U.S. Securities and Exchange Commission
Washington, D. C. 20549
----------------------------------------
Form 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________ to ___________
------------------
Commission file number 33-37203-D
LAIDLAW GLOBAL CORPORATION
(Exact name of small business issuer as specified in its charter)
Delaware 84-1148210
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
100 Park Avenue,
New York, NY 10017
(Address of principal executive offices)
(Zip Code)
(212) 376-8800
(Issuer's telephone number, including area code)
Fi-Tek V, Inc.
5330 East 17th Avenue Parkway
Denver, Colorado 80220
Former Fiscal Year: August 31
(Former name, former address and former fiscal year,
if changed since last report)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements for the past
90 days.
Yes [X] No [ ]
The number of shares outstanding of the issuer's common stock
as of November 10, 1999 was 28,554,385
<PAGE>
INDEX
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
a) Consolidated Balance Sheets as of September
30, 1999 and December 31, 1998...........................3
b) Consolidated Statements of Operations for the
Three and Nine Months Ended September 30,
1999 and 1998............................................4
c) Consolidated Statements of Cash Flows for the
Nine Months Ended September 30, 1999 and 1998............5
d) Notes to Financial Statements............................6 to 23
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS..............24 to 32
PART II OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K...........................33
a) EXHIBITS.................................................33
b) REPORTS ON FORM 8-K......................................33
2
<PAGE>
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Laidlaw Global Corporation
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
As of September 30 As of December 31
1999 1998
------------------ -----------------
(Unaudited)
<S> <C> <C>
ASSETS
Cash and Cash Equivalents $ 3,903,476 $ 1,939,429
Escrow Deposit with Clearing Broker 1,981,710 --
Due from Clearing Broker & Other Receivables 3,853,187 576,515
Marketable Securities 1,990,110 885,244
Goodwill in H&R Acquisition Corp and Westminster Securities Corp.,net 7,973,513 4,450,102
Property, Equipment and Leasehold Improvements (net of accumulated 825,371 701,652
depreciation and amortization)
Other Assets
2,382,425 1,035,930
------------ ------------
TOTAL ASSETS $ 22,909,792 $ 9,588,872
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Notes Payable $ 1,600,000 $ 2,775,000
Private Placement Escrow Fund Payable 1,981,710 --
Accounts Payable, Accrued Expenses & Other Liabilities
4,599,093 4,020,656
------------ ------------
TOTAL LIABILITIES 8,180,803 6,795,656
------------ ------------
COMMITMENTS AND CONTINGENCIES
8% Convertible Subordinated Note, due July 2003 2,460,000
12% Senior Secured Euro-Notes, due July 8, 2002 393,000 2,220,000
Minority Interest 455,288 382,286
STOCKHOLDERS' EQUITY
Preferred C Stock; $.00001 par value; 1,000,000 shares authorized of the 1 250,000
Company at September 30, 1999 and $100 par value; 20,000 shares authorized
of the Predecessor at December 31, 1998; 2,500 shares issued and
outstanding by the Company on September 30, 1999 and by the Predecessor on
December 31, 1998
Common Stock; $.00001 par value; 50,000,000 shares authorized
of the company at September 30, 1999 and $.05 par value; 15,000,000 shares
authorized of the Predecessor at December 31, 1998; 18,898,760 shares 189 391,452
issued and outstanding by the Company on September 30, 1999 and 7,829,040
shares issued by the Predecessor on December 31, 1998
Additional Paid - In - Capital 33,645,475 19,701,394
Accumulated Deficit (19,764,964) (22,611,916)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY (DEFICIT) 13,880,701 (2,269,070)
------------ ------------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY (DEFICIT $ 22,909,792 $ 9,588,872
============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
3
<PAGE>
Laidlaw Global Corporation
CONSOLIDATED STATEMENT OF OPERATIONS
UNAUDITED
<TABLE>
<CAPTION>
For the three months For the nine months
Ended September 30, ended September 30,
------------------------------- -------------------------------
1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
REVENUES
Gross Commissions $ 6,203,571 $ 2,021,706 $ 12,833,072 $ 7.060,825
Asset Management Fees 1,423,445 1,431,597 4,421,944 4,530,348
Investment Income, Trading Profit & Corporate
Finance Fees 379,459 435,283 2,227,278 1,901,256
Other Revenue 494,241 136,690 858,694 1,405,173
------------ ------------ ------------ ------------
Total revenues 8,500,716 4,025,276 20,340,988 14,897,602
------------ ------------ ------------ ------------
EXPENSES
Salaries and Other employee costs 1,838,540 1,716,558 4,985,800 5,659,849
Commissions 2,982,887 1,277,498 6,427,979 4,629,202
Clearing and Occupancy 671,998 692,968 2,077,363 2,069,397
Other Expenses 1,659,938 1,269,414 3,815,895 3,860,318
------------ ------------ ------------ ------------
Total expenses 7,153,363 4,956,438 17,307,037 16,218,766
------------ ------------ ------------ ------------
Income (Loss) before minority interest 1,347,353 (931,162) 3,033,951 (1,321,164)
Minority Interest 77,195 68,185 187,002 181,917
------------ ------------ ------------ ------------
Income (Loss) before taxes: 1,270,158 (999,347) 2,846,949 (1,503,081)
Income Taxes -- -- -- --
------------ ------------ ------------ ------------
NET INCOME (LOSS) 1,270,158 (999,347) 2,846,949 (1,503,081)
Accumulated deficit, beginning of period (21,035,122) (19,805,808) (22,611,913) (19,302,075)
------------ ------------ ------------ ------------
Accumulated deficit, end of period $(19,764,964) $(20,805,155) $(19,764,964) ($20,805,156)
============ ============ ============ ============
NET INCOME PER SHARE
Basic $ .05 -- $ 0.16 --
============ ============ ============ ============
Diluted $ .04 -- $ 0.13 --
============ ============ ============ ============
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING
Basic 27,299,268 17,718,245
============ ============
Diluted 30,237,162 21,527,960
============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
4
<PAGE>
Laidlaw Global Corporation
CONSOLIDATED STATEMENT OF CASH FLOWS
UNAUDITED
<TABLE>
<CAPTION>
Period ended September 30,
1999 1998
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 2,846,949 $(1,503,081)
Adjustments to reconcile net income (loss) to net
Cash used by operating activities:
Amortization 182,033 120,275
Depreciation 80,146
83,944
(Increase) decrease in:
Escrow deposits with clearing brokers (1,981,710) --
Due from clearing brokers and other receivables (2,676,672) 157,739
Other assets (2,451,361) (986,322)
Accounts payable 578,437 (909,542)
Private placement escrow fund payable 1,981,710 --
----------- -----------
Net cash used by operating activities (1,440,468) (3,036,987)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of Property, Equipment and Leasehold Improvements (203,865) (38,308)
----------- -----------
Net cash used by investing activities (203,865) (38,308)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of notes 3,342,522 2,343,526
Payments to minority shareholders 73,002 --
Issuance of common stock 192,856 116,203
----------- -----------
Net cash provided by financing activities 3,608,380 2,459,729
----------- -----------
NET INCREASE (DECREASE) IN CASH 1,964,047 (615,566)
CASH - BEGINNING OF PERIOD 1,939,429 2,216,556
----------- -----------
CASH - END OF PERIOD $ 3,903,476 $ 1,600,990
=========== ===========
Supplemental disclosure:
Non cash financing transaction:
Conversion of debt to equity $ 9,912,000 $ 3,935,289
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
5
<PAGE>
Laidlaw Global Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As of September 30, 1999 and December 31, 1998
And for the Three and Nine Months Ended September 30, 1999 and 1998
1. Organization and Summary of Significant Accounting Policies
Organization
On April 15, 1999, Laidlaw Holdings Inc. ("Laidlaw") and a majority of its
shareholders entered into a Plan and Agreement of Reorganization (the
"Laidlaw-Fitek Plan") with Fi-Tek V, Inc. ("Fitek") a company whose common stock
is listed for quotation on the OTC Bulletin Board. On May 25, 1999, Fitek and a
majority of its shareholders also entered into a Plan and Agreement of
Reorganization (the "Westminster-Fitek Plan") with Westminster Securities
Corporation ("Westminster"), a registered Broker-Dealer of securities based in
New York, which is a member firm of the New York Stock Exchange ("NYSE"), by
which Westminster and all of the shareholders of Westminster participated in the
Plan and Agreement of Reorganization with Fitek and Laidlaw. Fitek changed its
name to Laidlaw Global Corp. (the "Company") and the current Board of Directors
of Laidlaw became the Board of Directors of Laidlaw Global Corp. The Laidlaw -
Fitek Plan and the Westminster-Fitek Plan were accounted for based on the
purchase method.
Principles of Consolidation and Combination
The consolidated financial statements include the Company and its wholly-owned
and majority-owned subsidiaries. They have been prepared in accordance with
generally accepted accounting principles. All significant intercompany
transactions and balances among the consolidated entities have been eliminated.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from these estimates.
Reclassification
Certain reclassifications have been made to prior period amounts to conform to
the current period presentation.
Cash and Cash Equivalents
Cash and cash equivalents include cash in bank accounts and deposits in money
market accounts.
6
<PAGE>
Laidlaw Global Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As of September 30, 1999 and December 31, 1998
And for the Three and Nine Months Ended September 30, 1999 and 1998
1. Organization and Summary of Significant Accounting Policies (continued)
Securities Transactions
Customers' securities transactions are recorded on a settlement-date basis with
related commission income and expenses recorded on a trade-date basis.
Proprietary securities transactions are recorded on a trade-date basis. Profit
and loss arising from all securities transactions entered into for the account
and risk of the Company are recorded on a trade-date basis.
Marketable securities are valued at market value, and securities not readily
marketable are valued at fair value as determined by management. The resulting
difference between cost and market (or fair value) is included in trading gains,
net.
Securities Sold, But Not Yet Purchased
Marketable securities sold, but not yet purchased, consist of trading securities
at quoted market values. The difference between the proceeds received from
securities sold short and the current market value is included in trading gains,
net.
Commissions
Commissions and related clearing expenses are recorded on a trade-date basis as
securities transactions occur.
Property, Equipment and Leasehold Improvements
Property, equipment and leasehold improvements are stated at cost, less
accumulated depreciation and amortization. Depreciation is recognized on a
straight-line basis over the estimated useful lives of property and equipment
ranging from five to seven years. Leasehold improvements are amortized on a
straight-line basis over the lesser of their estimated useful lives or the terms
of the related leases.
The Company adopted Statement of Financial Accounting Standards ("SFAS") No.
121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of. The statement sets forth guidance as to when to
recognize an impairment of long-lived assets, including goodwill, and how to
measure such an impairment. The methodology set forth in SFAS No. 121 is not
significantly different from the Company's prior policy and, therefore, the
adoption of SFAS No. 121 did not have a significant impact on the consolidated
financial statements as it relates to impairment of long-lived assets used in
operations.
7
<PAGE>
Laidlaw Global Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As of September 30, 1999 and December 31, 1998
And for the Three and Nine Months Ended September 30, 1999 and 1998
1. Organization and Summary of Significant Accounting Policies (continued)
Goodwill
Goodwill, which represents the excess of purchase price over fair value of net
assets acquired, is amortized on a straight-line basis over the expected periods
to be benefited. The Company assesses the recoverability of this intangible
asset by determining whether the amortization of the goodwill balance over its
remaining life can be recovered through undiscounted future operating cash flows
of the acquired operation. The amount of goodwill impairment, if any, is
measured based on projected discounted future operating cash flows expected to
be realized from the intangible asset to its recorded value. The assessment of
the recoverability of goodwill will be impacted if estimated future operating
cash flows are not achieved. Accumulated amortization was $542,878 and $360,845
as of September 30, 1999 and December 31, 1998 respectively.
Deferred Rent Liability
The Company's lease for office space provides for no rental payments during the
first fourteen months of the lease and schedules lease payments that increase
during the term of the lease. Although rental payments are not made on a
straight-line basis, the Company has recorded a deferred lease liability to
recognize rental expense on a straight-line basis over the life of the lease as
required by generally accepted accounting principles.
Syndicate and Underwriting Fees
Syndicate and underwriting fees include gains, losses and fees, net of syndicate
expenses, arising from securities offerings in which the Company acts as an
underwriter or agent. These fees are recorded on the offering date, sales
concessions on the settlement date and underwriting fees at the time the
underwriting is completed and the income is reasonably determinable.
Corporate Finance Fees
Corporate finance fees are received from providing advisory and due diligence
services for proposed financings that do not result in either the offering of
private or public financing. Fees are recognized when earned.
8
<PAGE>
Laidlaw Global Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As of September 30, 1999 and December 31, 1998
And for the Three and Nine Months Ended September 30, 1999 and 1998
1. Organization and Summary of Significant Accounting Policies (continued)
Asset Management Fees
The Company computes income and commissions expense on a quarterly basis and
amortizes them for financial statement purposes on a monthly basis.
Income Taxes
The Company files a consolidated Federal income tax return and a combined return
for state and city purposes with its subsidiaries. The consolidated or combined
taxes payable are generally allocated between the Company and its subsidiaries
based on their respective contributions to consolidated or combined taxable
income.
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.
Interim Period Information
The unaudited consolidated financial statements as of September 30, 1999 and for
the three and nine month periods ended September 30, 1999 and 1998 have been
prepared in accordance with generally accepted accounting principles for interim
financial information and the instruction to Form 10-Q(SB) and do not include
all of the information and notes required by generally accepted accounting
principles for complete financial statements. In the opinion of management, all
adjustments consisting of normal recurring accruals considered necessary for a
fair presentation of the results for the interim period have been included.
Stock Split
On September 9, 1999, the majority of the stockholders and the board of
directors of the Company approved a stock split of the existing Common Stock of
the Company on the basis of three (3) shares of post split Common Stock, par
value $0.00001 per share, being issued in exchange for two (2) outstanding
shares of pre-split Common Stock. The stock split was effected through a stock
dividend distributed in October, 1999 to stockholders of record on September 23,
1999. All references in the financial statements with regard to the number of
shares and earnings per share for the three and nine month periods ended
September 30, 1999 reflect the retroactive effect of the aforementioned stock
split.
9
<PAGE>
Laidlaw Global Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As of September 30, 1999 and December 31, 1998
And for the Three and Nine Months Ended September 30, 1999 and 1998
2. Securities Owned and Sold, but Not Yet Purchased
Marketable securities owned and sold but not yet purchased consist of trading
and investment securities at market values, as follows:
September 30, 1999 December 31, 1998
--------------------------- ------------------------
Sold Sold
But Not But Not Yet
Owned Yet Purchased Owned Purchased
----------- ------------- ---------- ----------
Equity Securities $ 574,711 $ 17,520 $ 47,469 $ 6,345
Money Market 1,415,399 -- 833,824 --
Investments
Corporate Bonds -- -- 3,950 --
---------- ---------- ---------- ----------
1,990,110 17,520 885,243 6,345
========== ========== ========== ==========
3. Liquidity and Capital Resources
During the period from January 1, 1998 to December 31, 1998, the Company has
continued to suffer losses from operations. For the period from January 1, 1998
to December 31, 1998, the Company incurred a loss of $3,309,842. These
circumstances may raise substantial doubt about the Company's ability to
continue as a going concern.
On February 16, 1999, the Board of Directors of Pacific USA Holding Corp., a
shareholder of the Company, passed a resolution authorizing sufficient financial
support for the Company for a period up to twelve months from the date of the
resolution to ensure that the Company maintains its operational liquidity needs.
Financial support is defined as providing capital, loans, direct or indirect
guarantees of loans made by unrelated parties, or other direct or indirect
injections of funds into the Company, such as through long-term commitments to
fund certain services or costs (i.e., commissions or transaction costs). This
resolution neither expires nor is unilaterally cancelable by PUSA for a period
ending twelve months from the date of the resolution.
On April 15, 1999, Laidlaw entered into a merger agreement with Fi-Tek. On May
25, 1999, Fitek and a majority of its shareholders also entered into a merger
agreement with Westminster Securities Corporation, together referred to as the
"Reorganization Plan".
For the three and nine months ended September 30, 1999 the Company had net
income of approximately $1,270,000 and $2,847,000.
10
<PAGE>
Laidlaw Global Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As of September 30, 1999 and December 31, 1998
And for the Three and Nine Months Ended September 30, 1999 and 1998
3. Liquidity and Capital Resources (continued)
In the past, the Laidlaw's reliance on external sources to finance a significant
portion of its day-to-day operations made access to long term financing
important. The cost and availability of unsecured financing generally are
dependent on Laidlaw's short-term and long-term perceived creditworthiness. The
credit worthiness of the Company has improved substantially as a result of the
conversion of $8,000,000 of the 8% Convertible Subordinated notes into common
stock. Additionally, approximately $1,900,000 of the outstanding Senior Secured
Euro-Notes have been converted to common stock. The change in debt structure of
the Company will reduce interest expense by approximately $395,350 for the
remainder of fiscal year ended December 31, 1999. The conversion of these notes
will contribute to a substantial improvement in the net worth of the Company.
On July l, 1999, Laidlaw acquired more than 99% of the issued and outstanding
common stock of Westminster Securities Corporation ("Westminster") in exchange
for 3,000,000 shares of common stock of Laidlaw. Westminster had net income of
$213,345 for the three months ended March 31, 1999, and $827,686 for the twelve
months ended December 31, 1998. As of September 30, 1999 net goodwill from the
purchase of Westminster was $3,643,686.
Management believes that the cash provided from continuing operations, support
from PUSA during fiscal year 1999, the reorganization plans, and the conversion
of the notes should be reasonably sufficient to cover operating expenses that
are going to be incurred during the year.
Cash commitments for debt maturing, legal settlements, and noncancelable
long-term operating real and personal property leases during 1999 are
approximately $861,960.
11
<PAGE>
Laidlaw Global Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As of September 30, 1999 and December 31, 1998
And for the Three and Nine Months Ended September 30, 1999 and 1998
4. Property, Equipment and Leasehold Improvements
Property, equipment and Leasehold Improvements consist of:
September 30, December 31,
1999 1998
---------- ----------
Furniture and equipment $1,857,767 $1,667,608
Leasehold improvements 181,165 167,459
---------- ----------
2,038,932 1,835,067
Accumulated depreciation and amortization 1,213,561 1,133,415
---------- ----------
Property and equipment, net $ 825,371 $ 701,652
========== ==========
5. Long-Term Borrowings
Notes payable at September 30, 1999 and December 31, 1998 consist of the
following:
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
---------- ----------
<S> <C> <C>
8% note payable to PUSA, principal and interest due $ -- $ 500,000
January 20, 2000
8% note payable to PUSA, principal and interest due --
March 1, 1999 375,000
10% note payable, principal and interest due on demand 250,000
15% note payable, principal and interest due December
1999 and December 2000 1,000,000 1,000,000
Note payable with floating interest rate linked to prime rate
Payable at $100,000 in January 1999 and balance at
$50,000 per month 400,000
10% note payable, principal and interest due April 2, 1999 250,000
6% secured demand notes, principal due July 1, 2002 and interest
Payable quarterly 600,000 --
---------- ----------
$1,600,000 $2,775,000
========== ==========
</TABLE>
12
<PAGE>
Laidlaw Global Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As of September 30, 1999 and December 31, 1998
And for the Three and Nine Months Ended September 30, 1999 and 1998
6. Senior Secured Euro-Note
The 12% Senior Secured Euro-Notes ("Notes") were issued in units of $100,000
with a five-year warrant to purchase 6,881 shares of Laidlaw's nonvoting common
stock, $.10 par value per share, at the exercise price of $6.54 per share. The
Notes are redeemable at the option of the Company, in whole or in part, together
with accrued and unpaid interest. The Notes contain certain covenants that limit
the ability of the Company to pay dividends or make distributions, repurchase
equity interests or sell or otherwise dispose of assets of the Company's
subsidiaries.
The Notes are collateralized by the outstanding shares of the Company's
subsidiary, Howe & Rusling Acquisition Corporation ("HRAC"), which owns 100% of
the outstanding common stock of Howe & Rusling Inc., with 20% subject to Howe &
Rusling Inc.'s employee stock options.
Laidlaw had pledged a portion of its shares of capital stock of HRAC to the
holders of the Notes and PUSA. Each of the Noteholders and PUSA have a
proportionate security interest in HRAC stock.
Through September 30, 1999, approximately $1,900,000 of the outstanding
Euro-notes have been converted to common stock at an exchange rate of $2.05 per
share.
13
<PAGE>
Laidlaw Global Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As of September 30, 1999 and December 31, 1998 And for the
Three and Nine Months Ended September 30, 1999 and 1998
7. Related Party Transactions
The Company receives loans from its affiliate "PUSA", for which the Company pays
interest. The loans are used to help pay operating expenses and fund capital
requirements of one of its subsidiaries. Interest on loans from PUSA amounted to
$17,222 and $27,778 for the nine months ended September 30, 1999 and 1998, and
$0 and $10,244 for the quarter ended September 30, 1999 and 1998 respectively.
On July 1, 1999, the Company's New York Stock Exchange member subsidiary
obtained 6% 3-year subordinated loans from several principal officers and
directors. On September 1, 1999, the Company made a 3-year subordinated loan at
a rate of 6% to Westminster Securities Corporation. The purpose of these loans
were to provide the subsidiary with working capital.
8. Net Capital Requirements
The Company's broker dealer subsidiaries, Laidlaw Global Securities, Inc. and
Westminster Securities Corporation, are subject to the Securities and Exchange
Commission's Uniform Net Capital Rule (SEC Rule 15c3-1), which requires the
maintenance of minimum net capital and requires that the ratio of aggregate
indebtedness to net capital, both as defined, shall not exceed 15 to 1. At
September 30, 1999, Laidlaw Global Securities, Inc. had net capital of
$1,788,935, which was $1,622,712 in excess of its required net capital of
$166,223 and Westminster Securities Corporation had net capital of $1,202,003,
which was $1,102,003 in excess of its required net capital of $100,000.
9. Financial Instruments with Off-Balance-Sheet Risk
In the normal course of business, the Company's subsidiaries perform customer
activities that involve the execution and settlement of various customer
securities transactions. These activities may expose the Company to
off-balance-sheet risk in the event the customer or other broker is unable to
fulfill its contracted obligations and the Company has to purchase or sell the
financial instrument underlying the contract at a loss.
14
<PAGE>
Laidlaw Global Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As of September 30, 1999 and December 31, 1998
And for the Three and Nine Months Ended September 30, 1999 and 1998
9. Financial Instruments with Off-Balance-Sheet Risk (continued)
The Company's customer securities activities are transacted on either a cash or
margin basis. In margin transactions, the clearing broker extends credit to the
Company's customers, subject to various regulatory margin requirements,
collateralized by cash and securities in the customers' accounts. However, the
Company is required to contact the customer and to either obtain additional
collateral or to sell the customer's position if such collateral is not
forthcoming. The Company is responsible for any losses on such margin loans.
The Company seeks to control the risks associated with these activities by
reviewing the credit standing of each customer and counterparty with which it
does business. Further, working with the clearing broker, it requires customers
to maintain collateral in compliance with various regulatory and internal
guidelines. Required margin levels are monitored daily pursuant to such
guidelines. Customers are requested to deposit additional collateral or reduce
security positions when necessary. The Company's exposure to these risks becomes
magnified in volatile markets.
In addition, the Company has sold securities that it does not currently own and
may be obligated to purchase such securities at a future date. The Company has
recorded these obligations in the financial statements at September 30, 1999 and
December 31, 1998 at market values of the related securities, and will incur a
loss if the market values of the securities increase subsequent to the balance
sheet date.
10. Risk Management
The Company has a comprehensive risk management process to monitor, evaluate and
manage the principal risks assumed in conducting its activities. These risks
include market, credit, liquidity, operational, legal and reputational
exposures.
The Company seeks to monitor and control its risk exposure through a variety of
separate but complementary financial, credit, operational and legal reporting
systems. The Company believes that it has effective procedures for evaluating
and managing the market, credit and other risks to which it is exposed.
Nonetheless, the effectiveness of the Company's policies and procedures for
managing risk exposure can never be completely or accurately predicted or fully
assured.
Concentrations of Credit Risk
The Company's subsidiaries are engaged in various trading and brokerage
activities in which counterparties primarily include broker-dealers, banks, and
other financial institutions. In the event counterparties do not fulfill their
obligations, the Company may be exposed to risk. The risk of default depends on
the creditworthiness of the counterparty or issuer of the instrument. It is the
Company's policy to review, as necessary, the credit standing of each
counterparty.
15
<PAGE>
Laidlaw Global Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As of September 30, 1999 and December 31, 1998
And for the Three and Nine Months Ended September 30, 1999 and 1998
11. Tax Deferred Savings Plan
The Company maintains a deferred compensation plan which covers substantially
all employees who are employed by the Company and its affiliates who have
attained the age of 21. The Company has appointed individual trustees under the
Plan and the assets are held with an outside agent. All investments are stated
at fair value. Additionally, the employer reserves the right to terminate the
Plan, in whole or in part, at any time.
The Plan allows each participant to contribute 15% of the participant's annual
compensation to the Plan. Employee contributions are vested immediately.
Furthermore, discretionary employer matching contributions are made to the Plan.
The Company has declared an employer matching contribution for the 1998 Plan
year in an amount equal to 25% of each participant's salary deferrals to the
extent such participant's contribution does not exceed 4% of compensation.
Vesting in the Company match occurs ratably over a period of four years.
Expenses relating to the tax deferred savings plan were $32,112 and $48,372 for
the nine months ended September 30, 1999 and September 30, 1998, and $11,455 and
$12,394 for the quarter ended September 30, 1999 and September 30, 1998
respectively.
12. Industry Segment
In 1998 and prior years, the Company operated in two principal segments of the
financial services industry: Asset Management and Broker Dealer activities.
Corporate services consist of general and administrative services and are
provided to the segments from a centralized location and are included in
corporate and other.
Asset Management: Activities include raising and investing capital and providing
financial advice to companies and individuals throughout the U.S. and abroad.
Through this group the company provides client advisory services and pursues
direct investment in a variety of areas.
Broker Dealer: Activities include underwriting public offerings of securities,
arranging private placements and providing client advisory services, trading,
conducting research on, originating and distributing equity and fixed income
securities on a commission basis and for their own.
16
<PAGE>
Laidlaw Global Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As of September 30, 1999 and December 31, 1998
And for the Three and Nine Months Ended September 30, 1999 and 1998
12. Industry Segment (continued)
The following table sets forth the net revenues of these industry segments
of the firms' business
Nine months ended Nine months ended
September 30, 1999 September 30, 1998
------------------ ------------------
(unaudited) (unaudited)
Revenues from external customers
Asset Management $ 3,240,292 $ 2,825,103
Broker Dealer 16,680,763 11,635,313
Corporate and other (7,087,983) (7,399,591)
------------ ------------
Total Revenues from external customer $ 12,833,072 $ 7,060,825
============ ============
Intersegment Revenues
Asset Management $ --
Broker Dealer 149,850
------------
Corporate and other
Total Intersegment Revenues 149,850
============
Net Income
Asset Management $ 797,218 $ 775,541
Broker Dealer 2,873,514 (1,583,276)
Corporate and other (823,783) (695,346)
------------ ------------
Total Net Income $ 2,846,949 $ (1,503,081)
============ ============
Total Assets
Asset Management $ 3,795,406 $ 4,149,790
Broker Dealer 10,202,006 2,454,853
Corporate and other 8,912,380 2,982,485
------------ ------------
Total Assets $ 22,909,792 $ 9,587,128
============ ============
13. Commitments and Contingencies
1. The Company leases office space under noncancelable leases generally
varying from eight to twelve years, with certain renewal options.
17
<PAGE>
Laidlaw Global Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As of September 30, 1999 and December 31, 1998
And for the Three and Nine Months Ended September 30, 1999 and 1998
13. Commitments and Contingencies (continued)
At September 30, 1999, the Company's aggregate minimum rental payments based
upon the original term (including escalation clauses), under all noncancelable
leases which have an initial or remaining term of one year or more, were as
follows:
Year ending December 31,
1999 $ 1,168,212
2000 1,068,338
2001 1,053,848
2002 1,053,848
2003 1,053,848
Thereafter 4,984,068
----------
10,382,162
Sublease payments (580,648)
----------
Net lease commitments $9,801,514
==========
Rent expense for the three months ended September 30, 1999 and 1998 was $399,409
and $398,253 respectively. Rent expense for the nine months ended September 30,
1999 and 1998 was $1,172,479 and $1,193,859 respectively.
2. The Company leases computers under long-term leases and has the option
to purchase the computers for a nominal amount at the termination of
the lease.
Future minimum payments for capitalized leases were as follows at September
30, 1999.
Period ending December 31,
2000 $ 49,357
2001 43,650
2002 43,650
---------
Total minimum payments 136,657
Less amount representing interest (22,502)
---------
Present value of net minimum
lease payments $ 114,155
=========
18
<PAGE>
Laidlaw Global Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As of September 30, 1999 and December 31, 1998
And for the Three and Nine Months Ended September 30, 1999 and 1998
Litigation
The Company is subject to various legal actions arising out of the conduct of
its business, including those relating to claims for damages alleging violations
of Federal and state securities laws. In the opinion of management of the
Company, amounts accrued for awards or assessments in connection with these
matters are adequate and ultimate resolution of these matters will not have a
material effect on the Company's financial position, results of operations or
cash flows.
14. Income Taxes
The Company files a consolidated tax return for Federal tax purposes and
combined tax returns for state and city taxes. Taxes have not been provided for
the three and nine months ended September 30, 1999 because the Federal and state
and local taxes would be substantially offset by utilization of NOL
carryforwards. The net operating loss carryforwards available to offset future
income taxes at September 30, 1999 was approximately $11,100,000 which will
expire between 2005 and 2018. The Company believes it is unlikely there will be
any benefit realized from the net operating loss carryforward. Accordingly, the
deferred tax asset applicable to operations subsequent to December 31, 1998 has
been reduced in its entirety by a valuation allowance.
The components of the net deferred tax asset as of September 30, 1999 and
December 31, 1998 consist of the following:
September 30, 1999 December 31, 1998
Federal $ 3,890,000 $ 4,717,000
State and local 2,515,000 3,049,000
------------ -----------
Temporary differences 6,405,000 7,766,000
Valuation reserve (6,405,000) (7,766,000)
------------ -----------
Recorded net tax asset $ -0- $ -0-
------------ -----------
Internal Revenue Code Section 382 places a limitation on the utilization of
Federal net operating loss and other credit carryforwards when an ownership
change, as defined by the tax law, occurs. Generally, this occurs when a greater
than 50% change in ownership occurs. Accordingly, the actual utilization of the
net loss carryforwards and other deferred income tax assets for tax purposes may
be limited annually to a percentage of the fair market value of the Company at
the time of any such ownership changes. At September 30, 1999, the Section 382
limitation exceeded the taxable income of the Company, therefore taxable income
was completely offset by net operating losses.
19
<PAGE>
Laidlaw Global Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As of September 30, 1999 and December 31, 1998
And for the Three and Nine Months Ended September 30, 1999 and 1998
15. Earnings per Common Share
Earnings per common share are computed in accordance with SFAS No. 128,
"Earnings Per Share." Basic earnings per share excludes the dilutive effects of
options and convertible securities and is calculated by dividing income
available to common shareholders by the weighted-average number of common shares
outstanding for the period. Diluted earnings per share reflects all potentially
dilutive securities. Set forth below is the reconciliation of net income
applicable to common shares and weighted-average common and common equivalent
shares of the basic and diluted earnings per common share computations:
<TABLE>
<CAPTION>
For the three months ended For nine months ended
September 30, September 30, September 30, September 30,
1999 1998 1999 1998
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
NUMERATOR:
Net income (loss) 1,270,158 (999,347) 2,846,949 (1,503,081)
Preferred stock dividends --
Net income (loss) applicable to common shares for
Basic earnings per share 1,270,158 (999,347) 2,846,949 (1,503,081)
Effect of dilutive securities: --
Net income (loss) applicable to common shares
For diluted earnings per share 1,270,158 (999,347) 2,846,949 (1,503,081)
--------- -------- --------- ----------
DENOMINATOR:
Weighted-average common shares for basic earnings
Per share 27,299,268 17,718,245
Weighted-average effect of dilutive securities:
Employee stock options 2,937,894 3,809,714
Dilutive potential common shares
Weighted-average common and common equivalent
Shares for diluted earnings per share 30,237,162 21,527,959
EARNINGS PER COMMON SHARE:
Basic $ 0.05 -- $ 0.16 --
=========== =========== =========== ===========
Diluted $ 0.04 -- $ 0.13 --
=========== =========== =========== ===========
</TABLE>
Options to purchase common stock at a range of $1.25 to $3.50 for 760,000 and
2,067,500 shares were outstanding during the three and nine months ended
September 30,1998, but were not included in the computation of the diluted
earnings per share because the Company incurred a loss and the effect would have
been antidilutive.
20
<PAGE>
Laidlaw Global Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As of September 30, 1999 and December 31, 1998
And for the Three and Nine Months Ended September 30, 1999 and 1998
16. Stock Options
During 1998, the Company established a stock option plan accounted for under APB
Opinion No. 25 and related interpretations. The plan allows the Company to grant
options to employees for up to 1,016,100 shares of common stock at September 30,
1999. Options currently outstanding are exercisable either immediately or up to
five years from the grant date and expire five years after the grant date. No
compensation has been recognized for the plan for the three and nine months
ended September 30, 1999 and September 30, 1998. Had compensation cost for the
plan been determined based on the fair value of the options at the grant dates
consistent with the method of Statement of Financial Accounting Standards No.
123, "Accounting for Stock-Based Compensation ("SFAS No. 123"), the Company's
results of operations would have been reduced to the proforma amounts indicated
below.
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net income (loss) as reported $ 1,270,158 ($ 999,347) $ 2,846,949 ($ 1,503,081)
Net income (loss) - pro forma (331,910) (1,392,953) 1,244,881 (1,896,686)
Basic income (loss) per share
as reported .05 .16
Diluted income (loss) per share
as reported .04 .13
Basic income(loss) per share
pro forma (.01) .07
Diluted income (loss) per share
pro forma (.01) .06
</TABLE>
The fair value of each option grant is established on the date of grant using
the Black-Scholes option pricing model with the following assumptions
Three and Nine Month
Periods Ended September 30
1999 1998
---- ----
Expected dividend yield -- --
Expected stock price volatility 56%-57% 42%-58%
Expected life of option 5 years 5 years
21
<PAGE>
The summary of option activity for the three and nine month periods ended
September 30, 1999 and September 30, 1998 is as follows:
<TABLE>
<CAPTION>
For the three months ended September 30,
1999 1998
----------------------- -----------------------
Weighted average Weighted average
Shares exercise price Shares exercise price
------ -------------- ------ --------------
<S> <C> <C> <C> <C>
Outstanding - beginning of period 1,910,275 1.99 400,000 1.25
Granted 0 0 672,775 1.25
Outstanding - end of period 1,910,275 1.99 1,072,775 1.25
Options exercisable - end of period 1,016,100 1.81 670,000 1.25
<CAPTION>
For the nine months ended September 30,
1999 1998
----------------------- -----------------------
Weighted average Weighted average
Shares exercise price Shares exercise price
------ -------------- ------ --------------
<S> <C> <C> <C> <C>
Outstanding - beginning of period 1,072,775 1.25 0 0
Granted 838,500 2.93 1,072,775 1.25
Outstanding - end of period 1,910,275 1.99 1,072,775 1.25
Options exercisable - end of period 1,016,100 1.81 670,000 1.25
</TABLE>
The risk-free interest used in the valuation of the option grants ranged from
5.02 to 5.77 depending on the expiration date of the options for the three and
nine month periods ended September 30, 1999, and was 5.02 to 5.77 for the three
and nine month periods ended September 30, 1998.
22
<PAGE>
Laidlaw Global Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As of September 30, 1999 and December 31, 1998
And for the Three and Nine Months Ended September 30, 1999 and 1998
16. Stock Options (continued)
The status of outstanding stock options is summarized as follows:
<TABLE>
<CAPTION>
Range of Options outstanding at Weighted Average Options Exercisable Weighted average
Exercise Price September 30, 1999 remaining contractual at September 30,1999 exercise price of
Life (Years) options Exercisable
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$1.25 1,282,775 4.09 761,500 1.25
$3.50 627,500 4.66 254,600 3.50
</TABLE>
17. Subsequent Events
Laidlaw Pacific Financial Services (Holdings), Ltd. ("LPFS") obtained an option,
dated May 25, 1999, to acquire 35% of the outstanding stock of APC (Holdings),
Ltd. ("APC") for the consideration of 450,000 shares of common stock of Laidlaw
Holdings, Inc ("Holdings"). The Company has previously agreed to acquire all
common stock of Holdings on a "one-for-one" basis. Therefore, the Company will
issue 675,000 shares of its common stock to acquire such interest in APC. The
675,000 shares will be in escrow for such time until the shareholders of APC
deliver 35% of its outstanding shares to LPFS. In related transactions, the
Company, PUSA Investment Company and Pacific USA Holdings Corp. agreed to modify
the respective stock purchase agreements whereby the Company will acquire 100%
of Laidlaw Pacific (Asia), Ltd. ("Laidlaw Pacific") and 100% of LPFS. As
modified, the Company will deliver 1,000,000 shares of its common stock for both
such entities.
The options provided to employees are maintained as previously noted. The Hong
Kong Securities and Futures Commission has approved the transfer of Laidlaw
Pacific and the transfer of LPFS does not require approval. The transactions are
in the process of being finalized according to the modified terms mentioned
above.
It is anticipated that the acquisitions of Laidlaw Pacific and LPFS will be
finalized prior to the end of November 1999. Legal filings required in the Hong
Kong jurisdiction are currently being finalized. In addition 300,000 employee
incentive options were provided to the employees of the entities as part of the
transaction.
23
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Overview
Laidlaw Global Coropration (the "Company") is a global financial services firm
that operates in three activities: investment banking, sales & trading and asset
management. It has two subsidiaries that operate in all three activities:
Laidlaw Holdings, Inc. ("LHI") which includes Laidlaw Global Securities, Inc.
("LGS"), Howe & Rusling, Inc. ("H&R") and Westminster Securities Corporation
("Westminster") the NYSE member firm which was acquired by the Company on July
1, 1999. The Company has a third subsidiary Global Electronic Exchange, Inc.
("GEE") which is a development stage company that plans to create a global
on-line trading network through its intended wholly owned broker-dealer
subsidiary Globeshare, Inc. ("Globeshare"). Globeshare started its U.S.
operation in October 1999 and is operated as a division of LGS.
Market fluctuations and economic factors may materially affect the Company's
results of operations. In addition, results of operations in the past have been
and in the future may continue to be materially affected by many factors of a
global nature. These factors include economic and market conditions; the
availability of capital; the availability of credit; the level and volatility of
equity prices and interest rates; currency values and other market indices; and
technological changes and events. The increased use of the Internet for
securities trading and investment services and the Year 2000 issue are also
important factors which may effect the Company's operations. Inflation and the
fear of inflation as well as investor sentiment and legislative and regulatory
developments will continue to affect the business conditions in which our
industry operates. Such factors may also have an impact on the Company's ability
to achieve its strategic objectives on a global basis, including growth in
assets under management, global investment banking and brokerage services
activities as well as the development and expansion of GEE which will continue
to require substantial resources.
The Company's securities business, particularly its involvement in primary and
secondary markets in domestic and overseas markets is subject to substantial
positive and negative fluctuations caused by a variety of factors that cannot be
predicted with great certainty. These factors include variations in the fair
value of securities and other financial products and the volatility and
liquidity of global trading markets. Fluctuations also occur due to the level of
market activity, which, among other things, affects the flow of investment
dollars into bonds and equity, and the size, number and timing of transactions
or client assignments.
24
<PAGE>
The Company's results of operations also may be materially affected by
competitive factors. Recent and continuing global convergence and consolidation
in the financial services industry will lead to increased competition from
larger diversified financial services organizations even though the Company's
strategy has been to situate itself in markets where it has an edge over
competition due to strong local connections and access to foreign brokerage
firms and investors. The Company though global in its intervention wants to see
itself as the "local player" throughout the world. Revenues in any particular
period may not be representative of full-year results and may vary significantly
from year to year and from quarter to quarter. The Company intends to manage its
businesses for the long term and help mitigate the potential effects of market
downturns by strengthening its competitive position in the global financial
services industry through diversification of its revenue sources and enhancement
of its global franchise. The Company's overall financial results will continue
to be affected by its ability and success in maintaining high levels of
profitable business activities, emphasizing technological updates and
innovation, and carefully managing risks in all the securities markets it gets
involved in. In addition, the complementary trends in the financial services
industry of consolidation and globalization present, among other things,
technological, risk management and other infrastructure challenges that will
require effective resource allocation in order for the Company to remain
profitable and competitive.
Global market and economic conditions in the Quarter ended September 30, 1999
were generally weak compared with the previous quarter or the same quarter in
1998. Financial markets in many regions showed signs of tiredness and
uncertainty due to the renewal of the debate over inflationary risks and the
upward move on short-term rates induced by the Federal Reserve in the U.S.
Market volatility, though increased, was kept within ranges that did not create
the type of disorderly markets experienced during the summer of 1998. Relatively
strong corporate results in the Technology sector of the economy have continued
to surprise market participants and have provided a recurrent support for the
market.
At the Company's level, several letters of intent were signed with strategic
partners in several countries in relation with the development of GEE.
Prestigious investment houses in 16 different markets throughout Asia, Europe
and Latin America signed such agreements. Although such agreements are
preliminary in nature, Management believes that this bodes well for the
potential future business of the Company's subsidiary.
25
<PAGE>
The new Board of Directors has continued its efforts to position the Company in
new markets and ventures. Management has continued to focus its activities in
areas that take into consideration the cost structure of the Company and the
constraint to allocate resources efficiently and in priority to ventures that
can reasonably be expected to self-finance on a short term basis.
It is the Company's current objective to have the GEE project functional and
operating prior to year-end with respect to the foreign market already signed
in. Micro-Modeling Associates a reputable software solution provider has
continued to be associated closely in providing the Company with software
solutions and technological assistance for the GEE venture. In order to assure
that the GEE project in its current building phase does not drain the resources
of the Company, GEE has accessed financing through private sources of equity
financing. In doing so, the dilution effect to the Company's stake in GEE was
kept to a minimum since the GEE Private Placement Memorandum valued the Company
at $100 Million and provided for only the sale of 7% of GEE to private
investors.
Results of Operations
The Company's net income of $1.3 Million for the three month period ended
September 30, 1999 confirmed the turnaround demonstrated by the results of the
first six months of 1999.
Net income for the three month period ended September 30, 1999 increased from
the comparable prior year period. Diluted earnings per common share were $.04
(after giving retroactive effect to the recent 3-for-2 stock split of the
Company's common stock) in the quarter ended September 30, 1999 as compared to
net losses of $999,347 in the quarter ended September 30,1998 which cannot be
reduced to a per share item since the Company was not a public entity then and
had a different capital structure. The Company's annualized return on common
equity was 9.15% for the three month period ended September 30, 1999 and 20.5%
for the nine-month period ended September 30, 1999. The same comparison for 1998
is not relevant in light of the losses incurred in 1998 while the Company was
still in the process of rationalizing its operations under the leadership of its
new management team.
26
<PAGE>
The increase in net income for the three month period ended September 30, 1999
from the comparable prior year periods was primarily due to higher commissions
generated out of emerging and foreign markets. The LGS subsidiary has
experienced a great level of success in establishing the LGS brand locally with
our strategic partners. The appreciation of these results has to take into
consideration the fact that August is traditionally a slow month for the
industry from an earnings viewpoint. This year did not make an exception to this
monthly seasonal pattern. Private placement offerings and advisory work mostly
generated investment banking revenues. The third quarter of 1999 saw extensive
activities for our Investment Banking Department in Asia and particularly in
China, a region for which we intend to make a strong representation in our
future earnings. The Westminster subsidiary, which only became part of the
Company in July 1, 1999, had to absorb several one time cost items related to
the relocation of its offices from downtown Manhattan to 100 Park Avenue.
Furthermore the Westminster subsidiary started a service that will allow direct
access to the floor of the New York Stock Exchange for large institutional and
private customers, a service for which there is limited competition and a large
demand from first rate investment outfits.
27
<PAGE>
LAIDLAW GLOBAL CORP
Statements of Income
<TABLE>
<CAPTION>
For the three months For the nine months
Ended September 30 Ended September 30
------------------------------ ------------------------------
1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues
Gross Commissions $ 6,203,571 $ 2,021,706 $ 12,833,072 $ 7,060,825
Asset Management Fees 1,423,445 1,431,597 4,421,944 4,530,348
Investment Income, Trading Profit & Corporation
Finance Fees 379,459 435,283 2,227,278 1,901,256
Other Revenue 494,241 136,690 858,694 1,405,173
------------ ------------ ------------ ------------
Total Revenues 8,500,716 4,025,276 20,340,988 14,897,602
Expenses
Salaries and Other employee costs 1,838,540 1,716,558 4,985,800 5,659,849
Commissions 2,982,887 1,277,498 6,427,979 4,629,202
Clearing and Occupancy 671,998 692,968 2,077,363 2,069,397
Other Expenses 1,659,938 1,269,414 3,815,895 3,860,318
------------ ------------ ------------ ------------
Total Expenses 7,153,363 4,9656,438 17,307,037 16,218,766
------------ ------------ ------------ ------------
Income (Loss) before minority interest 1,347,353 (931,162) 3,033,951 (1,321,164)
Minority Interest 77,195 68,185 187,002 181,917
------------ ------------ ------------ ------------
Income (Loss) before taxes: 1,270,158 (999,347) 2,846,949 (1,503,081)
Income Taxes -- -- -- --
------------ ------------ ------------ ------------
Net Income (Loss) 1,270,158 (999,347) 2,846,949 (1,503,081)
------------ ------------ ------------ ------------
Accumulated Deficit
Balance beginning of period (21,035,122) (19,805,808) (22,611,913) (19,302,075)
------------ ------------ ------------ ------------
Balance end of period $(19,764,964) $(20,805,155) $(19,764,964) $(20,805,156)
============ ============ ============ ============
NET INCOME PER SHARE
Basic $ 0.05 $ -- $ 0.16 $ --
============ ============ ============ ============
Diluted $ 0.04 $ -- $ 0.13 $ --
============ ============ ============ ============
WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING
Basic 27,299,268 -- 17,718,245 --
============ ============ ============ ============
Diluted 30,237,162 -- 21,527,960 --
============ ============ ============ ============
</TABLE>
28
<PAGE>
In the U.S., difficult market conditions and continuing market volatility
contributed to a stagnation of the volume of customer securities transactions,
including listed agency and over-the-counter equity products. Nevertheless,
revenues from markets in Southern Europe with a special emphasis on Greece
created good opportunities for the Company notwithstanding the increased
volatility also experienced by the foreign markets.
Average Balance Sheet Analysis
Three Months Ended September 30, 1999
LAIDLAW GLOBAL CORPORATION
CONSOLIDATED BALANCE SHEETS
UNAUDITED
<TABLE>
<CAPTION>
Average for three mos.
Ended Sept. 30, 1999
------------
<S> <C>
ASSETS
Cash and Cash equivalents $ 4,189,946
Escrow Deposit with Clearing Broker 3,556,742
Due from Clearing Broker & Other Receivables 2,825,527
Goodwill in H&R Acquisition Corp, net 6,171,716
Property, Equipment and Leasehold Improvements 695,100
Other Assets 3,604,580
------------
TOTAL ASSETS $ 21,043,610
============
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITES
Notes Payable $ 1,375,000
Private Placement Escrow Fund Payable 3,556,742
Accounts Payable, Accrued Expenses & Other Liabilities 3,943,843
------------
TOTAL LIABILITIES 8,875,585
------------
COMMITMENTS AND CONTIGENCIES
12% Senior Secured Euro-Notes, due July 8, 2002 1,349,000
Minority Interest 416,690
STOCKHOLDER'S EQUITY
Preferred C Stock; $.00001 par value; 1,000,000 shares authorized; 2,500 shares issued 1
Common Stock; $.00001 par value; 50,000,000 shares authorized; 18,898,760 shares issued 727
Additional Paid-In-Capital 30,825,390
Accumulated (Deficit) (20,423,783)
------------
TOTAL STOCKHOLDERS' EQUITY (DEFICIT) 10,402,335
------------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY (DEFICIT) $ 21,043,610
============
</TABLE>
29
<PAGE>
Liquidity and Capital Reserves
The credit worthiness of the Company has improved substantially as a result of
the convertible note holder's conversion of $8 Million of debt into equity. An
offer to exchange the LHI 12% Senior Secured Euro Note into shares of common
stock of the Company yielded a strong response from the Note holders who have
agreed to the exchange $1.9 Million of the issue out of $2.305 Million that
represents the entire issue. The change in debt structure of the Company has
started to have a material impact on the Company's cash flow.
The Company currently anticipates that its cash resources and available credit
facilities will be sufficient to fund its expected working capital and capital
expenditure requirements for the foreseeable future. However, in order to more
aggressively expand its business, respond to competitive pressures, develop
additional products and services, or take advantage of strategic opportunities,
the Company may need to raise additional funds. Funds will initially be raised
through the issuance of private equity securities in the GEE subsidiary. Though
the Company's existing shareholders may experience additional dilution in
ownership percentages or book value, the search for funding through private
financing at the level of the subsidiaries along with direct application to the
specific projects of these funds will result in a reduced dilution effect. The
Company cannot give any assurance that additional funds will not be needed to
respond to industry changes, competitive pressures and unforeseen events. If
such funds are needed, there can be no assurance that additional financing will
be available.
30
<PAGE>
The Balance Sheet
The following table sets forth our total assets, adjusted assets, leverage
ratios and book value per share:
As of As of
September 1999 September 1998
(in $ except for ratios)
Adjusted Assets (1) 22,909,792 9,587,128
Leverage Ratio (2) 1.65 20.74
Adjusted Leverage Ratio (3) 1.65 20.74
Book value per share (4) 1.21 1.22
(1) Adjusted assets represent total assets.
(2) Leverage ratio equals total assets divided by equity capital.
(3) Adjusted leverage ratio equals adjusted assets divided by equity capital.
(4) Book value per share as of September was based on common shares
Outstanding.
31
<PAGE>
Year 2000
The year 2000 issue involves the potential for system and processing failures of
date-related data resulting from computer-controlled systems using two digits
rather than four to define the applicable year. For example, computer programs
that contain time-sensitive software may recognize a date using two digits of
"00" as the year 1900 rather than the year 2000. This could result in system
failure or miscalculations causing disruptions of our operations, including
among other things, a temporary inability to process transactions in connection
with our order transmission activities. Because we are dependent to a very
substantial degree, upon the proper functioning of computer systems, the failure
of any computer system to be Year 2000 compliant could materially adversely
affect us. Failure of this kind could, for example, cause settlement of trades
to fail, lead to incomplete or inaccurate accounting, recording or processing of
trades in securities, result in generation of erroneous results or give rise to
uncertainty about our exposure to trading risks and our need for liquidity. If
not remedied, potential risks include business interruption or shutdown,
financial loss, regulatory actions and legal liability.
We have completed our internal information technology and non-information
technology assessment, and we believe that our internal software and hardware
systems will function properly with respect to dates in the year 2000 and
thereafter. As of June 30, 1999, Laidlaw Global Corporation had completed all
systems and software upgrades required in order to be fully Y-2K compliant under
the standards set by the SEC, the SIA and the N.A.S.D. As of September 30, 1999,
Ladlaw Global Corporation continues to assess its preparedness with the highest
possible diligence. The Company will continue to test and if necessary correct
any deficiency it might find with respect to its Y-2K compliance. The total
costs associated with the Y-2K preparedness were in excess of $200,000.
In addition, we depend upon proper functioning of third-party computer and
non-information technology systems. These parties include depositories, our
clearing firms, commercial banks and other vendors. To the best of our
knowledge, we have assessed the preparedness of our vendors and feel strongly
that they are Y-2K compliant. In the event some of these vendors were to
experience problems we feel confident that we have assessed suitable replacement
to these vendors in order to minimize any disruptions to our business.
32
<PAGE>
PART II OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibit 27 - Financial Data Schedule
b) Reports on Form 8-K
The Registrant has filed reports on Form 8-K for events which occurred
during the nine months ended September 30, 1999:
(i) The Registrant's report on Form 8-K for events which occurred on
June 4,1999 discloses that the Registrant entered into a Plan and
Agreement of Reorganization with Laidlaw Holdings, Inc., Westminster
Securities Corporation, and the principal shareholders of such
companies.
(ii) The Registrant's report on Form 8-K for events which occurred on
June 8, 1999 describes the Registrant's acquisition of Laidlaw
Holdings, Inc. and its subsidiaries Laidlaw Global Securities, Inc.,
Global Electronic Exchange, Inc., and Howe & Rusling, Inc.
(iii) The Registrant's report on Form 8-K for events which occurred on
July 1, 1999 describes the Registrant's acquisition of Westminster
Securities Corporation. Additionally, this report also discloses the
conversion of convertible subordinated debt of Laidlaw Holdings, Inc.
into shares of common stock of the Registrant.
(iv) The Registrant's report on Form 8-K for events which occurred on
August 20, 1999 discloses the change in the Registrant's certifying
accountant from Comiskey & Company, P.C. to Grant Thornton LLP. This
report discloses a further conversion of convertible subordinated debt
into 559,507 shares of common stock of the Registrant.
(v) The Registrant's report on Form 8-K for events which occurred on
September 9, 1999 discloses the Board of Director's approval of a
three-for-two stock split of its common stock in the form of a stock
dividend whereby one (1) share of common stock of the Registrant, par
value $0.00001 would be issued for each two (2) outstanding shares of
pre-split common stock.
33
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed by the undersigned thereunto
duly authorized.
LAIDLAW GLOBAL CORPORATION
November 15, 1999 By: /s/ Roger Bendelac
-------------------------
Roger Bendelac,
Executive Vice President
34
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<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> SEP-30-1999
<CASH> 3,903,476
<SECURITIES> 1,990,110
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