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, 2002
[ ] 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 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
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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: $5,379,572
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 December
20, 2002: $3,038,629.
The number of shares outstanding of Voting Common Stock was 2,375,575 as of
December 20, 2002.
The number of shares outstanding of Non-Voting Preferred Stock was
2,187,500 as of December 20, 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]
INTERNATIONAL ASSETS HOLDING CORPORATION
2002 FORM 10-KSB
TABLE OF CONTENTS
PART I Page
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Item 1. Description of Business .......................................... 3
Item 2. Description of Property .......................................... 12
Item 3. Legal Proceedings ................................................ 12
Item 4. Submission of Matters to a Vote of Security Holders .............. 13
PART II
Item 5. Market for Common Equity and Related Stockholder Matters ......... 13
Item 6. Management's Discussion and Analysis or Plan of Operation ........ 15
Item 7. Financial Statements ............................................. 24
Item 8. Changes In and Disagreements With Accountants on Accounting
and Financial Disclosure ................................ 25
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act ....... 25
Item 10. Executive Compensation ........................................... 28
Item 11. Security Ownership of Certain Beneficial Owners and Management ... 28
Item 12. Certain Relationships and Related Transactions ................... 28
Item 13. Exhibits and Reports on Form 8-K ................................. 28
Item 14. Controls and Procedures .......................................... 33
Signatures ....................................................... 34
2
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 September 30, 2002, the Company has three
wholly owned subsidiaries, INTL Trading, Inc. ("INTL TRADING") (formerly
known as INTLTRADER.COM, INC., name change December 9, 2002), International
Asset Management Corp. ("IAMC"), and OffshoreTrader.com Ltd ("OTCL").
All of the Company's subsidiaries are Florida corporations 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, 2002,
INTL TRADING, IAMC and OTCL.
Current Operations and Recent Changes
International Assets Holding Corporation currently operates as a wholesale
international securities firm. As of September 30, 2002, the Company's
primary activity was to make wholesale markets in selected international
equities. This activity was carried out through the Company's wholly-owned
subsidiary INTL Trading, Inc. Through a transaction further described in
Item 7, Financial Statements, Pages F-24 and F-25, Subsequent Events, the
Company recently received additional capital and appointed new senior
executives. With these resources the Company intends to expand into trading
of international fixed income securities and other related activities. As a
part of an effort to focus exclusively on wholesale activities, the Company
ceased its previous retail operations and sold certain related subsidiaries
and assets.
3
In December 2001 the Company sold 100% of its interests in two former
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. The sale of IAAL and GAAL were part of the
Company's focus on wholesale market-making and trading activities. 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.
Current Subsidiaries
INTL Trading, Inc.
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On December 9, 2002 INTLTRADER.COM, INC filed a name change with the state
of Florida to change its name to INTL Trading, Inc. INTL TRADING is
currently registered as a securities broker-dealer under the Securities
Exchange Act of 1934 and the state securities statutes of 48 states and the
District of Columbia. INTL TRADING is a wholesale market maker of
international securities.
INTL TRADING 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. INTL TRADING 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. INTL TRADING
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).
INTL TRADING, was originally formed by the Company in May 1998 to provide
on-line brokerage transactions of foreign and domestic securities using the
Internet. INTL TRADING commenced its on-line brokerage activities in January
2000. On November 1, 2001 the Company transferred its market-making business
from International Assets Advisory Corp (IAAC) to INTL TRADING and INTL
TRADING 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 INTL TRADING. In December 2001 the Company ceased its
online retail brokerage activities as part of the renewed firm wide focus on
wholesale market-making.
4
International Asset Management Corp.
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International Asset 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.
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 commenced any operating activities or
revenues.
Subsidiaries and Joint Venture sold in December 2001
International Assets Advisory Corporation and International Assets Advisory,
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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.
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
5
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.
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 is one of the leading U.S. market makers in certain 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.
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 INTL TRADING. The Company's wholesale trading
operations will continue under the Company's INTL
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TRADING 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 global securities expertise to take advantage
of future opportunities for growth in the global securities market. The
Company intends to leverage its current expertise and customer base into
international fixed income trading. The fixed income business will focus on
high yielding, niche emerging fixed income markets. 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 strategic
relationships.
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, which is generated from the
execution of order flow directly from other securities broker-dealer's
trading desks.
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."
7
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, 2002 and 2001, approximately 8% and
65%, 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.
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.
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 .1% and 2% of the Company's total revenues
for the years ended September 30, 2002 and 2001, respectively.
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 INTL
TRADING. In December 2001 the Company sold its retail online clients but it
continues to provide foreign securities trading execution for several of the
largest online brokerage firms.
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
8
prices of services and products offered. The Company believes that, to date,
it has been able tocompete 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 and
transmitting information on all transactions to its clearing broker.
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."
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. INTL TRADING 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.
9
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. INTL
TRADING is registered as a securities broker-dealer in 48 states and the
District of Columbia. INTL TRADING intends to decrease its state
registrations to 9 states (CA, CT, FL, IL, MA, MI, NJ, NY, TX) effective
January 1, 2003.
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.
INTL TRADING is required by Federal law to belong to the 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
INTL TRADING 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
10
INTL TRADING 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. 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.
INTL TRADING is in compliance with the Rule, as well as the applicable
minimum net capital requirements of the NASD. INTL TRADING has 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, INTL TRADING is exempt
from customer reserve requirements and providing information relating to
possession or control of securities.
Net capital changes from day to day. As of September 30, 2002 and 2001, INTL
TRADING had excess net capital of $1,941,170 and $181,078, respectively, and
a ratio of aggregate indebtedness to net capital of .20 to 1 and .18 to 1,
respectively.
Employees
At September 30, 2002, the Company had 18 employees, all of which were full
time employees. Of such employees, 5 have managerial responsibilities, 7 are
traders and 6 have administrative and operational duties, including persons
engaged in other service areas such as accounting, operations, compliance
and technology. The Company considers its relationship with its employees to
be good.
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.
11
ITEM 2. DESCRIPTION OF PROPERTY.
The Company occupies leased office space of approximately 5,100 square feet
at 220 E. Central Parkway, Altamonte Springs, Florida. The commencement date
of the lease was February 1, 2002, with six months free rent, and a
seven-year term to July 31, 2009. The Company believes that suitable
additional space will be available as needed to accommodate any future
expansion of its operations.
ITEM 3. LEGAL PROCEEDINGS.
The Company is party to certain litigation as of September 30, 2002, 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 two principals of
those affiliated firms. 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 commenced
during the week of November 4, 2002 through November 8, 2002. The matter has
been continued (delayed) until March 2003.
Effective September 30, 2002, the Company agreed to settle this matter with
the two affiliated securities firms and the two principals of those firms.
The Company received $200,000 on October 11, 2002, pursuant to an executed
written agreement detailing the terms of the settlement. The Company will
continue to pursue its claims against the broker-dealer and the two
principals of the broker-dealer.
On April 1, 2002, the Company filed suit for damages, and for temporary and
permanent injunctive relief in Circuit Court in Orange County, Florida. The
suit was filed against a New York Stock Exchange listed company for breach
of a confidentiality agreement and misappropriation of trade secrets. The
Company posted a $50,000 cash bond with the court when a temporary
injunction was issued. On April 9, 2002, the Circuit Court denied a motion
to dissolve the temporary injunction, and on April 12, 2002, the defendant
filed an appeal. On April 29, 2002, the defendant filed three motions with
the Circuit Court to: 1) dissolve the temporary injunction, 2) compel an
NASD arbitration and 3) dismiss the claims. Also on April 29, 2002, the
defendant filed an NASD arbitration claim seeking damages in excess of
$450,000 as a result of the issuance of the temporary injunction. On May 30,
2002, the Circuit Court of Orange County, Florida; 1) denied a motion to
dissolve
12
the temporary injunction, 2) reserved ruling on the motion to compel
arbitration and 3) granted a motion to dismiss the original complaint while
allowing the Company to amend the complaint within ten days. On November 15,
2002, the Fifth District Court of Appeals of Florida ordered the dissolution
of the temporary injunction on the ground that the plaintiff had not
established before the Circuit Court that money damages would not provide an
adequate remedy for the Company. The Company believes it has arguments that
will substantially defeat any claims that may be presented by the defendant
arising from the temporary relief granted by the Circuit Court. On December
12, 2002, the NASD deferred action on whether the defendant's claim is
arbitrable until the Circuit Court addresses that issue.
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
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 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
Fiscal Year 2002
First Quarter(Oct. 01 - Dec. 01) ............................................. 1.20 0.55
Second Quarter(Jan. 02 - Mar. 02) ............................................ 1.98 0.45
Third Quarter(Apr. 02 - Jun. 02) ............................................. 1.70 0.65
Fourth Quarter(Jul. 02 - Sep. 02) ............................................ 0.99 0.47
Holders
As of September 30, 2002 there were approximately 91 shareholders of record
of the Company's Common Stock, according to the records maintained by the
Company's transfer agent. As of September 30, 2002 the Company estimates
that there were approximately 600 beneficial owners of the Company's Common
Stock.
Equity Compensation Plan Information
The following table presents information regarding the Company's equity
compensation plans at September 30, 2002:
Plan Category Number of securities Weighted-average Number of securities
to be issued upon exercise price of remaining available
exercise of outstanding options, for future issuance
outstanding options, warrants and rights under equity
warrants and rights compensation plans
(excluding securities
reflected in column
(a))
(a) (b) (c)
--------------------- ------------------ ------------------
Equity compensation
plans approved by
security holders 527,224 $2.40 393,791
Equity compensation
plans not approved
by security holders -- -- --
Total 527,224 $2.40 393,791
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
14
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 Plan, the Company's Board of Directors
authorized a 10% share and price adjustment for outstanding stock options
issued prior to March 5, 1999. This adjustment was related to the Company's
10% stock dividend declared on February 12, 1999 and paid on March 26, 1999.
Previously issued option shares were proportionately increased by 10% and
the corresponding option exercise price per share was also reduced by 10%.
In conjunction with the stock dividend for record date March 5, 1999 the
total options authorized under the 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 authorized a 9% share and
price adjustment for outstanding stock options issued prior to March 10,
2000. This adjustment was related to the Company's 10% stock dividend
declared on February 25, 2000 and paid on March 24, 2000. Previously issued
option shares were proportionately increased by 9% and the corresponding
option exercise price per share was also reduced by 9%. In conjunction with
the stock dividend for record date March 10, 2000 the total options
authorized under the 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.
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
15
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 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 are
no longer 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.
In December 2001 the Company reported a gain on the sale of retail activity
of $413,009 included in the year ended September 30, 2002 results. 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 September 30, 2002 the Company had 18 full time employees.
2002 Compared to 2001
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 year ended September 30, 2002, 84% of the
Company's revenues were derived from trading revenue and 8% of revenues were
derived from commissions. For the year ended September 30, 2001, 28% of the
Company's revenues were derived from trading revenue and 65% of revenues
were derived from commissions. Total revenues increased 15% to $5,379,572
for the year ended September 30, 2002 from $4,671,388 for the same period in
2001.
Trading revenue (net dealer inventory and investment gains) increased by
approximately 242% to $4,511,052 for the year ended September 30, 2002 from
$1,320,097 in 2001. This increase in trading revenue was due in large
measure to our trading department's ongoing
16
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 in retention of existing trading clients.
Commission revenue decreased by approximately 87% to $408,307 for the year
ended September 30, 2002 from $3,031,928 in 2001. Commission revenues for
the year ended September 30, 2002 include retail brokerage 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 retail brokerage commission revenues are no longer a
source of revenue for the Company after December 13, 2001 due to the sale of
this retail brokerage activity. During January 2002, the Company sold
substantially all of its retail online accounts to Ameritrade Holding
Corporation and ceased offering its online retail brokerage operation. The
elimination of these retail activities has allowed the Company to focus all
of its resources on its core market making trading operation.
Revenues from management and investment advisory fees decreased by
approximately 93% to $6,292 for the year ended September 30, 2002 from
$92,142 in 2001. These revenues from management and investment advisory fees
are no longer a source of revenue for the Company after December 13, 2001
due to the sale of this business.
Interest and dividend revenue decreased by 9% to $222,333 for the year ended
September 30, 2002 from $245,423 in 2001. This decrease is due to lower
balances of interest producing assets, including money market balances and
fixed income securities and decreased interest returns on these short-term
liquid assets during the year ended September 30, 2002 compared to the same
period in 2001. Interest income decreased $116,940 for the year ended
September 30, 2002 compared to the same period in 2001. Partly offsetting
this decrease is a $93,850 increase in dividend income. The increase in
dividend income is derived from the Company's American Depositary Receipt
(ADR) conversion strategy where the Company holds paired and offsetting long
and short foreign ordinary and ADR positions. When these paired positions
are held over the ex-dividend date the Company recognizes and incurs
dividend income and dividend expense. Dividend income of $206,308 for the
year ended September 30, 2002 is offset by the $210,277 of dividend expense
for the same period.
Loss from joint venture was $20,353 for the year ended September 30, 2001.
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.
Other revenues were $231,588 for the year ended September 30, 2002 up from
$2,151 for the same period in 2001. Other revenues in 2002 includes $200,000
for a partial settlement on a legal matter and $14,800 collected for the
sale proceeds from the retail online accounts sold to Ameritrade Holding
Corporation.
17
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 professional
fees. Total expenses decreased by approximately 36% to $6,063,568 for the
year ended September 30, 2002, from $9,439,059 for the same period in 2001.
This decrease in total expenses is mainly due to reductions in compensation
and benefits, promotions, communications, depreciation and amortization,
technology, occupancy and equipment rental, insurance and other operating
expenses. The decrease in total expenses reflects the cost decreases related
to the sale of the retail brokerage activity and the additional cost
reductions the Company began to implement in August 2001.
Compensation and benefits expense decreased by $2,537,246 or 53% to
$2,216,073 for the year ended September 30, 2002 from $4,753,319 in 2001 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 $2,216,073 compensation and benefits
expense for 2002 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.
Clearing and related expenses increased 16% to $1,707,701 for the year ended
September 30, 2002, up from $1,472,645 in 2001. This increase is related to
the volume increase in the number of trades processed and increased costs
for American Depository 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
$1,707,701 clearing and related expenses for 2002 is $35,416 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 68% to $230,024 for the
year ended September 30, 2002 compared to $714,675 for 2001. 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 decreased by 25% to $386,945 for the
year ended September 30, 2002 from $517,824 in 2001. Decreases in rental
expense were related to the Company's decreased 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 are several new
equipment leases for phone system and network equipment.
Communications expense decreased by $172,742, or 65% to $93,578 for the year
ended September 30, 2002 from $266,320 for the year ended September 30,
2001. This decrease is due to reduced telephone, postage and printing
expense related to the sale of the retail brokerage activity.
18
Interest and dividend expense increased by $91,202, or 75% to $212,615 for
the year ended September 30, 2002 from $121,413 for the year ended September
30, 2001. This increase is due to increased dividend expense related to the
Company's American Depositary Receipt (ADR) conversion strategy where the
Company holds paired and offsetting long or short foreign ordinary and ADR
positions. When these paired positions are held over the ex-dividend date
the Company recognizes and incurs dividend income and dividend expense.
Dividend expense of $210,277 for the year ended September 30, 2002 is
largely offset by the $206,308 of dividend income for the same period.
Professional fees increased by approximately 50% to $454,097 for the year
ended September 30, 2002 as compared to $303,190 in 2001. This increase is
primarily due to legal fees related to the arbitration and injunction
matters further discussed in Item 3 of this Form 10-KSB.
Insurance expense decreased by approximately 41% to $119,951 for the year
ended September 30, 2002 as compared to $203,569 in 2001. This decrease is
primarily due to decreases in health, life, disability and workers
compensation premiums due to reductions in total employment headcount and
the related and reduced payroll expense.
Depreciation and amortization expense decreased approximately 29% to
$376,975 for the year ended September 30, 2002 as compared to $528,834 in
2001. The decrease in 2002 is due to lower depreciation expense associated
with the disposition of fixed assets related to the sale of the retail
private client activity in December 2001.
Technology expense was down approximately 79% to $39,669 for the year ended
September 30, 2002 from $188,236 in 2001. The decrease is due to the
completion of technology enhancements to increase the quote system and
trading platform's capacity as well as reduced technology expenditures for
web site content due to the elimination of the retail online brokerage
activity in January 2002.
Other operating expenses decreased approximately 39% to $225,940 for the
year ended September 30, 2002 as compared to $369,034 in 2001. This decrease
is due to cutbacks and reductions in director's fees and expense, office
supplies and expense, training expense and annual report expense.
The Company has reported a loss before gain on sale of retail activity and
income taxes of $683,996 for the year ended September 30, 2002 compared to a
loss of $4,767,671 for 2001. The gain on the sale of retail activity is
$413,009 for the year ended September 30, 2002. 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 a net loss of $270,987 for the year ended September
30, 2002 compared to a net loss of $3,304,928 for the year ended September
30, 2001.
The Company did not record an income tax benefit for the year ended
September 30, 2002 due to a valuation allowance applied to the deferred tax
asset related to the net operating
19
loss generated during the year ended September 30, 2002. The Company's
effective income tax benefit rate was approximately 31% for the year ended
September 30, 2001. 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.
2001 Compared to 2000
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.
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 was also 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. 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.
20
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.
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. 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.
21
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.
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 INTL TRADING incurred in 2000.
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.
Professional fees decreased by approximately 2% to $303,190 in 2001 as
compared to $308,967 in 2000.
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 INTL TRADING.
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 INTL TRADING.
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.
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
22
business. At September 30, 2002, approximately 88% of the Company's assets
consisted of cash, cash equivalents and marketable securities. All assets
are financed by the Company's equity capital, short-term borrowings from
securities 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.
INTL TRADING, 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 September 30, 2002, INTL TRADING had net capital
of $2,289,170, which was $1,941,170 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 September 30, 2002 and 2001, were $11,572,179 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 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.
On December 6, 2002 the Company received $3,718,750 from the sale of
2,187,500 Series A Preferred, non-convertible and non-voting shares. At the
stockholders meeting in February, 2003 the stockholders will be asked to
approve a provision to convert the preferred shares into common stock on a
one-for-one basis. If the stockholders do not approve the provision, the
investors will have the right to redeem, and the Company will have the right
to repurchase, the Series A Preferred Shares at $1.70 per share. The Company
intends to use the funds from the sale of the Series A Preferred Stock to
establish a fixed income trading business
23
with a new office location in New York City. The fixed income trading
business will focus on emerging market securities. The funds will further
support the Company's equity trading business with additional trading
capital. Additional business strategies including emerging market debt
originations are planned as well as other growth initiatives.
CASH FLOWS
For the year ended September 30, 2002, cash and cash equivalents increased
$3,472,302 as compared to 2001. Net cash provided by operating activities
were $2,502,277. During 2002, the Company had cash provided by investing
activities of $888,243. Investing activities included $827,240 provided by
the sale of the retail activity and $105,073 provided by the collection of
loans to officers. Partially offsetting this cash provided by investing
activities were the expenditures of $44,070 for the purchase of property,
equipment and software. During 2002 cash flows provided by financing
activities included $80,000 provided by the sale of common stock associated
with the sale of the retail activity as well as $1,782 provided from the
exercise of employee stock options.
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.
ITEM 7. FINANCIAL STATEMENTS
LIST OF SCHEDULES INCLUDED IN CONSOLIDATED FINANCIAL STATEMENTS
Independent Auditors' Report F-1
Consolidated Balance Sheets as of F-2
September 30, 2002 and 2001
Consolidated Statements of Operations for the Years Ended F-3
September 30, 2002 and 2001
Consolidated Statements of Stockholders' Equity for the Years Ended F-4
September 30, 2002 and 2001
Consolidated Statements of Cash Flows for the Years Ended F-5
September 30, 2002 and 2001
Notes to Consolidated Financial Statements F-7
24
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 (the Company) as of September 30,
2002 and 2001, 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
consolidated 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, 2002 and 2001, 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 14, 2002
Tampa, Florida
F-1
INTERNATIONAL ASSETS HOLDING CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
September 30, 2002 and 2001
Assets 2002 2001
-------------------- -------------------
Cash $ 56,158 136,688
Cash and cash equivalents deposited with clearing organization 4,427,445 874,613
Receivable from clearing organization, net -- 934,764
Other receivables 200,000 23,429
Loans to officers 21,468 126,541
Securities owned, at market value 5,772,672 6,011,939
Deferred income tax asset, net 540,766 1,397,489
Property and equipment, at cost:
Equipment, furniture and leasehold improvements 596,726 1,307,461
Less accumulated depreciation and amortization (445,399) (944,502)
-------------------- -------------------
Net property and equipment 151,327 362,959
Software development, net of accumulated amortization of $752,783
and $491,995 at September 30, 2002 and 2001, respectively 282,718 553,802
Prepaid expenses and other assets, net of accumulated amortization of
$2,000 and $177,000 at September 30, 2002 and 2001, respectively 119,625 311,474
-------------------- -------------------
Total assets $ 11,572,179 10,733,698
==================== ===================
Liabilities and Stockholders' Equity
Liabilities:
Accounts payable $ 81,535 312,673
Foreign currency sold, not yet purchased 15,773 208,092
Securities sold, not yet purchased, at market value 5,796,820 5,313,641
Payable to clearing organization, net 1,024,728 --
Accrued employee compensation and benefits 240,072 307,500
Accrued expenses 109,883 139,094
Payable to Joint Venture -- 2,032
Other liabilities 49,686 7,779
-------------------- -------------------
Total liabilities 7,318,497 6,290,811
-------------------- -------------------
Commitments and contingent liabilities
Stockholders' equity:
Preferred stock, $.01 par value. Authorized 5,000,000 shares;
issued and outstanding 0 shares -- --
Common stock, $.01 par value. Authorized 8,000,000
shares; issued and outstanding 2,375,575 shares and 2,294,376
shares at September 30, 2002 and 2001, respectively 23,756 22,944
Additional paid-in capital 8,026,131 7,945,161
Retained deficit (3,796,205) (3,525,218)
-------------------- -------------------
Total stockholders' equity 4,253,682 4,442,887
-------------------- -------------------
Total liabilities and stockholders' equity $ 11,572,179 10,733,698
==================== ===================
See accompanying notes to consolidated financial statements.
F-2
INTERNATIONAL ASSETS HOLDING CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations
Years ended September 30, 2002 and 2001
2002 2001
-------------------- -------------------
Revenues:
Net dealer inventory and investment gains $ 4,511,052 1,320,097
Commissions (note 2) 408,307 3,031,928
Management and investment advisory fees (note 2) 6,292 92,142
Interest and dividends 222,333 245,423
Loss from joint venture -- (20,353)
Other revenues 231,588 2,151
-------------------- -------------------
Total revenues 5,379,572 4,671,388
-------------------- -------------------
Expenses:
Compensation and benefits 2,216,073 4,753,319
Clearing and related expenses 1,707,701 1,472,645
Professional fees 454,097 303,190
Occupancy and equipment rental 386,945 517,824
Depreciation and amortization 376,975 528,834
Promotion 230,024 714,675
Interest and dividends 212,615 121,413
Insurance 119,951 203,569
Communications 93,578 266,320
Technology 39,669 188,236
Other expenses 225,940 369,034
-------------------- -------------------
Total expenses 6,063,568 9,439,059
-------------------- -------------------
Operating loss before gain on sale of retail activity and
income tax benefit (683,996) (4,767,671)
Gain on sale of retail activity (note 2) 413,009 --
-------------------- -------------------
Loss before income tax benefit (270,987) (4,767,671)
Income tax benefit -- (1,462,743)
-------------------- -------------------
Net loss $ (270,987) (3,304,928)
==================== ===================
Loss per share:
Basic $ (0.11) (1.47)
==================== ===================
Diluted $ (0.11) (1.47)
==================== ===================
Weighted average number of common shares outstanding:
Basic 2,359,040 2,242,845
==================== ===================
Diluted 2,359,040 2,242,845
==================== ===================
See accompanying notes to consolidated financial statements.
F-3
INTERNATIONAL ASSETS HOLDING CORPORATION AND SUBSIDIARIES
Consolidated Statements of Changes in Stockholders' Equity
Years ended September 30, 2002 and 2001
Additional Retained Total
Preferred Common paid-in earnings stockholders'
stock stock capital (deficit) equity
---------- ------- ----------- ---------- -----------
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
Sale of common stock with sale of retail activity -- 800 79,200 -- 80,000
Exercise of incentive stock options -- 12 1,770 -- 1,782
Net loss -- -- -- (270,987) (270,987)
---------- ------- ----------- ----------- ----------
Balances at September 30, 2002 $ -- 23,756 8,026,131 (3,796,205) 4,253,682
========== ======= =========== =========== ==========
See accompanying notes to consolidated financial statements.
F-4
INTERNATIONAL ASSETS HOLDING CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended September 30, 2002 and 2001
2002 2001
-------------- --------------
Cash flows from operating activities:
Net loss $ (270,987) (3,304,928)
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities:
Depreciation and amortization 376,975 528,834
Deferred income taxes 856,723 (1,530,696)
Gain on sale of retail activity (413,009) --
Loss on disposals of property, equipment and software
development 10,786 --
Non-cash compensation -- 198,656
Loss from joint venture -- 20,353
Tax benefit from disqualifying dispositions
of incentive stock options -- 11,001
Cash provided by (used in) changes in:
Other receivables (240,631) 57,593
Securities owned, at market value 239,267 (2,695,426)
Income taxes receivable -- 452,032
Prepaid expenses and other assets (19,297) (57,859)
Foreign currency sold, not yet purchased (192,319) 196,189
Accounts payable (231,138) 51,955
Securities sold, not yet purchased, at market value 483,179 4,110,982
Payable to and receivable from clearing organization, net 1,959,492 (959,094)
Accrued employee compensation and benefits (67,428) (747,738)
Accrued expenses (29,211) (52,631)
Payable to joint venture (2,032) 5
Other liabilities 41,907 (60,588)
-------------- --------------
Net cash provided by (used in) operating activities 2,502,277 (3,781,360)
-------------- --------------
Cash flows from investing activities:
Proceeds from sale of retail activity 827,240 --
Principal collections of loans to officers 105,073 88,223
Purchase of property, equipment and software
development (44,070) (567,421)
-------------- --------------
Net cash provided by (used in) investing activities 888,243 (479,198)
-------------- --------------
Cash flows from financing activities:
Exercise of employee stock options 1,782 --
Sale of common stock with sale of retail activity 80,000 --
-------------- --------------
Net cash provided by financing activities 81,782 --
-------------- --------------
Net increase (decrease) in cash and cash equivalents 3,472,302 (4,260,558)
Cash and cash equivalents at beginning of year 1,011,301 5,271,859
-------------- --------------
Cash and cash equivalents at end of year $ 4,483,603 1,011,301
============== ==============
(Continued)
F-5
INTERNATIONAL ASSETS HOLDING CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended September 30, 2002 and 2001
2002 2001
-------------- --------------
Supplemental disclosures of cash flow information:
Cash paid for interest: $ 2,338 5,679
============== ==============
Supplemental disclosure of noncash financing activities:
During the year ended September 30, 2001 the Company paid
for the following transactions by issuance of common stock:
Software development services, 12,283 common shares $ -- 70,020
============== ==============
Employee bonus compensation, 15,000 common shares $ -- 35,000
============== ==============
Purchase promissory note due by an officer, 57,625
common shares $ -- 163,657
============== ==============
See accompanying notes to consolidated financial statements.
F-6
INTERNATIONAL ASSETS HOLDING CORPORATION AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
September 30, 2002 and 2001
(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 three wholly owned subsidiaries,
INTLTRADER.COM, Inc. (ITCI), International Assets Management Corp.
and OffshoreTrader.com Ltd.
All significant intercompany balances and transactions have been
eliminated in consolidation.
INTLTRADER.COM, Inc. 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.
OffshoreTrader.com Ltd. was incorporated to explore global
internet securities trading for non-U.S. citizens.
(b) 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
affect 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 those
estimates.
(c) Cash and Cash Equivalents
Cash and cash equivalents consist of cash, cash deposits with
clearing organization and foreign currency. Cash deposits with
clearing organization consist of cash, foreign currency 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.
(d) 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 statement of financial condition date.
(Continued)
F-7
INTERNATIONAL ASSETS HOLDING CORPORATION AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
September 30, 2002 and 2001
(e) Financial Instruments
As of September 30, 2002 and 2001, the carrying value of the
Company's financial instruments including cash, cash equivalents
and cash deposits with clearing organization, 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, 2002 and 2001 as
they are based on quoted market prices.
(f) 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, 2002, securities owned, at market value
includes a limited partnership ownership interest of $59,228. 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.
(g) Revenue Recognition
The revenues of the Company are derived principally from realized
and unrealized trading income in securities purchased or sold for
the Company's account. Until December 13, 2001, revenues were also
derived from commissions earned on the sale of securities and from
management and investment advisory fees. Realized and unrealized
trading income (net dealer inventory and investment gains) are
recorded on a trade date basis. Commissions and related clearing
expenses are recorded on a trade-date basis as securities
transactions occur. 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 on the ex-dividend
date. Included in other receivables and other revenue is $200,000
related to a partial settlement with a legal matter.
(h) 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 seven 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.
(Continued)
F-8
INTERNATIONAL ASSETS HOLDING CORPORATION AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
September 30, 2002 and 2001
Software development costs for internally developed software are
capitalized, in accordance with the American Institute of
Certified Public Accountants' 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.
The Company assesses the recoverability of its capitalized
software development costs on an ongoing basis based on estimates
of related future undiscounted cash flows compared to net book
value. If the future undiscounted cash flow estimate is less than
net book value, the net book value is reduced to the estimated
fair value. The Company also evaluates the amortization period of
its capitalized software development costs to determine whether
events or circumstances warrant revised estimates of useful lives.
(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, 2002 and 2001 were $11,139 and $168,015,
respectively.
(j) 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 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.
(k) Stock Option Plan
In October 1995, the Financial Accounting Standards Board (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.
(Continued)
F-9
INTERNATIONAL ASSETS HOLDING CORPORATION AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
September 30, 2002 and 2001
(l) Loss Per Share
Basic loss per share has been computed by dividing net loss by the
weighted average number of common shares outstanding.
Diluted loss per share is the same as basic loss per share because
of the anti-dilutive impact of the potential common shares, due to
the net loss for each of the periods. No options to purchase
shares of common stock were considered in the calculation of
diluted loss per share because of the anti-dilutive impact of the
potential common shares, due to the net loss for the periods.
(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 that 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 requires 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 also requires 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.
In April 2002, FASB issued SFAS 145, Rescission of FASB Statements
No. 4, 44 and 64, Amendment of FASB Statement No. 13 and Technical
Corrections. SFAS 145 addresses the income statement
classification of gains or losses from extinguishment of debt and
the accounting for certain lease modifications. The Company
adopted SFAS 145 upon issuance with no material impact on its
consolidated financial statements.
(Continued)
F-10
INTERNATIONAL ASSETS HOLDING CORPORATION AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
September 30, 2002 and 2001
In June 2002, FASB issued SFAS 146, Accounting for Costs
Associated with Exit or Disposal Activities. SFAS 146 addresses
financial accounting and reporting for costs associated with exit
or disposal activities. SFAS 146 nullifies Emerging Issue Task
Force Issue No. 94-3 and is effective for exit or disposal
activities that are initiated after December 31, 2002. At the
present time, the Company cannot determine the impact that the
adoption of SFAS 146 will have on its consolidated financial
statements.
(n) Reclassification
Certain amounts in the 2001 financial statements have been
reclassified to conform with the 2002 presentation.
(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).
In connection with the disposition transaction, the Buyer 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 based on the fair market value of
the stock. 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 in 2002 was determined by deducting the book
basis of $414,231 from the proceeds of $827,240.
The book value of the assets sold on December 13, 2001 are as follows:
Other receivables $ 64,060
Other assets 211,146
Property and equipment 139,025
-------------------
Total $ 414,231
===================
Commission revenues from retail private client securities brokerage
activity amounted to $393,646 and $2,996,822 for the years ended
September 30, 2002 and 2001, 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 $92,142 for the
years ended September 30, 2002 and 2001, 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 is separated only for purposes of securities
licensing and regulation.
(Continued)
F-11
INTERNATIONAL ASSETS HOLDING CORPORATION AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
September 30, 2002 and 2001
(3) Software Development Costs
Software development costs that have been capitalized are amortized over
a period ranging from two to three years. These development efforts are
for internally used software systems for the Company's Internet based
trading systems including the proprietary foreign quote system
functionality.
2002 2001
----------------- ------------------
Beginning balance, net $ 553,802 416,810
Acquisition of capitalized software -- 477,707
Dispositions (10,296) --
Amortization expense (260,788) (340,715)
----------------- ------------------
Ending balance, net $ 282,718 553,802
================= ==================
(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. 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, after approval by the Board of Directors,
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 granted an extension of the due date of the promissory
note to December 31, 2001. At the Board of Directors meeting held on
February 15, 2002 the CEO requested an extension to repay the balance by
mid calendar year 2002, which request was consented to by the Board of
Directors. The promissory note includes interest of 6 percent per annum.
On August 7, 2002 the CEO repaid the entire loan balance including the
then principal and accrued interest balance of $42,724.
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 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. On August
30, 2001 the Vice President made a $47,000 loan payment to the Company.
As of September 30, 2002 the remaining principal balance of the
promissory note including accrued interest is $21,468. The Vice President
has notified the Company that he intends to make payments of
approximately $900 per month from October 1, 2002 through March 31, 2003.
In addition, the Vice President intends to make a balloon payment on
March 31, 2003 for the then remaining loan balance.
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 $0 and $34,023 during the years ended September
30, 2002 and 2001, respectively.
(Continued)
F-12
INTERNATIONAL ASSETS HOLDING CORPORATION AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
September 30, 2002 and 2001
On February 1, 2002 the Company executed a six-month contract for
investor relations services from an outside firm that is owned and
managed by a cousin of the CEO of the Company. The contract was for
$5,000 per month plus reimbursement for reasonable expenses related to
the performance of the service contract. This services contract ceased on
July 31, 2002 after the six-month term expired.
On August 9, 2002, the Board of Directors of the Company agreed to
execute a list broker agreement between Veitia & Associates (V&A) and the
Company regarding the management and leasing of the Company's list rental
access, for the period October 1, 2002 to December 13, 2004. V&A will pay
the Company 10% of any proceeds generated from this agreement. V&A is a
company solely owned and controlled by the Chairman of the Company.
Also on August 9, 2002, the Board of Directors of the Company decided to
cease the Company's ongoing efforts for the creation of a Company
proprietary hedge fund. The original cost of the legal work expended in
pursuit to develop a hedge fund for the Company, up to August 9, 2002,
was approximately $15,000. The Board of Directors has agreed to allow V&A
access to a copy of the hedge fund legal work generated up to August 9,
2002. V&A has indicated the intent to develop a hedge fund. In addition,
the Board of Directors agreed that certain services, such as accounting
support and operational support, be provided to the V&A hedge fund under
a soft dollar arrangement in exchange for certain security order flow
from V&A and/or its hedge fund. The Board of Directors gave its assent to
this arrangement subject to resolving the details and subject also to the
provision that the arrangement not affect in any adverse way the
operations of the Company.
The Company has paid to V&A, a travel lodging per diem for reimbursement
to the Chairman for corporate related travel to New York City. The
Chairman personally maintains a part-time residence in New York City.
This per diem offsets the Company cost that would have been incurred for
hotel expense. The total cost paid to V&A was $4,000 and $5,000 for the
years ended September 30, 2002 and 2001, respectively.
(5) Securities Owned and Securities Sold, Not Yet Purchased
Securities owned and securities sold, not yet purchased at September 30,
2002 and 2001 consist of trading and investment securities at market
values as follows:
Sold, not yet
Owned purchased
------------------ ------------------
2002:
Common stock and American Depository Receipts $ 1,080,710 1,046,074
Foreign ordinary stock, paired with its respective American
Depository Receipts 4,566,045 4,745,282
Corporate and municipal bonds 57,814 --
Foreign government obligations 2,233 --
Unit investment trusts, mutual funds and other investments
65,870 5,464
------------------ ------------------
$ 5,772,672 5,796,820
================== ==================
(Continued)
F-13
INTERNATIONAL ASSETS HOLDING CORPORATION AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
September 30, 2002 and 2001
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
================== ==================
(6) Receivable From and Payable to Clearing Organization
Amounts receivable from and payable to clearing organization, net at
September 30, 2002 and 2001 of $(1,024,728) and $934,764, respectively,
consist of the following:
Receivable Payable
----------------- -----------------
2002:
Clearing fee payable $ -- 46,025
Open transactions, net -- 978,703
----------------- -----------------
$ -- 1,024,728
================= =================
2001:
Commission income receivable $ 31,783 --
Clearing fee payable -- 23,722
Open transactions, net 926,703 --
----------------- -----------------
$ 958,486 23,722
================= =================
As these amounts are short-term in nature, the carrying amount is a
reasonable estimate of fair value.
(7) Investment in Joint Venture
On September 30, 1998, the Company signed a 50/50 Joint Venture Agreement
(JV) with Lakeside Investments, LLC (Lakeside) of New York. On October 1,
1998, the joint venture effected the incorporation of International
Assets New York, LLC (IANY) a 50/50 owned entity formed to transact the
business for the JV. Each party made total capital contributions of
$110,000. The Company accounted 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. On December 13, 2001, the Company sold its 50% interest in
International Assets Net York, LLC in connection with the sales discussed
in note 2.
(Continued)
F-14
INTERNATIONAL ASSETS HOLDING CORPORATION AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
September 30, 2002 and 2001
For the year ended September 30, 2001, the Company has recorded a loss of
$20,353 for 50% of the joint venture's loss for the period. As of
September 30, 2001, the Company had a payable to the joint venture of
$2,032 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, 2002 at market
values of the related securities (totaling $5,796,820) and additional
losses will incur if the market value of the securities increases
subsequent to September 30, 2002.
(9) Capital and Cash Reserve Requirements
As of September 30, 2002, ITCI 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, 2002, the Company had excess net capital of $1,941,170 and a ratio of
aggregate indebtedness to net capital of 0.20 to 1.
ITCI is 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. ITCI meets the
exemptive provisions of Paragraph (k)(2)(ii).
(10) Leases
The Company occupies leased office space of approximately 5,100 square
feet at 220 E. Central Parkway, Altamonte Springs, Florida. The
commencement date of the lease 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, service obligations and certain
office equipment. Rent expense associated with operating leases amounted
to $226,943 and $294,302 for the years ended September 30, 2002 and 2001,
respectively. Future minimum lease payments under noncancelable operating
leases as of September 30, 2002 are as follows:
Year ending September 30,
2003 $ 277,200
2004 175,600
2005 138,000
2006 132,200
2007 114,900
Thereafter 203,700
------------------
Total future minimum lease payments $ 1,041,600
==================
(Continued)
F-15
INTERNATIONAL ASSETS HOLDING CORPORATION AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
September 30, 2002 and 2001
(11) Income Taxes
Income tax benefit for the years ended September 30, 2002 and 2001
consists of:
Current Deferred Total
------------------ ------------------ ------------------
2002:
Federal $ (856,723) 856,723 --
------------------ ------------------ ------------------
$ (856,723) 856,723 --
================== ================== ==================
2001:
Federal $ 58,021 (1,306,967) (1,248,946)
State 9,933 (223,730) (213,797)
------------------ ------------------ ------------------
$ 67,954 (1,530,697) (1,462,743)
================== ================== ==================
Total income tax benefit for the years ended September 30, 2002 and 2001
differed from the amounts computed by applying the U.S. Federal income
tax rate of 34% to income before income taxes as a result of the
following:
2002 2001
---------------------------------- ----------------------------------
% of pretax % of pretax
Amount income Amount income
----------------- -------------- ----------------- --------------
Computed "expected" tax benefit $ (92,136) 34.0% $ (1,621,008) 34.0%
Decrease (increase) in income tax
benefit resulting from:
State income taxes, net of
Federal income tax benefit (9,837) 3.6% (159,029) 3.3%
Meals and entertainment expenses
not deductible for tax purposes 9,466 (3.5%) 34,464 (0.7%)
Memberships 3,908 (1.4%) 3,470 (0.1%)
Other, net 3,185 (1.2%) 1,553 --
Changes in valuation allowance
85,414 (31.5%) 277,807 (5.8%)
----------------- -------------- ----------------- --------------
$ -- -- $ (1,462,743) 30.7%
================= ============== ================= ==============
(Continued)
F-16
INTERNATIONAL ASSETS HOLDING CORPORATION AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
September 30, 2002 and 2001
Deferred income taxes as of September 30, 2002 and 2001 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, 2002 and
2001:
2002 2001
------------------ ------------------
Gross deferred tax liabilities:
Accumulated depreciation and amortization $ (6,714) (10,484)
Software development costs (106,387) (208,396)
------------------ ------------------
Total gross deferred tax liabilities (113,101) (218,880)
------------------ ------------------
Gross deferred tax assets:
Investment in Limited Partnership 3,940 3,770
Amortization of other assets -- 41,172
Net operating loss carryforward 1,013,148 1,849,234
------------------ ------------------
Total gross deferred tax asset 1,017,088 1,894,176
Valuation allowance (363,221) (277,807)
------------------ ------------------
Total net deferred tax assets 653,867 1,616,369
------------------ ------------------
Net deferred tax asset $ 540,766 1,397,489
================== ==================
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, 2002, based upon the 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, 2002, the Company has net operating loss carryforwards
for Federal income tax purposes which begin to expire in 2019. In
addition, as noted in note 18, Subsequent Events, the Company has entered
into three share subscription agreements. In some cases these types of
transactions may cause a limitation on the availability of the net
operating loss carryforward.
(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 retained the 401(k) profit sharing features of the
December 30, 1992 plan, and effective May 1, 1999, deleted the employee
stock ownership plan provisions. Those participants who had account balances
in the ESOP portion of the plan, as of May 1, 1999 retained certain ESOP
rights, such as the right to receive distributions in the form of employer
common stock. Also, the Company implemented a defined contribution
Retirement Savings Plan (RSP) effective January 1, 1995.
(Continued)
F-17
INTERNATIONAL ASSETS HOLDING CORPORATION AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
September 30, 2002 and 2001
On November 1, 2001, International Assets Advisory Corp. (a former 100%
owned subsidiary) 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 vested 100% in their respective account balances
and the employer sponsor and its related employees made 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 will effectuate the necessary actions to terminate the plans.
The Company did not make any contributions to either the 401K and RSP
benefit plans for the years ended September 30, 2002 and 2001. During the
years ended September 30, 2002 and 2001, no common shares of the Company
were purchased from terminated 401(K) or RSP plan participants.
As of September 30, 2002 and 2001, 146,982 and 158,928 common shares of
the Company were allocated to the 401(K) plan participants, respectively.
As of September 30, 2002 and 2001, 58,005 and 69,694 common shares of the
Company were allocated to RSP participants, respectively.
The Company has received written notification from the IRS dated Sep 17,
2002, which acknowledges that the termination of the two plans does not
adversely affect the plans qualification for Federal tax purposes. The
Company has begun the liquidation and distribution process for both
plans. This distribution process is expected to be completed by December
31, 2002.
(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,
2002, a total of 1,339,300 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, 2002, there were 393,791 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
(Continued)
F-18
INTERNATIONAL ASSETS HOLDING CORPORATION AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
September 30, 2002 and 2001
during 2002 and 2001, where exercise price equals the market price of the
stock on the grant date, was $.67 and $2.27, respectively. The per share
weighted average fair value of stock options granted during 2002 and
2001, where exercise price is greater than market price on the grant date
was $.67 and $2.27, respectively.
The following weighted average assumptions were used:
2002 2001
------------------ ------------------
Exercise price equal to market price on grant date:
Expected risk-free interest rate 4.31% 5.04%
Expected life 6.50 years 6.48 years
Expected volatility 85.6% 80.4%
Exercise price greater than market price on grant date:
Expected risk free interest rate 4.31% 5.04%
Expected life 6.50 years 6.50 years
Expected volatility 85.6% 80.4%
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 and loss
per share would be reflected in the pro forma amounts indicated below:
2002 2001
----------------- ----------------
Net loss As reported $ (270,987) (3,304,928)
Pro forma $ (253,295) (3,562,585)
Basic loss per share As reported $ (0.11) (1.47)
Pro forma $ (0.11) (1.59)
Diluted loss per share As reported $ (0.11) (1.47)
Pro forma $ (0.11) (1.59)
Pro forma net loss reflects only options granted from 1996 to 2002.
Therefore, the full impact of calculating compensation cost for stock
options under SFAS No. 123 is not reflected in the pro forma net loss
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.
Pro forma net loss is less than as reported net loss for 2002 due to the
net pro forma compensation benefit from the cumulative adjustment for the
cancellation of 311,686 options during 2002 of $292,857.
(Continued)
F-19
INTERNATIONAL ASSETS HOLDING CORPORATION AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
September 30, 2002 and 2001
Stock option activity during the fiscal years ended September 30, 2002
and 2001 is as follows:
Weighted-average
Number of shares exercise price
-------------------- --------------------
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
Granted 176,000 0.89
Exercised (1,199) 1.49
Forfeited (311,686) 3.77
Expired -- --
-------------------- --------------------
Outstanding at September 30, 2002 527,224 $ 2.40
==================== ====================
At September 30, 2002 the range of exercise prices and weighted-average
remaining contractual life of outstanding options was $0.60 - $11.70 and
7.16 years, respectively.
At September 30, 2002 and 2001, the number of options exercisable was
251,743 and 160,903, respectively, and the weighted-average exercise
price of those options was $2.93 and $3.29, respectively.
(Continued)
F-20
INTERNATIONAL ASSETS HOLDING CORPORATION AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
September 30, 2002 and 2001
Incentive Stock Options
As of September 30, 2002, options outstanding under qualified incentive
stock options, including their grant date, exercise price and expiration
date, were as follows:
Options
outstanding Grant date Exercise price Expiration date Exercisable
----------------- ------------------------ --------------- ------------------------- ----------------
24,091 January 23, 1993 $ 3.87 January 23, 2003 A
26,378 December 28, 1995 2.09 December 28, 2005 C
8,393 December 28, 1995 1.90 December 28, 2005 C
12,589 December 11, 1996 2.51 December 11, 2006 B
83,930 November 2, 1998 1.38 November 2, 2008 D
19,184 November 2, 1998 1.25 November 2, 2008 C
5,450 December 9, 1999 7.17 December 9, 2009 B
14,519 January 28, 2000 11.70 January 28, 2010 E
4,150 March 10, 2000 11.63 March 10, 2010 C
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
3,330 January 29, 2001 4.25 January 29, 2011 E
25,000 March 9, 2001 3.44 March 9, 2011 E
58,830 March 9, 2001 3.13 March 9, 2011 E
2,000 July 6, 2001 2.27 July 6, 2011 F
40,000 October 5, 2001 0.90 October 5, 2011 E
25,000 October 5, 2001 0.99 October 5, 2011 E
20,000 December 22, 2001 0.60 December 22, 2011 E
13,000 January 3, 2002 0.65 January 3, 2012 E
14,000 April 11, 2002 1.40 April 11, 2012 E
-----------------
424,844
=================
(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 year 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 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, 2002 and 2001, 220,923 and 144,555 options,
respectively, were exercisable under qualified incentive stock options.
During the year ended September 30, 2002, 1,199 of the incentive stock
options were exercised with a weighted average exercise price of $1.49.
(Continued)
F-21
INTERNATIONAL ASSETS HOLDING CORPORATION AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
September 30, 2002 and 2001
Nonqualified Stock Options
As of September 30, 2002, 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
45,000 October 5, 2001 0.90 October 5, 2011 B
------------------
102,380
==================
(A) Exercisable at 20% per year beginning one year 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, 2002 and 2001, 30,820 and 16,350 options,
respectively, were exercisable under nonqualified stock options. During
the years ended September 30, 2002 and 2001, none of the nonqualified
stock options were exercised.
(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 11% 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% 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. None of the
benchmarks were met and therefore the option plan terminated as of
September 30, 2001.
(15) Preferred Stock
The Company has authorized 5,000,000 shares of its preferred stock for
issuance at a par value of $.01 per share. As of September 30, 2002 and
2001, no shares have been issued and the Board of Directors has not yet
determined the specific rights and privileges of these shares.
(Continued)
F-22
INTERNATIONAL ASSETS HOLDING CORPORATION AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
September 30, 2002 and 2001
(16) Commitments and Contingent Liabilities
The Company is party to certain litigation as of September 30, 2002,
which relates primarily to matters arising in the ordinary course of
business. While the Company cannot absolutely predict the outcome of
these actions at this time, it is the opinion of management, given the
probability of success by the Company, that the resolution of these
matters will not have a material adverse effect on the consolidated
financial condition of the Company.
The Company had entered into an employment agreement with its chief
executive officer that would have expired March 24, 2003. As described
below, the arrangement has been modified effective September 1, 2002.
Under the terms of the original agreement, the chief executive officer
would have received specified annual compensation, a bonus, a monthly
automobile allowance and reimbursement for personal income tax
preparation fees. The bonus was to be 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% and a maximum of
15% of adjusted consolidated pre-tax earning of the Company. The Company
may award additional bonuses to the executive from time to time as
determined by the Board of Directors. 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% of
his total compensation for 24 months following the date of termination.
The Board of Directors of the Company has modified the compensation
payable directly to the chief executive officer under the employment
agreement and has modified the services to be provided under that
agreement. The Company also agreed to enter into a consulting agreement
with Veitia and Associates (V&A) for the additional services required
from the Executive Chairman (formerly chief executive officer until
October 22, 2002). V&A is a company solely owned by the Executive
Chairman of the Company. The agreement has an original term from
September 1, 2002 through September 30, 2003. Under the terms of the
agreements, the Executive Chairman will receive specified comprehensive
annual compensation, certain general employee benefits (such as medical
insurance), a monthly automobile allowance, three monthly club
memberships and reimbursement for personal income tax preparation fees.
V&A will assume certain other business expenses incurred by the executive
that previously had been reimbursed by the Company. The Company may award
bonuses to the executive from time to time as determined by the Board of
Directors. 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% of his total compensation for 24
months following the date of termination.
The Company has entered into an employment agreement with its chief
operating officer and expires on December 31, 2002. Under the terms of
the agreement, the officer will receive specified annual compensation, a
bonus and a monthly automobile allowance. The bonus is determined by the
Board of Directors. 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% of his total compensation
for the remaining term of the agreement or 6 months if longer, following
the date of termination.
See Subsequent Events note 18 for updated compensation agreement terms.
(Continued)
F-23
INTERNATIONAL ASSETS HOLDING CORPORATION AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
September 30, 2002 and 2001
(17) Quarterly Financial Information (Unaudited)
For the three months ended
--------------------------------------------------------------------------------
December 31, March 31, June 30, September 30,
2001 2002 2002 2002
----------------- ----------------- ----------------- -----------------
2002:
Revenues $ 1,458,011 839,635 1,244,987 1,836,939
Total expenses 1,701,138 1,330,309 1,519,579 1,512,542
Income (loss) before
income taxes 169,882 (490,674) (274,592) 324,397
Net income (loss) 102,681 (423,473) (274,592) 324,397
Net income (loss) per
share - basic $ 0.04 (0.18) (0.12) 0.14
Net income (loss) per
share - diluted $ 0.04 (0.18) (0.12) 0.14
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)
(18) Subsequent Events (Unaudited)
On October 22, 2002, the Company executed three Share Subscription
Agreements and three Registration Rights Agreements (the Agreements) with
three individual private investors (the Investors), for the total sale of
451,359 common shares and 1,736,141 preferred shares. Both the common
shares and preferred shares will be sold at a price of $1.70 per share. A
proposal to permit conversion of those preferred shares into common
shares will be placed before the shareholders at the next shareholder
annual meeting in February 2003.
There are certain terms precedent to the Agreements which must be met
prior to closing. The Company expects all terms to be met and the closing
of the purchases to occur in early December 2002. There are further terms
precedent to the Agreements which must be approved by shareholders and
will be submitted to shareholders for approval at the Company's next
annual meeting in February 2003. On October 25, 2002 the Company received
an $80,000 conditional deposit from each of the three investors. The
total proceeds for the investment of $3,718,750 (less approximately
$200,000 of estimated closing costs and less the $240,000 deposit already
collected) are expected to be received by the Company in early December
2002 at closing.
(Continued)
F-24
INTERNATIONAL ASSETS HOLDING CORPORATION AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
September 30, 2002 and 2001
The amount of consideration received by the Company was the result of
arm's length negotiations between the Company and the Investors, based on
the evaluation of the estimated per-share book value of the Company's
common shares. At the time the agreements were executed, the previous 5
day average closing price for the Company's common shares was $.62 per
share.
Pursuant to the Agreements, the Board of Directors of the Company has
agreed to appoint one of the new investors as CEO-designate.
Additionally, the Board has appointed another of the investors as
President-designate. The Company has entered into employment agreements
with both of these individuals. Each of the employment agreements are for
a three year term commencing on October 22, 2002 and include annual base
compensation and participation in a bonus to be determined by the Board
of Directors. In the event of termination of the employment 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% of his total
compensation for the remaining term of the agreement or 6 months if
longer, following the date of termination.
The Agreements also require shareholder approval of a new stock option
plan where the CEO-designate and President-designate each receive 275,000
stock options for the Company's common stock at an exercise price of
$2.50 per share, with a three-year vesting.
The terms, conditions and Agreements related to these transactions are
further described in the Company's 8-K filing submitted to the Securities
and Exchange Commission on October 24, 2002.
Also, on October 22, 2002, the existing compensation agreements for the
Company's Executive Chairman and Chief Operating Officer, and the
consulting agreement with V&A, were each modified and extended for a
three-year term commencing on October 22, 2002. The extension of the term
of the agreements and provisions to limit the arbitrary removal of the
Executive Chairman are intended to provide a continuity of executive
direction for the Company after shareholders approve the matters being
presented at the next meeting of the shareholders. In the event of
termination of the compensation or consulting 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 payment to such
individual and to V&A in an amount equal to 100% of the total
compensation payable under the agreements for the remaining term of the
agreements or 6 months if longer, following the date of termination.
F-25
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 59 1987 1987 Director and Executive Chairman of
the Board
Sean M. O'Connor 40 2002 2002 Director and CEO of the Company
Scott J. Branch 40 2002 2002 Director and President of the Company
Edward R. Cofrancesco, Jr. 40 2002 2002 Director, Executive Vice President and
COO of the Company
Robert A. Miller, PhD 59 1998 - Director of the Company
John Radziwill 55 2002 - Director of the Company
Jonathan C. Hinz 40 - 1995 Chief Financial Officer and Treasurer
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.
Diego J. Veitia founded the Company in 1987 to serve as a holding company
for its subsidiaries. He has served as Chairman of the Board and director
since its inception He served as Chief Executive Officer of the Company from
its inception until December, 2002. He has 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 December, 2002. Mr.
Veitia is also currently serving as Chairman of INTL TRADING. Until
December, 2002, Mr. Veitia served as Chairman, Chief Executive Officer and
President of IAMC, INTL TRADING and OTCL. Mr. Veitia also serves as Chairman
of Veitia and
25
Associates, Inc., an inactive registered investment advisor. During the last
five years, Mr. Veitia has served as director of America's All Seasons
Income Fund, Inc., an inactive management investment company until December,
1998. Until November 1, 2001, Mr. Veitia served as Chairman of the Board and
President of International Assets Advisory Corp. ("IAAC") and Global Assets
Advisors, Inc.(GAA"). From November 1, 2001 until December 13, 2001, Mr.
Veitia served as Chairman of the Board and President of International Assets
Advisory, LLC ("IAAL") and Global Assets Advisors, LLC ("GAAL").
Sean M. O'Connor joined the Company in October, 2002 as Chief Executive
Officer designate. In December, 2002 Mr. O'Connor was elected to the Board
of Directors to assume the position vacated by Stephen A. Saker and
currently serves as CEO. In November, 2002, Mr. O'Connor was also elected as
President of INTL TRADING. In December, 2002 Mr. O'Connor was elected to the
board of directors and as an officer of OTCL where he currently serves as
CEO. Prior to joining the Company and its subsidiaries, from 1994 until 2002
Mr. O'Connor was CEO and director of Standard New York Securities, a
division of Standard Bank. From 1999 until 2002 Mr. O'Connor served as
Executive Director on the Board of Standard Bank London, Ltd., a U.K.
registered bank and wholly owned subsidiary of the Standard Bank Group.
Scott J. Branch joined the Company in October, 2002 as President designate.
In December, 2002 Mr. Branch was elected to the Board of Directors to assume
the position vacated by Jerome F. Miceli and currently serves as President.
In December, 2002 Mr. Branch was also elected to the board of directors and
an officer of OTCL and IAMC. Prior to joining the Company and its
subsidiaries Mr. Branch was General Manager of Standard Bank London, Ltd.
From 1995 until 2002. Mr. Branch was affiliated with Standard Bank and its
subsidiaries and at various times was responsible for the Eastern
Mediterranean Region and the Forfaiting and Syndications Group. Mr. Branch
also served as a director of Standard Yatirim Menkul Kivmetler AS, a Turkish
broker-dealer and Standard Aval, a Czech finance company
Edward R. Cofrancesco, Jr. was elected as a director of the Company in
March, 2002 and elected Executive Vice President of the Company effective
January 1, 2002. Mr. Cofrancesco served as Senior Vice President of Capital
Markets for International Assets Advisory Corporation, the Company's former
subsidiary, from December, 2000 until November, 2001 when he assumed the
same position with INTL TRADING. In January, 2002 Mr. Cofrancesco became
Managing Director and Chief Operating Officer of INTL TRADING. During the
past five years Mr. Cofrancesco has also served as a vice president of
institutional sales for Lehman Brothers and as Vice President and Manager of
the international trading division of Raymond James.
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, N.Y. Dr. Miller previously
26
served as the Academic Vice President of Queens College in Charlotte, North
Carolina from 1994 to 1998.
John Radziwill was elected as a director in December, 2002 to assume the
position vacated by Jeffrey Rush. Mr. Radziwill is currently a director of
Lionheart Group, Inc., USA Micro Cap Value Co Ltd, Goldcrown Group Limited
(and subsidiaries), New York Holdings Limited, Acquisitor Plc and Acquisitor
Holdings (Bermuda) Ltd. In the past five years he has also served on the
boards of Air Express International, Corp., Interequity Capital Corporation,
GP and Radix Organization Inc. Until 1997 he was a registered representative
associated with Cohmad Securities Corporation. Mr. Radziwill is a member of
the Bar of England and Wales.
Jonathan C. Hinz joined the Company in October 1995 and currently serves as
Chief Financial Officer and Treasurer for the Company, INTL TRADING, 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 November, 1999 Mr. Hinz served as Controller for the
Company. 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.
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 five
directors and two 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 stock option awarded on October 5, 2001 for
15,000 shares of common stock, with a strike price of $0.90 per share. Mr.
Miceli subsequently reported this transaction on a Form 5 filed on January
9, 2002. Diego J. Veitia, a director of the Company, did not report in a
timely manner under Section 16(a) a stock option awarded on October 5, 2001
for 25,000 shares of common stock, with a strike price of $0.99 per share.
Mr. Veitia subsequently reported this transaction on a Form 5 filed on
August 28, 2002. Steven A. Saker, a director of the Company, did not report
in a timely manner under Section 16(a) a stock option awarded on October 5,
2001 for 20,000 shares of common stock, with a strike price of $0.90 per
share. Mr. Saker subsequently reported this transaction on a Form 5 filed on
August 28, 2002. Jeffrey Rush, a former director of the Company, did not
report in a timely manner under Section 16(a) a stock option awarded on
October 5, 2001 for 15,000 shares of common stock, with a strike price of
$0.90 per share. Mr. Rush subsequently reported this transaction on a Form 5
filed on December 17, 2002. Robert A. Miller, a director of the Company, did
27
not report in a timely manner under Section 16(a) a stock option awarded on
October 5, 2001 for 15,000 shares of common stock, with a strike price of
$0.90 per share. Mr. Miller subsequently reported this transaction on a Form
5 filed on December 17, 2002. Jonathan C. Hinz, an executive officer of the
Company, did not report in a timely manner under Section 16(a) a stock
option awarded on October 5, 2001 for 20,000 shares of common stock, with a
strike price of $0.90 per share. Mr. Hinz subsequently reported this
transaction on a Form 5 filed on August 28, 2002. Tresa N.
Veitia-Williamson, a former executive officer of the Company, did not report
in a timely manner under Section 16(a) a stock option awarded on January 3,
2002, 2001 for 9,000 shares of common stock, with a strike price of $0.65
per share. Ms. Veitia-Williamson subsequently reported this transaction on a
Form 5 filed on August 28, 2002.
The Company believes that during fiscal year 2002, all other executive
officers and directors complied with the Section 16(a) requirements.
ITEM 10. EXECUTIVE COMPENSATION.
Information with respect to this item will be contained in the Proxy
Statement for the 2002 Annual meeting of Shareholders, which is incorporated
herein by reference.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
Information with respect to this item will be contained in the Proxy
Statement for the 2002 Annual meeting of Shareholders, which is incorporated
herein by reference.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information with respect to this item will be contained in the Proxy
Statement for the 2002 Annual meeting of Shareholders, which is incorporated
herein by reference.
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) No reports were filed on Form 8-K during the last quarter of the
period covered by this report.
(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.
28
(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.
29
(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 incorporated by reference
to Exhibit 10.2.f of the Registrant's Form 10-KSB filed with the
SEC for the fiscal year ended September 30, 2001.
(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.
(10.12.b)*The Company's Employment Agreement, entered into as of October 1,
2002, between the Company and Diego J. Veitia, is attached hereto
as Exhibit 10.12.c.
(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 incorporated by reference to
Exhibit 10.17 of Form 10-KSB, for the fiscal year ended September
30, 2001, as filed with the SEC on January 14, 2002.
30
(10.18) The Company's Employment Agreement, entered into as of January 1,
2002, between the Company and Edward R. Cofrancesco, dated June 4,
2002, is incorporated by reference to Item 6, Exhibit 10.18 of Form
10-QSB, for the quarterly period ending June 30, 2002, as filed
with the SEC on August 13, 2002.
(10.18.a)*The Company's Employment Agreement, entered into as of October 1,
2002, between the Company and Edward R. Cofrancesco, is attached
hereto as Exhibit 10.18.a.
(10.19) *The Company's Consulting Agreement, entered into as of September
1, 2002, between the Company and Veitia and Associates, Inc., is
attached hereto as Exhibit 10.12.b.
(10.20) The Company's Share Subscription Agreement, dated October 22, 2002,
by and between the Company, and Sean O'Connor, is incorporated by
reference to Item 7, Exhibit I of Form 8-K, as filed with the SEC
on October 24, 2002.
(10.20.a)The Company's First Amendment to Share Subscription Agreement,
dated December 6, 2002, by and between the Company, and Sean
O'Connor, is incorporated by reference to Item 7, Exhibit 1 of
Form 8-K, as filed with the SEC on December 10, 2002.
(10.21) The Company's Share Subscription Agreement, dated October 22, 2002,
by and between the Company, and Scott Branch, is incorporated by
reference to Item 7, Exhibit II of Form 8-K, as filed with the SEC
on October 24, 2002.
(10.21.a)The Company's First Amendment to Share Subscription Agreement,
dated December 6, 2002, by and between the Company, and Scott
Branch, is incorporated by reference to Item 7, Exhibit 2 of Form
8-K, as filed with the SEC on December 10, 2002.
(10.22) The Company's Share Subscription Agreement, dated October 22, 2002,
by and between the Company, and John Radziwill, is incorporated by
reference to Item 7, Exhibit III of Form 8-K, as filed with the SEC
on October 24, 2002.
(10.22.a)The Company's First Amendment to Share Subscription Agreement,
dated December 6, 2002, by and between the Company, and John
Radziwill, is incorporated by reference to Item 7, Exhibit 3 of
Form 8-K, as filed with the SEC on December 10, 2002.
(10.23) The Company's Employment Agreement, dated October 22, 2002, by and
between the Company, and Sean O'Connor, is incorporated by
reference to Item 7, Exhibit IV of Form 8-K, as filed with the SEC
on October 24, 2002.
(10.24) The Company's Employment Agreement, dated October 22, 2002, by and
between the Company, and Scott Branch, is incorporated by reference
to Item 7, Exhibit V of Form 8-K, as filed with the SEC on October
24, 2002.
(10.25) The Company's Registration Rights Agreement, dated October 22,
2002, by and between the Company, and Sean O'Connor, is
incorporated by reference to Item 7, Exhibit VI of Form 8-K, as
filed with the SEC on October 24, 2002.
31
(10.25.a)The Company's First Amendment to Registration Rights Agreement,
dated December 6, 2002, by and between the Company, and Sean
O'Connor, is incorporated by reference to Item 7, Exhibit 4 of
Form 8-K, as filed with the SEC on December 10, 2002.
(10.26) The Company's Registration Rights Agreement, dated October 22,
2002, by and between the Company, and Scott Branch, is incorporated
by reference to Item 7, Exhibit VII of Form 8-K, as filed with the
SEC on October 24, 2002.
(10.26.a)The Company's First Amendment to Registration Rights Agreement,
dated December 6, 2002, by and between the Company, and Scott
Branch, is incorporated by reference to Item 7, Exhibit 5 of Form
8-K, as filed with the SEC on December 10, 2002.
(10.27) The Company's Registration Rights Agreement, dated October 22,
2002, by and between the Company, and John Radziwill, is
incorporated by reference to Item 7, Exhibit VIII of Form 8-K, as
filed with the SEC on October 24, 2002.
(10.27.a)The Company's First Amendment to Registration Rights Agreement,
dated December 6, 2002, by and between the Company, and John
Radziwill, is incorporated by reference to Item 7, Exhibit 6 of
Form 8-K, as filed with the SEC on December 10, 2002.
(10.28) The Company's Assignment and Assumption Agreement, dated December
6, 2002, by and between the Company, Sean O'Connor and The St.
James Trust, is incorporated by reference to Item 7, Exhibit 7 of
Form 8-K, as filed with the SEC on December 10, 2002.
(10.29) The Company's Assignment and Assumption Agreement, dated December
6, 2002, by and between the Company, Scott Branch and Barbara
Branch, is incorporated by reference to Item 7, Exhibit 8 of Form
8-K, as filed with the SEC on December 10, 2002.
(10.30) The Company's Assignment and Assumption Agreement, dated December
6, 2002, by and between the Company, John Radziwill and Goldcrown
Asset Management Limited, is incorporated by reference to Item 7,
Exhibit 9 of Form 8-K, as filed with the SEC on December 10, 2002.
(21)* The Company's list of subsidiaries is attached hereto as Exhibit 21
(99.1)* The Company's Certification of CEO, pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002.
(99.2)* The Company's Certification of CFO, pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002.
---------------
*Filed herewith
32
ITEM 14. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
The Company maintains controls and procedures designed to ensure that
information required to be disclosed in the reports that the Company files
or submits under the Securities Exchange Act of 1934, as amended, is
recorded, processed, summarized and reported within the time period
specified in the rules and forms of the Securities and Exchange Commission.
Based upon their evaluation of those controls and procedures performed
within 90 days of the filing date of this report, the Chief Executive
Officer and Chief Financial Officer of the Company concluded that the
Company's disclosure controls and procedures were adequate.
Changes in Internal Controls
The Company made no significant changes in its internal controls or in other
factors that could significantly affect those controls subsequent to the
date of the evaluation of those controls by the Chief Executive Officer and
Chief Financial Officer.
33
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: December 23, 2002 By: /s/ Sean M. O'Connor
--------------------
Sean M. O'Connor,
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 Director and Executive Chairman December 23, 2002
------------------- of the Board
Diego J. Veitia
/s/ Sean M. O'Connor Director and Chief Executive Officer December 23, 2002
--------------------
Sean M. O'Connor
/s/ Scott J. Branch Director and President December 23, 2002
-------------------
Scott J. Branch
/s/ Edward R. Cofrancesco Director and Chief Operating Officer December 23, 2002
--------------------------
Edward R. Cofrancesco
/s/ Robert A. Miller Director December 23, 2002
--------------------
Robert A. Miller
/s/ John Radziwill Director December 23, 2002
------------------
John Radziwill
/s/ Jonathan C. Hinz Chief Financial Officer and December 23, 2002
-------------------- Treasurer
Jonathan C. Hinz
34
Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
In connection with the Annual Report of International Assets Holding
Corporation (the "Company") on Form 10-KSB for the year ending September 30,
2002 as filed with the Securities and Exchange Commission on the date
hereof, I, Sean M. O'Connor, Chief Executive Officer of registrant, certify,
pursuant to 18 U.S.C. Section1350, as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002, that:
(1) I have reviewed this annual report on Form 10-KSB of International
Assets Holding Corporation;
(2) Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report; and
(3) Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of
registrant as of, and for, the periods presented in this annual report; and
(4) The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
(a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this annual report is being
prepared;
(b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of this
annual report (the "Evaluation Date"); and
(c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
(5) The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the audit
committee of the registrant's board of directors (or persons performing the
equivalent function):
(a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
35
(b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls; and
(6) The registrant's other certifying officers and I have indicated in this
annual report whether or not there were significant changes in internal
controls subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
Dated: December 23, 2002
By: /s/ Sean M. O'Connor
Chief Executive Officer
This certification accompanies this Annual Report on Form 10-KSB pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002 and shall not, except to the
extent required by such Act, be deemed filed by registrant for purposes of
Section 18 of the Securities Exchange Act of 1934, as amended.
Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
In connection with the Annual Report of International Assets Holding
Corporation (the "Company") on Form 10-KSB for the year ending September 30,
2002 as filed with the Securities and Exchange Commission on the date
hereof, I, Jonathan C. Hinz, Chief Financial Officer of registrant, certify,
pursuant to 18 U.S.C. Section1350, as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002, that:
(1) I have reviewed this annual report on Form 10-KSB of International
Assets Holding Corporation;
(2) Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report; and
(3) Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of
registrant as of, and for, the periods presented in this annual report; and
(4) The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
(a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by
36
others within those entities, particularly during the period in which this
annual report is being prepared;
(b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of this
annual report (the "Evaluation Date"); and
(c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
(5) The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the audit
committee of the registrant's board of directors (or persons performing the
equivalent function):
(a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
(b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls; and
(6) The registrant's other certifying officers and I have indicated in this
annual report whether or not there were significant changes in internal
controls subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
Dated: December 23, 2002
By: /s/ Jonathan C. Hinz
Chief Financial Officer
This certification accompanies this Annual Report on Form 10-KSB pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002 and shall not, except to the
extent required by such Act, be deemed filed by registrant for purposes of
Section 18 of the Securities Exchange Act of 1934, as amended.
37
Exhibit Index
Exhibit Description
Exhibit Number
(10.12.b) The Company's Employment Agreement, entered into as of October 1,
2002, between the Company and Diego J. Veitia, is attached hereto
as Exhibit 10.12.c.
(10.18.a) The Company's Employment Agreement, entered into as of October 1,
2002, between the Company and Edward R. Cofrancesco, is attached
hereto as Exhibit 10.18.a.
(10.19) The Company's Consulting Agreement, entered into as of September
1, 2002, between the Company and Veitia and Associates, Inc., is
attached hereto as Exhibit 10.12.b.
(21) The Company's list of subsidiaries is attached hereto as Exhibit
21.
(99.1) The Company's Certification of CEO, pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002.
(99.2) The Company's Certification of CFO, pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002.