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, 2001 ------------------ [ ] Transition report under Section 13 or 15(d) of the Exchange Act For the transition period from _________ to _____________ Commission file number 0-5703 --------- Siebert Financial Corp. ----------------------- (Exact Name of Issuer as Specified in its Charter) New York 11-1796714 (State or Other Jurisdiction of (I.R.S.Employer Incorporation or Organization) Identification No.) 885 Third Avenue, New York, NY 10022 ------------------------------------ (Address of Principal Executive Offices) (212) 644-2400 -------------- (Issuer's Telephone Number, Including Area Code) ---------------------------------------------------- (Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report) Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEEDING FIVE YEARS Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12,13 or 15(d) of the Securities and Exchange of 1934 Act subsequent to the distribution of securities under a plan confirmed by a court. Yes [ ] No [ ] APPLICABLE ONLY TO CORPORATE ISSUERS State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date: As of November 9, 2001, there were 22,390,977 shares of Common Stock, par value $.01 per share, outstanding. Transitional Small Business Disclosure Format (check one): Yes [ ] No [X]
Unless the context otherwise requires, the "Company" shall mean Siebert Financial Corp. and its wholly owned subsidiaries. The Company's quarterly and annual operating results are affected by a wide variety of factors that could materially and adversely affect actual results, including: changes in general economic and market conditions, fluctuations in volume and prices of securities, changes and prospects for changes in interest rates and demand for brokerage and investment banking services, increases in competition within and without the discount brokerage business through broader services offerings or otherwise, competition from electronic discount brokerage firms offering greater discounts on commissions than the Company, prevalence of a flat fee environment, decline in participation in equity or municipal finance underwritings, decreased ticket volume in the discount brokerage division, limited trading opportunities, increases in expenses, changes in net capital or other regulatory requirements. 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 that 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 that 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 <TABLE> <CAPTION> September 30, December 31, 2001 2000 ---- ---- (unaudited) ----------- ASSETS <S> <C> <C> Cash and cash equivalents $28,765,000 $26,370,000 Cash equivalents - restricted 1,300,000 1,300,000 Receivable from clearing broker 1,399,000 124,000 Securities owned, at market value 3,433,000 6,271,000 Furniture, equipment and leasehold improvements, net 1,767,000 1,956,000 Investment in and advances to affiliate 1,884,000 981,000 Intangibles, net 1,855,000 2,375,000 Prepaid expenses and other assets 1,012,000 1,259,000 --------- --------- $41,415,000 $40,636,000 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY Liabilities: Securities sold, not yet purchased, at market value $ 17,000 $ 2,000 Accounts payable and accrued liabilities 4,305,000 3,950,000 --------- --------- 4,322,000 3,952,000 --------- --------- Commitments and contingent liabilities Stockholders' equity: Common stock, $.01 par value; 49,000,000 shares authorized, 22,916,735 and 22,911,187 issued at September 30, 2001 and December 31, 2000, respectively 229,000 229,000 Additional paid-in capital 17,781,000 17,736,000 Retained earnings 21,580,000 19,522,000 Less: 493,500 and 148,700 shares of treasury stock, at cost at September 30, 2001 and December 31,2000, respectively (2,497,000) (803,000) ----------- --------- 37,093,000 36,684,000 ----------- --------- $41,415,000 $40,636,000 =========== =========== See notes to consolidated financial statements -3-
SIEBERT FINANCIAL CORP. & SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) Three Months Ended Nine Months Ended September 30, September 30, ----------------------------- ---------------------------------- 2001 2000 2001 2000 --------- --------- ---------- ---------- Revenues: Commissions and fees $5,882,000 $8,657,000 $20,481,000 $31,139,000 Investment banking 422,000 700,000 1,522,000 1,518,000 Trading profits 243,000 159,000 717,000 552,000 Income (loss) from equity investee 78,000 (19,000) 1,536,000 (360,000) Interest and dividends 349,000 502,000 1,135,000 1,369,000 --------- --------- ---------- ---------- 6,974,000 9,999,000 25,391,000 34,218,000 --------- --------- ---------- ---------- Expenses: Employee compensation and benefits 2,649,000 2,796,000 8,285,000 9,014,000 Clearing fees, including floor Brokerage 944,000 1,343,000 3,315,000 5,123,000 Advertising and promotion 475,000 822,000 2,420,000 2,080,000 Communications 685,000 660,000 2,237,000 2,242,000 Occupancy 261,000 219,000 757,000 591,000 Interest 1,000 6,000 11,000 14,000 Other general and administrative 1,487,000 1,129,000 4,544,000 3,588,000 --------- --------- ---------- ---------- 6,502,000 6,975,000 21,569,000 22,652,000 --------- --------- ---------- ---------- Income before income taxes 472,000 3,024,000 3,822,000 11,566,000 Provision for income taxes 247,000 1,270,000 1,764,000 4,852,000 --------- --------- ---------- ---------- Net income $ 225,000 $ 1,754,000 $2,058,000 $6,714,000 ========= =========== ========== ========== Net income per share of common stock - Basic and diluted $0.01 $0.08 $0.09 $0.29 Weighted average shares outstanding - Basic 22,489,171 22,892,692 22,451,664 22,896,070 Weighted average shares outstanding - Diluted 22,731,302 23,259,267 22,721,412 23,301,153 See notes to consolidated financial statements. -4-
Siebert Financial Corp. & Subsidiaries Consolidated Statements of Cash Flows (unaudited) Nine Months Ended September 30, ----------------------------------- 2001 2000 ------------- ------------- Cash flows from operating activities: Net income $ 2,058,000 $ 6,714,000 Adjustments to reconcile net income to net cash provided by Operating activities: Depreciation and amortization 1,002,000 375,000 (Income) loss from equity investee (1,536,000) 360,000 Changes in operating assets and liabilities: Net (increase) decrease in securities owned, at market value 2,838,000 (1,827,000) Net (increase) decrease in receivable from clearing broker (1,275,000) 710,000 (Increase) decrease in prepaid expenses and other assets 247,000 16,000 Net increase (decrease) in securities sold, not yet purchased, at market value 15,000 (46,000) Increase (decrease) in accounts payable, taxes payable and accrued liabilities 355,000 1,172,000 ------------ ------------ Net cash provided by operating activities 3,704,000 7,474,000 Cash flows from investing activities: Purchase of furniture, equipment and leasehold improvements (293,000) (1,053,000) Distribution from equity investee -- 53,000 Net (advances to) repayments from equity investee 633,000 (226,000) ------------ ------------ Net cash provided by (used in) investing activities 340,000 (1,226,000) ------------ ------------ Cash flows from financing activities: Dividend on common stock -- (121,000) Proceeds from exercise of options 45,000 56,000 Repurchase of Company Stock (1,694,000) (156,000) ------------ ------------ Net cash used in financing activities (1,649,000) (221,000) ------------ ------------ Net increase in cash and cash equivalents 2,395,000 6,027,000 Cash and cash equivalents - beginning of period 26,370,000 22,882,000 ------------ ------------ Cash and cash equivalents end of period $ 28,765,000 $ 28,909,000 ============ ============ Supplemental cash flow disclosures: Cash paid for: Interest $ 11,000 $ 14,000 Income taxes $ 793,000 $ 4,644,000 </TABLE> See notes to consolidated financial statements. -5-
Siebert Financial Corp. & Subsidiaries Notes to Consolidated Financial Statements Nine Months Ended September 30, 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, 2000. 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, 2001 and September 30, 2000, Siebert had net capital of approximately $20,400,000 and $19,800,000, respectively, 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 repurchase program 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 September 30, 2001, 493,500 shares have been purchased at an average price of $5.06. 4. Earnings per share: Earnings per basic share are calculated by dividing net income by the weighted average outstanding shares during the period. Earnings per diluted share are calculated by dividing net income by the basic shares and all dilutive securities, which consist of options. The treasury stock method is used to reflect the dilutive effect of outstanding options, which, for the three months and nine months ended September 30, 2001 amount to 242,131 and 269,748, respectively, and for the three months and nine months ended September 30, 2000 amount to 366,575 and 405,083, respectively. -6-
Siebert Financial Corp. & Subsidiaries Notes to Consolidated Financial Statements Nine Months Ended September 30, 2001 (unaudited) 5. Investment in Affiliate: The summarized financial data of Siebert's 49% owned equity investee, Siebert, Brandford, Shank & Co., LLC at September 30, and for the nine months then ended was: <TABLE> <CAPTION> (In Thousands) September 30, September 30, -------------- ------------- 2001 2000 -------------- ------------- <S> <C> <C> Total assets $5,960 $4,024 Total liabilities including subordinated liabilities of $1,200 2,221 3,491 Total members' capital 3,739 532 Total revenues 9,127 4,000 Net income (loss) 3,134 (734) </TABLE> Item 2. Management's Discussion and Analysis or Plan of Operation. This discussion should be read in conjunction with the Company's unaudited Consolidated Financial Statements and the Notes thereto contained elsewhere in this Quarterly Report. Business Environment Market conditions during the third quarter of 2001 reflected a continuation of the bear market that started in 2000 and were severely affected by the events of September 11, 2001. The markets continued to be characterized by low trading volumes especially when compared to the record levels of the first quarter of 2000, the high volume levels of the second quarter of 2000, new 52 week trading lows in the technology weighted NASDAQ composite index, the revaluation of stocks with record high stock prices, and the fear of war and a recession. Competition in the brokerage industry remains intense. The Company, like other securities firms, is directly affected by general economic, political 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. Further, the planned development and promotion of the Company's financial website for women, WFN, the Women's Financial Network at Siebert ("WFN") resulted in significant expenditures for the redesign and launch of its website and a continuing expenditure for maintaining and updating the content. The cost impact of WFN on the consolidated earnings has stabilized as the initial costs have now been fully incurred. -7-
Earnings for any period should not be considered representative of any other period. Recent Developments On May 15, 2000, the board of directors of the Company authorized the repurchase 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, 2001, 493,500 shares have been purchased at an average price of $5.06. Results of Operations Three Months Ended September 30, 2001 Compared to Three Months Ended September 30, 2000 Revenues. Total revenues for the three months ended September 30, 2001 were $7.0 million, a decrease of $3.0 million, or 30%, over the same period in 2000. Commission and fee income for the three months ended September 30, 2001 was $5.9 million, a decrease of $2.8 million, or 32.2%, over the same period in 2000 due to a substantial reduction in trading volume as result of the bear market conditions during 2001. Investment banking revenues for the three months ended September 30, 2001 were $422,000, a decrease of $278,000 or 39.7% over the same period in 2000 due to the Company's decreased participation in larger new issues as result of the bear market conditions during 2001. Income from equity investee, Siebert, Brandford, Shank & Co., LLC ("SBS") for the three months ended September 30, 2001 was $78,000, compared to a loss of $19,000 for the three months ended September 30, 2000 due to improved municipal bond market conditions and an increase by SBS of its market share of underwritings. Trading profits for the three months ended September 30, 2001 were $243,000, an increase of $84,000, or 52.8%, over the same period in 2000. Interest and dividends for the three months ended September 30, 2001 were $349,000, a decrease of $153,000, or 30.5%, over the same period in 2000 primarily due to slightly lower cash balances available for temporary investment coupled with lower interest rates. Expenses. Total expenses for the three months ended September 30, 2001 were $6.5 million, a decrease of $473,000, or 6.8%, over the same period in 2000. Employee compensation and benefit costs for the three months ended September 30, 2001 were $2.6 million, a decrease of $147,000, or 5.3%, over the same period in 2000. This decrease was primarily due to a decrease in bonus payments to employees, a decrease in commission payouts, and a decrease in personnel due to the low trading volumes, offset in part by base salary increases. Clearing and floor brokerage fees for the three months ended September 30, 2001 were $944,000, a decrease of $399,000, or 29.7%, over the same period in 2000 primarily due to the decreased volume of trade executions. Advertising and promotion expenses for the three months ended September 30, 2001 were $475,000, a decrease of $347,000, or 42.2%, over the same period in 2000 due to decreased expenditures for print and media advertisement. -8-
Communications expense for the three months ended September 30, 2001, was $685,000, an increase of $25,000, or 3.8%, over the same period in 2000 due primarily to duplication of costs during the installation of a new Company-wide telephone system. Occupancy costs for the three months ended September 30, 2001 was $261,000, an increase of $42,000, or 19.2%, over the same period in 2000, principally due to the move of some of the Company's operations to additional office space in Jersey City, New Jersey, and a branch/customer service call center in Ft. Lauderdale, Florida opened in September 2000. Interest expense for the three months ended September 30, 2001 was $1,000, a decrease of $5,000, or 83.4%, over the same period in 2000. Other general and administrative expenses were $1.5 million, an increase of $358,000 or 31.7% from the same period in 2000 due to increased amortization of intangible assets relating to WFN, consulting and professional fees Provision for income taxes decreased for the three months ended September 30, 2001 to $247,000 a decrease of $1.0 million, or 80.6%, due to a decrease in net income before tax to $472,000 for the third quarter of 2001 as compared to net income before tax of $3.0 million in the same period in 2000. Nine Months Ended September 30, 2001 Compared to Nine Months Ended September 30, 2000 Revenues. Total revenues for the nine months ended September 30, 2001 were $25.4 million, a decrease of $8.8 million, or 25.8%, over the same period in 2000. Commission and fee income for the nine months ended September 30, 2001 was $20.5 million, a decrease of $10.7 million or 34.2% over the same period in 2000 due to a substantial reduction in trading volume as result of the bear market conditions during 2001. Investment banking revenues for the nine months ended September 30, 2001 were $1.5 million, an increase of $4,000 over the same period in 2000. Income from equity investee for the nine months ended September 30, 2001 was $1.5 million, compared to a loss of $360,000 for the nine months ended September 30, 2000 due to improved municipal bond market conditions and an increase by SBS of its market share of underwritings. Trading profits for the nine months ended September 30, 2001 were $717,000, an increase of $165,000 or 29.8% over the same period in 2000. Interest and dividends for the nine months ended September 30, 2001 were $1,100,000, a decrease of $234,000 or 17.0% over the same period in 2000 primarily due to slightly lower cash balances available for temporary investment coupled with lower interest rates. Expenses. Total expenses for the nine months September 30, 2001 were $21.6 million, a decrease of $1 million or 4.8% over the same period in 2000. Employee compensation and benefit costs for the nine months ended September 30, 2001 were $8.3 million, a decrease of $729,000 or 8.0% over the same period in 2000. This decrease was primarily due to a decrease in bonus payments to employees coupled with a decrease in commission payouts and a decrease in personnel due to low trading volumes. -9-
Clearing and floor brokerage fees for the nine months ended September 30, 2001 were $3.3 million, a decrease of $1.8 million, or 35.2%, over the same period in 2000 primarily due to the decreased volume of trade executions. Advertising and promotion expenses for the nine months ended September 30, 2001 were $2.4 million an increase of $340,000, or 16.3%, over the same period in 2000 due to promotion expenses incurred in connection with the re-launch of WFN's redesigned website and increased print and media advertisement. Communications expense for the nine months ended September 30, 2001, was $2.2 million, a decrease of $5,000 over the same period in 2000. Occupancy costs for the nine months ended September 30, 2001 was $757,000, an increase of $166,000, or 28.0%, over the same period in 2000, principally due to the move of some of the Company's operations to additional office space in Jersey City, New Jersey, Interest expense for the nine months ended September 30, 2001 was $11,000, a decrease of $3,000 from the same period in 2000. Other general and administrative expenses were $4.5 million, an increase of $956,000 or 26.6% over the same period in 2000 primarily due to increased amortization of intangible assets relating to WFN, depreciation and consulting and professional fees. Provision for income taxes decreased for the nine months ended September 30, 2001 to $1.7 million, a decrease of $3.1 million, or 63.6%, due to a decrease in net income before tax to $3.8 million as compared to net income before tax of $11.6 million in the same period in 2000. 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 September 30, 2001 were $41.4 million. As of September 30, 2001, $33.6 million, or 81.2% 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, 2001, Siebert's regulatory net capital was $20.4 million, $20.1 million in excess of its minimum capital requirement of $250,000. 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. Recently Issued Accounting Pronouncements In September 2001, The Financial Accounting Standards Board issued Statements of Financial Accounting Standards Nos. 141 and 142 addressing the accounting for business combinations and goodwill and other intangible assets. Under these standards, goodwill and certain other intangibles would not be subject to amortization, but rather would be subject to periodic testing for impairment. Under the transition provisions, goodwill and intangible assets determined to have an indefinite useful life shall not be amortized in fiscal years beginning after December 15, 2001. Earlier adoption is permitted in limited circumstances. Additionally, guidance on how to determine and measure impairment is provided. The Company is currently evaluating the impact, if any, of these pronouncements. -10-
Item 3. Quantitative and Qualitative Disclosures About Market Risk Financial Instruments Held For Trading Purposes: Through Siebert, the Company maintains inventories of exchange-listed and NASDAQ equity securities on both a long and short basis. The fair value of all securities at September 30, 2001 was approximately $3.4 million in long positions and approximately $17,000 in short positions. The fair value of all securities at September 30, 2000 was approximately $4.4 million in long positions. Using a hypothetical 10% increase or decrease in prices, the potential loss or gain in fair value, respectively, is estimated to be approximately $343,000, and $440,000, respectively, taking into account the offset of change in fair value of long and short positions. Financial Instruments Held For Purposes Other Than Trading: Working capital is generally temporarily invested in dollar denominated money market funds and overnight certificates of deposits. These investments are not subject to material changes in value due to interest rate movements. 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 -11-
Item 6. Exhibits and Reports on Form 8-K (a) Exhibits (b) Reports on Form 8-K None -12-
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. <TABLE> <CAPTION> Name Title Date ---- ----- ---- <S> <C> /s/Muriel F. Siebert Chairwoman, President and Director - ----------------------------- (principal executive officer) Muriel F. Siebert November 12, 2001 /s/Mitchell M. Cohen Chief Financial Officer November 12, 2001 - ---------------------------- and Assistant Secretary Mitchell M. Cohen (principal financial and accounting officer) </TABLE> -13-