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SIEBERT FINANCIAL CORP - Quarter Report: 2005 June (Form 10-Q)



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, 2005

 

 

o

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 Incorporation)

 

(I.R.S. Employer 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 o

          Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

Yes o   No x

          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 1, 2005, there were 22,087,087 shares of Common Stock, par value $.01 per share, outstanding.



          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.

          Certain statements contained in the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” below and elsewhere in this document, as well as oral statements that may be made by the Company or by its officers, directors or employees 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; demand for brokerage and investment banking services; competition within and without the discount brokerage business, including the offer of broader services; competition from electronic discount brokerage firms offering lower rates on commissions than the Company; the prevalence of a flat fee environment; decline in participation in equity or municipal finance underwritings; limited trading opportunities; the method of placing trades by the Company’s customers; computer and telephone system failures; the level of spending by the Company on advertising and promotions; trading errors and the possibility of losses from customer non-payment of amounts due; other increases in expenses and changes in net capital or other regulatory requirements. 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 Securities and Exchange Commission filings.


Part I - FINANCIAL INFORMATION

Item 1. Financial Statements.

Siebert Financial Corp. & Subsidiaries
Consolidated Statements of Financial Condition

 

 

 

 

 

 

 

 

 

 

June 30, 2005
(Unaudited)

 

December 31,
2004

 

 

 

     

 

 

 

 

 

 

 

 

 

ASSETS

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

30,894,000

 

$

28,748,000

 

Cash equivalents – restricted

 

 

1,300,000

 

 

1,300,000

 

Receivable from clearing brokers

 

 

1,905,000

 

 

2,371,000

 

Furniture, equipment and leasehold improvements, net

 

 

1,057,000

 

 

1,305,000

 

Investment in and advances to equity investees

 

 

3,681,000

 

 

3,779,000

 

Prepaid expenses and other assets

 

 

997,000

 

 

1,539,000

 

Intangibles, net

 

 

1,687,000

 

 

2,017,000

 

Deferred taxes

 

 

601,000

 

 

501,000

 

 

 

         

 

 

 

$

42,122,000

 

$

41,560,000

 

 

 

         

 

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accounts payable and accrued liabilities

 

$

6,242,000

 

$

6,460,000

 

 

 

 

 

 

 

 

 

Commitments and contingent liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

 

Common stock, $.01 par value; 49,000,000 shares authorized, 22,993,917 shares issued and 22,084,801 outstanding at June 30, 2005 and 22,983,917 shares issued and 22,082,301 outstanding at December 31, 2004

 

 

229,000

 

 

229,000

 

Additional paid-in capital

 

 

17,958,000

 

 

17,931,000

 

Retained earnings

 

 

21,808,000

 

 

21,033,000

 

Less: 909,116 and 901,616 shares of treasury stock, at cost at June 30, 2005 and December 31, 2004, respectively

 

 

(4,115,000

)

 

(4,093,000

)

 

 

         

 

 

 

 

35,880,000

 

 

35,100,000

 

 

 

         

 

 

 

 

 

 

 

 

 

 

 

$

42,122,000

 

$

41,560,000

 

 

 

         

 

See notes to consolidated financial statements.


Siebert Financial Corp. & Subsidiaries
Consolidated Statements of Income
(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended
June 30,

 

Six Months Ended
June 30,

 

 

 

     

 

 

 

2005

 

2004

 

2005

 

2004

 

 

 

             

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

Commissions and fees

 

$

6,232,000

 

$

5,201,000

 

$

12,405,000

 

$

11,445,000

 

Investment banking

 

 

619,000

 

 

107,000

 

 

982,000

 

 

443,000

 

Trading profits

 

 

221,000

 

 

182,000

 

 

438,000

 

 

432,000

 

Income from equity investees

 

 

718,000

 

 

556,000

 

 

1,034,000

 

 

682,000

 

Interest and dividends

 

 

206,000

 

 

105,000

 

 

363,000

 

 

180,000

 

 

 

                     

 

 

 

 

7,996,000

 

 

6,151,000

 

 

15,222,000

 

 

13,182,000

 

 

 

                     

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

Employee compensation and benefits

 

 

2,538,000

 

 

2,494,000

 

 

5,210,000

 

 

5,292,000

 

Clearing fees, including floor brokerage

 

 

1,346,000

 

 

795,000

 

 

2,667,000

 

 

1,439,000

 

Advertising and promotion

 

 

202,000

 

 

245,000

 

 

540,000

 

 

698,000

 

Communications

 

 

577,000

 

 

565,000

 

 

1,184,000

 

 

1,288,000

 

Occupancy

 

 

263,000

 

 

262,000

 

 

522,000

 

 

535,000

 

Other general and administrative

 

 

2,051,000

 

 

1,336,000

 

 

3,764,000

 

 

2,762,000

 

 

 

                     

 

 

 

 

6,977,000

 

 

5,697,000

 

 

13,887,000

 

 

12,014,000

 

 

 

                     

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income before income taxes

 

 

1,019,000

 

 

454,000

 

 

1,335,000

 

 

1,168,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Provision for income taxes

 

 

425,000

 

 

224,000

 

 

560,000

 

 

523,000

 

 

 

                     

 

Net Income

 

$

594,000

 

$

230,000

 

$

775,000

 

$

645,000

 

 

 

                     

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income per share of common stock -

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic and Diluted

 

$

.03

 

$

.01

 

$

.04

 

$

.03

 

Weighted average shares outstanding -

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

22,077,863

 

 

22,115,145

 

 

22,076,340

 

 

22,137,341

 

Weighted average shares outstanding -

 

 

 

 

 

 

 

 

 

 

 

 

 

Diluted

 

 

22,176,754

 

 

22,330,151

 

 

22,181,343

 

 

22,335,238

 

See notes to consolidated financial statements.


Siebert Financial Corp. & Subsidiaries
Consolidated Statements of Cash Flows
(Unaudited)

 

 

 

 

 

 

 

 

 

 

Six Months Ended
June 30,

 

 

 

 

 

 

 

2005

 

2004

 

 

 

     

 

Cash flows from operating activities:

 

 

 

 

 

 

 

Net income

 

$

775,000

 

$

645,000

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

 

 

Depreciation and amortization

 

 

630,000

 

 

806,000

 

Income from equity investees

 

 

(1,034,000

)

 

(682,000

)

Deferred taxes

 

 

(100,000

)

 

24,000

 

Changes in:

 

 

 

 

 

 

 

Securities owned, at market value

 

 

 

 

 

1,226,000

 

Receivable from clearing brokers

 

 

466,000

 

 

368,000

 

Prepaid expenses and other assets

 

 

542,000

 

 

651,000

 

Securities sold, not yet purchased, at market value

 

 

 

 

 

58,000

 

Accounts payable and accrued liabilities

 

 

(218,000

)

 

202,000

 

 

 

         

 

Net cash provided by operating activities

 

 

1,061,000

 

 

3,298,000

 

 

 

         

 

 

 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Purchase of furniture, equipment and leasehold improvements

 

 

(52,000

)

 

(228,000

)

Purchase of customer accounts

 

 

 

 

 

(400,000

)

Payment of advances by equity investee

 

 

(411,000

)

 

(57,000

)

Distribution from equity investee

 

 

1,543,000

 

 

1,225,000

 

 

 

         

 

Net cash provided by investing activities

 

 

1,080,000

 

 

540,000

 

 

 

         

 

 

 

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

 

 

Proceeds from exercise of options

 

 

27,000

 

 

 

 

Repurchase of common stock

 

 

(22,000

)

 

(517,000

)

 

 

         

 

Net cash provided by (used in) financing activities

 

 

5,000

 

 

(517,000

)

 

 

         

 

 

 

 

 

 

 

 

 

Net increase in cash and cash equivalents

 

 

2,146,000

 

 

3,321,000

 

 

 

 

 

 

 

 

 

Cash and cash equivalents - beginning of period

 

 

28,748,000

 

 

24,732,000

 

 

 

         

 

 

 

 

 

 

 

 

 

Cash and cash equivalents - end of period

 

$

30,894,000

 

$

28,053,000

 

 

 

         

 

 

 

 

 

 

 

 

 

Supplemental cash flow disclosures:

 

 

 

 

 

 

 

Cash paid for:

 

 

 

 

 

 

 

Income taxes

 

$

149,000

 

$

121,000

 

See notes to consolidated financial statements.


Siebert Financial Corp. & Subsidiaries

Notes to Consolidated Financial Statements
Six Months Ended June 30, 2005 and 2004
(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, 2004. 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.

Stock-Based Compensation

 

 

 

Statement of Financial Accounting Standards (“SFAS”) No. 123, Accounting for Stock-Based Compensation (“SFAS 123”) as amended by SFAS No. 148, (Accounting for Stock-Based Compensation – Transition and Disclosure an amendment to FASB Statement 123), allows the fair value of stock-based compensation to be included in expense over the period earned; alternatively, if the fair value of stock-based compensation awards are not included in expense, SFAS 123 requires disclosure of net income (loss), on a pro forma basis, as if expense treatment had been applied. As permitted by SFAS 123, the Company continues to account for such compensation under Accounting Principles Board Opinion No. 25 (“APB 25”), Accounting for Stock Issued to Employees, and related interpretations, pursuant to which no compensation cost was recognized in connection with the issuance of stock options, as all options granted under the 1997 Stock Option Plan had an exercise price equal to or greater than the fair value of the underlying common stock on the date of grant. Had the Company elected to recognize compensation expense for the stock option plan, consistent with the method prescribed by SFAS 123, the Company’s net income and net income per share for the three months and six months ended June 30, 2004 and 2003 would have decreased the pro forma amounts as follows:


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months
Ended June 30,

 

Six Months
Ended June 30,

 

 

 

2005

 

2004

 

2005

 

2004

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income, as reported

 

$

594,000

 

$

230,000

 

$

775,000

 

$

645,000

 

Stock-based employee compensation determined under APB 25

 

 

-

 

 

-

 

 

-

 

 

-

 

Stock-based employee compensation determined under the fair value based method, net of tax effect

 

 

(68,000

)

 

(87,000

)

 

(136,000

)

 

(166,000

)

 

 

   

 

   

 

   

 

   

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pro forma net income

 

$

526,000

 

$

143,000

 

$

639,000

 

$

479,000

 

 

 

   

 

   

 

   

 

   

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income per share - basic:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As reported

 

$

.03

 

$

.01

 

$

.04

 

$

.03

 

Pro forma

 

$

.02

 

$

.01

 

$

. 03

 

$

.02

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income per share - diluted:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As reported

 

$

.03

 

$

.01

 

$

.04

 

$

.03

 

Pro forma

 

$

.02

 

$

.01

 

$

.03

 

$

.02

 




 

 

3.

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, 2005, Siebert had net capital of approximately $18,348,000 as compared with net capital requirements of $250,000.

 

 

4.

Capital Transactions:

 

 

 

On May 15, 2000, the board of directors of the Company authorized a stock buy back program of up to one million shares of the Company’s common stock. Shares will be purchased from time to time, in the discretion of the Company, in the open market and in private transactions. Through June 30, 2005, 909,116 shares have been purchased at an average price of $4.53 per share.

 

 

5.

Intuit Lawsuit Update:

 

 

 

Siebert filed a lawsuit against Intuit, Inc. (“Intuit”), in New York State Supreme Court on September 17, 2003 (the “Intuit Lawsuit”), seeking not less than $11.1 million in compensatory damages and $33.3 million in punitive damages for claims relating to the Joint Brokerage Service (the “JBS”) conducted during the years ended December 31, 2003 and 2002 under the Strategic Alliance Agreement between Siebert and Intuit. A motion by Intuit to stay the lawsuit and require that the dispute be submitted to arbitration was denied in a decision of the Supreme Court dated January 7, 2004. Intuit’s motion to reargue the Court’s decision was denied by the Court in a decision dated June 7, 2004. Intuit appealed both decisions to the Appellate Division of the Supreme Court. By a unanimous decision and order dated October 28, 2004, the Appellate Division affirmed the lower Court’s January 7, 2004 decision, denying Intuit’s motion to compel arbitration and stay litigation. By further order of the Appellate Division dated January 4, 2005, Intuit’s motion for reargument or for leave to appeal to the Court of Appeals was denied. On February 7, 2005, Intuit made a motion directly to the Court of Appeals for leave to appeal to that Court from the Appellate Division’s order of October 28, 2004. Intuit’s motion and Siebert’s answering papers were submitted to the Court of Appeals for decision on February 22, 2005. By a decision announced on March 29, 2005, the Court of Appeals denied Intuit’s motion for leave to appeal, thereby ending any controversy over Siebert’s right to litigate in court rather than arbitrate. Intuit has moved in the Supreme Court, on February 4, 2005, to dismiss five of the six causes of action asserted by Siebert in the Intuit Lawsuit. Siebert’s answering papers and Intuit’s reply were submitted to the Supreme Court on April 11, 2005, and the Court heard argument of the motion by counsel for Siebert and Intuit on April 29, 2005. The Court reserved decision and will issue a written opinion. 

 

 

6.

Siebert Brandford Shank & Co., LLC:

 

 

 

Summarized financial data of Siebert Brandford Shank & Co., LLC, (“SBS”) as of and for the six months ended June 30, 2005 and 2004 is set forth below. Siebert holds a 49% ownership interest in SBS.




 

 

 

 

 

 

 

 

 

 

2005

 

2004

 

 

 

 

 

 

 

 

Total assets

 

$

16,976,000

 

$

9,101,000

 

Total liabilities, including subordinated liabilities of $1,200,000

 

$

10,860,000

 

$

3,746,000

 

Total members’ capital

 

$

6,117,000

 

$

5,355,000

 

Total revenues

 

$

10,086,000

 

$

6,937,000

 

Net income

 

$

1,821,000

 

$

1,392,000

 


 

 

 

Siebert charged SBS $120,000 for the six months ended 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 $2,605,000 and $2,232,000 at June 30, 2005 and 2004, respectively. Such amounts may not be immediately available for distribution to Siebert for various reasons including the amount of SBS’s available cash, the provisions of the agreement between Siebert and the principals and SBS’s continued compliance with its regulatory and net capital requirements.

 

 

7.

SBS Financial Products Company, LLC

 

 

 

The Company entered into an Operating Agreement, effective as of April 19, 2005 (the “Operating Agreement”), with the two individual principals of SBS (the “Principals”) of SBS Financial Products Company, LLC, a Delaware limited liability company (“SBSFPC”). Pursuant to the terms of the Operating Agreement, the Company and each of the Principals made an initial capital contribution of $400,000 in exchange for a 33.33% initial interest in SBSFPC. SBSFPC engages in derivatives transactions related to the municipal underwriting business. The Operating Agreement provides that profit will be shared 66.67% by the Principals and 33.33% by the Company.

 

 

 

Summarized financial data of SBSFPC as of and for the six months ended June 30, 2005 is set forth below. The Company holds a 33.33% ownership interest in SBSFPC.


 

 

 

 

 

 

 

 

 

2005

 

 

 

 

 

 

 

 

Total assets

 

$

2,378,000

 

 

Total liabilities

 

$

749,000

 

 

Total members’ capital

 

$

1,627,000

 

 

Total revenues

 

$

831,000

 

 

Net income

 

$

427,000

 


 

 

8.

Commitments and Contingent Liabilities:

 

 

 

Siebert terminated the fully disclosed clearing agreement (the “Clearing Agreement”) with Pershing LLC (formerly the Pershing division of Donaldson, Lufkin & Jenrette Securities Corporation) (“Pershing”). Based on consultation with counsel, Siebert believes that the $1,500,000 that it advanced to Pershing in January 2003 should be returned and that Pershing may be liable for damages. Pershing has expressed its belief that it is entitled to retain the advance and receive a minimum of $3 million for its unreimbursed costs, a termination fee of $500,000 and $5 million for lost revenues. Siebert believes the Pershing claims are without merit and that the ultimate result of this matter will not have a material adverse effect on result of operations or financial positions. Siebert has decided not to commence proceedings against Pershing at the present time. As a result, Siebert has charged the $1,500,000 advance to Pershing against income in the fourth quarter of 2004 since communications indicated that Pershing and the Company could not resolve this matter. 

 

 

 

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. Management’s Discussion and Analysis of Financial Condition and Results of Operations

            This discussion should be read in conjunction with the Company’s audited consolidated financial statements as of and for the year ended December 31, 2004, and the unaudited consolidated financial statements and the notes thereto contained elsewhere in this Quarterly Report.

Business Environment

            The uncertainty over the state of the economy weighed on the markets in the second quarter of 2005 due to the high price of oil, rising interest rates and a wide U.S. trade deficit continues to affect 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

           The Company entered into an Operating Agreement, effective as of April 19, 2005 (the “Operating Agreement”), with Suzanne Shank and Napoleon Brandford III, the two individual principals of SBS (the “Principals”) of SBS Financial Products Company, LLC, a Delaware limited liability company (“SBSFPC”). Pursuant to the terms of the Operating Agreement, the Company and each of the Principals made an initial capital contribution of $400,000 in exchange for a 33.33% initial interest in SBSFPC. SBSFPC engages in derivatives transactions related to the municipal underwriting business. The Operating Agreement provides that profit will be shared 66.66% by the Principals and 33.33% by the Company.

          On May 15, 2000, the board of directors of the Company authorized the repurchase of up to 1,000,000 shares of the Company’s common stock. Shares will be purchased from time to time, in the discretion of the Company, in the open market and in private transactions. Through June 30, 2005, 909,116 shares have been purchased at an average price of $4.53 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.

Critical Accounting Policies

          The Company 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 accounting policy. These 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 these 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.

Results of Operations

          The Company believes that its core business is performing relatively well, given the current difficult business environment for discount and online brokers. The Company had net income of $594,000 and $775,000 for the three months and six months ended June 30, 2005, respectively.        

Three Months Ended June 30, 2005 Compared to Three Months Ended June 30, 2004

          Total revenues for the three months ended June 30, 2005 were $8.0 million, an increase of $1.9 million or 30.0% from the same period in 2004.

          Commission and fee income for the three months ended June 30, 2005 was $6.2 million, an increase of $1.0 million or 19.8% from the same period in 2004 due to an increase in commissions generated by the commission recapture, institutional trading and institutional direct access operations entered into the third quarter of 2004.


          Investment banking revenues for the three months ended June 30, 2004 were $619,000, an increase of $512,000 or 478.51% due to the Company participating in more new issues as a result of the Capital Markets team that joined the Company in the third quarter of 2004.

          Income from the Company’s equity investment in Siebert Brandford Shank & Co., LLC, an entity in which the Company holds a 49% equity interest (“SBS”), for the three months ended June 30, 2005, was $577,000 compared to income of $556,000, an increase of $21,000 or 3.8% from the same period in 2004. SBS serves as an underwiter for municipal bond offerings. Income from the Company’s equity investment in SBS Financial Products Company, LLC, an entity in which the Company holds a 33% equity interest (“SBSFPC”) for the three months ended June 30, 2005, was $141,000 as a result of the first transactions by SBSFPC in the second quarter 2005.

          Trading profits were $221,000 for the three months ended June 30, 2005, an increase of $39,000 or 21.4% over the same period in 2004 due to an overall increase in trading margins and volume.

          Interest and dividends for the three months ended June 30, 2005 were $206,000, an increase of $101,000 or 96.2% from the same period in 2004 primarily due to higher interest rates.

          Total expenses for the three months ended June 30, 2005 were $7.0 million, an increase of $1.3 million or 22.5% from the same period in 2004.

          Employee compensation and benefit costs for the three months ended June 30, 2005 were $2.5 million, an increase of $44,000 or 1.8% from the same period in 2004. This increase was primarily due to the hiring of the Company’s General Counsel, expansion of the Company’s Capital Markets Group and New York Stock Exchange Floor Operation as well as an increase in health benefits offset by a reduction of accruals for contractual bonuses.

          Clearing and floor brokerage costs for the three months ended June 30, 2005 were $1.4 million, an increase of $551,000 or 69.3% from the same period in 2004 primarily due to an increased volume of trade executions to be cleared as well as institutional trades executed at the New York Stock Exchange and a one time commission rebate of $200,000 from the Company’s clearing firm in the second quarter of 2004.

          Advertising and promotion expenses for the three months ended June 30, 2005 were $202,000, a decrease of $43,000 or 17.6% from the same period in 2004 primarily due to management’s decision to spend less for advertising and promotion.

          Communications expense for the three months ended June 30, 2005, was $577,000, an increase of $12,000 or 2.1% from the same period in 2004 due primarily to an increase in customer calls and activity offset by a reduction in costs associated with quotes.

          Occupancy costs for the three months ended June 30, 2005 were $263,000, an increase of $1,000 or .4% from the same period in 2004. This increase was due to the increase in escalation costs offset by the combining of the Company’s Boca Raton office with YDB’s Boca Raton office in the second quarter of 2004.

          Other general and administrative expenses for the three months ended June 30, 2005 were $2.1 million, an increase of $715,000 or 53.5% from the same period in 2004. This increase was due to the costs relating to the Company entering into the commission recapture business in the third quarter of 2004, costs relating to the acquisition of the customer accounts of Wall Street Discount Corp., the cost of leasing a seat on the New York Stock Exchange as the Company expanded the New York Exchange Floor Operation and an increase in legal fees.

          For the three months ended June 30, 2005 and 2004, there was a tax provision of $425,000 and 224,000, respectively, due to the Company’s income before income tax of $1,019,000 and $454,000, respectively.


Six Months Ended June 30, 2005 Compared to Six Months Ended June 30, 2004

          Total revenues for the six months ended June 30, 2005 were $15.2 million, an increase of $2.0 million or 15.5% from the same period in 2004.

          Commission and fee income for the six months ended June 30, 2005 was $12.4 million, an increase of $960,000 or 8.4% from the same period in 2004 due to an increase in commissions generated by the commission recapture and institutional direct access operations entered into in the third quarter of 2004 as well as retail customer accounts purchased from Wall Street Discount, Inc. in the second quarter 2004 offset by a decrease in retail trading volume.

          Investment banking revenues for the six months ended June 30, 2005 were $982,000, an increase of $539,000 or 121.7% from the same period in 2004 due to the Company participating in more new issues as a result of the Capital Markets team that joined the Company in the third quarter of 2004.

          Income from the Company’s equity investment in Siebert Brandford Shank & Co., LLC, an entity in which the Company holds a 49% equity interest (“SBS”) for the six months ended June 30, 2005, was $893,000 compared to income of $682,000, an increase of $211,000 or 30.9% from the same period in 2004. This increase was due to an increase in designations and sales at SBS. SBS serves as an underwriter for municipal bond offerings. Income from the Company’s equity investment in SBS Financial Products Company, LLC an entity in which the Company holds a 33% equity interest (“SBSFPC”) for the six months ended June 30, 2005, was $141,000 as a result of the first transactions by SBSFPC in the second quarter 2005.

          Trading profits were $438,000 for the six months ended June 30, 2005, an increase of $6,000 or 1.4% over the same period in 2004 due to an overall increase in trading margins and volume.

          Interest and dividends for the six months ended June 30, 2005 were $363,000, an increase of $183,000 or 101.7% from the same period in 2004 primarily due to higher interest rates.

          Total expenses for the six months ended June 30, 2005 were $13.9 million, an increase of $1.9 million or 15.6% from the same period in 2004.

          Employee compensation and benefit costs for the six months ended June 30, 2005 were $5.2 million, a decrease of $82,000 or 1.6% from the same period in 2004. This decrease was due to a decrease in contractual bonus accruals offset by the hiring of the Company’s General Counsel, expansion of the Company’s Capital Markets Group and New York Stock Exchange Floor Operation as well as an increase in health benefits.

          Clearing and floor brokerage costs for the six months ended June 30, 2005 were $2.7 million, an increase of $1.2 million or 85.3% from the same period in 2004 primarily due to increased volume of trade executions as well as institutional trades executed at the New York Stock Exchange and a one time commission rebate of $800,000 from the Company’s clearing firm in the second quarter of 2004.

          Advertising and promotion expenses for the six months ended June 30, 2005 were $540,000, a decrease of $158,000 or 22.6% from the same period in 2004 primarily due to management’s decision to spend less for advertising and promotion.

          Communications expense for the six months ended June 30, 2005, was $1.2 million, a decrease of $104,000 or 8.1% from the same period in 2004 due to primarily management’s effort to control and maintain these costs.

          Occupancy costs for the six months ended June 30, 2005 were $522,000, a decrease of $13,000 or 2.4% from the same period in 2004. This decrease was due to the combining of the Company’s Boca Raton office with YDB’s Boca Raton office in the second quarter of 2004 offset by increased escalation costs.

          Other general and administrative expenses for the six months ended June 30, 2005 were $3.8 million, an increase of $1.0 or 36.3% from the same period in 2004. This increase was due to the costs relating to the Company


entering into the commission recapture business in the third quarter of 2004, costs relating to the acquisition of the customer accounts of Wall Street Discount Corp., the cost of leasing a seat on the New York Stock Exchange as the Company expanded the New York Exchange Floor Operation and an increase in legal fees.

          For the six months ended June 30, 2005 and 2004, there was a tax provision of $560,000 and 523,000, respectively, due to the Company’s income before income tax of $1,335,000 and $1,168,000, respectively.

Liquidity and Capital Resources

          The Company’s assets are highly liquid, consisting generally of cash and money market funds. The Company’s total assets at June 30, 2005 were $42 million. As of that date, $32.8 million, or 78%, 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, 2005, Siebert’s regulatory net capital was $18.4 million, $18.1 million in excess of its minimum capital requirement of $250,000.

          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, 2007, at which time SBS is obligated to repay to Siebert any amounts borrowed by SBS thereunder.

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

          The Company carried out an evaluation, under the supervision and with the participation of management, including the Company’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s our disclosure controls and procedures as of the end of the period covered by this report pursuant to Exchange Act Rule 13a-15 under the Securities Exchange Act of 1934, as amended. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer 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 were no changes in the Company’s internal control over financial reporting that occurred during the Company’s most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.


Part II - OTHER INFORMATION

Item 1. Legal Proceedings

          See Part 1-Item 1 “Notes to Consolidated Financial Statements-Intuit Lawsuit Update” with respect to the Company’s lawsuit against Intuit Inc. which was filed in New York State Supreme Court, County of New York on September 17, 2003, alleging, among other things, Intuit’s breach of contractual obligations, breach of fiduciary duties and misrepresentation and/or fraud, all relating to the Joint Brokerage services conducted under the Strategic Alliance Agreement between Siebert and Intuit.

          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. Unregistered Sale of Equity Securities and Use of Proceeds

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Period

 

Total Number
Of Shares
Purchased

 

Average Price
Paid Per Share

 

Total Number of
Shares Purchased
as Part of Publicly
Announced
Plans(1)

 

Maximum
Number of Shares
That May Yet Be
Purchased Under
The Plan

 

 

 

 

 

 

 

 

 

 

 

April 2005

 

 

 

0

 

 

 

 

 

 

 

 

 

901,616

 

 

 

 

98,384

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

May 2005

 

 

 

100

 

 

 

$

3.12

 

 

 

 

901,716

 

 

 

 

98,284

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

June 2005

 

 

 

7,400

 

 

 

$

2.98

 

 

 

 

909,116

 

 

 

 

90,884

 

 

 

 

 

 

 

 

 

 

   

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

 

 

7,500

 

 

 

$

2.98

 

 

 

 

909,116

 

 

 

 

90,884

 

 

(1) On May 15, 2000, the Board of Directors of the Company authorized a buy back of up to one million shares of the Company’s common stock. Under this program, shares are purchased from time to time, at the Company’s discretion, in the open market and in private transactions.

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 9, 2005. At that meeting, the following matter was voted on and received the votes indicated:

 

 

 

 

 

 

 

 

 

 

 

(1)      Election of Directors

 

For

 

%

 

Withheld

 

 

 

 

 

 

 

 

 

 

Muriel F. Siebert

 

 

21,784,786

 

 

99

 

 

116,203

 

 

Nicholas P. Dermigny

 

 

21,877,901

 

 

99

 

 

23,088

 

 

Patricia L. Francy

 

 

21,828,049

 

 

99

 

 

72,940

 

 

Jane H. Macon

 

 

21,711,406

 

 

99

 

 

189,583

 

 

Leonard M. Leiman

 

 

21,812,399

 

 

99

 

 

88,590

 

 

Nancy S. Peterson

 

 

21,893,881

 

 

99

 

 

7,108

 

 

Robert P. Mazzarella

 

 

21,893,881

 

 

99

 

 

7,108

 

Item 5. Other Information

            None

Item 6. Exhibits

 

 

 

 

31.1

Certification of Muriel F. Siebert pursuant to Exchange Act Rules 13a-14 and 15d-14, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

 

 

 

 

31.2

Certification of Joseph M. Ramos, Jr. pursuant to Exchange Act Rule 13a-14 and 15d-14, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

 

 

 

 

32.1

Certification of Muriel F. Siebert of Periodic Financial Report under Section 906 of the Sarbanes-Oxley Act of 2002.

 

 

 

 

32.2

Certification of Joseph M. Ramos, Jr. of Periodic Financial Report under Section 906 of the Sarbanes-Oxley Act of 2002.



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.

 

 

 

 

 

SIEBERT FINANCIAL CORP.

 

 

 

 

By: 

/s/ Muriel F. Siebert

 

 

 

 

 

 

 

Muriel F. Siebert

 

 

Chairwoman and President
(principal executive officer)

 

 

 

 

Dated: August 15, 2005

 

 

 

 

By: 

/s/ Joseph M. Ramos, Jr.

 

 

 

 

 

 

 

Joseph M. Ramos, Jr.

 

 

Executive Vice President and Chief Financial Officer
(principal financial and accounting officer)

 

 

 

 

Dated: August 15, 2005