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, 1997
[ ] 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 1,547,201 as of
February 2, 1998.
Transitional small business disclosure format Yes [ ] No [X]
INDEX
Page No.
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheet as of December 31, 1997 3
Condensed Consolidated Statements of Operations for the
Three Months ended December 31, 1997 and 1996 5
Condensed Consolidated Statements of Cash Flows for the
Three Months ended December 31, 1997 and 1996 6
Notes to Condensed Consolidated Financial Statements 8
Item 2. Management's Discussion and Analysis or Plan of Operation 10
Part II. OTHER INFORMATION
Item 1. Legal Proceedings 14
Item 6. Exhibits and Reports on Form 8-K 14
Signatures 15
2
INTERNATIONAL ASSETS HOLDING CORPORATION AND SUBSIDIARIES
Condensed Consolidated Balance Sheet
December 31, 1997
(Unaudited)
Assets
Cash $ 388,797
Cash deposits with clearing broker 2,284,189
Foreign currency deposits with clearing broker 6,821
Investments 1,313,689
Other receivables 152,917
Securities owned, at market value 2,561,131
Income tax receivable 3,655
Deferred income tax benefit 135,673
Property and equipment, at cost:
Leasehold improvements 52,953
Furniture and equipment 882,407
----------------
935,360
Less accumulated depreciation and amortization (493,528)
----------------
Net property and equipment 441,832
Other assets, net of accumulated amortization of $99,000 145,328
================
Total assets $ 7,434,032
================
See accompanying notes to condensed consolidated financial statements.
3
INTERNATIONAL ASSETS HOLDING CORPORATION AND SUBSIDIARIES
Condensed Consolidated Balance Sheet
December 31, 1997
(Unaudited)
Liabilities and Stockholders' Equity
Liabilities:
Securities sold, but not yet purchased, at market value $ 285,986
Payable to clearing broker 360,006
Accounts payable 244,481
Accrued employee compensation and benefits 338,401
Other accrued expenses 379,508
Income taxes payable 27,904
Deferred income taxes 17,701
Other 110,175
----------------
Total liabilities 1,764,162
----------------
Stockholders' equity:
Preferred stock, $.01 par value. Authorized 1,000,000
shares; issued and outstanding -0- shares -
Common stock, $.01 par value. Authorized 3,000,000
shares; issued and outstanding 1,547,201 15,472
Additional paid-in capital 3,673,225
Retained earnings 1,981,173
----------------
Total stockholders' equity 5,669,870
================
Total liabilities and stockholders' equity $ 7,434,032
================
See accompanying notes to condensed consolidated financial statements.
4
INTERNATIONAL ASSETS HOLDING CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
For the Three Months Ended December 31, 1997 and 1996
(Unaudited)
1997 1996
Revenues:
Commissions $ 2,063,134 2,021,907
Net dealer inventory and investment gains 481,586 521,784
Other revenue 141,479 144,031
---------------- -----------------
Total revenues 2,686,199 2,687,722
---------------- -----------------
Expenses:
Commissions and clearing fees 1,186,467 1,126,563
Employee compensation and benefits 525,410 575,657
Communications and promotions 457,272 335,665
Other operating expenses 713,028 378,717
---------------- -----------------
Total expenses 2,882,177 2,416,602
---------------- -----------------
Income (Loss) before income taxes (195,978) 271,120
Income tax expense (benefit) (61,276) 113,569
---------------- -----------------
Net income (loss) $ (134,702) 157,551
================ =================
Basic earnings (loss) per share $ (.087) .099
Diluted earnings (loss) per share $ (.087) .095
Weighted average number of common shares outstanding 1,548,962 1,592,951
Weighted average number of common shares and dilutive
potential common shares outstanding 1,548,962 1,661,919
See accompanying notes to condensed consolidated financial statements.
5
INTERNATIONAL ASSETS HOLDING CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
For the Three Months Ended December 31, 1997 and 1996
(Unaudited)
1997 1996
Cash flows from operating activities:
Net income (loss) $ (134,702) 157,551
Adjustments to reconcile net income (loss) to net cash
used for operating activities:
Net amortization and appreciation of investments (21,432) (23,450)
Depreciation and amortization 46,957 37,572
Deferred income taxes (89,180) (9,163)
Cash provided by (used for) changes in:
Receivable from clearing broker, net 405,050 (3,099)
Receivable from affiliated company - 24,120
Other receivables (94,315) (11,005)
Securities owned, at market value (32,871) (263,592)
Other assets 20,868 21,213
Securities sold, but not yet purchased, at market value (396,068) (386,965)
Payable to clearing broker, net 360,006 -
Accounts payable 128,414 21,911
Accrued employee compensation and benefits (562,572) (371,638)
Other accrued expenses 111,194 35,704
Income taxes payable 27,904 (5,768)
Other liabilities 815 38
----------------- -----------------
Net cash used for operating activities (229,932) (776,571)
----------------- -----------------
Cash flows from investing activities
Disposal of investments 1,950,000 2,250,000
Acquisition of investments (1,941,874) (2,271,996)
Acquisition of property, equipment and other assets (38,412) (102,950)
----------------- -----------------
Net cash used for investing activities (30,286) (124,946)
----------------- -----------------
(continued)
See accompanying notes to condensed consolidated financial statements.
6
INTERNATIONAL ASSETS HOLDING CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows, Continued
1997 1996
Cash flows from financing activities:
Acquisition of common shares related to repurchase program (22,822) (21,431)
Acquisition of common shares related to terminated
ESOP participants - (429)
----------------- -----------------
Net cash used for financing activities (22,822) (21,860)
----------------- -----------------
Net decrease in cash and cash equivalents (283,040) (923,377)
Cash and cash equivalents at beginning of period 2,962,847 2,829,483
----------------- -----------------
Cash and cash equivalents at end of period 2,679,807 1,906,106
================= =================
Supplemental disclosure of cash flow information:
Cash paid for interest 479 876
================= =================
Income taxes paid $ - 128,500
================= =================
See accompanying notes to condensed consolidated financial statements.
7
INTERNATIONAL ASSETS HOLDING CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
December 31, 1997 and 1996
(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 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, 1997, 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 five
wholly owned subsidiaries; International Assets Advisory Corp. ("IAAC"), Global
Assets Advisors, Inc. ("GAA"), International Financial Products, Inc. ("IFP"),
GlobalNet Securities, Inc. ("GNSI") and International Asset Management Corp.
("IAMC"). All significant intercompany balances and transactions have been
eliminated in consolidation.
(2) Securities Owned and Securities Sold, But Not Yet Purchased
Securities owned and Securities sold, but not yet purchased at December 31,
1997, consist of trading and investment securities at quoted market values as
follows:
Sold, but not
Owned yet purchased
Obligations of U.S. Government $ 229,722 -
Common stock and American Depository Receipts 1,256,099 252,168
Proprietary unit investment trusts 777,881 -
Corporate and municipal bonds 207,819 33,818
Foreign government obligations 89,610 -
___________ __________
$ 2,561,131 285,986
8
INTERNATIONAL ASSETS HOLDING CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements, continued
(3) Stock Dividend
On November 14, 1997 the Company's Board of Directors declared a 10% stock
dividend for shareholders of record on December 26, 1997 and payable on January
20, 1998. The 10% stock dividend increased the Company's issued and outstanding
common shares by an additional 140,648 shares.
(4) Basic and Diluted Earnings (Loss) Per Share
On October 1, 1997 the Company adopted the provisions of Statement of Financial
Accounting Standards (SFAS) No. 128, Earnings Per Share. Comparative earnings
per share data for the quarter ended December 31, 1996 has been restated to
adhere to the provisions of SFAS No. 128.
Basic earnings (loss) per share for the three months ended December 31, 1997 and
1996, have been computed by dividing net income (loss) by the weighted average
number of common shares outstanding. Diluted earnings per share for the three
months ended December 31, 1996 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 December 31, 1997
is the same as basic loss per share because of the anti-dilutive impact of the
potential common shares, due to the loss for the period.
Due to the issuance of the 10% stock dividend, the computations of basic and
diluted earnings (loss) per share have been adjusted retroactively for all
periods presented to reflect this change in capital caused by the stock
dividend.
(5) 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 $46,189 and $76,948 for the three
months ended December 31, 1997, and 1996, respectively. The minimum lease
payments under noncancelable operating leases as of December 31, 1997 are as
follows:
9
INTERNATIONAL ASSETS HOLDING CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements, continued
Fiscal Year (12 month period) Ending September 30,
1998 265,200
1999 316,000
2000 327,000
2001 233,000
2002 17,500
Total future minimum lease payments $1,158,700
(6) Stock Repurchase Program
On November 14, 1997 the Board of Directors authorized the Company to continue
its repurchase of up to $500,000 in shares of the Company's common stock in the
open market during the remainder of the fiscal year ended September 30, 1998.
The stock purchases will 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 33,330 shares (as adjusted for the 10% stock dividend) at a total cost
of $121,446.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
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 regulations 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 assurance 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.
10
The Company's assets decreased from $7,928,214 at September 30, 1997, to
$7,434,032 at December 31, 1997, or a decrease of $494,182. The Company's
liabilities decreased from $2,100,820 at September 30, 1997, to $1,764,162 at
December 31, 1997, or a decrease of $336,658. The decrease in the net assets
(assets less liabilities) of $157,524 primarily relates to the $134,702 net loss
incurred by the Company for the three month fiscal period ended December 31,
1997, net of stock repurchase costs from the stock repurchase program totaling
$22,822 for the same period.
The Company's condensed consolidated balance sheet at December 31, 1997,
reflects a payable to clearing broker, for trades which had not yet settled for
cash, due to the costs from the purchase of securities exceeding the proceeds of
securities sold.
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.
Three Months Ended December 31, 1997, as Compared to the Three Months Ended
December 31, 1996
The Company's revenues are derived primarily from commissions earned on the sale
of securities and trading income in securities purchased or sold for the
Company's account. Total revenues decreased by approximately $1,500, or .06% for
the three months ended December 31, 1997, as compared to the three months ended
December 31, 1996. For the three months ended December 31, 1997, and 1996,
approximately 77% and 75%, respectively, of the Company's revenues were derived
from commissions earned on the sale of securities. For the three months ended
December 31, 1997, and 1996, approximately 18% and 19%, respectively, of the
Company's total revenues were from net dealer inventory and investment gains
(trading revenue).
Commission revenue increased by approximately $41,000, or 2% for the three
months ended December 31, 1997, as compared to the three months ended December
31, 1996. The average number of account executives increased from 41 as of
December 31, 1996, to 49 as of December 31, 1997. During the three months ended
December 31, 1997, the overall volume of customer ticket orders increased by
approximately 12% and the average dollar amount of retail trades decreased by
approximately 13%, as compared to the three months ended December 31, 1996. This
approximate 12% increase in ticket volume was largely offset by the approximate
13% decrease in the average dollar amount of retail trades, resulting in the
11
approximate 2% increase in total commission revenue for the three months ended
December 31, 1997 over the same period in 1996.
Revenues from net dealer inventory and investment gains decreased by
approximately $40,198, or 8% for the three months ended December 31, 1997, as
compared to the three months ended December 31, 1996. The decrease in trading
revenue is primarily attributable to a decrease in the Company's retail trading
income due to the volatility of the Asian financial markets. The Company's
trading department primarily concentrates on global securities that it believes
are likely to be traded by the Company's clients. By focusing on these types of
securities, trading revenue is more closely related to commission revenue and
order flow.
Other revenue decreased by approximately $2,500 or 2% during the three months
ended December 31, 1997, as compared to the three months ended December 31,
1996. The decrease in other revenue is primarily due to decreases in list rental
income and subscription fee income.
The major expenses incurred by the Company relate to direct costs of its
securities operations such as commissions and clearing fees, employee
compensation and benefits, communications and promotions expense and other
operating expenses. Total expenses increased by approximately $466,000, or 19%
for the three months ended December 31, 1997, as compared to the same period in
1996. This increase in expenses is primarily attributable to increases in
commissions and clearing fees, communications and promotions and other operating
expenses.
Commissions and clearing fees increased approximately $60,000, or 5% during the
three months ended December 31, 1997, as compared to the same period in 1996.
This increase is partly attributable to increases in commissions expense
directly related to increases in new broker expenses based on the increase in
the average number of account representatives. The increase is also partly
related to increases in clearing fees based on the 12% increase in retail ticket
volume.
Employee compensation and benefits expense decreased by approximately $50,000,
or 9% during the three months ended December 31, 1997, as compared to the three
months ended December 31, 1996. The decrease in employee compensation and
benefits is primarily due to a decrease in performance based bonus accruals
based on the approximate $196,000 loss before income taxes incurred for the
three months ended December 31, 1997 compared to the approximate $271,000 income
before income taxes for the same period in 1996.
Communications and promotions expense increased by approximately $121,000, or
36% during the three months ended December 31, 1997, as compared to the three
months ended December 31, 1996. This increase is primarily related to increases
in expenditures for promotional print media including postage, printing and
design costs.
12
Other operating expenses increased by approximately $334,000, or 88% during the
three months ended December 31, 1997, as compared to the three months ended
December 31, 1996. Approximately $130,000 of this increase is related to
professional fees incurred by the Company for the defense of an arbitration
matter. In addition, approximately $100,000 of the increase is for the
arbitration award for a portion of the claimant's claim and an additional
$100,000 of the increase is for partial reimbursement of the claimant's legal
fees also awarded to the claimant in the same matter.
As a result of the above, the Company is reporting a loss before income taxes of
approximately $196,000 for the three months ended December 31, 1997. This is
compared to income before income taxes of approximately $271,000 for the three
months ended December 31, 1996. The Company's effective income tax rate was
approximately 31% for the three months ended December 31, 1997 and approximately
42% for the three months ended December 31, 1996.
Liquidity and Capital Resources
Substantial portions of the Company's assets are liquid. At December 31, 1997,
approximately 87% of the Company's assets consisted of cash, cash equivalents,
and marketable securities. All assets are financed by the Company's equity
capital, short-term borrowings from securities lending transactions and other
payables.
The Company's wholly owned registered securities broker/dealer subsidiary IAAC
is subject to the requirements of the SEC and the NASD relating to liquidity and
net capital levels. At December 31, 1997, IAAC had net capital of approximately
$2,560,000, which was approximately $2,431,000 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 12 months in light of known and reasonably estimated trends. In addition,
management believes that the Company will be able to obtain additional short or
medium-term financing that may be desirable in the ordinary conduct of its
business. The Company has no plans for additional financing and there can be no
assurance such financing will be available.
13
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company was involved in a National Association of Securities Dealers (NASD)
arbitration hearing that concluded on November 7, 1997. On January 16, 1998, the
Company received notification from the NASD arbitration panel that an award of
$99,845 plus $100,000 reimbursement for a portion of the claimant's legal fees
was awarded to the claimant. The cost of both the award and legal fee
reimbursement was accrued in other accrued expenses in the December 31, 1997
financial statements and was paid on January 22, 1998.
The Company is party to certain additional arbitration and/or litigation matters
as of December 31, 1997 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 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.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a). Exhibits
(11) The Statements of Computation of Earnings Per Share are
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, 1997
14
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 02/10/98 /s/ Jerome F. Miceli
Jerome F. Miceli
President and Chief Operating Officer
Date 02/10/98 /s/ Jonathan C. Hinz
Jonathan C. Hinz
Chief Accounting Officer
15
INTERNATIONAL ASSETS HOLDING CORPORATION
STATEMENT OF COMPUTATION OF EARNINGS PER SHARE
EXHIBIT 11
For the Three Months Ended December 31, 1997 and 1996
1997 (1) 1996
Basic Earnings (Loss) Per Share
Net income (loss) $ (134,702) $ 157,551
Weighted average number of common shares outstanding 1,548,962 1,592,951
Basic earnings (loss) per share $ (0.087) $ 0.099
Diluted Earnings (Loss) Per Share
Net income (loss) $ (134,702) $ 157,551
Weighted average number of common shares outstanding 1,548,962 1,592,951
Weighted average number of net common shares that would
be issued upon exercise of dilutive options and warrants assuming
proceeds used to repurchase shares pursuant to the treasury
stock method (2) 68,968
Weighted average number of common shares and dilutive
potential common shares outstanding 1,548,962 1,661,919
Diluted earnings (loss) per share $ (0.087) $ 0.095
- ------------------------------------------------------------------------------
(1) Diluted earnings (loss) per share is the same as basic earnings (loss) per
share for 1997 because of the anti-dilutive impact of the dilutive potential
common shares due to the net loss for 1997.
(2) The treasury stock method recognizes the use of proceeds that could be
obtained upon exercise of options and warrants in computing diluted earnings per
share. It assumes exercise of options and warrants 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.
16
BD
1
3-MOS
SEP-30-1998
DEC-31-1997
2,679,807
156,572
0
0
3,874,820
441,832
7,434,032
0
970,792
0
0
285,986
0
0
0
15,472
5,654,398
7,434,032
481,586
78,870
2,063,134
0
45,351
479
1,387,729
(195,978)
(195,978)
0
0
(134,702)
(.087)
(.087)
