U.S. Securities and Exchange Commission
Washington D.C. 20549
Form 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 2001
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
EXCHANGE ACT
Commission File Number 33-70334-A
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INTERNATIONAL ASSETS HOLDING CORPORATION
----------------------------------------
(Exact name of small business issuer as specified in its charter)
Delaware 59-2921318
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(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
220 East Central Parkway, Suite 2060
Altamonte Springs, FL 32701
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(Address of principal executive offices)
(407) 741-5300
--------------
(Issuer's telephone number)
Former Address: 250 Park Avenue South, Suite 200, Winter Park, FL 32789
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(Former name, former address and former fiscal year, if changed since
last report)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes [X] No [ ].
The number of shares outstanding of Common Stock was 2,374,376 as of February
11, 2002.
Transitional small business disclosure format Yes [ ] No [X]
INDEX
Page No.
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Part I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets as of December 31,
2001 and September 30, 2001 3
Condensed Consolidated Statements of Operations for the
Three Months ended December 31, 2001 and 2000 5
Condensed Consolidated Statements of Cash Flows for the
Three Months ended December 31, 2001 and 2000 6
Notes to Condensed Consolidated Financial Statements 8
Item 2. Management's Discussion and Analysis or Plan of Operation 13
Part II. OTHER INFORMATION
Item 1. Legal Proceedings 19
Item 6. Exhibits and Reports on Form 8-K 20
Signatures 20
2
INTERNATIONAL ASSETS HOLDING CORPORATION AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(Unaudited)
December 31, September 30,
Assets 2001 2001
------ ---- ----
Cash $ 331,184 $ 136,688
Cash and cash equivalents, deposited with clearing organization 1,788,243 874,613
Receivable from clearing organization, net 128,314 934,764
Other receivables 12,934 23,429
Loans to officers 124,960 126,541
Securities owned, at market value 7,014,984 6,011,939
Deferred income tax asset, net 1,330,288 1,397,489
Property and equipment, at cost:
Equipment, furniture and leasehold improvements 607,581 1,307,461
Less accumulated depreciation and amortization (419,440) (944,502)
---------------- ------------------
Net property and equipment 188,141 362,959
Software development, net of accumulated amortization
of $565,809 in December 2001 and $491,995 in
September 2001 479,988 553,802
Prepaid expenses and other assets, net of accumulated
amortization of $2,000 in December 2001 and $177,000
in September 2001 122,483 311,474
---------------- ------------------
Total assets $11,521,519 $10,733,698
================ ==================
See accompanying notes to condensed consolidated financial statements.
3
INTERNATIONAL ASSETS HOLDING CORPORATION AND SUBSIDIARIES
Condensed Consolidated Balance Sheets, Continued
(Unaudited)
December 31, September 30,
Liabilities and Stockholders' Equity 2001 2001
------------------------------------ ---- ----
Liabilities:
Foreign currency sold, but not yet purchased $ 5,090 $ 208,092
Securities sold, but not yet purchased, at market value 6,619,356 5,313,641
Accounts payable 76,833 312,673
Accrued employee compensation and benefits 60,825 307,500
Accrued expenses 126,043 139,094
Payable to Joint Venture -- 2,032
Other liabilities 7,804 7,779
------------ ------------
Total liabilities 6,895,951 6,290,811
------------ ------------
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 2,374,376 shares in December
2001 and 2,294,376 shares in September 2001 23,744 22,944
Additional paid-in capital 8,024,362 7,945,161
Retained deficit (3,422,538) (3,525,218)
------------ ------------
Total stockholders' equity 4,625,568 4,442,887
------------ ------------
Total liabilities and stockholders' equity $ 11,521,519 $ 10,733,698
============ ============
See accompanying notes to condensed consolidated financial statements.
4
INTERNATIONAL ASSETS HOLDING CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
For the Three Months Ended December 31, 2001 and 2000
(Unaudited)
2001 2000
---- ----
Revenues:
Net dealer inventory and investment gains $ 1,019,755 402,217
Commissions (note 2) 401,212 909,282
Management and investment advisory fees (note 2) 6,292 40,712
Interest and dividends 28,936 79,719
Loss from joint venture - (9,872)
Other 1,816 (1,786)
----------- -----------
Total revenues 1,458,011 1,420,272
----------- -----------
Expenses:
Compensation and benefits $ 733,579 1,145,885
Clearing and related expenses 439,942 298,265
Promotion 36,787 268,566
Occupancy and equipment rental 138,935 129,463
Communications 41,805 71,618
Interest 519 370
Professional fees 46,834 69,144
Insurance 43,246 47,768
Depreciation and amortization 111,578 91,580
Technology 37,535 61,463
Other expenses 70,378 160,091
----------- -----------
Total expenses 1,701,138 2,344,213
----------- -----------
Loss before gain on sale of retail activity and income taxes (243,127) (923,941)
Gain on sale of retail activity (note 2) 413,009 0
----------- -----------
Income (loss) before income taxes 169,882 (923,941)
Income tax expense (benefit) 67,201 (327,506)
----------- -----------
Net income (loss) $ 102,681 (596,435)
=========== ===========
Earnings (loss) per share:
Basic 0.04 (0.27)
=========== ===========
Diluted $ 0.04 (0.27)
=========== ===========
Weighted average number of common shares outstanding:
Basic 2,310,898 2,215,035
=========== ===========
Diluted 2,311,500 2,215,035
=========== ===========
See accompanying notes to condensed consolidated financial statements.
5
INTERNATIONAL ASSETS HOLDING CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
For the Three Months Ended December 31, 2001 and 2000
(Unaudited)
2001 2000
---- ----
Cash flows from operating activities:
Net income (loss) $ 102,681 (596,435)
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Depreciation and amortization 111,578 91,580
Deferred income taxes 67,201 (397,016)
Gain on sale of retail activity (413,009) -
Disposal of property and equipment
included in gain on sale of retail activity 139,024
Loss from Joint Venture - 9,872
Tax benefit from disqualifying dispositions of
incentive stock options - 11,001
Cash provided by (used in) changes in:
Receivable from clearing organization, net 806,450 -
Other receivables 8,576 (1,749)
Securities owned, at market value (1,003,045) 520,276
Income taxes receivable - 58,509
Prepaid expenses and other assets 188,991 12,416
Foreign currency sold, but not yet purchased (203,002) 1,269
Securities sold, but not yet purchased, at market value 1,305,715 (728,517)
Payable to clearing organization, net - 699,983
Accounts payable (235,840) (43,434)
Accrued employee compensation and benefits (246,675) (763,566)
Accrued expenses (13,051) (6,736)
Payable to Joint Venture (2,032) 4,413
Other liabilities 26 (60,662)
----------- -----------
Net cash provided by (used in) operating activities 613,588 (1,188,796)
----------- -----------
Cash flows from investing activities:
Proceeds from sale of retail activity 827,240 -
Cost of total assets on sale of retail activity (414,231) -
Collections from loans to officers 3,500 50,000
Costs of additional property, equipment and software
development (1,971) (494,066)
----------- -----------
Net cash provided by (used in) investing activities 414,538 (444,066)
----------- -----------
(continued)
6
INTERNATIONAL ASSETS HOLDING CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows, Continued
For the Three Months Ended December 31, 2001 and 2000
(Unaudited)
2001 2000
---- ----
Cash flows from financing activities:
Sale of common stock with sale of retail activity 80,000 -
---------- ----------
Net cash provided by financing activities 80,000 -
---------- ----------
Net increase (decrease) in cash and cash equivalents 1,108,126 (1,632,862)
Cash and cash equivalents at beginning of period 1,011,301 5,271,859
---------- ----------
Cash and cash equivalents at end of period $2,119,427 3,638,997
========== ==========
Supplemental disclosure of cash flow information:
Cash paid for interest $ 519 370
========== ==========
Supplemental disclosure of noncash financing activities:
During the three months ended December 31, 2000 the
Company paid for software development services by
issuance of 12,283 common shares. - 70,020
========== ==========
7
INTERNATIONAL ASSETS HOLDING CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
December 31, 2001 and 2000
(Unaudited)
(1) Basis of Presentation
---------------------
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with the instructions and requirements
of Form 10-QSB and, therefore, do not include all information and
footnotes necessary for a fair presentation of financial position,
results of operations, and cash flows in conformity with accounting
principles generally accepted in the United States of America. In the
opinion of Management, such financial statements reflect all adjustments
(consisting of normal recurring items) necessary for a fair statement of
the results of operations, cash flows and financial position for the
interim periods presented. Operating results for the interim periods are
not necessarily indicative of the results that may be expected for the
full year. These condensed consolidated financial statements should be
read in conjunction with the Company's audited consolidated financial
statements for the year ended September 30, 2001, filed on Form 10-KSB
(SEC File Number 33-70334-A).
Current Subsidiaries:
As used in this Form 10-QSB, the term "Company" refers, unless the
context requires otherwise, to International Assets Holding Corporation
and its four wholly owned subsidiaries; INTLTRADER.COM, INC. ("ITCI"),
International Asset Management Corp. ("IAMC"), International Financial
Products, Inc. ("IFP") and OffshoreTrader.com Ltd. ("OTCL"). All
significant intercompany balances and transactions have been eliminated
in consolidation.
Former Subsidiaries and Joint Venture Sold in December 2001:
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 was 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 was the surviving entity of the merger. Upon
effectiveness of the merger, the name of the surviving entity became
International Assets Advisory, LLC. The Company sold all of its
membership interests in International Assets Advisory, LLC on December
13, 2001.
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 was
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 was
the surviving entity of the merger. The Company sold all of its
membership interests in Global Assets Advisors, LLC on December 13, 2001.
8
INTERNATIONAL ASSETS HOLDING CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements, continued
On December 13, 2001 the Company sold its 50% interest in International
Assets New York, LLC, a 50/50 Joint Venture with Lakeside Investments,
LLC of New York.
(2) Sale of Certain Operations
--------------------------
On December 13, 2001 the Company sold its two wholly-owned subsidiaries,
International Assets Advisory, LLC and Global Assets Advisors, LLC, and
its 50% membership interest in International Assets New York, LLC (IANY)
to Lakeside Assets, LLC. In connection with the disposition transaction,
Lakeside Assets, LLC also purchased 80,000 shares of the Company's common
stock. The Company received total proceeds of $907,240 for these sale
transactions. The Company allocated $827,240 of the proceeds to the sale
of the two wholly owned subsidiaries and the 50% interest in IANY. The
Company allocated $80,000 of the proceeds to the sale of common shares.
The Company had a book basis of $414,231 related to the sale of the two
wholly owned subsidiaries and IANY. The $413,009 gain on sale of retail
activity recorded for the three months ended December 31, 2001 was
determined by deducting the book basis of $414,231 from the sales
proceeds of $827,240.
Commission revenues from retail private client securities brokerage
activity amounted to $401,212 and $909,282 for the three months ended
December 31, 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 sale transaction, International
Assets Holding Corporation agreed to sell its money management activity,
which had revenues from management and investment advisory fees of $6,292
and $40,712 for the three months ended December 31, 2001 and 2000,
respectively. The money management activity was primarily related and
tied into the retail private client activity including the same sales
staffing, operations and research support. It was separated for purposes
of securities licensing and regulation.
(3) Reclassifications
-----------------
Certain prior period amounts have been reclassified to conform to current
quarter presentation. These changes had no impact on previously reported
results of operations or stockholders' equity.
9
INTERNATIONAL ASSETS HOLDING CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements, continued
(4) Basic and Diluted Earnings (Loss) Per Share
-------------------------------------------
Basic earnings (loss) per share for the three months ended December 31,
2001 and 2000 have been computed by dividing net income (loss) by the
weighted average number of common shares outstanding.
Diluted earnings per share for the three months ended December 31, 2001
has been computed by dividing net income by the weighted average number
of common shares and dilutive potential common shares outstanding. The
weighted average number of net common shares that would be issued upon
the exercise of dilutive options, assuming the proceeds are used to
repurchase shares pursuant to the treasury stock method, for the three
months ended December 31, 2001, is 602 shares. Options to purchase
532,434 shares of common stock were excluded from the calculation of
diluted earnings per share for the three months ended December 31, 2001,
because their exercise prices exceeded the average market price of common
shares for the period.
Diluted loss per share for the three months ended December 31, 2000 is
the same as the basic loss per share because of the anti-dilutive impact
of the potential common shares, due to the net loss for each of the
periods. No options to purchase shares of common stock were considered in
the calculation of diluted loss per share for the three months ended
December 31, 2000 because of the anti-dilutive impact of the potential
common shares, due to the net loss for the period.
For the Three Months Ended December 31, 2001 2000
---- ----
Diluted Earnings (Loss) Per Share
Numerator:
Net income (loss) $ 102,681 $ (596,435)
Denominator:
Weighted average number of common shares outstanding 2,310,898 2,215,035
Weighted average number of net common shares that would
be issued upon exercise of dilutive options assuming
the proceeds are used to repurchase shares pursuant to the
treasury stock method. 602 -
Weighted average number of common shares and dilutive
potential common shares outstanding 2,311,500 2,215,035
--------- ---------
Diluted earnings (loss) per share $ .04 $ (0.27)
10
INTERNATIONAL ASSETS HOLDING CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements, continued
(5) Securities Owned and Securities Sold, But Not Yet Purchased, at market
-----------------------------------------------------------------------
value
-----
Securities owned and Securities sold, but not yet purchased at December
31, 2001 and September 30, 2001 consist of trading and investment
securities at quoted market values as follows:
Sold, but not
Owned yet purchased
----- -------------
December 31, 2001:
Common stock and American Depository Receipts 886,598 678,244
Foreign ordinary stock paired with its
respective American Depositary Receipt 5,946,648 5,941,112
Corporate and municipal bonds 53,234 -
Foreign government obligations 2,480 -
Unit investment trusts, mutual funds and other
investments 126,024 -
----------- ---------
Total $ 7,014,984 6,619,356
=========== =========
September 30, 2001:
Common stock and American Depository Receipts 1,203,294 694,047
Foreign ordinary stock paired with its
respective American Depositary Receipt 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 -
----------- ---------
Total $ 6,011,939 5,313,641
=========== =========
(6) Receivable From and Payable to Clearing Organization
Amounts receivable from and payable to clearing organization at December
31, 2001 and September 30, 2001 consist of the following:
Receivable Payable
---------- -------
December 31, 2001:
Open transactions, net $ 147,086 -
Clearing fees and related charges payable - 18,772
--------- ---------
$ 147,086 18,772
========= =========
September 30, 2001:
Open transactions, net $ 926,703 -
Clearing fees and related charges payable - 23,722
Commission income receivable 31,783 -
--------- ---------
$ 958,486 23,722
========= =========
As these amounts are short-term in nature, the carrying amount is a
reasonable estimate of fair value.
11
INTERNATIONAL ASSETS HOLDING CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements, continued
(7) Leases
------
Until January 31, 2002 the Company occupied 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 had received two extensions from the landlord to remain in the
Winter Park location until December 31, 2001, on a month-to-month basis.
The Company occupied the Winter Park space during the month of January
2002 under the terms of the hold-over provision in the lease.
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 commencement date was 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 $20,737 and $96,082
for the three months ended December 31, 2001, and 2000, respectively. The
future minimum lease payments under noncancelable operating leases are as
follows:
Fiscal Year (12 month period) Ending September 30,
---------------------------------------------------
2002 83,200
2003 150,000
2004 128,900
2005 128,900
2006 129,200
Thereafter 318,300
--------
Total future minimum lease payments $938,500
========
(8) Stock Option Plan
-----------------
During the three months ended December 31, 2001, 140,000 options were
granted to employees and directors. In addition, 251,675 options were
forfeited due to the termination of former employees of the Company or
its subsidiaries. The total options forfeited included approximately
172,000 options related to former employees that were part of the sale of
the retail brokerage operation. As of December 31, 2001 the Company had
552,434 options outstanding. As further described in footnote 11, an
additional 22,000 options were issued on January 3, 2002.
12
INTERNATIONAL ASSETS HOLDING CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements, continued
Incentive Stock Options (Granted during the three months ended
-----------------------
December 31, 2001)
Options Exercise Expiration
Granted Grant Date Price Date Exercisable
------- ---------- ----- ---- -----------
50,000 10/05/01 $0.90 10/05/11 (a)
25,000 10/05/01 $0.99 10/05/11 (a)
20,000 12/22/01 $0.60 12/22/11 (a)
------
95,000
=======
Nonqualified Stock Options (Granted during the three months ended
--------------------------
December 31, 2001)
Options Exercise Expiration
Granted Grant Date Price Date Exercisable
------- ---------- ----- ---- -----------
45,000 10/05/01 $0.90 10/05/11 (a)
(a) Exercisable at 33.3% after year one, 33.3% after year two and 33.4%
after year three. These options are 100% exercisable upon a change in
control of the Company.
As the strike price on the date of grant for each option was equal to the
fair market value of a share of common stock on that date, the Company
did not recognize any compensation cost associated with such grants.
(9) Commitments and Contingent Liabilities
--------------------------------------
The Company is party to certain litigation as of December 31, 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.
(10) Subsequent Events
-----------------
On January 3, 2002 the Company issued the following stock options.
Incentive Stock Options
-----------------------
Options Exercise Expiration
Granted Grant Date Price Date Exercisable
------- ---------- ----- ---- -----------
22,000 01/03/02 $0.65 01/03/12 (a)
(a) Exercisable at 33.3% after year one, 33.3% after year two and
33.4% after year three.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
The following discussion and analysis should be read in conjunction with the
financial statements and notes thereto appearing elsewhere in this report.
Certain statements in this discussion may constitute "forward-looking
statements" within the meaning of the Private Securities Litigation Reform
Act of 1995. Such forward-looking statements involve known and unknown risks
including, but not limited to, changes in general economic and business
conditions, interest rate and securities
13
market fluctuations, competition from within and from outside the investment
brokerage industry, new products and services in the investment brokerage
industry, changing trends in customer profiles and changes in laws and
regulation applicable to the Company. Although the Company believes that its
expectations with respect to the forward-looking statements are based upon
reasonable assumptions within the bounds of its knowledge of its business
and operations, there can be no assurances that the actual results,
performance or achievement of the Company will not differ materially from
any future results, performance or achievements expressed or implied by such
forward-looking statements.
The Company's principal operating activities, market-making and trading in
international securities are highly competitive and extremely volatile. The
earnings of the Company are subject to wide fluctuations since many factors
over which the Company has little or no control, particularly the overall
volume of trading and the volatility and general level of market prices, may
significantly affect its operations.
Results of Operations:
On December 13, 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 13, 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.
The Company has reported a gain on the sale of retail activity of $413,009
for the three months ended December 31, 2001. The gain is based on sale
proceeds of $827,240 less the book cost basis of $414,231, for the
transaction costs and for the book value of the assets that were included in
the sale of this business activity.
As of December 31, 2001 the Company had 21 full time employees. All of these
employees devote 100% of their business time to the Company with the
exception of three employees that are presently engaged in a cost sharing
arrangement with the new owners of International Assets Advisory, LLC.
Three Months Ended December 31, 2001 as Compared to
the Three Months Ended December 31, 2000
The Company's revenues were derived primarily from trading revenue (net
dealer inventory and investment gains) as well as commissions earned on the
sale of securities. For the three months ended December 31, 2001, 70% of the
Company's revenues were derived from trading revenue and 28% of revenues
were derived from commissions. Total revenues increased 3% to $1,458,011 for
the three months ended December 31, 2001 from $1,420,272 for the same period
in 2000.
14
Trading revenue (net dealer inventory and investment gains) increased by
approximately 154% to $1,019,755 for the three months ended December 31,
2001 from $402,217 in 2000. This increase in trading revenue was due in
large measure to our trading department's ongoing efforts to provide
reliable market making for our trading clients with high quality customer
service and trade execution in the international securities trading market.
The Company has been successful in developing new clients as well as
retention of existing trading clients.
Trading revenues for the quarter ended December 31, 2000 were reduced from
prior levels due to the complete shutdown and loss of trading revenue for
the period December 19, 2000 until December 27, 2000. The increase in
trading revenues for the quarter ended December 31, 2001 comes after the
Company had to rehire and rebuild the entire trading department since 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 in December
2000. 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.
Commission revenues decreased by approximately 56% to $401,212 for the
quarter ended December 31, 2001 from $909,282 in 2000. Commission revenues
for the quarter ended December 31, 2001 include commissions earned for the
period October 1, 2001 through December 13, 2001. On December 13, 2001 the
Company sold its membership interests in International Assets Advisory, LLC.
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.
Revenues from management and investment advisory fees decreased by
approximately 85% to $6,292 for the three months ended December 31, 2001.
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 64% to $28,936 for the three
months ended December 31, 2001 from $79,719 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 the December 2001
quarter compared to 2000.
Loss from joint venture was $0 for the quarter ended December 31, 2001
compared to $9,872 for 2000. The loss from joint venture ended in March 2001
when the Company wrote off its investment in joint venture in accordance
with the equity method of accounting. The loss from the Company's joint
venture represented 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. On December 13, 2001 the Company's
interest in International Assets New York, LLC was sold.
15
The major expenses incurred by the Company relate to direct costs of its
securities operations such as compensation and benefits, clearing and
related expense, occupancy and equipment rental expense and technology
expense. Total expenses decreased by approximately 27% to $1,701,138 in the
three months ended December 31, 2001, from $2,344,213 for the same period in
2000. This decrease in total expenses is mainly related to reductions in
compensation and benefits, promotions, communications, professional fees,
technology and other operating expenses. The decrease in total expenses
reflects the anticipated restructuring related to the sale of the retail
brokerage activity and the related cost reductions the Company began to
implement in August 2001.
Compensation and benefits expense decreased by $412,306 or 36% to $733,579
for the three months ended December 31, 2001 from $1,145,885 in 2000 due to
lower commission expense caused by lower commission revenues and a decrease
in base salaries due to an overall reduction in the number of employees.
Included in the total $733,579 compensation and benefits expense for 2001 is
$165,854 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. Additional expense reductions are
also currently 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 increased 48% to $439,942 in the three months
ended December 31, 2001, up from $298,265 in 2000. Approximately half of
this increase is related to an increase in the clearing cost related to the
volume increase in the number of trades processed. The other half of the
increase is related to increased costs for American Depositary Receipt (ADR)
conversions due to the necessity of these conversions as a trading strategy
to facilitate liquidity within the Company's overall investment portfolio.
Also, included in the total $439,942 clearing and related expenses for 2001
is $34,693 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.
Total promotion expense decreased by approximately 86% to $36,787 for the
three months ended December 31, 2001 compared to $268,566 for 2000. This
decrease is primarily due to decreases in retail promotional activity,
public relations, and travel and entertainment due to cost saving
initiatives undertaken. 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 7% to $138,935 for the
three months ended December 31, 2001 from $129,463 in 2000. Increases in
rental expense were related to the Company's leased office space. As of
February 1, 2002 the Company relocated to a new, smaller and less costly
leased office space. Offsetting a portion of this savings will be the need
for two new equipment leases
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for phone systems and network connectivity. The net savings from this
relocation are currently anticipated to be over $150,000 on an annualized
basis.
Communications expense decreased by $29,813, or 42% to $41,805 for the three
months ended December 31, 2001 from $71,618 for the three months ended
December 31, 2000. This decrease is due to reduced telephone, postage and
printing expense related to the corresponding decreases in operating
revenue. Management currently anticipates 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.
Professional fees decreased by approximately 32% to $46,834 for the three
months ended December 31, 2001 as compared to $69,144 in 2000.
Depreciation and amortization expense increased approximately 22% to
$111,578 for the three months ended December 31, 2001 as compared to $91,580
in 2000. The increase in 2001 is due to higher amortization expense
associated with capitalized system development costs for INTLTRADER.COM.
Technology expense was down approximately 39% to $37,535 for the three
months ended December 31, 2001 from $61,463 in 2000 as new technology
enhancements to increase the quote system and trading platform's capacity
for future growth were primarily completed by December 2000 for
INTLTRADER.COM.
Other operating expenses decreased approximately 56% to $70,378 for the
three months ended December 31, 2001 as compared to $160,091 in 2000.
The Company has reported a loss before gain on sale of retail activity and
income taxes of $243,127 for the three months ended December 31, 2001
compared to a loss of $923,941 for 2000. The gain on the sale of retail
activity is $413,009 for the three months ended December 31, 2001. The gain
is based on sales proceeds of $827,240 less the book cost basis of $414,231,
for the transaction costs and the book value of the assets that were
included in the sale of this business activity.
The Company has reported net income of $102,681 for the three months ended
December 31, 2001 compared to a net loss of $596,435 for the three months
ended December 31, 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 December 31, 2001, approximately 80% 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.
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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.
INTLTRADER.COM, a wholly owned registered securities broker subsidiary, is
subject to the requirements of the SEC and the NASD relating to liquidity
and net capital levels. At December 31, 2001, INTLTRADER.COM had adjusted
net capital of $1,673,927, which was $1,336,927 in excess of its minimum net
capital requirement at that date.
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 December 31, 2001 and September 30, 2001, were $11,521,519
and $10,733,698, 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 subsidiary may
fluctuate throughout the year reflecting changes in inventory levels and/or
composition and balance sheet components.
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
trading capital, 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 three months ended December 31, 2001, cash and cash equivalents
increased by $1,108,126 since the end of the last fiscal year ending
September 30, 2001. Funds provided by operating activities were $613,588 for
the period ending December 31,
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2001. During the three months ended December 31, 2001, the Company had cash
provided by investing activities of $414,538. Financing activities included
$80,000 provided by the sale of common stock with the sale of the retail
brokerage activity.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is party to certain litigation as of December 31, 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 Company's 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,
two affiliated securities firms 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 two affiliated securities firms 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.
The foregoing discussion contains certain "forward-looking statements"
within the meaning of the Private Securities Litigation Reform Act of 1995.
Such forward-looking statements involve various risks and uncertainties with
respect to current legal proceedings. Although the Company believes that its
expectation with respect to the forward-looking statements is based upon
reasonable assumptions within the bounds of its knowledge of its business
and operations, there can be no assurances that the actual results,
performance or achievement of the Company will not differ materially from
any future results, performance or achievements expressed or implied by such
forward-looking statements.
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a). Exhibits
None
b). Form 8-K
The Company filed one report on Form 8-K during the three
months ended December 31, 2001. On December 27, 2001 the
Company announced on Form 8-K that the Company sold, on
December 13, 2001, its two wholly-owned subsidiaries,
International Assets Advisory, LLC and Global Assets
Advisors, LLC, and its 50% membership interest in
International Assets New York, LLC to Lakeside Assets, LLC.
In connection with the disposition transaction, Lakeside
Assets, LLC also purchased 80,000 shares of the Company's
common stock.
Signatures
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
INTERNATIONAL ASSETS HOLDING CORPORATION
Date 02/18/2002 /s/ Diego J. Veitia
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Diego J. Veitia
President and Chief Executive Officer
Date 02/18/2002 /s/ Jonathan C. Hinz
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Jonathan C. Hinz
Chief Financial Officer and Treasurer
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