters. Siebert and Intuit will share
equally in the advance and the one-time charges. As of September 30, 2002,
the advance and one-time charges have not been billed by or paid to
Pershing (see Note 4).
Item 2. Management's Discussion and Analysis or Plan of Operation.
This discussion should be read in conjunction with the Company's
audited and the unaudited Consolidated Financial Statements and the Notes
thereto contained elsewhere in this Quarterly Report.
Statements in this "Management's Discussion and Analysis" and elsewhere
in this document, as well as oral statements that may be made by the Company or
by officers, directors or employees of the Company acting on the Company's
behalf, that are not statements of historical or current fact constitute
"forward looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. Such forward looking statements involve risks and
uncertainties and known and unknown factors that could cause the actual results
of the Company to be materially different from the historical results or from
any future results expressed or implied by such forward looking statements,
including, without limitation: changes in general economic and market
conditions, fluctuations in volume and prices of securities, changes and
prospects for changes in interest rates and demand for brokerage and investment
banking services, competition within and without the discount brokerage business
through broader services offerings or otherwise, competition from electronic
discount brokerage firms offering greater discounts on commissions than the
Company, prevalence of a flat fee environment, decline in participation in
equity or municipal finance underwritings, decreased ticket volume in the
discount brokerage industry, limited trading opportunities, increases in
expenses and changes in net capital or other regulatory requirements.
Critical Accounting Policies
The Company generally follows accounting policies standard in the
brokerage industry and believes that its policies appropriately reflect its
financial position and results of operations. Management has identified the use
of "Estimates" as its critical policy. The estimates relate primarily to revenue
and expense items in the normal course of business as to which the Company
receives no confirmations, invoices, or other documentation at the time the
books are closed for a period. The Company uses its best judgment, based on its
knowledge of revenue transactions and expenses incurred, to estimate the amounts
of such revenue and expense. The Company is not aware of any material
differences between the estimates used in closing its books for the last five
years and the actual amounts of revenue received and expenses incurred when the
Company subsequently receives the actual confirmations, invoices or other
documentation. Estimates are also used in determining the useful lives of
tangible and intangible assets, and the fair market value of intangible assets.
Management believes that its estimates are reasonable.
Business Environment
The bear market continued unabated through the third quarter and saw
the averages break through their September 11, 2001 lows. Recent corporate and
accounting scandals also have taken a toll on the public's confidence in the
reliability of corporate information and the result has been a lack of interest
in buying stocks. Competition in the brokerage industry remains intense although
many of Siebert's competitors have been consolidated or have gone out of
business.
The Company, like other securities firms, is directly affected by
general economic and market conditions including fluctuations in volume and
prices of securities, changes and prospects for changes in interest rates and
demand for brokerage and investment banking services, all of which can affect
the Company's relative profitability. In periods of reduced market activity,
profitability is likely to be adversely affected because certain expenses,
including salaries and related costs, portions of communications costs and
occupancy expenses remain relatively fixed. Earnings, or loss, for any period
should not be considered representative of any other period.
Recent Developments
In May 2002 Siebert agreed to acquire certain retail discount brokerage
accounts from TradeStation Securities, Inc. These accounts, which were
transferred to Siebert in August 2002, are being serviced from Siebert's Boca
Raton office. In July 2002, Siebert agreed to acquire the retail brokerage
accounts of the Boca Raton office of State Discount Brokers, Inc. These
accounts, which were transferred to Siebert in October 2002, are also being
serviced from Siebert's Boca Raton office. As of September 30, 2002, the
purchase price for the customer accounts has been recorded in "Intangibles" and
will be amortized over a three-year period.
On April 30, 2002, Siebert signed a Strategic Alliance Agreement with
Intuit Inc. ("Intuit) to offer a full line of online and telephone based
brokerage services to customers of Quicken and Quicken.com (the "Alliance").
Pursuant to the Alliance, Siebert and Intuit will share the revenue from, and
certain expenses of, the Alliance. The online product was launched on September
16, 2002 and as a result of the market conditions, new account openings have
been slower than expected. Management is monitoring the results of the Alliance
and will reduce costs if appropriate. For the quarter ended and the nine-month
period ended September 30, 2002, revenues related to the Alliance were nominal.
For the quarter ended September 30, 2002, the Company realized a pre-tax loss
related the Alliance of $1.2 million. For the nine- month period ended September
30, 2002, the Company realized a pre-tax loss related to the Alliance of $3.5
million, which included one-time start-up costs of $1.3 million for advisory
fees and legal fees in addition to costs for the development and marketing of
the new product offering.
On April 30, 2002, Siebert signed a fully disclosed clearing agreement
(the "Clearing Agreement") with the Pershing Division of Donaldson, Lufkin, &
Jenrette Securities Corporation ("Pershing"). Pursuant to the Clearing Agreement
and the Alliance, Siebert and Intuit will advance Pershing $1.5 million which
they are entitled to recoup from Pershing in equal installments, without
interest, over the initial three years of the Clearing Agreement. In addition,
Siebert and Intuit will incur one-time charges aggregating approximately
$485,000 for the setup of the Alliance's website and related matters. Siebert
and Intuit will share equally in the advance and the one-time charges. As of
September 30, 2002, the advance and one-time charges have not been billed by or
paid to Pershing.
On May 15, 2000, the board of directors of the Company authorized the
repurchase of up to 1,000,000 shares of the Company's common stock. Shares will
be purchased from time to time, in the discretion of the Company, in the open
market and in private transactions. Through September 30, 2002, 556,100 shares
have been purchased at an average price of $5.00 per share. The Company intends
to continue acquiring shares pursuant to its stock repurchase program based upon
the price of the stock and in accordance with applicable rules and regulations.
Results of Operations
The Company believes that its core business is performing well, given
the current difficult business environment for discount and online brokers.
Excluding the loss of $1.2 million attributable to the Alliance and the loss of
$400,000 generated by WFN, the Company would have been profitable for the three
months ended September 30, 2002.
The Company's results of operations for the three and nine months ended
September 30, 2002 have been reduced by the investment in the Alliance that the
Company believes provides a significant long-term growth opportunity for the
Company. To date, all amounts invested by the Company in the Alliance have been
recorded as a current expense. The Company expects that development and
marketing costs over the next 12 months relating to the Alliance will exceed
revenues generated by the Alliance, which may result in losses for the Company.
The Company has reduced expenses in its WFN subsidiary for the three
and nine-month periods ended September 30, 2002 by $26,000 and $495,000,
respectively, over the same periods in 2001. These expense reductions occurred
primarily in the "Advertising and Promotion", "Communication" and "Employee
Salaries and Benefits" expense categories. The Company is continuing to make
reductions in the expenses of WFN.
Three Months Ended September 30, 2002 Compared to Three Months Ended
September 30, 2001
Total revenues for the three months ended September 30, 2002 were $5.7
million, a decrease of $1.3 million, or 18.3% over the same period in 2001.
Commission and fee income for the three months ended September 30, 2002
was $4.7 million, a decrease of $1.2 million or 20.6% over the same period in
2001 due to a substantial reduction in trading volume as result of the bear
market conditions prevailing during 2002.
Investment banking revenues for the three months ended September 30,
2002 were $408,000, a decrease of $14,000 or 3.3% over the same period in 2001
due to less activity in the new issue market.
Income from the Company's equity investee, Siebert Brandford Shank &
Co., LLC, an entity in which the Company holds a 49% equity interest ("SBS"),
for the three months ended September 30, 2002 was $397,000 compared to income of
$78,000, an increase of $319,000 or 408.9% from the same period in 2001 due to
increased activity in the municipal bond market. SBS serves as an underwriter
for municipal bond offerings.
Trading profits were $92,000 for the three months ended September 30,
2002, a decrease of $151,000 or 62.2% over the same period in 2001 due to an
overall decrease in trading volume.
Interest and dividends for the three months ended September 30, 2002
were $129,000, a decrease of $220,000 or 63.0% over the same period in 2001
primarily due to slightly lower cash balances available for temporary investment
coupled with lower interest rates.
Total expenses for the three months ended September 30, 2002 were $6.9
million, an increase of $404,000 or 6.2% over the same period in 2001.
Employee compensation and benefit costs for the three months ended
September 30, 2002 were $2.2 million, a decrease of $456,000 or 17.2% over the
same period in 2001. This decrease was primarily due to a decrease in personnel
due to the low trading volumes, a decrease in commission payouts and a decrease
in discretionary payments to employees partially offset by increased personnel
hired during the quarter for the Alliance.
Clearing and floor brokerage fees for the three months ended September
30, 2002 were $954,000, an increase of $10,000 or 1.0% over the same period in
2001 primarily due to the costs associated with the Company's temporary use of
two clearing firms as a result of the Alliance, partially offset by the
decreased volume of trade executions.
Advertising and promotion expenses for the three months ended September
30, 2002 were $915,000, an increase of $440,000 or 92.7% over the same period in
2001 due to the increase advertising and promotion expenditures in connection
with the launch of the Alliance.
Communications expense for the three months ended September 30, 2002,
was $568,000, a decrease of $117,000 or 17.1% over the same period in 2001 due
primarily to the lower volume of call traffic as a result of low trading volumes
and savings derived from the phased installation of a new telephone system
starting in 2001.
Occupancy costs for the three months ended September 30, 2002 was
$223,000, a decrease of $38,000 or 14.54% over the same period in 2001. This
decrease was due primarily due to the closure of the Company's Freemont,
California, branch office.
Other general and administrative expenses were $2.1 million, an
increase of $566,000 or 38.0% from the same period in 2001. This increase was
primarily due to costs related to the Alliance coupled with the increase in
other general and administrative expense categories including advisory and legal
fees and depreciation and amortization. Depreciation and amortization, a
non-cash item, increased primarily due to expenses related to the purchase of
the accounts of TradeStation and State Discount Brokers and the Company's
purchase of a new Customer Relationship Management system.
For the three months ended September 30, 2002, there was a tax benefit
of $483,000 due to the Company's loss before income tax of $1.2 million. For the
three months ended September 30, 2001, the provision for income taxes was
$247,000.
Nine Months Ended September 30, 2002 Compared to Nine Months Ended
September 30, 2001
Total revenues for the nine months ended September 30, 2002 were $18.3
million, a decrease of $7.1 million, or 28.0%, over the same period in 2001.
Commission and fee income for the nine months ended September 30, 2002
was $15.0 million, a decrease of $5.5 million or 26.9% over the same period in
2001 due to a substantial reduction in trading volume as result of the bear
market conditions prevailing during 2002.
Investment banking revenues for the nine months ended September 30,
2002 were $1.2 million, a decrease of $312,000 or 20.5% over the same period in
2001 due to decreased activity in the new issue market.
Income from the Company's equity investee, SBS, for the nine months
ended September 30, 2002 was $1.0 million, compared to income of $1.5 million a
decrease of $500,000 for the nine months ended September 30, 2001 primarily due
to a decrease in offerings for which SBS served as senior manager, partially
offset by an increase in offerings for which SBS served as a co-manager.
Trading profits for the nine months ended September 30, 2002 were
$619,000, a decrease of $98,000 or 13.7% over the same period in 2001 due to an
overall decrease in transactional volume.
Interest and dividends for the nine months ended September 30, 2002
were $470,000, a decrease of $665,000 or 58.6% over the same period in 2001
primarily due to lower cash balances available for temporary investment coupled
with lower interest rates.
Total expenses for the nine months ended September 30, 2002 were $20.5
million, a decrease of $1.0 million or 4.7% over the same period in 2001.
Employee compensation and benefit costs for the nine months ended
September 30, 2002 were $6.8 million, a decrease of $1.5 million or 18.3 over
the same period in 2001. This decrease was primarily due to a decrease in
personnel due to the low trading volumes, a decrease in commission payouts and a
decrease in discretionary payments to employees partially offset by increased
personnel hired during the period for the Alliance.
Clearing and floor brokerage fees for the nine months ended September
30, 2002 were $2.8 million, a decrease of $492,000 or 14.8% over the same period
in 2001 primarily due to the decreased volume of trade executions.
Advertising and promotion expenses for the nine months ended September
30, 2002 were $2.0 million, a decrease of $411,000 or 17.0% over the same period
in 2001 due to decreased advertising and promotion expenditures by the Company
that were offset, in part, by an increase in promotional expenses for the
Alliance.
Communications expense for the nine months ended September 30, 2002 was
$1.7 million, a decrease of $527,000 or 23.6% over the same period in 2001 due
primarily to the lower volume of call traffic as a result of low trading volumes
and savings derived from the phased installation of a new telephone system
during 2001.
Occupancy costs for the nine months ended September 30, 2002 was
$684,000, a decrease of $73,000 or 9.6% over the same period in 2001. This
decrease was due primarily to the closure of the Company's Freemont, California,
branch office, as well as the consolidation of office space in New York City as
a result of taking additional office space in Jersey City, New Jersey.
Other general and administrative expenses were $6.5 million, an
increase of $2.0 million or 44.2% over the same period in 2001. This increase
was primarily the result of the one-time start-up costs of $1.3 million for
advisory and legal fees incurred in connection with the Alliance and costs of
for the development of the full line of online and telephone based brokerage
services pursuant to the Alliance to customers of Quicken and Quicken.com
coupled with an increase in other general and administrative expense categories
including legal fees and depreciation and amortization. Depreciation and
amortization, a non-cash item, increased primarily due to the purchase of the
accounts of TradeStation and State Discount Brokers, Inc. and the Company's
purchase of a new Customer Relationship Management system.
For the nine months ended September 30, 2002, there was a tax benefit
of $922,000 due to the Company's loss before income tax of $2.3 million. For the
nine months ended September 30, 2001, the provision for income taxes was $1.8
million.
Liquidity and Capital Resources
The Company's assets are highly liquid, consisting generally of cash,
money market funds and marketable securities. The Company's total assets at
September 30, 2002 were $40.7 million. As of that date, $29.9 million, or 73.5%,
of total assets were regarded by the Company as highly liquid.
Siebert is subject to the net capital requirements of the SEC, the NYSE
and other regulatory authorities. At September 30, 2002, Siebert's regulatory
net capital was $17.4 million, $17.2 million in excess of its minimum capital
requirement of $250,000.
Pursuant to the Clearing Agreement and the Alliance, Siebert and Intuit
will advance Pershing $1.5 million which they are entitled to recoup from
Pershing in equal installments, without interest, over the initial three years
of the Clearing Agreement. In addition, Siebert and Intuit will incur one-time
charges aggregating approximately $485,000 for the setup of the Alliance's
website and related matters. Siebert and Intuit will share equally in the
advance and the one-time charges. As of September 30, 2002, the advance and
one-time charges have not been billed by or paid to Pershing. Development and
marketing costs for the next 12 months for the Alliance are expected to exceed
revenues generated from the new accounts, which may result in losses for the
Company. The Company also intends to acquire additional shares of its common
stock pursuant to its share buy back program.
Siebert has entered into a Secured Demand Note Collateral Agreement
with SBS under which it is obligated to lend to SBS up to $1.2 million pursuant
to a secured promissory note on a subordinated basis. Amounts pledged by Siebert
under the facility are reflected on the Company's balance sheet as "cash
equivalents - restricted". SBS pays Siebert interest on this amount at the rate
of 10% per annum. The facility expires on August 31, 2004, at which time SBS is
obligated under the terms of the facility to repay to Siebert any amounts
borrowed.
Impact of Inflation
General inflation in the economy increases operating expenses of most
businesses. The Company has provided compensation increases generally in line
with the inflation rate and incurred higher prices for goods and services. While
the Company is subject to inflation as described above, management believes that
inflation currently does not have a material effect on the Company's operating
results, but there can be no assurance that this will continue to be so in the
future.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Working capital is generally temporarily invested in dollar denominated
money market funds and overnight certificates of deposits. These investments are
not subject to material changes in value due to interest rate movements. The
Company also invests in certain short-term municipal bonds, the values of which
may fluctuate during the period they are held by the Company.
In the normal course of its business, Siebert enters into transactions
in various financial instruments with off-balance sheet risk. This risk includes
both market and credit risk, which may be in excess of the amounts recognized in
the Company's financial statements. Retail customer transactions are cleared
through clearing brokers on a fully disclosed basis. If customers do not fulfill
their contractual obligations, the clearing broker may charge Siebert for any
loss incurred in connection with the purchase or sale of securities at
prevailing market prices to satisfy the customers' obligations. Siebert
regularly monitors the activity in its customer accounts for compliance with its
margin requirements. Siebert is exposed to the risk of loss on unsettled
customer transactions if customers and other counter parties are unable to
fulfill their contractual obligations.
Item 4. Controls and Procedures
Within 90 days of the date of this report an evaluation was performed
by the Company under the supervision and with the participation of management,
including the President of the Company, of the effectiveness of the design and
operation of the Company's disclosure controls and procedures. Based on that
evaluation, the Company's management, including the President, concluded that
the Company's disclosure controls and procedures are effective in timely
alerting them to material information relating to the Company that is required
to be included in the Company's periodic filings with the Securities and
Exchange Commission. There have been no significant changes in the Company's
internal controls or in other factors that could significantly affect those
internal controls subsequent to the date the Company carried out its evaluation.
Part II - OTHER INFORMATION
Item 1. Legal Proceedings
The Company is involved in various routine lawsuits of a nature deemed
by the Company customary and incidental to its business. In the opinion of
management, the ultimate disposition of such actions will not have a material
adverse effect on its financial position or results of operations.
Item 2. Changes in Securities and Use of Proceeds
-----------------------------------------
None
Item 3. Defaults Upon Senior Securities
-------------------------------
None
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
None
Item 5. Other Information
-----------------
None
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits.
99.1 Certificaton of Periodical Financial Report under
Section 906 of Sarbanes-Oxley Act of 2002
(b) Reports on Form 8-K.
None
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Name Title Date
---- ----- ----
/s/Muriel F. Siebert November 14, 2002
- ------------------------------- Chairwoman, President and Director
Muriel F. Siebert (principal executive officer and
principal financial and accounting
officer)
CERTIFICATIONS
I, Muriel F. Siebert, the principal executive officer and principal financial
and accounting officer of the registrant, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Siebert Financial
Corp.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact necessary to make the statements made, in
light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other information
included in this quarterly report, fairly present in all material respects
the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. I am responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the
registrant and I have:
a.) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to me by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b.) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c.) presented in this quarterly report my conclusions about the
effectiveness of the disclosure controls and procedures based on my
evaluation as of the Evaluation date;
5. I have disclosed, based on my most recent evaluation, to the registrant's
auditors and the audit committee of the registrant's board of directors (or
persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and;
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls; and
6. I have indicated in this quarterly report whether or not there were
significant changes in internal controls or in other factors that could
significantly affect internal controls subsequent to the date of my most
recent review evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
Date: November 14, 2002 Signature: /s/ Muriel F. Siebert
---------------------
Name: Muriel F. Siebert
Title: Chairwoman and President (principal
executive officer and financial and
accounting officer)