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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
|X| ANNUAL REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended DECEMBER 31, 2002
|_| TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _____________to __________
Commission file number 0-5703
SIEBERT FINANCIAL CORP.
(Exact name of registrant as specified in its charter)
NEW YORK 11-1796714
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
885 THIRD AVENUE, NEW YORK , NEW YORK 10022
(Address of principal executive offices) (Zip Code)
Registrant's telephone number (212) 644-2400
Securities registered under Section 12(b) of the Exchange Act:
Title of each class Name of each exchange on which registered
NONE NONE
Securities registered under Section 12(g) of the Exchange Act:
COMMON STOCK, PAR VALUE $.01 PER SHARE
(Title of class)
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 [ ]
Indicate by check mark if disclosure of delinquent filers in response to
Item 405 of Regulation S-K (ss. 229.405) is not contained herein, and will not
be contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. [ ]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2). Yes [X] No [ ]
The number of shares of the Registrant's outstanding Common Stock, as of
March 18, 2003, was 22,380,330 shares. The aggregate market value of the Common
Stock held by non-affiliates of the registrant (based upon the last sale price
of the Common Stock reported on the Nasdaq Stock Market as of the last business
day of the registrant's most recently completed second fiscal quarter (June 28,
2002), was $9,076,479.
Documents Incorporated by Reference: Proxy Statement to be filed pursuant
to Regulation 14A of the Exchange Act on or before April 30, 2003, incorporated
by reference into Parts II and III.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Statements in this Annual Report on Form 10-K, as well as oral statements
that may be made by the Company or by officers, directors or employees of the
Company 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
historical results or from any future expressed or implied by such forward
looking statements, including without limitation: changes in general economic
and market conditions; changes and prospects for changes in interest rates;
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 greater discounts 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 promotion; 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.
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PART I
ITEM 1. BUSINESS
GENERAL
Siebert Financial Corp. (the "Company") is a holding company that conducts
its retail discount brokerage and investment banking business through its
wholly-owned subsidiary, Muriel Siebert & Co., Inc., a Delaware corporation
("Siebert"). Muriel Siebert, the first woman member of the New York Stock
Exchange, is the Chairwoman and President and owns approximately 88.8% of the
outstanding common stock, par value $.01 per share (the "Common Stock") of the
Company.
The Company's principal offices are located at 885 Third Avenue, New York,
New York, 10022, and its phone number is (212) 644-2400. The Company's Internet
address is www.siebertnet.com. The Company's SEC filings are available through
its website, where you are able to obtain copies of the Company's public filings
free of charge. The Company's Common Stock trades on the Nasdaq National Market
under the symbol "SIEB".
BUSINESS OVERVIEW
Siebert's principal activity is providing internet and traditional discount
brokerage and related services to retail investors. Through its Capital Markets
division, Siebert also offers institutional clients equity execution services on
an agency basis, as well as equity and fixed income underwriting and investment
banking services. The Company believes that it is the largest Woman-Owned
Business Enterprise ("WBE") in the capital markets business in the country. In
addition, Siebert, Brandford, Shank & Co., LLC ("SBS"), a company in which
Siebert holds a 49% ownership interest, is the largest Minority and Women's
Business Enterprise ("MWBE") in the tax-exempt underwriting business in the
country.
THE RETAIL DIVISION
DISCOUNT BROKERAGE AND RELATED SERVICES. Siebert became a discount broker
on May 1, 1975, a date that would later come to be known as "May Day." Siebert
believes that it has been in business and a member of The New York Stock
Exchange, Inc. (the "NYSE") longer than any other discount broker. In 1998,
Siebert began to offer its customers access to their accounts through
SiebertNet, its Internet website. Siebert's focus in its discount brokerage
business is to serve retail clients seeking a wide selection of quality
investment services, including trading through a broker on the telephone,
through a wireless device or via the Internet, at commissions that are
substantially lower than those of full-commission firms and competitive with the
national discount brokerage firms. Siebert clears its securities transactions on
a fully disclosed basis through National Financial Services Corp. ("NFSC"), a
wholly owned subsidiary of Fidelity Investments and with the Pershing division
of Donaldson, Lufkin, & Jenrette (`Pershing").
Siebert serves investors who make their own investment decisions. Siebert
seeks to assist its customers in their investment decisions by offering a number
of value added services, including easy access to account information. Siebert's
representatives are available to assist customers with information via toll-free
800 service Monday through Friday between 7:30 a.m. and 7:30 p.m. Eastern Time.
Through its SiebertNet, Mobile Broker, inter-active voice recognition and
Siebert MarketPhone services, 24-hour access is available to customers.
INDEPENDENT RETAIL EXECUTION SERVICES. Siebert offers what it believes to
be the best possible trade executions for customers. Siebert does not make
markets in securities, nor does it take positions against customer orders.
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Siebert's listed orders are routed in a manner intended to afford its customers
the opportunity for price improvement on all orders. Through a service called
NYSE Prime(TM), Siebert also has the ability to document to customers all price
improvements received on orders executed on the NYSE when orders are filled at
better than the National Best Bid/Offer.
Siebert's over the counter orders are executed through a network of Nasdaq
market makers with no single market maker executing all trades. Additionally,
the firm offers customers execution services through Nasdaq's SelectNetTM and
Reuters' InstinetTM systems for an additional fee. These systems give customers
access to all Electronic Communication Networks listed on SelectNet and to
Instinet before and after regular market hours. Siebert believes that its OTC
executions afford its customers the best possible opportunity for consistent
price improvement. Siebert does not have any affiliation with market makers and
therefore does not execute OTC trades through affiliated market makers.
Customers may also indicate online interest, in buying or selling fixed
income securities, including municipal bonds, corporate bonds, mortgage-backed
securities, Government Sponsored Enterprises, Unit Investment Trusts or
Certificates of Deposit. These transactions are executed by registered
representatives.
RETAIL CUSTOMER SERVICE. Siebert believes that superior customer service
enhances its ability to compete with larger discount brokerage firms and
therefore provides retail customers, at no additional charge, with personal
service via toll-free access to dedicated customer support personnel for all of
its products and services. Customer service personnel are located in each of
Siebert's branch offices. Siebert presently has retail offices in New York, New
York, Jersey City, New Jersey, Boca Raton, Surfside, Palm Beach and Naples,
Florida and Beverly Hills, California. Siebert uses a proprietary Customer
Relationship Management System that enables representatives, no matter where
located, to view a customer's service requests and the response thereto.
Eventually, it is intended that this system will also allow customers to enter
their requests directly into the system and track the response. Siebert's
telephone system permits the automatic routing of calls to the next available
agent having the appropriate skill set.
RETIREMENT ACCOUNTS. Siebert offers customers a variety of self-directed
retirement accounts for which it acts as agent on all transactions. Custodial
services are provided through an affiliate of NFSC and Pershing, the firm's
clearing agents, which also serves as trustee for such accounts. Each IRA, SEP
IRA, ROTH IRA, 401(k) and KEOGH account can be invested in mutual funds, stocks,
bonds and other investments in a consolidated account.
CUSTOMER FINANCING. Customers margin accounts are carried through Siebert's
clearing agents, which lends customers a portion of the market value of certain
securities held in the customer's account. Margin loans are collateralized by
these securities. Customers also may sell securities short in a margin account,
subject to minimum equity and applicable margin requirements, and the
availability of such securities to be borrowed. In permitting customers to
engage in margin, short sale or any transaction, Siebert assumes the risk of its
customers' failure to meet their obligations in the event of adverse changes in
the market value of the securities positions. Both Siebert and its clearing
agents reserve the right to set margin requirements higher than those
established by the Federal Reserve Board.
Siebert has established policies with respect to maximum purchase
commitments for new customers or customers with inadequate collateral to support
a requested purchase. Managers have some flexibility in the allowance of certain
transactions. When transactions occur outside normal guidelines, accounts are
monitored closely until their payment obligation is completed; if the customer
does not meet the commitment, steps are taken to close out the position and
minimize any loss. Siebert has not had significant credit losses in the last
five years.
INFORMATION AND COMMUNICATIONS SYSTEMS. Siebert's operations rely heavily
on information processing and communications systems which are provided by the
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Siebert's clearing agents. The system for processing securities transactions is
highly automated. Registered representatives utilize personal computer
workstations to access customer account information, obtain securities prices
and related information and enter and confirm orders through dedicated lines to
Siebert's clearing agents.
Siebert maintains a computer network to support its customer service
messaging systems, as well as other applications such as record keeping and
direct customer access to marketing information. Through its clearing agents,
Siebert's computers are linked to the major registered United States securities
exchanges, the National Securities Clearing Corporation and The Depository Trust
Company. Failure of Siebert's redundant private lines local area networks or
communication systems for a significant period of time could limit the ability
to process a large volume of transactions accurately and rapidly. This could
result in Siebert being unable to satisfy its obligations to customers and other
securities firms, and in such an event could result in regulatory violations.
External events, such as an earthquake or massive power failure, loss of
redundant external information feeds, such as security price information, as
well as massive internal malfunctions, could render part or all of such systems
inoperative.
To enhance the reliability of its systems and backup data, Siebert
maintains redundancies, backup plans and recovery functions including complete
backup trading facilities.
Siebert's communications systems include a voice system that allows calls
to be answered by the next available agent having the appropriate skill set for
the incoming call. Data is delivered to branches over a frame relay system and
is backed up by an ISDN network. Call center software provides statistical
reports, such as time on hold, duration of calls and the number of calls handled
by each agent. The vendor of the communications system monitors these systems on
a twenty-four hour a day, seven day a week basis and can make software repairs
remotely.
CURRENT DEVELOPMENTS
Siebert agreed to acquire certain retail discount brokerage accounts from
TradeStation Securities, Inc. in May 2002. These accounts were transferred to
Siebert in August 2002. Siebert agreed to acquire the retail brokerage accounts
of the Boca Raton office of State Discount Brokers, Inc. in July 2002. These
accounts were transferred to Siebert in October 2002. Siebert agreed to acquire
the retail discount brokerage accounts of Your Discount Broker Inc. in January
2003. These accounts were transferred to Siebert in March 2003. The accounts
acquired in the above acquisitions are being serviced from Siebert's Boca Raton
office.
In April 2002, Siebert entered into an exclusive Strategic Alliance
Agreement with Intuit, Inc. to offer a joint brokerage service (the "JBS") to
customers of Quicken and Quicken.com. Under this arrangement, Intuit provides
the technology, marketing and content and Siebert provides certain brokerage and
other services. The financial arrangement between Siebert and Intuit generally
provides that gross revenue, as defined, generated from the JBS and incremental
expenses, as defined, incurred by Siebert and Intuit be split on an equal basis.
The term of the agreement is for an initial period of ten years and is extended
automatically for successive two-year periods unless notice of termination is
given by either party. Siebert records its proportionate share of the JBS's
revenue and incremental expenses on a gross basis. The JBS was launched on
September 16, 2002. During 2002, revenue related to the JBS was nominal and
Siebert's share of expenses amounted to approximately $4.7 million, which
included technology, marketing and content expenses of $2.9 million and certain
brokerage and other services of $380,000. Additionally, Siebert separately
incurred other start-up costs for an advisory fee of $1.0 million, legal fees of
$392,000 and considerable executive and management resources to the start-up of
the JBS. All expenses have been charged to operations in 2002.
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On April 30, 2002, Siebert signed a fully disclosed clearing agreement (the
"Clearing Agreement") with Pershing. Pursuant to the Clearing Agreement and the
JBS, Siebert and Intuit will advance Pershing a total of $1.5 million,
principally for software customization setup. Pershing has agreed that it shall
rebate such amount to Siebert payable in three equal annual installments,
without interest, over the initial three years of the Clearing Agreement,
provided that the Clearing Agreement has not been terminated. In addition,
Siebert and Intuit will incur one-time charges aggregating approximately
$485,000 for the setup of the JBS' website and related matters. Siebert and
Intuit will share equally in the advance and the one-time charges. The advance
to Pershing was made in January 2003.
THE CAPITAL MARKETS DIVISION
In 1991, Siebert created its Capital Markets division, which serves as a
co-manager, underwriting syndicate member, or selling group member on a wide
spectrum of securities offerings for corporations and Federal agencies.
Principal activities of the Capital Markets Division are investment banking
and institutional equity execution services.
During 1996, Siebert formed the Siebert, Brandford, Shank division of the
investment banking group to enhance the activities of Siebert's tax exempt
underwriting. The operations of the Siebert, Brandford, Shank division were
moved on July 1, 1998 to a newly formed entity, SBS. Two individuals, Mr.
Napoleon Brandford and Ms. Suzanne F. Shank, own 51% of the equity and are
entitled to 51% of the net profits of SBS and Siebert is entitled to the
balance. Through its investment in SBS, Siebert has become a more significant
factor in the tax exempt underwriting area, and expects to enhance its
government and institutional relationships, as well as the breadth of products
that can be made available to retail clients. During 2002, SBS served as the
lead manager of over $1.8 billion of negotiated municipal new issues and served
as a co-manager in over $63.1 billion of negotiated municipal new issues.
Since its inception, the Siebert, Brandford, Shank division and its
successor SBS have co-managed offerings of approximately $192 billion and lead
managed offerings of approximately $8 billion. Clients include the States of
California, Texas, Washington, Ohio, Michigan and the Cities of Chicago,
Detroit, Los Angeles, Houston, Dallas, Denver and St. Louis.
In addition to occupying a portion of Siebert's existing offices in New
York, SBS operates out of offices in San Francisco, Seattle, Houston, Chicago,
Detroit, Los Angeles, Washington, DC, San Antonio, Miami and Dallas.
Certain risks are involved in the underwriting of securities. Underwriting
syndicates agree to purchase securities at a discount from the initial public
offering price. If the securities must be sold below the cost to the syndicate,
an underwriter is exposed to losses on the securities that it has committed to
purchase. In the last several years, investment banking firms have increasingly
underwritten corporate and municipal offerings with fewer syndicate participants
or, in some cases, without an underwriting syndicate. In these cases, the
underwriter assumes a larger part or all of the risk of an underwriting
transaction. Under Federal securities laws, other laws and court decisions, an
underwriter is exposed to substantial potential liability for material
misstatements or omissions of fact in the prospectus used to describe the
securities being offered. While municipal securities are exempt from the
registration requirements of the Securities Act of 1933, underwriters of
municipal securities nevertheless are exposed to substantial potential liability
in connection with material misstatements or omissions of fact in the offering
documents prepared in connection with offerings of such securities.
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ADVERTISING, MARKETING AND PROMOTION
Siebert develops and maintains its retail customer base through printed
advertising in financial publications, broadcast commercials over national and
local cable TV channels, as well as promotional efforts and public appearances
by Ms. Siebert. Additionally, a significant number of the firm's new accounts
are developed directly from referrals by satisfied customers.
COMPETITION
Siebert encounters significant competition from full-commission, online and
discount brokerage firms, as well as from financial institutions, mutual fund
sponsors and other organizations, many of which are significantly larger and
better capitalized than Siebert. The reduced volume of trading starting in early
2001 is leading to consolidation in the industry in both the online and
traditional brokerage business. Siebert believes that additional competitors
such as banks, insurance companies, providers of online financial and
information services and others will continue to be attracted to the online
brokerage industry as they expand their product lines. Many of these competitors
are larger, more diversified, have greater capital resources, and offer a wider
range of services and financial products than Siebert. Some such firms are
offering their services over the Internet and have devoted more resources to and
have more elaborate websites than the Company. Siebert competes with a wide
variety of vendors of financial services for the same customers. Siebert
believes that its main competitive advantages are high quality customer service,
responsiveness, cost and products offered, the breadth of product line and
excellent executions.
REGULATION
The securities industry in the United States is subject to extensive
regulation under both Federal and state laws. The SEC is the Federal agency
charged with administration of the Federal securities laws. Siebert is
registered as a broker-dealer with the SEC, the NYSE and the National
Association of Securities Dealers ("NASD"). Much of the regulation of
broker-dealers has been delegated to self-regulatory organizations, principally
the NASD and national securities exchanges such as the NYSE, which is Siebert's
primary regulator with respect to financial and operational compliance. These
self-regulatory organizations adopt rules (subject to approval by the SEC)
governing the industry and conduct periodic examinations of broker-dealers.
Securities firms are also subject to regulation by state securities authorities
in the states in which they do business. Siebert is registered as a
broker-dealer in 49 states, the District of Columbia and Puerto Rico.
The principal purpose of regulation and discipline of broker-dealers is the
protection of customers and the securities markets, rather than protection of
creditors and stockholders of broker-dealers. The regulations to which
broker-dealers are subject cover all aspects of the securities business,
including training of personnel, sales methods, trading practices among
broker-dealers, uses and safekeeping of customers' funds and securities, capital
structure of securities firms, record keeping, fee arrangements, disclosure to
clients, and the conduct of directors, officers and employees. Additional
legislation, changes in rules promulgated by the SEC and by self-regulatory
organizations or changes in the interpretation or enforcement of existing laws
and rules may directly affect the method of operation and profitability of
broker-dealers and investment advisers. The SEC, self-regulatory organizations
and state securities authorities may conduct administrative proceedings which
can result in censure, fine, cease and desist orders or suspension or expulsion
of a broker-dealer or an investment adviser, its officers or its employees.
Neither the Company nor Siebert has been the subject of any such administrative
proceedings.
As a registered broker-dealer and NASD member organization, Siebert is
required by Federal law to belong to the Securities Investor Protection
Corporation ("SIPC") which provides, in the event of the liquidation of a
broker-dealer, protection for securities held in customer accounts held by the
firm of up to $500,000 per customer, subject to a limitation of $100,000 on
claims for cash balances. The SIPC is funded through assessments on registered
broker-dealers. In addition, Siebert, through it's clearing agents, has
purchased from private insurers additional account protection in the event of
liquidation up to the net asset value, as defined, of each account. Stocks,
bonds, mutual funds and money market funds are included at net asset value for
purposes of SIPC protection and the additional protection. Neither SIPC
protection nor the additional protection insures against fluctuations in the
market value of securities.
Siebert is also authorized by the Municipal Securities Rulemaking Board to
effect transactions in municipal securities on behalf of its customers and has
obtained certain additional registrations with the SEC and state regulatory
agencies necessary to permit it to engage in certain other activities incidental
to its brokerage business.
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Margin lending arranged by Siebert is subject to the margin rules of the
Board of Governors of the Federal Reserve System and the NYSE. Under such rules,
broker-dealers are limited in the amount they may lend in connection with
certain purchases and short sales of securities and are also required to impose
certain maintenance requirements on the amount of securities and cash held in
margin accounts. In addition, those rules and rules of the Chicago Board Options
Exchange govern the amount of margin customers must provide and maintain in
writing uncovered options.
NET CAPITAL REQUIREMENTS
As a registered broker-dealer, Siebert is subject to the SEC's Uniform Net
Capital Rule (Rule 15c3-1) (the "Net Capital Rule"), which has also been adopted
by the NYSE. Siebert is a member firm of the NYSE and the NASD. The Net Capital
Rule specifies minimum net capital requirements for all registered
broker-dealers and is designed to measure financial integrity and liquidity.
Failure to maintain the required regulatory net capital may subject a firm to
suspension or expulsion by the NYSE and the NASD, certain punitive actions by
the SEC and other regulatory bodies and, ultimately, may require a firm's
liquidation.
Regulatory net capital is defined as net worth (assets minus liabilities),
plus qualifying subordinated borrowings, less certain deductions that result
from excluding assets that are not readily convertible into cash and from
conservatively valuing certain other assets. These deductions include charges
that discount the value of security positions held by Siebert to reflect the
possibility of adverse changes in market value prior to disposition.
The Net Capital Rule requires notice of equity capital withdrawals to be
provided to the SEC prior to and subsequent to withdrawals exceeding certain
sizes. The Net Capital Rule also allows the SEC, under limited circumstances, to
restrict a broker-dealer from withdrawing equity capital for up to 20 business
days. The Net Capital Rule of the NYSE also provides that equity capital may not
be drawn or cash dividends paid if resulting net capital would be less than 5
percent of aggregate debits.
Under applicable regulations, Siebert is required to maintain regulatory
net capital of at least $250,000. At December 31, 2002 and 2001, Siebert had net
capital of $16.4 million and $20.9 million, respectively. Siebert claims
exemption from the reserve requirement under Section 15c3-3(k)(2)(ii).
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EMPLOYEES
As of March 20, 2003, the Company had approximately 111 employees, five of
whom were corporate officers. None of the employees is represented by a union,
and the Company believes that relations with its employees are good.
ITEM 2. PROPERTIES
Siebert currently maintains seven retail discount brokerage offices.
Customers can visit the offices to obtain market information, place orders, open
accounts, deliver and receive checks and securities, and obtain related customer
services in person. Nevertheless, most of Siebert's activities are conducted on
the Internet or by telephone and mail.
Siebert operates its business out of the following seven leased offices:
Approximate Expiration Date of
Office Area in Current Renewal
LOCATION SQUARE FEET LEASE TERMS
-------- ----------- ----- -----
CORPORATE HEADQUARTERS, RETAIL AND
INVESTMENT BANKING OFFICE
----------------------------------
885 Third Ave. 7,828 4/30/04 None
New York, NY 10022
RETAIL OFFICES
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9693 Wilshire Boulevard
Beverly Hills, CA 90212 1,000 Month to Month 2 year option
4400 North Federal Highway 1,038 2/28/07 None
Boca Raton, FL 33431
111 Pavonia Avenue(1) 11,000 6/30/05, 6/30/06 and 5 year option on a
Jersey City, NJ 07310 9/30/07 portion of space
400 Fifth Avenue - South 1,008 4/30/05 None
Naples, FL 33940
240A South County Road 770 12/31/03 None
Palm Beach, FL 33480
9569 Harding Avenue 1,150 12/31/03 None
Surfside, FL 33154
(1) Certain of the Company's administrative and back office functions are
performed at this location.
The Company believes that its properties are in good condition and are
suitable for the Company's operations.
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ITEM 3. LEGAL PROCEEDINGS
The Company is involved in various routine litigation matters that it
believes are customary and incidental to its business. In the opinion of
management, the ultimate disposition of these actions will not, in the
aggregate, have a material adverse effect on the financial position or results
of operations of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SHAREHOLDERS
None.
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PART II
ITEM 5. PRICE RANGE OF COMMON STOCK
The Company's common stock trades on the Nasdaq Stock Market under the
symbol "SIEB". The high and low sales prices of the Company's common stock
reported by Nasdaq during the following calendar quarters were:
HIGH LOW
First Quarter - 2001.......................... $6.50 $4.13
Second Quarter - 2001......................... $5.97 $4.00
Third Quarter - 2001.......................... $5.05 $4.45
Fourth Quarter - 2001......................... $5.46 $3.73
First Quarter - 2002.......................... $5.55 $3.80
Second Quarter - 2002......................... $4.70 $3.59
Third Quarter - 2002.......................... $4.05 $2.38
Fourth Quarter - 2002......................... $2.98 $1.77
January 1, 2003 - March 18, 2003.............. $2.77 $2.18
On March 18, 2003, the closing price of the Company's common stock on the
Nasdaq Stock Market was $2.49 per share and there were 164 holders of record of
the Company's common stock.
DIVIDEND POLICY
The Company paid no cash dividends to its shareholders in 2002 and 2001 and
paid a dividend of $.04 per share to its shareholders on June 28, 2000. Ms.
Siebert, the majority shareholder of the Company, has waived her right to
receive the dividends declared by the Company to date. The Board of Directors of
the Company periodically considers whether to declare dividends. In considering
whether to pay such dividends, the Company's Board of Directors will review the
earnings of the Company, its capital requirements, its economic forecasts and
such other factors as are deemed relevant. Some portion of the Company's
earnings will be retained to provide capital for the operation and expansion of
its business.
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ITEM 6. SELECTED FINANCIAL INFORMATION
(In thousands except share and per share data)
THE FOLLOWING SELECTED FINANCIAL INFORMATION
SHOULD BE READ IN CONJUNCTION WITH THE
COMPANY'S CONSOLIDATED FINANCIAL
STATEMENTS AND THE RELATED NOTES THERETO.
2002 2001 2000 1999 1998
---- ---- ---- ---- ----
Income statement data:
Total Revenues.................................... $ 24,104 $32,020 $44,341 $36,118 $30,491
Net (loss) income................................. $(1,633) $2,488 $ 7,999 $4,603 $ 4,313
Net income per share of common stock
Basic.................................... $(0.07) $0.11 $0.35 $0.20 $0.20
Diluted.................................. $(0.07) $0.11 $0.34 $0.20 $0.19
Weighted average shares outstanding (basic)....... 22,403,990 22,438,719 22,886,100 22,725,452 21,598,406
Weighted average shares outstanding (diluted)..... 22,403,990 22,698,934 23,265,897 23,238,100 22,241,860
Statement of financial condition data (at year-end):
Total assets................................... $40,451 42,129 $41,428 $32,305 $21,494
Total liabilities excluding subordinated borrowings $ 4,784 $4,829 $ 4,744 $2,851 $ 4,194
Subordinated borrowings to majority shareholder $ -- $ -- $ -- $ -- $ 3,000
Stockholders' equity........................... $35,667 $37,300 $36,684 $29,454 $14,300
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS
This discussion should be read in conjunction with the Company's audited
Consolidated Financial Statements and the Notes thereto contained elsewhere in
this Annual Report.
The economy continued to slow down during 2002 despite the record low
interest rate environment maintained by the Federal Reserve Bank. Consumer
confidence continued to decline in the wake of September 11, 2001, due to
increased unemployment, corporate misconduct, threat of terrorist activity and
the threat of war. Consequently, trading activity and new account acquisitions
slowed for the Company, as well as for the entire discount brokerage industry.
Notwithstanding this slow down, competition continued to intensify among
all types of brokerage firms, including established discount brokers and new
firms entering the on-line brokerage business. Electronic trading continues to
account for an increasing amount of trading activity, with some firms offering
very low flat rate trading execution fees that are difficult for any
conventional discount firm to meet. Some of these flat fee brokers, however,
impose asset based charges for services such as mailing, transfers and handling
exchanges which the Company does not currently impose, and also direct their
executions to captive market makers. Continued competition could limit the
Company's growth or even lead to a decline in the Company's customer base which
would adversely affect its results of operations. Industry-wide changes in
trading practices, such as the advent of decimal pricing and the increasing use
of Electronic Communications Networks, are expected to put continuing pressure
on fees earned by discount brokers while increasing volatility.
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. Through March 13, 2003, 590,123
shares have been purchased at an average price of $4.85 per share.
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 the prospect of changes in interest rates, and demand
for brokerage and investment banking services, all of which can affect the
Company's profitability. In addition, in periods of reduced financial market
activity, profitability is likely to be adversely affected because certain
expenses remain relatively fixed, including salaries and related costs, portions
of communications costs and occupancy expenses. Accordingly, earnings for any
period should not be considered representative of earnings to be expected for
any other period.
Expenditures associated with the development and promotion of the Company's
financial website for women, WFN, the Women's Financial Network at Siebert
("WFN"), had an adverse effect on the Company's profitability during 2002, and
may continue to have an adverse effect on future profits. The Company continues
to assess the operations of WFN and has taken additional steps to reduce costs.
However, there can be no assurance that a sufficient number of new accounts will
be generated to offset the costs or produce significant profits. In addition, in
April 2002, Siebert entered into an exclusive Strategic Alliance Agreement with
Intuit, Inc. to offer a joint brokerage service (the "JBS") to customers of
Quicken and Quicken.com. Under this arrangement, Intuit provides the technology,
marketing and content and Siebert provides certain brokerage and other services.
During 2002, revenue related to the JBS was nominal and Siebert's share of
expenses amounted to approximately $4.7 million, which included technology,
marketing and content expenses of approximately $2.9 million and certain
brokerage and other services of $380,000. In addition, Siebert separately
incurred other start-up costs relating to the JBS which included an advisory fee
of $1 million, legal fees of $392,000 and considerable executive staff and
management resources to the start-up of the JBS. All expenses have been charged
to operations in 2002.
- 13 -
Critical Accounting Policies
The Company generally follows accounting policies standard in the brokerage
industry and believes that its policies are appropriately reflect its financial
position and results of operations. Management has identified the use of
"estimates" as its critical policy. The 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 revenue transactions and expenses incurred, to estimate the amount
of such revenue and expenses. 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 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 intangibles assets,
and the fair market value of intangible assets. Management believes that its
estimates are reasonable.
RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 2002 COMPARED TO YEAR ENDED DECEMBER 31, 2001
REVENUES. Total revenues for 2002 were $24.1 million, a decrease of $7.9
million, or 24.7%, from 2001. Commission and fee income decreased $5.8 million,
or 23.0%, from the prior year to $19.3 million due to lower overall trading
volume and lower commissions earned per trade. Lower per trade commissions were
the result of smaller order sizes, reductions in fees from other related
services caused by increased competition, and a reduction of per share order
flow fees. Investment banking revenues decreased $644,000, or 30.3%, from the
prior year to $1.5 million in 2002, primarily due to weaker market conditions.
Income from the Company's investment in Siebert, Brandford, Shank & Co.,
LLC ("SBS") for 2002 was $1.8 million compared to income of $2.3 million for the
prior year. This decrease in profits was due in part to the decreased number of
municipal bond offerings managed or co-managed by SBS as interest in municipal
bonds decreased and SBS' share of the municipal bond underwriting market
decreased.
Trading profits decreased $100,000, or 10.5%, from the prior year to
$850,000 primarily due to decreased trading in municipal, government and
corporate bonds within the Company's proprietary and riskless trading group.
Income from interest and dividends decreased $747,000, or 54.0%, from the
prior year to $638,000 primarily due to lower yields on money market funds held
by the Company during 2002.
EXPENSES. Total expenses for 2002 were $27.3 million, a decrease of
$361,000, or 1.3%, from the prior year.
Employee compensation and benefit costs decreased $2.2 million, or 19.0%,
from the prior year to $9.2 million primarily due to a decrease in the number of
employees and a decrease in discretionary bonuses offset, in part, by an
increase in employee expenses of $170,000 due to Siebert's participation in the
JBS with Intuit described above.
Clearing and floor brokerage fees decreased $710,000, or 16.1%, from the
prior year to $3.7 million due to the decreased volume of trades executed.
Advertising and promotion expense increased $347,000, or 13.6%, from the
prior year to $2.9 million. Approximately $1.6 million of total advertising and
promotion expenses related directly to Siebert's participation in the JBS with
Intuit.
- 14 -
Communications expense decreased $427,000, or 15.6%, from the prior year,
to $2.3 million primarily due lower call volumes and lower quote usage by
customers, offset in part by an increase in communication expenses of $142,000
due to Siebert's participation in the JBS.
Occupancy costs decreased $74,000, or 7.4%, from the prior year to $924,000
principally due to the termination and buyout of Siebert's lease in Freemont,
California in 2001, offset in part by an increase in occupancy costs of $21,000
due to Siebert's participation in the JBS.
GENERAL AND ADMINISTRATIVE. General and administrative expenses increased
$2.7 million, or 47.4%, from the prior year to $8.3 million primarily due to
research and development costs of $1.4 million for the development of the JBS
products and certain start-up costs of $1.4 million principally for advisory and
legal expenses relating to the JBS with Intuit.
TAXES. The benefit for income taxes of $1.6 million for 2002 is a result of
a loss before taxes of $3.2 million compared to net income before income tax of
$4.3 million in 2001 and a provision for income taxes $1.8 million.
YEAR ENDED DECEMBER 31, 2001 COMPARED TO YEAR ENDED DECEMBER 31, 2000
REVENUES. Total revenues for 2001 were $32.0 million, a decrease of $12.3
million, or 27.8%, from 2000. Commission and fee income decreased $14.2 million,
or 35.3%, from the prior year to $25.2 million due to lower overall trading
volume and lower commissions earned per trade. Lower per trade commissions were
the result of smaller order sizes, reductions in fees from other related
services caused by increased competition from ultra low cost flat fee brokers,
and a reduction of per share order flow fees. Investment banking revenues
increased $392,000, or 22.7%, from the prior year to $2.1 million in 2001,
primarily due to the Company's participation, as a Woman Owned Business
Enterprise, in several public equity offerings and debt offerings.
Income from the Company's investment in SBS was $2.3 million compared to
the prior year's loss of $324,000.This increase in profits was due in part to
the increased number of municipal bond offerings managed or co-managed by SBS as
interest in Municipal Bonds increased with the decline in activity in the equity
markets and SBS' share of the municipal bond underwriting market increased.
Trading profits increased $236,000, or 33.1%, from the prior year to
$950,000 primarily due to increased trading in municipal bonds within the
Company's proprietary trading group.
Income from interest and dividends decreased $514,000, or 27.1%, from the
prior year to $1.4 million primarily due to lower yields on money market funds
held by the Company during 2001.
EXPENSES. Total expenses for 2001 were $27.7 million, a decrease of $2.8
million, or 9.2%, from the prior year.
Employee compensation and benefit costs decreased $1.5 million, or 12%,
from the prior year to $11.3 million primarily due to a decrease in the number
of employees and a decrease in discretionary bonuses. This decrease was offset,
in part, by an increase in the compensation level of the Company's mid-level
management and the inclusion of management and operating personnel of WFN for a
full year.
Clearing and floor brokerage fees decreased $1.7 million, or 27.6%, from
the prior year to $4.4 million due to the decreased volume of trades executed.
- 15 -
Advertising and promotion expense decreased $237,000, or 8.5%, from the
prior year to $2.6 million primarily due to a decreased level of television
advertising.
Communications expense decreased $285,000, or 9.4%, from the prior year, to
$2.7 million primarily due lower call volumes and lower quote usage by
customers, partially offset by costs relating to temporary duplicate telephone
lines and costs during the installation of the Company's new telephone system.
Occupancy costs increased $221,000, or 28.4%, from the prior year to
$998,000 principally due to incurring a full year of rent expense associated
with two new leases entered into by the Company during 2000 in connection with
the move of certain of the Company's operations to Jersey City, New Jersey and
the opening of the Company's Fort Lauderdale call center.
GENERAL AND ADMINISTRATIVE. General and administrative expenses increased
$733,000, or 15%, from the prior year to $5.6 million primarily due to increased
legal, consulting and amortization expenses.
TAXES. Provision for income taxes decreased $4.0 million, or 68.4%, from
the prior year to $1.8 million due to a decrease in the Company's net income
before income tax to $4.3 million in 2001 from $13.9 million in 2000.
LIQUIDITY AND CAPITAL RESOURCES
The Company's assets are highly liquid, consisting generally of cash, money
market funds and securities freely saleable in the open market. The Company's
total assets at December 31, 2002 were $40.5 million, of which, $28.8 million,
or 71%, 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 December 31, 2002, Siebert's regulatory net
capital was $16.4 million, $16.2 million in excess of its minimum capital
requirement of $250,000.
Pursuant to the Clearing Agreement with Pershing and the JBS with Intuit,
Siebert and Intuit will advance Pershing a total of $1.5 million which they are
entitled to recoup from Pershing in equal installments, without interest, over
the initial three years of the Clearing Agreement. In addition, Siebert and
Intuit will incur one-time charges aggregating approximately $485,000 for the
setup of the JBS website and related matters. Siebert and Intuit will share
equally in the advance and the one-time charges. The advance to Pershing was
made in January 2003. Development and marketing costs for the next 12 months for
the JBS are expected to exceed revenues generated from the new accounts, which
may result in losses for the Company.
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 loan to SBS up to $1.2 million pursuant to a
secured promissory note on a subordinated basis. Amounts obligated to be loaned
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, 2004, at which time
SBS is obligated to repay to Siebert any amounts borrowed by SBS thereunder.
- 16 -
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
FINANCIAL INSTRUMENTS HELD FOR TRADING PURPOSES:
Through Siebert, the Company maintains inventories in exchange-listed and
Nasdaq equity securities on both a long and short basis. The fair value of all
positions held by Siebert at December 31, 2002 was approximately $5.2 million in
long positions. Using a hypothetical 10% increase or decrease in prices, the
potential loss in fair value, respectively, could be approximately $520,000, due
to the offset of change in fair value in long positions. The Company does not
engage in derivative transactions, has no interest in any special purpose entity
and no liabilities, contingent or otherwise, for the debt of another entity,
except for Siebert's obligation under its Secured Demand Note Collateral
Agreement of $1.2 million executed in favor of SBS. SBS pays Siebert interest on
this amount at the rate of 10% per annum. Siebert earned interest of $120,000
from SBS in each of the years that Siebert's commitment has been outstanding.
FINANCIAL INSTRUMENTS HELD FOR PURPOSES OTHER THAN TRADING:
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.
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 counterparties are unable to
fulfill their contractual obligations.
ITEM 8. FINANCIAL STATEMENTS
See financial statements and supplementary data required pursuant to this
item beginning on page F-1 of this Report on Form 10-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS IN ACCOUNTING
AND FINANCIAL DISCLOSURE
None.
- 17 -
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
(a) Identification of Directors
This information is incorporated by reference from the Company's definitive
proxy statement to be filed by the Company pursuant to Regulation 14A on or
prior to April 30, 2003.
(b) Identification of Executive Officers
NAME AGE POSITION
Muriel F. Siebert 70 Chairwoman and President
Daniel Jacobson(1) 74 Vice Chairman
Nicholas P. Dermigny 45 Executive Vice President and
Chief Operating Officer
Joseph M. Ramos, Jr. 44 Executive Vice President and
Chief Financial Officer
Daniel Iesu 43 Secretary
(1) Mr. Jacobson retired from all positions with the Company during March 2003.
Mr. Jacobson served AS Vice Chairman and a director of the Company from May
1999 to March 2003. He was a partner in Richard A. Eisner & Company, LLP
from June 1994 until May 1999. He is a director and chairman of the audit
committee of Barnwell Industries, Inc.
Certain information regarding each executive officer's business experience
is set forth below.
MURIEL F. SIEBERT has been Chairwoman, President and a director of Siebert
since 1967 and the Company since November 8, 1996. Ms. Siebert became the first
woman member of the New York Stock Exchange on December 28, 1967 and served as
the first woman Superintendent of Banks of the State of New York from 1977 to
1982. She is director of the New York State Business Council and the Boy Scouts
of Greater New York. She is the founder and past president of the International
Woman's Forum, a member of the State of New York Commission on Judicial
Nomination and on the executive committee of the Economic Club of New York.
NICHOLAS P. DERMIGNY has been Executive Vice President and Chief Operating
Officer of Siebert since joining the firm in 1989 and of the Company since
November 8, 1996. Prior to 1993, he was responsible for Siebert's retail
division. Mr. Dermigny became an officer and director of the Company on November
8, 1996.
JOSEPH M. RAMOS, JR. has been Executive Vice President, Chief Financial
Officer and Assistant Secretary of Siebert since February 10, 2003. From May
1999 to February 2002, Mr. Ramos served as Chief Financial Officer of A.B.
Watley Group, Inc. From November 1996 to May 1999, Mr. Ramos served as Chief
Financial Officer of Nikko Securities International, Inc. From September 1987 to
March 1996, Mr. Ramos worked at Cantor Fitzgerald and held various accounting
and management positions, the last as Chief Financial Officer of their
registered broker-dealer based in Los Angeles. From October 1982 to September
1987, Mr. Ramos was an audit manager for Deloitte & Touche LLP, a public
accounting firm. Mr. Ramos is a Certified Public Accountant licensed in the
state of New York.
- 18 -
DANIEL IESU has been Secretary of Siebert since October 1996 and the
Company since November 8, 1996. He has been Controller of Siebert since 1989.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is incorporated by reference from the
Company's definitive proxy statement to be filed by the Company pursuant to
Regulation 14A on or prior to April 30, 2003.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The information required by this item is incorporated by reference from the
Company's definitive proxy statement to be filed by the Company pursuant to
Regulation 14A on or prior to April 30, 2003.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is incorporated by reference from the
Company's definitive proxy statement to be filed by the Company pursuant to
Regulation 14A on or prior to April 30, 2003.
ITEM 14. CONTROLS AND PROCEDURES
Within 90 days of the date of this report an evaluation was performed by
the Company under the supervision and with the participation of management,
including the President of the Company, of the effectiveness of the design and
operation of the Company's disclosure controls and procedures. Based on that
evaluation, the Company's management, including the President, 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 have been no significant changes in the Company's
internal controls or in other factors that could significantly affect those
internal controls subsequent to the date the Company carried out its evaluation.
During the period covered by this report and at the time of its filing, the
Company's President was responsible for performing the functions of the
Company's principal financial and accounting officer, as well as those of the
Company's principal executive officer.
PART IV
ITEM 15. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
The exhibits required by Item 601 of the Regulations S-K filed as part of,
or incorporated by reference in, this report are listed in the accompanying
Exhibit Index.
(b) Reports on Form 8-K
None.
- 19 -
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
SIEBERT FINANCIAL CORP.
Report of Independent Auditors F-1
Consolidated Statements of Financial Condition at December 31, 2002 and 2001 F-2
Consolidated Statements of Operations for each of the years in the three-year period
ended December 31, 2002 F-3
Consolidated Statements of Changes in Stockholders' Equity for each of the years
in the three-year period ended December 31, 2002 F-4
Consolidated Statements of Cash Flows for each of the years in the three-year
period ended December 31, 2002 F-5
Notes to Consolidated Financial Statements F-6
SIEBERT, BRANDFORD, SHANK & CO., LLC
Report of Independent Auditors F-18
Statements of Financial Condition at December 31, 2002 and 2001 F-19
Statements of Operations for each of the years in the three-year
period ended December 31, 2002 F-20
Statements of Changes in Members' Capital for each of the years
in the three-year period ended December 31, 2002 F-21
Statements of Cash Flows for each of the years in the three-year
period ended December 31, 2002 F-22
Notes to Financial Statements F-23
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
Siebert Financial Corp.
New York, New York
We have audited the accompanying consolidated statements of financial condition
of Siebert Financial Corp. and its wholly owned subsidiaries as of December 31,
2002 and 2001, and the related consolidated statements of operations, changes in
stockholders' equity and cash flows for each of the years in the three-year
period ended December 31, 2002. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements enumerated above present fairly, in all
material respects, the consolidated financial position of Siebert Financial
Corp. and its wholly owned subsidiaries as of December 31, 2002 and 2001, and
the consolidated results of their operations and their consolidated cash flows
for each of the years in the three-year period ended December 31, 2002 in
conformity with accounting principles generally accepted in the United States of
America.
Eisner LLP
New York, New York
February 13, 2003
F-1
SIEBERT FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
DECEMBER 31,
-----------------------
2002 2001
---- ----
ASSETS
Cash and cash equivalents $ 22,498,000 $ 25,670,000
Cash equivalents - restricted 1,300,000 1,300,000
Receivable from clearing broker 1,100,000 1,572,000
Securities owned, at market value 5,225,000 6,079,000
Furniture, equipment and leasehold improvements, net 2,616,000 1,703,000
Investment in and advances to affiliate 2,748,000 2,702,000
Prepaid expenses and other assets 1,816,000 853,000
Intangibles, net 2,302,000 2,250,000
Deferred taxes 846,000
---------------- ----------------
$ 40,451,000 $ 42,129,000
================ ================
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Securities sold, not yet purchased, at market value $ $ 4,000
Deferred tax liability 489,000
Accounts payable and accrued liabilities 4,784,000 4,336,000
---------------- ----------------
4,784,000 4,829,000
Commitments and contingent liabilities
Stockholders' equity:
Common stock, $.01 par value; 49,000,000 shares authorized, 22,968,167 shares
issued and 22,395,767 outstanding at December 31, 2002 and 22,932,047 shares
issued and 22,389,247 shares outstanding at
December 31, 2001 229,000 229,000
Additional paid-in capital 17,880,000 17,796,000
Retained earnings 20,377,000 22,010,000
Less: 572,400 at December 31, 2002 and 542,800 shares of treasury stock,
at December 31, 2001, at cost (2,819,000) (2,735,000)
---------------- ----------------
35,667,000 37,300,000
---------------- ----------------
$ 40,451,000 $ 42,129,000
================ ================
See notes to consolidated financial statements.
F-2
CONSOLIDATED STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31,
2002 2001 2000
Revenue:
Commissions and fees $ 19,366,000 $ 25,233,000 $ 40,322,000
Investment banking 1,478,000 2,122,000 1,731,000
Trading profits 850,000 950,000 713,000
Income (loss) from equity investee 1,772,000 2,330,000 (324,000)
Interest and dividends 638,000 1,385,000 1,899,000
---------------- --------------- ----------------
24,104,000 32,020,000 44,341,000
---------------- --------------- ----------------
Expenses:
Employee compensation and benefits 9,181,000 11,338,000 12,884,000
Clearing fees, including floor brokerage 3,701,000 4,411,000 6,088,000
Advertising and promotion 2,900,000 2,553,000 2,790,000
Communications 2,311,000 2,738,000 3,022,000
Occupancy 924,000 998,000 778,000
Interest 1,000 11,000 23,000
Other general and administrative 8,304,000 5,634,000 4,901,000
---------------- --------------- ----------------
27,322,000 27,683,000 30,486,000
---------------- --------------- ----------------
(Loss) income before (benefit) provision for income taxes (3,218,000) 4,337,000 13,855,000
(Benefit) provision for income taxes (1,585,000) 1,849,000 5,856,000
---------------- --------------- ----------------
Net (loss) income $ (1,633,000) $ 2,488,000 $ 7,999,000
================ =============== ================
Net (loss) income per share of common stock - basic $(0.07) $0.11 $0.35
Net (loss) income per share of common stock - diluted $(0.07) $0.11 $0.34
Weighted average shares outstanding - basic 22,403,990 22,438,719 22,886,100
Weighted average shares outstanding - diluted 22,403,990 22,698,934 23,265,897
See notes to consolidated financial statements.
F-3
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
---------------------------------------------------------------------------------------------------------------
COMMON STOCK
------------
NUMBER ADDITIONAL
OF $.01 PAR PAID-IN RETAINED
SHARES VALUE CAPITAL EARNINGS
------ ----- ------- --------
BALANCE - JANUARY 1, 2000 22,889,687 $ 228,000 $ 17,582,000 $ 11,644,000
Net income 7,999,000
Treasury share purchases
Non-cash compensation in connection with
Restricted Stock Award Plan 40,000
Issuance of shares in connection with exercise
of employee stock options 21,500 1,000 57,000 -
Tax benefit arising from exercise of employee
stock options 57,000
Dividends on common stock ($.04 per share) - - - (121,000)
------------- ------------ --------------- ----------------
BALANCE - DECEMBER 31, 2000 22,911,187 229,000 17,736,000 19,522,000
Net income 2,488,000
Treasury share purchases
Issuance of shares in connection with
exercise of employee stock options 20,860 46,000
Tax benefit arising from exercise of employee
stock options 14,000
------------- ------------ --------------- ----------------
BALANCE - DECEMBER 31, 2001 22,932,047 229,000 17,796,000 22,010,000
Net loss (1,633,000)
Treasury share purchases
Issuance of shares in connection with
exercise of employee stock options 36,120 84,000
------------- ------------ --------------- ----------------
BALANCE - DECEMBER 31, 2002 22,968,167 $ 229,000 $ 17,880,000 $ 20,377,000
============= ============ =============== ================
(Table Continued)
TREASURY STOCK
--------------
NUMBER
OF
SHARES AMOUNT TOTAL
------ ------ -----
BALANCE - JANUARY 1, 2000 $ 29,454,000
Net income 7,999,000
Treasury share purchases 148,700 $ (803,000) (803,000)
Non-cash compensation in connection with
Restricted Stock Award Plan 40,000
Issuance of shares in connection with exercise
of employee stock options 58,000
Tax benefit arising from exercise of employee
stock options 57,000
Dividends on common stock ($.04 per share) (121,000)
------------ --------------- ---------------
BALANCE - DECEMBER 31, 2000 148,700 (803,000) 36,684,000
Net income 2,488,000
Treasury share purchases 394,100 (1,932,000) (1,932,000)
Issuance of shares in connection with
exercise of employee stock options 46,000
Tax benefit arising from exercise of employee
stock options 14,000
------------ --------------- ---------------
BALANCE - DECEMBER 31, 2001 542,800 (2,735,000) 37,300,000
Net loss (1,633,000)
Treasury share purchases 29,600 (84,000) (84,000)
Issuance of shares in connection with
exercise of employee stock options 84,000
------------ --------------- ---------------
BALANCE - DECEMBER 31, 2002 572,400 $ (2,819,000) $ 35,667,000
============ =============== ===============
See notes to consolidated financial statements.
F-4
CONSOLIDATED STATEMENTS OF CASH FLOWS
---------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
--------------------------------------------------
2002 2001 2000
---- ---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income $ (1,633,000) $ 2,488,000 $ 7,999,000
Adjustments to reconcile net (loss) income to net cash (used in)
provided by operating activities:
Depreciation and amortization 1,718,000 1,366,000 518,000
(Income) loss from equity investee (1,772,000) (2,330,000) 325,000
Non-cash compensation 40,000
Tax benefit of exercised employee stock options 14,000 57,000
Deferred taxes (1,335,000) (303,000)
Changes in operating assets and liabilities:
Net decrease (increase) in securities owned, at market
value 854,000 192,000 (3,618,000)
Net change in receivable from clearing broker 472,000 (1,448,000) 2,234,000
(Increase) decrease in prepaid expenses and other
assets (963,000) 543,000 (154,000)
Net (decrease) increase in securities sold, not yet
purchased, at market value (4,000) 2,000 (48,000)
Increase in accounts payable and accrued liabilities 448,000 384,000 1,149,000
--------------- --------------- ---------------
Net cash (used in) provided by operating activities (2,215,000) 908,000 8,502,000
--------------- --------------- ---------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of intangibles (1,045,000) (2,310,000)
Purchase of furniture, equipment and leasehold improvements (1,638,000) (331,000) (1,629,000)
Collection of advances made to equity investee 43,000 54,000
Distribution from equity investee 1,683,000 609,000 (263,000)
--------------- --------------- ---------------
Net cash (used in) provided by investing activities (957,000) 278,000 (4,148,000)
--------------- --------------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Purchase of treasury shares (84,000) (1,932,000) (803,000)
Proceeds from exercise of options 84,000 46,000 58,000
Dividend on common stock (121,000)
--------------- --------------- ----------------
Net cash used in financing activities 0 (1,886,000) (866,000)
--------------- --------------- ---------------
Net (decrease) increase in cash and cash equivalents (3,172,000) (700,000) 3,488,000
Cash and cash equivalents - beginning of year 25,670,000 26,370,000 22,882,000
--------------- --------------- ---------------
Cash and cash equivalents - end of year $ 22,498,000 $ 25,670,000 $ 26,370,000
=============== =============== ===============
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Cash paid for:
Interest $ 1,000 $ 11,000 $ 23,000
Income taxes $ 279,000 $ 1,811,000 $ 5,812,000
NONCASH INVESTING AND FINANCING ACTIVITIES:
Tax benefit of employee stock options $ 14,000 $ 57,000
Net deferred tax liability attributable to acquired companies $ 792,000
See notes to consolidated financial statements.
F-5
SIEBERT FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
[1] ORGANIZATION AND BASIS OF PRESENTATION:
Siebert Financial Corp. ("Financial"), through its wholly owned
subsidiary, Muriel Siebert & Co., Inc. ("Siebert"), engages in the
business of providing discount brokerage services for customers,
investment banking services for institutional clients and trading
securities for its own account, and, through its wholly owned subsidiary,
Siebert Women's Financial Network, Inc. ("WFN"), engages in providing
products, services and information all uniquely devoted to women's
financial needs. All significant intercompany accounts and transactions
have been eliminated. Financial, Siebert and WFN collectively are
referred to herein as the "Company".
The municipal bond investment banking business is being conducted by
Siebert Brandford Shank & Co., LLC ("SBS"), an investee, which is
accounted for by the equity method of accounting (see Note C). The equity
method provides that Siebert record its share of SBS's earnings or
losses.
In addition during 2002, management devoted a substantial amount of time
and effort to develop a new strategic alliance with Intuit, Inc (See Note
B).
[2] SECURITIES TRANSACTIONS:
Securities transactions, commissions, revenues and expenses are
recorded on a trade date basis.
Siebert clears all its security transactions through two unaffiliated
clearing firms on a fully disclosed basis. Accordingly, Siebert does not
hold funds or securities for or owe funds or securities to its customers.
Those functions are performed by the clearing firms, both of which are
highly capitalized.
Marketable securities are valued at market value.
[3] INCOME TAXES:
The Company accounts for income taxes utilizing the asset and liability
approach requiring the recognition of deferred tax assets and liabilities
for the expected future tax consequences of temporary differences between
the basis of assets and liabilities for financial reporting purposes and
tax purposes. Financial files a consolidated federal income tax return
which includes Siebert and WFN.
[4] FURNITURE, EQUIPMENT AND LEASEHOLD IMPROVEMENTS:
Property and equipment is stated at cost and depreciation is calculated
using the straight-line method over the lives of the assets, generally
five years. Leasehold improvements are amortized over the period of the
lease.
[5] CASH EQUIVALENTS:
For purposes of reporting cash flows, cash equivalents include money
market funds.
[6] ADVERTISING COSTS:
Advertising costs are charged to expense as incurred.
F-6
NOTE A - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
[7] USE OF ESTIMATES:
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the
reported amounts of revenue and expenses during the reporting period.
Actual results could differ from those estimates.
[8] EARNINGS PER SHARE:
Basic earnings (loss) per share is calculated by dividing net income
(loss) by the weighted average outstanding shares during the period.
Diluted earnings (loss) per share is calculated by dividing net income
(loss) by the number of shares outstanding under the basic calculation
and adding all dilutive securities, which consist of options. The
treasury stock method is used to reflect the dilutive effect of
outstanding options, which, for 2001 and 2000 amounted to 260,215 and
379,797 additional shares, respectively, added to the basic weighted
average outstanding shares of 22,438,719 and 22,886,100 in 2001 and 2000,
respectively. The Company recognized a net loss for the year ended
December 31, 2002. Accordingly, basic and diluted earnings per common
share are the same as the effect of dilutive securities would be
anti-dilutive to loss per share. Potentially dilutive securities
consisting of outstanding options at December 31, 2002, 2001 and 2000
amounted to 1,855,260, 375,500 and 37,500, respectively.
[9] INVESTMENT BANKING:
Investment banking revenue includes gains and fees, net of syndicate
expenses, arising from underwriting syndicates in which the Company
participates. Investment banking management fees are recorded on the
offering date, sales concessions on the settlement date and underwriting
fees at the time the underwriting is completed and the income is
reasonably determinable.
[10] CASH EQUIVALENTS - RESTRICTED:
Cash equivalents - restricted represents $1,300,000 of cash invested in a
money market account which Siebert is obligated to lend to SBS on a
subordinated basis. Any outstanding amounts under the note bear interest
at 10% per annum and are repayable on August 31, 2004.
F-7
NOTE A - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
[11] STOCK-BASED COMPENSATION:
Statement of Financial Accounting Standards ("SFAS") No. 123, Accounting
for Stock-Based Compensation ("SFAS 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 (see Note H) 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 (loss) income and (loss) income per share for the
years ended December 31, 2002, 2001 and 2000 would have (increased)
decreased to the pro forma amounts as follows:
YEAR ENDED DECEMBER 31,
------------------------------------------------
2002 2001 2000
---- ---- ----
Net (loss) income, as reported $ (1,633,000) $ 2,488,000 $ 7,999,000
Stock-based employee compensation determined
under APB 25 - - -
Stock-based employee compensation determined
under the fair value based method, net of tax effect (1,647,000) (271,000) (249,000)
---------------- -------------- ---------------
Pro forma net (loss) income $ (3,280,000) $ 2,217,000 $ 7,750,000
================ ============== ===============
Net (loss) income per share - basic:
As reported $(.07) $.11 $.35
Pro forma $(.15) $.10 $.34
Net (loss) income per share - diluted:
As reported $(.07) $.11 $.34
Pro forma $(.15) $.10 $.33
The weighted average fair value of stock options is estimated at the
grant date using the Black-Scholes option pricing model with the
following weighted average assumptions:
2002 2001
Risk free interest rate 4.00% 4.98%
Expected life of options in years 10.00 10.00
Expected dividend yield 0.00% 0.00%
Expected volatility 82.00% 62.00%
Weighted average fair value $ 3.50 $ 3.99
======= =========
F-8
NOTE A - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
[12] START-UP COSTS:
Start-up costs consist principally of advisory and legal fees and costs
relating to the development and marketing of a joint brokerage service
with Intuit, Inc. ( the "JBS"). In accordance with the American Institute
of Certified Public Accountants' Statement of Position ("SOP") 98-5,
start-up costs are expensed as incurred. The JBS, as further discussed in
Note B, was launched in September 2002. During 2002, Siebert's share of
expenses relating to the JBS amounted to approximately $4,700,000, which
included technology, marketing and content expenses of $2,910,000 and
certain brokerage and other services of $380,000. Siebert separately
incurred other start-up costs for an advisory fee of $1,000,000 and legal
fees of $392,000.
[13] INTANGIBLES:
Purchased intangibles are principally being amortized using the
straight-line method over an estimated useful life of three years.
[14] VALUATION OF LONG-LIVED ASSETS:
The Company evaluates the recoverability of its long-lived assets and
requires the recognition of impairment of long-lived assets in the event
the net book value of these assets exceeds the estimated future
undiscounted cash flows attributable to these assets. The Company
assesses potential impairment to its long-lived assets when there is
evidence that events or changes in circumstances have made recovery of
the assets' carrying value unlikely. Should impairment exist, the
impairment loss would be measured based on the excess of the carrying
value of the assets over the assets' fair value.
[15] NEW ACCOUNTING STANDARDS:
In June 2001, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 141, "Business Combinations." SFAS No. 141 requires that the
purchase method of accounting be used for all business combinations
initiated after June 30, 2001. This statement specifies that certain
acquired intangible assets in a business combination be recognized as
assets separately from goodwill and that existing intangible assets and
goodwill be evaluated for these new separation requirements. The adoption
of this statement did not have a material impact on the Company's
consolidated financial position or results of operations.
In June 2001, the FASB issued SFAS No. 142, "Goodwill and Other
Intangible Assets." SFAS No. 142 changes the accounting for goodwill from
an amortization method to an impairment-only approach. Amortization of
goodwill, including goodwill recorded in past business combinations, will
cease upon adoption of this statement. In addition, this statement
requires that goodwill be tested for impairment at least annually at the
reporting unit level. The Company adopted SFAS No. 142 on January 1,
2002, which did not have a material impact on the Company's consolidated
financial position or results of operations.
In August 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets." This statement supercedes
SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of." The statement retains the
previously existing accounting requirements related to the recognition
and measurement of the impairment of long-lived assets to be held and
used while expanding the measurement requirements of long-lived assets to
be disposed of by sale to include discontinued operations. It also
expands the previously existing reporting requirements for discontinued
operations to include a component of an entity that either has been
disposed of or is classified as held for sale. The Company implemented
SFAS No. 144 on January 1, 2002, which did not have a material impact on
the Company's consolidated financial position or results of operations.
F-9
NOTE A - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
[15] NEW ACCOUNTING STANDARDS (CONTINUED):
In December 2002, the FASB issued SFAS No. 148, "Accounting for
Stock-Based Compensation - Transition and Disclosure", to provide
alternative methods of transition for a voluntary change to the fair
value based method of accounting for stock-based employee compensation.
In addition, SFAS No. 148 amends the disclosure requirements of SFAS No.
123 to require prominent disclosures in both annual and interim financial
statements about the method of accounting for stock-based employee
compensation and the effect of the method used on reported results. The
Company has adopted the disclosure requirements of SFAS No. 148.
NOTE B - STRATEGIC ALLIANCE AGREEMENT AND CLEARING ARRANGEMENT
On April 29, 2002, Siebert entered into an exclusive Strategic Alliance
Agreement with Intuit, Inc. to offer a joint brokerage service (the "JBS"),
with Intuit as the technology, marketing and content provider and Siebert as a
broker-dealer and provider of certain brokerage and other services. The
financial arrangement between Siebert and Intuit generally provides that gross
revenue, as defined, generated from the JBS and incremental expenses, as
defined, incurred by Siebert and Intuit be split on a 50/50 basis. The term of
the agreement is for an initial period of ten years and is extended
automatically for successive two-year periods unless notice of termination is
given by either party. Siebert records its proportionate share of the JBS's
revenue and incremental expenses on a gross basis. The JBS was launched on
September 16, 2002. During 2002, revenue related to the JBS was nominal and
Siebert's share of expenses amounted to approximately $4,700,000, which
included technology, marketing and content expenses of $2,910,000 and certain
brokerage and other services of $380,000. Siebert separately incurred other
start-up costs for an advisory fee of $1,000,000 and legal fees of $392,000.
These expenses were charged to operations in 2002.
On April 30, 2002, Siebert signed a fully disclosed clearing agreement (the
"Clearing Agreement") with the Pershing division of Donaldson, Lufkin, &
Jenrette Securities Corporation ("Pershing"). Pursuant to the Clearing
Agreement and the JBS, Siebert and Intuit will advance Pershing a total of
$1,500,000, principally for software customization setup. Pershing has agreed
that it shall rebate such amount to Siebert payable in three equal annual
installments, without interest, over the initial three years of the Clearing
Agreement, provided that if the Clearing Agreement is terminated under certain
circumstances, Siebert must repay these rebated amounts to Pershing. In
addition, Siebert and Intuit will incur other charges aggregating approximately
$485,000 for the setup of the JBS's website and related matters. Siebert and
Intuit will share equally in the advance and the other charges. The advance to
Pershing was made in January 2003.
NOTE C - INVESTMENT IN AFFILIATE
In March 1997, Siebert and two individuals (the "Principals") formed SBS to
succeed to the tax-exempt underwriting business of the Siebert Brandford Shank
division of Siebert. The agreements with the Principals provide that profits
will be shared 51% to the Principals and 49% to Siebert. Siebert invested
$392,000 as its share of the members' capital of SBS. SBS commenced operations
on July 1, 1998.
F-10
NOTE C - INVESTMENT IN AFFILIATE (CONTINUED)
Summarized financial data of SBS is as follows:
2002 2001 2000
---- ---- ----
Total assets $ 8,944,000 $ 8,351,000 $ 3,413,000
Total liabilities including subordinated liabilities of
$1,200,000, $1,200,000 and $1,200,000 3,404,000 2,991,000 2,807,000
Total members' capital 5,541,000 5,360,000 605,000
Total revenue 13,190,000 13,968,000 5,568,000
Net income (loss) 3,616,000 4,755,000 (661,000)
Regulatory minimum net capital requirement 130,000 119,000 107,000
During each of 2002, 2001 and 2000, Siebert charged SBS $240,000 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 amounts to $2,323,000 and
$2,234,000 at December 31, 2002 and 2001, 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
net capital requirements.
NOTE D - FURNITURE, EQUIPMENT AND LEASEHOLD IMPROVEMENTS, NET
Furniture, equipment and leasehold improvements consist of the following:
DECEMBER 31,
------------------------------
2002 2001
---- ----
Equipment $ 3,562,000 $ 2,179,000
Leasehold improvements 484,000 536,000
Furniture and fixtures 154,000 188,000
------------- -------------
4,200,000 2,903,000
Less accumulated depreciation and amortization (1,584,000) (1,200,000)
------------- -------------
$ 2,616,000 $ 1,703,000
============= =============
Depreciation and amortization expense for the years ended December 31, 2002,
2001 and 2000 amounted to $725,000, $584,000 and $402,000, respectively.
NOTE E - INTANGIBLE ASSETS, NET
In several transactions during September and October of 2000, WFN acquired the
stock of WFN Women's Financial Network, Inc. ("WFNI") and HerDollar.com, Inc.,
respectively, companies in the development stage which had yet to commence
principal operations, had no significant revenue and had assets consisting
principally of websites, content and domain names, for aggregate consideration
of $2,310,000 including costs. The transactions have been accounted for as
purchases of assets consisting of domain name, website and content, and a
non-compete agreement (the "Acquired Intangible Assets"). Related deferred tax
assets attributable to net operating loss carryforwards of the acquired
companies and deferred tax liabilities attributable to the excess of the
statement bases of the acquired assets over their tax bases have been reflected
in the accompanying consolidated financial statements as an adjustment to the
carrying amount of such intangibles (see Note F).
F-11
NOTE E - INTANGIBLE ASSETS, NET (CONTINUED)
During 2002, Siebert purchased certain retail discount brokerage accounts in two
separate transactions for an aggregate cost of approximately $1,045,000.
Intangible assets consist of the following:
DECEMBER 31, 2002 DECEMBER 31, 2001
----------------- -----------------
GROSS GROSS
CARRYING ACCUMULATED CARRYING ACCUMULATED
AMOUNT AMORTIZATION AMOUNT AMORTIZATION
------ ------------ ------ ------------
Amortizable assets:
Website, content and non-compete $ 2,350,000 $1,708,000 $ 2,350,000 $ 850,000
Retail brokerage accounts 1,045,000 135,000
------------ ---------- ------------ ----------
$ 3,395,000 $1,843,000 $ 2,350,000 $ 850,000
============ ========== ============ ==========
Unamortized intangible assets:
Domain name/intellectual property $ 750,000 $ 750,000
============ ============
Amortization expense $ 993,000 $ 850,000
========= ==========
Estimated amortization expense is as follows:
YEAR ENDING
DECEMBER 31,
2003 $ 896,000
2004 444,000
2005 212,000
--------------
$ 1,552,000
==============
NOTE F - INCOME TAXES
Income tax provision (benefit) consists of the following:
YEAR ENDED DECEMBER 31,
-----------------------
2002 2001 2000
---- ---- ----
Federal income tax provision (benefit):
Current $ (19,000) $ 1,442,000 $ 4,194,000
Deferred (1,014,000) (203,000)
-------------- -------------- ---------------
(1,033,000) 1,239,000 4,194,000
-------------- -------------- --------------
State and local tax provision (benefit):
Current (231,000) 710,000 1,662,000
Deferred (321,000) (100,000)
-------------- -------------- ---------------
(552,000) 610,000 1,662,000
-------------- -------------- --------------
Total tax provision (benefit):
Current (250,000) 2,152,000 5,856,000
Deferred (1,335,000) (303,000)
-------------- -------------- --------------
$ (1,585,000) $ 1,849,000 $ 5,856,000
============== ============== ==============
F-12
NOTE F - INCOME TAXES (CONTINUED)
A reconciliation between the income tax provision (benefit) and income taxes
computed by applying the statutory Federal income tax rate to income (loss)
before taxes is as follows:
YEAR ENDED DECEMBER 31,
-----------------------
2002 2001 2000
---- ---- ----
Expected income tax provision (benefit) at statutory Federal
tax rate $ (1,094,000) $ 1,475,000 $ 4,711,000
State and local taxes, net of Federal tax effect (241,000) 374,000 1,145,000
Other * (250,000)
--------------- --------------- ---------------
Income tax expense (benefit) $ (1,585,000) $ 1,849,000 $ 5,856,000
=============== =============== ===============
* Change in estimated state business allocation percentage
Deferred income taxes reflect the impact of temporary differences between the
amounts of assets and liabilities for financial reporting purposes and the tax
treatments of such amounts. The principal items giving rise to deferred tax
assets (liabilities) are as follows:
DECEMBER 31,
--------------------------------
2002 2001
---- ----
Net operating losses $ 1,260,000 $ 485,000
Acquired Intangible assets (616,000) (974,000)
Start-up costs 363,000
Furniture, equipment and leasehold improvements (207,000)
Retail brokerage accounts 46,000
-------------- ------------
$ 846,000 $ (489,000)
============== ============
Management believes that it is more likely than not that the deferred tax asset
will be realized, and therefore no valuation allowance has been provided.
Net operating loss carryforwards of $3,000,000, which include net operating loss
carryforwards of WFNI of $1,115,000, expire through 2022. Utilization of the net
operating loss carryforward relating to WFNI is subject to annual limitations
under Section 382 of the Internal Revenue Code. During 2001, the Company
realized a tax benefit of $26,000 relating to utilization of net operating loss
carryforwards.
In 2001 and 2000, the Company reduced current taxes payable by $14,000 and
$57,000, respectively, resulting from the deductibility of the difference
between the exercise price of nonqualifying stock options granted by the Company
and the market value of the stock on the dates of exercise. The tax benefit was
recorded as a credit to paid-in capital.
F-13
NOTE G - STOCKHOLDERS' EQUITY
Siebert is subject to the SEC'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 2 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 5% of aggregate debits.) At December 31, 2002 and 2001,
Siebert had net capital of approximately $16,448,000 and $20,900,000,
respectively, as compared with net capital requirements of $250,000. Siebert
claims exemption from the reserve requirement under Section 15c3-3(k)(2)(ii).
The principal shareholder waived her right to receive her portion of dividends
declared in 2000.
The 1998 Restricted Stock Award Plan (the "Award Plan"), provides for awards of
not more than 60,000 shares of the Company's common stock, subject to
adjustments for stock splits, stock dividends and other changes in the Company's
capitalization, to key employees, to be issued either immediately after the
award or at a future date. As provided in the Award Plan and subject to
restrictions, shares awarded may not be disposed of by the recipients for a
period of one year from the date of the award. Cash dividends on shares awarded
are held by the Company for the benefit of the recipients and are paid upon
lapse of the restrictions. During 1998 and 1999, the Company awarded an
aggregate of 41,400 shares, net of forfeitures of 8,050 shares, under the Award
Plan. The shares which vest one year from the date of grant, were valued at
market value on the date of grant and are being charged to expense over the
vesting periods. The Company recorded a non-cash compensation charge of $40,000
in 2000 relating to shares awarded under the Award Plan.
On May 15, 2000, the Board of Directors of the Company authorized a buy back of
up to one million shares of common stock. Shares will be purchased from time to
time in the open market and in private transactions. Through December 31, 2002,
572,400 shares were purchased at an average price of $4.92.
NOTE H - OPTIONS
The Company's 1997 Stock Option Plan, as amended, (the "Plan") authorizes the
grant of options to purchase up to an aggregate of 4,200,000 shares, subject to
adjustment in certain circumstances. Both non-qualified options and options
intended to qualify as "Incentive Stock Options" under Section 422 of the
Internal Revenue Code, as amended, may be granted under the Plan. A Stock Option
Committee of the Board of Directors administers the Plan. The committee has the
authority to determine when options are granted, the term during which an option
may be exercised (provided no option has a term exceeding 10 years), the
exercise price and the exercise period. The exercise price shall generally be
not less than the fair market value on the date of grant. No option may be
granted under the Plan after December 2007. Generally, employee options vest 20%
per year for five years and expire ten years from the date of grant.
A summary of the Company's stock option transaction for the three years ended
December 31, 2002 is presented below:
2002 2001 2000
------------------------ --------------------- --------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
------ ----- ------ ----- ------ -----
Outstanding - beginning of the year 799,820 $ 5.62 494,600 $ 3.93 521,700 $ 4.15
Granted 1,155,000 $ 4.16 350,000 $ 5.33
Forfeited (63,440) $ 3.69 (23,920) $ 3.57 (5,600) $ 22.35
Exercised (36,120) $ 2.31 (20,860) $ 2.31 (21,500) $ 2.70
--------- ------- -------
Outstanding - end of year 1,855,260 $ 4.39 799,820 $ 5.62 494,600 $ 3.93
========= ======= =======
Exercisable at end of year 575,660 $ 3.99 309,800 $ 3.32 182,250 $ 3.02
========= ======= =======
Weighted average fair value
of options granted $ 3.50 $ 3.99
F-14
NOTE H - OPTIONS (CONTINUED)
The following table summarizes information related to options outstanding at
December 31, 2002:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------- -------------------
WEIGHTED WEIGHTED
RANGE WEIGHTED AVERAGE AVERAGE AVERAGE
EXERCISE NUMBER REMAINING EXERCISE NUMBER EXERCISE
PRICES OUTSTANDING CONTRACTUAL LIFE PRICE EXERCISABLE PRICE
------ ----------- ---------------- ----- ----------- -----
$ 0.00 - 2.31 15,000 9.8 Years $ 2.12
$ 2.32 - 2.69 342,760 4.5 Years $ 2.35 333,160 $ 2.34
$ 2.70 - 5.33 1,470,000 9.1 Years $ 4.44 226,000 $ 4.65
$ 5.34 - 32.50 27,500 6.5 Years $ 28.49 16,500 $ 28.49
------------ -----------
$ 0.00 - 32.50 1,855,260 8.2 Years $ 4.39 575,660 $ 3.99
============ ===========
At December 31, 2002, approximately 1,947,900 shares of the Company's common
stock have been reserved for future issuance under the Plan, the Award Plan and
for options granted to directors.
NOTE I - FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK AND CONCENTRATIONS OF
CREDIT RISK
In the normal course of 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
statement of financial condition.
Retail customer transactions are cleared through clearing brokers on a fully
disclosed basis. In the event that customers are unable to 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 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 in the
event customers and other counterparties are unable to fulfill contractual
obligations. Securities transactions entered into as of December 31, 2002
settled with no adverse effect on Siebert's financial condition.
F-15
NOTE J - COMMITMENTS AND CONTINGENT LIABILITIES
The Company rents office space under long-term operating leases expiring in
various periods through 2007. These leases call for base rent plus escalations
for taxes and operating expenses.
Future minimum base rental payments under these operating leases are as follows:
YEAR ENDING
DECEMBER 31, AMOUNT
2003 $ 892,000
2004 633,000
2005 330,000
2006 182,000
2007 84,000
-------------
$ 2,121,000
=============
Rent expense, including escalations for operating costs, amounted to
approximately $844,000, $905,000 and $583,000 for the years ended December 31,
2002, 2001 and 2000, respectively. Rent is being charged to expense over the
entire lease term on a straight-line basis.
Siebert is party to certain claims, suits and complaints arising in the ordinary
course of business. In the opinion of management, all such claims, suits and
complaints are without merit, or involve amounts which would not have a
significant effect on the financial position or results of operations of the
Company. The Company believes that adequate provisions have been made for such
matters.
Siebert sponsors a defined contribution retirement plan under Section 401(k) of
the Internal Revenue Code that covers substantially all employees. Participant
contributions to the plan are voluntary and are subject to certain limitations.
Siebert may also make discretionary contributions to the plan. No contributions
were made by Siebert in 2002, 2001 and 2000.
Siebert is party to a Secured Demand Note Collateral Agreement with SBS which
obligates Siebert to lend SBS, on a subordinated basis, up to $1,200,000.
Amounts that Siebert is obligated to lend under this arrangement are reported as
"cash equivalents - restricted", currently in the amount of $1,300,000. This
obligation is not included in the Company's statement of financial condition
because it has not been drawn down upon by SBS.
NOTE K - FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts reflected in the consolidated statements of financial
condition for cash, cash equivalents, receivable from broker, accounts payable
and accrued liabilities approximate fair value due to the short term maturities
of those instruments. Securities owned and securities sold, not yet purchased
are carried at market value, in accordance with industry practice for
broker-dealers in securities.
F-16
SIEBERT FINANCIAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE L - SUMMARIZED QUARTERLY FINANCIAL DATA (UNAUDITED)
2002 2001
---- ----
FIRST SECOND THIRD FOURTH FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER
------- ------- ------- ------- ------- ------- ------- -------
Revenue $6,221,000 $ 6,371,000 $5,697,000 $ 5,815,000 $ 9,862,000 $ 8,555,000 $6,974,000 $ 6,629,000
Net income (loss) $ 255,000 $ (868,000) $ (726,000) $ (294,000) $ 803,000 $ 1,031,000 $ 225,000 $ 429,000
Earnings per share:
Basic $0.01 $(0.04) $(0.03) $(0.01) $0.04 $0.04 $0.01 $0.02
Diluted $0.01 $(0.04) $(0.03) $(0.01) $0.04 $0.04 $0.01 $0.02
F-17
SIEBERT, BRANDFORD, SHANK & CO., L.L.C.
FINANCIAL STATEMENTS
DECEMBER 31, 2002
INDEPENDENT AUDITORS' REPORT
Board of Managers
Siebert, Brandford, Shank & Co., L.L.C.
New York, New York
We have audited the accompanying statements of financial condition of Siebert,
Brandford, Shank & Co., L.L.C. as of December 31, 2002 and 2001 and the related
statements of operations, changes in members' capital, and cash flows for each
of the years in the three-year period ended December 31, 2002. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements enumerated above present fairly, in all
material respects, the financial position of Siebert, Brandford, Shank & Co.,
L.L.C. as of December 31, 2002 and 2001, and the results of its operations and
its cash flows for each of the years in the three-year period ended December 31,
2002, in conformity with accounting principles generally accepted in the United
States of America.
Eisner LLP
New York, New York
January 30, 2003
F-18
SIEBERT, BRANDFORD, SHANK & CO., L.L.C.
STATEMENTS OF FINANCIAL CONDITION
DECEMBER 31,
-----------------------
2002 2001
------- ------
ASSETS
Cash and cash equivalents $ 6,173,694 $ 3,159,799
Securities owned, at market value 778,876 2,065,717
Accounts receivable 544,022 1,714,607
Secured demand note 1,200,000 1,200,000
Furniture, equipment and leasehold improvements, net 91,578 87,784
Other assets 156,164 123,437
-------------- --------------
$ 8,944,334 $ 8,351,344
============== ==============
LIABILITIES AND MEMBERS' CAPITAL
Liabilities:
Payable to broker-dealer $ 246,044 $ 6,904
Payable to member 32,972 76,350
Accounts payable and accrued expenses 1,924,745 1,708,165
-------------- --------------
2,203,761 1,791,419
Subordinated debt 1,200,000 1,200,000
Members' capital 5,540,573 5,359,925
-------------- --------------
$ 8,944,334 $ 8,351,344
============== ==============
SEE NOTES TO FINANCIAL STATEMENTS
F-19
STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31,
------------------------------------------------
2002 2001 2000
--------------- --------------- --------------
REVENUES:
Investment banking $ 12,809,840 $ 13,552,953 $ 5,035,926
Trading profits 288,834 210,402 269,099
Interest and other 91,308 204,167 263,004
--------------- --------------- --------------
13,189,982 13,967,522 5,568,029
--------------- --------------- --------------
EXPENSES:
Employee compensation and benefits 6,563,459 6,611,201 3,827,488
Clearing fees 38,349 45,343 53,332
Communications 189,414 205,287 236,663
Occupancy 440,804 433,491 379,453
Professional fees 398,746 319,331 167,007
Interest 120,000 153,315 296,561
General and administrative 1,823,022 1,445,015 1,268,859
--------------- --------------- --------------
9,573,794 9,212,983 6,229,363
--------------- --------------- --------------
NET INCOME (LOSS) $ 3,616,188 $ 4,754,539 $ (661,334)
=============== =============== ==============
SEE NOTES TO FINANCIAL STATEMENTS
F-20
STATEMENTS OF CHANGES IN MEMBERS' CAPITAL
BALANCE - JANUARY 1, 2000 $ 1,375,992
Distributions to members (109,272)
Net loss (661,334)
---------------
BALANCE - DECEMBER 31, 2000 605,386
Net income 4,754,539
---------------
BALANCE - DECEMBER 31, 2001 5,359,925
Distributions to members (3,435,540)
Net income 3,616,188
---------------
BALANCE - DECEMBER 31, 2002 $ 5,540,573
===============
SEE NOTES TO FINANCIAL STATEMENTS
F-21
STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31,
--------------------------------------------------
2002 2001 2000
--------------- --------------- ---------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 3,616,188 $ 4,754,539 $ (661,334)
Adjustments to reconcile net income (loss) to net cash provided
by operating activities:
Depreciation and amortization 45,737 51,892 47,166
Changes in:
Securities owned, at market value 1,286,841 (2,065,717) 2,627,667
Accounts receivable 1,170,585 (1,291,449) (63,571)
Other assets (32,727) (608,423) 261,801
Receivable from/payable to member (43,378) 11,118 (8,695)
Accounts payable and accrued expenses 216,580 785,809 425,922
Payable to broker-dealer 239,140 6,904 (2,023,631)
--------------- --------------- ---------------
Net cash provided by operating activities 6,498,966 1,644,673 605,325
--------------- --------------- ---------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (49,531) (63,167) (33,085)
--------------- --------------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings of subordinated loans 4,000,000
Repayments of subordinated loans (4,000,000) (5,000,000)
Distributions to members (3,435,540) (109,272)
--------------- --------------- ---------------
Net cash used in financing activities (3,435,540) 0 (5,109,272)
--------------- --------------- ----------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 3,013,895 1,581,506 (4,537,032)
Cash and cash equivalents - beginning of year 3,159,799 1,578,293 6,115,325
--------------- --------------- ---------------
CASH AND CASH EQUIVALENTS - END OF YEAR $ 6,173,694 $ 3,159,799 $ 1,578,293
=============== =============== ===============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Taxes paid $ 235,297 $ 34,672 $ 55,090
Interest paid $ 120,000 $ 153,315 $ 296,561
SEE NOTES TO FINANCIAL STATEMENTS
F-22
SIEBERT, BRANDFORD, SHANK & CO., L.L.C.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2002
NOTE A - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
[1] ORGANIZATION AND BASIS OF PRESENTATION:
Siebert, Brandford, Shank & Co., L.L.C. ("SBS" or the "Company") was formed
on March 10, 1997 to engage in the business of tax-exempt underwriting and
related trading activities. The Company qualifies as a Minority and Women's
Business Enterprise in certain states.
The Company was formed to succeed the tax-exempt underwriting activities
business of the Siebert, Brandford, Shank Division of Muriel Siebert & Co.,
Inc. ("Siebert"), and commenced operations on July 1, 1998. Two individuals
(the "Principals") and Siebert are the equity members of the Company. The
business arrangement provides that profits will be shared 51% to the
Principals and 49% to Siebert.
[2] SECURITIES TRANSACTIONS:
Securities transactions, commissions, revenues and expenses are recorded on
a trade date basis. Securities owned are valued at market value.
Dividends are recorded on the ex-dividend date, and interest income is
recognized on an accrual basis.
[3] INVESTMENT BANKING:
Investment banking revenues include gains and fees, net of syndicate
expenses, arising primarily from municipal bond offerings in which the
Company acts as an underwriter or agent. Investment banking management fees
are recorded on offering date, sales concessions on settlement date, and
underwriting fees at the time the underwriting is completed and the income
is reasonably determinable.
[4] FURNITURE, EQUIPMENT AND LEASEHOLD IMPROVEMENTS, NET:
Furniture and equipment is stated at cost and depreciation is calculated
using the straight-line method over the lives of the assets, generally five
years. Leasehold improvements are amortized over the period of the lease.
[5] CASH EQUIVALENTS:
For purposes of reporting cash flows, cash equivalents include money market
funds.
[6] USE OF ESTIMATES:
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
[7] INCOME TAXES:
The Company is not subject to federal income taxes. Instead, the members
are required to include in their income tax returns their respective share
of the Company's income. The Company is subject to tax in certain state and
local jurisdictions.
F-23
SIEBERT, BRANDFORD, SHANK & CO., L.L.C.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2002
NOTE B - SUBORDINATED BORROWINGS AND SECURED DEMAND NOTE RECEIVABLE
The subordinated debt at December 31, 2002 and 2001 consist of a Secured Demand
Note Collateral Agreement, as amended, payable to Siebert, in the amount of
$1,200,000, bearing interest at 10% and due August 31, 2004. Interest expense
paid to Siebert for each of 2002, 2001 and 2000 amounts to $120,000.
The subordinated borrowings are available in computing net capital under the
Securities and Exchange Commission's (the "SEC") Uniform Net Capital Rule. To
the extent that such borrowing is required for the Company's continued
compliance with minimum net capital requirements, it may not be repaid.
The secured demand note receivable of $1,200,000 is collateralized by cash
equivalents of Siebert of approximately $1,300,000 at December 31, 2002.
Interest earned on the collateral amounted to approximately $31,000, $69,000 and
$95,000 in 2002, 2001 and 2000, respectively.
NOTE C - FURNITURE, EQUIPMENT AND LEASEHOLD IMPROVEMENTS, NET
Furniture, equipment and leasehold improvements consist of the following:
2002 2001
Equipment $ 217,422 $ 182,917
Furniture and fixtures 42,690 39,398
Leasehold improvements 56,851 45,117
----------- ------------
316,963 267,432
Less accumulated depreciation and amortization (225,385) (179,648)
----------- ------------
$ 91,578 $ 87,784
=========== ============
NOTE D - NET CAPITAL
The Company is subject to the SEC's Uniform Net Capital Rule 15c3-1, which
requires the maintenance of minimum net capital and requires that the ratio of
aggregate indebtedness to net capital, both as defined, shall not exceed 15 to
1. At December 31, 2002 and 2001, the Company had net capital of $6,288,000 and
$6,056,000, respectively, which was $6,158,000 and $5,937,000, respectively, in
excess of its required net capital, and its ratio of aggregate indebtedness to
net capital was .31 to 1 and .29 to 1, respectively. The Company claims
exemption from the reserve requirements under Section 15c-3-3(k)(2)(ii).
Subsequent to December 31, 2002, the Company distributed $800,000 to its
members.
F-24
NOTE E - COMMITMENTS AND CONTINGENCY
The Company rents office space under long-term operating leases expiring through
2005. These leases call for base rent plus escalations for taxes and operating
expenses. Future minimum base rent under these operating leases are as follows:
YEAR AMOUNT
---- ------
2003 $ 296,980
2004 145,285
2005 108,783
------------
$ 551,048
============
Rent expense including taxes and operating expenses for 2002, 2001 and 2000
amounted to $440,804, $433,491 and $379,453, respectively.
NOTE F - OTHER
During each of 2002, 2001 and 2000, the Company was charged $240,000 by Siebert
for rent and general and administrative services.
F-25
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
registrant 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
Chair and President
Date: March 28, 2003
In accordance with the Exchange Act, this report has been signed below by
the following persons on behalf of the registrant and in the capacities and on
the dates indicated.
Name Title Date
/s/ MURIEL F. SIEBERT Chair, President and Director March 28, 2003
------------------------------------ (principal executive officer)
Muriel F. Siebert
/s/ NICHOLAS P. DERMIGNY Executive Vice President, March 28, 2003
------------------------------------ Chief Operating Officer and
Nicholas P. Dermigny Director
/s/ JOSEPH M. RAMOS, JR. Chief Financial Officer March 28, 2003
------------------------------------ and Assistant Secretary
JOSEPH M. RAMOS, JR. (principal financial and
accounting officer)
/s/ PATRICIA L. FRANCY Director March 28, 2003
-------------------------------------
Patricia L. Francy
/s/ LEONARD M. LEIMAN Director March 28, 2003
-------------------------------------
Leonard M. Leiman
/s/ JANE H. MACON Director March 28, 2003
-------------------------------------
Jane H. Macon
/s/ NANCY S. PETERSON Director March 28, 2003
------------------------------------
Nancy S. Peterson
CERTIFICATION PURSUANT TO
RULE 13a-14 AND 15d-14 UNDER THE
SECURITIES AND EXCHANGE ACT OF 1934, AS AMENDED
I, Muriel F. Siebert certify that:
(1) I have reviewed this annual report on Form 10-K of Siebert Financial Corp.;
(2) Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;
(3) Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;
(4) I am responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the
registrant and have:
(i) Designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to me by others within those entities, particularly
during the period in which this annual report is being prepared;
(ii) Evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of this
annual report (the "Evaluation Date"); and
(iii) Presented in this annual report my conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date;
(5) I have disclosed, based on my most recent evaluation, to the registrant's
auditors and the audit committee of the registrant's board of directors (or
persons fulfilling the equivalent functions):
(i) All significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
(ii) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
(6) I have indicated in this annual report whether there were significant
changes in internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant deficiencies and
material weaknesses.
/s/ Muriel F. Siebert Date: March 28, 2003
Muriel F. Siebert
Chair and President
(principal executive officer and
principal financial and accounting officer)
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION OF DOCUMENT
2.1 Plan and Agreement of Merger between J. Michaels, Inc. ("JMI") and Muriel Siebert Capital
Markets Group, Inc. ("MSCMG"), dated as of April 24, 1996 ("Merger Agreement") (incorporated
by reference to Siebert Financial Corp.'s Form 10-K for the fiscal year ended December 31,
1996)
2.2 Amendment No. 1 to Merger Agreement, dated as of June 28, 1996 (incorporated by reference to
Siebert Financial Corp.'s Form 10-K for the fiscal year ended December 31, 1996)
2.3 Amendment No. 2 to Merger Agreement, dated as of September 30, 1996 (incorporated by
reference to Siebert Financial Corp.'s Form 10-K for the fiscal year ended December 31, 1996)
2.4 Amendment No. 3 to Merger Agreement, dated as of November 7, 1996 (incorporated by reference
to Siebert Financial Corp.'s Form 10-K for the fiscal year ended December 31, 1996)
3.1 Certificate of Incorporation of Siebert Financial Corp., formerly known as J. Michaels, Inc.
originally filed on April 9, 1934, as amended and restated to date (incorporated by reference
to Siebert Financial Corp.'s Form 10-K for the fiscal year ended December 31, 1997)
3.2 By-laws of Siebert Financial Corp. (incorporated by reference to Siebert Financial Corp.'s
Registration Statement on Form S-1 (File No. 333-49843) filed with the Securities and
Exchange Commission on April 10, 1998)
10.1 Siebert Financial Corp. 1998 Restricted Stock Award Plan (incorporated by reference to
Siebert Financial Corp.'s Form 10-K for the fiscal year ended December 31, 1997)
10.2 10(a) Siebert Financial Corp. 1997 Stock Option Plan (incorporated by reference to Siebert
Financial Corp.'s Form 10-K for the fiscal year ended December 31, 1996)
10.4 LLC Operating Agreement, among Siebert, Brandford, Shank & Co., LLC, Muriel Siebert & Co.,
Inc., Napoleon Brandford III and Suzanne F. Shank, dated as of March 10, 1997 (incorporated
by reference to Siebert Financial Corp.'s Form 10-K for the fiscal year ended December 31,
1996)
10.5 Services Agreement, between Siebert, Brandford, Shank & Co., LLC and Muriel Siebert & Co.,
Inc., dated as of March 10, 1997 (incorporated by reference to Siebert Financial Corp.'s Form
10-K for the fiscal year ended December 31, 1996)
10.6 Siebert Financial Corp. 1998 Restricted Stock Award Plan (incorporated by reference to
Siebert Financial Corp.'s Form 10-K for the fiscal year ended December 31, 1997)
10.7 Stock Option Agreement, dated March 11, 1997, between the Company and Patricia L. Francy
(incorporated by reference to Siebert Financial Corp.'s Registration Statement on Form S-8
(File No. 333-72939) filed with the Securities and Exchange Commission on February 25, 1999)
10.8 Stock Option Agreement, dated March 11, 1997, between the Company and Jane H. Macon
(incorporated by reference to Siebert Financial Corp.'s Registration Statement on Form S-8
(File No. 333-72939) filed with the Securities and Exchange Commission on February 25, 1999)
10.9 Stock Option Agreement, dated March 11, 1997, between the Company and Monte E. Wetzler
(incorporated by reference to Siebert Financial Corp.'s Registration Statement on Form S-8
(File No. 333-72939) filed with the Securities and Exchange Commission on February 25, 1999)
10.10 Employment Agreement, dated as of April 9, 1999, between the Company and Daniel Jacobson
(incorporated by reference to Siebert Financial
Corp.'s Form 10-Q for the quarter ended September
30, 1999)
10.11 Strategic Alliance Agreement, dated as of April 29, 2002, by and between Intuit Inc, Muriel
Siebert & Co., Inc. and Investment Solutions, Inc. (incorporated by reference to Siebert
Financial Corp.'s Form 10-Q for the quarter ended June 30, 2002.
10.12 Fully Disclosed Clearing Agreement, dated April 30, 2002, by and between the Pershing
Division of Donaldson, Lufkin and Jenrette Securities Corporation and Muriel Siebert & Co.,
Inc. (incorporated by reference to Siebert Financial Corp.'s Form 10-Q for the quarter ended
June 30, 2002.
21 Subsidiaries of the registrant (incorporated by reference to Siebert Financial Corp.'s Annual
Report on Form 10-K for the year ended December 31, 2001
23 Consent of Independent Auditors
99.1 Certification of Periodical Financial Report under Section 906 of Sarbenes-Oxley Act of 2002