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 December 31, 1999
[ ] 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 1,981,978 as of February 8,
2000.
Transitional small business disclosure format Yes [ ] No [X]
<PAGE>
INDEX
Page No.
-------
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets as of December 31,
1999 and September 30, 1999 3
Condensed Consolidated Statements of Operations for the
Three Months ended December 31, 1999 and 1998 5
Condensed Consolidated Statements of Cash Flows for the
Three Months ended December 31, 1999 and 1998 6
Notes to Condensed Consolidated Financial Statements 8
Item 2. Management's Discussion and Analysis or Plan of Operation 13
Part II. OTHER INFORMATION
Item 1. Legal Proceedings 20
Item 6. Exhibits and Reports on Form 8-K 20
Signatures 20
<PAGE>
INTERNATIONAL ASSETS HOLDING CORPORATION AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(Unaudited)
December 31, September 30,
Assets 1999 1999
------ ---- ----
Cash $ 577,319 $ 380,070
Cash deposits with clearing broker 3,301,850 3,798,679
Foreign currency 113,903 30,255
Receivable from clearing broker, net 1,250,639 0
Other receivables 128,488 42,694
Securities owned, at market value 4,408,243 3,585,566
Investment in Joint Venture 5,753 15,639
Income taxes receivable 20,547 115,081
Deferred income tax benefit 73,954 84,033
Property and equipment, at cost:
Leasehold improvements 52,953 52,953
Furniture and equipment 1,111,192 1,082,129
-------------- --------------
1,164,145 1,135,082
Less accumulated depreciation
and amortization (764,572) (731,057)
-------------- --------------
Net property and equipment 399,573 404,025
Other assets, net of accumulated
amortization of $179,602 in December
1999 and $144,508 in September 1999 562,462 321,496
--------------- ---------------
Total assets $ 10,842,731 $ 8,777,538
=================== ====================
See accompanying notes to condensed consolidated financial statements.
<PAGE>
INTERNATIONAL ASSETS HOLDING CORPORATION AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
<TABLE>
<CAPTION>
<S>
<C> <C> <C>
(Unaudited)
December 31, September 30,
Liabilities and Stockholders' Equity 1999 1999
------------------------------------ ---- ----
Liabilities:
Foreign currency sold, but not yet purchased $ 176 $ 36,482
Securities sold, but not yet purchased, at market value 2,674,982 990,482
Payable to clearing broker, net 0 230,443
Accounts payable 164,876 154,950
Accrued employee compensation and benefits 595,674 744,076
Accrued expenses 206,338 260,565
Payable to joint venture 762 9,384
Deferred income taxes 137,602 91,807
Other liabilities 120,758 120,343
-------------- -------------
Total liabilities
3,901,168 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 1,829,478 shares in December 18,295 17,254
1999 and 1,725,428 shares in September 1999
Additional paid-in capital 4,987,558 4,588,928
Retained earnings 1,935,710 1,532,824
-------------- -------------
Total stockholders' equity 6,941,563 6,139,006
-------------- ----------------
Total liabilities and stockholders' equity $ 10,842,731 $ 8,777,538
============== ================
</TABLE>
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 December 31, 1999 and 1998
(Unaudited)
<TABLE>
<CAPTION>
<S>
<C> <C>
1999 1998
---- ----
Revenues:
Commissions $ 1,699,156 1,488,626
Net dealer inventory and investment gains 1,701,923 914,533
Management and investment advisory fees 43,190 23,976
Account maintenance fees 0 28,034
Interest and dividends 68,858 56,153
Loss from joint venture (9,886) (1,570)
Other 7,037 10,065
---------------- -----------------
Total revenues 3,510,278 2,519,817
---------------- -----------------
Expenses:
Commissions and clearing fees 1,090,543 991,334
Employees compensation and benefits 960,121 653,378
Communications 93,053 62,273
Promotion 268,828 156,883
Occupancy and equipment rental 127,854 104,559
Interest 534 201
Professional fees 75,457 25,561
Insurance 38,503 46,737
Depreciation and amortization 68,609 44,128
Other operating expenses 118,190 98,526
---------------- ----------------
Total expenses 2,841,692 2,183,580
---------------- ----------------
Income before income taxes 668,586 336,237
Income tax expense 265,700 135,578
------------------ -----------------
Net income $ 402,886 200,659
================== =================
Earnings per share:
Basic $ 0.23 0.12
Diluted $ 0.19 0.12
Weighted average number of common shares outstanding:
Basic 1,751,810 1,624,241
Diluted 2,095,837 1,630,939
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE>
INTERNATIONAL ASSETS HOLDING CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
For the Three Months Ended December 31, 1999 and 1998
(Unaudited)
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1999 1998
---- ----
Cash flows from operating activities:
Net income $ 402,886 200,659
Adjustments to reconcile net income to net cash
provided by (used for) operating activities:
Depreciation and amortization 68,609 44,128
Deferred income taxes 55,874 32,742
Loss from joint venture 9,886 1,570
Tax benefit from disqualifying dispositions of ISO's 115,292 0
Cash provided by (used for) changes in:
Receivable from clearing broker, net (1,250,639) 791,753
Other receivable (85,794) (42,520)
Securities owned, at market value (822,677) (811,335)
Receivable from joint venture 0 (5,168)
Income tax receivable 94,534 67,398
Other assets (126,840) (86,892)
Foreign currency sold, but not yet purchased (36,306) 605
Securities sold, but not yet purchased, at market value 1,684,500 221,770
Payable to clearing broker, net (230,443) 56,519
Accounts payable 9,926 4,125
Accrued employee compensation and benefits (148,402) 67,703
Accrued expenses (54,227) (107,409)
Payable to joint venture (8,622) 0
Income taxes payable 0 35,438
Other liabilities 417 (1,205)
------------------ -----------------
Net cash provided by (used for) operating activities (322,026) 469,881
------------------ -----------------
Cash flows from investing activities:
Investment in joint venture 0 (20,000)
Acquisition of property, equipment and other assets (178,283) (9,112)
------------------ -----------------
Net cash used for investing activities (178,283) (29,112)
------------------ -----------------
(continued)
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE>
INTERNATIONAL ASSETS HOLDING CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows, Continued
For the Three Months Ended December 31, 1999 and 1998
(Unaudited)
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1999 1998
---- ----
Cash flows from financing activities:
Proceeds from exercise of stock options 284,377 0
Acquisition of common shares related to terminated
ESOP and RSP participants 0 (12,896)
------------------ -----------------
Net cash provided by (used for) financing activities 284,377 (12,896)
------------------ -----------------
Net increase (decrease) in cash and cash equivalents (215,932) 427,873
Cash and cash equivalents at beginning of period 4,209,004 3,046,075
------------------ -----------------
Cash and cash equivalents at end of period $ 3,993,072 3,473,948
================== =================
Supplemental disclosure of cash flow information:
Cash paid for interest $ 534 201
================== =================
$
Income taxes paid - 1,100
================== =================
Supplemental disclosure of noncash financing activities:
On March 26,1999, the Company issued 148,199
shares of common stock in conjunction with a ten
percent stock dividend.
</TABLE>
See accompanying notes to condensed consolidated financil statements.
<PAGE>
INTERNATIONAL ASSETS HOLDING CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
December 31, 1999 and 1998
(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 12, 1999 the Company's Board of Directors declared a 10%
stock dividend for shareholders of record on March 5, 1999 and payable on
March 26, 1999. The 10% stock dividend increased the Company's issued and
outstanding common shares by 148,199 shares.
Earnings per common share, weighted average shares outstanding, and all
stock option activity have been restated to reflect the 10% stock
dividend.
<PAGE>
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 three months ended December 31, 1999 and
1998 have been computed by dividing net income by the weighted average
number of common shares outstanding. Diluted earnings per share for the
three months ended December 31, 1999 and 1998 have been computed by
dividing net income by the weighted average number of common shares and
dilutive potential common shares outstanding.
Options to purchase 37,000 and 602,250 shares of common stock were
excluded from the calculation of diluted earnings per share for the three
months ended December 31, 1999 and 1998, 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 December
31, 1999 and September 30, 1999 consist of trading and investment
securities at quoted market values as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Sold, but not
Owned yet purchased
December 31, 1999:
Obligations of U.S. Government $ 234,534 -
Common stock and American Depository Receipts 3,289,097 2,657,651
Corporate and municipal bonds 364,899 -
Foreign government obligations 261,223 17,331
Unit investment trusts, mutual funds and other
investments 258,490 -
----------- ----------
Total $ 4,408,243 2,674,982
========= =========
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
========= =======
</TABLE>
<PAGE>
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. The Company has recorded this investment under the equity method
of accounting. For the three months ended December 31, 1999 the Company
has recorded a loss of $9,886 for 50% of the joint venture's loss for the
three month period. As of December 31, 1999 the Company has a payable to
the joint venture of $762 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 $91,449 and $80,253
for the three months ended December 31, 1999, and 1998, respectively. The
future minimum lease payments under noncancelable operating leases as of
December 31, 1999 are as follows:
Fiscal Year (12 month period) Ending September 30,
--------------------------------------------------
2000 383,600
2001 289,700
2002 81,700
2003 50,500
2004 3,300
Total future minimum lease payments $ 808,800
=======
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 $81,316 (Fiscal year ending: September 30, 2000, $33,648; September
30, 2001, $33,648 and September 30, 2002, $14,020).
<PAGE>
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 39,193 shares (as adjusted for the 10% stock
dividends) in the open market at a total cost of $129,233. During the
three months ended December 31, 1999 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 104,580 shares (as
adjusted for the 10% stock dividends) from terminated participants of the
Company's 401(k) Profit Sharing Plan and Retirement Savings Plan for a
total cost of $256,893. In total the Company has repurchased 143,773
shares (as adjusted for the 10% stock dividends) for a total cost of
$386,126 since March 13, 1996.
(9) Commitments and Contingent Liabilities
The Company is party to certain litigation as of December 31, 1999 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
According to the terms of the Company's stock option plan the 10% stock
dividend, declared by the Company's Board of Directors in February 1999,
resulted in a corresponding 10% adjustment for all stock options issued
prior to March 5, 1999. Previously issued option shares have been
proportionally increased by 10% and the corresponding option exercise
price has also been reduced by 10%. The total options authorized under
this plan is also proportionally increased from 700,000 options to
770,000 options as a result of this stock dividend.
On December 9, 1999 incentive stock options totaling 27,000 shares, with
an exercise price of $7.8125 per share were granted. The 27,000 options
granted on December 9, 1999 have a 10 year term and vest at 20% per year
beginning three years from the date of grant.
<PAGE>
INTERNATIONAL ASSETS HOLDING CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements, continued
Incentive Stock Options exercised during the quarter ended December 31, 1999:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Options Date Cash Exercise Original
Exercised Exercised Proceeds Price Grant Date
--------- --------- -------- ----- ----------
33,000 November 8, 1999 $ 45,012 $1.364 November 2, 1998
4,400 December 9, 1999 $ 6,002 $1.364 November 2, 1998
5,600 December 9, 1999 $ 11,569 $2.066 December 28, 1995
15,400 December 9, 1999 $ 31,816 $2.066 December 28, 1995
1,650 December 13, 1999 $ 4,518 $2.738 December 11, 1996
4,000 December 29, 1999 $ 16,860 $4.215 January 23, 1993
4,000 December 30, 1999 $ 16,860 $4.215 January 23, 1993
36,000 December 31, 1999 $ 151,740 $4.215 January 23, 1993
------ -------
104,050 $ 284,377
=======
</TABLE>
(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 serves 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.
(13) Subsequent Events
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 the Company's Board of
Directors.
<PAGE>
On January 4, 2000 the Company's CEO executed two partially vested
incentive stock options totaling 129,800 option shares. Also, on January
4, 2000 the Company received proceeds totaling $269,526 for the exercise
of these two options.
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
$10,842,731 at December 31, 1999, or an increase of $2,065,193. The
Company's liabilities increased from $2,638,532 at September 30, 1999, to
$3,901,168 at December 31, 1999, or an increase of $1,262,636. The increase
in the net assets (assets less liabilities) of $802,557 resulted from net
income of $402,886, cash proceeds of $284,377 from the exercise of stock
options and $115,292 income tax benefit from disqualifying dispositions of
incentive stock options recorded during the three month period ended
December 31, 1999.
The Company's condensed consolidated balance sheet at December 31, 1999,
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
<PAGE>
trading and the volatility and general level of market prices, may
significantly affect its operations.
Three Months Ended December 31, 1999, as Compared to
the Three Months Ended December 31, 1998
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
three months ended December 31, 1999 and 1998, 48% and 59%, respectively, of
the Company's revenues were derived from commissions earned on the sale of
securities, with 48% and 36%, respectively, of revenues coming from net
dealer inventory and investment gains. Total revenues increased by $990,461,
or 39% to $3,510,278 for the three months ended December 31, 1999 from
$2,519,817 for the same period in 1998. This increase was primarily
attributable to a $787,390 increase in net dealer inventory and investment
gains as well as a $210,530 increase in commission revenues.
Commission revenue increased by $210,530, or 14% to $1,699,156 for the three
months ended December 31, 1999 from $1,488,626 for the same period in 1998.
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, 1999 volume increased by 26% from 1998 levels. Partially
offsetting this 26% increase in volume is an 8% decrease in the dollar
average of retail trades for 1999 as compared with 1998. The average number
of account executives decreased from an average of 31 for the three months
ended December 31, 1998 to an average of 30 for the three months ended
December 31, 1999, or a decrease of 3%.
Net dealer inventory and investment gains increased by $787,390, or 86% to
$1,701,923 for the three months ended December 31, 1999 as compared to
$914,533 for the same period in 1998. The increase in net dealer inventory
and investment gains is primarily attributable to a $582,619 increase in
wholesale trading income and a $156,125 increase in retail trading income in
the three months ended December 31, 1999 as compared to the same three month
period in 1998. 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 $19,214,
or 80% to $43,190 for the three months ended December 31, 1999 from $23,976
for the same period in 1998. The increase is primarily due to an increase in
the dollar amount of fixed fee and performance based money under management.
<PAGE>
Account maintenance fees decreased from $28,034 for the three months ended
December 31, 1998 to $0 for the three months ended December 31, 1999. 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 $12,705, or 23% to $68,858 for
the three months ended December 31, 1999 from $56,153 in the same period in
1998. This increase is primarily attributable to a higher average dollar
amount of interest bearing investments held by the Company for the three
month period.
Loss from joint venture increased by $8,316 to $9,886 for the three months
ended December 31, 1999 from $1,570 in the same period in 1998 and is
carried on the equity method. 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.
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
$658,112, or 30% to $2,841,692 for the three months ended December 31, 1999
from $2,183,580 in the same period ended December 31, 1998. The 30% increase
in total expenses is partially a result of the 39% 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 $99,209, or 10% to $1,090,543 for
the three months ended December 31, 1999 from $991,334 in the same period in
1998. The increase in commission expense is directly related to the 14%
increase in commission revenue and the related 26% increase in the number of
retail trades processed for the three month period.
Employees compensation and benefits expense increased by $306,743, or 47% to
$960,121 for the three months ended December 31, 1999 from $653,378 for the
same period in 1998. 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 $668,586
income before income taxes incurred for the three
<PAGE>
month period ended December 31, 1999 as compared to the $336,237 income
before income taxes for the same three month period ended December 31, 1998.
Communications expense increased by $30,780, or 49% to $93,053 for the three
months ended December 31, 1999 from $62,273 for the same period in 1998.
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 December 31, 1999 as compared to the same period in 1998.
Promotion expense increased by $111,945, or 71% to $268,828 for the three
months ended December 31, 1999 from $156,883 for the same period in 1998.
This increase was primarily due to the promotional and related start-up
activities of ITCI.
Occupancy and equipment rental expense increased by $23,295, or 22% to
$127,854 for the three months ended December 31, 1999 from $104,559 in the
same period in 1998. This increase was due to a one time period specific
service rental expense.
Professional fees increased by $49,896 to $75,457 for the three months ended
December 31, 1999 from $25,561 in the same period in 1998. This increase is
primarily due to legal fees incurred during the three month period ended
December 31, 1999 related to ongoing routine matters.
Depreciation and amortization expense increased by $24,481, or 55% to
$68,609 for the three months ended December 31, 1999 from $44,128 in the
same period in 1998. This increase for the three months ended December 31,
1999 is primarily due to amortization expense related to the capitalized
system development costs for ITCI. Other operating expenses increased by
$19,664, or 20% to $118,190 for the three months ended December 31, 1999
from $98,526 in the same period in 1998.
As a result of the above, the Company is reporting net income of $402,886
for the three months ended December 31, 1999 as compared to $200,659 for the
three months ended December 31, 1998.
The Company's effective income tax rate was approximately 40% for both of
the three month periods ended December 31, 1999 and 1998.
Liquidity and Capital Resources
Substantial portions of the Company's assets are liquid. At December 31,
1999, approximately 88% 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 December 31, 1999, IAAC had net capital of
approximately $2,139,000, which was approximately $1,615,000 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
<PAGE>
levels. ITCI commenced operations on January 25, 2000. At December 31, 1999,
ITCI had net capital of approximately $265,000, which was approximately
$215,000 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. The Company believes that it has the internal financial resources to
implement the initial online trading of foreign and domestic securities
activities and operations of ITCI without additional outside capital.
However, 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.
Year 2000 Compliance
The securities industry is, to a significant extent, technologically driven
and dependent. In addition to some internally utilized technological
applications, the Company's businesses are materially dependant upon the
performance of exchanges, market centers, counterparties, customers and
vendors (collectively "the Company's material third parties") who, in turn,
may be heavily reliant on technological applications. In sum, the securities
industry is interdependent with each other, strengthened or weakened by the
quality and performance of its attendant information and embedded
technology.
The Company is aware that the Year 2000 provides potential problems with the
programming code in existing computer systems. The Year 2000 problem is
extensive and complex as virtually every computer operation will be affected
to some degree by the change of the two digit year value to 00. The issue is
whether computer systems will properly recognize date-sensitive information
when the year changes to 2000. Systems that do not properly recognize such
information could generate erroneous data or fail.
<PAGE>
The failure or faulty performance of computer systems could potentially have
a far ranging impact on the Company's business such as a diminution in its
ability to (a) ascertain information vital to strategic decision making by
both the Company and its customers; (b) perform interest rate and pricing
calculations; (c) execute and settle proprietary and customer transactions;
(d) undertake regulatory surveillance and risk management; (e) maintain
accurate books and records and provide timely reports; (f) maintain
appropriate internal financial operations and accounting; and (g) access
credit facilities for both the Company and its customers.
Accordingly it is necessary for the Company, to the extent reasonably
practicable, to identify the internal computer systems and software which
are likely to have a critical impact on its operations, make an assessment
of its Year 2000 readiness and modify or replace information and embedded
technology as needed. Some of these critical internal data processing
systems include the Company's internal Novel network, sales contact
management software, general ledger accounting software, trading income
calculation software and retail commission tracking programs. Assessment of
these internal programs was primarily completed and final remediation also
primarily completed as of August 1999. In addition, the Company had
primarily completed a Year 2000 readiness assessment for the Company's
material third parties, also as of August 1999.
Because the Company utilizes the services of Wexford Clearing Services
Corporation ("Wexford") in its business, data processing system aspects of
the Year 2000 problem related to securities clearing, custody of client
securities, back office operations, cashiering and margin and credit will be
addressed by Wexford (a wholly owned guaranteed subsidiary of Prudential
Securities Incorporated "Prudential"). Although Wexford is the contracting
party for the provision of these critical services, Wexford, in fact,
delivers those services through the operations of Prudential, a leading
registered broker and dealer. Consequently, it is the readiness of
Prudential that is critical when assessing the Year 2000 compliance of the
clearing and operations capacity of the Company's active broker-dealer
subsidiaries. Prudential has been assessed, by internal industry standards
established by the Securities Industry Association, to be within the top
tier of Year 2000 readiness. During industry-wide testing conducted by the
Securities Industry Association, in which Prudential took part, Prudential
and other participants were able to input transactions and send them to the
appropriate markets for execution, confirmation and clearance under
simulated Year 2000 conditions.
Additionally, the Company has assessed the state of readiness of almost all
known technologically oriented service vendors and believes, based on
letters of certification, that these vendors are Year 2000 compliant. This
determination does not mean that the vast majority of the Company's material
third parties pose no Year 2000 risk to the Company. First, the Company is
relying in large measure on these parties' assessments of their readiness.
Second, there are several vendors, which account for a substantial portion
of the Company's mission critical
<PAGE>
operations, which may be partially or largely, but not fully, Year 2000
compliant. Finally, certain critical third parties, such as exchanges,
clearing houses, depositaries and other service vendors have no direct
functional contact with the Company (as they operate directly with Wexford)
but may impact the Company's operations.
During fiscal year 1997 the Company began the strategic review process as it
relates to the Year 2000 process. The Board of Directors of the Company
approved the Company's Year 2000 plan at its meeting on July 17, 1998. This
plan includes all phases necessary and budgetary consideration for each
fiscal year through the Year 2000.
The Year 2000 remediation plan and process includes (1) identification,
modification and testing of non-compliant Year 2000 code; (2)
identification, inventory, assessment and, if necessary, modification of
internal ad hoc systems or applications that may be material to the
Company's operations; (3) with the exception of counterparties and
customers, documentation of the assessment of the readiness of the Company's
material third parties; and (4) a timetable for completion of all year 2000
plan implementation steps for amendment to the plan as required. Total
incurred costs related to the Year 2000 are expected to be essentially on
target with the original estimated budget of $193,000. During the year ended
September 30, 1999 and 1998 the Company incurred approximately $95,000 and
$76,000, respectively, of costs related to the Year 2000 problem. The
Company had originally budgeted a total of $193,000 for Year 2000 related
costs for the 20 month period from June 1998 through January 2000. These
Year 2000 costs include both capital expenditures and period expenses. This
Year 2000 budget will be funded from the working capital of the Company.
Provided there is an absence of unanticipated critical events, the Company
does not expect Year 2000 costs to have a material effect on its operating
results, financial condition or cash flows.
As directed by the NASD, IAAC participated in a daily Internet based
questionnaire reporting to the NASD during the period December 30, 1999
through January 5, 2000. This daily reporting required IAAC to assess all
material operational core business functions as related to the Year 2000
problem. No discrepancy filings were necessary throughout this filing
period.
Based on the information available at the time of this filing, the Company
has not experienced any significant Year 2000 related issues that would have
an adverse effect on the Company's business operations and financial
condition. There can be no assurance, however, that all potential Year 2000
related issues have been discovered.
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is party to certain arbitration and/or litigation matters as of
December 31, 1999 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 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 December 31, 1999.
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 02/11/2000 /s/ Diego J. Veitia
-------------------
Diego J. Veitia
President and Chief Executive Officer
Date 02/11/2000 /s/ Jonathan C. Hinz
--------------------
Jonathan C. Hinz
Chief Financial Officer and Treasurer
<PAGE>
EXHIBIT 11
INTERNATIONAL ASSETS HOLDING CORPORATION
STATEMENT OF COMPUTATION OF EARNINGS PER SHARE
For the Three Months Ended December 31, 1999 and 1998
1999 1998
---- ----
Basic Earnings Per Share
Numerator:
Net income $ 402,886 $ 200,659
Denominator:
Weighted average number of common
shares outstanding 1,751,810 1,624,241
Basic earnings per share $ 0.23 $ 0.12
Diluted Earnings Per Share
Numerator:
Net income $ 402,886 $ 200,659
Denominator:
Weighted average number of common
shares outstanding 1,751,810 1,624,241
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) 344,027 6,698
Weighted average number of common shares
and dilutive potential common shares
outstanding 2,095,837 1,630,939
Diluted earnings per share $ 0.19 $ 0.12
- -------------------------------------------------------------------------------
(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.
<TABLE> <S> <C>
<ARTICLE> BD
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-2000
<PERIOD-END> DEC-31-1999
<CASH> 3,993,072
<RECEIVABLES> 1,399,674
<SECURITIES-RESALE> 0
<SECURITIES-BORROWED> 0
<INSTRUMENTS-OWNED> 4,408,243
<PP&E> 399,573
<TOTAL-ASSETS> 10,842,731
<SHORT-TERM> 0
<PAYABLES> 967,650
<REPOS-SOLD> 0
<SECURITIES-LOANED> 0
<INSTRUMENTS-SOLD> 2,674,982
<LONG-TERM> 0
0
0
<COMMON> 18,295
<OTHER-SE> 6,923,268
<TOTAL-LIABILITY-AND-EQUITY> 10,842,731
<TRADING-REVENUE> 1,701,923
<INTEREST-DIVIDENDS> 68,858
<COMMISSIONS> 1,699,156
<INVESTMENT-BANKING-REVENUES> 0
<FEE-REVENUE> 43,190
<INTEREST-EXPENSE> 534
<COMPENSATION> 1,716,250
<INCOME-PRETAX> 668,586
<INCOME-PRE-EXTRAORDINARY> 668,586
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 402,886
<EPS-BASIC> 0.23
<EPS-DILUTED> 0.19
</TABLE>
