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 June 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 incorporation or (I.R.S. Employer
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 August 10, 1999 was 17,362,603
<PAGE>
INDEX
<TABLE>
<S> <C>
Part I Financial Information
Item 1. Financial Statements 1
a) Unaudited Consolidated Balance Sheets for June 30, 1999 and
December 31, 1999 2
b) Unaudited Consolidated Statements of Operations for three months
ended June 30, 1999 and 1998 and six months ended June 30,
1999 and 1998 3
c) Unaudited Consolidated Statements of Cash Flows for period
ended June 30, 1999 and 1998 4
d) Notes to Consolidated Financial Statements as of June 30, 1999
and December 31, 1998 and for the three and six months ended
June 30, 1999 and 1998 5-23
Item 2. Management's Discussion and Analysis
of Plan of Operation 24-29
Part II Other Information
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits 30
b) Reports on Form 8-K 30
</TABLE>
2
<PAGE>
UNAUDITED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
LAIDLAW GLOBAL CORPORATION
As of June 30, 1999 and December 31, 1998 and
for the three and six months ended June 30, 1999 and 1998
1
<PAGE>
Laidlaw Global Corporation
CONSOLIDATED BALANCE SHEETS
(unaudited)
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
------------ ------------
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 4,476,416 $ 1,939,429
Escrow deposit with clearing broker 5,131,774
Due from clearing broker and other receivables 2,397,867 576,515
Goodwill, net of accumulated amortization 4,369,918 4,450,102
Equipment and leasehold improvements, net of accumulated depreciation 564,828 701,652
Other 2,236,624 1,921,174
------------ ------------
Total assets $ 19,177,427 $ 9,588,872
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Notes payable $ 1,150,000 $ 2,775,000
Private placement escrow fund payable 5,131,774
Accounts payable, accrued expenses and other 3,288,592 4,020,656
------------ ------------
9,570,366 6,795,656
------------ ------------
COMMITMENTS AND CONTINGENCIES
12% SENIOR SECURED EURO-NOTES, DUE JULY 2002 2,305,000 2,220,000
8% CONVERTIBLE SUBORDINATED NOTES, DUE JULY 2003 2,460,000
MINORITY INTEREST 378,092 382,286
STOCKHOLDERS' EQUITY
Preferred C Stock; $.00001 par value; 1,000,000 shares authorized of the Company at 1 250,000
June 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 June 30,
1999 and by the Predecessor on December 31, 1998
Common Stock; $.00001 par value; 50,000,000 shares authorized of the Company at June 1,264 391,452
30, 1999 and $.05 par value; 15,000,000shares authorized of the Predecessor at
December 31, 1998; 12,644,980 shares issued and outstanding by the Company on June
30, 1999 and 7,829,045 shares issued by the Predecessor on December 31, 1998
Additional paid-in capital 28,005,305 19,701,394
Accumulated deficit (21,082,601) (22,611,916)
------------ ------------
6,923,969 (2,269,070)
------------ ------------
$ 19,177,427 $ 9,588,872
============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
2
<PAGE>
Laidlaw Global Corporation
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
-------------------------------- -------------------------------
1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues
Gross commissions $ 4,494,175 $ 2,407,015 $ 6,629,501 $ 5,039,119
Asset management fees 1,516,658 1,568,575 2,998,499 3,098,751
Investment income, trading profit and
Corporate finance fees 512,537 1,208,043 1,847,819 1,465,973
Other 138,481 387,558 364,453 1,268,483
------------ ------------ ------------ ------------
Total revenues 6,661,851 5,571,191 11,840,272 10,872,326
Expenses
Salaries and other employee costs 1,536,995 2,014,891 3,147,260 3,943,291
Commissions 2,273,510 1,666,867 3,445,092 3,351,704
Clearing and occupancy 698,664 710,600 1,405,365 1,376,429
Other 1,215,920 1,226,175 2,155,957 2,590,903
------------ ------------ ------------ ------------
Total expenses 5,725,089 5,618,533 10,153,674 11,262,327
------------ ------------ ------------ ------------
Income (loss) before minority
interest and income taxes 936,762 (47,342) 1,686,598 (390,001)
Minority interest 69,425 61,652 109,807 113,732
------------ ------------ ------------ ------------
Income (loss) before income taxes 867,337 (108,994) 1,576,791 (503,733)
Income taxes -- -- -- --
------------ ------------ ------------ ------------
NET INCOME (LOSS) 867,337 (108,994) 1,576,791 (503,733)
Accumulated deficit
Balance, beginning of period (21,949,938) (19,696,814 (22,659,392 (19,302,075
------------ ------------ ------------ ------------
Balance, end of period $(21,082,601) $(19,805,808) $(21,082,601) $(19,805,808)
============ ============ ============ ============
Net income (loss) per share
Basic $ .09 $ (.01) $ .18 $ (.02)
============ ============ ============ ============
Diluted $ .06 $ (.01) $ .11 $ (.02)
============ ============ ============ ============
Weighted average number of
Shares outstanding Basic 9,167,045 7,054,358 8,448,045 6,279,670
============ ============ ============ ============
Diluted 12,876,378 7,054,358 14,249,045 6,279,670
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
3
<PAGE>
Laidlaw Global Corporation
CONSOLIDATED STATEMENT OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
Period ended June 30,
1999 1998
----------- -----------
<S> <C> <C>
Cash flows from operating activities
Net income (loss) $ 1,576,791 $ (503,733)
Adjustments to reconcile net income (loss) to net
Cash used in operating activities
Amortization 80,184 80,184
Depreciation 75,814 95,615
Minority Interest 109,807 113,732
(Increase) decrease in
Escrow deposits with clearing brokers (5,131,774)
Due from clearing brokers and other receivables (1,821,352) (513,250)
Other assets (628,357) (164,932)
Accounts payable (736,882) (959,374)
----------- -----------
Net cash used in operating activities (6,585,576) (1,965,490)
----------- -----------
Cash flows from investing activities
Increase (decrease) in
Private placement escrow fund payable
Purchase of property, equipment and leasehold improvements 5,131,774
(112,455) (50,615)
----------- -----------
Net cash provided by (used in) investing activities
5,019,319 (50,615)
----------- -----------
Cash flows from financing activities
Increase in
Proceeds from issuance of 8% Convertible Subordinated Notes 5,540,000
Proceeds from 12% Senior Secured Euro-notes 85,000
Proceeds from PUSA Notes 275,000 500,000
Repayment of PUSA Notes 1,650,000
Repayment of Other Notes 250,000
Proceeds from Notes 489,900
Dividends paid to minority shareholders 114,000 113,732
Issuance of common stock 101,047
Net cash provided by financing activities 4,101,047 1,103,638
----------- -----------
NET INCREASE (DECREASE) IN CASH 2,534,790 (912,467)
Cash beginning of period 1,941,626 2,216,259
----------- -----------
Cash end of period $ 4,476,416 $ 1,303,792
=========== ===========
Supplemental disclosure of cash flow information:
Noncash financing transaction
Conversion of debt to equity $ -- $ 3,746,022
</TABLE>
The accompanying notes are an integral part of these statements.
4
<PAGE>
Laidlaw Global Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As of June 30, 1999 and December 31, 1998 and
for the three and six months ended June 30, 1999 and 1998
NOTE A - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
On June 8, 1999, Fi-Tek V, Inc. ("Fi-Tek"), non operating public company
with 1,000,000 common shares outstanding and immaterial net assets,
acquired more than 99% of the issued and outstanding shares of Laidlaw
Holdings Inc. and Subsidiaries in exchange for 9,999,333 shares of Fi-Tek.
Simultaneously with the closing of the transaction, Fi-Tek changed its name
to Laidlaw Global Corporation. For accounting purposes, Laidlaw Holdings
Inc. and Subsidiaries will be considered the predecessor company. Laidlaw
Global Corporation and Laidlaw Holdings are considered the Company The
transaction will be treated as an issuance of stock by the Company in
exchange for the historical value of net assets acquired from Fi-Tek.
The Compnay is a majority owned subsidiary of Pacific USA Holding Corp.
("PUSA"), a wholly owned subsidiary of Pacific Electronic Wire & Cable Co.
Ltd., a Taiwaness industrial company.
In addition to PUSA, Europe Continents Holdings ("EC") is the other major
shareholder of the Company. Together PUSA and EC own 68.03% and 99.53% of
the Company at June 30, 1999 and December 31, 1998, respectively.
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.
5
<PAGE>
Laidlaw Global Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
As of June 30, 1999 and December 31, 1998 and
for the three and six months ended June 30, 1999 and 1998
NOTE A (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.
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.
Equipment and leasehold improvements held and used by the Company are
reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of assets may not be recoverable.
6
<PAGE>
Laidlaw Global Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
As of June 30, 1999 and December 31, 1998 and
for the three and six months ended June 30, 1999 and 1998
NOTE A (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 thirty
years, the expected period 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 $397,845 and
$360,845 as of June 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.
7
<PAGE>
Laidlaw Global Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As of June 30, 1999 and December 31, 1998 and
for the three and six months ended June 30, 1999 and 1998
NOTE A (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 June 30, 1999 and for
the three- and six-month periods ended June 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.
8
<PAGE>
Laidlaw Global Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As of June 30, 1999 and December 31, 1998 and
for the three and six months ended June 30, 1999 and 1998
NOTE B - SECURITIED OWNED AND SECURITIES SOLD, BUT NOT YET PURCHASED
Securities owned (included in Other assets) and securities sold but not yet
purchased (included in accounts payable, accrued expenses and other
liabilities), consist of trading and investment securities at market values
as follows:
June 30, 1999 December 31, 1998
-------------------- ---------------------
Sold but Sold but
not yet not yet
Owned purchased Owned purchased
-------- --------- -------- ---------
Equity securities $ 31,562 $ 2,035 $ 47,469 $ 6,345
Money market investments 871,945 833,824
Corporate bonds 3,950
-------- -------- -------- --------
$903,507 $ 2,035 $885,243 $ 6,345
======== ======== ======== ========
NOTE C - 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 PUSA 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 June 8, 1999, Fi-Tek V, Inc. ("Fi-Tek"), a non-active public company
trading on the OTC, acquired more than 99% of the issued and outstanding
shares of Laidlaw Holdings Inc. and Subsidiaries in exchange for 9,999,333
shares of Fi-Tek. Shareholders of Fi-Tek hold 1,000,000 shares.
Simultaneously with the closing of the transaction, Fi-Tek changed its name
to Laidlaw Global Corporation. For accounting purposes, Laidlaw Holdings
will be considered the predecessor company. Laidlaw Global Corporation and
Laidlaw Holdings are collectively considered the Company. The transaction
will be treated as an issuance of stock by the Company in exchange for the
historical value of net assets acquired from Fi-Tek.
For the three and six months ended June 30, 1999, the Company had net
income of approximately $770,000 and $1,577,000.
9
<PAGE>
Laidlaw Global Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
As of June 30, 1999 and December 31, 1998 and
for the three and six months ended June 30, 1999 and 1998
NOTE C (continued)
In the past, 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. During the six months ended June 30, 1999, the Company
raised capital through the issuance of an additional $5,540,000 of 8%
Convertible Subordinated Notes.
The credit worthiness of the Company has improved substantially as a result
of the conversion, completed by June 30, 1999, of $8,000,000 of the 8%
Convertible Subordinated Notes into 3,902,425 shares of common stock.
Additionally, approximately $1,900,000 of the outstanding Senior Secured
Euro-Notes have been converted into 912,682 shares of common stock
subsequent to June 30, 1999 and as of August 9, 1999. The change in debt
structure of the Company will reduce interest expense by approximately
$250,000 for the remainder of the fiscal year ending December 31, 1999. The
conversion of these notes will contribute to a substantial improvement in
the net worth of the Company.
On July 1, 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. (See Note
S for details of transaction).
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 the remainder
of 1999 are approximately $2,600,000.
10
<PAGE>
Laidlaw Global Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
As of June 30, 1999 and December 31, 1998 and
for the three and six months ended June 30, 1999 and 1998
NOTE D - EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Property, equipment and leasehold improvements consist of:
June 30, December 31,
1999 1998
---------- ----------
Furniture and equipment $1,855,534 $1,667,608
Leasehold improvements 181,165 167,459
---------- ----------
2,036,699 1,835,067
Accumulated depreciation and amortization 1,222,592 1,133,415
---------- ----------
Property and equipment, net $ 814,107 $ 701,652
========== ==========
NOTE E - LONG-TERM BORROWINGS
Notes payable at June 30, 1999 and December 31, 1998 consist of the
following:
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
---------- ----------
<S> <C> <C>
8% note payable to PUSA, principal and interest due
January 20, 2000 $ 500,000
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 150,000 400,000
10% note payable, principal and interest due April 2, 1999 250,000
---------- ----------
$1,150,000 $2,775,000
========== ==========
</TABLE>
11
<PAGE>
Laidlaw Global Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
As of June 30, 1999 and December 31, 1998 and
for the three and six months ended June 30, 1999 and 1998
NOTE F - SENIOR SECURED EURO-NOTE
The 12% Senior Secured Euro-Notes ("Euro-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 Euro-Notes are redeemable at the option of the
Company, in whole or in part, together with accrued and unpaid interest.
The Euro-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.
Subsequent to June 30, 1999 and through August 9, 1999, approximately
$1,900,000 of the outstanding Notes have been converted to 912,682 shares
of common stock at an exhange rate of $2.05 per share.
NOTE G - CONVERTIBLE SUBORDINATED NOTES
During the period from June 1998 to December 1998, $2,460,000 was raised
through a private placement offering for 5-year, 8% Convertible
Subordinated Notes ("Subordinated Notes") due June 9, 2003 ("the
Offering"). Noteholders have the right to "put" or to sell (the "Put") to
PUSA such Subordinated Notes for full payment, on December 31, 1999 (the
"Initial Put Date"), of principal and accrued interest, upon written notice
to PUSA between August 31, 1999 and October 31, 1999. Additionally, the
Notes can be converted into common stock at an exchange rate of $2.05 per
share at the noteholders' option.
During the six months ended June 30, 1999, the Company raised an additional
$5,240,000 respectively through the Offering.
During the month of June all of the 8% Convertible Subordinated Notes
($8,000,000) were converted to 3,902,425 shares of Laidlaw common stock.
12
<PAGE>
Laidlaw Global Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
As of June 30, 1999 and December 31, 1998 and
for the three and six months ended June 30, 1999 and 1998
NOTE H - 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 $17,534 for the six months ended June 30,
1999 and June 30, 1998, respectively and $2,333 and $10,037 for the
quarters ended June 30, 1999 and June 30, 1998, respectively.
A subsidiary of the Company has an agreement with Howe & Rusling Inc.
("H&R), a majority-owned subsidiary, whereby it provides H&R with
management services. For these services, the subsidiary receives from H&R a
fee equal to 50% of H&R's adjusted annual net income with actual payments
not to exceed $200,000 per year. Any amounts earned in excess of $200,000
are accrued and paid by H&R in future years when the required payments are
less than $200,000.
During 1998, the Board of Directors of PUSA converted its $3,935,288 note
receivable and accrued interest of $268,474 to 2,324,062 shares of common
stock. Additionally, PUSA acquired 1,073,088 shares in the Company from a
former officer, increasing PUSA's ownership in the Company by approximately
26% to 81% as of December 31, 1998.
NOTE I - NET CAPITAL REQUIREMENTS
The Company's broker-dealer subsidiary is 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 June 30, 1999, the subsidiary had net capital of $195,445,
which was $70,053 in excess of its required net capital of $125,392.
NOTE J - 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.
13
<PAGE>
Laidlaw Global Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
As of June 30, 1999 and December 31, 1998 and
for the three and six months ended June 30, 1999 and 1998
NOTE J (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 will, therefore, be obligated to purchase such securities at a future
date. The Company has recorded these obligations in the financial
statements at June 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 June 30, 1999 and December 31, 1998.
NOTE K - 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.
14
<PAGE>
Laidlaw Global Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
As of June 30, 1999 and December 31, 1998 and
for the three and six months ended June 30, 1999 and 1998
NOTE K (continued)
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.
NOTE L - 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 $20,657 and $35,978
for the six months ended June 30, 1999 and June 30, 1998, respectively, and
$11,463 and $17,794 for the quarters ended June 30, 1999 and June 30, 1998,
respectively.
NOTE M - 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.
15
<PAGE>
Laidlaw Global Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As of June 30, 1999 and December 31, 1998 and
for the three and six months ended June 30, 1999 and 1998
NOTE M (continued)
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
proprietary trading accounts.
The following table sets forth the net revenues of these industry segments
of the Company's business
<TABLE>
<CAPTION>
Six months ended June 30,
-------------------------------
1999 1998
---------- ----------
(unaudited)
<S> <C> <C>
Revenues from external customers
Asset Management $2,154,597 $1,860,118
Broker Dealer 9,504,620 6,904,804
Corporate and other (5,029,716) (3,725,803)
---------- ----------
Total Revenues from external customer 6,629,501 5,039,119
Intersegment Revenues
Asset Management
Broker Dealer 99,900
Corporate and other
Total Intersegment Revenues 99,900
Net Income
Asset Management 468,125 484,855
Broker Dealer 1,526,656 (1,621,896)
Corporate and other (417,990) (633,308)
---------- ----------
Total Net Income 1,576,791 (503,733)
Total Assets
Asset Management 3,362,673 3,697,144
Broker Dealer 9,681,406 2,537,810
Corporate and other 6,133,288 3,353,918
---------- ----------
Total Assets 19,177,427 9,588,872
</TABLE>
NOTE N - COMMITMENTS AND CONTINGENCIES
1. The Company leases office space under noncancelable leases generally
varying from eight to twelve years, with certain renewal options.
16
<PAGE>
Laidlaw Global Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
As of June 30, 1999 and December 31, 1998 and
for the three and six months ended June 30, 1999 and 1998
NOTE N (continued)
At June 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 (340,648)
-----------
Net lease commitments $10,041,514
===========
Rent expense was $384,934 and $773,070 for the three and six months
ended June 30, 1999, respectively and $396,711 and $795,606, for the
three and six months ended June 30, 1998, 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 June
30, 1999.
Period ending December 31, 1999
Year ended December 31, 2000 $ 49,357
Year ended December 31, 2001 43,650
Year ended December 31, 2002 43,650
--------
Total minimum payments 136,657
Less amount representing interest (22,502)
--------
Present value of net minimum
lease payments $114,155
========
17
<PAGE>
Laidlaw Global Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
As of June 30, 1999 and December 31, 1998 and
for the three and six months ended June 30, 1999 and 1998
NOTE N (continued)
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.
Redemption Agreement With Stockholder
Under the terms of a redemption agreement between Laidlaw and a former
stockholder, the Company is obligated to pay up to $1,050,000, payable in
installments equal to 30% of the Company's consolidated quarterly after-tax
net income up to $1,050,000, payable 30 days after the end of each fiscal
quarter through May 31, 2001. There have been no payments pursuant to this
agreement through June 30, 1999.
NOTE O - 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 months and six months ended June 30, 1999 because the Federal
and state and local taxes would be substantially offset by utililization of
NOL carryforwards. The net operating loss carryforwards available to offset
future income taxes at June 30, 1999 was 12,330,216 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 June 30, 1999 and
December 31, 1998 consist of the following:
June 30, December 31,
1999 1998
----------- -----------
Federal $ 4,316,000 $ 4,717,000
State and local 2,789,000 3,049,000
7,105,000 7,766,000
Valuation reserve (7,105,000) (7,766,000)
----------- -----------
Recorded net tax asset $ -0- $ -0-
=========== ===========
18
<PAGE>
Laidlaw Global Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
As of June 30, 1999 and December 31, 1998 and
for the three and six months ended June 30, 1999 and 1998
NOTE P - 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>
Three months Six months
ended June 30 ended June 30
------------------------- --------------------------
1999 1998 1999 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Numerator
Net (loss) income $ 867,337 $ (108,994) $ 1,576,791 $ (503,733)
Net (loss) income applicable to
common shares for basic earnings
per share 867,337 (108,994) 1,576,791 (503,733)
Effect of dilutive securities:
Net (loss) income applicable to
common shares for diluted earnings
per share 867,337 (108,994) 1,576,791 (503,733)
Denominator
Weighted-average common shares for
basic earnings per share 9,167,045 7,054,358 8,448,045 6,279,670
Weighted-average effect of dilutive
Securities
Employee stock options 1,616,976 1,616,976
Subordinated notes 1,626,016 3,252,032
Euronotes 466,341 932,683
Dilutive potential common shares
Weighted-average common and common
equivalent shares for diluted earnings
per share 12,876,378 7,054,358 14,249,736 6,279,670
Earnings per common share
Basic $ .09 $ (.01) $ .18 $ (.02)
Diluted $ .06 $ (.01) $ .11 $ (.02)
</TABLE>
Options to purchase 1,579,900 shares of common stock at a range of $1.25 to
$3.50 were outstanding during the three months and six months ended June
30, 1998, but were not included in the computation of diluted earnings per
share because the Company incurred a loss and the effect would have been
antidilutive.
19
<PAGE>
Laidlaw Global Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
As of June 30, 1999 and December 31, 1998 and
for the three and six months ended June 30, 1999 and 1998
NOTE Q 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 - and - shares of common stock at June 30, 1999.
Options currently outstanding are exercisable either immediately or up to three
years from the grant date and expire five years after the grant date. No
compensation cost has been recognized for the plan for the three and six month
periods ended June 30, 1999 and June 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 pro forma amounts indicated
below.
<TABLE>
<CAPTION>
Three months ended June 30, Six months ended June 30,
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Net income (loss) - as 867,337 (108,994) 1,576,791 (503,733)
reported
Net income- proforma 606,369 (501,494) 1,288,527 (896,233)
Basic Income per .06 (.02) .12 (.08)
share- as reported
Diluted Income per .06 (.02) .11 (.08)
share- as reported
Basic Income per .04 (.07) .09 (.14)
share- pro forma
Diluted Income per .04 (.07) .08 (.14)
share- pro forma
</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 six month
Periods ended June 30,
1999 1998
---- ----
Expected dividend yield -
Expected stock price volatility 56%- 57% 42-58%
Expected life of option 5 years 5 years
20
<PAGE>
The risk-free interest rate used in the valuation of the option grants ranged
from 5.76% to 5.91% depending on the expiration date of the options for the
three and six month periods ended June 30, 1999, and was 4.89% to 5.61% for the
three and six month periods ended June 30, 1998.
A summary of option activity for the three and six month periods ended June 30,
1999 and June 30, 1998 is as follows:
For the three months ended June 30,
<TABLE>
<CAPTION>
1999 1998
Shares Weighted average Shares Weighted average
exercise price exercise price
<S> <C> <C> <C> <C>
Outstanding- beginning 1,003,500 2.37 250,000 3.50
of period
Granted 757,400 2.90
Outstanding - end of 1,760,900 2.60 250,000 3.50
period
Options exercisable- 608,600 3.50 250,000 3.50
end of period
Weighted average fair 1.87 --
value of options
granted during the year
</TABLE>
For the six months ended June 30,
<TABLE>
<CAPTION>
1999 1998
Shares Weighted average Shares Weighted average
exercise price exercise price
<S> <C> <C> <C> <C>
Outstanding- beginning 1,003,500 2.37
of period
Granted 757,400 2.90 250,000 3.50
Outstanding - end of 1,760,900 2.60 250,000 3.50
period
Options exercisable- 608,600 3.50 250,000 3.50
end of period
Weighted average fair 1.87 1.57
value of options
granted during the year
</TABLE>
21
<PAGE>
Laidlaw Global Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the three and six months ended June 30, 1999 and 1998,
As of December 31, 1998
18. Stock Options (continued)
The status of outstanding stock options is summarized as follows:
<TABLE>
<CAPTION>
Weighted Weighted
Range of Options outstanding Average remain- Options average exercise
Exercise at ing contractual Exercisable price of options
Price June 30, 1999 Life (years) at June 30, 1999 Exercisable
----- ------------- -------------------- ---------------- -----------
<S> <C> <C> <C> <C>
$1.25 706,300 4.30 -- $ --
$3.50 1,054,600 4.44 608,600 $3.50
</TABLE>
NOTE R - SUBSEQUENT EVENTS
On July 1, 1999, the Company acquired more than 99.1% of the common stock
of 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"), for 3,000,000 shares of common stock
of the Company.
22
<PAGE>
Laidlaw Global Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
As of June 30, 1999 and December 31, 1998 and
for the three and six months ended June 30, 1999 and 1998
NOTE R (continued)
A summary of revenue, profit and loss, and earnings per share for the
following periods on a proforma basis for Laidlaw, Fitek and Westminster is
shown as follows:
<TABLE>
<CAPTION>
Euro
Domestic Note Note
Laidlaw Conversion Conversion
Global Corp Westminster (Interest) (Interest) Combined
----------- ----------- ---------- ---------- --------
<S> <C> <C> <C> <C> <C>
Six months ended
June 30, 1999
Revenue $11,840,271 $3,300,326 15,140,597
Profit and loss $ 1,381,715 $ 772,676 $160,770 $ 2,315,161
Shares outstanding basic 9,331,378 3,000,000 "Note 1" 932,683 13,264,061
Shares outstanding 11,881,037
diluted
Earnings per share
Basic .15 .26
Diluted .12 .26
Three months ended
June 30, 1999
Revenue $ 6,661,851 $1,906,908 8,568,759
Profit and loss $ 867,337 $ 287,431 $160,770 $ 1,315,938
</TABLE>
<TABLE>
<CAPTION>
Domestic
Laidlaw Note Euro-Note
Holdings Westminster Conversion Conversion Combined
-------- ----------- ---------- ---------- --------
<S> <C> <C> <C> <C> <C>
Six months ended
June 30, 1998
Revenue $10,872,326 $ -- $10,872,326
Profit and loss $ (503,734 $ (2,522) $ (506,256) (138,300) (1,148,290)
</TABLE>
23
<PAGE>
Item 2. Management's Discussion and Analysis or Plan of Operation
Management's Discussion of Operations
LAIDLAW GLOBAL CORPORATION (" the Corporation") is a global financial services
firm that operates in three activities: investment banking, sales & trading and
asset management. It has two subsidiaries that operates in all three activities:
Laidlaw Holdings, Inc. ("LHI") ( which includes Laidlaw Global Securities, Inc.
("LGS") and Howe & Rusling ("H&R") and Westminster Securities Corporation, the
N.Y.S.E. member, a subsidiary owned since July 1, 1999. It has a third
subsidiary Global Electronic Exchange, Inc. ("GEE") which is a developmental
stage company that intends to create a global on-line trading network through
the marketing of its Globeshare.com concept. The Corporation's results of
operations may be materially affected by market fluctuations and economic
factors. 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, including economic and market conditions; the availability of capital;
the level and volatility of equity prices and interest rates; currency values
and other market indices; technological changes and events (such as the
increased use of the Internet and the Year 2000 issue); the availability of
credit; inflation; investor sentiment; and legislative and regulatory
developments. Such factors may also have an impact on the Corporation's ability
to achieve its strategic objectives on a global basis, including (without
limitation) growth in assets under management, global investment banking and
brokerage services activities as well the development and expansion of GEE which
will require substantial resources.
The Corporation's Securities business, particularly its involvement in primary
and secondary markets in domestic and overseas markets is subject to substantial
positive and negative fluctuations due to a variety of factors that cannot be
predicted with great certainty, including 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.
The Corporation'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
Corporation's strategy has been to situate itself in markets where it has a
hedge over competition due to strong local connections and access. The
Corporation though global in its intervention wants to see itself as the "local
player" everywhere. 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 Corporation 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 fee-based assets that are designed to generate a
continuing stream of revenues, managing risks in both the Securities and Asset
Management. 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 Corporation to remain
profitable and competitive. Global Market and Economic Conditions in the Quarter
Ended June 30, 1999 were generally favorable. Financial markets in many regions
continued to exhibit signs of recovery from the financial and economic problems
that existed in the third and fourth quarters of fiscal 1998, during which
periods of extreme volatility, low levels of liquidity and increased credit
spreads created difficult market conditions then. On an internal basis, the
Corporation new management team has effected an internal restructuring of its
operations with an emphasis on an overall reduction of its fixed cost structure
thus allowing a quick adaptation to unexpected market conditions.
24
<PAGE>
The new Board of Directors has vowed its support to the management team
continuous effort to position the Corporation in new markets and ventures. The
Management intends to focus its activities in areas that take into consideration
the cost structure of the Corporation 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. The Global Electronic Exchange ( "GEE")
project could be very promising since the signing of Foreign members created for
all the immediate access to a global pool of potential investors. The management
has stated its goal of signing up enough Members to total in excess of 500,000
potential investors. While there are no assurances that the Management will
achieve its goal prior to year-end, it is the current objective to have the GEE
project functional and operating prior to year-end. Micro-Modeling Associates
("MMA "), a reputable software solution providers that has been voted best
Microsoft solution provider for 1998, has been hired to provide software
solutions and help in the technological implementation of the GEE venture. In
order to assure that the GEE project in its current building phase does not
drain the resources of the Corporation, GEE intends to seek financing by
accessing private sources of equity financing in the near future.
Results of the Company's for the Six Month Period ended June 30, 1999. The
Corporation's net income of $ 2.5 million in the six month period ended June 30,
1999 has represented a major turn around from the comparable periods of fiscal
1998.
Net income for the six month period ended June 30, 1998 and for the period ended
June 30,1999 have been calculated on a pro-forma basis since the Reorganization
of the corporation into a public entity has only been effective since June
8,1999 for LHI. These results do not include Westminster Securities Corp., a New
York Stock Exchange member that became a subsidiary effectively owned on July 1,
1999 following the New York Stock Exchange approval. Net income for the
six-month period ended June 30, 1999 increased dramatically from the comparable
prior year period. Diluted earnings per common share were $ .13 in the six month
period ended June 30, 1999 as compared to net losses in the quarter ended June
30,1998 which cannot be reduced to a per share item since the Corporation was
not a public entity then and had a different capital structure. The
Corporation's annualized return on common equity was 61% for the six month
period ended June 30, 1999. The same comparison for 1998 is not relevant in
light of the losses incurred in 1998 while the corporation was still in the
process of rationalizing its operations under the leadership of its new
management team.
The increase in net income in the six month periods ended June 30, 1999 from the
comparable prior year periods was primarily due to higher commissions generated
out of emerging and foreign markets where the LGS subsidiary has experience a
great level of success in establishing the LGS brand locally with our strategic
partners. Investment banking revenues were mostly generated through private
placement offerings and advisory work. The cost structure of our Investment
Banking Department having been reduced, the net contribution of that activity
has increased. In the future, the Westminster subsidiary which only became part
of the Corporation in July 1, 1999 will improve the company's exposure to
domestic private and public financing as demonstrated by Westminster revenues
stemming from the ForeignTV.com IPO in the second quarter of 1999.
25
<PAGE>
Pro-forma LAIDLAW GLOBAL CORP
Statements of Income
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
March 31, June 30,
---------------------------- ----------------------------
1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues
Gross Commissions $ 2,206,027 $ 2,632,104 $ 6,629,501 $ 5,039,119
Asset management fees
1,479,632 1,530,176 2,998,499 3,098,751
Investment income, trading profit and
Corporate finance fees 1,335,282 257,930 1,847,819 1,465,973
Other 155,271 880,925 364,453 1,268,483
------------ ------------ ------------ ------------
Total revenues 5,176,212 5,301,135 11,840,272 10,872,326
Expenses
Salary and benefits 1,610,265 1,928,400 3,147,260 3,943,291
Commissions 1,169,373 1,684,837 3,445,092 3,351,704
Clearing fees 706,701 665,829 1,405,365 1,376,429
Other 936,306 1,364,729 2,155,957 2,590,903
------------ ------------ ------------ ------------
Total Expenses 4,422,645 5,643,795 10,153,674 11,262,327
------------ ------------ ------------ ------------
Income (loss) before minority
interest and income taxes 753,567 (342,660) 1,686,598 (390,001)
Minority Interest (40,382) (52,080) (109,807) (113,732)
------------ ------------ ------------ ------------
Net income (loss) before income taxes 713,185 (394,740) 1,576,791 (503,733)
Income taxes
------------ ------------ ------------ ------------
NET INCOME (LOSS) 713,185 (394,740) 1,576,791 (503,733)
============ ============ ============ ============
Accumulated deficit
Balance, beginning of period (22,611,916) (19,302,075) (22,659,392) (19,302,075)
Balance, end of period $(21,898,727) $(19,696,814) $(21,082,601) $(19,805,808)
============ ============ ============ ============
Net income (loss) per share
Basic $ .09 $ (.07) $ .11 $ (.02)
============ ============ ============ ============
Diluted $ .09 $ (.07) $ .11 $ (.02)
============ ============ ============ ============
Weighted average number of Shares outstanding
Basic 7,829,045 5,504,983 13,233,817 6,279,670
Diluted 7,829,045 5,504,983 14,850,793 6,279,670
</TABLE>
26
<PAGE>
In the U.S., favorable market conditions and continuing market volatility
contributed to an increased volume of customer securities transactions,
including listed agency and over-the-counter equity products. Revenues from
markets in Southern Europe with a special emphasis on Greece also benefited from
higher trading volumes and market volatility in that area, as well as from the
Corporation increased cooperation with its strategic partners.
Average Balance Sheet Analysis
Six Months Ended June 30, 1999
<TABLE>
<S> <C>
ASSETS
Current assets
Cash and cash equivalents $ 3,207,923
Escrow deposit with clearing broker 2,565,887
Due from clearing broker and other receivables 1,487,191
Goodwill, net of accumulated amortization 4,410,010
Equipment and leasehold improvements, net of accumulated depreciation 633,240
Other 2,322,085
------------
Total current assets $ 14,626,336
============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Notes Payable 1,962,500
Private placement escrow fund payable 2,565,887
Accounts payable, accrued expenses and other 3,654,624
------------
Total current liabilities 8,183,011
COMMITMENTS AND CONTINGENCIES
12% SENIOR SECURED EURO-NOTES, DUE JULY, 2002 2,262,500
8% CONVERTIBLE SUBORDINATED NOTES, DUE JULY 2003 1,230,000
MINORITY INTEREST 380,189
STOCKHOLDERS' EQUITY
Preferred C Stock; 200,000 shares authorized; 2,500 shares issued 250,000
Common Stock, $.05 par value; 24,237,079 shares authorized at June 30,
1999 and 15,000,000 shares authorized at December 31, 1998;
12,644,980, and 7,829,040, shares issued and outstanding at June 30,
1999 and December 31, 1998, respectively 511,851
Additional paid - in capital 23,656,044
Retained deficit (21,847,259)
2,570,636
------------
$ 14,626,336
============
</TABLE>
27
<PAGE>
In the past, the Corporation '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 the Corporation's short-term and long-term perceived
creditworthiness. The credit worthiness of the corporation has improved
substantially as a result of the convertible note holders conversion of $ 8 M of
debt into equity. An offer to exchange the Euro-note Laidlaw Holdings 12%
yielded a strong response from the Note holders who have agreed to the exchange
$ 1.9M of the issue out of $ 2.305 M that represents the entire issue. The
change in debt structure of the Corporation will save close to $ 500,000 a year
in interest expenses. This change alone contribute to a substantial improvement
in the networth of the Corporation.
The Corporation 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. If funds are
raised through the issuance of equity securities, or securities which are
convertible into equity securities, the Company's existing shareholders may
experience additional dilution in ownership percentages or book value.
Additionally, such securities may have rights, preferences and privileges senior
to those of the holders of the Company's common stock. 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 financings will be available.
The Balance Sheet
The following table sets forth our total assets, adjusted assets, leverage
ratios and book value per share:
As of
June 1999 June 1998
(in $ except per share amounts)
Adjusted Assets (1) 19,663,799 9,641,615
Leverage Ratio (2) 2.65 17.93
Adjusted Leverage Ratio (3) 2.65 17.93
Book value per share (4) 1.32 0.25
(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 June 1999 was based on common shares
outstanding.
28
<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 has 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.
The Corporation 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.
29
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits
Financial Data Schedule for the Year Ended December 31,
1998 (period ended June 30, 1999)
Financial Data Schedule for the Year Ended December 31,
1997 (period ended June 30, 1998)
b) Reports on Form 8-K
The Registrant has filed reports on Form 8-K for
events which occurred during the quarter for which
this report is filed:
(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.
30
<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
August 20, 1999 By: /s/ Roger Bendelac
------------------
Roger Bendelac,
Executive Vice President
31
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<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1999
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0
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<TABLE> <S> <C>
<ARTICLE> BD
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1998
<CASH> 1,939,429
<RECEIVABLES> 576,515
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0
391,452
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