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, 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 August 8, 2001, there were 22,489,250 shares of Common Stock, par value $.01 per share, outstanding. Transitional Small Business Disclosure Format (check one): Yes _X_ No ____
Unless the context otherwise requires, the "Company" or "Siebert" shall mean Siebert Financial Corp. and its wholly owned subsidiaries. The Company's quarterly and annual operating results are affected by a wide variety of factors that could materially and adversely affect actual results, including: changes in general economic and market conditions, fluctuations in volume and prices of securities, changes and prospects for changes in interest rates and demand for brokerage and investment banking services, increases in competition within and without the discount brokerage business through broader services offerings or otherwise, competition from electronic discount brokerage firms offering greater discounts on commissions than the Company, prevalence of a flat fee environment, decline in participation in equity or municipal finance underwritings, decreased ticket volume in the discount brokerage division, limited trading opportunities, increases in expenses, changes in net capital or other regulatory requirements. 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. -2-
PART I - FINANCIAL INFORMATION Item 1. Financial Statements. Siebert Financial Corp. & Subsidiaries Consolidated Statements of Financial Condition <TABLE> <CAPTION> June 30, 2001 December 31, (unaudited) 2000 ----------- ---- <S> <C> <C> ASSETS Cash and cash equivalents $23,843,000 $26,370,000 Cash equivalents - restricted 1,300,000 1,300,000 Receivable from clearing broker 2,418,000 124,000 Securities owned, at market value 6,398,000 6,271,000 Furniture, equipment and leasehold improvements, net 1,873,000 1,956,000 Investment in and advances to affiliate 2,021,000 981,000 Intangibles, net 2,037,000 2,375,000 Prepaid expenses and other assets 1,095,000 1,259,000 ------------ ----------- $40,985,000 $40,636,000 ============ =========== LIABILITIES AND STOCKHOLDERS' EQUITY Liabilities: Securities sold, not yet purchased, at market value $ 8,000 $ 2,000 Accounts payable and accrued liabilities 3,941,000 3,950,000 ------------ ----------- 3,949,000 3,952,000 ------------ ----------- Commitments and contingent liabilities Stockholders' equity: Common stock, $.01 par value; 49,000,000 shares authorized, 22,916,735 and 22,915,495 issued at June 30, 2001 and December 31, 2000, respectively 229,000 229,000 Additional paid-in capital 17,738,000 17,736,000 Retained earnings 21,355,000 19,522,000 Less: 444,100 and 148,700 shares of treasury stock, at cost at June 30, 2001 and December 31,2000, respectively (2,286,000) (803,000) ------------ ----------- 37,036,000 36,684,000 ------------ ----------- $40,985,000 $40,636,000 ============ =========== </TABLE> See notes to consolidated financial statements -3-
Siebert Financial Corp. & Subsidiaries Consolidated Statements of Income (unaudited) <TABLE> <CAPTION> Three Months Ended Six Months Ended ------------------------------------ ------------------------------------ June 30, June 30, 2001 2000 2001 2000 ---- ---- ---- ---- <S> <C> <C> <C> <C> Revenues: Commissions and fees $6,192,000 $9,830,000 $14,599,000 $22,482,000 Investment banking 910,000 349,000 1,100,000 818,000 Trading profits 203,000 174,000 474,000 393,000 Income (loss) from equity investee 884,000 (250,000) 1,458,000 (341,000) Interest and dividends 366,000 495,000 786,000 867,000 ---------- ---------- ----------- ----------- 8,555,000 10,598,000 18,417,000 24,219,000 ---------- ---------- ----------- ----------- Expenses: Employee compensation and benefits 2,559,000 2,969,000 5,635,000 6,218,000 Clearing fees, including floor Brokerage 1,068,000 1,775,000 2,371,000 3,779,000 Advertising and promotion 929,000 686,000 1,945,000 1,258,000 Communications 754,000 779,000 1,553,000 1,582,000 Occupancy 238,000 198,000 497,000 373,000 Interest 2,000 3,000 9,000 9,000 Other general and administrative 1,116,000 1,164,000 3,058,000 2,459,000 ---------- ---------- ----------- ----------- 6,666,000 7,574,000 15,068,000 15,678,000 ---------- ---------- ----------- ----------- Income before income taxes 1,889,000 3,024,000 3,349,000 8,541,000 Provision for income taxes 858,000 1,270,000 1,516,000 3,581,000 ---------- ---------- ----------- ----------- Net income $ 1,031,000 $ 1,754,000 $1,833,000 $4,960,000 =========== =========== ========== ========== Net income per share of common stock - Basic $0.05 $0.08 $0.08 $0.22 Diluted $0.05 $0.08 $0.08 $0.21 Weighted average shares outstanding - Basic 22,483,438 22,895,537 22,432,910 22,896,070 Weighted average shares outstanding - Diluted 22,760,996 23,308,878 22,716,466 23,322,096 </TABLE> See notes to consolidated financial statements. -4-
Siebert Financial Corp. & Subsidiaries Consolidated Statements of Cash Flows (unaudited) <TABLE> <CAPTION> Six Months Ended June 30, ------------------------------ 2001 2000 -------------- ----------- <S> <C> <C> Cash flows from operating activities: Net income $ 1,833,000 $ 4,960,000 ------------ ------------ Adjustments to reconcile net income to net cash provided by Operating activities: Depreciation and amortization 635,000 232,000 (Income) loss from equity investee (1,458,000) 341,000 Changes in operating assets and liabilities: Net (increase) decrease in securities owned, at market value (127,000) (1,794,000) Net (increase) decrease in receivable from clearing broker (2,294,000) (41,000) (Increase) decrease in prepaid expenses and other assets 183,000 134,000 Net increase (decrease) in securities sold, not yet purchased, at market value 6,000 (50,000) Increase (decrease) in accounts payable, taxes payable and accrued liabilities (9,000) 1,620,000 ------------ ------------ Net (cash used in) provided by operating activities (1,231,000) 5,402,000 ------------ ------------ Cash flows from investing activities: Purchase of furniture, equipment and leasehold improvements (235,000) (811,000) Distribution from equity investee - 53,000 Net advances to equity investee 420,000 (257,000) ------------ ------------ Net cash provided by (used in) investing activities 185,000 (1,015,000) ------------ ------------ Cash flows from financing activities: Dividend on common stock - (121,000) Proceeds from exercise of options 2,000 46,000 Repurchase of Company Stock (1,483,000) (129,000) ------------ ------------ Net cash used in financing activities (1,481,000) (204,000) ------------ ------------ Net (decrease) increase in cash and cash equivalents (2,527,000) 4,183,000 Cash and cash equivalents - beginning of period 26,370,000 22,882,000 ------------ ------------ Cash and cash equivalents - end of period $ 23,843,000 $ 27,065,000 ============ ============ Supplemental cash flow disclosures: Cash paid for: Interest $ 20,000 $ 9,000 Income taxes $ 793,000 $ 2,152,000 </TABLE> See notes to consolidated financial statements. -5-
Siebert Financial Corp. & Subsidiaries Notes to Consolidated Financial Statements Six Months Ended June 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 June 30, 2001 and June 30, 2000, Siebert had net capital of approximately $20,279,000 and $19,527,000, 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 June 30, 2001, 444,100 shares have been purchased at an average price of $5.15. 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 six months ended June 30, 2001 amount to 277,558 and 283,556, respectively, and for the three months and six months ended June 30, 2000 amount to 413,341 and 426,026, respectively. -6-
Siebert Financial Corp. & Subsidiaries Notes to Consolidated Financial Statements Six Months Ended June 30, 2001 (unaudited) 5. Investment in Affiliate: The summarized financial data of Siebert's 49% owned equity investee, Siebert, Brandford, Shank & Co., LLC is: <TABLE> <CAPTION> (In Thousands) June 30, 2001 June 30, 2000 ------------- ------------- <S> <C> <C> Total assets $6,085 $5,570 Total liabilities including subordinated liabilities of $1,200 2,505 4,998 Total members' capital 3,580 572 Total revenues 7,350 2,588 Net income (loss) 2,974 (695) </TABLE> -7-
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 second quarter of 2001 reflected a continuation of the bear market that started in 2000. 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 a recession. Competition in the discount 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. 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. 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 June 30, 2001, 444,100 shares have been purchased at an average price of $5.15. The Women's Financial Network at Siebert was redesigned and relaunched in April 2001 and, in accordance with comments received from its advisory board and its users, was significantly improved and redesigned for a launch in July of 2001. The Company believes that the site will be a destination for women (and men) to manage their financial affairs with a greater degree of ease and confidence. -8-
Results of Operations Three Months Ended June 30, 2001 Compared to Three Months Ended June 30, 2000 Revenues. Total revenues for the three months ended June 30, 2001 were $8.6 million, a decrease of $2.0 million, or 19.3%, over the same period in 2000. Commission and fee income for the three months ended June 30, 2001 was $6.2 million, a decrease of $3.6 million or 37.0% 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 June 30, 2001 were $910,000, an increase of $561,000 or 160.7% over the same period in 2000 due to the company's increased participation in larger new issues partially offset by decreased activity in the new issue market as result of the bear market conditions during 2001. Income from equity investee for the three months ended June 30, 2001 was $884,000, compared to a loss of $250,000, for the three months ended June 30, 2000 due to improved municipal bond market conditions and increased market share of underwritings. Trading profits for the three months ended June 30, 2001 were $203,000 an increase of $29,000 or 16.7% over the same period in 2000. Interest and dividends for the three months ended June 30, 2001 were $366,000, a decrease of $129,000 or 26.1% 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 June 30, 2001 were $6.7 million, a decrease of $908,000, or 12.0% over the same period in 2000. -9-
Employee compensation and benefit costs for the three months ended June 30, 2001 were $2.6 million, a decrease of $410,000 or 13.8% over the same period in 2000. This decrease was primarily due to a decrease in discretionary payments to employees, a decrease in commission payouts, and a decrease in personnel due to the low trading volumes. Clearing and floor brokerage fees for the three months ended June 30, 2001 were $1.1 million, a decrease of $707,000 or 39.8% over the same period in 2000 primarily due to the decreased volume of trade executions. Advertising and promotion expenses for the three months ended June 30, 2001 were $929,000, an increase of $243,000 or 35.4% over the same period in 2000 due to increased promotion expenditures in connection with the redesigned website for WFN, coupled with increased print and media advertisement by Siebert. Communications expense for the three months ended June 30, 2001, was $754,000, a decrease of $25,000 or 3.2% over the same period in 2000 due primarily to the lower volume of call traffic as a result of low trading volumes. Occupancy costs for the three months ended June 30, 2001 was $238,000, an increase of $40,000 or 20.2% over the same period in 2000, principally due to the move of some of the Company's operations to Jersey City, New Jersey, and a branch/customer service call center in Ft. Lauderdale, Florida opened in June 2000. Interest expense for the three months ended June 30, 2001 was $2,000, a decrease of $1000 or 33.3% over the same period in 2000. Other general and administrative expenses were $1.1 million, a decrease of $48,000 or 4.1% from the same period in 2000. Provision for income taxes decreased for the three months ended June 30, 2001 to $858,000, a decrease of $412,000, or 32.4%, due to a decrease in net income before tax in the second quarter of 2001 to $1.9 million as compared to net income before tax of $3.0 million in the same period in 2000. Six Months Ended June 30, 2001 Compared to Six Months Ended June 30, 2000 Revenues. Total revenues for the six months ended June 30, 2001 were $18.4 million, a decrease of $5.8 million, or 24.0%, over the same period in 2000. Commission and fee income for the six months ended June 30, 2001 was 14.6 million, a decrease of $7.9 million or 35.1% 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 six months ended June 30, 2001 were $1.1 million, an increase of $282,000 or 34.5% over the same period in 2000 due to the company's increased participation in larger new issues partially offset by decreased activity in the new issue market as result of the bear market conditions during 2001. Income from equity investee for the six months ended June 30, 2001 was $1.5 million, compared to a loss of $341,000 for the six months ended June 30, 2000 due to improved municipal bond market conditions and increased market share of underwritings. Trading profits for the six months ended June 30, 2001 were $474,000 an increase of $81,000 or 20.6% over the same period in 2000. Interest and dividends for the six months ended June 30, 2001 were $786,000, a decrease of $81,000 or 9.3% 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 six months June 30, 2001 were $15.1 million, a decrease of $610,000 or 3.9% over the same period in 2000. -10-
Employee compensation and benefit costs for the six months ended June 30, 2001 were $5.6 million, a decrease of $583,000 or 9.4% over the same period in 2000. This decrease was primarily due to a decrease in discretionary payments to employees coupled with a decrease in commission payouts and a decrease in personnel due to the low trading volumes. Clearing and floor brokerage fees for the six months ended June 30, 2001 were $2.4 million, a decrease of $1.4 million or 37.3% over the same period in 2000 primarily due to the decreased volume of trade executions. Advertising and promotion expenses for the six months ended June 30, 2001 were $1.9 million an increase of $687,000 or 54.6% over the same period in 2000 due to increased promotion expenditures in connection with the redesigned website for WFN, coupled with increased print and media advertisement by Siebert in the second quarter of 2001. Communications expense for the six months ended June 30, 2001, was $1.6 million, a decrease of $29,000 or 1.8% over the same period in 2000 due primarily to the lower volume of call traffic as a result of low trading volumes. Occupancy costs for the six months ended June 30, 2001 was $497,000, an increase of $124,000 or 33.2% over the same period in 2000, principally due to the move of some of the Company's operations to Jersey City, New Jersey, Fremont, California and the opening of a branch/customer service call center in Ft. Lauderdale, Florida. Interest expense for the six months ended June 30, 2001 remained unchanged at $9,000 for the same period in 2000. Other general and administrative expenses were $3.1million, an increase of $599,000 or 24.4% over the same period in 2000 primarily due to higher depreciation and amortization during the current period relating to the purchase of WFN in October 2000 and increased consulting expense, partially offset by lower fulfillment costs. Provision for income taxes decreased for the six months ended June 30, 2001 to $1.5 million, a decrease of $2.1 million, or 57.7%, due to a decrease in net income before tax to $3.3 million as compared to net income before tax of $8.5 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. Siebert's total assets at June 30, 2001 were $41.0 million. As of June 30, 2001, $32.7 million, or 79.7%, 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, 2000, Siebert's regulatory net capital was $20.3 million, $20.0 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 June 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. -11-
Item 3. Quantitative and Qualitative Disclosures About Market Risk Financial Instruments Held For Trading Purposes: Through Siebert, the Company maintains inventories in exchange-listed and NASDAQ equity securities on both a long and short basis. The fair value of all securities at June 30, 2001 was approximately $6.4 million in long positions and approximately $8,000 in short positions. The fair value of all securities at June 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 $640,000 and $445,000, respectively, due to 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 The Company held its annual meeting on June 15, 2001. At that meeting, the following matter was voted on and received the votes indicated: (1) Election of Directors For % Withheld --- - -------- Muriel F. Siebert 22,215,606 98.71 19,787 Nicholas P. Dermigny 22,215,506 98.71 19,887 Patricia L. Francy 22,215,506 98.71 19,887 Jane H. Macon 22,552,606 98.71 19,787 Daniel Jacobson 22,552,602 98.71 19,791 -12-
Item 5. Other Information None Item 6. Exhibits and Reports on Form 8-K (a) Exhibits (b) Reports on Form 8-K None -13-
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 Chair, President and Director August 9, 2000 - ------------------------ Muriel F. Siebert (principal executive officer) /s/Mitchell M. Cohen Chief Financial Officer August 9, 2000 - ------------------------ Mitchell M. Cohen and Assistant Secretary (principal financial and accounting officer) -14-