Form 10-KSB
U.S. Securities and Exchange Commission
Washington D.C. 20549
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended September 30, 2001
[_] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number 33-70334-A
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INTERNATIONAL ASSETS HOLDING CORPORATION
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(Exact name of small business issuer as specified in its charter)
Delaware 59-2921318
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(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
250 Park Avenue South, Suite 200
Winter Park, FL 32789
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(Address of principal executive offices)
(407) 629-1400
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(Issuer's telephone number)
Securities registered under Section 12(b) of the Exchange Act:
None
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, $.01 par value
(Title of class)
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 [_].
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of the registrant's knowledge, in definitive proxy or
information statements incorporated by reference in part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [_]
State issuer's revenues for its most recent fiscal year: $4,671,388
State the aggregate market value of the voting stock held by non-affiliates
computed by reference to the last sale price of such stock as of January 3,
2002: $901,355
The number of shares outstanding of Common Stock was 2,374,376 as of January
3, 2002.
DOCUMENTS INCORPORATED BY REFERENCE:
See listing of documents incorporated by reference in Item 13 of this report.
Transitional small business disclosure format Yes [_] No [X]
PART I
FORWARD LOOKING STATEMENTS
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 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 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 1. DESCRIPTION OF BUSINESS.
General
International Assets Holding Corporation is a Delaware corporation formed in
October 1987 for the purpose of serving as a holding company for its operating
subsidiaries. As of December 13, 2001, the Company has four wholly owned
subsidiaries, INTLTRADER.COM, INC. ("INTLTRADER.COM"), International Assets
Management Corp. ("IAMC"), International Financial Products, Inc. ("IFP") and
OffshoreTrader.com Ltd ("OTCL").
In December 2001 the Company sold its interests in two additional subsidiaries,
International Assets Advisory, LLC ("IAAL") and Global Assets Advisors, LLC
("GAAL"). In anticipation of this sale, on November 1, 2001, International
Assets Advisory Corp. ("IAAC") was merged into International Assets Advisory,
LLC and Global Assets Advisors, Inc. ("GAA") was merged into Global Assets
Advisors, LLC. Because of these completed mergers, unless the context requires
otherwise, the name of the survivor entities, IAAL and GAAL shall be used to
refer to IAAC and GAA, respectively, throughout this Form 10-KSB rather than
their previous entity names.
All of the Company's subsidiaries are Florida corporations or Florida limited
liability companies except OTCL, which is a Bermuda exempted company. As used in
this Form 10-KSB, the term "Company" refers, unless the context requires
otherwise, to International Assets Holding Corporation and its subsidiaries as
of September 30, 2001, INTLTRADER.COM, IAMC, IFP, OCTL, IAAL, GAAL, IAAC and
GAA.
The Company also had a 50% interest in International Assets New York, LLC,
("IANY") a Delaware limited liability company. IANY was a 50/50 joint venture
with Lakeside Investments, LLC. The Company's interest in IANY was
sold in December 2001.
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Current Subsidiaries
INTLTRADER.COM, INC.
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INTLTRADER.COM is currently registered as a securities broker-dealer under the
Securities Exchange Act of 1934 and the state securities statutes of 49 states
and the District of Columbia. INTLTRADER.COM, formerly known as International
Trader Association, Inc., was originally formed by the Company in May 1998 to
provide on-line brokerage transactions of foreign and domestic securities using
the internet. INTLTRADER.COM commenced its on-line brokerage activities in
January 2000.
On November 1, 2001 the Company transferred its market-making business from IAAC
to INTLTRADER.COM and INTLTRADER.COM began operating as a market maker of
international equity securities on this date. This transaction moved the entire
trading desk including all personnel, securities positions, contracts, and
securities sold not yet purchased from IAAC to INTLTRADER.COM.
INTLTRADER.COM is a member of the NASD, which is a self-regulatory body
exercising broad supervisory powers over securities broker-dealers operating in
the United States. INTLTRADER.COM is also a member of the Securities Investor
Protection Corporation ("SIPC"), which is a public corporation established to
afford a measure of protection to the account balances of customers of
securities broker-dealers that become insolvent. INTLTRADER.COM acts as an
introducing broker/dealer, in that it does not clear its own securities
transactions, but instead contracts to have such transactions cleared through a
clearing broker on a fully disclosed basis. In a fully disclosed clearing
transaction, the identity of the Company's client is known to the clearing
broker. Generally, a clearing broker physically maintains the client's account
and performs a variety of services as agent for the Company, including clearing
all securities transactions (delivery of securities sold, receipt of securities
purchased and transfer of related funds).
International Assets Management Corp.
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International Assets Management Corp. functions as the manager of the physical
assets of the Company. IAMC was formed by the Company in 1988 to purchase and
manage all of the fixed assets of the Company. The assets held by IAMC are
available for use by the subsidiaries of the Company.
International Financial Products, Inc.
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International Financial Products, Inc., which is currently inactive, was formed
as a financial publishing and marketing group to sell products that are not
investments, but are related to the global financial market. IFP is
operationally inactive but the legal entity remains active in its state of
incorporation.
OffshoreTrader.com Ltd
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OffshoreTrader.com Ltd was formed to explore global internet securities trading
for non-U.S. citizens. OffshoreTrader.com Ltd was incorporated on April 15, 1999
as a Bermuda exempted company and is 100% owned by the Company. Exempted Bermuda
companies, although resident in Bermuda, may only carry on business that is
external to Bermuda. However, exempted Bermuda companies may trade with other
exempted Bermuda companies. OffshoreTrader.com Ltd has not yet generated
operating revenues.
3
Subsidiaries and Joint Venture sold in December 2001
International Assets Advisory Corporation and International Assets Advisory, LLC
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International Assets Advisory Corporation was formed in April 1981 by the
Company's Chairman of the Board, Diego J. Veitia. In 1982, IAAC entered the
securities brokerage business and became a member of the National Association of
Securities Dealers ("NASD"). Prior to November 1, 2001 IAAC operated as a market
maker of international equity securities and as a full-service private client
securities brokerage firm specializing in global investing on behalf of its
clients. IAAC acted as an introducing broker, in that it did not clear its own
securities transactions, but instead contracts to have such transactions cleared
through a clearing broker on a fully disclosed basis. In a fully disclosed
clearing transaction, the identity of the Company's client is known to the
clearing broker. Generally, a clearing broker physically maintains the client's
account and performs a variety of services as agent for the Company, including
clearing all securities transactions (delivery of securities sold, receipt of
securities purchased and transfer of related funds).
On November 1, 2001 IAAC entered into a merger with IAAC, LLC, a wholly owned
subsidiary of the Company. IAAC, LLC is a Florida limited liability company
formed by the Company in July 2001 for the purpose of the anticipated merger
that occurred on November 1, 2001 with IAAC, LLC as the surviving entity of the
merger. Upon effectiveness of the merger, the name of the surviving entity was
changed to International Assets Advisory, LLC. On December 13, 2001 IAAL was
sold to an entity that is controlled by the former managing partner of the
Company's retail brokerage joint venture, International Assets New York, LLC.
At the time of its sale on December 13, 2001, IAAL was registered as a
securities broker-dealer under the Securities Exchange Act of 1934 and the state
securities statutes of 49 states and the District of Columbia. IAAL was also a
member of the NASD, which is a self-regulatory body exercising broad supervisory
powers over securities broker-dealers operating in the United States. IAAL was
also a member of the SIPC, which is a public corporation established to afford a
measure of protection to the account balances of customers of securities broker-
dealers that become insolvent.
Global Assets Advisors, Inc. and Global Assets Advisors, LLC
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On November 1, 2001 GAA entered into a merger with Global Assets Advisors, LLC,
a wholly owned subsidiary of the Company. GAAL is a Florida limited liability
company formed by the Company in July 2001 for the purpose of the anticipated
merger that occurred on November 1, 2001 with GAAL as the surviving entity of
the merger. On December 13, 2001 GAAL was sold to an entity that is controlled
by the former managing partner of the Company's retail brokerage joint venture,
International Assets New York, LLC.
GAAL provided money investment advisory and money management services. At the
time of its sale on December 13, 2001, GAAL was registered as an investment
adviser with the Securities and Exchange Commission ("SEC"), pursuant to the
National Securities Markets Improvement Act of 1996. GAAL also made investment
adviser notification filings to the states of Florida and California. GAAL was
also regulated by the provisions of the Investment Advisers Act of 1940. GAAL
served as the money manager to one mutual fund, the Global eFund, and as
supervisor of seven proprietary Unit Investment Trusts ("UIT's"). GAAL also
provided investment fee-based money management of specialized accounts for high
net worth private clients.
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International Assets New York, LLC
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In September 1998 the Company entered into a 50/50 Joint Venture ("JV") with
Lakeside Investments, LLC (Lakeside) of New York. In October 1998 the JV
effected the incorporation of International Assets New York, LLC, a 50/50 owned
entity formed to transact business out of an office in New York City as a
brokerage branch of IAAC and through the money management arm of GAA. IANY
offered a variety of financial strategies to high net worth private investors.
The New York City office of IANY opened in January 1999 and began generating
operating revenues during May 1999. The New York City Office was closed after
the resulting office damages caused by the September 11, 2001 tragedy. Previous
to the September 11, 2001 events the Company had contracted to sell its interest
in IANY along with the sale of the retail private client and money management
business. On December 13, 2001 the Company sold its 50% interest in IANY.
Business Strategy
The Company's original business strategy was to use its team of financial
advisors to assist high net worth individuals in the global diversification of
their investment portfolios. To complement this business and to better serve its
clients, IAAC next expanded its services to include a market making function,
committing its own capital to ensure liquidity and offer best execution in the
many foreign securities in which the Company's clients were investing. As IAAC's
experience and reputation grew, the trading desk of IAAC began to attract the
notice of other financial firms which similarly sought liquidity for their own
globally minded clients. The demand for IAAC's foreign execution increased and
eventually the trading desk became the center of the Company's business
operations.
Today the Company is one of the leading U.S. market makers in foreign securities
and provides liquidity and trade execution to some of the biggest financial
firms in the industry. The Company seeks to direct foreign equity order flow,
primarily comprised of unlisted American Depository Receipts ("ADR's") and
foreign ordinary equity shares, to the Company's trading desk. Wholesale
relationships with top-tier securities firms currently provide the primary
source of securities order flow. The Company's business strategy is to continue
to pursue traditional institutional sales trading with new financial
institutions as well as maintain wholesale relationships with existing
customers. These important relationships are maintained through direct contact
with customers as well as promotional activities.
During the 1990's online technology began to transform the entire securities
industry and the eBrokerage business was created. In response to these dramatic
industry changes the Company formed INTLTRADER.COM, a global online trading
website. INTLTRADER.COM was launched in January 2000 giving the Company's self-
directed clients, for the first time, executable dollar denominated quotes on
foreign securities around the world, even while the local markets were closed.
The development of the proprietary executable quote technology created within
INTLTRADER.COM became an important aspect of the Company's growth strategy. The
Company has made INTLTRADER.COM's proprietary executable quotation technology
available to other securities firms with the resulting international order flow
routed to the Company's trading desk at INTLTRADER.COM. The Company is currently
pursuing strategic relationships with top-tier eBrokerage firms to offer this
electronic trading service.
5
In December 2001 the Company sold its retail full service securities brokerage
and money management activities. Also in December 2001, in a subsequent and
unrelated transaction, the Company sold most of the retail online brokerage
accounts of INTLTRADER.COM. The Company's wholesale trading operations will
continue under the Company's INTLTRADER.COM subsidiary. This divestiture of the
retail activities was a strategic event allowing the Company to focus its
resources on the trading operations of the Company.
The Company intends to use its marketing and global securities expertise to take
advantage of future opportunities for growth in the global securities market.
Management believes that there are favorable opportunities for growth in
international institutional trading. The Company believes that its expertise in
global securities trading presents an opportunity for the Company to expand its
market niche further with institutional trading, small institutional sales and
eBrokerage strategic relationships.
The International Securities Markets
The Company believes that investment in the international markets by U.S.
investors will continue to grow in the coming years, as the global capital
markets continue to grow. The U.S. now represents 48% of the world total market
capitalization, down from 66% in 1970, and is projected to decrease to 27% by
2030 (Standard & Poor's and Morgan Stanley, 12/31/00). The number of ADR's that
are now trading on U.S. exchanges further evidences this growth. ADR's, which
represent shares in foreign companies, are issued by U.S. banks and traded in
this country as domestic shares and simplify trading in foreign securities by
eliminating currency exchange and legal obstacles. In 2001, ADR trading on NYSE,
AMEX and NASDAQ was expected to be 31 billion shares, up 7% over 2000, although
dollar volume declined (Bank of New York, 12/19/01). While below historical
growth rates, the increase in trading volume in 2001 clearly demonstrates the
continued interest of U.S. investors in foreign stocks.
The foreign component of U.S. equity portfolios stayed within the 10% range in
2001, a percentage that has held fairly firm for the past two years. Throughout
the last two decades, despite recession and exogenous market shocks, U.S.
investors continue to internationalize their portfolios to seek out the best
companies in every sector.
Management believes that the two leading justifications for the continued growth
in international investing by U.S. investors are diversification and potentially
superior investment returns.
Market Making and Trading in International Securities
The Company acts as a principal in executing trades in over-the-counter equity
securities. To facilitate trading by its clients, the Company buys, sells and
maintains inventories of approximately 400 predominantly international
securities. The Company primarily executes principal transactions from wholesale
order flow and prior to December 2001, also from retail order flow. Wholesale
order flow is generated from the execution of order flow directly from other
securities broker/dealer's trading desks.
6
The Company places its capital at risk by also trading as a "market maker" in a
select group of approximately 175 international securities which are traded by
the Company's clients. The Company's emphasis in such trades is on earning
revenues from the spread between customer buy and sell orders. A market maker is
a firm that stands ready to buy and sell a particular stock at a publicly quoted
price. Because they offer both bid and ask prices, market makers are a source of
liquidity to institutional clientele like banks, brokerages and other investment
companies. Market makers commit their own funds to maintain an inventory of
securities and to ensure order execution and the maintenance of fair and orderly
markets. As a market maker, the Company, through its registered securities
dealer trading desk provides global equity investors with the liquidity and
execution they need to buy and sell foreign securities. The Company's trading
desk offers rapid execution on over 8,000 foreign ordinary shares and ADR's
around the globe.
Revenues from principal transactions (net dealer inventory and investment gains)
depend upon the general trend of prices and level of activity in the securities
markets, the skill of employees responsible for managing the Company's trading
accounts and the size of its inventories. The activities of the Company in
trading as a principal require the commitment of capital and create an
opportunity for profit and risk of loss due to market fluctuations.
The level of securities positions carried in the Company's trading accounts
fluctuates significantly. The size of such positions on any one date may not be
representative of the Company's exposure on any other date because the
securities positions vary substantially depending upon economic and market
conditions, the allocation of capital among types of inventories, customer
demands and trading volume. The aggregate value of the securities in the
Company's inventory is limited by certain requirements of the SEC Net Capital
Rule. See "Net Capital Requirements."
The Private Client Retail Brokerage Activities and Money Management
In December 2001 the Company sold its full service private client retail
brokerage and money management activities. Accordingly, these businesses will no
longer be a source of revenues or expense for the Company after December 13,
2001.
For the fiscal years ended September 30, 2001 and 2000, approximately 65% and
51%, respectively, of the Company's total revenues were derived from commissions
earned from transactions with its retail clients. The Company's retail private
client base was composed primarily of high net worth individuals. Clients were
distributed nationwide. However, a particularly large number of clients resided
in Florida, California, New York, Texas and Pennsylvania.
Retail commissions were charged on both exchange and over-the-counter agency
transactions based on a schedule, which was subject to change, that the Company
had formulated in accordance with guidelines promulgated by the NASD.
Transactions in securities were effected on either a cash or margin basis.
Through its clearing agent, the Company allowed its clients to maintain margin
accounts for securities purchased or sold short through the Company. During 1995
the Company began selling proprietary Unit Investment Trust products and acted
as the managing underwriter for these UIT products.
7
Management and investment advisory services were offered through professional
fee-based money management and investment services including UIT's, mutual funds
and strategic accounts. Management and investment advisory fees were
approximately 2% of the Company's total revenues for both of the years ended
September 30, 2001 and 2000.
Competition
The Company encounters competition in conducting its business and such
competition is expected to continue. Although the securities industry, in
general, is intensely competitive, the Company believes that competition is less
intense in its niche market. However, the Company competes with many firms with
capital and personnel resources far in excess of those which are presently
available to the Company or which are expected to be available to the Company in
the future.
During the past several years the securities industry has seen the emergence of
the online securities business. The Company addressed this industry change by
developing its own online securities brokerage firm with INTLTRADER.COM. In
December 2001 the Company sold its retail online clients but it continues to
market its online quote technology to other online securities broker dealers as
a vehicle to direct international order flow to the Company's trading desk.
Additionally, the Company is affected and will continue to be affected by the
investing public's interest in international securities. In this regard,
international securities are in competition with other investment vehicles
offered by other securities broker-dealers and financial intermediaries such as
commercial banks, savings banks, insurance companies and similar institutions.
The Company believes that the principal competitive factors in the securities
industry are the quality and ability of professional personnel and the relative
prices of services and products offered. The Company believes that, to date, it
has been able to compete favorably with other broker-dealers and financial
intermediaries primarily on the basis of the quality of its services and the
depth of its expertise in the international securities market.
Administration and Operations
The Company's operations personnel are responsible for executing orders,
transmitting information on all transactions to its clearing broker, mailing
confirmations to clients, receiving all funds and securities, depositing all
client funds into a bank account in the name of the clearing broker and
transmitting securities to the Company's clearing broker for custody.
The Company's securities transactions are cleared through Wexford Clearing
Services Corporation ("Wexford"), a wholly owned, guaranteed subsidiary of
Prudential Securities Incorporated, on a fully disclosed basis. Wexford also
performs many back office functions for the Company in connection with its
duties as custodian of all client funds and securities. When a new account is
established, the new account information is sent to Wexford, which in turn sets
up and maintains the information for the account. All securities and monies are
held in custody by Wexford. Wexford prepares and mails account statements
directly to clients on behalf of the Company. By engaging the processing
services of a clearing broker such as Wexford, the Company is exempt from
certain reserve requirements imposed by Rule 15c3-3 under the Securities
Exchange Act of 1934, as amended. See "Net Capital Requirements."
8
Wexford also extends credit to the Company and its customers to enable them to
purchase securities on margin. Margin accounts allow customers to deposit less
than the full cost of a security purchased with the balance of the purchase
price being provided as a loan to the customer secured by the securities
purchased. The amount of the loan in purchasing securities on margin is subject
to both the margin regulations ("Regulation T") of the Board of Governors of the
Federal Reserve System and the Company's clearing broker's internal policies. In
most transactions, Regulation T limits the amount loaned to a client for the
purchase of a particular security to 50% of the purchase price.
The Company maintains internal records of all transactions, which are compared
on a daily basis to clearing transaction generated reports. The Company uses
automated computer capabilities for these functions, which it will continue to
expand.
The Company believes that its internal controls and safeguards against
securities theft are adequate. As required by the NASD and other authorities,
the Company carries a fidelity bond covering any loss or theft of securities, as
well as embezzlement and forgery. The amount of the required fidelity bond is
based on 120% of the previous 12 months highest required net capital. IAAL
annually assessed the total required bond coverage and at the time of its sale
on December 13, 2001 carried a $120,000 limit. INTLTRADER.COM annually assesses
the total required bond coverage and currently carries a $600,000 limit.
The Company's administrative staff oversees internal financial controls,
accounting functions, office services and compliance with regulatory
requirements.
Regulation
The securities industry in the United States is subject to extensive regulation
under Federal and state laws. The SEC is the Federal agency charged with
administration of the Federal securities laws. Much of the regulation of broker-
dealers, however, has been delegated to self-regulatory organizations,
principally the NASD and the national securities exchanges. The self-regulatory
organizations adopt rules (which are subject to approval by the SEC) that govern
the industry and conduct periodic examinations of member broker-dealers.
Securities firms are also subject to regulation by state securities commissions
in the states in which they do business. At the time of its sale on December 13,
2001 IAAL was registered as a securities broker in 49 states and the District of
Columbia. INTLTRADER.COM is registered as a securities broker/dealer in 49
states and the District of Columbia.
9
The regulations to which broker-dealers are subject cover all aspects of the
securities business, including sales methods, trading practices among broker-
dealers, capital structure of securities firms, uses and safekeeping of
customers' funds and securities, record keeping, the conduct of directors,
officers and employees and supervision of branches and registered
representatives. Lack of adequate supervision could subject the broker-dealer to
regulatory sanctions. Additional legislation, changes in rules promulgated by
the SEC and by self-regulatory organizations, or changes in the interpretation
or enforcement of existing laws and rules often directly affect the method of
operation and profitability of broker-dealers. The SEC, the self-regulatory
organizations and state securities commissions may conduct administrative
proceedings, which can result in censure, fine, suspension or expulsion of a
broker-dealer, its officers or employees. Such administrative proceedings,
whether or not resulting in adverse findings, can require substantial
expenditures. The principal purpose of regulation and discipline of broker-
dealers is the protection of customers and the securities markets, rather than
the protection of creditors and stockbrokers of broker-dealers.
INTLTRADER.COM is required by Federal law to belong to the SIPC. At the time of
its sale on December 13, 2001 IAAL was also required to belong to SIPC. The SIPC
fund provides protection for securities held in customer accounts of up to
$500,000 per customer, with a limitation of $100,000 on claims for cash
balances. In addition, securities in an account at the Company's clearing broker
are afforded additional protection by Wexford Clearing services Corporation.
This additional protection (known as "Net Equity" coverage) covers the total
amount of fully paid for securities and cash balances without limit, thus
providing total protection for each customer's equity position in the unlikely
event of a SIPC liquidation.
Net Capital Requirements
As of November 1, 2001
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INTLTRADER.COM is subject to the SEC's uniform net capital rule (Rule 15c3-1
(the "Rule")), which is designed to measure the liquidity of a broker-dealer and
the maintenance of minimum net capital deemed necessary to meet its commitments
to its customers. The Rule provides that a broker-dealer doing business with the
public must not permit its aggregate indebtedness to exceed 15 times its net
capital (the "Basic Method") or, alternatively, that it not permit its net
capital to be less than 2% of aggregate debit items computed in accordance with
the Rule (the "Alternative Method"). The Rule requires INTLTRADER.COM to
maintain minimum net capital at an amount equal to the greater of $100,000, 6-
2/3% of aggregate indebtedness or $2,500 for each security in which it makes a
market (unless a security in which it makes a market has a market value of $5 or
less, in which event the amount of net capital shall not be less than $1,000 for
each such security) with a ceiling of $1,000,000.
At the time of its sale on December 13, 2001 IAAL was also subject to the Rule,
which required IAAL to maintain minimum net capital at an amount equal to the
greater of $100,000, 6-2/3% of aggregate indebtedness and requires that the
ratio of aggregate indebtedness to net capital not exceed 15 to 1.
Any failure to maintain the required net capital may subject a broker-dealer to
expulsion by the NASD, the SEC or other regulatory bodies, and may ultimately
require its liquidation.
10
INTLTRADER.COM is in compliance with the Rule, as well as the applicable minimum
net capital requirements of the NASD. At the time of its sale on December 13,
2001, IAAL was also in compliance with the Rule, as well as the applicable
minimum net capital requirements of the NASD. IAAL and INTLTRADER.COM each
elected to compute net capital under the Basic Method. In computing net capital
under the Rule, various adjustments are made to net worth with a view to
excluding assets not readily convertible into cash and to providing a
conservative statement of other assets, such as a firm's position in securities.
To that end, a deduction is made against the market value of securities to
reflect the possibility of a market decline before their disposition. For every
dollar that net capital is reduced, by means of such deductions or otherwise
(for example, through operating losses or capital distributions), the maximum
aggregate indebtedness a firm may carry is reduced. Thus, net capital rules,
which are unique to the securities industry, impose financial restrictions upon
the Company's business that are more severe than those imposed on other types of
businesses. Compliance with the net capital rules may limit the operations of
the Company because such rules require minimum capital for such purposes as
underwriting securities distributions, and maintaining the inventory required
for trading in securities.
Pursuant to paragraph (k)(2)(ii) of SEC Rule 15c3-3, INTLTRADER.COM is exempt
from customer reserve requirements and providing information relating to
possession or control of securities. Pursuant to paragraph (k)(2)(ii) of SEC
Rule 15c3-3, IAAL was at the time of its sale on December 13, 2001 also exempt
from customer reserve requirements and providing information relating to
possession or control of securities.
As of September 30, 2001 and 2000
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Net capital changes from day to day. As of September 30, 2001 and 2000, IAAC had
excess net capital of $526,126 and $2,593,041, respectively, and a ratio of
aggregate indebtedness to net capital of .82 to 1 and .47 to 1, respectively. As
of September 30, 2001 and 2000, INTLTRADER.COM had excess net capital of
$181,078 and $189,466, respectively, and a ratio of aggregate indebtedness to
net capital of .18 to 1 and .47 to 1, respectively.
Employees
At September 30, 2001, the Company had 52 employees, all of which were full time
employees. Of such employees, 9 have managerial responsibilities, 18 are account
executives, 6 are traders and 19 have administrative and operational duties,
including persons engaged in other service areas such as customer service,
research, money management, accounting, operations, compliance, technology and
marketing. The Company considers its relationship with its employees to be good.
After completion of the December 2001 sale transactions of the retail private
client and money management activities, the Company had 21 employees. Of such
employees, 6 have managerial responsibilities, 6 are traders and 9 have
administrative and operational duties, including persons engaged in other
support areas such as customer service, accounting, operations, compliance,
technology and marketing. In addition, 18 of these employees are full time and 3
are presently shared in a cost sharing arrangement with the new owners of IAAL.
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Compliance with Environmental Regulations
The Company must comply with various federal, state and local regulations
relating to the protection of the environment. Federal, state and local
provisions which have been enacted or adopted regulating the discharge of
materials into the environment or otherwise relating to the protection of the
environment will not, in the opinion of the Company, have a material effect on
the capital expenditures, earnings, or the competitive position of the Company.
ITEM 2. DESCRIPTION OF PROPERTY.
The Company occupies leased office space of approximately 13,815 square feet at
250 Park Avenue South, Winter Park, Florida. The original expiration date of the
office lease was May 31, 2001. The Company has received extensions from the
landlord to remain in its current location until December 31, 2001, on a month-
to-month basis. Rent for the month of January 2002 will be contractually based
on the original lease terms that provided for a hold-over tenancy at 100%
increased rental expense. Offsetting this rent increase in January is the fact
that one-half the total rent will be paid by the new owners of IAAL under a cost
sharing arrangement.
The Company has executed a new lease for office space of approximately 5,100
square feet at 220 E. Central Parkway, Altamonte Springs, Florida. The estimated
commencement date of the lease is February 1, 2002, with six months free rent,
and a seven year term to July 31, 2009. The Company believes that this new space
will be suitable to accommodate its projected future needs.
ITEM 3. LEGAL PROCEEDINGS.
The Company is party to certain litigation as of September 30, 2001 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.
On January 4, 2001 the Company filed an arbitration matter with the NASD
regarding several breaches (including but not limited to raiding, unfair
competition and misappropriation of trade secrets) related to 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. This arbitration claim was filed against the broker/dealer who
became the employer of the recruited employees, two principals of the
broker/dealer, the parent firm of the broker/dealer and four principals of the
parent firm. On March 14, 2001 the broker/dealer who became the employer and two
of its principals responded and filed a counterclaim against the Company. On
March 19, 2001 the parent firm of the broker/dealer also filed a counterclaim as
well as a claim for attorney's fees. The Company disputes the counterclaims and
intends to vigorously defend them. The NASD arbitration for this matter has been
scheduled for the week beginning April 29, 2002.
12
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 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of security holders during the fourth
quarter of the fiscal year covered by this report.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The Company's Common Stock trades on the NASDAQ SmallCap Market under the symbol
IAAC. The following table sets forth, for the periods indicated, the range of
high and low sales prices per Common Share as reported by NASDAQ, which prices
do not include retail mark-ups, mark-downs, or commissions and represent prices
between dealers and not necessarily actual transactions.
Dividends
On February 25, 2000 the Board of Directors of the Company declared a 10% stock
dividend for shareholders of record on March 10, 2000 and payable on March 24,
2000. As a result of the stock dividend of record date March 10, 2000 the common
stock prices prior to March 10, 2000 (Fiscal Year 2000 second fiscal quarter)
presented have been restated (reduced) by 10%.
The Company has never paid nor declared cash dividends on its Common Stock and
does not intend to pay cash dividends on its Common Stock in the foreseeable
future. The Company presently expects to retain its earnings to finance the
development and expansion of its business. The payment by the Company of cash
dividends, if any, on its Common Stock in the future is subject to the
discretion of the Board of Directors and will depend on the Company's earnings,
financial condition, capital requirements and other relevant factors.
13
High Low
---- ----
The Company's Common Stock, as traded under the symbol IAAC
Fiscal Year 2000
First Quarter........(Oct. 99 - Dec. 99)................................................ 8.18 4.21
Second Quarter....(Jan. 00 - Mar. 00)................................................... 24.55 5.97
Third Quarter.......(Apr. 00 - Jun. 00)................................................. 8.22 2.13
Fourth Quarter.....(Jul. 00 - Sep. 00).................................................. 6.13 3.13
Fiscal Year 2001
First Quarter........(Oct. 00 - Dec. 00)................................................ 6.13 1.50
Second Quarter....(Jan. 01 - Mar. 01)................................................... 4.81 2.06
Third Quarter.......(Apr. 01 - Jun. 01)................................................. 3.00 2.24
Fourth Quarter.....(Jul. 01 - Sep. 01).................................................. 2.97 0.90
Holders
As of September 30, 2001 there were approximately 95 shareholders of record of
the Company's Common Stock, according to the records maintained by the Company's
transfer agent. As of September 30, 2001 the Company estimates that there were
over 650 beneficial owners of the Company's Common Stock.
ITEM 6. 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 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
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.
The Company's principal operating activities, market-making and trading in
international securities and its historic 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.
14
Results of Operations:
In December 2001 the Company sold its full service private client retail
brokerage and money management activities. Accordingly, these activities will no
longer be a source of revenues or expense for the Company after December 2001.
While the revenues (commissions and management and investment advisory fees) and
certain costs associated with the business activities which have been sold are
readily identifiable, many costs associated with these activities are not. The
costs that are not identifiable were included in prior legal entity financial
statements combined with other business activities that were operated together
for previous strategic, regulatory and synergistic purposes.
As of September 30, 2001 the Company had 52 full time employees. After
completion of the December 2001 sale transactions of the retail private client
and money management activities, the Company had 21 employees. All of these
employees are full time except 3 which are presently shared in a cost sharing
arrangement with the new owners of IAAL.
2001 Compared to 2000
The Company's revenues were derived primarily from commissions earned on the
sale of securities and trading revenues (net dealer inventory and investment
gains). For the years ended September 30, 2001 and 2000, 65% and 51%,
respectively, of the Company's revenues came from commissions earned on the sale
of securities and 28% and 41%, respectively, of total revenue was derived from
trading revenue. Total revenues decreased 62% to $4,671,388 in 2001 from
$12,406,866 in 2000. Decreased commission and trading revenues were impacted by
adverse market conditions characterized by severe declines in the U.S. equities
market and investor uncertainty.
Commission revenues decreased by approximately 52% to $3,031,928 in 2001 from
$6,353,212 in 2000. Revenues from commissions are affected primarily by trading
volume. Based on the number of retail trades processed, 2001 volume decreased by
approximately 46% from prior year levels reflecting very cautious investing
activity on the part of individual investors. This decrease in retail trades and
related commission revenue was due mainly to market uncertainty and adverse
market conditions. The average number of account executives decreased from an
average of 26 in 2000 to an average of 18 in 2001, or a decrease of
approximately 31%. These commission revenues will no longer be a source of
revenue for the Company after December 13, 2001 due to the sale of this
business.
15
Trading revenue (net dealer inventory and investment gains) decreased by
approximately 74% to $1,320,097 in 2001 from $5,113,549 in 2000. This decrease
in trading revenue was impacted by declines across the major financial indices
and was partly due to the market uncertainty of events surrounding the U.S.
Presidential election during the first fiscal quarter. Trading revenue has also
been adversely impacted by the effects of decimalization of securities trading,
resulting in reduced spreads a market maker can charge and remain competitive.
The reduced financial markets and decimalization resulted in downward pressure
on trading margins. The value of institutional shares traded decreased by
approximately 31% from $861 million in 2000 to $594 million in 2001. The number
of institutional shares traded decreased approximately 3% from 94 million shares
in 2000 to 91 million shares in 2001. In addition to market factors, management
believes trading revenue decreases were impacted by the disruption of the
Company's trading operations caused by the abrupt departure of the Company's
head of capital markets and his related recruitment of the entire trading
department to his own firm early in the fiscal year (December 2000). The
Company's trading operation was shut down for a short time and had to be
completely rebuilt. This matter was previously discussed in the Company's 10-QSB
for the period ended December 31, 2000 as well as its Form 8-K filed as of
December 29, 2000.
Revenues from management and investment advisory fees decreased by approximately
51% to $92,142 for the year ended September 30, 2001 from $188,191 in 2000.
Revenues from mutual fund management and UIT supervisory fees decreased by
$12,286, or approximately 17%, from the prior year. Revenues from private client
money management decreased by $83,763, or approximately 72% due to decreases in
market activity. These revenues from management and investment advisory fees
will no longer be a source of revenues for the Company after December 13, 2001
due to the sale of this business.
Interest and dividend revenue decreased by 35% to $245,423 for 2001 from
$375,095 in 2000. This decrease is primarily due to lower balances of interest
producing assets, including money market balances and fixed income investments
as well as decreased interest returns on these short term liquid assets during
2001 compared to 2000.
Loss from joint venture of $20,353 for 2001 was approximately 63% less than the
$55,286 loss for 2000. The loss from joint venture has been reduced in 2001
because the Company has written off its investment in joint venture in
accordance with the equity method of accounting. The joint venture operated as a
securities brokerage branch office of IAAC. The loss from the Company's 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 operations in December 1998.
On December 13, 2001 the Company's interest in International Assets New York,
LLC was sold.
Other revenue decreased in 2001 by $429,954 mainly due to the absence in the
current period of the settlement of four arbitration matters that generated this
non-reoccurring revenue in the prior period.
16
The major expenses incurred by the Company relate to direct costs of its
securities operations such as compensation and benefits, clearing and related
expense, promotion expense and technology expense. Total expenses decreased by
approximately 21% to $9,439,059 in the year ended September 30, 2001, down from
$11,884,519 for the same period in 2000. 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 $1,810,117 or 28% to $4,753,319
for the year ended September 30, 2001 from $6,563,436 in 2000 due to lower
commission revenues and a decrease in performance based bonus expense. Included
in the total $4,753,319 Compensation and benefits expense for 2001 is $1,519,517
related to commission expense that will no longer be an ongoing expense for the
Company after December 13, 2001, due to the sale of the related retail private
client activity on December 13, 2001. Additional expense reductions are also
expected to result from decreased administrative salaries and fringe benefits
expense due to the reductions in headcount related to the sale on December 13,
2001.
Clearing and related expenses decreased 6% to $1,472,645 in 2001, down from
$1,572,063 in 2000. Clearing and related expenses did not decrease in proportion
to the overall decrease in total revenue due to increased trading volume in the
last half of the fiscal year ended September 30, 2001. Total trading volume is
reflected by the 91 million institutional shares traded in 2001 compared to 94
million in 2000. In addition, the Company incurred increased costs for American
Depositary Receipt (ADR) conversions due to the necessity of these conversions
as a trading strategy to facilitate liquidity with the Company's overall
investment portfolio. Included in the total $1,472,645 Clearing and related
expenses for 2001 is $274,747 related to retail private client activities that
will no longer be an ongoing expense for the Company after December 13, 2001,
due to the sale of the related activity on December 13, 2001.
Communications expense decreased by $64,321, or 19% to $266,320 for the year
ended September 30, 2001 from $330,641 for 2000. This decrease is due to reduced
telephone, postage and printing expense related to the corresponding decreases
in operating revenue. It is estimated that there will be additional decreases in
communications expense after December 2001 due to the sale of the retail private
client activity on December 13, 2001.
Total promotion expense decreased by approximately 41% to $714,675 for the year
ended September 30, 2001 compared to $1,216,914 for 2000. This decrease is
primarily due to the absence of the launch related promotional expenses for
INTLTRADER.COM incurred in 2000. Future promotion expense will be determined by
incremental promotions that are undertaken to support the Company's current and
ongoing operations.
Occupancy and equipment rental expense increased by 9% to $517,824 for the year
ended September 30, 2001 from $475,223 in 2000. Increases in rental expense were
related to the Company's leased office space. After February 1, 2002 the Company
intends to occupy a new, smaller and less costly leased office space. Offsetting
a portion of this savings will be the need for two new equipment leases for
phone systems and network connectivity. The net annualized savings from this
relocation are currently anticipated to be over $150,000 on an annualized basis.
Professional fees decreased by approximately 2% to $303,190 in 2001 as compared
to $308,967 in 2000.
17
Insurance expense increased by approximately 16% to $203,569 in 2001 as compared
to $175,038 in 2000 primarily due to premium rate increases in liability and
employee health insurance.
Depreciation and amortization expense increased approximately 44% to $528,834 in
2001 as compared to $367,118 in 2000. The increase in 2001 is primarily due to
higher amortization expense associated with capitalized system development costs
for INTLTRADER.COM.
Technology expense was down to $188,236 in 2001 from $335,705 in 2000 as new
technology enhancements to increase the quote system and trading platform's
capacity were primarily completed by December 2000 for INTLTRADER.COM.
Other operating expenses decreased approximately 9% to $484,768 in 2001 as
compared to $534,305 in 2000.
The Company has reported a net loss of $3,304,928 for the year ended September
30, 2001 compared to net income of $279,143 for the previous year.
The Company's effective income tax rate was approximately 31% in 2001 and 47% in
2000. The effective income tax benefit rate in 2001 was lower than the expected
federal and state tax rates due to the presence of a net operating loss
valuation allowance in 2001. The effective income tax expense rate in 2000 was
higher than the expected federal and state tax rates due to the impact of
permanent tax differences not deductible for tax purposes.
2000 Compared to 1999
Total revenue increased by approximately 25% to $12,406,866 in 2000 from
$9,916,924 in 1999. This increase was primarily attributable to a $1,850,878
increase in trading revenue.
Commission revenue increased by approximately 3% to $6,353,212 in 2000 from
$6,194,591 in 1999. Revenues from commissions are affected by both retail
trading volume and the average commission dollar value. Based on the number of
retail trades processed, 2000 volume increased by approximately 2% from 1999
levels. The dollar average of retail trades also increased by 2% for 2000 as
compared with 1999. The average number of account executives decreased from an
average of 30 in 1999 to an average of 26 in 2000, or a decrease of
approximately 13%. Despite this decrease in account executives, productivity per
account executive increased approximately 18% from the prior year.
Trading revenue (net dealer inventory and investment gains) increased by
approximately 57% to $5,113,549 in 2000 from $3,262,671 in 1999. The Company's
trading revenue is derived primarily from institutional clients. Institutional
trading revenues generated approximately 78% and 71% of total trading revenue
for the years ended September 30, 2000 and 1999, respectively. The growth in
institutional trading in 2000 is attributable to the ongoing development of new
institutional trading relationships by the Company as well as additional
business from existing institutional clients. The value of institutional shares
traded increased from $711 million in 1999 to $861 million in 2000. The number
of institutional shares traded increased from 52 million shares in 1999 to over
94 million shares in 2000. Trading revenues from retail trading generated
approximately 18% and 25% of total trading revenue for the years ended September
30, 2000 and 1999, respectively.
18
Revenues from management and investment advisory fees more than doubled to
$188,191 in 2000 from $83,236 in 1999. This revenue increase is mainly due to
increases in private client money management performance fees and increases in
management fees from the Global eFund, a mutual fund that the Company began
managing in May 2000.
Interest and dividend revenue increased by 55% to $375,095 for 2000 from
$242,580 in 1999. This increase is primarily attributable to a higher average
dollar amount of interest and dividend producing assets held by the Company as a
result of higher institutional trading activity.
The loss from the Company's joint venture was up 61% to $55,286 in 2000 from
$34,361 in 1999. The loss increased primarily due to higher sales force expenses
without an immediate corresponding improvement in revenue. The loss from the
Company's 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 operations in December
1998. The joint venture operates as a securities brokerage branch office of
International Assets Advisory Corporation.
Other revenues increased to $432,105 in 2000 from $168,207 in 1999 mainly due to
the settlement of three arbitration matters.
The major expenses incurred by the Company relate to compensation and benefits,
clearing fees and related expenses and promotion expense. Total expenses
increased 29% to $11,884,519 in 2000, up from $9,221,553 in 1999. This increase
in total expenses is mainly related to higher total revenues.
Compensation and benefits were up 20% or $1,106,806, in 2000 as compared to
1999. The increase was primarily due to additional personnel associated with
INTLTRADER.COM's start-up, International Assets Advisory Company's staffing
needs and increases in performance-based bonus expense. The increase in bonus
expense is primarily attributable to significant improvements in institutional
trading revenues versus the prior year. Commission expense increased 5% in 2000
as compared to 1999. The increase in commissions expense corresponds primarily
to higher retail commission revenues as well as an increase in the effective
commission payout to account executives.
Clearing fees and related expenses increased 23% to $1,572,063 in 2000, up from
$1,278,717 in 1999. The increase in clearing expense is directly related to
higher trading volumes.
Communications expense was higher by $61,800, or approximately 23% for 2000 as
compared to 1999. This increase is primarily due to investments in technology as
additional communication links for INTLTRADER.COM and International Assets
Advisory Corporation were required.
Promotion expense was up by $383,109, or approximately 46% in 2000 versus 1999.
This increase was mainly due to the launch of INTLTRADER.COM. In addition, the
Company incurred higher travel expenses associated with the Company's private
capital raising efforts.
Occupancy and equipment rental expense increased by $30,950, or approximately 7%
in 2000. This increase over last year was mainly due to higher lease expense for
the Company's office facilities as well as increases in other operating lease
expenses.
19
Professional fees were up by $58,380 in 2000 as compared to 1999 due to higher
consulting fees.
Depreciation and amortization expense increased $215,116 in 2000 from a level of
$152,002 in 1999 as a result of higher amortization expense associated with
capitalized system development costs for INTLTRADER.COM.
Technology expenses were up $289,923 in 2000 from $45,782 in 1999 as new
technology enhancements were completed for INTLTRADER.COM to support systems
maintenance activities.
Other operating expenses were up $213,270, or 66% to $534,305 in 2000 over 1999
primarily related to increases in several operating expenses including dividend
expense from securities sold, but not yet purchased and other operating office
expenses.
The Company has reported net income of $279,143 for the year ended September 30,
2000 compared to net income of $397,181 for the previous year. The Company's
effective income tax rate was approximately 47% in 2000 and 43% in 1999. The
effective tax rate differs from the expected federal rate due to state income
tax expense and the impact of permanent tax differences not deductible for tax
purposes. These permanent tax differences had a greater impact on the effective
tax rate in 2000 due to higher permanent tax differences and a lower net income
in 2000.
Liquidity and Capital Resources
Substantial portions of the Company's assets are liquid with the majority of the
assets consisting of securities inventories which fluctuate depending on the
levels of customer business. At September 30, 2001, approximately 73% 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 sold, not yet purchased and other payables.
Distributions to the Company from its registered broker-dealer subsidiary, the
Company's primary source of liquidity, are restricted as to amounts which may be
paid by applicable law and regulations. The Net Capital Rules are the primary
regulatory restrictions regarding capital resources. The Company's rights to
participate in the assets of any subsidiary are also subject to prior claims of
the subsidiary's creditors, including customers of the broker-dealer subsidiary.
IAAC, a wholly owned registered securities broker/dealer subsidiary of the
Company which was sold on December 13, 2001, was subject to the requirements of
the SEC and the NASD relating to liquidity and net capital levels. At September
30, 2001, IAAC had net capital of $895,626, which was $526,126 in excess of its
minimum net capital requirement at that date.
INTLTRADER.COM, 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. At September 30, 2001, INTLTRADER.COM had net capital of
$231,078, which was $181,078 in excess of its minimum net capital requirement at
that date.
20
The Company's total assets and liabilities and the individual components thereof
may vary significantly from period to period because of changes relating to
customer needs and economic and market conditions. The Company's total assets at
September 30, 2001 and 2000, were $10,733,698 and $10,418,312, respectively. The
Company's operating activities generate or utilize cash resulting from net
income or loss earned during the period and fluctuations in its assets and
liabilities. The most significant fluctuations have resulted from changes in the
level of customer activity and securities inventory changes resulting from
proprietary arbitrage trading strategies dictated by prevailing market
conditions.
In addition to normal operating requirements, capital is required to satisfy
financing and regulatory requirements. The Company's overall capital needs are
continually reviewed to ensure that its capital base can appropriately support
the anticipated capital needs of the operating subsidiaries. The excess
regulatory net capital of the Company's broker-dealer subsidiaries may fluctuate
throughout the year reflecting changes in inventory levels and/or composition
and balance sheet components. For a description of the Company's net capital
requirements, see Note 9 of the audited financial statements contained in Item 7
of this report.
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 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.
CASH FLOWS
For the year ended September 30, 2001, cash and cash equivalents decreased
$4,260,558 as compared to 2000. Funds used for operating activities were
$3,772,267. During 2001, the Company had cash used for investing activities of
$488,291. Investing activities included $567,421 used for software development
and equipment purchases. Partially offsetting this investing use were net
collections of loans to officers net of accrued loan interest of $79,130. During
2001 there were no cash flows from financing activities.
Effects of Inflation
Because the Company's assets are, to a large extent, liquid in nature, they are
not significantly affected by inflation. Increases in the Company's expenses,
such as employee compensation, rent and communications, due to inflation, may
not be readily recoverable in the prices of services offered by the Company. In
addition, to the extent that inflation results in rising interest rates and has
other adverse effects on the securities markets and on the value of the
securities held in inventory, it may adversely affect the Company's financial
position and results of operations.
21
ITEM 7. FINANCIAL STATEMENTS
LIST OF SCHEDULES INCLUDED IN CONSOLIDATED FINANCIAL STATEMENTS
Independent Auditors' Report
Consolidated Balance Sheets as of
September 30, 2001 and 2000
Consolidated Statements of Operations for the Years Ended
September 30, 2001 and 2000
Consolidated Statements of Stockholders' Equity for the Years Ended
September 30, 2001 and 2000
Consolidated Statements of Cash Flows for the Years Ended
September 30, 2001 and 2000
Notes to Consolidated Financial Statements
22
Independent Auditors' Report
The Board of Directors
International Assets Holding Corporation
and Subsidiaries:
We have audited the accompanying consolidated balance sheets of International
Assets Holding Corporation and Subsidiaries as of September 30, 2001 and 2000
and the related consolidated statements of operations, changes in stockholders'
equity and cash flows for the years then ended. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of International Assets
Holding Corporation and Subsidiaries at September 30, 2001 and 2000 and the
results of their operations and their cash flows for the years then ended in
conformity with accounting principles generally accepted in the United States of
America.
/s/ KPMG LLP
November 9, 2001
Orlando, Florida
23
INTERNATIONAL ASSETS HOLDING CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
September 30, 2001 and 2000
Assets 2001 2000
--------------- -----------
Cash $ 136,688 529,681
Cash deposits with clearing organization 628,709 4,733,862
Foreign currency 245,904 8,316
Receivable from clearing organization, net 934,764 --
Other receivables 23,429 90,115
Loans to officers 126,541 205,671
Securities owned, at market value 6,011,939 3,316,513
Investment in Joint Venture -- 20,353
Income taxes receivable -- 452,032
Deferred income tax asset, net 1,397,489 --
Property and equipment, at cost:
Equipment, furniture and leasehold improvements 1,307,461 1,149,921
Less accumulated depreciation and amortization (944,502) (765,065)
--------------- -----------
Net property and equipment 362,959 384,856
Software development, net of accumulated amortization of
$491,995 in 2001 and $151,280 in 2000 553,802 416,810
Prepaid expenses and other assets, net of accumulated amortization of
$177,000 in 2001 and $170,512 in 2000 311,474 260,103
--------------- -----------
Total assets $ 10,733,698 10,418,312
=============== ===========
Liabilities and Stockholders' Equity
Liabilities:
Foreign currency sold, not yet purchased $ 208,092 11,903
Securities sold, not yet purchased, at market value 5,313,641 1,202,659
Payable to clearing broker, net -- 24,330
Accounts payable 312,673 260,718
Accrued employee compensation and benefits 307,500 1,055,238
Accrued expenses 139,094 191,725
Deferred income taxes -- 133,207
Payable to Joint Venture 2,032 2,027
Other liabilities 7,779 68,367
--------------- -----------
Total liabilities 6,290,811 2,950,174
=============== ===========
Commitments and contingent liabilities
Stockholders' equity:
Preferred stock, $.01 par value. Authorized 3,000,000
shares; issued and outstanding 0 shares -- --
Common stock, $.01 par value. Authorized 8,000,000
shares; issued and outstanding 2,294,376 shares in
September 2001 and 2,209,468 shares in September 2000 22,944 22,095
Additional paid-in capital 7,945,161 7,666,333
Retained deficit (3,525,218) (220,290)
--------------- -----------
Total stockholders' equity 4,442,887 7,468,138
--------------- -----------
Total liabilities and stockholders' equity $ 10,733,698 10,418,312
=============== ===========
See accompanying notes to consolidated financial statements.
24
INTERNATIONAL ASSETS HOLDING CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations
Years ended September 30, 2001 and 2000
2001 2000
--------------- -----------
Revenues:
Commissions (note 2) $ 3,031,928 6,353,212
Net dealer inventory and investment gains 1,320,097 5,113,549
Management and investment advisory fees (note 2) 92,142 188,191
Interest and dividends 245,423 375,095
Loss from joint venture (20,353) (55,286)
Other income 2,151 432,105
--------------- -----------
Total revenues 4,671,388 12,406,866
=============== ===========
Expenses:
Compensation and benefits 4,753,319 6,563,436
Clearing fees and related expenses 1,472,645 1,572,063
Communications 266,320 330,641
Promotion 714,675 1,216,914
Occupancy and equipment rental 517,824 475,223
Interest 5,679 5,109
Professional fees 303,190 308,967
Insurance 203,569 175,038
Depreciation and amortization 528,834 367,118
Technology 188,236 335,705
Other expenses 484,768 534,305
--------------- -----------
Total expenses 9,439,059 11,884,519
--------------- -----------
(Loss) income before income taxes (4,767,671) 522,347
Income tax (benefit) expense (1,462,743) 243,204
--------------- -----------
Net (loss) income $ (3,304,928) 279,143
=============== ===========
(Loss) earnings per share:
Basic $ (1.47) 0.13
=============== ===========
Diluted $ (1.47) 0.12
=============== ===========
Weighted average number of common shares outstanding:
Basic 2,242,845 2,123,064
=============== ===========
Diluted 2,242,845 2,370,974
=============== ===========
See accompanying notes to consolidated financial statements.
25
INTERNATIONAL ASSETS HOLDING CORPORATION AND SUBSIDIARIES
Consolidated Statements of Changes in Stockholders' Equity
Years ended September 30, 2001 and 2000
Additional Retained Total
Preferred Common paid-in earnings stockholders'
stock stock capital (deficit) equity
-------------- ----------- ------------ ------------- ------------
Balances at September 30, 1999 $ -- 17,254 4,588,928 1,532,824 6,139,006
Issuance of common stock for services -- 81 42,909 -- 42,990
Income tax benefit from ISO
disqualifying dispositions -- -- 322,522 -- 322,522
Exercise of employee stock option -- 2,777 681,700 -- 684,477
10% stock dividend -- 1,983 2,030,274 (2,032,257) --
Net income -- -- -- 279,143 279,143
-------------- ----------- ------------ ------------- ------------
Balances at September 30, 2000 -- 22,095 7,666,333 (220,290) 7,468,138
Issuance of common stock for services -- 849 267,827 -- 268,676
Income tax benefit from ISO
disqualifying dispositions -- -- 11,001 -- 11,001
Net loss -- -- -- (3,304,928) (3,304,928)
-------------- ----------- ------------ ------------- ------------
Balances at September 30, 2001 $ -- 22,944 7,945,161 (3,525,218) 4,442,887
============== =========== ============ ============= ============
See accompanying notes to consolidated financial statements.
26
INTERNATIONAL ASSETS HOLDING CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended September 30, 2001 and 2000
2001 2000
----------- --------------
Cash flows from operating activities:
Net (loss) income $(3,304,928) 279,143
Adjustments to reconcile net (loss) income to net cash
(used for) provided by operating activities:
Depreciation and amortization 528,834 367,118
Deferred income taxes (1,530,696) 125,433
Loss on disposals of property and equipment -- 300
Non-cash compensation 198,656 --
Loss from joint venture 20,353 55,286
Tax benefit from disqualifying dispositions
of incentive stock options 11,001 322,522
Cash provided by (used for) changes in:
Receivable from clearing organization, net (934,764) --
Other receivables 66,686 (47,421)
Securities owned, at market value (2,695,426) 269,053
Income taxes receivable 452,032 (336,951)
Prepaid expenses and other assets (57,859) (158,509)
Foreign currency sold, not yet purchased 196,189 (24,579)
Securities sold, not yet purchased, at market value 4,110,982 212,177
Payable to clearing organization, net (24,330) (206,113)
Accounts payable 51,955 105,768
Accrued employee compensation and benefits (747,738) 311,162
Accrued expenses (52,631) (68,840)
Payable to joint venture 5 (7,357)
Other liabilities (60,588) (51,976)
----------- --------------
Net cash (used for) provided by operating activities (3,772,267) 1,146,216
----------- --------------
Cash flows from investing activities:
Investment in joint venture -- (60,000)
Loans to officers (9,093) (325,671)
Collection of loans to officers 88,223 120,000
Costs of additional property, equipment and software development (567,421) (502,167)
----------- --------------
Net cash used for investing activities 488,291) (767,838)
----------- --------------
Cash flows from financing activities:
Exercise of employee stock options -- 684,477
----------- --------------
Net cash provided by financing activities -- 684,477
----------- --------------
Net (decrease) increase in cash and cash equivalents (4,260,558) 1,062,855
Cash and cash equivalents at beginning of year 5,271,859 4,209,004
----------- --------------
Cash and cash equivalents at end of year $ 1,011,301 5,271,859
=========== ==============
27
INTERNATIONAL ASSETS HOLDING CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended September 30, 2001 and 2000
2001 2000
-------------- -----------------
Supplemental disclosures of cash flow information:
Cash paid for interest: $ 5,679 5,109
============== =================
Income taxes paid $ -- 132,200
============== =================
Supplemental disclosure of noncash financing activities:
During the years ended September 30, 2001 and 2000 the
Company paid for the following transactions by issuance of
Common stock:
Software development services, 12,283 common shares in
2001 and 8,121 common shares in 2000 $ 70,020 42,990
============== =================
Employee bonus compensation, 15,000 common shares $ 35,000 --
============== =================
Purchase promissory note due by an officer, 57,625
common shares $ 163,657 --
============== =================
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 consolidated financial statements.
28
INTERNATIONAL ASSETS HOLDING CORPORATION AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
September 30, 2001 and 2000
(1) Summary of Significant Accounting Policies
(a) Principles of Consolidation
The consolidated financial statements include the accounts of
International Assets Holding Corporation (the "Company" or the
"parent company") and its six wholly owned subsidiaries,
International Assets Advisory Corp. (IAAC), International Assets
Management Corp., Global Assets Advisors, Inc., International
Financial Products, Inc., INTLTRADER.COM, Inc. (ITCI), and
OffshoreTrader.com Ltd. All significant intercompany balances and
transactions have been eliminated in consolidation.
International Assets Advisory Corp. is a registered broker/dealer
under the Securities Act of 1934. Its securities transactions are
cleared through Wexford Clearing Services Corporation ("Wexford")
(a wholly owned, guaranteed subsidiary of Prudential Securities
Incorporated) on a fully disclosed basis.
International Assets Management Corp. was formed to manage the
physical assets of the Company.
Global Assets Advisors, Inc. provides investment advisory and
account management services.
International Financial Products, Inc. is inactive but was formed
to market products, which were not investments, but were related
to the financial industry.
INTLTRADER.COM, Inc. is a registered broker/dealer under the
Securities Act of 1934 and was formed to provide on-line brokerage
transactions of foreign and domestic securities using the
Internet. It securities transactions are also cleared through
Wexford on a fully disclosed basis.
OffshoreTrader.com Ltd. was incorporated to explore global
internet securities trading for non-U.S. citizens.
(b) Cash and Cash Equivalents
Cash equivalents consist of cash, cash deposits with clearing
broker and foreign currency. Cash deposits with clearing broker
consist of cash and money market funds stated at cost, which
approximate market. The money market funds earn interest at
varying rates on a daily basis. For purposes of the consolidated
statements of cash flows, the Company considers all highly liquid
debt instruments with original maturities of three months or less
to be cash equivalents.
(Continued)
29
INTERNATIONAL ASSETS HOLDING CORPORATION AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
September 30, 2001 and 2000
(c) Foreign Currency
The value of a foreign currency, including a foreign currency
sold, not yet purchased, is converted into its U.S. dollar
equivalent at the foreign exchange rate in effect at the close of
business on the balance sheet date.
(d) Financial Instruments
As of September 30, 2001 and 2000, the carrying value of the
Company's financial instruments including cash, cash deposits with
clearing broker, foreign currency, receivables, accounts payable
and accrued expenses approximate their fair values, based on the
short-term maturities of these instruments. Additionally, the
carrying value of securities owned and any securities and foreign
currency sold, not yet purchased, approximate their fair value at
September 30, 2001 and 2000 as they are based on quoted market
prices.
(e) Valuation of Securities
Each listed security is valued at the last reported sale price on
that day. Listed securities not traded on an exchange that day,
and other securities, which are traded in the over-the-counter
market, are valued at the market's current bid price for
securities owned and current asked price for securities sold, not
yet purchased. The value of a foreign security is determined in
its national currency on the exchange on which it is traded, which
value is then converted into its U.S. dollar equivalent at the
foreign exchange rate in effect following the close of the stock
exchange in the country where the security is issued and traded.
As of September 30, 2001, securities include a limited partnership
ownership interest of $86,992. The limited partnership ownership
interest is recorded at fair value, which has been determined by
management. This limited partnership ownership interest is held
for the Company's investing purposes and is not held for sale to
the Company's customers.
(f) Revenue Recognition
The revenues of the Company are derived principally from
commissions earned on the sale of securities, from realized and
unrealized trading income in securities purchased or sold for the
Company's account and from management and investment advisory
fees. Commissions and related clearing expenses are recorded on a
trade-date basis as securities transactions occur. Realized and
unrealized trading income (net dealer inventory and investment
gains) are recorded on a trade date basis. Securities owned and
securities sold, not yet purchased are stated at market value with
related changes in unrealized appreciation or depreciation
reflected in net dealer inventory and investment gains. Interest
income is recorded on the accrual basis and dividend income is
recognized upon receipt.
(Continued)
30
INTERNATIONAL ASSETS HOLDING CORPORATION AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
September 30, 2001 and 2000
(g) Depreciation and Amortization
Depreciation on property and equipment is calculated using the
straight-line method over the estimated useful lives of the
assets, which range from three to seven years. Leasehold
improvements are amortized using the straight-line method over the
estimated period of benefit to be received from the assets, which
approximates six years.
Intangible assets, included in other assets in the accompanying
consolidated balance sheets, are amortized using the straight-line
method over the estimated period of benefit to be received from
the assets, which approximates five years.
Software development costs for internally developed software are
capitalized, in accordance with Statement of Position 98-1:
"Accounting for the Costs of Computer Software Developed or
Obtained for Internal use", and when management authorizes and
commits to funding the project and it is probable that the project
will be completed and the software will be used to perform the
intended functions. Costs of software that have reached that stage
of functionality are amortized using the straight-line method over
the estimated period of benefit to be received from these costs,
which ranges from two to three years.
(h) Income Taxes
Deferred tax assets and liabilities are recognized for the future
tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and
their respective tax bases. Deferred tax assets and liabilities
are measured using enacted tax rates as expected to apply to
taxable income in the years in which those temporary differences
are expected to be recovered or settled. The effect on deferred
tax assets and liabilities of a change in tax rates is recognized
in income in the period that includes the enactment date.
Valuation allowances are established when necessary to reduce
deferred tax assets to an amount that, in the opinion of
management, is more likely than not to be realized.
The Company and its subsidiaries file consolidated federal and
state income tax returns.
(i) Advertising
The Company expenses costs of advertising as incurred and have
included these expenses in promotion expenses in the accompanying
consolidated statements of operations. Advertising costs for the
years ended September 30, 2001 and 2000 were $168,015 and
$653,161, respectively.
(Continued)
31
INTERNATIONAL ASSETS HOLDING CORPORATION AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
September 30, 2001 and 2000
(j) Stock Option Plan
In October 1995, the FASB issued SFAS No. 123, "Accounting for
Stock-Based Compensation", which permits entities to recognize as
expense over the vesting period the fair value of all stock-based
awards on the date of grant. Alternatively, SFAS No. 123 also
allows entities to continue to apply the provisions of APB Opinion
No. 25 which provides that compensation expense would be recorded
on the date of grant only if the current market price of the
underlying stock exceeded the exercise price and pro forma
disclosures as if the fair-value-based method defined in SFAS No.
123 had been applied. The Company has elected to continue to apply
the provisions of APB Opinion No. 25 and provide the pro forma
disclosure provisions of SFAS No. 123.
(k) Use of Estimates
The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of
America requires management to make estimates and assumptions that
effect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of
the financial statements and the reported revenues and expenses
during the period. Actual results could differ from these
estimates.
(l) Earnings Per Share
Basic (loss) earnings per share have been computed by dividing net
(loss) income by the weighted average number of common shares
outstanding. Diluted earnings per share have been computed by
dividing net income by the weighted average number of common
shares and dilutive potential common shares outstanding.
Options to purchase 77,480 shares of common stock were excluded
from the calculation of diluted earnings per share for the year
ended September 30, 2000, because their exercise price exceeded
the average market price of common stock for the period. No
options to purchase shares of common stock were considered in the
calculation of diluted loss per share for the year ended September
30, 2001, because of the anti-dilutive impact of the potential
common shares, due to the net loss in 2001.
(Continued)
32
INTERNATIONAL ASSETS HOLDING CORPORATION AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
September 30, 2001 and 2000
(m) Recent Accounting Pronouncements
In July 2001, the FASB issued Statement of Financial Accounting
Standards (SFAS) 141, "Business Combinations", and SFAS 142,
"Goodwill and Other Intangible Assets." SFAS 141 requires that the
purchase method of accounting be used for all business
combinations initiated after June 30, 2001 as well as all purchase
method business combinations completed after June 30, 2001. SFAS
141 also specifies criteria intangible assets acquired in a
purchase method business combination must meet to be recognized
and reported apart from goodwill, noting that any purchase price
allocable to an assembled workforce may not be accounted for
separately. SFAS 142 will require that goodwill and intangible
assets with indefinite useful lives no longer be amortized, but
instead tested for impairment at least annually in accordance with
the provisions of SFAS 142. SFAS 142 will also require that
intangible assets with estimable useful lives be amortized over
their respective estimated useful lives to their estimated
residual values, and reviewed for impairment in accordance with
SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to Be Disposed Of." The Company has
adopted SFAS 141 with no impact on its financial statements and
has not yet completed its evaluation of SFAS 142; however,
management does not anticipate that the adoption of SFAS 142 will
have a material impact on the Company's earnings or financial
position upon adoption.
In June 2001, the FASB issued SFAS No. 143 - "Accounting for Asset
Retirement Obligations." Statement 143 relates to the accounting
for the obligations associated with the retirement of long-lived
assets. The Company has not completed its evaluation of SFAS 143;
however, management does not anticipate that the adoption of SFAS
143 will have a material impact on the Company's earnings or
financial position upon adoption.
In August 2001, the FASB issued SFAS No. 144 - "Accounting for
Impairment or Disposal of Long-lived Assets." Statement 144
establishes methods of accounting and reporting for the impairment
of long-lived assets other than goodwill and intangible assets not
being amortized. The Company has not completed its evaluation of
SFAS 144; however, management does not anticipate that the
adoption of SFAS 144 will have a material impact on the Company's
earnings or financial position upon adoption.
(n) Reclassification
Certain amounts in the 2000 financial statements have been
reclassified to conform with the 2001 presentation.
(Continued)
33
INTERNATIONAL ASSETS HOLDING CORPORATION AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
September 30, 2001 and 2000
(2) Sale of Certain Operations
In August 2001 International Assets Holding Corporation entered into a
purchase and sale agreement to sell its 100% membership interests in the
limited liability companies which it formed to hold the net assets of its
retail private client securities brokerage activities. Commission
revenues from retail private client securities brokerage activity
amounted to $3,233,495 and $6,441,106 for the years ended September 30,
2001 and 2000, respectively. Though certain costs associated with this
activity are distinct and clearly identifiable; many are not and
management has not historically operated, monitored or specifically
allocated expenses to this activity in such a manner as to determine
profitability by activity.
In the same agreement, International Assets Holding Corporation agreed to
sell its money management activity which had revenues from management and
investment advisory fees of $92,142 and $188,191 for the years ended
September 30, 2001 and 2000, respectively. The money management activity
is primarily related and tied into the retail private client activity
including the same sales staffing, operations and research support. It is
separated only for purposes of securities licensing and regulation.
The sale transactions were completed on December 13, 2001.
(3) Software Development Costs
Software development costs that have been capitalized are amortized over
a period of two to three years. These development efforts are for
internally used software systems for the Company's online trading
activities including the proprietary foreign quote system functionality.
2001 2000
----------------- ----------------
Building balance, net $ 416,810 193,898
Acquisition of capitalized software 477,707 414,192
Dispositions -- (40,000)
Amortization expense (340,715) (151,280)
----------------- ----------------
Ending balance, net $ 553,802 416,810
================= ================
(4) Related Party Transactions
On June 5, 2001, the Company purchased, by issuance of 57,625 common
shares of the Company, a $150,000 promissory note, due by the then
President of the Company to his former employer. The promissory note
included $13,657 of accrued interest at 5.75% per annum.
(Continued)
34
INTERNATIONAL ASSETS HOLDING CORPORATION AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
September 30, 2001 and 2000
On July 11, 2001 the Company executed an unconditional and irrevocable
agreement to forgive the $150,000 promissory note held by the Company with
accrued interest, due from the former President of the Company, with
forgiveness effective June 11, 2002. The forgiveness of the note was
reflected as compensation and benefits expense in the third quarter of
fiscal 2001.
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 Board of Directors of the Company has granted an
extension of the due date of the promissory note to December 31, 2001. The
promissory note includes interest of 6 percent per annum. The loan to
officer was previously approved by the Company's Board of Directors. As of
September 30, 2001, the remaining principal balance of the promissory note
including accrued interest is $55,941.
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 Board of Directors of the Company has granted an
extension of the due date of the promissory note to August 31, 2002. The
promissory note includes interest of 6.27 percent per annum. As of
September 30, 2001 the remaining principal balance of the promissory note
including accrued interest is $70,600.
The Company has engaged, on a task-by-task basis, a creative design firm
that is partially owned by a spouse of an officer of the Company. The
Company incurred promotional expense related to this creative design firm
totaling approximately $34,023 and $121,000 during the years ended
September 30, 2001 and 2000, respectively.
(5) Securities Owned and Securities Sold, Not Yet Purchased
Securities owned and securities sold, not yet purchased at September 30,
2001 and 2000 consist of trading and investment securities at market values
as follows:
Sold, not yet
Owned purchased
----------- -------------
2001:
Common stock and American Depository Receipts $ 1,203,294 694,047
Foreign ordinary stock paired with its respective
American Depository Receipts 4,618,006 4,619,594
Corporate and municipal bonds 68,949 --
Foreign government obligations 3,954 --
Unit investment trusts, mutual funds and other investments 117,736 --
----------- -------------
$ 6,011,939 5,313,641
=========== =============
(Continued)
35
INTERNATIONAL ASSETS HOLDING CORPORATION AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
September 30, 2001 and 2000
Sold, not yet
Owned purchased
----------- -------------
2000:
Obligations of U.S. Government $ 256,042 --
Common stock and American Depository Receipts 2,205,960 683,802
Foreign ordinary stock paired with its respective
American Depository Receipts 409,043 409,806
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 --
----------- -------------
$ 3,316,513 1,202,659
=========== =============
(6) Receivable From and Payable to Clearing Organization
Amounts receivable from and payable to clearing organization, net at
September 30, 2001 and 2000 of $934,764 and $24,330, respectively, consist
of the following:
Receivable Payable
---------- ----------
2001:
Commission income receivable $ 31,783 ---
Clearing fee payable --- 23,722
Open transactions, net 926,703 ---
---------- ----------
$ 958,486 23,722
========== ==========
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.
(Continued)
36
INTERNATIONAL ASSETS HOLDING CORPORATION AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
September 30, 2001 and 2000
(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. IANY has elected partnership federal income tax treatment. Each
party made an initial contribution of $50,000 during the year ended
September 30, 1999 and an additional subsequent capital contributions
during the year ended September 30, 2000 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. In accordance with the
equity method, the Company has reduced its investment in joint venture to
$0 as of September 30, 2001.
For the years ended September 30, 2001 and 2000, the Company has recorded
losses of $20,353 and $55,286, respectively for 50 percent of the joint
venture's losses for the periods. As of September 30, 2001 and 2000, the
Company had a payable to the joint venture of $2,032 and $2,027,
respectively, which relates to joint venture cash outlays which were made
on behalf of the Company.
(8) Financial Instruments with Off-Balance Sheet Risk
The Company is party to certain financial instruments with off-balance
sheet risk in the normal course of business as a registered securities
broker/dealer. In addition, the Company has sold securities that it does
not currently own and will therefore be obligated to purchase such
securities at a future date. The Company has recorded these obligations in
the consolidated financial statements at September 30, 2001 at market
values of the related securities (totaling $5,313,641) and will incur a
loss if the market value of the securities increases subsequent to
September 30, 2001.
(9) Capital and Cash Reserve Requirements
As of September 30, 2001 and 2000, IAAC is subject to the Securities and
Exchange Commission (SEC) uniform net capital rule (Rule 15c3-1), which
requires the maintenance of minimum net capital at an amount equal to the
greater of $100,000, 6-2/3 percent of aggregate indebtedness, or $2,500 for
each security in which a market is made with a bid price over $5 and $1,000
for each security in which a market is made with a bid price of $5 or less
with a ceiling of $1,000,000, and requires that the ratio of aggregate
indebtedness to net capital not exceed 15 to 1. As of September 30, 2001,
the Company had excess net capital of $526,126 and a ratio of aggregate
indebtedness to net capital of 0.82 to 1.
As of September 30, 2001, ITCI is subject to the SEC uniform net capital
rule (Rule 15c3-1), which requires the maintenance of minimum net capital
at an amount equal to the greater of $50,000 or 6-2/3 percent of aggregate
indebtedness. At September 30, 2001, the Company had excess net capital of
$181,078 and a ratio of aggregate indebtedness to net capital of
approximately 0.18 to 1.
(Continued)
37
INTERNATIONAL ASSETS HOLDING CORPORATION AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
September 30, 2001 and 2000
IAAC and ITCI are exempt from customer reserve requirements and providing
information relating to possession or control of securities pursuant to
Rule 15c3-3 of the Securities and Exchange Act of 1934. Both IAAC and ITCI
meet the exemptive provisions of Paragraph (k)(2)(ii).
(10) 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 was May 31, 2001. The Company has received extensions from
the landlord to remain in its current location until December 31, 2001, on
a month-to-month basis.
The Company has executed a new lease for office space of approximately
5,100 square feet at 220 E. Central Parkway, Altamonte Springs, Florida.
The estimated commencement date is February 1, 2002, with six months free
rent, and a seven year term to July 31, 2009.
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 $294,302 and $386,900
for the years ended September 30, 2001 and 2000, respectively. Future
minimum lease payments under noncancelable operating leases as of September
30, 2001 are as follows:
Year ending September 30,
---------------------------
2002 $ 94,000
2003 141,000
2004 99,000
2005 99,000
2006 102,000
Thereafter 310,000
-------------
Total future minimum lease payments $ 845,000
=============
IANY, the Company's joint venture, occupied 1,975 square feet at 90 West
Street, NYC. The lease had a termination date of August 31, 2003. This
office facility has not been occupied since September 11, 2001 due to
damages from the World Trade Center tragedy. In November 2001, a surrender
agreement was executed voiding this obligation.
(Continued)
38
INTERNATIONAL ASSETS HOLDING CORPORATION AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
September 30, 2001 and 2000
(11) Income Taxes
Income tax (benefit) expense for the years ended September 30, 2001 and
2000 consists of:
Current Deferred Total
------------- ------------ -------------
2001:
Federal $ 58,021 (1,306,967) (1,248,946)
State 9,933 (223,732) (213,797)
------------- ------------ -------------
$ 67,954 (1,530,697) (1,462,743)
============= ============ =============
2000:
Federal $ 100,807 107,100 207,907
State 16,964 18,333 35,297
------------- ------------ -------------
$ 117,771 125,433 243,204
============= ============ =============
Total income tax (benefit) expense for the years ended September 30, 2001
and 2000 differed from the amounts computed by applying the U.S. federal
income tax rate of 34 percent to income before income taxes as a result of
the following:
2001 2000
----------------------------- ----------------------------
% of % of
pretax pretax
Amount income Amount income
-------------- --------- ------------- -----------
Computed "expected" tax expense $ (1,621,008) 34.0% $ 177,598 34.0%
Increase in income tax expense
resulting from:
State income taxes, net of
federal income tax benefit (159,029) 3.3% 23,296 4.5%
Meals and entertainment expense
not deductible for tax purposes
34,464 (0.7%) 31,590 6.0%
Memberships 3,470 (0.1%) 7,204 1.4%
Other, net 1,553 -- 3,516 0.7%
Valuation allowance 277,807 (5.8%) -- --
-------------- --------- ------------- ----------
$ (1,462,743) 30.7% $ 243,204 46.6%
============== ========= ============= ==========
(Continued)
39
INTERNATIONAL ASSETS HOLDING CORPORATION AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
September 30, 2001 and 2000
Deferred income taxes as of September 30, 2001 and 2000 reflect the impact of
"temporary differences" between amounts of assets and liabilities for financial
statement purposes and such amounts as measured by tax laws. The temporary
differences give rise to deferred tax assets and liabilities, which are
summarized below as of September 30, 2001 and 2000:
2001 2000
----------- -----------
Gross deferred tax liabilities:
Accumulated depreciation and amortization $ (10,484) (20,803)
Software development costs (208,396) (156,846)
----------- -----------
Total gross deferred tax liabilities (218,880) (177,649)
----------- -----------
Gross deferred tax assets:
Investment in Limited Partnership 3,770 3,770
Amortization of other assets 41,172 40,672
Net operating loss carryforward 1,849,234 --
----------- -----------
Total gross deferred tax asset 1,894,176 44,442
Valuation allowance (277,807) --
----------- -----------
Total net deferred tax assets 1,616,369 44,442
----------- -----------
Net deferred tax asset (liability) $ 1,397,489 (133,207)
=========== ===========
In assessing the realizability of deferred tax assets, management considers
whether it is more likely than not that some portion or all of the deferred tax
assets will not be realized. The ultimate realization of deferred tax assets is
dependent upon the generation of future taxable income or the reversal of
deferred tax liabilities during the periods in which those temporary differences
become deductible. Management considers the scheduled reversal of deferred tax
liabilities, projected future taxable income and tax planning strategies in
making this assessment. As of September 30, 2001, based upon the level of
historical taxable income and projections for future taxable income, management
believes it is more likely than not that the Company will realize the benefits
of these deductible differences and net operating loss carryforward, net of the
recorded valuation allowance.
At September 30, 2001, the Company has net operating loss carryforwards for
federal income tax purposes which begin to expire in 2019.
(Continued)
40
INTERNATIONAL ASSETS HOLDING CORPORATION AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
September 30, 2001 and 2000
(12) Employee Benefit Plans
Effective May 1, 1999, the Company implemented a defined contribution
401(k) Profit Sharing Plan ("401(k) Plan"). The 401(k) Plan amended and
restated the Company's employee stock ownership plan ("ESOP"), which was
effective December 30, 1992. This plan retains the 401(k) profit sharing
features of the December 30, 1992 plan, and effective May 1, 1999, deletes
the employee stock ownership plan provisions. Those participants who had
account balances in the ESOP portion of the plan, as of May 1, 1999 will
retain certain ESOP rights, such as the right to receive distributions in
the form of employer common stock.
All Company employees who have completed one year of continuous service and
who have attained the age of twenty-one are eligible to participate in the
401(k) Plan. The 401(k) Plan allows employees to elect to defer a portion
of their salary into the 401(k). The amount contributed reduces the
employee's taxable compensation. IAAC has the option to make a matching
contribution at the sole discretion of IAAC.
IAAC implemented a defined contribution Retirement Savings Plan ("RSP")
effective January 1, 1995. All employees who have completed one year of
continuous service and who have attained the age of twenty-one are eligible
for the RSP. The contributions to the RSP are at the sole discretion of
IAAC.
IAAC's contributions to these employee benefit plans for the years ended
September 30, 2001 and 2000 are summarized as follows:
2001 2000
------ ------
RSP $ -- 40,000
401(k) Plan -- 40,000
------ ------
$ -- 80,000
====== ======
Employer contributions gradually vest over seven years, and employee
contributions are fully vested at all times, are paid upon death,
disability, retirement or termination of employment.
As of September 30, 2001 and 2000, 158,928 and 163,270 common shares of the
Company were allocated to 401(K) plan participants, respectively. During
the years ended September 30, 2001 and 2000, no common shares of the
Company were purchased from terminated 401(K) plan participants. As of
September 30, 2001 and 2000, 69,694 common shares of the Company were
allocated to RSP participants.
On November 1, 2001, International Assets Advisory Corp. terminated the
International Assets Advisory Corporation 401K Profit Sharing Plan ("401K")
and the International Assets Advisory Corporation Retirement Savings Plan
("RSP"). All participants under the 401K and RSP will vest 100 percent in
their respective account balances and the employer sponsor and its related
employees will make no further contributions to the plans.
(Continued)
41
INTERNATIONAL ASSETS HOLDING CORPORATION AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
September 30, 2001 and 2000
Also, on November 1, 2001, International Assets Holding Corporation became
the primary sponsoring employer of both plans. The plans became known as
the International Assets Holding Corporation 401K Profit Sharing Plan and
the International Assets Holding Corporation Retirement Savings Plan.
International Assets Holding Corporation will effectuate the necessary
actions to terminate the plans.
(13) Stock Options
The International Assets Holding Corporation Stock Option Plan (the "Plan")
was adopted by the Board of Directors of the Company and approved by the
Company's stockholders during January 1993. The Plan permits the granting
of awards to employees and directors of the Company and its subsidiaries in
the form of stock options. Stock options granted under the Plan may be
"incentive stock options" meeting the requirements of Section 422 of the
Internal Revenue Code of 1986, as amended, or nonqualified stock options,
which do not meet the requirements of Section 422. As of September 30,
2001, a total of 1,399,300 shares of the Company's common stock had been
reserved for issuance pursuant to options granted under the Plan.
The Plan is administered by the Company's Board of Directors or a committee
thereof. The Plan gives broad powers to the Board of Directors to
administer and interpret the Plan, including the authority to select the
individuals to be granted options and rights and to prescribe the
particular form and conditions of each option or right granted. All options
are granted at an exercise price equal to the fair market value or 110
percent of the fair market value of the Company's common stock on the date
of the grant. Awards may be granted pursuant to the Plan through January
2003. The Board of Directors at its sole discretion may terminate the Plan
earlier.
At September 30, 2001, there were 258,105 additional shares available for
grant under the Plan. Using the Black Scholes option-pricing model, the per
share weighted-average fair value of stock options granted during 2001 and
2000, where exercise price equals the market price of the stock on the
grant date, was $2.27 and $5.02, respectively. The per share weighted
average fair value of stock options granted during 2001, where exercise
price is greater than market price on the grant date was $2.27.
The following weighted average assumptions were used:
2001 2000
---------- ----------
Exercise price equal to market price on grant date:
Expected risk-free interest rate 5.04% 6.32%
Expected life 6.48 years 6.91 years
Expected volatility 80.4% 73.5%
Expected dividend yield -- --
Exercise price greater than market price on grant date:
Expected risk free interest rate 5.04% --
Expected life 6.50 years --
Expected volatility 80.4% --
Expected dividend yield -- --
(Continued)
42
INTERNATIONAL ASSETS HOLDING CORPORATION AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
September 30, 2001 and 2000
The Company applies APB Opinion No. 25 in accounting for its Plan and,
accordingly, no compensation cost has been recognized for its stock options
in the consolidated financial statements. Had the Company determined
compensation cost based on the fair value at the grant date for its stock
options under SFAS No. 123, the Company's net (loss) income and earnings
(loss) per share would be reflected in the pro forma amounts indicated
below:
2001 2000
----------- -----------
Net (loss) income As reported $(3,304,928) 279,143
Pro forma $(3,562,585) 70,965
Basic (loss) earnings per share As reported $ (1.47) 0.13
Pro forma $ (1.59) 0.03
Diluted (loss) earnings per share As reported $ (1.47) 0.12
Pro forma $ (1.59) 0.03
Pro forma net (loss) income reflects only options granted from 1996 to
2001. Therefore, the full impact of calculating compensation cost for stock
options under SFAS No. 123 is not reflected in the pro forma net (loss)
income amounts presented above because compensation cost is reflected over
the options' expected life ranging from 5 to 8.5 years and compensation
cost for options granted prior to October 1, 1995 is not considered.
Stock option activity during the fiscal years ended September 30, 2000 and
2001 is as follows:
Weighted-
Number of average
shares exercise price
--------------- --------------
Outstanding at September 30, 1999 $ 698,584 $ 2.16
Granted 152,480 6.84
Exercised (300,840) 2.28
Forfeited (129,492) 1.77
Expired -- --
--------------- --------------
Outstanding at September 30, 2000 420,732 4.17
Granted 346,500 3.09
Exercised -- --
Forfeited (103,123) 5.26
Expired -- --
--------------- --------------
Outstanding at September 30, 2001 $ 664,109 $ 3.43
=============== ==============
(Continued)
43
INTERNATIONAL ASSETS HOLDING CORPORATION AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
September 30, 2001 and 2000
At September 30, 2001, the range of exercise prices and weighted-average
remaining contractual life of outstanding options was $1.25 - $11.70 and
7.93 years, respectively.
At September 30, 2001 and 2000, the number of options exercisable was
160,903 and 42,513, respectively, and the weighted-average exercise price
of those options was $3.29 and $3.62, respectively.
Incentive Stock Options
As of September 30, 2001, options outstanding under qualified incentive
stock options, including their grant date, exercise price and expiration
date, were as follows:
Exercise
Options outstanding Grant date price Expiration date Exercisable
------------------- ------------------- ------------ ------------------------------------
26,544 January 23, 1993 $ 3.87 January 23, 2003 A
4,796 August 12, 1994 4.17 August 12, 2004 B
26,378 December 28, 1995 2.09 December 28, 2005 C
8,393 December 28, 1995 1.90 December 28, 2005 C
1,198 March 7, 1996 2.28 March 7, 2006 B
23,381 December 11, 1996 2.51 December 11, 2006 B
5,995 October 1, 1998 1.49 October 1, 2008 B
83,390 November 2, 1998 1.38 November 2, 2008 D
19,184 November 2, 1998 1.25 November 2, 2008 C
11,990 January 6, 1999 1.25 January 6, 2009 B
22,890 December 9, 1999 7.17 December 9, 2009 B
21,800 January 28, 2000 11.70 January 28, 2010 E
8,750 March 10, 2000 11.63 March 10, 2010 C
50,000 April 27, 2000 5.19 April 27, 2010 F
5,000 December 21, 2000 2.22 December 21, 2010 E
20,000 December 22, 2000 2.13 December 22, 2010 E
2,500 January 8, 2001 2.88 January 8, 2011 E
2,500 January 22, 2001 2.75 January 22, 2011 E
10,000 January 29, 2001 4.25 January 29, 2011 E
25,000 March 9, 2001 3.13 March 9, 2011 G
222,500 March 9, 2001 3.13 March 9, 2011 E
2,000 July 6, 2001 2.27 July 6, 2011 H
2,000 August 30, 2001 1.90 August 30, 2011 E
-------------------
606,729
===================
(Continued)
44
INTERNATIONAL ASSETS HOLDING CORPORATION AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
September 30, 2001 and 2000
(A) Exercisable at 25% per year beginning two years from the date of
grant.
(B) Exercisable at 20% per year beginning three years from the date of
grant.
(C) Exercisable at 20% per year beginning one years from the date of
grant.
(D) Exercisable at 30% after year one, 30% after year two and 40% after
year three.
(E) Exercisable at 33.3% after year one, 33.3% after year two and 33.4%
after year three.
(F) Exercisable at 25.7% on October 1, 2000, 25.7% on October 1, 2001,
25.7% on October 1, 2002 and 22.9% on October 1, 2003.
(G) Exercisable at 13.6% on October 1, 2003 and 86.4% on January 1, 2004.
(H) Exercisable at 50% on August 31, 2001, 16.6% on July 6, 2002, 16.7% on
July 6, 2003 and 16.7% on July 6, 2004.
As of September 30, 2001 and 2000, 144,555 and 33,139 options,
respectively, were exercisable under qualified incentive stock options.
During the year ended September 30, 2001, none of the incentive stock
options were exercised. During the year ended September 30, 2000, 300,840
options were exercised with a weighted average exercise price of $2.28.
Nonqualified Stock Options
As of September 30, 2001, options outstanding under nonqualified options,
including their grant date, exercise price and expiration date, were as
follows:
Options Exercise
outstanding Grant date price Expiration date Exercisable
----------- ---------------- ------------ ----------------- -----------
11,990 July 20, 1998 $ 2.40 July 20, 2008 A
11,990 January 6, 1999 1.25 January 1, 2009 A
10,900 June 4, 1999 6.65 June 4, 2009 A
22,500 March 9, 2001 3.13 March 9, 2011 B
-----------
57,380
===========
(A) Exercisable at 20% per year beginning one years from the date of
grant.
(B) Exercisable at 33.3% after year one, 33.3% after year two and 33.4%
after year three.
As of September 30, 2001 and 2000, 16,350 and 9,374 options, respectively,
were exercisable under nonqualified stock options. During the year ended
September 30, 2001 and 2000, none of the nonqualified stock options were
exercised.
(Continued)
45
INTERNATIONAL ASSETS HOLDING CORPORATION AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
September 30, 2001 and 2000
(14) ITCI Stock Option and Plan
The Board of Directors of ITCI adopted a stock option plan ("ITCI Plan')
retroactively as of December 31, 1998. The ITCI Plan was intended to
constitute both an "incentive stock option" and a "plan" within the meaning
of qualifying under Section 422 of the Internal Revenue Code of 1986, as
amended, and the regulations thereunder. The ITCI Plan permitted the
granting of an option of 111 common shares (approximately 10 percent of the
total common shares) of ITCI to a sole participant. The ITCI Plan expires
on December 31, 2002. Retroactively, as of December 1, 1998 this one
incentive stock option was granted to a sole participant. The purchase
price of the 111 common shares was $98.95 per common share, being 100
percent of the estimated fair market value per share of common stock as of
December 1, 1998.
The right to exercise the options granted and purchase the option shares
depended upon meeting certain financial benchmarks as of September 30,
2000, and as of September 30, 2001. None of the benchmarks were met and
therefore the option plan terminated as of September 30, 2001.
There has been no vesting as of September 30, 2001, and like the Parent,
the Company recognizes compensation expense under APB No. 25 and no such
expense would be recognized until the achievement of the financial
benchmarks.
(15) Preferred Stock
The Company has authorized 3,000,000 shares of its preferred stock for
issuance at a par value of $.01 per share. As of September 30, 2001 and
2000, no shares have been issued and the Board of Directors has not yet
determined the specific rights and privileges of these shares.
(16) Stock Dividend
On February 25, 2000, the Company declared a ten percent stock dividend to
shareholders of record as of March 10, 2000. On March 24, 2000 the Company
issued 198,269 shares of common stock in conjunction with this dividend.
Accordingly, amounts equal to the then fair market value (based on quoted
market prices as adjusted) of the additional shares issued were charged to
retained earnings and credited to common stock and additional paid-in
capital.
Earnings per common share, weighted average shares outstanding, and all
stock option activity have been restated to reflect the ten percent stock
dividend.
(Continued)
46
INTERNATIONAL ASSETS HOLDING CORPORATION AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
September 30, 2001 and 2000
(17) Commitments and Contingent Liabilities
The Company has entered into an employment agreement with its chief
executive officer, which has been amended and expires on March 24, 2003.
Under the terms of the agreement, the officer will receive specified annual
compensation, a bonus, a monthly automobile allowance and reimbursement for
personal income tax preparation fees. The bonus is calculated by applying
the consolidated return-on-equity percentage for that year to the
consolidated pre-tax earnings adjusted before the deduction for officer
bonus expense and as adjusted for certain financial transactions. The
executive bonus percentage is subject to a minimum of 5 percent and a
maximum of 15 percent of adjusted consolidated pre-tax earnings of the
Company. In the event of termination of the agreements by the Company other
than for cause, as defined, or if the executive resigns as a result of a
breach by the Company, the agreement provides for payments to such
individual in an amount equal to 100 percent of his total compensation for
24 months following the date of termination.
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
through the year ended 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 percent stock dividends) in the
open market at a total of $129,233. During the fiscal years ended September
30, 2001 and 2000, the Company did not repurchase any Company shares
through open market repurchases.
In addition, concurrent with the open market repurchase program, the
Company has repurchased and retired an additional 115,038 shares from
terminated participants of the Company's 401(k) Plan and RSP for a total
cost of $256,893 since the inception of the program.
(Continued)
47
INTERNATIONAL ASSETS HOLDING CORPORATION AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
September 30, 2001 and 2000
(18) Quarterly Financial Information (Unaudited)
For the three months ended
---------------------------------------------------------------------
December 31, March 31, June 30, September 30,
2000 2001 2001 2001
--------------- --------------- --------------- ---------------
2001:
Revenues $ 1,420,272 983,937 1,223,491 1,043,688
Total expenses 2,344,213 2,379,532 2,396,521 2,318,793
Income (loss) before income taxes (923,941) (1,395,595) (1,173,030) (1,275,105)
Net income (loss) (596,435) (885,930) (740,363) (1,082,200)
Net income (loss) per share - basic $ (0.27) (0.40) (0.33) (0.47)
Net income (loss) per share - diluted $ (0.27) (0.40) (0.33) (0.47)
For the three months ended
---------------------------------------------------------------------
December 31, March 31, June 30, September 30,
1999 2000 2000 2000
--------------- --------------- --------------- ---------------
2000:
Revenues $ 3,525,105 3,733,426 2,784,005 2,364,330
Total expenses 2,856,519 3,375,672 2,996,412 2,655,916
Income (loss) before income taxes 668,586 357,754 (212,407) (291,586)
Net income (loss) 402,886 217,147 (141,305) (199,585)
Net income (loss) per share - basic $ 0.21 0.10 (0.06) (0.09)
Net income (loss) per share - diluted $ 0.18 0.09 (0.06) (0.09)
(Continued)
48
INTERNATIONAL ASSETS HOLDING CORPORATION AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
September 30, 2001 and 2000
(19) Subsequent Events
On October 5, 2001 the Board of Directors of the Company approved the
issuance of the following stock options:
Incentive Stock Options
Options Exercise
granted Grant date price Expiration date Exercisable
--------- ---------------- ------------ ----------------- -----------
50,000 October 5, 2001 $0.90 October 5, 2011 (a)
25,000 October 5, 2001 $0.99 October 5, 2011 (a)
---------
75,000
---------
Nonqualified Stock Options
45,000 October 5, 2001 $0.90 October 5, 2011 (a)
---------
120,000
=========
(a) Exercisable at 33.3% after year one, 33.3% after year two and 33.4%
after year three.
On November 1, 2001 International Assets Advisory Corporation entered into
a merger with IAAC, LLC, a wholly owned subsidiary of International Assets
Holding Corporation. IAAC, LLC is a Florida limited liability company
formed by International Assets Holding Corporation in July 2001 for the
purpose of the anticipated merger that occurred on November 1, 2001. IAAC,
LLC is the surviving entity of the merger. Upon effectiveness of the
merger, the name of the surviving entity became International Assets
Advisory, LLC.
On November 1, 2001 Global Assets Advisors, Inc. entered into a merger with
Global Assets Advisors, LLC, a wholly owned subsidiary of International
Assets Holding Corporation. Global Assets Advisors, LLC is a Florida
limited liability company formed by International Assets Holding
Corporation in July 2001 for the purpose of the anticipated merger that
occurred on November 1, 2001. Global Assets Advisors, LLC is the surviving
entity of the merger.
As further described in Note 2, International Assets Holding Corporation
entered into a purchase and sale agreement dated August 24, 2001 and
amended October 1, 2001 (the Agreement) to sell its newly created 100%
membership interests in International Assets Advisory, LLC and Global
Assets Advisors, LLC. To accomplish and in keeping with the terms of the
agreement, International Assets Advisory, LLC and Global Assets Advisors,
LLC will distribute to International Assets Holding Corporation all but
approximately $150,000 of their combined net assets which at closing are
expected to result in a gain of approximately $400,000, net of costs of the
transaction. The sale transactions were completed on December 13, 2001.
49
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.
The following table lists certain information about the directors, executive
officers and significant employees of the Company:
Director Officer
Name Age Since Since Position
- ---- --- ----- ----- --------
Diego J. Veitia 58 1987 1987 Director, Chairman of the
Board and Chief Executive
Officer
Stephen A. Saker 55 1990 1991 Director, Vice President and
Secretary
Jerome F. Miceli 58 1990 - Director of the Company
Robert A. Miller, PhD 58 1998 - Director of the Company
Jeffrey L. Rush, M.D. 61 1999 - Director of the Company
Gregory T. Gerard 41 - 2000 Senior Vice President of
Global Business Development
Jonathan C. Hinz 39 - 1995 Chief Financial Officer and
Treasurer
Tresa Veitia-Williamson 36 - 1999 Vice President and Director
of Marketing
Each of the Company's directors have been elected to serve until the next annual
meeting of stockholders and until his respective successor is elected and
qualified. Officers are elected annually by the Board of Directors.
50
Diego J. Veitia founded the Company in 1987 to serve as a holding company for
IAAC and other subsidiaries. He has served as Chairman of the Board, director
and Chief Executive Officer of the Company since its inception. He also served
as President of the Company for the following periods: from 1987 until 1991,
from November 1999 through August 2000 and again from September 2001 to the
present. Mr. Veitia founded IAAC in 1981 and has served as Chairman of the Board
and director of IAAC, IAAL, GAA and GAAL until the sale of IAAL and GAAL in
December 2001. In November 1999 Mr. Veitia resumed the role of President of all
of the subsidiaries of the Company. Mr. Veitia is currently serving as Chairman,
Chief Executive Officer and President of INTLTRADER.COM, IAMC, IFP and OTCL. Mr.
Veitia also serves as Chairman and President of Veitia and Associates, Inc., an
inactive registered investment advisor. Mr. Veitia served as Chairman of the All
Seasons Global Fund, Inc., a publicly held closed-end management investment
company from October 1987 until October 1996. During the last five years Mr.
Veitia has also served as director of America's All Seasons Income Fund, Inc.,
an inactive management investment company.
Stephen A. Saker has been a director of the Company since 1990 and has served as
Secretary and Vice President of the Company since 1991. Mr. Saker currently
serves as Vice President, Secretary and Director of IAMC and OTC. Mr. Saker has
also served as director, Executive Vice President and Secretary of IAAC from
1985 and served as director and Executive Vice President of IAAC, IAAL, GAA and
GAAL until the sale of IAAL and GAAL in December 2001. Mr. Saker served as
Director, Secretary and Executive Vice President of INTLTRADER.COM from May 1998
through December 2001. Since November 1991, Mr. Saker has served as Vice
President, Treasurer and Secretary of Veitia and Associates, Inc., an inactive
registered investment advisor. Mr. Saker also served as Secretary and director
of All Seasons Global Fund, Inc. from October 1987 until October 1996.
Jerome F. Miceli has been a director of the Company since 1990. Mr. Miceli
served as President, Chief Operating Officer and Treasurer of the Company from
1991 to 1999. Mr. Miceli has also served as President, Chief Executive Officer,
Treasurer and director of IAAC from 1990 to 1999. Until November 1999 Mr. Miceli
also served as President, Treasurer and Director of INTLTRADER.COM, GAA, IAMC,
IFP and OTCL. In addition, from December 1990 until October 1996, Mr. Miceli
served as Treasurer and director of All Seasons Global Fund Inc., a publicly
held closed-end management investment company. Mr. Miceli also served as
President of Veitia and Associates, Inc., an inactive registered investment
advisor, from 1990 until 1999.
Robert A. Miller, Ph.D. became a director of the Company in February 1998. Dr.
Miller has served as President of Nazareth College in Rochester, New York since
1998. In November 2000 Dr. Miller became a Director of Bergmann Associates LLC,
a privately owned architectural and engineering firm with headquarters in
Rochester, NY. Dr. Miller served as the Academic Vice President of Queens
College in Charlotte, North Carolina from 1994 to 1998. In addition, Dr. Miller
served as Provost of Antioch University in Ohio from 1991 to 1994. Dr. Miller
served as a director of All Seasons Global Fund, Inc. from 1988 until 1996.
51
Jeffrey L. Rush, M.D. became a director of the Company in February 1999. Dr.
Rush is a graduate of Dartmouth and State University New York Medical School in
1966. He has been a Board Certified Radiologist since 1972. Dr. Rush served as
Chairman of the Radiology Department at Alvarado Medical Center, San Diego, CA
from 1972 - 1994. In addition, he served on the Advisory Board, National Medical
Enterprises (Tenet Health) from 1982 - 1990. Dr. Rush presently serves as
Chairman of Pacific Medical Building, LP, a developer and owner of medical
office buildings and clinics. He has served in that capacity since 1991.
Gregory T. Gerard joined the Company in January 2000 and currently serves as
Senior Vice President and Managing Director of Global Business Development. Mr.
Gerard was formerly a Managing Director for Credit Lyonnais Securities in New
York from 1998 through 1999 and was responsible for North American Mergers and
Acquisitions. Prior to that, Mr. Gerard was a Vice President at Chase Securities
Inc., from 1994 through 1998. Mr. Gerard served as a Senior Associate with
BANEXI, the mergers and acquisition department of Banque Nationale de Paris from
1991 through 1994. Mr. Gerard received an MBA from Columbia University in 1987.
Jonathan C. Hinz joined the Company in October 1995 and currently serves as
Chief Financial Officer and Treasurer for the Company, INTLTRADER.COM, IFP, IAMC
and OTCL. Mr. Hinz has also served as Chief Financial Officer and Treasurer of
IAAC, IAAL, GAA and GAAL until the sale of IAAL and GAAL in December 2001. Prior
to joining the Company, Mr. Hinz served as Chief Financial Officer and
Controller of Computer Science Innovations, Inc. from 1987 to 1995. Mr. Hinz is
a certified public accountant.
Tresa Veitia-Williamson joined IAAC in September 1995 and currently serves as
Vice President and Director of Marketing for the Company, INTLTRADER.COM, IFP
and OTCL. Ms. Veitia-Williamson has also served as Vice President and Director
of Marketing of IAAC, IAAL, GAA and GAAL until the sale of IAAL and GAAL in
December 2001. Prior to joining the Company, Ms. Veitia-Williamson was an
account supervisor at Ogilvy & Mather in New York. Ms. Veitia-Williamson
received an MBA from Columbia University in 1989.
Compliance with Section 16(a) of the Exchange Act
Pursuant to Section 16(a) of the Exchange Act and the rules issued thereunder,
the Company's executive officers, directors and owners of in excess of 10% of
the issued and outstanding common stock are required to file with the SEC
reports of ownership and changes in ownership of the common stock of the
Company. Copies of such reports are required to be furnished to the Company.
Based solely on the review of such reports, the Company is aware of one director
and one executive officer that had late filings under Section 16(a). Jerome F.
Miceli, a director of the Company, did not report in a timely manner under
Section 16(a) a sale of 1,000 shares of common stock on April 2, 2001. Mr.
Miceli subsequently reported these transactions on a Form 5 filed on January 9,
2002. Gregory T. Gerard, an executive officer of the Company, did not report in
a timely manner under Section 16(a) a purchase of 1,000 shares of common stock
on December 13, 2000 and a stock option awarded on January 29, 2001 for 10,000
shares of common stock, with a strike price of $4.25 per share. Mr. Gerard
subsequently reported these transactions on a Form 5 filed on January 9, 2002.
The Company believes that during fiscal year 2001, all other executive officers
and directors complied with the Section 16(a) requirements.
52
ITEM 10. EXECUTIVE COMPENSATION.
Summary Compensation Table
The following table is a three-year summary of the compensation awarded or paid
to, earned by, the Company's Chief Executive Officer and its four most highly
compensated executive officers whose total cash compensation exceeded $100,000
during the Company's last completed fiscal year.
Long Term Compensation
----------------------
Annual Compensation Awards Payouts
--------------------------------------------------------------------
Other- Rest-
Name Annual ricted Securities
and Compen- Stock Underlying LTIP All other
Principal Salary Bonus sation Award(s) Options/ Payouts Compensation
Position Year $ $ $ $ SARs (#)(2) $ $ (3)
- -------- ---- - - - - ----------- - -----
Diego J. Veitia, 2001 $148,349 $ - $19,845 $ - 25,000 $ - $ -
Director, Chairman 2000 $147,092 $ 201,690 $ - $ - - $ - $16,188
of the Board and 1999 $143,504 $ 112,971 $ - $ - 119,900 $ - $19,146
Chief Executive
Officer (1) (4)
William C. Dennis, 2001 $257,200 $ 92,500 $ - $ - 25,000 $ - $ -
Former Director, 2000 $ 81,521 $ 62,500 $ - $ - 75,000 $ - $ -
President and Chief
Operating Officer (5)
Stephen A. Saker, 2001 $197,178 $ - $ - $ - 15,000 $ - $ -
Director, Vice 2000 $219,805 $ 15,000 $ - $ - - $ - $ 5,949
President and 1999 $169,046 $ 10,000 $ - $ - 23,980 $ - $ 8,610
Secretary (6)
Gregory T. Gerard, 2001 $100,000 $ 16,667 $ - $ - 10,000 $ - $ -
Senior Vice President 2000 $ 66,667 $ 33,333 $ - $ - 21,800 $ - $ -
and Managing Director
of Global Development (7)
Todd A. Boren, 2001 $209,621 $ - $ - $ - 30,000 $ - $ -
Former Senior Vice
President and Managing
Director Private Client
Group (8)
- --------------------------------------------------------------------------------
(1) Mr. Veitia received $19,845, or approximately 13% of 2001 total salary and
bonus in other annual compensation consisting of $9,095 paid for tax preparation
fees and $10,750 related to auto lease reimbursement as calculated under the IRS
lease valuation method.
(2) Option shares presented have been restated for the 10% stock dividend
declared by the Corporation on February 25, 2000 for shareholders of record as
of March 10, 2000. Option shares have also been restated for the 10% stock
dividend declared by the Corporation on February 12, 1999 for shareholders of
record as of March 5, 1999.
53
(3) All other compensation is comprised of Company contributions to the
Company's 401(k) Profit Sharing Plan (formerly known as the Employee Stock
Ownership Plan), Retirement Savings Plan, automobile related benefits paid
directly by the Company and payments for personal income tax preparation fees.
(4) Salary for 2001 includes $9,469 not yet paid to Mr. Veitia for a voluntary
salary deferral related to wages earned for the month of September 2001. Salary
for 2001 does not include a $3,156 voluntary 25% salary waiver related to the
month of September 2001.
(5) Mr. Dennis joined the Company on April 27, 2000 as Special Assistant to the
Chairman and assumed the position of Director, President and Chief Operating
Officer on September 7, 2000. On September 14, 2001 Mr. Dennis resigned from the
Company. Compensation stated above for 2000 includes base salary earned during
the portion of the fiscal year since April 27, 2000 and a pro-rata share of an
earned first year guaranteed bonus. Salary compensation for 2001 includes $7,200
paid to Mr. Dennis for an auto allowance reimbursement and $20,833 related to
salary earned for the fiscal year 2001 not yet paid to Mr. Dennis. Bonus
compensation for 2001 includes the pro-rata balance of the earned first year
guaranteed bonus and a $5,000 cash bonus paid in 2001. On May 1, 2001 Mr. Dennis
issued an irrevocable and unconditional waiver to the $150,000 bonus that was
due to be paid as of April 30, 2001, according to the terms of the employment
agreement with Mr. Dennis. In a separate transaction, on June 5, 2001 the
Company purchased, by issuance of 57,625 common shares of the Company, a
Promissory Note, due by Mr. Dennis to the former employer of Mr. Dennis,
including the receipt of a $150,000 promissory note. The promissory note
included $13,657 of accrued interest at 5.75% per annum. On July 11, 2001 the
Company executed an unconditional and irrevocable agreement to forgive the
$150,000 promissory note held by the Company, with accrued interest, due from
Mr. Dennis, with forgiveness effective June 11, 2002. Unexercisable options for
80,725 shares were cancelled on September 14, 2001 and exercisable options for
19,275 shares were cancelled on December 13, 2001, 90 days after the employee
resignation date.
(6) Salary reported for Mr. Saker is comprised of $48,750 for 1999 and $51,250
for 2000 and 2001 base salary. The remaining salary is comprised of commissions
earned through securities brokerage and money management.
(7) Mr. Gerard joined the Company on January 28, 2000 as Senior Vice President
and Managing Director of Global Business Development. Compensation stated above
for 2000 includes base salary earned during the portion of the fiscal year
beginning January 28, 2000 and a pro-rata share of an earned first year
guaranteed bonus. Bonus compensation for 2001 includes the pro-rata balance of
the earned first year guaranteed bonus. The total bonus was paid in 2001 with
$15,000 cash and $35,000 paid by issuance of 15,000 shares of the Company's
common stock.
(8) Mr. Boren joined IAAC in May 1994 and was appointed Senior Vice President
and Managing Director, Private Client Group of the Company on October 6, 2000.
Mr. Boren resigned the position of Senior Vice President and Managing Director,
Private Client Group of the Company on April 1, 2001. Mr. Boren continued to
serve as Senior Vice President and Director of Retail Sales of IAAL until the
sale of this business activity on December 13, 2001. Salary reported for Mr.
Boren is comprised of $80,000 base salary and $129,621 commissions earned
through securities brokerage and money management. All of the 30,000 options
awarded in 2001 were unexercisable on December 13, 2001 and cancelled because
Mr. Boren ceased employment with the Company due to the sale of IAAL on this
date.
54
Stock Options and Stock Appreciation Rights (SAR)
The International Assets Holding Corporation Stock Option Plan (the "Plan") was
adopted by the Board of Directors of the Corporation in January, 1993 and
approved by the stockholders in November, 1993. On February 15, 1996 the
shareholders approved an amendment to the Plan to increase the number of shares
available for issuance under the Plan from 250,000 to 500,000 shares effective
December 28, 1995. On February 16, 1999 the shareholders approved an amendment
to the Plan to increase the number of shares available for issuance under the
Plan from 500,000 to 700,000 shares.
In accordance with the terms of the Company's stock option plan the Company's
Board of Directors has authorized a 10% share and price adjustment for
outstanding stock options issued prior to March 5, 1999. This adjustment is
related to the Company's 10% stock dividend declared on February 12, 1999 and
paid on March 26, 1999. Previously issued option shares have been
proportionately increased by 10% and the corresponding option exercise price per
share has also been reduced by 10%. In conjunction with the stock dividend for
record date March 5, 1999 the total options authorized under this plan were
proportionally increased from 700,000 options to 770,000 options as a result of
this stock dividend.
In addition, the Company's Board of Directors has authorized a 9% share and
price adjustment for outstanding stock options issued prior to March 10, 2000.
This adjustment is related to the Company's 10% stock dividend declared on
February 25, 2000 and paid on March 24, 2000. Previously issued option shares
have been proportionately increased by 9% and the corresponding option exercise
price per share has also been reduced by 9%. In conjunction with the stock
dividend for record date March 10, 2000 the total options authorized under this
plan were proportionally increased from 770,000 options to 839,300 options as a
result of this stock dividend. On February 15, 2001 the shareholders approved an
amendment to the Plan to increase the number of shares available for issuance
under the Plan from 839,300 to 1,339,300 shares
The Plan permits the granting of awards to employees of the Company and its
subsidiaries in the form of stock options of the Company's common stock. Stock
options granted under the Plan may be "incentive stock options" meeting the
requirements of Section 422 of the Internal Revenue Code of 1986, as amended
(the "Code"), or non-qualified options which do not meet the requirements of
Section 422.
The Plan is administered by the Board of Directors or a committee thereof. The
Plan gives broad powers to the Board of Directors to administer and interpret
the Plan, including the authority to select the individuals to be granted
options and rights and to prescribe the particular form and conditions of each
option or right granted. All options are granted at an exercise price equal to
the fair market value or 110 percent of the fair market value of the Company's
common stock on the date of the grant. Awards may be granted pursuant to the
Plan through January, 2003. The Plan may be terminated earlier by the Board of
Directors at its sole discretion.
No Stock Appreciation Rights (SAR) have been granted by the Company.
55
Option/SAR Grants in Last Fiscal Year
The following table reports total options granted to named executive officers
during the 2001 fiscal year. Individual grants are as follows.
Number of
Securities % of Total
Underlying Options/SAR's Exercise
Options/SAR's Granted to or Base
Granted Employees in Price Expiration
Executive Officer (#/Shares) Fiscal Year ($/Share) Date
- ----------------- ---------- ----------- --------- ----------
Diego J. Veitia (1) 25,000 7.72% 3.4375 3/09/11
William C. Dennis (2) 25,000 7.72% 3.125 3/09/11
Stephen A. Saker (1) 15,000 4.63% 3.125 3/09/11
Gregory T. Gerard (3) 10,000 3.09% 4.25 1/29/11
Todd A. Boren (1) (4) 30,000 9.26% 3.125 3/09/11
- --------------------------------------------------------------------------------
(1) Option granted on 3/9/2001 and exercisable at 33.3% after year one,
33.3% after year two and 33.4% after year three.
(2) On 9/14/01 Mr. Dennis resigned from the Company. Option granted on
3/9/2001 were exercisable at 3,400 shares on 10/1/03 and 21,600 on 1/1/04.
Vesting at 25,000 shares on 3/9/03. The 25,000 options awarded in 2001 were
subsequently cancelled on the employee resignation date of 9/14/01 and none of
these options were exercisable as of the date of resignation.
(3) Option granted on 1/29/2001 and exercisable at 33.3% after year one,
33.3% after year two and 33.4% after year three.
(4) Mr. Boren's employment with the Company (via Mr. Boren's position with
the Company's previous ownership of IAAL) ceased on 12/13/01 due to the sale of
IAAL on this date. The 30,000 options awarded in 2001 were cancelled on the
employee termination date of 12/13/01 and none of these options were exercisable
as of the date of employment termination.
Aggregated Options/SAR Exercises in Last Fiscal Year and Fiscal Year-End
Option/SAR Values
The following table sets forth for each of the Named Executive Officers certain
information concerning options exercised during the fiscal year ended September
30, 2001 and the number of shares subject to both exercisable and unexercisable
stock options as of that date. The table also shows values for "in-the-money"
options. These values represent the positive spread between the respective
exercise prices of outstanding options and the fair market value of the
Company's common stock as of September 30, 2001.
Number of Securities
Shares Underlying Unexercised Value of Unexercised
Acquired Options/SARs at In-the-Money Options/SARs
On Value September 30, 2001 At September 30, 2001
Exercise Realized Exercisable/Unexercisable Exercisable/Unexercisable
Executive Officer (#) ($)(1) (#)(2) ($)(3)
- ----------------- -------- -------- ------------------------- -------------------------
Diego J. Veitia - $ - 62,348 / 72,960 $ - / $ -
William C. Dennis (4) - $ - 19,275 / - $ - / $ -
Stephen A. Saker - $ - 34,827 / 29,388 $ - / $ -
Gregory T. Gerard - $ - 7,259 / 24,541 $ - / $ -
Todd A. Boren (5) - $ - 1,799 / 46,840 $ - / $ -
- --------------------------------------------------------------------------------
56
(1) Based on the fair market value of the Company's common stock on the
exercise date (the closing price) minus the exercise price and multiplied by the
number of shares acquired.
(2) Includes both "in-the-money" and "out-of-the-money" options. "In the-money"
options are options with exercise prices below the market price of the Company's
common stock on September 30, 2001.
(3) Based on the closing price of the Company's common stock on September 30,
2001 ($1.00) minus the exercise price.
(4) On September 14, 2001 Mr. Dennis resigned from the Company. Unexercisable
options for 80,725 shares were cancelled on September 14, 2001 and exercisable
options for 19,275 shares were cancelled on December 13, 2001, 90 days after the
employee resignation date.
(5) Mr. Boren's employment with the Company (via Mr. Boren's position with the
Company's previous ownership of IAAL) ceased on 12/13/01 due to the sale of IAAL
on this date. Unexercisable options for 43,844 shares were cancelled on December
13, 2001 and exercisable options for 4,795 shares will remain available for 90
days after the December 13, 2001 termination date.
Long-Term Incentive Plans-Awards in Last Fiscal Year
None.
Compensation of Directors
Members of the Board of Directors who are not officers or employees of the
Company were paid an annual fee of $21,000 for the fiscal years ended September
30, 2001 and 2000, comprised of (i) $15,000 which is deposited in installments
into a Company brokerage account and paid to each director for the purchase of
common stock of the Company in the open market, and (ii) $6,000 payable in cash
in quarterly installments of $1,500 each. In addition to the annual fee, outside
directors also receive $500 for each board meeting attended. Such directors were
also reimbursed for expenses relating to their attendance at meetings during the
fiscal year. The fee portion for stock purchases for one director was redirected
for cash payment for the period June 2000 through June 2001.
At the August 10, 2001 Board of Directors meeting the Directors agreed to a 25%
decrease in the annual fee for the pro-rate period August 10, 2001 through
September 30, 2001. At a later Board of Director meeting in November 2001 the
Directors agreed to reduce their annual fees combined with the meeting fees from
$23,000 annually to $12,000 annually, beginning October 1, 2001.
Further, those directors who served as chairman of the audit, compensation and
personnel committees during the fiscal year ended September 30, 2001 and 2000
received $5,500 per year for these additional responsibilities.
57
Employment Contracts and Termination of Employment and Change-in-Control
Arrangements
The Company has entered into an employment agreement with Diego J. Veitia, its
chief executive officer, which has been amended and expires on March 24, 2003.
Under the terms of the agreement, the officer will receive specified annual
compensation, a bonus, a monthly automobile allowance and reimbursement for
personal income tax preparation fees. The bonus is calculated by applying the
consolidated return-on-equity percentage for that year to the consolidated pre-
tax earnings adjusted before the deduction for officer bonus expense and as
adjusted for certain financial transactions. The executive bonus percentage is
subject to a minimum of 5 percent and a maximum of 15 percent of adjusted
consolidated pre-tax earnings of the Company. In the event of termination of the
agreements by the Company other than for cause, as defined, or if the executive
resigns as a result of a breach by the Company, the agreement provides for
payments to such individual in an amount equal to 100 percent of his total
compensation for 24 months following the date of termination.
William C. Dennis joined the Company on April 27, 2000 as Special Assistant to
the Chairman and assumed the position of Director, President and Chief Operating
Officer on September 7, 2000. On September 14, 2001 Mr. Dennis resigned from the
Company. The Company entered into an employment agreement with William C.
Dennis, its president, which expires September 7, 2002. Under the terms of the
agreement, the officer will receive specified annual compensation, a bonus,
stock options, a monthly automobile allowance and reimbursement for certain
expenses. The bonus is calculated by applying the consolidated return-on-equity
percentage for that year to the consolidated pre-tax earnings adjusted before
the deduction for officer bonus expense and as adjusted for certain financial
transactions. The executive bonus percentage is subject to a minimum of 5
percent and a maximum of 15 percent of adjusted consolidated pre-tax earnings of
the Company. In the event of termination of the agreements by the Company other
than for cause, as defined, or if the executive resigns as a result of a breach
by the Company, the agreements provide for payments to such individual in an
amount equal to 100 percent of his total compensation for the remaining term of
the agreement. Pursuant to the voluntary resignation by Mr. Dennis in September
2001, the Company agreed to payment of 30 days salary from the date of
resignation.
On May 1, 2001 Mr. Dennis issued an irrevocable and unconditional waiver to the
$150,000 bonus that was due to be paid as of April 30, 2001, according to the
terms of the employment agreement with the then President of the Company. In a
separate transaction, on June 5, 2001, the Company purchased, by issuance of
57,625 common shares of the Company, a $150,000 promissory note, due by the then
President of the Company to his former employer. The promissory note included
$13,657 of accrued interest at 5.75% per annum. On July 11, 2001 the Company
executed an unconditional and irrevocable agreement to forgive the $150,000
promissory note held by the Company with accrued interest, due from the former
President of the Company, with forgiveness effective June 11, 2002. The
forgiveness of the note was reflected as compensation and benefits expense in
the third quarter of fiscal 2001.
58
Employee Investment/Retirement Plans
Effective May 1, 1999, the Company implemented a defined contribution 401(k)
Profit Sharing Plan ("401(k) Plan"). The 401(k) Plan amended and restated the
Company's employee stock ownership plan ("ESOP"), which was effective December
30, 1992. This plan retains the 401(k) profit sharing features of the December
30, 1992 plan, and effective May 1, 1999, deletes the employee stock ownership
plan provisions. Those participants who had account balances in the ESOP portion
of the plan, as of May 1, 1999 will retain certain ESOP rights, such as the
right to receive distributions in the form of employer common stock.
All Company employees who have completed one year of continuous service and who
have attained the age of twenty-one are eligible to participate in the 401(k)
Plan. The 401(k) Plan allows employees to elect to defer a portion of their
salary into the 401(k). The amount contributed reduces the employee's taxable
compensation. IAAC has the option to make a matching contribution at the sole
discretion of IAAC.
The Company has the option to make a matching contribution at the sole
discretion of the Company. Employer contributions under the 401(k) Plan
gradually vest over seven years and employee contributions are fully vested at
all times. Plan distributions are paid upon death, disability, retirement or
termination of employment, subject to the provisions of the 401(k) Plan and
administrative plan policy.
IAAC implemented a defined contribution Retirement Savings Plan ("RSP")
effective January 1, 1995. All employees who have completed one year of
continuous service and who have attained the age of twenty-one are eligible for
the RSP. The contributions to the RSP are at the sole discretion of IAAC.
On November 1, 2001, IAAC terminated the International Assets Advisory
Corporation 401K Profit Sharing Plan ("401K") and the International Assets
Advisory Corporation Retirement Plan ("RSP"). All participants under the 401K
and RSP will vest 100 percent in their respective account balances and the
employer sponsor and its related employees will make no further contributions to
the plans.
Also, on November 1, 2001, International Assets Holding Corporation became the
primary sponsoring employer of both plans. The plans became known as the
International Assets Holding Corporation 401K Profit Sharing Plan and the
International Assets Holding Corporation Retirement Savings Plan. International
Assets Holding Corporation is currently taking actions to terminate the plans.
Report on Repricing of Options/SARs.
None.
59
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth certain information concerning the beneficial
ownership of the Company's Common Stock as of January 3, 2002, by (i) each
person known by the Company to own more than 5% of the Common Stock, (ii) each
director of the Company, (iii) each of the most highly compensated executive
officers whose total cash compensation exceeded $100,000 during the Company's
last completed fiscal year and (iv) all executive officers and directors of the
Company as a group. All shares are directly owned by the individual unless
otherwise indicated.
Name and Address of Number of Percent of
Beneficial Owner Shares(1)(2) Class
- ---------------- ------------ -----
The Diego J. Veitia Family Trust (3) 538,006 22.66%
Diego J. Veitia (3)(4)(5) 694,674 27.96%
The IAAC 401(k) Profit Sharing Plan (3) 158,928 6.69%
Stephen A. Saker (3)(6) 124,498 5.16%
Jerome F. Miceli (3) 44,801 1.89%
Jeffrey L. Rush (3)(7) 49,752 2.09%
Robert A. Miller (3)(8) 31,556 1.32%
Gregory T. Gerard (3)(9) 33,849 1.41%
All directors and executive
officers as a group (10) 979,130 38.23%
(6 persons)
- --------------------------------------------------------------------------------
(1) Except as otherwise stated, all stockholders have sole voting and
investment power with respect to the shares of Common Stock set forth
opposite their respective names.
(2) Includes shares that can be acquired within 60 days from the date hereof
upon the exercise of warrants or options or conversion of convertible
securities. Shares subject to issuance upon the exercise of options or
warrants or other rights to acquire shares are deemed outstanding for
purposes of computing the percentage owned by each person but are not
deemed to be outstanding for the purpose of computing the outstanding
percentage of any other persons.
(3) 250 Park Avenue South, Suite 200, Winter Park, Florida 32789.
(4) Includes 538,006 shares held by The Diego J. Veitia Family Trust (the
"Trust"). Mr. Veitia is Chairman of the Board of the Company and the
settlor, sole trustee and primary beneficiary of the Trust and, as such,
may be deemed the beneficial owner of the shares held by the Trust under
rules and regulations promulgated by the SEC.
(5) Includes 110,308 shares subject to two fully exercisable options from the
Company. Also, includes 42,401 shares held in the International Assets
Holding Corp. 401(k) Profit Sharing Plan and 3,959 shares held in the
International Assets Holding Corp. Retirement Savings Plan.
(6) Includes 30,031 shares subject to two fully exercisable options from the
Company and 9,592 shares subject to one partially exercisable option from
the Company. Also, includes 43,903 shares held in the International Assets
Holding Corp. 401(k) Profit Sharing Plan and 3,972 shares held in the
International Assets Holding Corp Retirement Savings Plan.
(7) Includes 4,360 shares subject to one partially exercisable option from the
Company.
(8) Includes 14,388 shares subject to two partially exercisable options from
the Company.
(9) Includes 17,849 shares subject to two partially exercisable option from the
Company.
(10) Includes 140,339 shares subject to fully exercisable options and 46,189
shares subject to partially exercisable options in the favor of Messrs. D.
Veitia, Saker, Rush, Miller, Gerard from the Company.
60
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On May 1, 2001 the then President of the Company issued an irrevocable and
unconditional waiver to the $150,000 bonus that was due to be paid as of April
30, 2001, according to the terms of the employment agreement with the then
President of the Company.
On June 5, 2001, the Company purchased, by issuance of 57,625 common shares of
the Company, a $150,000 promissory note, due by the then President of the
Company to his former employer. The promissory note included $13,657 of accrued
interest at 5.75% per annum.
On July 11, 2001 the Company executed an unconditional and irrevocable agreement
to forgive the $150,000 promissory note held by the Company with accrued
interest, due from the former President of the Company, with forgiveness
effective June 11, 2002. The forgiveness of the note was reflected as
compensation and benefits expense in the third quarter of fiscal 2001.
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
Board of Directors of the Company has granted an extension of the due date of
the promissory note to December 31, 2001. The promissory note includes interest
of 6 percent per annum. The loan to officer was previously approved by the
Company's Board of Directors. As of September 30, 2001, the remaining principal
balance of the promissory note including accrued interest is $55,941.
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 Board of Directors of the Company has granted an extension of the due
date of the promissory note to August 31, 2002. The promissory note includes
interest of 6.27 percent per annum. As of September 30, 2001 the remaining
principal balance of the promissory note including accrued interest is $70,600.
The Company has engaged, on a task-by-task basis, a creative design firm that is
partially owned by a spouse of an officer of the Company. The Company incurred
promotional expense related to this creative design firm totaling approximately
$34,023 and $121,000 during the years ended September 30, 2001 and 2000,
respectively.
The Company believes that all prior transactions between the Company and its
officers, directors or other affiliates of the Company were on terms no less
favorable than could have been obtained from unaffiliated third parties on an
arm's-length basis. However, as the requisite conditions of competitive, free-
market dealings may not exist, the foregoing transactions cannot be presumed to
have been carried out on an arm's-length basis, nor upon terms no less favorable
than had unaffiliated parties been involved.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.
(a) The Company's consolidated financial statements are listed in the
index set forth in Item 7 on this Form 10-KSB. Financial statement
schedules are not required under the related instructions of the SEC
or are inapplicable, and therefore, have been omitted.
(b) The Company filed one report on Form 8-K during the last quarter of
the period covered by this report. On September 27, 2001 the Company
announced on Form 8-K that William C. Dennis had resigned the position
of President and Chief Operating Officer as of September 17, 2001.
61
(c) The following exhibits are incorporated by reference herein unless
otherwise indicated:
(3.1) The Company's Certificate of Incorporation and amendments are
incorporated by reference to Exhibits 3.1, 3.2, and 3.3 of the
Registrant's Registration Statement on Form SB-2 (No. 33-70334-A),
as amended, filed with the SEC on February 2, 1994.
(3.2) The Company's By-laws are incorporated by reference to Exhibit 3.4,
of the Registrant's Registration Statement on Form SB-2 (No.
33-70334-A), as amended, filed with the SEC on February 2, 1994.
(4.1) The Company's Form of Common Stock Certificate is incorporated by
reference to Exhibit 4.1, of the Registrant's Registration Statement
on Form SB-2 (No. 33-70334-A), as amended, filed with the SEC on
February 2, 1994.
(4.2) The Company's Revised Form of Warrant Certificate is incorporated by
reference to Exhibit 4.2, of the Registrant's Registration Statement
on Form SB-2 (No. 33-70334-A), as amended, filed with the SEC on
February 2, 1994.
(4.3) The Company's Warrant Agreement dated January 31, 1994, between the
Company and Chemical Bank is incorporated by reference to Exhibit
4.3, of the Registrant's Registration Statement on Form SB-2 (No.
33-70334- A), as amended, filed with the SEC on February 2, 1994.
(4.4) The Company's Revised Form of Subscription Agreement is incorporated
by reference to Exhibit 4.4, of the Registrant's Registration
Statement on Form SB-2 (No. 33-70334-A), as amended, filed with the
SEC on February 2, 1994.
(10.1) The Company's International Assets Holding Corporation Stock Option
Plan is incorporated by reference to Exhibit 10.2, of the
Registrant's Registration Statement on Form SB-2 (No. 33-70334-A),
as amended, filed with the SEC on February 2, 1994.
(10.1.a) The Company's International Assets Holding Corporation Stock Option
Plan, Amendment dated December 28, 1995, is incorporated by
reference to Exhibit 10.2 (a), of the Registrant's Registration
Statement on Form S-8 (No. 333-10727), filed with the SEC on August
23, 1996.
(10.1.b) The Company's International Assets Holding Corporation Stock Option
Plan, Amendment dated October 28, 1998, is incorporated by reference
to Item 3, of the Registrant's Proxy Statement on Form DEF 14A,
filed with the SEC on January 15, 1999.
(10.1.c) The Company's International Assets Holding Corporation Stock Option
Plan, Amendment dated June 9, 2000 is incorporated by reference to
Item 3, of the Registrant's Proxy Statement on Form DEF 14A, filed
with the SEC on January 12, 2001.
(10.2) The Company's International Assets Advisory Corporation Employee
Stock Ownership Plan and Trust ("ESOP") is incorporated by reference
to Exhibit 10.3, of the Registrant's Registration Statement on Form
SB-2 (No. 33-70334-A), as amended, filed with the SEC on February 2,
1994.
(10.2.a) The Company's International Assets Advisory Corporation Employee
Stock Ownership Plan and Trust ("ESOP"), First Amendment dated
November 4, 1993, is incorporated by reference to Exhibit 10.3(a),
of the Registrant's Registration Statement on Form S-8 (No.
333-10727), filed with the SEC on August 23, 1996.
62
(10.2.b) The Company's International Assets Advisory Corporation Employee
Stock Ownership Plan and Trust ("ESOP"), Amendment 1994-1, dated
July 19, 1994, is incorporated by reference to Exhibit 10.3(b), of
the Registrant's Registration Statement on Form S-8 (No. 333-10727),
filed with the SEC on August 23, 1996.
(10.2.c) The Company's International Assets Advisory Corporation Employee
Stock Ownership Plan and Trust ("ESOP"), Amendment 1994-1, dated
December 30, 1994, is incorporated by reference to Exhibit 10.3(c),
of the Registrant's Registration Statement on Form S-8 (No.
333-10727), filed with the SEC on August 23, 1996.
(10.2.d) The Company's International Assets Advisory Corporation Employee
Stock Ownership Plan and Trust ("ESOP"), Amendment 1995-1, dated
July 21, 1995, is incorporated by reference to Exhibit 10.3(d), of
the Registrant's Registration Statement on Form S-8 (No. 333-10727),
filed with the SEC on August 23, 1996.
(10.2.e) The Company's International Assets Advisory Corporation 401(k)
Profit Sharing Plan, entered into as of May 1, 1999 is incorporated
by reference to Exhibit 10.2(e) of the Registrant's Form 10-KSB
filed with the SEC for the fiscal year ended September 30, 1999.
(10.2.f)* The Company's International Assets Advisory Corporation 401(k)
Profit Sharing Plan, Amendment 2000-I is attached hereto as Exhibit
10.2.f.
(10.6) The Company's Clearing Agreement dated February 29, 1984, between
Prudential Securities, Inc. and IAAC, as amended, is incorporated by
reference to Exhibit 10.10, of the Registrant's Registration
Statement on Form SB-2 (No. 33-70334-A), as amended, filed with the
SEC on February 2, 1994.
(10.9) The Company's Lease dated November 5, 1993, by and between Barnett
Bank of Central Florida and IAAC is incorporated by reference to
Exhibit 10.15, of the Registrant's Registration Statement on Form
SB-2 (No. 33-70334-A), as amended, filed with the SEC on February 2,
1994.
(10.10) The Company's Joint Venture Agreement dated September 30, 1998, by
and between the Company and Lakeside Investments, LLC, a limited
liability company organized under the laws of Delaware, is
incorporated by reference to Exhibit 10.10 of Form 10-KSB, for the
fiscal year ended September 30, 1998, as filed with the SEC on
December 24, 1998.
(10.11) The Company's Limited Liability Company Agreement dated September
30, 1998, by and between the Company and Lakeside Investments, LLC,.
for International Assets New York, LLC, a limited liability company
organized under the laws of Delaware, is incorporated by reference
to Exhibit 10.11 of Form 10-KSB, for the fiscal year ended September
30, 1998, as filed with the SEC on December 24, 1998.
(10.12) The Company's Employment Agreement, entered into as of March 24,
1999, between the Company and Diego J. Veitia, is incorporated by
reference to Exhibit 10.12 of Form 10-QSB, for the quarterly period
ending June 30, 1999, as filed with the SEC on August 12, 1999.
(10.12.a) The Company's Employment Agreement, entered into as of March 24,
1999, letter amendment, between the Company and Diego J. Veitia,
dated June 29, 2001 is incorporated by reference to Exhibit 10.12.a
of Form 10-QSB, for the quarterly period ending June 30, 2001, as
filed with the SEC on August 6, 2001.
63
(10.14) The Company's Employment Agreement, entered into as of September 7,
2000, between the Company and William C. Dennis, is incorporated by
reference to Exhibit 10.14 of Form 10-KSB, for the fiscal year ended
September 30, 2000, as filed with the SEC on December 29, 2000.
(10.14.a) The Company's Employment Agreement, entered into as of September 7,
2000, letter amendment, between the Company and William C. Dennis,
dated May 1, 2001 is incorporated by reference to Exhibit 10.14.a of
Form 10-QSB, for the quarterly period ending June 30, 2001, as filed
with the SEC on August 6, 2001.
(10.15) The Company's Debt Forgiveness Agreement, entered into as of July
11, 2001, between the Company and William C. Dennis, is incorporated
by reference to Exhibit 10.15 of Form 10-QSB, for the quarterly
period ending June 30, 2001, as filed with the SEC on August 6,
2001.
(10.16) The Company's Purchase Agreement, dated August 24, 2001, by and
among the Company, International Assets Advisory, LLC, Global Assets
Advisors, LLC and Lakeside Assets, LLC, as amended by Amendment No.
1, dated October 1, 2001 is incorporated by reference to Item 7,
Exhibit 2 of Form 8-K, as filed with the SEC on December 27, 2001.
(10.17)* The Company's Lease dated October 31, 2001, by and between Emerson
International, Inc. and the Company is attached hereto as Exhibit
10.17.
(11)* The Statement of Computation of per share earnings is attached
hereto as Exhibit 11.
(21)* The Company's list of subsidiaries is attached hereto as Exhibit 21.
(99) The Articles of Incorporation, and amendments thereto, and the
By-laws of IAAC are incorporated by reference to Exhibits 99.1,99.2
and 99.3 of the Registrant's Registration Statement on Form SB-2
(No. 33-70334-A), as amended, filed with the SEC on February 2,
1994.
__________________
*Filed herewith
64
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities and
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the under signed, thereunto duly authorized.
INTERNATIONAL ASSETS HOLDING
CORPORATION
Dated: January 11, 2002 By: /s/ Diego J. Veitia
-------------------
Diego J. Veitia,
Chief Executive Officer
Pursuant to the requirements of the Securities and Exchange Act of 1934, this
report has been signed below by the following persons in the capacities and on
the dates indicated.
Signature Title Date
- --------- ----- ----
/s/ Diego J. Veitia Chief Executive Officer January 11, 2002
- -------------------
Diego J. Veitia and Chairman of the Board
/s/ Stephen A. Saker Vice President, Secretary, January 11, 2002
- --------------------
Stephen A. Saker and Director
/s/ Jerome F. Miceli Director January 11, 2002
- --------------------
Jerome F. Miceli
/s/ Robert A. Miller Director January 11, 2002
- --------------------
Robert A. Miller
/s/ Jeffrey L. Rush Director January 11, 2002
- -------------------
Jeffrey L. Rush
/s/ Jonathan C. Hinz Chief Financial Officer and January 11, 2002
- --------------------
Jonathan C. Hinz Treasurer
65
Exhibit Index
-------------
Exhibit
Number Description
- ------ -----------
Ex 10.2.f Amendment to Profit Sharing Plan
Ex 10.17 Agreement of Lease
Ex 11 Statement of Computation of Earnings Per Share
Ex 21 Subsidiaries of the Registrant
66
EXHIBIT 10.2.f
2001-I AMENDMENT TO INTERNATIONAL ASSETS ADVISORY CORPORATION 401(k) PROFIT
---------------------------------------------------------------------------
SHARING PLAN
------------
THIS AMENDMENT is made this 31st day of October, 2001, by International
Assets Advisory Corporation, a Florida corporation, hereinafter referred to as
the "Employer".
WHEREAS, the Employer has adopted the International Assets Advisory
Corporation 401(k) Profit Sharing Plan (the "Plan"); and
WHEREAS, effective November 1, 2001, pursuant to a corporate
reorganization, a portion of the Corporation's employees will become employed by
International Assets Holding Corporation ("Holding"), a Florida corporation;
and,
WHEREAS, the Corporation desires to amend certain provisions of said Plan
and Trust Agreement, including changing the primary employer sponsoring the Plan
to International Assets Holding Corporation.
NOW, THEREFORE, this Amendment to the International Assets Advisory
Corporation 401(k) Profit Sharing Plan.
1. The Employer Information Section of Page 1 of the Adoption Agreement is
hereby amended to read as follows:
Name of Employer executing the Signature Page of this Agreement:
International Assets Holding Corporation.
Employer Identification Number for the Employer:
59-2921318
2. The Plan Information Section of Page 1 of the Adoption Agreement is
hereby amended to read as follows:
Name of Plan:
International Assets Holding Corporation 401(k) Profit Sharing
Plan.
3. The effective date of this amendment is October 31, 2001.
4. Except as herein modified and amended, all of the provisions of the
International Assets Holding Corporation 401(k) Profit Sharing Plan, formerly
known as the International Assets Advisory Corporation 401(k) Profit Sharing
Plan, as amended, shall be and remain in full force and effect.
The Employer has caused this Amendment to be executed on the date first
above written.
INTERNATIONAL ASSETS ADVISORY CORPORATION
By: /s/ Diego J Veitia
1
EXHIBIT 10.17
THIS AGREEMENT OF LEASE (the "Lease") is dated as of this 31st day of October,
by EMERSON INTERNATIONAL, INC., a Florida Corporation hereinafter (Landlord")
and by INTERNATIONAL ASSETS HOLDING CORPORATION, hereinafter ("Tenant"), for the
premises which are more particularly described in Exhibit "A" which is attached
to this Lease ("Premises").
ARTICLE ONE - DEFINITIONS
1.1 Definitions. As used in this Lease, the following terms shall have the
following meanings:
A. Building: The Building on the real property situated at 220 E. Central
Parkway, Altamonte Springs, Florida 32701, including all parking areas.
B. Premises: That part of the Building outlined on Exhibit "A", on the 2nd
floor of the Building, including all tenant improvements made by Landlord
pursuant to paragraph 2.2. The Premises consist of 5,100 rentable square feet,
which includes a portion of the common areas as defined hereinafter.
C. Estimated Commencement Date: February 1, 2002
D. Termination Date: The last day of the month corresponding to the
schedule of months shown below, unless sooner terminated as provided in this
Lease.
E. Term: Six months of free rent and seven (7) years at the rents listed
below; also the period commencing on the Commencement Date and expiring at
midnight of the Termination Date.
F. Rent Term: Rent per 12 month period: as listed follows plus applicable
sales tax:
Months of Term Monthly Rent Total Rent
02/02/02 - 07/31/02 FREE RENT FREE RENT
08/01/02 - 07/31/03 $ 7,650.00 $ 91,800.00
08/01/03 - 07/31/04 $ 7,918.00 $ 95,016.00
08/01/04 - 07/31/05 $ 8,194.00 $ 98,328.00
08/01/05 - 07/31/06 $ 8,483.00 $ 101,796.00
08/01/06 - 07/31/07 $ 8,780.00 $ 105,360.00
08/01/07 - 07/31/08 $ 9,087.00 $ 109,044.00
08/01/08 - 07/31/09 $ 9,405.00 $ 112,860.00
G. Security Deposit: $ 7,650.00
Total amount due with Lease signing
Security Deposit - $ 7,650.00
First Month Rent - $ 7,650.00
Total - $15,300.00
H. Landlord's Mailing Address:
Emerson Investments International, Inc.
5728 Major Blvd., Suite 200
Orlando, Florida 32819
I. Normal Business Hours for purposes of Heating and Air Conditioning: The
hours are from 7:00 a.m. to 7:00 p.m. Monday through Friday, except recognized
Legal Holidays, and from 8 a.m to 3 p.m. Saturdays except recognized Legal
Holidays. Sundays, Legal Holidays and off hours the HVAC system is in effect
(operational) but at a modified temperature setting.
J. Watt Load: Ten (10) watts per sq. ft. of 120 volt outlet load.
1
K. Broker, if applicable: None
L. Permitted Use: General Office Purposes.
M. Tenant's Representatives: Tenant's employees, agents, contractors,
licensees and invitees.
N. Common Areas: Lobby area, corridors and lavatories on the floor on
which the Premises are situated, stairways, shipping and receiving areas,
mechanical areas, plaza and areas exterior to the Building.
0. Property: The Land and the Building, including all Common Areas.
P. Building Rules and Regulations: Rules with respect to Tenant's
use and possession of the Premises attached as Exhibit "B" and incorporated
herein..
Q. Estoppel Forms: Forms which Tenant, upon request from Landlord, shall
complete, with respect to the subject matter of such estoppel forms. Landlord to
provide Non-Disturbance Agreement.
R. Parking Spaces: Tenant shall be provided at no extra charge 25
parking spaces of which 13 shall be in Landlord's parking garage or adjacent
thereto, all of which shall be on or in the building.
Satellite Dish Location: A location on the roof of the Building where Landlord
allows Tenant to locate its Satellite Dish, providing there is no conflict with
current Tenants.
Design and Engineering Support: Landlord provided design, layout and
specification development services, at no extra charge to the Tenant.
U. Improvements to the Premises: Those agreed upon improvements to
the Premises to be constructed by the Landlord or its designated contractor,
pursuant to the plans and specifications agreed to by the Tenant, at no charge
to the Tenant, which improvements are projected to cost not to exceed $127,500.
ARTICLE TWO - TERM
2.1 Length of Term. The term of the Lease ("Term") commences February 2,
2002 (the "Commencement Date"), and ends on, June 30, 2009 (the "Termination
Date"), unless postponed or sooner terminated in accordance with this Lease, to
wit: Seven and one half years (7 1/2) years.
2.2 Improvements to Premises. Upon execution of this Lease, Landlord shall
proceed with reasonable diligence to construct improvements upon the Premises
(the "Improvements" to the Premises) in compliance with Floor Plan Exhibit "A".
Landlord shall have no liability to Tenant arising from any delay in
constructing Improvements upon the Premises if such delay is caused by matters
beyond the reasonable control of the Landlord or by changes requested by Tenant.
The taking of possession of the Premises by Tenant shall be deemed to be an
acceptance of the Improvements by Tenant.
2.3 Alternative Commencement Dates. In the event the Premises are not ready
for occupancy by the Tenant on the Commencement Date, because of strike,
material shortage, destruction (partial or total), natural disaster, prior
Tenant's failure to deliver possession or any other reason other than through
the fault of Tenant, the Term shall begin on the date the Premises are ready for
occupancy by the Tenant and the Term shall be extended for a period of time
equal to that which shall have elapsed between the Commencement Date and the
date on which the Premises are ready for occupancy by the Tenant. Tenant
acknowledges and agrees that the delay of the commencement of the Term and the
extension of the Term, as provided for herein, shall be the full extent of
Landlord's liability for a delay hereunder.
2
In the event that Landlord's inability to deliver possession of the Premises is
caused, in whole or in part, by Tenant, its employees, agents, contractors,
invitees or guests, the Term shall commence on the date which is the later of
the Estimated Commencement Date or the date on which the Premises would have
been available for occupancy, the good faith determination of same by Landlord
will be deemed conclusive, absent manifest error. In the event the completion of
the Premises are delayed past the commencement date (February 1, 2002), Landlord
agrees to make a rent abatement of three (3) days free rent for every day, after
the commencement date, the Premises has not receive issuance of the Certificate
of Occupancy.
ARTICLE THREE - USE OF PREMISES
3.1 Permitted Use. Tenant shall use and occupy the Premises for general office
purposes for the conduct of Tenant's business and not for other purposes. The
Premises shall not be used for any illegal purpose, nor in any manner which is
disruptive to other tenants; nor in any manner to invalidate Landlord's
insurance or to increase Landlord's insurance premium rates. In the event the
Landlord's insurance premiums are increased due to Tenant's use of the Premises,
Tenant shall pay the amount of any such increase to Landlord within fifteen (15)
days of demand by Landlord. Tenant shall procure, at its own cost and expense,
all necessary licenses and permits for Tenant's use of the Premises. Landlord
has made no inquiries about and makes no representations, express or implied,
concerning whether Tenant s proposed use of the Premises is permitted under
applicable law, including applicable zoning law; should Tenant's proposed use be
prohibited, Tenant shall be obligated to comply with applicable law and this
Lease shall nevertheless remain in full force and effect.
The Tenant will not, without the written consent of the Landlord, use any
apparatus, machinery, equipment or device in or about the Premises which may
cause any excessive noise or set up any vibration or which in any way would
increase the amount of electricity or water normally supplied to the Premises
for use as general offices. Tenant shall not connect any apparatus machinery,
equipment or device with existing water lines without the consent of the
Landlord.
3.2 Compliance with Law. Tenant shall not use the Premises nor permit anything
to be done in or about the Premises which will in any way conflict with any law,
statute, ordinance or governmental rule or regulation now in force or which may
hereafter be enacted or promulgated. Tenant shall at its sole cost and expense,
promptly comply with all laws, statutes, ordinances and governmental rules,
regulations or requirements now in force or which may hereafter be in force
requiring Tenant's compliance and with the requirements of any board of
underwriters, environmental agency, or other similar body now or hereafter
constituted relating to or affecting the condition, use or occupancy of the
Premises.
3.3 Rules and Regulations. Tenant shall comply with the Building Rules and
Regulations annexed to this Lease which by reference are incorporated herein,
and all reasonable modifications and additions to the regulations from time to
time adopted by the Landlord so long as the enforcement thereof does not
materially reduce the benefits inuring to the Tenant under this Lease. The
Landlord shall not be responsible to the Tenant for the non-performance of any
of the regulations by any other Tenant or occupant of the Building.
Notwithstanding the foregoing, the Landlord will use its best efforts to
encourage compliance by other Tenants of the Rules and Regulations. The
existence of and incorporation into this Lease of the regulations shall not have
the effect of subrogating the Tenant to the rights of the Landlord to enforce
the regulations against other Tenants in the Building. Landlord shall not be
responsible to the Tenant for the non-performance of any of the regulations by
any other Tenant or occupant of the Building. The existence of and incorporation
into this Lease of the regulations shall not have the effect of subrogating the
Tenant to the rights of Landlord to enforce the regulations against other
Tenants in the Building. In the existence of the regulations shall not be
construed to impose upon the Landlord any duty or obligation to enforce the
regulations.
3
ARTICLE FOUR - RENT
4.1 Rent. Tenant shall pay to the Landlord at the place hereinafter designated
by the paragraph entitled "Notices", or at such other place as the Landlord may
from time to time designate the aggregate annual sum Rent in monthly
installments as specified in Paragraph 1.1 F. The payment of Rent shall be due
and payable in legal tender of the United States of America in advance without
notice, demand, deductions, right of reduction to set-off of any kind on the
first day of each month, that rent is due hereunder plus all sales and use taxes
(if any) thereon. The first such installment shall be paid on or before August
1, 2002 and a such appropriate sum on or before the first day of each and every
successive calendar month thereafter during the Term. In the event the Tenant
takes possession on a date other than the first of the month or this Lease
terminates on a date other than the last day of the month, the monthly
installment of Rent will be prorated. The first rental payment shall be adjusted
to provide Tenant with any credits due to it hereunder.
4.2 Sales and Property Taxes. Tenant agrees to pay, before delinquency, any all
taxes levied or assessed and which become payable during the term upon Tenant's
equipment, furniture, fixtures and other personal property located in the
Premises, directly to the appropriate governmental taxing authority.
4.3 Holding Over. Tenant shall pay Landlord for each day Tenant retains
possession of the Premises or any part thereof after termination, by lapse of
time or otherwise, fifty (50%) per cent of the daily fixed rental for the last
period prior to the date of such termination. Tenant shall also pay all damages
sustained by the Landlord by reason of such retention, or, if the Landlord gives
notice to the Tenant of Landlord's election thereof, such holding over shall
constitute a renewal of this Lease on a month to month basis. However,
acceptance by the Landlord of Rent after such termination shall not constitute a
renewal and this provision does not waive the Landlord's right of reentry or any
other right guaranteed under this Lease.
4.4 Payment of Sums Other Than Rent. Any sums due the Landlord other than Rent
or Additional Rent shall be due and payable within thirty (30) days after the
Landlord renders a statement. Any sums not paid within said ten day period shall
bear interest thereafter at eighteen percent (18%) per annum until payment is
made.
4.5 Late Charges. Notwithstanding anything to the contrary contained herein, in
order to cover the extra expense involved in handling delinquent payments,
Tenant shall pay a "late charge of five percent (5 %) of the total amount
overdue when any installment of Rent is received at the Landlord's address
listed above more than ten (10) days after the due date thereof and (5%) of the
total amount overdue when any other amount due for any reason is received at the
Landlord's address listed above more than thirty (30) days after the due date
thereof. This charge is for extra expenses incurred by the Landlord and shall
not be considered interest or penalty.
ARTICLE FIVE - SECURITY DEPOSIT
5.1 Deposit and Use of Security Deposit. Tenant has deposited the sum of $
7,650 with the Landlord as a security deposit ("Security Deposit"), the receipt
of which is acknowledged. The Security Deposit shall be held by the Landlord
without liability for interest, as security for the faithful performance by the
Tenant of all of the terms and conditions of this Lease to be observed and
performed by Tenant. If any of the rents herein reserved or any other sum
payable by the Tenant to the Landlord shall be overdue and unpaid, or should
Landlord make any required payments on behalf of the Tenant, or should Tenant
fail to perform any of the material terms, covenants or conditions of this
Lease, then the Landlord may, at its option and without prejudice to any other
remedy which the Landlord may have, appropriate and apply all or part of the
Security Deposit toward the payment of the Rent, loss or damage sustained by the
Landlord due to the uncured material breach on the part of the Tenant or any
sums that were paid by Landlord for or on behalf of Tenant. Landlord's claim
against the Security Deposit includes any actual damage or deficiencies incurred
by the Landlord in the reletting of the Premises due to
4
Tenant's uncured material default, whether such damage or deficiencies accrue
before or after summary proceedings or other reentry by the Landlord. Subject to
Landlord's inspection and approval of the Tenant Premises, and assuming the
Tenant has complied with all terms and conditions of the Lease, the Landlord
will return the Tenant's security deposit within thirty (30) days of final
inspection of the Premises.
ARTICLE SIX - RELOCATION
6.1 Right to Relocate. Landlord, at its sole expense, on at least one hundred
twenty (120) days prior written notice, may require Tenant to move from the
Premises to other space of comparable size, which means at least 100% of the
original Premises, with decor comparable to the Premises and within the same
building, in order to permit the Landlord to consolidate the space leased to the
Tenant with other adjoining space leased or to be leased to another tenant in
the Building or to any prospective new tenant for the Building. In the event of
any such relocation, the Landlord will also pay the expense of moving Tenant's
furniture and equipment to the relocated Premises and the expense of
re-installing equipment. An appropriate adjustment shall be made in the Rent
based on any variance between the Rentable Area in the Leased Premises and the
Rentable Area in the Premises to which Tenant is relocated, except that Rent
shall not be adjusted upward if the relocated Premises is larger than the
original Leased Premises. Landlord shall have the right, in Landlord's
reasonable discretion, to use such decorations and materials from the existing
Premises, or other materials so that the space to which Tenant is relocated
shall be comparable in its interior design and decoration to the Premises from
which Tenant is removed. Notwithstanding the foregoing, Landlord shall not have
the right to request Tenant relocate for the first twelve (12) months of the
term.
6.2 Original Obligations Continue. Nothing contained herein shall be construed
to relieve Tenant or Landlord or to imply that Tenant or Landlord is relieved of
any obligation or liability under this Lease, inclusive of all Addenda hereto,
by reason of the provisions of Article VI of this Lease, the provisions of which
paragraph shall be applied to the space to which Tenant is relocated on the same
basis as said provisions were applied to the Premises from which Tenant is
removed.
6.3 Obligation to Execute Lease Addendum. In the event of a relocation, Tenant
shall execute an Addendum to this Lease which will substitute the description of
the new Premises for the description of the Premises contained in the Lease and
will appropriately adjust the square footage of Rentable Area contained in the
Premises as well as any other adjustments reasonably required as a result of the
relocation so long as the terms and provisions of such Addendum does not
materially or adversely affect Tenant's rights hereunder.
ARTICLE SEVEN
TENANT'S OBLIGATIONS WITH RESPECT TO THE
PREMISES AND THE BUILDING
7.1 Initial Condition. Taking of possession of the Premises by the Tenant shall
be conclusive evidence that the Landlord has performed its obligations with
respect to the office build out described in the Work Letter Agreement (Exhibit
"C" hereto) and that Tenant accepts the Premises in condition described in the
Work Letter Agreement and the Premises and the Building were in good and
satisfactory condition at the time possession was taken. Tenant understands and
agrees, except as stated in the Work Letter Agreement, that the Landlord has no
obligation and has made no promise to alter, remodel, improve, repair, decorate
or paint the Premises or any part thereof and that no representations respecting
the condition of the Premises, the Land or the Building has been made by the
Landlord except as specifically contained in this Lease, of which the Work
Letter Agreement is part.
7.2 Tenant Obligations. The Tenant shall, at the Tenant's expense, keep the
Premises and the fixtures and appurtenances therein in good condition and
repair, in a sanitary and safe condition and shall commit no waste of the
Premises or the Building. Tenant shall, at its cost, repair, replace or restore
any damage to the Premises caused by the Tenant. If Tenant fails to make repairs
and maintain the
5
Premises or any part thereto in a manner reasonably satisfactory to the
Landlord, the Landlord shall, after giving Tenant thirty (30) days written
notice, have the right to make such repairs or perform such maintenance on
behalf of the Tenant, and the Tenant shall pay to the Landlord as Additional
Rent the cost incurred by the Landlord in performing such repair and
maintenance.
7.3 Alterations. Tenant shall not make nor allow to be made any alterations,
additions or improvements to or of the Premises or any part thereof without the
express prior written consent of the Landlord. Any alterations, additions or
improvements (except movable furniture and trade fixtures) shall at once become
a part of the Premises and become the property of the Landlord. In the event the
Landlord consents to any alterations, additions, or improvements to the Premises
by the Tenant, the Tenant shall undertake such alterations, additions or
improvements at the Tenant's sole cost and expense and any contractor or person
selected by the Tenant must first be approved in writing by the Landlord. Upon
the expiration or earlier termination of the Term, the Tenant shall upon demand
by the Landlord, at the Tenant's sole cost and expense, immediately remove any
alterations, additions, or improvements made by the Tenant, designated by the
Landlord to be removed, and the Tenant shall, immediately and at its sole cost
and expense, repair any damage to the Premises caused by such removal and
restore the Premises to its original condition, reasonable wear and tear
excepted.
7.4 Surrender of Premises. The voluntary or other surrender of this Lease by
the Tenant, or a mutual cancellation thereof, shall not automatically work a
merger of the Landlord's and Tenant's estates. At the option of the Landlord
such a surrender shall terminate all or any existing subleases or subtenancies,
or may, at the option of the Landlord, operate as an assignment to it of any or
all such subleases or subtenancies. Upon the termination of the Term, by lapse
of time or otherwise, the Tenant shall surrender the Premises in the same
condition as they have been received, excepting only reasonable use and wear and
tear and damage by act of God or by the elements. If the Tenant is requested in
writing by the Landlord to remove any personal property from the Building upon
the termination of the Lease and shall have failed to remove same, the Landlord
may at its option remove Tenant's personal property in the manner the Landlord
may choose and store said personal property without liability to the Landlord
for the loss thereof. Tenant shall pay the Landlord on demand any and all
expenses incurred in such removal and storage, including court costs and
attorney's fees. The Landlord may, in its sole discretion, without notice, sell
the personal property or any part thereof at private sale and without legal
process for such price as the Landlord may obtain. Landlord shall apply the
proceeds of the sale first upon the expense incident to the removal and sale of
the personal property, apply the balance to any amounts due from the Tenant to
the Landlord pursuant to this Lease, and hold any additional balance, without
interest, for the benefit of the Tenant.
7.5 Mechanics' Liens. In accordance with the applicable provisions of the
Florida Mechanic's Lien Law and specifically Florida Statutes, Section 713. 10,
no interest of Landlord whether personally or in the Premises, the Land, or the
leasehold interest aforesaid shall be subject to liens for improvements made by
Tenant or caused to be made by Tenant hereunder, further, Tenant acknowledges
that Tenant. with respect to improvements or alterations made by Tenant or
caused to be made by Tenant hereunder, shall promptly notify the contractor
making such improvements to the Premises of this provision exculpating
Landlord's liability for such liens. Notwithstanding the foregoing, in the event
that, in contravention of the terms hereof, any such lien is claimed against the
Premises, the Building, or the Land, Tenant shall have Thirty (30) days after
receipt of written notice thereof to remove said lien and thereafter, in
addition to any other right or remedy of Landlord, Landlord may, but shall not
be obligated to discharge the same. Tenant's failure to remove any lien within
the ten (10 day period set forth herein shall constitute an event of default
hereunder, entitling Landlord to all rights and remedies available under this
Lease or at Law. Any amount paid by Landlord for any of the aforesaid purposes
shall be paid by Tenant to Landlord within thirty (30) days of receipt of
Landlord's demand therefore.
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7.6 Signs and Other Structures. The Tenant is entitled to have the insert
signage, equal in dignity, size and position as other Teannts in the Building,
at such locations as are designated by the Landlord in and about the Building to
provide commercial information as to its location in the Building ("Signage
Rights"). The Tenant shall not place or maintain or permit to be placed or
maintained, and shall promptly remove any that may be placed, any signs, awnings
structures, materials or advertising of any kind whatsoever on the exterior of
the Building, or on any exterior windows in said Building, or elsewhere within
the Premises, so as to be visible from the exterior of the Building, or on the
interior walls or partitions, including doorways of the Premises, visible from
the public hallways or other public areas of the Building without the express
prior written consent of the Landlord which consent may be withheld by Landlord
in its sole discretion. Tenant agrees that any signs erected by it without
Landlord's prior approval or not maintained in accordance with the Landlord's
policy will be removed by the Tenant at the Landlord's request or may be removed
by Landlord, upon Landlord giving Tenant thirty (30) days notice, at the
Tenant's expense.
7.7 No Common Area Maintenance Charge. The Tenant shall not be charged
any additional charge or fee for Common Area maintenance. This is a full service
Lease.
ARTICLE EIGHT
LANDLORD'S OBLIGATIONS WITH RESPECT TO THE PREMISES
8.1 Landlord's Obligations. Landlord agrees to furnish to the Premises, during
reasonable and normal business hours, and subject to the Rules and Regulations
now or hereafter adopted by the Landlord, the following services:
(a) Electricity (commensurate with the present electrical system and wiring
supplying approximately 110 volts) for lights and other usual and ordinary
office purposes (unless otherwise indicated and agreed upon in Exhibit "A"),
including such electrically operated office equipment as electric typewriters,
ordinary desk-type calculators, and adding machines, computers and word
processing equipment and other light fractional-horsepower miscellaneous
machinery. No machinery or equipment, whether electrically powered or otherwise,
other than the usual and ordinary light, fractional-horsepower office equipment
shall be placed in or upon the Premises without the written consent of the
Landlord, and then only upon such terms and conditions and in such manner and at
such locations, and subject to such restrictions as to use and times for the use
thereof, as the Landlord may reasonably prescribe.
(b) Cleaning services, normal and usual in a first class office building, on
Monday through Friday, except New Year's Day, Memorial Day, Independence Day,
Labor Day, Thanksgiving Day and Christmas Day (collectively "Holidays").
(c) Automatically operated elevator service, public stairs, electrical current
for lighting, incidentals and normal office use, replacement of Building
Standard lamps, and water at those points of supply provided for general use of
its tenants at all times and on all days throughout the year.
(d) Heating, ventilating and air conditioning on Monday through Friday from
7:00 a.m. to 7:00 p.m. and Saturdays from 8:00 a.m. to 3:00 p.m., except Legal
Holidays. Sundays, Legal Holidays and off hours the HVAC system is in effect
(operational) but at a modified temperature setting. Landlord shall also furnish
heating, ventilating and air conditioning at such other times as are now
provided for herein, provided Tenant gives written request to Landlord before
noon of the business day preceding such intended extra usage, and provided
Tenant pays to Landlord the sum of $20.00 per hour for the extra usage of
heating or air conditioning, which Landlord may bill monthly.
(e) Landlord shall not be liable for, and Tenant shall not be entitled to any
abatement or deduction of rental by reason of the Landlord's failure to furnish
any of the foregoing services. Landlord shall not be liable under any
circumstances for loss of or injury to property, however occurring, through or
in connection with or incidental to failure to furnish any of the foregoing. Nor
shall any such failure
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relieve the Tenant from the duty to pay the full amount of Rent and other sums
of money herein provided to be paid by the Tenant, nor shall it constitute a
constructive eviction of the Tenant.
8.2 Supplemental Services. Whenever heat generating machines or
equipment are used in the Premises which affect the temperature otherwise
maintained by the air conditioning system, the Landlord reserves the right to
install supplementary air conditioning units in the Premises and the cost
thereof, including the cost of installation, operation and maintenance shall be
paid by the Tenant to the Landlord upon demand by the Landlord. Landlord shall
perform or cause to be performed the development of plans, specifications,
construction, installation and finishing of the Improvements to the Premises
described in and referred to in the Work Letter Agreement (Exhibit "C" hereto)
in a first class and workman like manner per the agreed improvement allowance as
outlined in Section 1.1 (U). Landlord shall provide the Design and Engineering
Support described herein.
8.3 Duty to Report Defective Conditions. Tenant agrees to report immediately in
writing to the Landlord any defective condition in or about the Premises, the
Land or the Building known to Tenant whether Tenant is obligated to repair such
defective condition or not; and a failure to report the same shall make the
Tenant liable to the Landlord for any expense or damage resulting from such
failure to notify.
ARTICLE NINE - PARKING AND COMMON AREAS
9.1 Parking and Use of Common Areas.
(a) In addition to the Premises, Landlord shall provide to Tenant the Parking
Spaces. Tenant shall have the non-exclusive use of the automobile parking areas,
together with Common Areas (as designated by Landlord from time to time),
driveways and footways. Tenant's rights hereunder shall be subject to the terms
and conditions of this Lease and to the Rules and Regulations regarding the use
of the Parking Spaces.
(b) Landlord shall provide adequate security and lighting with respect to the
Parking Spaces. Landlord shall not be liable for any damage of any nature
whatsoever to or any theft of, vehicles or the contents thereof, while in or
about the parking areas, except in the event the Landlord fails to provide
adequate security or lighting with respect to the Parking Spaces.
ARTICLE TEN - INSURANCE AND INDEMNIFICATION
10.1 Indemnification and Hold Harmless. Landlord shall not be liable to Tenant
for any injury or damage to any person or property in or about the Premises,
building or Land from any cause whatsoever, including, and without limiting the
generality of the foregoing, water leakage caused by water leaks of any
character from the roofs, walls, pipes, basement or other portion of the
Premises, the Building or the Land, or caused by gas, fire, oil, electricity or
any cause whatsoever in, on or about the Premises or the Building or any part
thereof, except for injury or damage caused by gross negligence of Landlord.
Landlord will indemnify and hold Tenant harmless from and against any and all
liability, loss claims, demands, or damages or expenses (including reasonable
attorneys' fees and attorneys fees on appeal) due to or arising out of any
willful, intentional or negligent act or admission of or material breach of this
Lease by Landlord or anyone for whom Landlord is legally responsible, except to
the extent caused by willful or negligent act or omission or material breach of
this Lease by Tenant or anyone for whom Tenant is legally responsible.
The Tenant will indemnify, defend and save harmless the Landlord and its agents
from and against any and all liability, claims, demands, damages, expenses,
fees, fines, penalties, suits, proceedings, actions and costs of actions of any
kind and nature, including attorneys' fees, and attorneys' fees on appeal for
injury to persons (including death) or property of the Landlord:
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(a) occurring in, on or about the Land, the Building or the Premises, or any
part thereof (including without limiting the generality of the foregoing,
elevators, stairways, passageways or hallways, driveways, ramps and parking
areas), when any such injury or damage shall be caused by the acts or omissions
or negligence, fault or omission of the Tenant, its agents, servants, employees,
or licensees or invitees, or by any person under the control or direction of the
Tenant or shall have arisen in connection with or as a result of Tenant or its
agents, servants, employees, licensees or guests' use of the Premises or
presence in the Building or on the Land, unless caused by the gross negligence
or willful or intentional conduct of Landlord; or
(b) arising or growing out of or connected with any material breach, violation,
nonperformance, or failure to abide by any covenant, condition, agreement or
provision contained in this Lease on the part of the Tenant to be kept,
performed complied with or abided by.
10.2 Landlord's Insurance. Landlord shall insure the Building and shall maintain
liability and other insurance in such amounts as may be required by Landlord's
mortgagee, or in such amounts as Landlord, in its sole discretion, may deem
appropriate. All such insurance shall be for the sole benefit of Landlord and,
if required, Landlord's mortgagee. Tenant will not do or permit anything to be
done upon or bring or keep or permit anything to be brought or kept upon the
Premises, the Building or the Land which will increase Landlord's rate of
insurance on the Building. If by reason of the failure of Tenant to comply with
the terms of this Lease, or by reason of Tenant's occupancy (even though
permitted or contemplated by this Lease), the insurance rate shall at any time
be higher than it would otherwise be, Tenant will reimburse Landlord for that
part of all insurance premiums charged because of such violation or occupancy by
Tenant. Tenant agrees to substantially comply with any reasonable written
requests or recommendation made by Landlord's insurance underwriter inspectors.
10.3 Tenant's Insurance.
(a) Tenant shall, at Tenant's sole expense, obtain and keep in force during the
Term and any extension or renewal thereof: (I) fire and extended coverage
insurance with vandalism and malicious mischief endorsements and a sprinkler
leakage endorsement, on all of its personal property, including removable trade
fixtures, located in the Premises, and on all leasehold improvements and all
additions and improvements made by Tenant for not less than the full replacement
cost thereof; (II) comprehensive general liability insurance, including
contractual liability coverage, insuring Landlord (as an additional insured) and
Tenant against any liability arising out of the ownership, use, occupancy or
maintenance of the Premises and all areas appurtenant thereto, and (III)
workman's compensation and employer's liability insurance, if required by
applicable laws.
(b) Tenant's insurance shall be with insurance companies approved by Landlord,
which approval shall not be unreasonably withheld. No insurance shall be
approved by Landlord if the company is not: (I) a responsible insurance carrier
authorized to issue the relevant insurance, (II) authorized to do business in
Florida, and (III) at least A-rated in the most current edition of Best's
Insurance Reports and shall have minimum limits of Five Hundred Thousand and
No/100 Dollars ($500,000.00) for any loss of or damage to property from any one
accident, and One Million and No/100 Dollars ($1,000,000.00) for death of or
injury to any one person from any one accident. The limits of the insurance
shall not, however, limit the liability of the Tenant hereunder. The policies
cannot contain provisions which deny coverage because the loss is due to the
fault of Landlord or Tenant. If Tenant shall fail to procure and maintain the
insurance, Landlord may, but shall not be required to, procure and maintain
same, but at the expense of Tenant. Tenant shall deliver to Landlord, prior to
occupancy of the Premises, copies of policies of liability insurance required
herein, or certificates evidencing the existence and amount of such insurance,
with loss payable clauses reasonably satisfactory to Landlord. Notwithstanding
anything herein to the contrary, Landlord shall have the right to review the
Tenant's insurance once every year and may require Tenant to alter its insurance
coverage to cover the effects of inflation and to include or eliminate certain
provisions in the
9
Tenant's insurance policy which reflects the then-current industry standards for
the type of insurance coverage.
(c) Notwithstanding anything herein to the contrary, the parties hereto
release each other and their respective authorized representatives from any
claims for damage to any person or to the Premises, the Building and the Land
that are caused by or result from risks that are insured against when any
insurance policies carried by the parties and in force as of the time of any
such damage or injury, to the extent of any net recovery therefrom.
10.4 Subrogation. Insurance carried by Tenant against loss or damage by fire or
other casualty shall contain, if available without additional cost, a clause
whereby the insurer waives its right to subrogation against the Landlord.
ARTICLE ELEVEN - DAMAGE BY CASUALTY AND CONDEMNATION
11.1 Damage by Casualty. In the event the Premises or the Building are damaged
by fire or other casualty, and the Landlord has adequate insurance coverage, the
Landlord shall forthwith repair the damage, provided the repairs can be made
within one hundred eight (180) days from the date of casualty and provided the
Landlord receives insurance proceeds adequate to pay for the cost of the
repairs. During the period of repair, this Lease shall remain in full force and
effect except that the Tenant shall be entitled to a proportionate reduction in
its Rent and other monetary obligations while such repairs are being made. The
proportionate reduction such sums is to be based upon the extent to which the
damage or casualty materially affects the ability of the Tenant to use the
Premises for the Permitted Use. If the Landlord determines that the repairs
cannot be made within the one hundred eighty (180) day period, or if insurance
proceeds are not available to cover the cost of said repairs, the Landlord shall
have the option either (1) to repair or restore such damage, this Lease
continuing in full force and effect but the Rent to be proportionately reduced
as above stated, or (2) give notice to the Tenant at any time within one hundred
and twenty (120) days after the date of the casualty terminating this Lease. In
the event of the giving of such notice this Lease shall expire and all interest
of the Tenant in the Premises shall terminate on the date so specified in such
notice and Rent and other sums, as abated or reduced, shall be paid up to the
date of such termination. The Landlord agrees to refund to the Tenant any rent
theretofore paid applicable to any period of time subsequent to the date of
termination. Notwithstanding anything to the contrary, the Landlord shall not be
required to repair any injury or damage by fire or other casualty, or to make
repairs or replacements of any paneling, decorations, partitions, railings,
ceilings, floor coverings, office fixtures or any other property installed in
the Premises by the Tenant. In the event that Landlord elects to repair or
restore the damage to the Premises any such repairs or restoration are not
completed within two hundred ten (210) days from the date of casualty, Tenant
may, at its option cancel this Lease.
11.2 Condemnation. If all of a material portion of the Premises, the Building
or the Land (notwithstanding the fact that the Premises may not be affected by
such taking or appropriation) shall be taken or appropriated by any public or
quasi-public authority under the power of eminent domain, Landlord shall have
the right at its option, to terminate this Lease, and the Landlord shall be
entitled to any and all income, rent, awards, or any interest therein whatsoever
that may be paid or made in connection with such public or quasi-public use or
purpose and the Tenant shall have no claim against the Landlord or the
condemning authority for the value of any unexpired term of this Lease. Tenant
may, however, in a separate, subsequent proceeding make a claim for trade
fixtures installed in the Premises, at Tenant's expense, Tenant's moving costs
and Tenant's attorney's fees or business damages compensable under Florida Law.
If only a part of the Premises shall be so taken or appropriated, and Landlord
does not terminate this Lease in accordance with the foregoing, then this Lease
shall continue in full force and effect and the rental thereafter to be paid
shall be equitably reduced. The Tenant may terminate this Lease by reason of
taking or an appropriation under eminent domain authority only if such taking or
appropriation shall be of such extent and nature as to substantially
10
handicap, impede or impair the Tenant's use of the Premises for the purposes set
forth herein.
11.3 Existing Mortgages. This Lease is subject, subordinate, and inferior to
any mortgage on the Premises and any and all amendments, renewals, and
replacements thereof, and, in the event that any mortgagee, its successors or
assigns, or any purchaser of the Premises at a foreclosure sale of by deed in
lieu of foreclosure, acquires title to the Premises and elects not to terminate
this Lease it shall not be bound by any Rent paid by the Tenant for more than
one (1) month in advance, subject to any offset or deduction against any prior
Landlord, nor be liable for any default under the Lease by any prior Landlord,
or liable for the payment of any Tenant Improvement or other allowance or any
other concession or for the return of any Security Deposit not delivered to it.
ARTICLE TWELVE - ASSIGNMENT AND SUBLETTING
12.1 Assignment and Subletting. Tenant may not, without the prior written
consent of the Landlord, which consent may be unreasonably withheld by Landlord
in its sole discretion, assign, transfer, mortgage, pledge, hypothecate or
encumber this Lease, or any interest therein, nor sublet the Premises or any
part thereof, or permit the use of the Premises by any party other than the
Tenant and its employees. Consent by Landlord to one assignment or sublease
shall not destroy or waive this provision, and all other assignments and
subleases shall like wise be made only upon the prior written consent of the
Landlord. In the event of a proposed sublease or assignment, Landlord may, in
lieu of consenting or denying such assignment or sublease, cancel this Lease as
to the space proposed to be assigned or sublet. If such cancellation is only for
part of the Premises, then equitable adjustments shall be made to the Rent and
other sums payable by Tenant pursuant to this Lease. If Landlord consents to an
assignment or sublet (I) such obligations or liabilities under this Lease and
(II) any extensions, renewals, first refusal rights or options hereunder will
automatically be of no force or effect for the assignee or sublessee or Tenant.
If Tenant is any entity, any change to the structure of such entity or any
disposition(s) of any of the interests therein by sale, assignment, operation of
law or otherwise, or any change in the power to vote the interests therein, will
be treated as a prohibited assignment of this Lease requiring Tenant to obtain
Landlord's prior written consent. In the event any assignment or subleasing is
consented to by Landlord, Tenant shall pay to Landlord any rent or other
consideration received by Tenant in excess of the amount of Rent and other sums
which the Tenant is paying or is obligated to pay during the term of the
assignment or sublease. Sublessee or assignees shall become and shall expressly
agree in writing to become liable to the Landlord for all obligations of the
Tenant, without relieving the Tenant's liability, which liability shall remain
unabated during the term of this Lease Agreement and any renewals thereof. Any
attempt by Tenant to sublease or assign its interest hereunder without
Landlord's consent shall be null and void and of no effect. Furthermore such
attempted assignment or sublease shall constitute a default hereunder.
ARTICLE THIRTEEN - SALE OR MORTGAGE BY LANDLORD
13.1 Mortgagee's Rights and Estoppel Letters. Tenant agrees that this Lease is
and shall be inferior and subordinate to any mortgage deed and security
agreement now or in the future encumbering the Building or Land and to all
advances already made, or which may be hereafter made, on account of the
mortgage deed and security agreement to the full extent of all debts and charges
secured thereby and to any renewals, enlargements or extensions of any part
thereof and to any mortgage which the Landlord, any owner of or other Landlord
of the Building or Land may hereafter, at any time, elect to place on the
Building or Land. Tenant shall upon request execute any document which the
Landlord may deem necessary to accomplish that end, and, in the event Tenant
fails to do so within five (5) days of Landlord's written request, the Landlord
is granted a power of attorney by Tenant and is empowered to execute such
document or documents in the name of the Tenant, and as the act and deed of the
Tenant, and this authority is hereby declared to be coupled with an interest in
real estate and not revocable.
11
The Tenant at any time and from time to time at the request of the Landlord
(including at the time of Commencement Date), or of any mortgagee or purchaser
or any prospective mortgagee or purchaser of the Premises or of the Building or
the Land, will execute, acknowledge and deliver to the Landlord, or such
mortgagee or purchaser or prospective mortgagee or purchaser requesting the
same, a certificate executed by the Tenant certifying:
(a) That this Lease is unmodified and in full force and effect (or, if there
had been modifications, that the same is still in full force and effect as
modified and stating the modifications);
(b) Whether or not there are then existing any offsets or defenses against the
enforcement of any of the terms hereof (and, if so specifying same);
(c) That there exist no condition or event which constitutes an event of
default hereunder or which, after notice or lapse of time, or both, would
constitute an event of default or if any such condition or event exists,
specifying the nature and period of existence thereof and what action the Tenant
has taken, is taking and purposes to take with respect thereof; and
(d) The dates, if any, to which the Rent and other sums or other charges and
deposits have been paid in advance.
(e) The amount of rentable square footage comprising the Premises and the
Commencement Date (i.e. the date when Tenant's obligation to pay rent commences)
of this Lease.
(f) It is agreed by the Tenant that any such certificate may be relied upon by
the Landlord, any purchaser or prospective purchaser and any mortgagee or
prospective mortgagee of the Premises or of the Building or the Land, or any
part thereof.
In the event of foreclosure, or the transfer of title by a deed in lieu of
foreclosure. Tenant agrees, upon request to attorn to the purchaser or
transferee pursuant to any such transfer in lieu of foreclosures or at
foreclosure sale and at the option of such purchaser or transferee, the Tenant
shall thereafter remain bound, pursuant to the terms of this Lease as if a new
and identical Lease between such purchaser or transferee, as Landlord, and
Tenant, as Tenant, has been entered into for the remainder of the Lease Term and
Tenant shall be entitled to and will receive from Landlord a non disturbance
agreement from such purchaser or transferee.
13.2 Sale by Landlord. In the event of a sale or conveyance of the Building
and/or the Land by the Landlord, so long as Landlord has given the Tenant notice
of the same, the same shall operate to release the Landlord from any future
liability upon any of the covenants or conditions, expressed or implied, herein
contained in favor of the Tenant. In such event, the Tenant agrees to look
solely to the successor in interest of the Landlord in and of this Lease in
pursuit of any remedies or obligations due Tenant hereunder. This Lease shall
not be affected by any such sales, and the Tenant agrees to attorn to the
purchaser or assignee and Tenant shall be entitled to and will receive from
Landlord a non disturbance agreement from such purchaser or transferee.
ARTICLE FOURTEEN - DEFAULTS AND REMEDIES
14.1 Defaults. The following shall be events of default hereunder:
(a) In the event that Rent, additional rent or any other monetary amounts owed
by Tenant hereunder, are not paid within ten (10) days of the date when due;
(b) In the event, the Premises are abandoned, deserted or vacated; or
(c) In the event, the Tenant fails to substantially comply with a material
term, provision or covenant of this Lease, or the Tenant violates any rules and
regulations now or hereafter established for the operation of the Building and
such
12
failure is not cured within thirty (30) days after receipt of notice from
Landlord advising Tenant of such default; or
(d) To the extent permitted by applicable law, any petition is filed by or
against the Tenant under any section of chapter of the Federal Bankruptcy Act as
amended; (and with respect to an involuntary petition, Tenant shall not have
discharged or caused same to be discharged within ninety (90) days from the date
of filing or such petition); or
(e) In the event, the Tenant becomes insolvent or makes a transfer in fraud of
creditor; or
(f) In the event, the Tenant makes an assignment for the benefit of creditors;
or
(g) In the event, a receiver is appointed for a substantial part of all of the
assets of the Tenant and said receiver is not discharged within ninety (90) days
after the date of appointment thereof; then upon the happening of any of the
foregoing events of default, the Landlord shall have the option to proceed
according to one or more of the following courses of action:
Terminate this Lease, in which event the Tenant shall immediately surrender the
Premises to the Landlord, but if the Tenant shall fail to do so, the Landlord
may, without further notice and without prejudice to any other remedy the
Landlord may have for possession or arrearage in rental, enter upon the
Premises, refuse to repair and maintain any mechanical or electrical system or
disconnect any such services to the Premises and expel or remove the Tenant and
its personal property without being liable to prosecution or any claim for
damages therefore and without said entry affecting the Landlord s right to
thereafter claim and collect all monies owed and to be owed under this Lease.
The Tenant shall indemnify the Landlord for all loss and damage that Landlord
may suffer by reason of such termination, whether through inability to relet the
Premises, or through decrease in rental, or otherwise;
(II) Declare the entire amount of Rent and other sums owed (based on the most
recent figures that would become due and payable during the remainder of the
Term to be due and payable immediately, in which event the Tenant shall pay the
same at once, together with all rent theretofore due. The Landlord and the
Tenant agree that such payment shall not constitute a penalty or forfeiture but
is payment of liquidated damages. The acceptance of such payment by the Landlord
shall not constitute a waiver of any failure of the Tenant to comply with any
term, provision, or covenant of this Lease or any violation of the rules and
regulations;
(III) Enter the Premises as the agent of the Tenant without being liable to
prosecution or any claim for damages therefore, and relet the Premises as the
agent of the Tenant, and receive the rental therefore, and Tenant shall pay to
the Landlord, on demand, at the office of the Landlord any deficiency that may
arise in the event of such reletting;
(IV) As agent of the Tenant, do whatever the Tenant is obligated to do by
provisions of this Lease and enter the Premises, without being liable to
prosecution or any claims for damage therefore, in order to accomplish this
purpose. The Tenant shall reimburse the Landlord immediately upon demand for any
expense that the Landlord may incur in effecting compliance with this Lease on
behalf of the Tenant, and the Tenant further agrees that the Landlord shall not
be liable for any injury to person or damage to property resulting from such
action.
(V) Pursuit by the Landlord and any of the foregoing causes of action shall
not constitute an election of remedies nor shall it preclude the pursuit of any
other course of action herein provided or any other remedies provided by law. No
termination of this lease by lapse of time or otherwise shall affect the
Landlord's right to collect Rent for a period prior to the termination hereof.
No action or thing done by the Landlord or its employee and agents during the
Term shall be deemed an acceptance or surrender of the Premises, nor a
constructive
13
eviction, and no agreement to accept a surrender of the Premises shall be valid,
unless the same shall be in writing and signed by the Landlord.
14.2 Abandonment. In the event of abandonment of the Premises, any personal
property belonging to the Tenant and left on the Premises shall be deemed to be
abandoned, at the option of the Landlord, and the rights conferred upon the
Landlord by this agreement with regard to the disposition of said personal
property shall remain in full force and effect.
14.3 Right of Landlord to Perform. All covenants and obligations to be
performed by the Tenant under any of the terms of this Lease shall be performed
by the Tenant at the Tenant's sole cost and expense and without any abatement of
Rent or other sums due. If the Tenant shall fail to pay any sum of money, other
than Rent required to be paid by it hereunder or shall fail to perform any other
act on its parts to be performed, and such failure shall continue for thirty
(30) days after notice hereof by the Landlord (provided, however, in the event
of an emergency no such notice shall be necessary), the Landlord may, but shall
not be obligated to do so, and without waiving or releasing the Tenant from any
obligation of the Tenant, perform of the Tenant's behalf any such acts to be
made or performed. Any cost so incurred by Landlord, together with interest
thereon, at the highest rate allowable by law, shall be payable to the Landlord
on demand, and the Landlord shall have the same rights and remedies in the event
of the nonpayment of Rent.
14.4 Attorney's Fees and Costs. The Landlord and Tenant further agree to pay
all reasonable costs and expenses, including a reasonable attorney's fee, which
may be sustained or incurred by the other party in the enforcement or
declaration of any rights and remedies of the Landlord or obligations of the
Tenant, whether arising under this Lease or granted, permitted or imposed by law
or otherwise, including attorney's fees incurred in connection with appellate
proceedings.
14.5 Dishonored Checks. If Tenant makes payment to Landlord with a check which
is refused by the drawee because of lack of funds, or credit, Landlord shall
have the right to collect a service charge of One Hundred Dollars ($100.00) or
five percent (5%) of the face amount of the check, whichever is greater. If it
is necessary for Landlord to bring a legal action for recovery, the Tenant shall
be additionally liable for court costs and attorney's fees.
ARTICLE FIFTEEN - MISCELLANEOUS PROVISIONS
15.1 Right of Entry. Tenant agrees that the Landlord shall have the right at
any time and from time to time to enter the Premises (subject to giving Tenant
reasonable notice of the same except in the event of an emergency in which case
no such notice shall be necessary) to inspect the same, to make repairs, to
supply janitor service and any other service required to be made by Landlord;
Landlord may submit the Premises to prospective purchasers or tenants, have
entry to post appropriate or lawful notices, so long as Tenant's rights are not
materially or adversely affected, and to alter, improve or repair the Premises
and any portion of the Building without abatement of Rent or other sums.
Landlord may for that purpose erect scaffolding any other necessary structures
where reasonably required by the character of the work to be performed, always
providing the entrance to the Premises shall not be blocked hereby, and further
providing that the business of the Tenant shall not be interfered with
unreasonably. Tenant waives any claims for damages for any injury or
inconvenience to or interference with the Tenant's business and loss of
occupancy or quiet enjoyment of the Premises. For each of the aforesaid
purposes, Landlord shall at all times retain a key with which to unlock all of
the doors in the Premises. Landlord shall have the right to use any and all
means which Landlord may deem proper to open said doors in an emergency and any
entry to the Premises obtained by the Landlord by any of said means, or
otherwise, shall not under any circumstances be deemed to be a forcible or
unlawful entry into, or a detainer of, the Premises, or an eviction of the
Tenant from the Premises or any portion thereof.
15.2 Real Estate Broker. Not Applicable
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15.3 Nonwaiver. The waiver by the Landlord of any term, covenant or condition
herein shall not be deemed to be a waiver of such term, covenant or condition or
any subsequent breach of the same or any other term, covenant or condition
contained in this Lease. The acceptance of Rent or other sums by the Landlord
shall not be deemed to be a waiver of any breach by the Tenant of any term,
covenant or condition of this Lease.
15.4 Notices. All notices and demands and requests that may be or are required
to be given by either party to the other shall be in writing. Any written notice
to either the Landlord or the Tenant shall be deemed delivered (whether or not
received) when mailed by certified or registered mail, postage prepaid, and
deposited in the United States Mail. Any written notice not so mailed shall be
deemed to have been received upon its actual receipt, with the sender of the
notice bearing the burden of proving receipt. Notices to the Tenant may be
addressed to the Premises, or to such other place as the Tenant may from time to
time designate in a notice to the Landlord. All notices and demands by the
Tenant to the Landlord shall be sent as above required to, Emerson Investments
International, Inc., 5728 Major Blvd., Suite 200, Orlando, Florida 32819, or to
such other person or place as the Landlord may from time to time designate in a
notice to the Tenant.
15.5 Captions. Captions of each paragraph are added as a matter of convenience
only and shall be considered to be of no effect in the construction of any
provision or provisions of this Lease.
15.6 Definitions. The words "Landlord" and "Tenant" as used herein shall
include the plural as well as the singular. Words used in the masculine gender
include the feminine and neuter. If there be more than one Tenant, the
obligations hereunder imposed upon the Tenant shall be joint and several. The
term "business day" or "business days' as used in this Agreement, and except as
modified by the rules and regulations from time to time adopted by the Landlord,
shall exclude Saturdays, Sundays and all Holidays.
15.7 Time. Time is of the essence of this Lease and each and all of its
provisions.
15.8 Lease Examination. The submission of this instrument for examination of
signature by the Tenant does not constitute a reservation of, offer or an option
to lease, and it is not effective as a lease or otherwise until execution and
delivery by both Landlord and Tenant.
15.9 Severability. If any clause of provision of this Lease is illegal, invalid
or unenforceable under present or future laws (the deletion of which would not
adversely affect the receipt of any material benefit or substantially increase
the burden of any part hereto) effective during this Term, then and in that
event, it is the intention of the parties that the remainder of this Lease, and
the Term covered thereby, shall not be affected. All rights, powers, and
privileges conferred by this Lease upon the parties shall be cumulative but not
restricted to those given by law.
15.10 Entire Agreement and Modification. This Lease contains the entire
agreement of the parties, and no representations, inducements, promises or
agreements, oral or otherwise, between the parties not embodied in this
instrument shall be of any force or effect. No amendment, modification or
variation of this Lease or any of its terms or provisions shall be effective,
binding or valid unless and until it is reduced to writing and executed by the
parties. No failure of the Landlord to exercise any power given the Landlord by
this instrument, or to insist upon strict compliance by the Tenant of any
obligations hereunder, and no custom or practice of the parties at variance with
the terms hereof shall constitute a waiver of the Landlord's right to demand
exact compliance with the terms of this Lease.
15.11 No Estate in Land. This Lease shall create the relationship of Landlord
and Tenant. No estate shall pass out of the Landlord and the Tenant has only a
right to use that is not subject to levy and sale.
15.12 Special Provisions. Insofar as the attached special stipulations, if any,
conflict with any of the foregoing provisions, the special provisions shall
control.
15
15.13 Rules of Construction. This Lease shall be construed under the laws of the
State of Florida.
15.14 Plans. Any floor plan, drawing or sketch that is attached to or made a
part of this Lease, is used solely for the purpose of reasonably approximately
identification and location of the Premises, and any markings, measurements,
dimensions or notes of any kind contained therein (other than the outline of the
Premises for approximate identification and location of the Premises) are not to
be considered a part of this Lease.
15.15 Successors and Assigns. The covenants and conditions herein contained
shall, subject to the provisions as to assignment, apply to and bide the heirs
successors, executors, administrators and assigns of the parties hereto.
15.16 Landlord's Liability. Notwithstanding any provisions herein to the
contrary, Tenant specifically agrees to look solely to Landlord's interest in
the Building (including casualty or condemnation proceeds) for the recovery of
any judgment from Landlord, it being agreed that neither Landlord nor its
principals shall ever be personally liable for any such judgment.
15.17 Hazardous Materials and Pollutants. Tenant shall have no right and
specifically agrees to not permit or allow any hazardous, dangerous chemicals or
materials into the Building, Land, or Premises. Tenant discloses to Landlord
that it intends to use the hereinafter described toxic chemicals (or other
substances that constitute hazardous substances) in its business operations to
be conducted on the Premises and that the manner of their usage in Tenant's
operations, the hazardous by-products derived therefrom, and the manner of
disposal of such by-products is as hereafter described as none used by Tenant.
Tenant shall indemnify, defend and hold Landlord harmless from any and all
liability, claims costs, fines, fees, actions, or sanction asserted by or on
behalf of any person or governmental authority arising from or in connection
with Tenant's use or misuse, handling or mishandling, storage, spillage,
discharge, seepage into water bodies or the groundwater supply, or release into
the atmosphere of any hazardous materials, toxic substances, pollutants, or
contaminants, whether solid, liquid or gas. Tenant shall take all reasonable
precautions and safety measures, in accordance with current technology, to
prevent the release of hazardous materials, toxic substances, pollutants, and
contaminants under Tenant's control. In the event Tenant learns of the discharge
upon the Premises of any hazardous materials, pollutant or contaminant under
Tenant's control, Tenant shall immediately undertake to contain, remove, and
abate the discharge. Failure of Tenant to comply with the provisions of this
Paragraph 15.17 shall constitute an event of default. This indemnification
obligation shall survive the expiration or termination of this Lease, and shall
be binding personally on all officers, directors or other individuals of any
entity that Tenant may be executing this Lease.
15.18 Radon Gas. Radon is a naturally occurring radioactive gas that, when it
has accumulated in a building in sufficient quantities, may present a health
risk to persons who are exposed to it over time. Levels of radon that exceed
Federal and State guidelines have been found in buildings in Florida. Additional
information regarding radon and radon testing may be obtained from your county
public health unit.
15.19 Waiver by Tenant. To the extent permitted by law, Tenant hereby waives:
(a) jury trial in any action or proceeding regarding a default by Tenant and/or
Landlord's right to possession of the Premises, and (b) in any action or
proceeding by Landlord for monies owed by Tenant and/or possession of the
Premises, then Tenant waives the right to interpose any cross claim or
counterclaim (except a mandatory cross claim or counterclaim if the same is
provided for pursuant to Florida law). However, the foregoing will not prohibit
Tenant from bringing a separate lawsuit against Landlord.
16
15.20 Landlord's Reservation of Rights with Respect to the Building. Landlord,
in addition to all other rights which it may have under this Lease, hereby
expressly reserves all rights in connection with the Land, the Building or the
Premises not expressly and specifically granted to Tenant under this Lease and
Tenant hereby waives all claims for damages, loss, expenses, liability, eviction
or abatement it has or may have against Landlord on account of Landlord's
exercise of its reserved rights, including, but not limited to, Landlord's right
to alter the existing name, address, style or configuration of the Building or
the common areas, signage, suite identifications, parking facilities, lobbies,
entrances and exits, elevators and stairwells. Landlord reserves the right to
use, install, monitor, and repair pipes, ducts and conduits within the walls,
columns, and ceilings of the Premises.
15.21 Confidentiality. Landlord and Tenant acknowledge that the terms and
provisions of this Lease have been negotiated based upon a variety of factors,
occurring at a coincident point in time, including, but not limited to: (I) the
individual principals involved and the financial strength of Tenant, (II) the
nature of Tenant's business and use the Premises, (III) the current leasing
market place and the economic conditions affecting rental rates, (IV) the
present and projected tenant mix of the Building, and (V) the projected
juxtaposition of tenants on the floor(s) upon which the Premises are located and
the totality, uniqueness, complexity and interrelation of these efforts, Tenant
therefor agrees, except where Tenant is required by law for the operation of
Tenant's business, to make regulatory filings or other disclosures, not to
disseminate in any manner whatsoever, (whether by word of mouth, mechanical
reproduction, physical tender or by any manner of visual or aural transmission
or review) the terms and conditions of this Lease to third parties who could in
any way be considered presently or in the future as prospective tenants for this
or any other leasehold property with which Landlord may be involved.
15.22 Authority. If more than one person or entity is named herein as Tenant,
their liability hereunder will be joint and several. In case Tenant is a
corporation, Tenant (a) represents and warrants that this Lease has been duly
authorized, executed and delivered by and on behalf of Tenant and constitutes
the valid and binding agreement of Tenant in accordance with the terms hereof,
and (b) Tenant shall deliver to Landlord or its agent, concurrently with the
delivery of this Lease, executed by Tenant, certified resolutions of the board
of directors (and shareholders, if required) authorizing Tenant's execution and
delivery of this Lease and the performance of Tenant's obligations hereunder. In
case Tenant is a partnership, Tenant represents and warrants that all of the
persons who are general or managing partners in said partnership have executed
this Lease on behalf of Tenant, or that this Lease has been executed and
delivered pursuant to and in conformity with a valid and effective authorization
therefor by all of the general or managing partners of such partnership, and is
and constitutes the valid and binding agreement of the partnership and each and
every partner therein in accordance with its terms. It is agreed that each and
every present and future partner in Tenant shall be and remain at all times
jointly and severally liable hereunder and that neither the death, resignation
or withdrawal of any partner, nor the subsequent modification or waiver of any
of the terms and provisions of this Lease, shall release the liability of such
partner under the terms of this Lease unless and until Landlord shall have
consented in writing to such release.
15.23 Force Majeure. If, by reason of (I) strike, (II) labor troubles, (III)
governmental preemption in connection with a national emergency, (IV) any rule,
order or regulation of any governmental agency, (V) conditions of supply or
demand which are affected by war or other national, state or municipal
emergency, or any other cause or (VI) any cause beyond Landlord's reasonable
control, Landlord is unable to perform or is delayed in performing any of its
obligations under this Lease (including Improvements, if applicable) or is
unable to supply or is delayed in supplying any service which Landlord is
obligated to supply, then Landlord shall have no liability in connection with
that inability and this Lease and Tenant's obligation to perform all of Tenant
obligations under this Lease shall in no way be affected, impaired or excused.
17
15.24 Payment Allocation. If Tenant is in arrears in payment of any amount of
Rent to be paid hereunder, Tenant waives Tenant's rights, if any, to designate
the items against which any payments made by Tenant are to be credited, and
Landlord may apply any payments made by Tenant to any items it sees fit,
irrespective of and notwithstanding any designation or request by Tenant as to
the items against which any such payments shall be credited.
15.25 Recordation. Tenant agrees not to record this Lease or any memorandum
hereof but Landlord may record this Lease or a memorandum thereof, at is sole
discretion.
IN WITNESS WHEREOF, Landlord and Tenant have executed this Lease on the date
here below written.
WITNESS: LANDLORD
EMERSON INTERNATIONAL, INC.,
A Florida Corporation
/S/
- -------------------------------
As to Landlord By: /s/ Joseph Pasqualetti
Joseph Pasqualetti
President
Date: January 10, 2001
WITNESSES:
TENANT
International Assets Holding
Corporation
/S/
- -------------------------------
As to Tenant
By: /s/ Stephen A. Saker
----------------
Stephen Saker
Vice President
Date: November 2, 2001
18
EXHIBIT 11
STATEMENT OF COMPUTATION OF EARNINGS PER SHARE
For the Twelve Months Ended September 30, 2001 and 2000
2001 (1) 2000
-------- ----
Basic (Loss) Earnings Per Share
Numerator:
Net (loss) income $ (3,304,928) $ 279,143
Denominator:
Weighted average number of common shares outstanding 2,242,845 2,123,064
Basic (loss) earnings per share $ (1.47) $ 0.13
Diluted (Loss) Earnings Per Share
Numerator:
Net (loss) income $ (3,304,928) $ 279,143
Denominator:
Weighted average number of common shares outstanding 2,242,845 2,123,064
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) - 247,910
Weighted average number of common shares and dilutive
potential common shares outstanding 2,242,845 2,370,974
Diluted (loss) earnings per share $ (1.47) $ 0.12
- --------------------------------------------------------------------------------
(1) Diluted loss per share is the same as basic loss per share due to the net
loss in 2001.
(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.
1
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
Name Place of Incorporation
- ---- ----------------------
INTLTRADER.COM, INC. Florida
International Asset Management Corp. Florida
International Financial Products, Inc. Florida
Offshoretrader.com Ltd. Bermuda
1
