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 June 30, 2000
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
EXCHANGE ACT
Commission File Number 33-70334-A
INTERNATIONAL ASSETS HOLDING CORPORATION
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(Exact name of small business issuer as specified in its charter)
Delaware 59-2921318
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(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
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(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 August 7,
2000.
Transitional small business disclosure format Yes [ ] No [X]
<PAGE>
INDEX
Page No.
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Part I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets as of June 30,
2000 and September 30, 1999 3
Condensed Consolidated Statements of Operations for the
Nine Months ended June 30, 2000 and 1999 5
Condensed Consolidated Statements of Operations for the
Three Months ended June 30, 2000 and 1999 6
Condensed Consolidated Statements of Cash Flows for the
Nine Months ended June 30, 2000 and 1999 7
Notes to Condensed Consolidated Financial Statements 9
Item 2. Management's Discussion and Analysis or Plan of Operation 15
Part II. OTHER INFORMATION
Item 1. Legal Proceedings 22
Item 4. Submission of Matters to a Vote of Security Holders 23
Item 6. Exhibits and Reports on Form 8-K 23
Signatures 24
<PAGE>
INTERNATIONAL ASSETS HOLDING CORPORATION AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(Unaudited)
June 30, September 30,
Assets 2000 1999
------ ---- ----
Cash $ 419,849 $ 380,070
Cash deposits with clearing broker 5,792,031 3,798,679
Foreign currency 815 30,255
Other receivables 187,645 42,694
Securities owned, at market value 5,130,986 3,585,566
Investment in Joint Venture 17,177 15,639
Income taxes receivable 283,783 115,081
Deferred income tax benefit 43,125 84,033
Property and equipment, at cost:
Equipment and furniture 1,175,331 1,082,129
Leasehold improvements 55,913 52,953
------------ ------------
1,231,244 1,135,082
Less accumulated depreciation and amortization (842,116) (731,057)
------------ ------------
Net property and equipment 389,128 404,025
Other assets, net of accumulated amortization
of $314,033 in June 2000 and $144,508 in
September 1999 337,689 321,496
------------ ------------
Total assets $ 12,602,228 $ 8,777,538
============ ============
See accompanying notes to condensed consolidated financial statements.
<PAGE>
INTERNATIONAL ASSETS HOLDING CORPORATION AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(Unaudited)
June 30, September 30,
Liabilities and Stockholders' Equity 2000 1999
------------------------------------ ---- ----
Liabilities:
Foreign currency sold, but not yet purchased 8,916 $ 36,482
Securities sold, but not yet purchased, at
market value 3,415,194 990,482
Payable to clearing broker, net 102,963 230,443
Accounts payable 153,836 154,950
Accrued employee compensation and benefits 940,641 744,076
Accrued expenses 197,575 260,565
Payable to joint venture 2,246 9,384
Deferred income taxes 102,485 91,807
Other liabilities 122,208 120,343
------------ -----------
Total liabilities 5,046,064 2,638,532
------------ -----------
Stockholders' equity:
Preferred stock, $.01 par value.
Authorized 3,000,000 shares; issued
and outstanding -0- shares 0 0
Common stock, $.01 par value.
Authorized 8,000,000 shares; issued
and outstanding 2,181,347 shares in June 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 (20,705) 1,532,824
------------- -----------
Total stockholders' equity 7,556,164 6,139,006
------------- -----------
Total liabilities and $ 12,602,228 $ 8,777,538
stockholders' equity ============= ===========
See accompanying notes to condensed consolidated financial statements.
<PAGE>
INTERNATIONAL ASSETS HOLDING CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
For the Nine Months Ended June 30, 2000 and 1999
(Unaudited)
2000 1999
---- ----
Revenues:
Commissions $ 5,301,821 4,700,005
Net dealer inventory and investment gains 4,056,663 2,437,717
Management and investment advisory fees 90,957 63,171
Account maintenance fees 0 108,314
Interest and dividends 255,859 184,466
Loss from joint venture (43,462) (34,254)
Other 290,604 20,811
------------ ------------
Total revenues 9,952,442 7,480,230
------------ ------------
Expenses:
Commissions and clearing fees 3,502,913 3,017,469
Employees compensation and benefits 2,859,611 2,034,267
Communications 263,376 197,391
Promotion 769,118 534,522
Occupancy and equipment rental 354,572 332,062
Interest 4,831 2,345
Professional fees 291,240 198,809
Insurance 128,423 124,695
Depreciation and amortization 280,584 111,390
Technology 307,115 36,268
Other operating expenses 376,726 266,536
------------ ------------
Total expenses 9,138,509 6,855,754
------------ ------------
Income before income taxes 813,933 624,476
Income tax expense 335,205 261,442
------------ ------------
Net income $ 478,728 363,034
============ ============
Earnings per share:
Basic $ 0.23 0.20
Diluted $ 0.20 0.17
Weighted average number of common shares outstanding:
Basic 2,099,815 1,816,032
Diluted 2,379,182 2,137,481
See accompanying notes to condensed consolidated financial statements.
<PAGE>
INTERNATIONAL ASSETS HOLDING CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
For the Three Months Ended June 30, 2000 and 1999
(Unaudited)
2000 1999
---- ----
Revenues:
Commissions $ 1,640,846 1,594,474
Net dealer inventory and investment gains 952,566 648,958
Management and investment advisory fees 13,761 18,775
Account maintenance fees 0 46,139
Interest and dividends 112,145 75,719
Loss from joint venture (17,674) (16,711)
Other 60,894 5,916
------------ ----------
Total revenues 2,762,538 2,373,270
------------ ----------
Expenses:
Commissions and clearing fees 1,069,356 975,596
Employees compensation and benefits 970,097 647,289
Communications 81,092 66,521
Promotion 218,980 205,782
Occupancy and equipment rental 124,817 116,479
Interest 3,870 1,249
Professional fees 90,555 85,316
Insurance 44,436 35,547
Depreciation and amortization 85,882 32,999
Technology 152,490 23,170
Other operating expenses 133,370 102,076
------------ ----------
Total expenses 2,974,945 2,292,024
------------ ----------
(Loss) income before income taxes (212,407) 81,246
Income tax (benefit) expense (71,102) 42,366
------------ ----------
Net (loss) income $ (141,305) 38,880
============ ==========
(Loss) earnings per share:
Basic $ (0.06) $ 0.02
Diluted $ (0.06) $ 0.02
Weighted average number of common shares outstanding:
Basic 2,181,347 1,871,078
Diluted 2,181,347 2,374,407
See accompanying notes to condensed consolidated financial statements.
<PAGE>
INTERNATIONAL ASSETS HOLDING CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
For the Nine Months Ended June 30, 2000 and 1999
(Unaudited)
2000 1999
---- ----
Cash flows from operating activities:
Net income $ 478,728 363,034
Adjustments to reconcile net income to net cash
provided by (used for) operating activities:
Depreciation and amortization 280,584 111,390
Deferred income taxes 51,586 36,789
Non-cash compensation 0 30,271
Loss from joint venture 43,462 34,254
Tax benefit from disqualifying
dispositions of ISO's 320,121 23,829
Cash provided by (used for) changes in:
Receivable from clearing broker, net 0 791,753
Other receivables (144,951) 9,533
Securities owned, at market value (1,545,420) (1,160,770)
Income tax receivable (168,702) 13,524
Other assets (9,551) (29,430)
Foreign currency sold, but not yet purchased (27,566) 25,281
Securities sold, but not yet purchased, at
market value 2,424,712 798,859
Payable to clearing broker, net (127,480) 47,196
Accounts payable (1,114) (21,938)
Accrued employee compensation and benefits 196,565 311,827
Accrued expenses (62,990) (80,946)
Payable to joint venture (7,138) 13,333
Other liabilities 1,865 1,155
----------- ----------
Net cash provided by operating activities 1,702,711 1,318,944
----------- ----------
Cash flows from investing activities:
Investment in joint venture (45,000) (50,000)
Acquisition of property, equipment and
other assets (272,329) (59,899)
----------- -----------
Net cash used for investing activities (317,329) (109,899)
----------- -----------
(continued)
See accompanying notes to condensed consolidated financial statements.
<PAGE>
INTERNATIONAL ASSETS HOLDING CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows, Continued
For the Nine Months Ended June 30, 2000 and 1999
(Unaudited)
2000 1999
---- ----
Cash flows from financing activities:
Proceeds from exercise of stock options 618,309 259,473
Acquisition of common shares related to terminated
401k and RSP participants 0 (12,896)
----------- -----------
Net cash provided by financing activities 618,309 246,577
----------- -----------
Net increase in cash and cash equivalents 2,003,691 1,455,622
Cash and cash equivalents at beginning of period 4,209,004 3,046,075
----------- -----------
Cash and cash equivalents at end of period $ 6,212,695 4,501,697
============ ===========
Supplemental disclosure of cash flow information:
Cash paid for interest $ 4,831 2,345
============ ===========
Income taxes paid $ 132,200 187,300
============ ===========
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.
<PAGE>
INTERNATIONAL ASSETS HOLDING CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
June 30, 2000 and 1999
(Unaudited)
(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.
<PAGE>
INTERNATIONAL ASSETS HOLDING CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements, continued
(4) Basic and Diluted Earnings (Loss) Per Share
Basic earnings (loss) per share for the nine months and the three months
ended June 30, 2000 and 1999 have been computed by dividing net income
(loss) by the weighted average number of common shares outstanding.
Diluted earnings per share for the nine months ended June 30, 2000 and
1999 and the three months ended June 30, 1999 have been computed by
dividing net income by the weighted average number of common shares and
dilutive potential common shares outstanding. Diluted loss per share for
the three months ended June 30, 2000 is the same as basic loss per share
because of the anti-dilutive impact of the potential common shares, due
to the net loss for the period.
Options to purchase 48,050 and 32,482 shares of common stock were
excluded from the calculation of diluted earnings per share for the nine
months ended June 30, 2000 and 1999, respectively, because their exercise
prices exceeded the average market price of common shares for the period.
No options to purchase shares of common stock were excluded from the
calculation of diluted loss per share for the three months ended June 30,
2000 because of the anti-dilutive impact of the potential common shares,
due to the net loss for the period. No options to purchase shares of
common stock were excluded from the calculation of diluted earnings per
share for the three months ended June 30, 1999, because all outstanding
option exercise prices were less than 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 June 30,
2000 and September 30, 1999 consist of trading and investment securities
at quoted market values as follows:
Sold, but not
Owned yet purchased
----- -----------
June 30, 2000:
Obligations of U.S. Government $ 235,261 -
Common stock and American Depository Receipts 3,891,298 3,268,584
Corporate and municipal bonds 399,524 1,222
Foreign government obligations 444,238 145,388
Unit investment trusts, mutual funds and other
investments 160,665 -
---------- ---------
Total $ 5,130,986 3,415,194
========== =========
<PAGE>
INTERNATIONAL ASSETS HOLDING CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements, continued
Sold, but not
Owned yet purchased
----- -------------
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
========= ========
(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 the nine month period ending June 30, 2000 the Company
made three additional capital contributions for a total of $45,000 to the
joint venture. The Company has recorded this joint venture investment
under the equity method of accounting. For the nine months ended June 30,
2000 the Company has recorded a loss of $43,462 for 50% of the joint
venture's loss for the nine month period. As of June 30, 2000 the Company
has a payable to the joint venture of $2,246 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 $284,992 and
$255,134 for the nine months ended June 30, 2000, and 1999, respectively.
The future minimum lease payments under noncancelable operating leases as
of June 30, 2000 are as follows:
<PAGE>
INTERNATIONAL ASSETS HOLDING CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements, continued
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
=========
During April 2000, IANY, the Company's joint venture, executed an amendment
for its leased office facilities. 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 August 31, 2000. Based on this lease
amendment the remaining base rental commitment for IANY is $176,165 (Fiscal
year ending: September 30, 2000, $36,269; September 30, 2001, $49,375;
September 30, 2002, $49,375 and September 30, 2003, $41,146). 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).
(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 nine months ended June 30,
2000 the Company did not repurchase any Company shares through 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
<PAGE>
INTERNATIONAL ASSETS HOLDING CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements, continued
program. During the nine months ended June 30, 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 June 30, 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.
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 April 27, a stock option for 75,000 shares, with an exercise price
of $5.1875 per share was granted. This option has a 10 year term. The
strike price at the date of grant for the option was equal to the fair
market value of a share of common stock at that date and
accordingly, the Company did not recognize compensation cost
associated with such grant.
<PAGE>
INTERNATIONAL ASSETS HOLDING CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements, continued
On June 9, 2000 the Board of Directors of the Company approved an
amendment to the stock option plan to increase the total number of common
shares available for issuance from 839,300 shares to 1,339,300 shares.
This amendment is subject to approval by the shareholders of the Company
at the next scheduled annual shareholders meeting in February 2001.
(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.
(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. After June 15, 2000 this director is to be compensated
in the same manner as the Company's other outside Directors.
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. As of June 30, 2000 the remaining principal balance of the
promissory note including accrued interest is approximately $136,945.
The Company has engaged, on a task-by-task basis, a creative design firm
that is partially owned by a spouse of an officer of the Company.
Promotional expense related to this creative design firm totaling
approximately $66,000 was incurred by the Company during the nine months
ended June 30, 2000. There was no promotional expense related to this
creative design firm during the nine months ended June 30, 1999.
<PAGE>
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 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
$12,602,228 at June 30, 2000, or an increase of $3,824,690. The Company's
liabilities increased from $2,638,532 at September 30, 1999, to $5,046,064
at June 30, 2000, or an increase of $2,407,532. The increase in the net
assets (assets less liabilities) of $1,417,158 resulted from net income of
$478,728, 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 nine month
period ended June 30, 2000.
The Company's condensed consolidated balance sheet at June 30, 2000,
reflects a net payable to clearing broker, for trades which had not yet
settled for cash, due to the costs of securities purchased exceeding the
proceeds from the sale 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.
<PAGE>
Nine Months Ended June 30, 2000, as Compared to
the Nine Months Ended June 30, 1999
The Company is reporting net income of $478,728 for the nine months ended
June 30, 2000 as compared to $363,034 for the nine months ended June 30,
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
nine months ended June 30, 2000 and 1999, 53% and 63%, respectively, of the
Company's revenues were derived from commissions earned on the sale of
securities, with 41% and 33%, respectively, of revenues coming from net
dealer inventory and investment gains. Total revenues increased by
$2,472,212, or 33% to $9,952,442 for the nine months ended June 30, 2000
from $7,480,230 for the same period in 1999. This increase was primarily
attributable to a $1,618,946 increase in net dealer inventory and investment
gains as well as a $601,816 increase in commission revenues.
Commission revenue increased by $601,816, or 13% to $5,301,821 for the nine
months ended June 30, 2000 from $4,700,005 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 12% from 1999 levels. In addition, the
dollar average of retail trades for the nine months ended June 30, 2000
increased by 1% as compared with the same period in 1999. The number of
account executives decreased from an average of 30 for the nine months ended
June 30, 1999 to an average of 27 for the nine months ended June 30, 2000,
or a decrease of 10%.
Net dealer inventory and investment gains increased by $1,618,946, or 66% to
$4,056,663 for the nine months ended June 30, 2000 as compared to $2,437,717
for the same period in 1999. The increase in net dealer inventory and
investment gains is primarily attributable to a $1,575,617 increase in
wholesale trading income in the nine months ended June 30, 2000 as compared
to the same nine 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 $27,786,
or 44% to $90,957 for the nine months ended June 30, 2000 from $63,171 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 $108,314 for the nine months ended
June 30, 1999 to $0 for the nine months ended June 30, 2000. IAAC
<PAGE>
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 $71,393, or 39% to $255,859 for
the nine months ended June 30, 2000 from $184,466 in the same period in
1999. This increase is primarily attributable to a higher average dollar
amount of interest and dividend producing assets held by the Company for the
nine month period.
Loss from joint venture increased by $9,208 to $43,462 for the nine months
ended June 30, 2000 from $34,254 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 $269,793 to $290,604 for the nine months ended
June 30, 2000 from $20,811 in the same period in 1999. This increase is
primarily attributable to the settlement of three 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
and promotion expense. Total expenses increased by $2,282,755, or 33% to
$9,138,509 for the nine months ended June 30, 2000 from $6,855,754 in the
same period in 1999. The 33% increase in total expenses is related to the
33% increase in total revenues and is attributable to increases in
commissions and clearing fees, employees compensation and benefits,
communications, promotions, rents, interest, professional fees, insurance,
depreciation and amortization and other operating expenses.
Commissions and clearing fees increased by $485,444, or 16% to $3,502,913
for the nine months ended June 30, 2000 from $3,017,469 in the same period
in 1999. The increase in commission expense is directly related to the 13%
increase in commission revenue and the related 12% increase in the number of
retail trades processed for the nine month period as compared to the same
period in 1999.
Employees compensation and benefits expense increased by $825,344, or 41% to
$2,859,611 for the nine months ended June 30, 2000 from $2,034,267 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 attributable to the
$813,933 income before income taxes for the nine month period ended June 30,
2000 as compared to the $624,476 income before income taxes for the nine
month period ended June 30, 1999.
<PAGE>
Communications expense increased by $65,985, or 33% to $263,376 for the nine
months ended June 30, 2000 from $197,391 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 nine months
ended June 30, 2000 as compared to the same period in 1999.
Promotion expense increased by $234,596, or 44% to $769,118 for the nine
months ended June 30, 2000 from $534,522 for the same period in 1999. This
increase was due to the promotional activities of ITCI.
Occupancy and equipment rental expense increased by $22,510, or 7% to
$354,572 for the nine months ended June 30, 2000 from $332,062 in the same
period in 1999.
Professional fees increased by $92,431 to $291,240 for the nine months ended
June 30, 2000 from $198,809 during the same period in 1999. This increase is
primarily due to consulting fees incurred during the nine month period ended
June 30, 2000 related to corporate strategic planning.
Depreciation and amortization expense increased by $169,194, or 152% to
$280,584 for the nine months ended June 30, 2000 from $111,390 in the same
period in 1999. This increase for the nine months ended June 30, 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.
Technology expense increased by $270,847 to $307,115 for the nine months
ended June 30, 2000 from $36,268 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.
Other operating expenses increased by $110,190, or 41% to $376,726 for the
nine months ended June 30, 2000 from $266,536 in the same period in 1999.
The increase is primarily related to increases in several operating expenses
including dividend expense from securities sold, but not yet purchased and
operating office expenses.
The Company's effective income tax rate was approximately 41% and 42% for
the nine month periods ended June 30, 2000 and 1999, respectively.
Three Months Ended June 30, 2000, as Compared to
the Three Months Ended June 30, 1999
The Company is reporting a net loss of $212,407 for the three months ended
June 30, 2000 as compared to $81,246 net income for the three month period
ended June 30, 1999.
<PAGE>
For the three months ended June 30, 2000 and 1999, 59% and 67%,
respectively, of the Company's revenues were derived from commissions earned
on the sale of securities, with 34% and 27%, respectively, of revenues
coming from net dealer inventory and investment gains. Total revenues
increased by $389,268, or 16% to $2,762,538 for the three months ended June
30, 2000 from $2,373,270 for the same period in 1999. This increase was
primarily attributable to a $303,608 increase in net dealer inventory and
investment gains as well as a $46,372 increase in commission revenues.
Commission revenue increased by $46,372, or 3% to $1,640,846 for the three
months ended June 30, 2000 from $1,594,474 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 decreased by 17% from 1999 levels. Offsetting this
17% decrease in volume is a 25% increase in the dollar average of retail
trades for 2000 as compared with 1999. The number of account executives
decreased from an average of 28 for the three months ended June 30, 1999 to
an average of 24 for the three months ended June 30, 2000, or a decrease of
14%.
Net dealer inventory and investment gains increased by $303,608, or 47% to
$952,566 for the three months ended June 30, 2000 as compared to $648,958
for the same period in 1999. The increase in net dealer inventory and
investment gains is primarily attributable to increases in wholesale trading
income during the three months ended June 30, 2000 as compared to the same
three month period in 1999.
Revenues from management and investment advisory fees decreased by $5,014,
or 27% to $13,761 for the three months ended June 30, 2000 from $18,775 for
the same period in 1999.
Account maintenance fees decreased from $46,139 for the three months ended
June 30, 1999 to $0 for the three months ended June 30, 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 $36,426, or 48% to $112,145 for
the three months ended June 30, 2000 from $75,719 in the same period in
1999. This increase is primarily attributable to a higher average dollar
amount of interest and dividend producing assets held by the Company during
the three month period.
Loss from joint venture increased by $963 to $17,674 for the three months
ended June 30, 2000 from $16,711 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.
<PAGE>
Other revenues increased by $54,978 to $60,894 for the three months ended
June 30, 2000 from $5,916 in the same period in 1999. This increase is
primarily attributable to the settlement of one arbitration matter.
Total expenses increased by $682,921, or 30% to $2,974,945 for the three
months ended June 30, 2000 from $2,292,024 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, rents, interest, professional fees, insurance, depreciation and
amortization and other operating expenses.
Commissions and clearing fees increased by $93,760, or 10% to $1,069,356 for
the three months ended June 30, 2000 from $975,596 in the same period in
1999. The increase in commission expense is related to the 3% increase in
commission revenue and the 47% increase in net dealer inventory and
investment gains for the three month period.
Employees compensation and benefits expense increased by $322,808, or 50% to
$970,097 for the three months ended June 30, 2000 from $647,289 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 expense is
primarily based on the increase in net dealer inventory and investment gains
incurred for the three month period ended June 30, 2000 as compared to the
net dealer inventory and investment gains for the same three month period in
1999.
Communications expense increased by $14,571, or 22% to $81,092 for the three
months ended June 30, 2000 from $66,521 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 June 30, 2000 as compared to the same period in 1999.
Promotion expense increased by $13,198, or 6% to $218,980 for the three
months ended June 30, 2000 from $205,782 for the same period in 1999. This
increase was primarily due to the promotional activities of ITCI.
Occupancy and equipment rental expense increased by $8,338, or 7% to
$124,817 for the three months ended June 30, 2000 from $116,479 in the same
period in 1999.
Professional fees increased by $5,239, or 6% to $90,555 for the three months
ended June 30, 2000 from $85,316 in the same period in 1999. This increase
is primarily due to consulting fees incurred during the three month period
ended June 30, 2000 related to corporate strategic planning.
<PAGE>
Depreciation and amortization expense increased by $52,883, or 160% to
$85,882 for the three months ended June 30, 2000 from $32,999 in the same
period in 1999. This increase for the three months ended June 30, 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.
Technology expense increased by $129,320 to $152,490 for the three months
ended June 30, 2000 from $23,170 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.
Other operating expenses increased by $31,294, or 31% to $133,370 for the
three months ended June 30, 2000 from $102,076 in the same period in 1999.
The increase is primarily related to increases in several operating expenses
including office expenses.
The Company's effective income tax (benefit) rate was approximately (33%)
and 52% for the three months ended June 30, 2000 and 1999, respectively. The
effective income tax (benefit) expense rate was different than the expected
federal and state tax rates due to the presence of offsetting permanent
differences.
<PAGE>
Liquidity and Capital Resources
Substantial portions of the Company's assets are liquid. At June 30, 2000,
approximately 89% 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 June 30, 2000, IAAC had net capital of
approximately $3,029,000, which was approximately $2,508,000 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
June 30, 2000, ITCI had net capital of approximately $360,000, which was
approximately $310,000 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 outside private financing is being sought to
allow the Company to execute its incremental strategic business model. The
strategic business model includes enhanced technology, staffing and
marketing that plans for future revenue growth centered around principal
trading opportunities and enhanced technology concepts. 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
June 30, 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.
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
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.
Votes Votes Votes
Matter For Against Abstain
------- ------ ------- -------
Approval of amendment
to Certificate of Incorporation 1,119,287 48,401 2,830
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 June 30, 2000.
<PAGE>
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 08/07/2000 /s/ Diego J. Veitia
Diego J. Veitia
President and Chief Executive Officer
Date 08/07/2000 /s/ Jonathan C. Hinz
Jonathan C. Hinz
Chief Financial Officer and Treasurer
