SIEB

SIEBERT FINANCIAL CORP. - 10-Q Summary

Business Context and Reporting Period

This Form 10-Q covers the quarterly period ended September 30, 2002, and the nine-month period ended on the same date. Siebert Financial Corp. operates primarily through its subsidiary, Muriel Siebert & Co., Inc., a discount brokerage firm. The Company operates in a challenging bear market environment characterized by reduced trading volumes and intense competition. A significant strategic development during this period was the launch of a Strategic Alliance with Intuit Inc. on September 16, 2002, to offer online brokerage services to Quicken customers.

Key Financial Metrics

Note: Figures are rounded to whole thousands as presented in the filing.

Material Changes vs. Prior Period

• Revenue Decline: Total revenues for the nine months ended September 30, 2002, decreased by 28.0% ($7.1 million) compared to the same period in 2001. Commission and fee income dropped 26.9% due to substantially reduced trading volumes in the bear market.
• Profitability Shift: The Company reported a net loss of $1.3 million for the nine months ended September 30, 2002, compared to a net income of $2.1 million in the prior year period. Management notes that excluding the Intuit Alliance losses ($3.5 million pre-tax) and WFN losses ($0.4 million), the core business would have been profitable.
• Expense Fluctuations: While employee compensation decreased by 18.3% due to lower volumes and personnel reductions, "Other general and administrative" expenses increased by 44.2%. This increase was driven by one-time start-up costs ($1.3 million) and development expenses related to the Intuit Alliance.
• Equity Investee Performance: Income from the equity investee (Siebert Brandford Shank & Co., LLC) decreased by $0.5 million for the nine-month period, though it increased significantly on a quarterly basis compared to the prior year.

Guidance, Outlook, and Risks

• Alliance Outlook: Management expects development and marketing costs for the Intuit Alliance to exceed revenues over the next 12 months, potentially resulting in continued losses. New account openings have been slower than expected due to market conditions.
• Cost Management: The Company is actively monitoring Alliance results and intends to reduce costs if appropriate. Expense reductions have already been implemented in the WFN subsidiary.
• Capital Resources: The Company maintains strong liquidity with $29.9 million (73.5% of total assets) in highly liquid assets. Regulatory net capital of $17.4 million is significantly above the $250,000 minimum requirement.
• Risks: Key risks include the bear market environment, intense competition from electronic discount brokers, and the financial impact of the new Alliance. The Company also faces off-balance sheet risks related to customer transactions cleared through brokers.
• Stock Repurchase: The Company continues its authorized program to repurchase up to 1 million shares. As of September 30, 2002, 556,100 shares had been repurchased.

Investor Verification Checklist

• Alliance Financial Impact: Verify the trajectory of the Intuit Alliance losses and the timeline for breakeven, as current losses are masking core business profitability.
• Trading Volume Trends: Monitor market volume recovery, as commission income is directly correlated to trading activity which has been depressed.
• Intangible Asset Amortization: Review the amortization schedule for the $1.0 million+ spent on acquiring customer accounts from TradeStation and State Discount Brokers, recorded as intangibles.
• Regulatory Capital: Confirm continued compliance with SEC Rule 15c3-1, though current levels are well above minimums.
• Equity Investee Exposure: Assess the performance of Siebert Brandford Shank & Co., LLC (49% interest), which contributed $1.0 million to income for the nine-month period.