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, 2000
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
EXCHANGE ACT
Commission File Number 33-70334-A
INTERNATIONAL ASSETS HOLDING CORPORATION
----------------------------------------
(Exact name of small business issuer as specified in its charter)
Delaware 59-2921318
- -------------------------------------------------------------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
250 Park Avenue South, Suite 200
Winter Park, FL 32789
---------------------
(Address of principal executive offices)
(407) 629-1400
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(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 2,221,751 as of February
10, 2000.
Transitional small business disclosure format Yes [ ] No [X]
INDEX
Page No.
--------
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets as of December 31,
2000 and September 30, 2000 3
Condensed Consolidated Statements of Operations for the
Three Months ended December 31, 2000 and 1999 5
Condensed Consolidated Statements of Cash Flows for the
Three Months ended December 31, 2000 and 1999 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 17
Item 6. Exhibits and Reports on Form 8-K 18
Signatures 18
2
INTERNATIONAL ASSETS HOLDING CORPORATION AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(Unaudited)
December 31, September 30,
Assets 2000 2000
------ ------------ -------------
Cash $ 726,086 $ 529,681
Cash deposits with clearing broker 2,779,368 4,733,862
Foreign currency 133,543 8,316
Other receivables 88,938 90,115
Loans to officers 158,597 205,671
Securities owned, at market value 2,796,237 3,316,513
Investment in Joint Venture 10,481 20,353
Income taxes receivable 393,523 452,032
Deferred income tax benefit 593,017 44,442
Property and equipment, at cost:
Equipment, furniture and leasehold improvements 1,263,021 1,149,921
Less accumulated depreciation and amortization (808,899) (765,065)
------------ ------------
Net property and equipment 454,122 384,856
Software development, net of accumulated amortization
of $192,538 in December 2000 and $151,280 in
September 2000 826,538 416,810
Prepaid expenses and other assets, net of accumulated
amortization of $177,000 in December 2000 and $170,512
in September 2000 241,199 260,103
------------ ------------
Total assets $ 9,201,649 $ 10,462,754
============ ============
See accompanying notes to condensed consolidated financial statements.
3
INTERNATIONAL ASSETS HOLDING CORPORATION AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(Unaudited)
December 31, September 30,
Liabilities and Stockholders' Equity 2000 2000
------------------------------------ ------------ -------------
Liabilities:
Foreign currency sold, but not yet purchased $ 13,172 $ 11,903
Securities sold, but not yet purchased, at market value 474,142 1,202,659
Payable to clearing broker, net 724,313 24,330
Accounts payable 217,284 260,718
Accrued employee compensation and benefits 291,672 1,055,238
Accrued expenses 184,989 191,725
Payable to Joint Venture 6,440 2,027
Deferred income taxes 329,208 177,649
Other liabilities 7,705 68,367
------------ ------------
Total liabilities 2,248,925 2,994,616
------------ ------------
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 2,221,751 shares in December
2000 and 2,209,468 shares in September 2000 22,218 22,095
Additional paid-in capital 7,747,231 7,666,333
Retained deficit (816,725) (220,290)
------------ ------------
Total stockholders' equity 6,952,724 7,468,138
------------ ------------
Total liabilities and stockholders' equity $ 9,201,649 $ 10,462,754
============ ============
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, 2000 and 1999
(Unaudited)
2000 1999
----------- -----------
Revenues:
Commissions $ 909,282 1,699,156
Net dealer inventory and investment gains 387,911 1,701,923
Management and investment advisory fees 40,712 43,190
Interest and dividends 79,719 68,858
Loss from joint venture (9,872) (9,886)
Other (1,786) 7,037
----------- -----------
Total revenues 1,405,966 3,510,278
----------- -----------
Expenses:
Compensation and benefits 1,145,885 1,716,250
Clearing and related expenses 283,959 334,414
Promotion 268,566 268,828
Occupancy and equipment rental 129,463 127,854
Communications 71,618 93,053
Interest 370 534
Professional fees 69,144 75,457
Insurance 47,768 38,503
Depreciation and amortization 91,580 68,609
Technology 61,463 7,436
Other expenses 160,091 110,754
----------- -----------
Total expenses 2,329,907 2,841,692
----------- -----------
(Loss) income before income taxes (923,941) 668,586
Income tax (benefit) expense (327,506) 265,700
----------- -----------
Net (loss) income $ (596,435) 402,886
=========== ===========
(Loss) earnings per share:
Basic $ (0.27) 0.21
=========== ===========
Diluted $ (0.27) 0.18
=========== ===========
Weighted average number of common shares outstanding:
Basic 2,215,035 1,926,991
=========== ===========
Diluted 2,215,035 2,300,016
=========== ===========
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, 2000 and 1999
(Unaudited)
2000 1999
----------- -----------
Cash flows from operating activities:
Net (loss) income $ (596,435) 402,886
Adjustments to reconcile net (loss) income to net
cash used for operating activities:
Depreciation and amortization 91,580 68,609
Deferred income taxes (397,016) 55,874
Loss from Joint Venture 9,872 9,886
Tax benefit from disqualifying dispositions of
incentive stock options 11,001 115,292
Cash provided by (used for) changes in:
Receivable from clearing broker, net -- (1,250,639)
Other receivables 1,177 (85,794)
Securities owned, at market value 520,276 (822,677)
Income taxes receivable 58,509 94,534
Prepaid expenses and other assets 12,416 (126,840)
Foreign currency sold, but not yet purchased 1,269 (36,306)
Securities sold, but not yet purchased, at market value (728,517) 1,684,500
Payable to clearing broker, net 699,983 (230,443)
Accounts payable (43,434) 9,926
Accrued employee compensation and benefits (763,566) (148,402)
Accrued expenses (6,736) (54,227)
Payable to Joint Venture 4,413 (8,622)
Other liabilities (60,662) 417
----------- -----------
Net cash used for operating activities (1,185,870) (322,026)
----------- -----------
Cash flows from investing activities:
Collection of loans to officers 47,074 --
Costs of additional property, equipment and software
development (494,066) (178,283)
----------- -----------
Net cash used for investing activities (446,992) (178,283)
----------- -----------
(continued)
See accompanying notes to condensed consolidated financial statements.
6
INTERNATIONAL ASSETS HOLDING CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows, Continued
For the Three Months Ended December 31, 2000 and 1999
(Unaudited)
2000 1999
----------- -----------
Cash flows from financing activities:
Exercise of employee stock options -- 284,377
----------- -----------
Net cash provided by financing activities -- 284,377
----------- -----------
Net decrease in cash and cash equivalents (1,632,862) (215,932)
Cash and cash equivalents at beginning of period 5,271,859 4,209,004
----------- -----------
Cash and cash equivalents at end of period $ 3,638,997 3,993,072
=========== ===========
Supplemental disclosure of cash flow information:
Cash paid for interest $ 370 534
=========== ===========
Income taxes paid $ -- --
=========== ===========
Supplemental disclosure of noncash financing activities:
During the three months ended December 31, 2000 the
Company paid for certain software development
services by issuing 12,283 shares of its common stock $ 70,020 --
=========== ===========
On March 24, 2000 the Company issued 198,269
shares of common stock in conjunction with a ten
percent stock dividend
See accompanying notes to condensed consolidated financial statements.
7
INTERNATIONAL ASSETS HOLDING CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
December 31, 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, 2000, 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"), INTLTRADER.COM, INC. ("ITCI"), Global Assets Advisors,
Inc. ("GAA"), International Financial Products, Inc. ("IFP"),
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
2001 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 10% stock
dividend.
8
INTERNATIONAL ASSETS HOLDING CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements, continued
(4) Basic and Diluted (Loss) Earnings Per Share
Basic (loss) earnings per share for the three months ended December 31,
2000 and 1999 have been computed by dividing net (loss) income by the
weighted average number of common shares outstanding. Diluted loss per
share for the three months ended December 31, 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. Diluted earnings per
share for the three months ended December 31, 1999 has been computed by
dividing net income by the weighted average number of common shares and
dilutive potential common shares outstanding.
Options to purchase 40,330 shares of common stock were excluded from
the calculation of diluted earnings per share for the three months
ended December 31, 1999, because their exercise prices exceeded the
average market price of common shares for the period. No options to
purchase shares of common stock were considered in the calculation of
diluted loss per share for the three months ended December 31, 2000
because of the anti-dilutive impact of the potential common shares, due
to the net loss 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, 2000 and September 30, 2000 consist of trading and investment
securities at quoted market values as follows:
Sold, but not
Owned yet purchased
December 31, 2000:
Obligations of U.S. Government $ 264,523 --
Common stock and American Depository Receipts 1,962,650 348,406
Corporate and municipal bonds 135,785 --
Foreign government obligations 137,197 8,050
Unit investment trusts, mutual funds and other
investments 296,082 117,686
---------- ----------
Total $2,796,237 474,142
========== ==========
September 30, 2000:
Obligations of U.S. Government $ 256,042 --
Common stock and American Depository Receipts 2,615,003 1,093,608
Corporate and municipal bonds 119,370 54,526
Foreign government obligations 91,210 54,525
Unit investment trusts, mutual funds and other
investments 234,888 --
---------- ----------
Total $3,316,513 1,202,659
========== ==========
9
INTERNATIONAL ASSETS HOLDING CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements, continued
(6) Receivable From and Payable to Clearing Organization
Amounts receivable from and payable to clearing organization at
December 31, 2000 and September 30, 2000 consist of the following:
Receivable Payable
---------- -------
December 31, 2000:
Commission income receivable $ 30,474 --
Clearing fee payable -- 5,033
Open transactions, net -- 749,754
-------- --------
$ 30,474 754,787
September 30, 2000:
Commission income receivable $ 51,943 --
Clearing fee payable -- 7,392
Open transactions, net -- 68,881
-------- --------
$ 51,943 76,273
======== ========
As these amounts are short-term in nature, the carrying amount is a
reasonable estimate of fair value.
(7) Investment in Joint Venture
On September 30, 1998, the Company signed a 50/50 Joint Venture
Agreement (JV) with Lakeside Investments, LLC (Lakeside) of New York.
On October 1, 1998, the joint venture effected the incorporation of
International Assets New York, LLC (IANY) a 50/50 owned entity formed
to transact the business for the JV. Each party made an initial
contribution of $50,000 during the year ended September 30, 1999.
During the year ended September 30, 2000 the parties each made
subsequent capital contributions of $60,000. A principal of Lakeside
actively manages this business. IANY offers a variety of financial
strategies to high net worth private investors resident in the United
States and certain foreign countries. The Company accounts for this
investment under the equity method of accounting.
For the three months ended December 31, 2000 and 1999, the Company has
recorded a loss of $9,872 and $9,886, respectively for 50 percent of
the Joint Venture's loss for the period. As of December 31, 2000 the
Company had a payable to the Joint Venture of $6,440, which relates to
Joint Venture cash outlays which were made on behalf of the Company.
10
INTERNATIONAL ASSETS HOLDING CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements, continued
(8) 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. On December 27, 2000 the Company notified the Landlord
that the Company is exercising its option to renew its existing office
space for three years. The landlord has 60 days to notify the Company
of the exercise price. The Company is reviewing other leased space
options as well as this option to renew.
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 $96,082 and
$91,449 for the three months ended December 31, 2000, and 1999,
respectively. The future minimum lease payments under noncancelable
operating leases as of December 31, 2000 are as follows:
Fiscal Year (12 month period) Ending September 30,
--------------------------------------------------
2001 291,700
2002 81,000
2003 48,500
2004 3,300
--------
Total future minimum lease payments $424,500
========
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 extended the lease term for a 36 month
period commencing on September 1, 2000. Based on this lease amendment
the total remaining base rental commitment for IANY is $144,010 (Fiscal
year ending: September 30, 2001, $49,375; September 30, 2002, $49,375
and September 30, 2003, $45,260). The Company and Lakeside Investments,
LLC, each executed a 100 percent 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
party's proportionate ownership (50/50).
11
INTERNATIONAL ASSETS HOLDING CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements, continued
(9) 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 ending September 30, 2001. 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. The last open market purchase under the program occurred in
March 1998. During the three months ended December 31, 2000 and 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 115,038
shares (as adjusted for the 10% stock dividends) from terminated
participants of the Company's 401k Profit Sharing Plan ("401k Plan")
and Retirement Savings Plan ("RSP") at a total cost of $256,893 since
inception of the repurchase program. The last stock repurchase from
these plans was in December 1998. During the three months ended
December 31, 2000 and 1999 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.
(10) Commitments and Contingent Liabilities
The Company is party to certain litigation as of December 31, 2000,
which relates primarily to matters arising in the ordinary course of
business. Management of the Company anticipates that the final
resolution of these items will not have a material adverse effect on
the Company's consolidated financial statements.
(11) Stock Option Plan
On December 21, 2000 the Company granted one incentive stock option for
5,000 shares with an exercise price of $2.21875 per share. On December
22, 2000 the Company granted one incentive stock option for 20,000
shares with an exercise price of $2.125 per share. Each of the options
has a 10 year term and vests at 33% per year beginning one year from
the date of grant. As the strike price on the date of grant for each
option was equal to the fair market value of a share of common stock on
that date, the Company did not recognize any compensation cost
associated with such grants.
12
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 on
February 15, 2001.
(12) Related Party Transactions
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 December 31, 2000 the remaining principal balance of
the promissory note including accrued interest is approximately $91,200
On August 28, 2000 the Company made a loan to a Vice President of the
Company including the execution and receipt of a $66,000 promissory
note due August 27, 2001. The promissory note includes interest of
6.27% per annum. As of December 31, 2000 the remaining principal
balance of the promissory note including accrued interest is
approximately $67,400.
(13) Subsequent Events
On January 26, 2001 the Board of Directors of the Company granted an
extension of the due date of the promissory note with the CEO of the
Company to December 31, 2001.
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,
13
performance or achievements expressed or implied by such
forward-looking statements.
The Company's principal operating activities, market-making and trading
in international securities and private client securities brokerage,
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.
On December 19, 2000 the Company announced that its institutional
trading activity had been temporarily halted following the resignation
of its foreign trading staff of six. All of the Company's retail
business, continued uninterrupted. Subsequently, on December 27, 2000
the Company announced that its institutional trading desk had resumed
market making operations, just one week after the sudden departure of
the head of the foreign trading desk and his related recruitment of the
entire International Assets Advisory Corporation trading staff. Within
72 hours of the departures, the Company had replaced the head of the
division and also had a top European equity trader in place. Within
less than two weeks of the departures the Company also recruited three
additional experienced traders including a top Asian equity trader. In
addition, the Company reassigned two existing employees with previous
related experience to the trading department resulting in a foreign
trading staff of seven. The trading department staff has initiated
contacts and continues to execute trades with the Company's top foreign
trading clients. The individuals hired to staff the Company's trading
department are already working to enhance the trading department's
systems and efficiencies based on the extensive and diverse experience
of the newly hired trading team.
Results of Operations:
Three Months Ended December 31, 2000, as Compared to
the Three Months Ended December 31, 1999
The Company's revenues are derived primarily from commissions earned on
the sale of securities and trading revenue (net dealer inventory and
investment gains). For the three months ended December 31, 2000 and
1999, 65% and 48%, respectively, of the Company's revenues were derived
from commissions earned on the sale of securities, with 28% and 48%,
respectively, of revenues coming from trading revenue. Total revenues
decreased by $2,104,312, or 60% to $1,405,966 for the three months
ended December 31, 2000 from $3,510,278 for the same period in 1999.
This decrease was primarily attributable to a $1,314,012 decrease in
trading revenue as well as a $789,874 decrease in commission revenue.
Commission revenue decreased by approximately 46% to $909,282 for the
three months ended December 31, 2000 from $1,699,156 in 1999. Revenues
from commissions are affected primarily by retail trading volume. Based
on the number of retail trades processed, 2000 volume decreased by
approximately 43% from 1999
14
levels. This decrease in retail trades and related commission revenue
was due mainly to a sluggish market and to a lesser extent a fewer
number of account executives.
Trading revenue, (net dealer inventory and investment gains) which is
derived mainly from institutional clients and to a lesser extent from
retail clients, decreased by approximately 77% to $387,911 in 2000 from
$1,701,923 in 1999. This decrease in trading revenue was due in large
measure to declines across the major financial indices and the market
uncertainty of events surrounding the U.S. Presidential election during
the quarter. This down market resulted in both a decline in the number
of shares traded and pressure on trading margins in this period of
lower market making activity. In addition to market factors, management
believes quarterly results were negatively impacted, although
management has not been able to quantify the dollar effects in the
quarter, by the resignation of its foreign trading staff in December
2000.
Revenues from management and investment advisory fees decreased by
approximately 6% to $40,712 for the quarter ended December 31, 2000.
Revenues from mutual fund management and UIT supervisory fees increased
by $27,540 due to the Company's launch of the Global eFund in May 2000
but offsetting this increase was a $30,018 decrease in private client
money management due to decreases in market activity.
Interest and dividend revenue increased by approximately 16% to $79,719
for the quarter ended December 31, 2000.
Loss from Joint Venture of $9,872 for 2000 was approximately the same
as the $9,866 loss for 1999. The Joint Venture operates as a securities
brokerage branch office of International Assets Advisory Corporation.
The major expenses incurred by the Company relate to direct costs of
its securities operations such as compensation and benefits, clearing
and related expenses and promotion expense. Total expenses decreased
18% to $2,329,907 in 2000, down from $2,841,692 in 1999. This decrease
in total expenses is mainly related to reduced total revenues and the
corresponding decrease in variable costs such as commission expense,
clearing expense and performance based bonus expense.
Compensation and benefits expense decreased by $570,365, or 33% to
$1,145,885 for the quarter ended December 31, 2000 from $1,716,250 in
1999 due to a 45% decrease in commission expense on lower commission
revenues, lower bonus expense (89%) due to performance based targets
that are less than 1999 performance, and offset in part by increases in
technology personnel.
Clearing and related expenses decreased 15% to $283,959 in 2000, down
from $334,414 in 1999 mainly due to lower retail private client
activity.
15
Total promotion expense was $268,566 for the quarter ended December 31,
2000 and was almost the same as $268,828 for 1999. Advertising and
promotional expense decreased by 47% in 2000 compared to the same
quarter in 1999 due mainly to increased costs in 1999 related to the
launch of INTLTRADER.COM. Offsetting this expense decrease were higher
travel expenses associated with the Company's business development
efforts.
Occupancy and equipment rental expense increased by 1% to $129,463 for
the quarter ended December 31, 2000 from $127,854 in 1999. Increases in
rental expense related to the Company's leased office space were
primarily offset by decreases in maintenance related expense.
Communications expense decreased by $21,435, or 23% to $71,618 for the
quarter ended December 31, 2000 from $93,053 for 1999. This decrease is
due to reduced telephone and postage expense related to the
corresponding decreases in operating revenue.
Professional fees decreased by approximately 8% to $69,144 in 2000 as
compared to $75,457 in 1999.
Depreciation and amortization expense increased $22,971 in 2000 from a
level of $68,609 in 1999 as a result of higher amortization expense
associated with capitalized system development costs for
INTLTRADER.COM.
Technology expenses were up $54,027 in 2000 from $7,436 in 1999 as new
technology enhancements were completed for INTLTRADER.COM to increase
the system's capacity for future growth.
The Company's effective income tax (benefit) rate was approximately
(35%) and 40% for the quarter ended December 31, 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.
The Company has reported a net loss of $596,435 for the quarter ended
December 31, 2000 compared to net income of $402,886 for the previous
year.
Liquidity and Capital Resources
Substantial portions of the Company's assets are liquid. At December
31, 2000, approximately 69% 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.
International Assets Advisory Corporation (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, 2000, 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.
16
INTLTRADER.COM, INC. (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 December 31, 2000, ITCI had net
capital of approximately $300,000, which was approximately $250,000 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 private financing
is being sought for technology, staffing and promotional efforts based
upon the Company's strategic plan. This plan has an operational
emphasis on technology driven international securities order flow. In
conjunction with the Company's strategic plan, the Company has engaged
UBS Warburg (formerly known as Paine Webber) as its financial advisor
to arrange and negotiate a private placement of securities issued by
the Company or to find a strategic partner. UBS Warburg 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 December 31, 2000 which relate primarily to matters arising in
the ordinary course of business. Management of the Company anticipates
that the final resolution of these additional items will not have a
material adverse effect on the Company's consolidated financial
statements.
The Company has filed an arbitration matter with the NASD regarding the
sudden departure, on December 19, 2000, of the head of the foreign
trading desk and his related recruitment of the entire International
Assets Advisory Corporation trading staff.
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.
17
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.
b). Form 8-K
The Company filed one report on Form 8-K during the three
months ended December 31, 2000. On December 29, 2000 the Company
announced on Form 8-K the resignation of the entire trading department
and the halting of wholesale market-making on December 19, 2000 (press
release dated December 19, 2000) and the subsequent hiring of the
appropriate licensed personnel and the resumption on December 27, 2000
(press release dated December 27, 2000) of foreign equity market-making
activity, within five business trading days after the temporary halt.
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 02/13/2001 /s/ William C. Dennis
------------------------
William C. Dennis
President and Chief Operating Officer
Date 02/13/2001 /s/ Jonathan C. Hinz
------------------------
Jonathan C. Hinz
Chief Financial Officer and Treasurer
18
EXHIBIT INDEX
EXHIBIT NO. EXHIBIT DESCRIPTION
- ----------- -------------------
11 Statement of Computation of Earnings Per Share
EXHIBIT 11
INTERNATIONAL ASSETS HOLDING CORPORATION
STATEMENT OF COMPUTATION OF EARNINGS PER SHARE
For the Three Months Ended December 31, 2000 and 1999
2000 (1) 1999
----------- -----------
Basic (Loss) Earnings Per Share
Numerator:
Net (loss) income $ (596,435) $ 402,886
Denominator:
Weighted average number of common shares outstanding 2,215,035 1,926,991
Basic (loss) earnings per share $ (0.27) $ 0.21
Diluted (Loss) Earnings Per Share
Numerator:
Net (loss) income $ (596,435) $ 402,886
Denominator:
Weighted average number of common shares outstanding 2,215,035 1,926,991
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 (2) -- 373,025
Weighted average number of common shares and dilutive
potential common shares outstanding 2,215,035 2,300,016
Diluted (loss) earnings per share $ (0.27) $ 0.18
- ----------------------------------------------------------------------------------------------
(1) Diluted loss per share is the same as basic loss per share for 2000
because of the anti-dilutive impact of the dilutive potential common
shares due to the net loss for 2000.
(2) 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.