SIEBERT FINANCIAL CORP. - 10-Q Summary
Business Context and Reporting Period
This report covers the quarterly period ended June 30, 1999. Siebert Financial Corp. operates as a discount brokerage and investment banking firm. The financial statements have been restated to reflect a 4-for-1 stock split (April 1998) and the acquisition of Andrew Peck Associates, Inc. (May 28, 1999), which was accounted for as a pooling of interests. The Company began trading on the NASDAQ National Market on August 11, 1999.
Key Financial Metrics
| Metric | Three Months Ended June 30, 1999 |
Six Months Ended June 30, 1999 |
|---|---|---|
| Total Revenues | $9,255,000 | $17,805,000 |
| Net Income | $1,369,000 | $2,375,000 |
| Net Income Per Share (Basic/Diluted) | $0.06 | $0.10 |
| Cash and Cash Equivalents | $19,653,000 | $19,653,000 (Ending Balance) |
| Net Capital (Regulatory) | $14,448,000 | $14,448,000 |
| Subordinated Borrowings | $3,000,000 | $3,000,000 |
Liquidity: Total assets were $32.7 million, with $25.4 million (78.6%) classified as highly liquid. The Company generated $4.4 million in net cash from operating activities for the six-month period.
Material Changes vs. Prior Period
- Revenue Growth: Total revenues increased 16.3% ($1.3 million) for the quarter and 13.5% ($2.1 million) for the six months compared to 1998.
- Commission Income: Increased 37.8% for the quarter and 35.4% for the six months, driven by higher trading volume despite lower per-trade commissions due to electronic trading (44% of trades in Q2 1999).
- Investment Banking: Revenues decreased 74.8% for the quarter and 78.1% for the six months. This decline is primarily due to a change in accounting for Siebert, Brandford, Shank & Co., L.L.C. ("SBS") from consolidation to the equity method in July 1998.
- Equity Income: Income from the SBS investee increased to $460,000 (quarter) and $636,000 (six months), offsetting the drop in consolidated investment banking revenue.
- Expenses: Total expenses rose 23.5% for the quarter and 12.7% for the six months. Clearing fees increased significantly (139.1% for the quarter) due to higher ticket volume, while employee compensation decreased due to the SBS accounting change.
Outlook, Risks, and Management Commentary
- Strategic Shift: Management decided in July 1999 to curtail proprietary trading activities and shift funds to lower-risk investments, such as money market funds.
- Capital Raising: The Company completed a rights offering in January 1999, issuing 961,000 shares at $7.50 each, generating approximately $7.0 million in net proceeds.
- Competition: The Company faces intense competition from electronic discount brokers offering flat fees. Management notes that while flat fee brokers charge for ancillary services, the trend toward lower commissions per trade continues.
- Year 2000 Risk: The Company is modifying systems to be Y2K compliant. A critical risk is the clearing agent, National Financial Services Corporation, which was not yet certified as compliant as of the filing date. The Company is developing contingency plans.
- Market Risk: The Company holds approximately $3.6 million in long securities positions and $216,000 in short positions. A hypothetical 10% price fluctuation could result in a potential loss or gain of approximately $338,000 to $890,000.
Investor Verification Checklist
- Verify the status of the clearing agent's (National Financial Services Corporation) Year 2000 compliance certification.
- Monitor the impact of the curtailment of proprietary trading on future revenue streams.
- Assess the sustainability of commission growth given the increasing shift to electronic trading and competitive pressure from flat-fee brokers.
- Review the integration progress of the Andrew Peck Associates acquisition.
- Confirm the utilization of the $1.8 million tax deduction from stock option exercises against future tax liabilities.