SIEBERT FINANCIAL CORP. - 10-Q Summary
Business Context and Reporting Period
This Form 10-Q covers the quarterly period ended June 30, 2003. Siebert Financial Corp. operates as a discount brokerage firm (Muriel Siebert & Co., Inc.) and holds a 49% equity interest in Siebert Brandford Shank & Co., LLC (SBS), a municipal bond underwriter. The company is navigating a competitive brokerage environment and managing the termination of a strategic alliance with Intuit Inc.
Key Financial Metrics
| Metric | Three Months Ended June 30, 2003 | Six Months Ended June 30, 2003 |
|---|---|---|
| Total Revenues | $6,611,000 | $12,216,000 |
| Net Income (Loss) | $246,000 | $(49,000) |
| Net Income (Loss) Per Share (Basic) | $0.01 | $0.00 |
| Cash and Cash Equivalents | $20,155,000 (Balance Sheet) | $20,155,000 (Balance Sheet) |
| Regulatory Net Capital | $15,476,000 | $15,476,000 |
| Debt | None reported (Interest expense nominal) | None reported |
Liquidity: Total assets were $39.9 million, with approximately 67% ($26.6 million) classified as highly liquid. The company maintains a significant cushion above the minimum regulatory net capital requirement of $250,000.
Material Changes vs. Prior Period
- Revenue Mix: While total revenue for the three months increased 3.8% year-over-year, the six-month revenue decreased 3.0%. This was driven by a significant 134.2% increase in income from the equity investee (SBS) due to municipal bond market activity, partially offset by an 8.8% decline in commission and fee income over the six months due to weak Q1 market conditions.
- Expense Reduction: Total expenses for the three months decreased 21.3% year-over-year. This was largely due to the absence of $1.4 million in non-recurring start-up costs (advisory and legal fees) incurred in the prior year's second quarter related to the Intuit alliance.
- Profitability: The company returned to profitability in Q2 2003 ($246,000 net income) compared to a loss of $868,000 in Q2 2002. However, the six-month period resulted in a net loss of $49,000, compared to a loss of $613,000 in the prior year.
Outlook, Risks, and Unusual Items
- Intuit Alliance Termination: The Joint Brokerage Service (JBS) with Intuit has underperformed significantly. The company and Intuit have agreed to terminate the service. Costs incurred for the JBS were approximately $1.2 million for the six months ended June 30, 2003. Management believes the company would have been profitable for the six-month period excluding these direct expenses.
- Disputes and Contingencies: There are unresolved disputes with Intuit regarding the allocation of "Incremental Expenses," specifically concerning a $1.5 million advance to clearing broker Pershing LLC and an $866,000 CRM system cost. Siebert believes these should be shared, while Intuit disagrees.
- Clearing Agreement: Siebert terminated its clearing agreement with Pershing LLC and is seeking the return of a $1.5 million advance. Management does not expect the net costs of termination to be material.
- Stock Repurchase: The company continues its share buyback program, having repurchased 702,368 shares at an average price of $4.68 per share through June 30, 2003.
Investor Verification Checklist
- Intuit Dispute Resolution: Verify the final settlement terms regarding the $1.5 million Pershing advance and $866,000 CRM costs to determine if additional charges will be recognized.
- Core Brokerage Trends: Monitor Q3 commission revenue to confirm if the Q2 rebound in trading volume is sustainable or if Q1 weakness was an anomaly.
- SBS Performance: Assess the sustainability of the municipal bond underwriting income from SBS, which was the primary driver of revenue growth.
- Cash Burn Rate: Review the cash flow statement, which showed a net decrease in cash of $2.3 million for the six months, driven by operating losses and investing outflows (including the Pershing advance and customer account purchases).