-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, JFjGfAMET86wK3E2PUMsBUcKiArM2ZnIN/L24R5dBJU+CVgtG/VzA+MF5/wOMvy3 4LXROuf6zTqKkaN6cNevug== 0000913760-00-000036.txt : 20000515 0000913760-00-000036.hdr.sgml : 20000515 ACCESSION NUMBER: 0000913760-00-000036 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20000331 FILED AS OF DATE: 20000512 FILER: COMPANY DATA: COMPANY CONFORMED NAME: INTERNATIONAL ASSETS HOLDING CORP CENTRAL INDEX KEY: 0000913760 STANDARD INDUSTRIAL CLASSIFICATION: SECURITY BROKERS, DEALERS & FLOTATION COMPANIES [6211] IRS NUMBER: 592921318 STATE OF INCORPORATION: DE FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10QSB SEC ACT: SEC FILE NUMBER: 000-23554 FILM NUMBER: 627760 BUSINESS ADDRESS: STREET 1: 250 PARK AVENUE SOUTH STREET 2: SUITE 200 CITY: WINTER PARK STATE: FL ZIP: 32789 BUSINESS PHONE: 4076291400 MAIL ADDRESS: STREET 1: 250 PARK AVENUE SOUTH STREET 2: SUITE 200 CITY: WINTER PARK STATE: FL ZIP: 32789 10QSB 1 QUARTERLY REPORT U.S. Securities and Exchange Commission Washington D.C. 20549 Form 10-QSB [X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2000 [ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT Commission File Number 33-70334-A INTERNATIONAL ASSETS HOLDING CORPORATION ---------------------------------------- (Exact name of small business issuer as specified in its charter) Delaware 59-2921318 - ------------------------------------------------------------------------------ (State or other jurisdiction of (IRS Employer Identification No.) incorporation or organization) 250 Park Avenue South, Suite 200 Winter Park, FL 32789 (Address of principal executive offices) (407) 629-1400 (Issuer's telephone number) NA - ------------------------------------------------------------------------------ (Former name, former address and former fiscal year, if changed since last report) Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 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 [ ]. The number of shares outstanding of Common Stock was 2,181,347 as of May 9, 2000. Transitional small business disclosure format Yes [ ] No [X] INDEX Page No. ------- Part I. FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) Condensed Consolidated Balance Sheets as of March 31, 2000 and September 30, 1999 3 Condensed Consolidated Statements of Operations for the Six Months ended March 31, 2000 and 1999 5 Condensed Consolidated Statements of Operations for the Three Months ended March 31, 2000 and 1999 6 Condensed Consolidated Statements of Cash Flows for the Six Months ended March 31, 2000 and 1999 7 Notes to Condensed Consolidated Financial Statements 9 Item 2. Management's Discussion and Analysis or Plan of Operation 14 Part II. OTHER INFORMATION Item 1. Legal Proceedings 21 Item 4. Submission of Matters to a Vote of Security Holders 22 Item 6. Exhibits and Reports on Form 8-K 22 Signatures 23 INTERNATIONAL ASSETS HOLDING CORPORATION AND SUBSIDIARIES Condensed Consolidated Balance Sheets (Unaudited) March 31, September 30, Assets 2000 1999 ------ ---- ---- Cash $ 576,223 $ 380,070 Cash deposits with clearing broker 5,080,752 3,798,679 Foreign currency 26,233 30,255 Receivable from clearing broker, net 1,301,657 0 Other receivables 445,700 42,694 Securities owned, at market value 3,586,362 3,585,566 Investment in Joint Venture 19,851 15,639 Income taxes receivable 228,862 115,081 Deferred income tax benefit 41,777 84,033 Property and equipment, at cost: Leasehold improvements 55,913 52,953 Furniture and equipment 1,151,381 1,082,129 ------------- ------------- 1,207,294 1,135,082 Less accumulated depreciation and amortization (803,993) (731,057) ------------- ------------- Net property and equipment 403,301 404,025 Other assets, net of accumulated amortization of $266,274 in March 2000 and $144,508 in September 1999 397,438 321,496 -------------- -------------- Total assets $ 12,108,156 $ 8,777,538 ============== ============== See accompanying notes to condensed consolidated financial statements. INTERNATIONAL ASSETS HOLDING CORPORATION AND SUBSIDIARIES Condensed Consolidated Balance Sheets (Unaudited) March 31, September 30, Liabilities and Stockholders' Equity 2000 1999 ------------------------------------ ---- ---- Liabilities: Foreign currency sold, but not yet purchased $ 11,986 $ 36,482 Securities sold, but not yet purchased, at market value 2,884,804 990,482 Payable to clearing broker, net 0 230,443 Accounts payable 286,286 154,950 Accrued employee compensation and benefits 832,509 744,076 Accrued expenses 147,892 260,565 Payable to joint venture 8,642 9,384 Deferred income taxes 117,318 91,807 Other liabilities 121,250 120,343 -------------- ------------- Total liabilities 4,410,687 2,638,532 -------------- ------------- Stockholders' equity: Preferred stock, $.01 par value. Authorized 1,000,000 shares; issued and outstanding -0- shares 0 0 Common stock, $.01 par value. Authorized 3,000,000 shares; issued and outstanding 2,181,347 shares in March 2000 and 1,725,428 shares in September 1999 21,814 17,254 Additional paid-in capital 7,555,055 4,588,928 Retained earnings 120,600 1,532,824 -------------- -------------- Total stockholders' equity 7,697,469 6,139,006 Total liabilities and stockholders' --------------- --------------- equity $ 12,108,156 $ 8,777,538 =============== =============== See accompanying notes to condensed consolidated financial statements. INTERNATIONAL ASSETS HOLDING CORPORATION AND SUBSIDIARIES Condensed Consolidated Statements of Operations For the Six Months Ended March, 2000 and 1999 (Unaudited) 2000 1999 ---- ---- Revenues: Commissions $ 3,660,975 3,105,531 Net dealer inventory and investment gains 3,104,097 1,788,759 Management and investment advisory fees 77,196 44,396 Account maintenance fees 0 62,175 Interest and dividends 143,714 108,747 Loss from joint venture (25,788) (17,543) Other 229,710 14,895 ------------- ------------ Total revenues 7,189,904 5,106,960 ------------- ------------ Expenses: Commissions and clearing fees 2,433,557 2,041,873 Employees compensation and benefits 1,889,514 1,386,978 Communications 182,284 130,870 Promotion 550,138 328,740 Occupancy and equipment rental 229,755 215,583 Interest 961 1,096 Professional fees 200,685 113,493 Insurance 83,987 89,148 Depreciation and amortization 194,702 78,391 Other operating expenses 397,981 177,558 ------------- ----------- Total expenses 6,163,564 4,563,730 -------------- ----------- Income before income taxes 1,026,340 543,230 Income tax expense 406,307 219,076 -------------- ----------- Net income $ 620,033 324,154 ============== =========== Earnings per share: Basic $ 0.30 0.18 Diluted $ 0.26 0.17 Weighted average number of common shares outstanding: Basic 2,059,493 1,788,383 Diluted 2,384,175 1,912,333 See accompanying notes to condensed consolidated financial statements. INTERNATIONAL ASSETS HOLDING CORPORATION AND SUBSIDIARIES Condensed Consolidated Statements of Operations For the Three Months Ended March 31, 2000 and 1999 (Unaudited) 2000 1999 ---- ---- Revenues: Commissions $ 1,961,819 1,616,905 Net dealer inventory and investment gains 1,402,174 874,226 Management and investment advisory fees 34,006 20,420 Account maintenance fees 0 34,141 Interest and dividends 74,856 52,594 Loss from joint venture (15,902) (15,973) Other 222,673 4,830 -------------- ----------- Total revenues 3,679,626 2,587,143 -------------- ----------- Expenses: Commissions and clearing fees 1,343,014 1,050,539 Employees compensation and benefits 929,393 733,600 Communications 89,231 68,597 Promotion 281,310 171,857 Occupancy and equipment rental 101,901 111,024 Interest 427 895 Professional fees 125,228 87,932 Insurance 45,484 42,411 Depreciation and amortization 126,093 34,263 Other operating expenses 279,791 79,032 -------------- ----------- Total expenses 3,321,872 2,380,150 -------------- ----------- Income before income taxes 357,754 206,993 Income tax expense 140,607 83,498 -------------- ----------- Net income $ 217,147 123,495 ============== =========== Earnings per share: Basic $ 0.10 $ 0.07 Diluted $ 0.09 $ 0.06 Weighted average number of common shares outstanding: Basic 2,171,311 1,790,047 Diluted 2,411,325 2,071,145 See accompanying notes to condensed consolidated financial statements. INTERNATIONAL ASSETS HOLDING CORPORATION AND SUBSIDIARIES Condensed Consolidated Statements of Cash Flows For the Six Months Ended March 31, 2000 and 1999 (Unaudited) 2000 1999 ---- ---- Cash flows from operating activities: Net income $ 620,033 324,154 Adjustments to reconcile net income to net cash provided by (used for) operating activities: Depreciation and amortization 194,702 78,391 Deferred income taxes 67,767 35,918 Non-cash compensation 0 30,270 Loss from joint venture 25,788 17,543 Tax benefit from disqualifying dispositions of ISO's 320,121 0 Cash provided by (used for) changes in: Receivable from clearing broker, net (1,301,657) (16,295) Other receivables (403,006) 3,551 Securities owned, at market value (796) (684,661) Income tax receivable (113,781) 67,398 Other assets (21,541) (76,984) Foreign currency sold, but not yet purchased (24,496) 23,201 Securities sold, but not yet purchased, at market value 1,894,322 580,444 Payable to clearing broker, net (230,443) 0 Accounts payable 131,336 (19,935) Accrued employee compensation and benefits 88,433 251,223 Accrued expenses (112,673) (117,940) Payable to joint venture (742) 6,132 Income taxes payable 0 27,460 Other liabilities 907 531 ------------ ----------- Net cash provided by operating activities 1,134,274 530,401 ------------ ----------- Cash flows from investing activities: Investment in joint venture (30,000) (50,000) Acquisition of property, equipment and other assets (248,379) (32,512) ------------ ----------- Net cash used for investing activities (278,379) (82,512) ------------ ----------- (continued) See accompanying notes to condensed consolidated financial statements. INTERNATIONAL ASSETS HOLDING CORPORATION AND SUBSIDIARIES Condensed Consolidated Statements of Cash Flows, Continued For the Six Months Ended March 31, 2000 and 1999 (Unaudited) 2000 1999 ---- ---- Cash flows from financing activities: Proceeds from exercise of stock options 618,309 0 Acquisition of common shares related to terminated ESOP and RSP participants 0 (12,896) ---------- ----------- Net cash provided by (used for) financing activities 618,309 (12,896) ---------- ----------- Net increase in cash and cash equivalents 1,474,204 434,993 Cash and cash equivalents at beginning of period 4,209,004 3,046,075 ---------- ----------- Cash and cash equivalents at end of period $5,683,208 3,481,068 ========== =========== Supplemental disclosure of cash flow information: Cash paid for interest $ 961 1,096 ========== ============ Income taxes paid $ 132,200 88,300 ========== ============ Supplemental disclosure of noncash financing activities: On March 24, 2000 the Company issued 198,269 shares of common stock in conjunction with a ten percent stock dividend. On March 26,1999 the Company issued 148,199 shares of common stock in conjunction with a ten percent stock dividend. See accompanying notes to condensed consolidated financial statements. INTERNATIONAL ASSETS HOLDING CORPORATION AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements March 31, 2000 and 1999 (1) Basis of Presentation The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with the instructions and requirements of Form 10-QSB and, therefore, do not include all information and footnotes necessary for a fair presentation of financial position, results of operations, and cash flows in conformity with generally accepted accounting principles. In the opinion of Management, such financial statements reflect all adjustments (consisting of normal recurring items) necessary for a fair statement of the results of operations, cash flows and financial position for the interim periods presented. Operating results for the interim periods are not necessarily indicative of the results that may be expected for the full year. These condensed consolidated financial statements should be read in conjunction with the Company's audited consolidated financial statements for the year ending September 30, 1999, filed on Form 10-KSB (SEC File Number 33-70334-A). As used in this Form 10-QSB, the term "Company" refers, unless the context requires otherwise, to International Assets Holding Corporation and its six wholly owned subsidiaries; International Assets Advisory Corp. ("IAAC"), Global Assets Advisors, Inc. ("GAA"), International Financial Products, Inc. ("IFP"), INTLTRADER.COM, INC. ("ITCI"), International Asset Management Corp. ("IAMC") and OffshoreTrader.com Ltd. ("OTCL"). All significant intercompany balances and transactions have been eliminated in consolidation. The Company also has a 50% interest in International Assets New York, LLC ("IANY") a joint venture. (2) Reclassifications Certain prior year amounts have been reclassified to conform to fiscal 2000 presentation. These changes had no impact on previously reported results of operations or stockholders' equity. (3) Stock Dividend On February 25, 2000 the Company's Board of Directors declared a 10% stock dividend for shareholders of record on March 10, 2000 and payable on March 24, 2000. The 10% stock dividend increased the Company's issued and outstanding common shares by 198,269 shares. Earnings per common share, weighted average shares outstanding, and all stock option activity have been restated to reflect the stock dividend. INTERNATIONAL ASSETS HOLDING CORPORATION AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements, continued (4) Basic and Diluted Earnings Per Share Basic earnings per share for the six months and the three months ended March 31, 2000 and 1999 have been computed by dividing net income by the weighted average number of common shares outstanding. Diluted earnings per share for the six months and the three months ended March 31, 2000 and 1999 have been computed by dividing net income by the weighted average number of common shares and dilutive potential common shares outstanding. Options to purchase 48,050 and 251,790 shares of common stock were excluded from the calculation of diluted earnings per share for the six months ended March 31, 2000 and 1999, respectively, because their exercise prices exceeded the average market price of common shares for the period. Options to purchase 48,050 and 173,855 shares of common stock were excluded from the calculation of diluted earnings per share for the three months ended March 31, 2000 and 1999, respectively, because their exercise prices exceeded the average market price of common shares for the period (5) Securities Owned and Securities Sold, But Not Yet Purchased Securities owned and Securities sold, but not yet purchased at March 31, 2000 and September 30, 1999 consist of trading and investment securities at quoted market values as follows: Sold, but not Owned yet purchased ---------- ------------- March 31, 2000: Obligations of U.S. Government $ 233,750 - Common stock and American Depository Receipts 2,793,435 2,866,963 Corporate and municipal bonds 218,058 7,541 Foreign government obligations 110,347 10,300 Unit investment trusts, mutual funds and other investments 230,772 - ----------- ------------ Total $3,586,362 2,884,804 =========== ============ September 30, 1999: Obligations of U.S. Government $ 241,396 - Common stock and American Depository Receipts 2,573,717 945,053 Corporate and municipal bonds 209,340 - Foreign government obligations 257,083 - Unit investment trusts, mutual funds and other investments 304,030 45,429 ----------- ------------ Total $3,585,566 990,482 =========== ============ INTERNATIONAL ASSETS HOLDING CORPORATION AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements, continued (6) Investment in Joint Venture In October 1998, the Company made an initial $20,000 capital contribution to International Assets New York, LLC (IANY), a 50/50 joint venture with Lakeside Investments, LLC, an unrelated party. In February 1999, the Company made an additional $30,000 capital contribution to this joint venture. During January 2000 and February 2000 the Company made two additional capital contributions of $15,000 each to the joint venture. The Company has recorded this joint venture investment under the equity method of accounting. For the six months ended March 31, 2000 the Company has recorded a loss of $25,788 for 50% of the joint venture's loss for the six month period. As of March 31, 2000 the Company has a payable to the joint venture of $8,642 related to joint venture cash outlays which were made on behalf of the Company. (7) Leases The Company occupies leased office space of approximately 13,815 square feet at 250 Park Avenue South, Winter Park, Florida. The expiration date of the office lease is May 31, 2001. The lease includes an option to renew for an additional three years at a rental rate determined by the landlord. The Company is obligated under various noncancelable operating leases for the rental of its office facilities and certain office equipment. Rent expense associated with operating leases amounted to $189,543 and $163,602 for the six months ended March 31, 2000, and 1999, respectively. The future minimum lease payments under noncancelable operating leases as of March 31, 2000 are as follows: Fiscal Year (12 month period) Ending September 30, -------------------------------------------------- 2000 386,000 2001 290,600 2002 81,700 2003 50,500 2004 3,300 --------- Total future minimum lease payments $ 812,100 ========= The Company and Lakeside Investments, LLC, each executed a 100% guaranty for the joint venture office lease for IANY. Concurrently, the Company and Lakeside Investments, LLC executed indemnification agreements expressly agreeing to indemnify each other related to this lease guarantee in accordance with each parties proportionate ownership (50/50). This office lease is for a 38 month term from January 1, 1999 through February 28, 2002. The remaining base rental commitment for IANY is $84,120 (Fiscal year ending: September 30, 2000, $33,648; September 30, 2001, $33,648 and September 30, 2002, $16,824). INTERNATIONAL ASSETS HOLDING CORPORATION AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements, continued (8) Stock Repurchase Program The Board of Directors has authorized the Company to continue its repurchase of up to $500,000 in shares of the Company's common stock in the open market through the year ended September 30, 2000. The stock purchases may be made in the open market from time to time as market conditions permit. The Company is required to comply with Rule 10b-18 and Regulation M of the Securities and Exchange Commission which regulate the specific terms in which shares may be repurchased. Since the inception of the repurchase program on March 13, 1996 the Company has repurchased and retired a total of 43,112 shares (as adjusted for the 10% stock dividends) in the open market at a total cost of $129,233. During the six months ended March 31, 2000 the Company did not repurchase any Company shares through open market repurchases. In addition to the Company's common stock repurchases in the open market, the Company has repurchased and retired an additional 115,038 shares (as adjusted for the 10% stock dividends) from terminated participants of the Company's 401k Profit Sharing Plan ("401k Plan") and Retirement Savings Plan ("RSP") at a total cost of $256,893 since inception of the repurchase program. During the six months ended March 31, 2000 the Company did not repurchase any Company shares through the 401k Plan and RSP. In total the Company has repurchased 158,150 shares (as adjusted for the 10% stock dividends) for a total cost of $386,126 since the inception of the repurchase program on March 13, 1996. (9) Commitments and Contingent Liabilities The Company is party to certain litigation as of March 31, 2000, which relates primarily to matters arising in the ordinary course of business. Management of the Company anticipates that the final resolution of these items will not have a material adverse effect on the Company's consolidated financial statements. (10) Stock Option Plan In accordance with the terms of the Company's stock option plan the Company's Board of Directors has authorized a 9% share and price adjustment for all current and outstanding stock options issued prior to March 10, 2000. This adjustment is related to the Company's 10% stock dividend declared on February 25, 2000 and paid on March 24, 2000. According to the terms of the Company's stock option plan, in the event of a capital adjustment resulting from a stock dividend, the Board of Directors shall make such adjustment, if any, as it may deem appropriate in the number and kind of shares authorized by the stock option plan, or in the number, option price and kind of shares covered by the options granted. INTERNATIONAL ASSETS HOLDING CORPORATION AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements, continued Previously issued option shares have been proportionally increased by 9% and the corresponding option exercise price has also been reduced by 9%. The total options authorized under this plan are also proportionally increased from 770,000 options to 839,300 options as a result of this stock dividend. On January 28, 2000 one incentive stock option for 21,800 shares, with an exercise price of $11.697 per share was granted (as adjusted for the stock dividend declared on February 25, 2000). The 21,800 options granted on January 28, 2000 have a 10 year term and vest at 33.3% after years one and two and 33.4% after year three. On March 10, 2000 incentive stock options totaling 26,250 shares, with an exercise price of $11.625 per share were granted. The 26,250 options granted on March 10, 2000 have a 10 year term and vest at 20% per year beginning one year from the date of grant. Incentive Stock Options exercised during the quarter ended March 31, 2000 are as follows:
Options Date Cash Exercise Original Exercised Exercised Proceeds Price Grant Date --------- --------- -------- ----- ---------- 96,800 January 4, 2000 $220,026 $2.273 December 28, 1995 33,000 January 4, 2000 $ 49,500 $1.500 November 2, 1998 3,300 January 20, 2000 $ 9,035 $2.738 December 11, 1996 10,000 January 20, 2000 $ 20,660 $2.066 December 28, 1995 4,400 January 20, 2000 $ 10,908 $2.479 December 21, 1995 5,000 January 24, 2000 $ 21,075 $4.215 January 23, 1993 1,100 March 7, 2000 $ 2,727 $2.479 March 7, 1996 --------- ----------- 153,600 $333,931 ========= ===========
(11) New Accounting Pronouncements In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" (SFAS 133). SFAS 133 establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, (collectively referred to as derivatives) and for hedging activities. It requires that an entity recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. The implementation date of SFAS 133 was amended by SFAS 137 and is now effective for all fiscal quarters of fiscal years beginning after June 15, 2001. The Company is currently reviewing SFAS 133 to see what impact, if any, it will have on the Company. INTERNATIONAL ASSETS HOLDING CORPORATION AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements, continued (12) Related Party Transactions During November 1999 the Board of Directors of the Company approved a consulting agreement with the former President of the Company, who continues to serve on the Board of Directors of the Company, for a 6 month duration from December 15, 1999 through June 15, 2000, for a fee of $6,000 per month. On January 4, 2000 the Company made a loan to the CEO of the Company including the execution and receipt of a $250,000 promissory note due January 3, 2001. The promissory note includes interest of 6% per annum. The loan to officer was previously approved by the Company's Board of Directors. Concurrently, on January 4, 2000 the Company's CEO executed two partially vested incentive stock options totaling 129,800 option shares where the Company received proceeds totaling $269,526 for the exercise of these two options. (13) Subsequent Events At a Special Meeting of Stockholders held on April 3, 2000 shareholder approval was granted for a proposal to amend the Company's Certificate of Incorporation. The approved amendment increases the total number of authorized shares of common stock from 3,000,000 to 8,000,000 and increases the total number of authorized shares of preferred stock from 1,000,000 to 3,000,000. No other matters were presented at the Special Meeting. During April 2000 IANY, the Company's Joint Venture, executed an amendment for its leased office facilities. The Company and Lakeside Investments, LLC, each executed a 100% guaranty for the joint venture office lease for IANY. The amendment increases the square footage leased from approximately 1,402 square feet to 1,975 square feet. The amendment will extend the lease term for a 36 month period commencing on the effective date the enhanced space is available for occupancy. The effective date is expected to occur before June 30, 2000. Based on this lease amendment the remaining base rental commitment for IANY is $173,361 (Fiscal year ending: September 30, 2000, $37,580; September 30, 2001, $49,375; September 30, 2002, $49,375 and September 30, 2003, $37,031). ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION. The following discussion and analysis should be read in conjunction with the financial statements and notes thereto appearing elsewhere in this report. Certain statements in this discussion may constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements involve known and unknown risks including, but not limited to, changes in general economic and business conditions, interest rate and securities market fluctuations, competition from within and from outside the investment brokerage industry, new products and services in the investment brokerage industry, changing trends in customer profiles, Year 2000 issues and changes in laws and regulation applicable to the Company. Although the Company believes that its expectations with respect to the forward-looking statements are based upon reasonable assumptions within the bounds of its knowledge of its business and operations, there can be no assurances that the actual results, performance or achievement of the Company will not differ materially from any future results, performance or achievements expressed or implied by such forward-looking statements. The Company's assets increased from $8,777,538 at September 30, 1999, to $12,108,156 at March 31, 2000, or an increase of $3,330,618. The Company's liabilities increased from $2,638,532 at September 30, 1999, to $4,410,687 at March 31, 2000, or an increase of $1,772,155. The increase in the net assets (assets less liabilities) of $1,558,463 resulted from net income of $620,033, cash proceeds of $618,309 from the exercise of stock options and the benefit of $320,121 from the income tax deduction from disqualifying dispositions of incentive stock options recorded during the six month period ended March 31, 2000. The Company's condensed consolidated balance sheet at March 31, 2000, reflects a net receivable from clearing broker, for trades which had not yet settled for cash, due to the proceeds of securities sold exceeding the costs from the purchase of securities. Results of Operations: The Company's principal activities, securities brokerage and the trading of and market-making in securities, are highly competitive and extremely volatile. The earnings of the Company are subject to wide fluctuations since many factors over which the Company has little or no control, particularly the overall volume of trading and the volatility and general level of market prices, may significantly affect its operations. Six Months Ended March 31, 2000, as Compared to the Six Months Ended March 31, 1999 The Company's revenues are derived primarily from commissions earned on the sale of securities and net dealer inventory and investment gains (trading income) in securities purchased or sold for the Company's account. For the six months ended March 31, 2000 and 1999, 51% and 61%, respectively, of the Company's revenues were derived from commissions earned on the sale of securities, with 43% and 35%, respectively, of revenues coming from net dealer inventory and investment gains. Total revenues increased by $2,082,944, or 41% to $7,189,904 for the six months ended March 31, 2000 from $5,106,960 for the same period in 1999. This increase was primarily attributable to a $1,315,338 increase in net dealer inventory and investment gains as well as a $555,444 increase in commission revenues. Commission revenue increased by $555,444, or 18% to $3,660,975 for the six months ended March 31, 2000 from $3,105,531 for the same period in 1999. Revenues from commissions are affected by both retail trading volume and the dollar amount of retail trades. Based on the number of retail trades processed, 2000 volume increased by 28% from 1999 levels. Partially offsetting this 28% increase in volume is a 7% decrease in the dollar average of retail trades for 2000 as compared with 1999. The average number of account executives decreased from an average of 30 for the six months ended March 31, 1999 to an average of 28 for the six months ended March 31, 2000, or a decrease of 7%. Net dealer inventory and investment gains increased by $1,315,338, or 74% to $3,104,097 for the six months ended March 31, 2000 as compared to $1,788,759 for the same period in 1999. The increase in net dealer inventory and investment gains is primarily attributable to a $1,033,041 increase in wholesale trading income and a $263,420 increase in retail trading income in the six months ended March 31, 2000 as compared to the same six month period in 1999. The increase in wholesale trading is attributable to the ongoing development of new wholesale trading relationships by the Company as well as the maintenance of existing wholesale relationships. The Company's retail trading department primarily concentrates on global securities which it believes are likely to be traded by the Company's retail clients. By focusing on these types of securities, retail trading income is more directly related to commission income and order flow. Revenues from management and investment advisory fees increased by $32,800, or 74% to $77,196 for the six months ended March 31, 2000 from $44,396 for the same period in 1999. The increase is primarily due to an increase in the dollar amount of fixed fee and performance based money under management. Account maintenance fees decreased from $62,175 for the six months ended March 31, 1999 to $0 for the six months ended March 31, 2000. IAAC discontinued charging clients annual account maintenance fees as of August 1999. The decision to discontinue this annual fee was based on maintaining a competitive fee structure in light of other full service competitors as well as client feedback. Interest and dividend revenue increased by $34,967, or 32% to $143,714 for the six months ended March 31, 2000 from $108,747 in the same period in 1999. This increase is primarily attributable to a higher average dollar amount of interest and dividend bearing assets held by the Company for the six month period. Loss from joint venture increased by $8,245 to $25,788 for the six months ended March 31, 2000 from $17,543 in the same period in 1999. The loss from joint venture represents the Company's 50% share of the operating loss from the activity of International Assets New York, LLC, a 50/50 joint venture with Lakeside Investments, LLC of New York which began its operations in December 1998. Other revenues increased by $214,815 to $229,710 for the six months ended March 31, 2000 from $14,895 in the same period in 1999. This increase is primarily attributable to the settlement of two arbitration matters. The major expenses incurred by the Company relate to direct costs of its securities operations such as commissions and clearing fees (which includes commissions paid to account executives), employees compensation and benefits, communications and promotion expense. Total expenses increased by $1,599,834, or 35% to $6,163,564 for the six months ended March 31, 2000 from $4,563,730 in the same period in 1999. The 35% increase in total expenses is related to the 41% increase in total revenues. The increase in total expenses is attributable to increases in commissions and clearing fees, employees compensation and benefits, communications, promotions, professional fees, depreciation and amortization and other operating expenses. Commissions and clearing fees increased by $391,684, or 19% to $2,433,557 for the six months ended March 31, 2000 from $2,041,873 in the same period in 1999. The increase in commission expense is directly related to the 18% increase in commission revenue and the related 28% increase in the number of retail trades processed for the six month period. Employees compensation and benefits expense increased by $502,536, or 36% to $1,889,514 for the six months ended March 31, 2000 from $1,386,978 for the same period in 1999. The increase in employees compensation and benefits expense is due to the creation of additional staff positions related to ITCI's start-up as well as IAAC's staffing needs, increases in performance based bonus expense and an increase in the accrual for retirement plan profit sharing expense. The increase in performance based bonus and retirement plan profit sharing expense is primarily based on the $1,026,340 income before income taxes incurred for the six month period ended March 31, 2000 as compared to the $543,230 income before income taxes for the same six month period ended March 31, 1999. Communications expense increased by $51,414, or 39% to $182,284 for the six months ended March 31, 2000 from $130,870 for the same period in 1999. This increase is due to higher telephone, printing and postage expense related to the corresponding increases in operating activities related to increased revenues and increases in additional staff positions for the six months ended March 31, 2000 as compared to the same period in 1999. Promotion expense increased by $221,398, or 67% to $550,138 for the six months ended March 31, 2000 from $328,740 for the same period in 1999. This increase was primarily due to the promotional activities of ITCI. Occupancy and equipment rental expense increased by $14,172, or 7% to $229,755 for the six months ended March 31, 2000 from $215,583 in the same period in 1999. Professional fees increased by $87,192 to $200,685 for the six months ended March 31, 2000 from $113,493 during the same period in 1999. This increase is primarily due to consulting fees incurred during the six month period ended March 31, 2000 related to corporate strategic planning. Depreciation and amortization expense increased by $116,311, or 148% to $194,702 for the six months ended March 31, 2000 from $78,391 in the same period in 1999. This increase for the six months ended March 31, 2000 is primarily due to amortization expense related to capitalized system development costs for ITCI that were incurred prior to January 25, 2000, the date ITCI became operational. Other operating expenses increased by $220,423, or 124% to $397,981 for the six months ended March 31, 2000 from $177,558 in the same period in 1999. The increase is primarily related to expensed technology enhancement costs incurred by ITCI after January 25, 2000, the date ITCI became operational. As a result of the above, the Company is reporting net income of $620,033 for the six months ended March 31, 2000 as compared to $324,154 for the six months ended March 31, 1999. The Company's effective income tax rate was approximately 40% for both of the six month periods ended March 31, 2000 and 1999. Three Months Ended March 31, 2000, as Compared to the Three Months Ended March 31, 1999 For the three months ended March 31, 2000 and 1999, 53% and 63%, respectively, of the Company's revenues were derived from commissions earned on the sale of securities, with 38% and 34%, respectively, of revenues coming from net dealer inventory and investment gains. Total revenues increased by $1,092,483, or 42% to $3,679,626 for the three months ended March 31, 2000 from $2,587,143 for the same period in 1999. This increase was primarily attributable to a $527,948 increase in net dealer inventory and investment gains as well as a $344,914 increase in commission revenues. Commission revenue increased by $344,914, or 21% to $1,961,819 for the three months ended March 31, 2000 from $1,616,905 for the same period in 1999. Revenues from commissions are affected by both retail trading volume and the dollar amount of retail trades. Based on the number of retail trades processed, 2000 volume increased by 29% from 1999 levels. Partially offsetting this 29% increase in volume is a 6% decrease in the dollar average of retail trades for 2000 as compared with 1999. The average number of account executives decreased from an average of 29 for the three months ended March 31, 1999 to an average of 26 for the three months ended March 31, 2000, or a decrease of 10%. Net dealer inventory and investment gains increased by $527,948, or 60% to $1,402,174 for the three months ended March 31, 2000 as compared to $874,226 for the same period in 1999. The increase in net dealer inventory and investment gains is primarily attributable to a $450,421 increase in wholesale trading income and a $107,295 increase in retail trading income in the three months ended March 31, 2000 as compared to the same three month period in 1999. Partially offsetting the increases in wholesale and retail trading is a $32,313 decrease generated from Company investment portfolio valuations for the three months ended March 31, 2000 as compared to the same period in 1999. Revenues from management and investment advisory fees increased by $13,586, or 67% to $34,006 for the three months ended March 31, 2000 from $20,420 for the same period in 1999. The increase is primarily due to an increase in the dollar amount of fixed fee and performance based money under management. Interest and dividend revenue increased by $22,262, or 42% to $74,856 for the three months ended March 31, 2000 from $52,594 in the same period in 1999. This increase is primarily attributable to a higher average dollar amount of interest and dividend bearing assets held by the Company during the three month period. Loss from joint venture decreased by $71 to $15,902 for the three months ended March 31, 2000 from $15,973 in the same period in 1999. The loss from joint venture represents the Company's 50% share of the operating loss from the activity of International Assets New York, LLC. Other revenues increased by $217,843 to $222,673 for the three months ended March 31, 2000 from $4,830 in the same period in 1999. This increase is primarily attributable to the settlement of two arbitration matters. Total expenses increased by $941,722, or 40% to $3,321,872 for the three months ended March 31, 2000 from $2,380,150 in the same period in 1999. The increase in total expenses is attributable to increases in commissions and clearing fees, employees compensation and benefits, communications, promotions, professional fees, depreciation and amortization and other operating expenses. Commissions and clearing fees increased by $292,475, or 28% to $1,343,014 for the three months ended March 31, 2000 from $1,050,539 in the same period in 1999. The increase in commission expense is directly related to the 21% increase in commission revenue and the 29% increase in the number of retail trades processed for the three month period. Employees compensation and benefits expense increased by $195,793, or 27% to $929,393 for the three months ended March 31, 2000 from $733,600 for the same period in 1999. The increase in employees compensation and benefits expense is due to the creation of additional staff positions related to ITCI's start-up as well as IAAC's staffing needs, increases in performance based bonus expense and an increase in the accrual for retirement plan profit sharing expense. The increase in performance based bonus and retirement plan profit sharing expense is primarily based on the $357,754 income before income taxes incurred for the three month period ended March 31, 2000 as compared to the $206,993 income before income taxes for the same three month period in 1999. Communications expense increased by $20,634, or 30% to $89,231 for the three months ended March 31, 2000 from $68,597 for the same period in 1999. This increase is due to higher telephone, printing and postage expense related to the corresponding increases in operating activities related to increased revenues and increases in additional staff positions for the three months ended March 31, 2000 as compared to the same period in 1999. Promotion expense increased by $109,453, or 64% to $281,310 for the three months ended March 31, 2000 from $171,857 for the same period in 1999. This increase was primarily due to the promotional activities of ITCI. Occupancy and equipment rental expense decreased by $9,123, or 8% to $101,901 for the three months ended March 31, 2000 from $111,024 in the same period in 1999. Professional fees increased by $37,296, or 42% to $125,228 for the three months ended March 31, 2000 from $87,932 in the same period in 1999. This increase is primarily due to consulting fees incurred during the three month period ended March 31, 2000 related to corporate strategic planning. Depreciation and amortization expense increased by $91,830, or 268% to $126,093 for the three months ended March 31, 2000 from $34,263 in the same period in 1999. This increase for the three months ended March 31, 2000 is due to amortization expense related to capitalized system development costs for ITCI that were incurred prior to January 25, 2000, the date ITCI became operational. Other operating expenses increased by $200,759, or 254% to $279,791 for the three months ended March 31, 2000 from $79,032 in the same period in 1999. The increase is primarily related to expensed technology enhancement costs incurred by ITCI after January 25, 2000, the date ITCI became operational. As a result of the above, the Company is reporting net income of $217,147 for the three months ended March 31, 2000 as compared to $123,495 for the three month period ended March 31, 1999. The Company's effective income tax rate was approximately 39% and 40% for the three months ended March 31, 2000 and 1999, respectively. Liquidity and Capital ResourcesSubstantial portions of the Company's assets are liquid. At March 31, 2000, approximately 87% of the Company's assets consisted of cash, cash equivalents and marketable securities. All assets are financed by the Company's equity capital, short-term borrowings from securities lending transactions and other payables. IAAC, a wholly owned registered securities broker/dealer subsidiary, is subject to the requirements of the SEC and the NASD relating to liquidity and net capital levels. At March 31, 2000, IAAC had net capital of approximately $2,729,000, which was approximately $2,214,000 in excess of its minimum net capital requirement at that date. ITCI, a wholly owned registered securities broker subsidiary, is also subject to the requirements of the SEC and the NASD relating to liquidity and net capital levels. ITCI commenced operations on January 25, 2000. At March 31, 2000, ITCI had net capital of approximately $461,000, which was approximately $411,000 in excess of its minimum net capital requirement at that date. In the opinion of management, the Company's existing capital and cash flow from operations will be adequate to meet the Company's capital needs for at least the next twelve months in light of known and reasonably estimated trends. At this time additional financing is being sought primarily for desired marketing efforts intended to generate potential online client and online securities transaction growth. Any additional financing will also support the required technology and staffing enhancements that would be required if the marketing efforts are successful in generating significant growth for ITCI. In conjunction with the Company's plans for ITCI, the Company has engaged PaineWebber as its exclusive financial advisor to arrange and negotiate a private placement of securities issued by the Company or to find a strategic partner. PaineWebber has been engaged to use its best efforts in connection with a private placement and does not have any obligation to purchase any securities issued by the Company or to provide financing of any kind to the Company. PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS The Company is party to certain arbitration and/or litigation matters as of March 31, 2000 which relate primarily to matters arising in the ordinary course of business. Management of the Company anticipates that the final resolution of these additional items will not have a material adverse effect on the Company's consolidated financial statements. The foregoing discussion contains certain "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements involve various risks and uncertainties with respect to current legal proceedings. Although the Company believes that its expectation with respect to the forward-looking statements is based upon reasonable assumptions within the bounds of its knowledge of its business and operations, there can be no assurances that the actual results, performance or achievement of the Company will not differ materially from any future results, performance or achievements expressed or implied by such forward-looking statements. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS The Company's annual meeting of stockholders was held on Tuesday, February 15, 2000. The stockholders reelected the five members of the existing Board of Directors: Diego J. Veitia, Jerome F. Miceli, Stephen A. Saker, Robert A. Miller and Jeffrey L. Rush. The stockholders approved the action of the Board of Directors in selecting KPMG LLP to audit the financial statements of the Company and its subsidiaries for the period commencing October 1, 1999, and ending September 30, 2000. Votes Votes Matter For Withheld ------- --- -------- Election of Diego J. Veitia as director 1,820,356 6,370 Election of Jerome F. Miceli as director 1,820,356 6,370 Election of Stephen A. Saker as director 1,820,956 5,770 Election of Robert A. Miller director 1,820,356 6,370 Election of Jeffery L. Rush as director 1,820,956 5,770 Votes Votes Votes Matter For Against Abstain ------- --- ------- ------- Approval of the auditors 1,824,040 1,773 913 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K a). Exhibits (11) The Statement of Computation of Earnings Per Share is attached hereto as Exhibit 11. (27) Broker-Dealers and Broker Dealer Holding Companies Financial Data Schedule BD is attached hereto as Exhibit 27. b). Form 8-K No reports were filed on Form 8-K during the three months ended March 31, 2000. Signatures In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. INTERNATIONAL ASSETS HOLDING CORPORATION Date 05/11/2000 /s/ Diego J. Veitia -------------------- Diego J. Veitia President and Chief Executive Officer Date 05/11/2000 /s/ Jonathan C. Hinz --------------------- Jonathan C. Hinz Chief Financial Officer and Treasurer EX-11 2 10QSB INTERNATIONAL ASSETS HOLDING CORPORATION STATEMENT OF COMPUTATION OF EARNINGS PER SHARE For the Six Months Ended March 31, 2000 and 1999 2000 1999 ---- ---- Basic Earnings Per Share Numerator: Net income $ 620,033 $ 324,154 Denominator: Weighted average number of common shares outstanding 2,059,493 1,788,383 Basic earnings per share $ 0.30 $ 0.18 Diluted Earnings Per Share Numerator: Net income $ 620,033 $ 324,154 Denominator: Weighted average number of common shares outstanding 2,059,493 1,788,383 Weighted average number of net common shares that would be issued upon exercise of dilutive options assuming proceeds used to repurchase shares pursuant to the treasury stock method (1) 324,682 123,950 Weighted average number of common shares and dilutive potential common shares outstanding 2,384,175 1,912,333 Diluted earnings per share $ 0.26 $ 0.17 - ------------------------------------------------------------------------------ (1) The treasury stock method recognizes the use of proceeds that could be obtained upon exercise of options in computing diluted earnings per share. It assumes exercise of options as of the beginning of the period or when issued, if later, and that any proceeds would be used to purchase common stock at the average market price during the period. INTERNATIONAL ASSETS HOLDING CORPORATION STATEMENT OF COMPUTATION OF EARNINGS PER SHARE For the Three Months Ended March 31, 2000 and 1999 2000 1999 ---- ---- Basic Earnings Per Share Numerator: Net income $ 217,147 $ 123,495 Denominator: Weighted average number of common shares outstanding 2,171,311 1,790,047 Basic earnings per share $ 0.10 $ 0.07 Diluted Earnings Per Share Numerator: Net income $ 217,147 $ 123,495 Denominator: Weighted average number of common shares outstanding 2,171,311 1,790,047 Weighted average number of net common shares that would be issued upon exercise of dilutive options assuming proceeds used to repurchase shares pursuant to the treasury stock method (1) 240,014 281,098 Weighted average number of common shares and dilutive potential common shares outstanding 2,411,325 2,071,145 Diluted earnings per share $ 0.09 $ 0.06 - ----------------------------------------------------------------------------- (1) The treasury stock method recognizes the use of proceeds that could be obtained upon exercise of options in computing diluted earnings per share. It assumes exercise of options as of the beginning of the period or when issued, if later, and that any proceeds would be used to purchase common stock at the average market price during the period. EX-27 3 FDS FOR 10QSB
BD 1 6-MOS SEP-30-2000 MAR-31-2000 5,683,208 1,976,219 0 0 3,586,362 403,301 12,108,156 0 1,275,329 0 0 2,884,804 0 0 0 21,814 7,675,655 12,108,156 3,104,097 143,714 3,660,975 0 77,196 961 3,500,130 1,026,340 1,026,340 0 0 620,033 0.30 0.26
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