SIEB

SIEBERT FINANCIAL CORP. - 10-K Summary (Fiscal Year Ended Dec 31, 2002)

Business Context and Reporting Period

This Annual Report covers the fiscal year ended December 31, 2002. Siebert Financial Corp. is a holding company operating through its wholly-owned subsidiary, Muriel Siebert & Co., Inc. ("Siebert"), a retail discount brokerage and investment banking firm. The Company is the largest Woman-Owned Business Enterprise in the capital markets. It also holds a 49% interest in Siebert, Brandford, Shank & Co., LLC ("SBS"), a leading Minority and Women's Business Enterprise in tax-exempt underwriting.

Key Financial Metrics

Liquidity: The Company maintains highly liquid assets, with approximately 71% of total assets ($28.8 million) classified as highly liquid. Regulatory net capital of $16.4 million significantly exceeds the minimum requirement of $250,000.

Material Changes vs. Prior Period

• Revenue Decline: Total revenues decreased 24.7% to $24.1 million, driven by a 23.0% drop in commission and fee income due to lower trading volumes and reduced per-trade commissions. Investment banking revenues fell 30.3% to $1.5 million.
• Profitability Shift: The Company reported a net loss of $1.6 million in 2002 compared to a net income of $2.5 million in 2001. This was primarily due to a $3.2 million pre-tax loss.
• Expense Management: Total expenses decreased slightly by 1.3% to $27.3 million. Employee compensation dropped 19.0% due to headcount reductions and lower bonuses. However, General and Administrative expenses surged 47.4% to $8.3 million.
• Strategic Alliance Costs: Significant one-time and start-up costs were incurred related to a new Joint Brokerage Service (JBS) with Intuit, Inc. Siebert's share of JBS expenses was approximately $4.7 million in 2002, including $2.9 million in technology/marketing and $1.4 million in advisory/legal fees.

Outlook, Risks, and Management Commentary

Strategic Initiatives: The Company launched the JBS with Intuit in September 2002. While revenue was nominal in 2002, management expects development and marketing costs to exceed revenues for the next 12 months, potentially resulting in continued losses from this segment. The Company also acquired retail brokerage accounts from TradeStation, State Discount Brokers, and Your Discount Broker to expand its customer base.

Risks and Contingencies:

• Market Conditions: The Company faces intense competition from flat-fee brokers and electronic trading platforms, which pressures fee structures.
• System Reliance: Operations rely heavily on clearing agents and communication systems; failures could limit transaction processing.
• Regulatory Capital: As a broker-dealer, the Company must maintain strict net capital requirements. Failure to do so could result in suspension or liquidation.
• Off-Balance Sheet Risk: The Company is exposed to credit risk if customers fail to meet margin obligations, though transactions are cleared on a fully disclosed basis.

Capital Allocation: The Company continues a share buyback program authorized in 2000. As of March 13, 2003, 590,123 shares had been repurchased. No cash dividends were paid in 2002.

Investor Verification Checklist

• JBS Viability: Verify the timeline for the Intuit Joint Brokerage Service to reach profitability, given the $4.7 million in 2002 expenses and expectation of continued losses.
• Trading Volume Trends: Monitor quarterly trading volumes and average commission per trade to assess if the 24.7% revenue decline is a structural shift or cyclical.
• Regulatory Compliance: Confirm that Regulatory Net Capital remains well above the $250,000 minimum requirement amidst potential market volatility.
• Acquisition Integration: Track the retention and revenue generation of the acquired accounts from TradeStation, State Discount Brokers, and Your Discount Broker.
• Stock Buyback Activity: Review the pace of the share repurchase program and its impact on outstanding share count and earnings per share.