SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-KSB
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 For the fiscal year ended December 31, 1999
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from ___________ to ___________
Commission file number: 0-27681
LAIDLAW GLOBAL CORPORATION
(Exact Name of Registrant as Specified in its Charter)
DELAWARE 13-4093923
(State or other jurisdiction) (Employer Identification Number)
100 Park Avenue, New York, NY 10017
(Address of principal executive offices) (Zip Code)
Registrant's Telephone Number, Including Area Code: (212) 376-8800
Securities registered under Section 12(b) of the Exchange Act:
Title of each class registered: None Name of each exchange on
which registered: None
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, par value $0.00001
(Title of class)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes [X] No [ ]
Check if no disclosure of delinquent filers in response to Item 405 of
Regulation S-B is contained in this form, and no disclosure will be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [ ]
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State the issuer's revenues for its most recent fiscal year: $30,687,105
State the aggregate market value of the voting and non-voting stock held by
non-affiliates computed by reference to the price at which the stock was sold,
or the average bid and asked prices of such stock, as of a specified date within
the past 60 days. The aggregate market value of the voting and non-voting stock
held by non-affiliates of the registrant is approximately $74,399,017 as of
April 7, 2000.
State the number of shares outstanding of each of the registrant's classes of
common equity as of the latest practicable date: 26,957,430 shares of the
registrant's common stock are issued and outstanding as of April 7, 2000, not
including 2,696,196 shares issuable upon the exercise of outstanding warrants
and employee stock options.
DOCUMENTS INCORPORATED BY REFERENCE
If the following documents are incorporated by reference, briefly describe them
and identify the part of the form 10-KSB into which the document is
incorporated: (1) any annual report to security holders; (2) any proxy or
information statement; and (3) any prospectus filed pursuant to Rule 424 (b) or
(c ) of the Securities Act of 1933. None
Transitional Small Business Disclosure Format (check one): Yes [ ] No [X]
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TABLE OF CONTENTS
Page
PART I
Item 1. Description of Business......................................... 4
Item 2. Description of Property......................................... 15
Item 3. Legal Proceedings............................................... 16
Item 4. Submission of Matters to a Vote of Security Holders............. 16
PART II
Item 5. Market for Common Equity and Related Stockholder Matters........ 16
Item 6. Management's Discussion and Analysis of Financial Condition and
Results of Operations .......................................... 18
Item 7. Financial Statements............................................ 29
Item 8. Changes In and Disagreements With Accountants on Accounting
and Financial Disclosure........................................ 29
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons.... 29
Item 10. Executive Compensation.......................................... 33
Item 11. Security Ownership of Certain Beneficial Owners and Management.. 36
Item 12. Certain Relationships and Related Transactions.................. 38
Item 13. Exhibits and Reports on Form 8-K................................ 41
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Forward-Looking Statements
This report contains forward-looking statements. The forward-looking statements
include all statements that are not statements of historical fact. The
forward-looking statements are often identifiable by their use of words such as
"may," "expect," "believe," "anticipate," "intend," "could," "estimate," or
"continue," "plans" or the negative or other variations of those or comparable
terms. Our actual results could differ materially from the anticipated results
described in the forward-looking statements. Factors that could affect our
results include, but are not limited to, those discussed in Item 6,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and included elsewhere in this report.
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In this Annual Report, "Laidlaw," "we," "us," and "our" each refers to
Laidlaw Global Corporation and, where appropriate, to our subsidiaries.
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PART I
Item 1. Description of Business.
A. General
Through our subsidiaries, we provide a broad range of investment services
and products to individuals, corporations and institutions around the world. We
are increasing the coordination of our investment banking and syndicate and
trading activities, as well as focusing such activities on growth companies in
selectively targeted industries, worldwide. We have accelerated our focus on
international business, and intend to increase strategic ties with our foreign
investment partners and alliances.
B. Our Operating Subsidiaries
Laidlaw Global Securities, Inc.
Laidlaw Global Securities, formerly known as Laidlaw Equities, Inc., is a
New York based financial services corporation which was incorporated in October
23, 1986. It is a broker-dealer which is a member firm of the NASD, SIPC and
SIA. Its principal activities are institutional and retail brokerage, trading
and sales, investment banking and research. Laidlaw Global Securities conducts a
large amount of its brokerage business in foreign securities markets. In
addition to its New York offices, Laidlaw Global Securities presently maintains
offices, representative offices and associate representative offices in Hong
Kong, China; Athens, Greece; Miami, Florida; Paris, France; Geneva, Switzerland;
Barcelona, Spain; and Nassau, Bahamas.
Westminster Securities Corporation
Westminster is a New York based comprehensive professional investment
services corporation which was incorporated in 1971. It is a member of the NYSE,
NASD and SIPC. Westminster's principal activities are investment banking,
institutional and retail brokerage, market making and asset management.
Westminster also maintains an office in Miami, Florida.
Howe & Rusling, Inc.
We own an 81% interest in H&R Acquisition Corp., which owns a 100% interest
in Howe & Rusling, a 68 year old asset management company based in Rochester,
New York. Howe & Rusling's principal activities are professional investment
management.
Global Electronic Exchange Inc.
Global Electronic Exchange, a 59% owned subsidiary of Laidlaw, is a New
York based development stage corporation which was incorporated in January 26,
1999. It was established by Laidlaw to create and develop an Internet based
international investment services business, including operations in securities
trading, investment banking, asset management and real estate.
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Lead Capital S.A.
Lead Capital is an Athens based brokerage firm which was incorporated under
the laws of Greece. Lead Capital is registered with the Greek Securities
Commission.
C. Recent Developments
The Reorganization
On June 8, 1999, Laidlaw, formerly known as Fi-Tek V, Inc., acquired
approximately 99% of the issued and outstanding shares of common stock of
Laidlaw Holdings, Inc. pursuant to a Plan and Agreement of Reorganization among
Laidlaw Holdings, Fi-Tek V, Inc., Westminster and the principal stockholders of
such companies, dated May 27, 1999. The transactions contemplated by the
Reorganization Agreement were intended to be a reorganization of the corporate
parties under either or both of Sections 351 and 368(a)(1)(B) of the Internal
Revenue Code of 1986, as amended. As a result of such transactions, on June 8,
1999, Laidlaw issued 13,109,137 shares of its common stock to stockholders of
Laidlaw Holdings. Immediately prior to closing, Laidlaw caused a 1-for-32.4778
reverse split of its common stock (the "Reverse Stock Split") and thereby
reduced its issued and outstanding shares of common stock to 1,500,000 shares.
Simultaneous with closing, Laidlaw changed it name from Fi-Tek V, Inc. to
Laidlaw Global Corporation. Laidlaw Holdings remains an inactive subsidiary of
Laidlaw.
Also, pursuant to the Reorganization Agreement, on July 1, 1999, Laidlaw
acquired substantially all of the issued and outstanding common stock of
Westminster. This transaction was approved by the NYSE. Pursuant to the
Reorganization Agreement, Laidlaw acquired more than 99% of the issued and
outstanding common stock of Westminster for 4,500,000 shares of common stock.
Additionally, Laidlaw assumed the obligations of options granted to certain
employees of Westminster and therefore granted options to purchase 90,000 shares
of its common stock at a price per share of $.83. As a condition of closing,
Westminster agreed to have capital, as defined under Rule 15c3-1 of the
Securities Exchange Act of 1934 (the "Exchange Act"), of at least $600,000 at
closing. Such capital was provided in the form of subordinated loans advanced by
three stockholders of Westminster who retained nominal shareholdings in
Westminster for purposes of making such loans in compliance with applicable
Commission and NYSE rules.
On December 15, 1999, Laidlaw acquired 99% of the issued and outstanding
shares of common stock of Lead Capital, an Athens based brokerage firm
registered with the Greek Securities Commission.
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The 3-for-2 Stock Split
On September 9, 1999, a majority of the stockholders and the Board of
Directors approved a 3-for-2 stock split in the form of a stock dividend (the
"Forward Stock Split"). One share of common stock of Laidlaw was issued for each
two outstanding shares of pre-split common stock to stockholders of record as of
September 23, 1999. Furthermore, the number of shares and the exercise price of
all warrants and options issued by Laidlaw were adjusted in accordance with the
Forward Stock Split. All references in this Annual Report to shares of common
stock, warrants and options issued by Laidlaw, as well as the exercise price of
such warrants and options, have been adjusted to reflect the Forward Stock
Split.
Acquisition of Laidlaw Pacific (Asia) Ltd.
On May 20, 1999, Laidlaw entered into an agreement with Pacific USA
Holdings Corp. ("Pacific") to acquire its subsidiary Laidlaw Pacific, a Hong
Kong based investment advisor which was incorporated in June 2, 1992. On March
29, 2000, Pacific's wholly owned subsidiaries PUSA Investment Company, the 28%
shareholder of the Company ("PUSA"), and Laildaw Pacific Financial Services Ltd.
completed an amended and restated agreement to acquire Laidlaw Pacific. The
amount paid was 200,000 shares of common stock of Laidlaw and $HK 4 million.
Laidlaw Pacific agreed to pay a dividend to Laidlaw Pacific Financial Services
Ltd. equal to $HK 3 million. Further it consented to grant an option to Laidlaw
to receive a dividend equal to $HK 4 million, should it elect to withdraw such
funds from Laidlaw Pacific. PUSA Investment Company represented to Laidlaw that,
at the time of closing, Laidlaw Pacific would have cash in the amount of $HK 11
million, all licenses to engage in the investment banking business in Hong Kong,
and no liabilities. Laidlaw Pacific is a registered Dealer and Investment
advisor with the Hong Kong Securities and Futures Commission. Its principal
activities are corporate financial advisory services.
D. Our Strategy
We have carefully developed a strategic plan involving internal
restructuring and selective aggressive expansion in order to focus our resources
on achieving our goal of becoming a high quality, highly profitable, global
investment bank. We seek to specialize in middle market investment opportunities
while servicing a strong client base of high net-worth individuals and
institutions worldwide. We will specifically concentrate on building sales and
distribution, investment banking activities, assets under management and
securities brokerage.
Through our stockholders, senior management team, and strategic alliances,
we have access to resources, companies and investors worldwide. We are confident
that our relative size enhances our ability to service middle market
corporations, and to provide proprietary products for our clients more
efficiently than larger firms.
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We continue to build a sales and marketing team of professionals committed
to asset management, corporate finance and securities brokerage. By developing a
team that drives the entire organization, we can objectively source and generate
a high quality deal flow of new middle market clients based on an investment
driven approach to the business. Our strategic plan focuses on the following
areas:
o Cost Containment: We will seek to minimize operating costs and convert
fixed costs to variable costs, where appropriate. Recently, decisions
were made to enhance the profitability of Laidlaw by reviewing and
reorganizing its operating infrastructure, which resulted in
significant expense reduction. Select regional offices were closed in
order to build the core business in New York and concentrate human and
financial capital on those areas which more efficiently serve
Laidlaw's focus as a global firm.
o Brokerage: A focal point of our strategic initiative is to restructure
and build our brokerage base. Management intends to use its industry
contacts and Laidlaw's full range of available products and services
to attract high net-worth retail and institutional sales producers.
o Asset Management: Going forward, we intend to further integrate the
operations of our subsidiaries which provide asset management
services, and increase assets under management. We plan to accomplish
this by aggressively marketing our asset management business,
leveraging the long standing quality reputation of Howe & Rusling,
Westminster and Laidlaw Pacific and continuing the successful
management of portfolios.
o Capital Markets: We intend to increase our origination of domestic and
international equity and fixed income products. To implement this
strategy, we are increasing the coordination of our research,
investment banking, syndicate and equity trading activities to focus
on middle market and growth companies in a group of core industries.
By focusing our activities, we expect to enhance our reputation in
such industry groups and increase our penetration, leading to the
execution of a greater volume of higher margin transactions.
Additionally, we expect to increasingly leverage our relationships
with Laidlaw's foreign affiliates and partners, in order to
participate and originate products from and for the international
markets.
o Global On-Line Trading: Because we believe that the needs of our
clients are global and that the online brokerage industry is
experiencing rapid growth, we have launched a unique online trading
platform that allows investors to have access to international
financial markets through the increasingly convenient and reliant
medium of the Internet.
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E. Lines of Business
Traditional Trading and Brokerage Services
Laidlaw Global Securities: Laidlaw Global Securities provides professional
brokerage services to both institutional and individual investors. Laidlaw
Global Securities is focused to meet the needs of the sophisticated investor by
offering a full range of investment strategies and services including domestic
and international equities, bonds, debt securities, mutual funds, government
securities, new public and private offerings, retirement services and life
insurance/annuity products. In addition, Laidlaw Global Securities provides
proprietary product offerings for investment clients by specializing in firm
research and client underwriting of small to mid-capitalization companies with
market capital under $500 million.
An experienced trading staff and syndicate department at Laidlaw Global
Securities allow Laidlaw's institutional and individual clients to participate
in new debt and equity offerings. During the course of the 1999 syndicate year,
Laidlaw Global Securities participated in numerous syndicate offerings,
originating both in the United States and in foreign markets.
Laidlaw Global Securities offers its clients financial services, securities
transaction, and account maintenance capabilities available through an alliance
with Pershing, a Division of Donaldson, Lufkin and Jenrette Securities Corp.
("Pershing"), a leading provider of correspondent brokerage clearing house
services. Pershing offers Laidlaw Global Securities clearing capabilities and
investment services specifically developed for the securities industry.
For some non-dollar denominated equity and debt transactions, Laidlaw
Global Securities clears through Arnold & S. Bleichroeder, Inc., which provides
access to stocks listed on over 40 exchanges throughout the world and with
substantial coverage in the leading emerging market countries.
Westminster: Westminster provides professional execution services for
investors interested in trading in virtually every financial market. Westminster
buys and sells equities, options, fixed-income securities, mutual funds and unit
investment trusts while offering very competitive commission prices.
Westminster, which is a member of the NYSE, trades on all major exchanges and is
a principal market maker in several select Over-the-Counter securities. In
trading, Westminster focuses on maximizing clients' financial security by
providing informed, intelligent investment services.
Through Pershing, Westminster offers a full range of retirement plans to
individuals, corporate employees, and self-employed professionals. Westminster
also provides fee-based management account programs that offer access to top
institutional money managers. Through Pershing, Westminster also offers PROCASH,
a consolidated asset management account combining brokerage services, free check
writing, a MasterCard(R) Debit card, and other cash flow management activities.
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Westminster believes that by employing its strategic initiative to build a
relatively small but high quality group of brokers, it will be able to
efficiently provide a high level of support and service to its core broker base
thereby increasing broker productivity, expanding production, and improving the
quality of the business generated. Furthermore, by providing a flexible
environment with access to proprietary products, management support, individual
attention and full product and staff support, Westminster believes that it will
be able to retain and improve broker productivity and recruit experienced higher
revenue producing brokers.
Lead Capital: Lead Capital provides professional brokerage services to
investors primarily investing in securities listed on the Athens Stock Exchange.
In 1999, Lead Capital did not contribute a significant amount of income to the
operations of Laidlaw.
Global On-Line Trading and Investment Services
Global Electronic Exchange: Global Electronic Exchange is a recently formed
corporation which intends to establish itself as an Internet based international
investment services business, including operations in securities trading,
investment banking, asset management and real estate. Through its wholly owned
broker-dealer subsidiary Globeshare, Inc., Global Electronic Exchange provides
international trading through a network of member firms. Globeshare intends to
operate as an Internet based securities firm through its web site
Globeshare.com. Globeshare initially commenced operations as a division of
Laidlaw Global Securities. To date, Globeshare has only conducted business
within the United States and has not generated significant revenue. Laidlaw also
presently owns the domain names GlobeBond.com and GlobeProperty.com and will
utilize these names to develop future Internet based businesses.
On January 27, 2000, Global Electronic Exchange, through Globeshare, Inc.,
launched global trading operations using Globeshare.com as its online trading
platform. Globeshare became a member of the NASD on February 8, 2000. To date,
securities trades are executed through Laidlaw's affiliate Laidlaw Global
Securities. Globeshare will operate independently on or prior to May 31, 2000.
The system launched and currently being developed by Globeshare will
eventually link it with brokerage firms in approximately 50 countries.
Capitalizing on the foreign contacts of Laidlaw, its subsidiaries and
affiliates, Global Electronic Exchange intends to develop strategic affiliations
with established brokerage firms throughout the world, and to date has entered
into agreements with 10 foreign registered brokerage firms representing 15
exchanges located outside the United States. The affiliations with foreign
registered securities firms will result in an international network of member
firms. The agreements with the network members provides for exclusivity with
Globeshare. This membership network provides investors of these member firms to
utilize the Globeshare web site to trade securities throughout the world.
Investors are able to trade in the countries where Globeshare has a network
affiliate member by either becoming a client of Globeshare or an online customer
of the member firm where the investor resides. For example, an individual
residing in the United States may now enter the Globeshare.com web site and
place an order to sell or buy securities on any foreign exchange where the
company has a foreign affiliate, such as an exchange located in France or Spain.
Similarly, investors residing in Spain may enter the GlobeShare.com web site and
enter an order to trade on the French or United States exchanges.
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Global Electronic Exchange expects to earn a transaction fee on every
security transaction that is initiated through the Globeshare.com site. Aside
from earning a fee of $25.00 for every trade executed outside the United States,
Globeshare will obtain a 20%-40% share of the executing commissions earned by
its foreign strategic partners, and conversely will pay the strategic partners
20% of Globeshare's transaction fee. In other words, the customer's brokerage
firm will receive approximately 20% of the commissions paid to Globeshare. For
trades executed in the United States equity markets, Global Electronic Exchange
expects to charge $29.95 per trade and, as the executing broker, Globeshare will
retain 80% of the commission charges after clearing and execution charges.
Global Electronic Exchange may currently trade Australian, British, Canadian and
Japanese stocks through a U.S. market maker.
As of March 10, 2000, Global Electronic Exchange has entered into
agreements with 10 broker-dealers operating in 15 countries, allowing customers
when the network becomes fully operational, to execute trades in over 24
exchanges, including all U.S. exchanges and the Argentinean, Belgian, EASDAQ,
French, German, Greek, Hong Kong, Indonesian, Luxembourg, Netherlands, Peruvian,
Portuguese, Spanish, Thai, Turkish, and Uruguayan Bourses. Laidlaw expects to
reach affiliate agreements with other brokerage firms in Australia, Brazil,
Chile, Greece, India, Japan, Mexico, South Africa, Sweden, Taiwan, and the
United Kingdom in the next few months and will continue to expand its
affiliations.
Investment Banking
Laidlaw Global Securities: Laidlaw Global Securities has the platform to
emerge as a global investment bank for middle-market companies. Laidlaw Global
Securities' investment banking professionals have completed numerous private
placements, public stock offerings, and secondary equity and debt offerings.
Since January of 1997, Laidlaw Global Securities has acted as either lead
underwriter or co-underwriter in the following public offerings: Puro Water,
Inc., Asia Pacific Wire & Cable Company, Augment Systems, Inc., Scheid
Vineyards, Inc., JinPan International, Ltd. and Newmark Homes Corp. Laidlaw
Global Securities also acts as a financial advisor to a number of middle-market
companies in developing strategies for maximizing shareholder value. Laidlaw
Global Securities provides fairness opinions and valuations, advice on
recapitalization, mergers and acquisitions, advice on selling companies, and
assistance with the private placement and public distribution of securities in
the United States and abroad.
By providing experienced counsel to middle-market and growth companies,
where the market capitalizations are less than $500 million, Laidlaw Global
Securities is well-positioned in an important market niche. Laidlaw Global
Securities' investment professionals offer domestic clients an opportunity to
extend their investment offerings beyond the United States, to key international
markets, while also assisting international companies who desire access to the
United States.
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Westminster: Westminster offers a full range of investment banking
services, principally corporate finance and merger and acquisition services to
emerging growth and middle-market companies.
Westminster has considerable experience and expertise in arranging public
offerings, both initial and secondary, and private placement offerings for firms
ranging from small start-up companies to well-established corporations. Since
1997, Westminster has served as an underwriter for the public offering of
Medium4.com, Inc.
Westminster assists clients in raising debt, mezzanine and equity capital
through both public and private markets. Maintaining relationships with a large
number of lenders and equity investors, both institutional and high net-worth
investors, enables Westminster to generate significant levels of private
financing. Additionally, Westminster is capable of underwriting equity offerings
and providing bridge financing through its retail brokerage operations and
institutional sales people.
Westminster also provides merger and acquisition advisory services.
Westminster's banking staff assist clients in selling all or part of their
businesses by preparing offering memoranda, identifying appropriate qualified
financial buyers from extensive contact lists, and conducting management
presentations and due diligence reviews. In addition, Westminster assists
acquirers by identifying attractive investment opportunities, and by creatively
structuring and placing acquisition financing.
Laidlaw Pacific: Laidlaw Pacific offers a full range of corporate financial
advisory services to clients including arranging initial public offerings,
placing rights issues, takeovers, corporate restructuring and the underwriting
of equities. Laidlaw Pacific has launched various fund raising activities
throughout the Pacific Rim and in the United States. It has acted as sponsor and
underwriter of numerous takeover, merger and acquisition activities. Laidlaw
Pacific's investment banking strategy is to focus on initial public offerings by
Internet corporations.
Asset Management and Investment Services
Howe & Rusling: Laidlaw owns an 81% interest in H&R Acquisition Corp. whose
wholly owned subsidiary Howe & Rusling is primarily engaged in asset management
and services. Howe & Rusling was founded in 1930, and has successfully built and
managed investment portfolios for over 470 institutional and high net-worth
clients. Howe & Rusling's client base includes high-net worth individuals,
qualified retirement plans, and endowment funds and corporations.
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Howe & Rusling's successful investment approach is based on a conservative
philosophy of building long term asset growth through low volatility
investments. Management believes that this investment approach has resulted in
one of the highest client retention rates among investment management firms.
Howe & Rusling's average client retention is 98% per year. Nelson Publication's
"World's Best Money Managers" ranked Howe & Rusling in the top 4% of 303
Balanced Managers for the three years ended 1998. In addition, Money Manager
Review's "The Best Performing Managers" ranked Howe & Rusling in the top 1% of
314 Balanced Managers as of year-end 1998.
Since Laidlaw's purchase of majority control of Howe & Rusling, assets
under management have grown from approximately $450 million in October 1996 to
$765 million as of November 30, 1999. The key element of our strategic plan is
to build our asset management business by globally expanding the base of
institutional and high net-worth clients.
Laidlaw Global Securities: Laidlaw Global Securities is also a registered
investment advisory firm, and such, provides services including performance
monitoring selection of third party investment managers, and discretionary asset
management. The investment advisory services offered by Laidlaw Global
Securities are tailored for a variety of clients, including individuals, pension
and profit-sharing plans, trusts and estates, charitable organizations,
corporations and other businesses.
F. Employees
As of April 7, 2000, we had 127 employees, of which 62 are employed
full-time at Laidlaw Global Securities, 14 are employed full-time and 3 are
employed part-time at Westminster, 23 are employed full-time at Howe & Rusling,
8 are employed full-time and 3 are employed part-time at Global Electronic
Exchange, and 14 are employed full-time at Lead Capital. We believe that one of
our strengths is the quality and dedication of our employees and the shared
sense of being a part of a team. We strive to maintain a work environment that
fosters professionalism, excellence, diversity and cooperation among our
employees. Our future success will depend, in part, on our ability to continue
to attract, retain and motivate highly qualified technical and management
personnel, for whom competition is intense. Our employees are not covered by any
collective bargaining agreement, and we have never experienced a work stoppage.
We believe our relations with our employees are good.
G. Competition
The financial services industry is intensely competitive, and we expect it
to remain so. Our competitors are other brokers and dealers, online brokerage
businesses, investment banking firms, insurance companies, investment advisors,
mutual funds, hedge funds, commercial banks and merchant banks. We compete with
some of our competitors globally and with some others on a national and regional
basis. We compete on the basis of a number of factors, including transaction
execution, our products and services, innovation, reputation and price.
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Competition is also intense for the attraction and retention of qualified
employees. Our ability to continue to compete effectively in our businesses will
depend upon our ability to attract new employees and retain and motivate our
existing employees.
In recent years there has been a significant consolidation and convergence
in the financial services industry. Commercial banks and other financial
institutions have established or acquired broker-dealers or have merged with
other financial institutions. These firms have the ability to offer a wide range
of products, from loans, deposit-taking and insurance to brokerage, asset
management and investment banking services which may enhance their competitive
position. They also have the ability to support investment banking and
securities products with commercial banking, insurance and other financial
services revenues in an effort to gain market share.
We believe that some of our most significant challenges and opportunities
will arise outside the United States. In order to take advantage of these
opportunities, we will have to compete successfully with financial institutions
based in important foreign markets, particularly in Europe. Some of these
institutions are larger, better capitalized and have a stronger local presence
and a longer operating history in these markets.
Many of our competitors have significantly greater financial, technical,
marketing and other resources than we do. Some of our competitors also offer a
wider range of products and services than we do and have greater name
recognition, more established reputations and more extensive client and customer
bases. These competitors may be able to respond more quickly to new or changing
opportunities, technologies and customer requirements due to superior systems
capabilities. They may also be better able to offer more attractive terms to
customers and clients and adopt more aggressive pricing and promotional policies
compared to our firm.
Once our online brokerage business becomes operational through Global
Electronic Exchange, it is anticipated that we will compete with discount
brokerage firms, which generally execute transactions for customers while
offering other services such as research, portfolio valuation and investment
recommendations. We will compete directly with approximately one hundred
discount brokerage firms already operating on the Internet. The number of online
discount brokers will likely increase rapidly if the favorable treatment of
these firms by the equity market continues. It is also anticipated that our
online brokerage business will also encounter competition from established
full-commission brokerage firms. Many of these brokerage firms have also begun
conducting business online.
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H. Trademarks
We have applied for registration for a variety of trademarks in the United
States and abroad for use in the businesses of our subsidiaries. In the United
States we have applied for the trademarks LAIDLAW GLOBAL, GLOBEBOND, GLOBAL
ELECTRONIC EXCHANGE, GLOBEPROPERTY and GLOBESHARE. The GLOBESHARE trademark has
also been applied for in Argentina, Brazil, China, the European Union, Hong
Kong, Japan and Thailand. To date, no registrations have yet been issued. We
regard our intellectual property as being an important factor in the marketing
of Laidlaw. We are not aware of any facts which would negatively impact our
continuing use of our trademarks.
I. Regulation
Regulation of the Securities Industry and Broker-Dealers
The securities industry - and all of our businesses - is subject to
extensive regulation under both federal and state laws. In the United States,
the Commission is the federal agency responsible for the administration of the
federal securities laws. Laidlaw Global Securities and Westminster are member
NASD firms and registered investment advisors with the Commission. Howe &
Rusling is also a registered investment adviser with the Commission. Securities
firms are subject to regulation by the Commission and by self-regulatory
organizations ("SROs"), including but not limited to the NASD, the Municipal
Securities Review Board (the "MSRB") and national securities exchanges such as
the NYSE. Securities firms are also subject to regulation by state securities
administrators in those states in which they conduct business. Laidlaw Global
Securities is a registered broker-dealer in 50 states, the District of Columbia
and the Commonwealth of Puerto Rico. Failure to comply with the laws, rules or
regulations of the Commission, SROs and state securities commissions may result
in censure, fine, the issuance of cease-and-desist orders or the suspension or
expulsion by such entities of a broker-dealer, an investment adviser, officers,
or employees. The Commission and SROs regulate many aspects of our business
including trade practices among broker-dealers, capital structure and
withdrawals, sales methods, use and safekeeping of customers' funds and
securities, the financing of customers' purchases, broker-dealer and employee
registration and the conduct of directors, officers and employees. Additional
legislation, changes in the rules promulgated by SROs or changes in the
interpretation of enforcement of existing rules, either in the United States or
elsewhere, may directly affect the mode of operation and profitability of
Laidlaw.
We are subject to foreign law and the rules and regulations of foreign
governmental and regulatory authorities in virtually all countries where we have
offices. This may include laws, rules and regulations relating to any aspect of
the securities business, including sales methods, trade practices among
broker-dealers, use and safekeeping of customers' funds and securities, capital
structure, record-keeping, the financing of customers' purchases, broker-dealer
and employee registration requirements and the conduct of directors, officers
and employees.
14
<PAGE>
Effect of Net Capital Requirements
As a registered broker-dealer and member of various SROs, we are subject to
the Uniform Net Capital Rule under the Exchange Act. The Uniform Net Capital
Rule specifies the minimum level of net capital a broker-dealer must maintain
and also requires that at least a minimum part of its assets be kept in
relatively liquid form. As of December 31, 1999, our broker-dealer subsidiaries
including Laidlaw Global Securities and Westminster were required to maintain
minimum net capital of $158,519 and $100,000 respectively and had total net
capital of approximately $3,783,827 and $1,306,555 respectively. Of the net
capital maintained by Westminster, $600,000 was advanced in the form of
subordinated debt by the shareholders of the company.
The Commission and various SROs impose rules that require notification when
net capital falls below certain predefined criteria, dictate the ratio of debt
to equity in the regulatory capital composition of a broker-dealer and constrain
the ability of a broker-dealer to expand its business under certain
circumstances. Additionally, the Uniform Net Capital Rule imposes certain
requirements that may have the effect of prohibiting a broker-dealer from
distributing or withdrawing capital and requiring prior notice to the Commission
for certain withdrawals of capital.
We are an active participant in the international fixed income and equity
markets. Many of our subsidiaries that participate in those markets are subject
to comprehensive regulations that include some form of capital rule and other
customer protection rules.
Compliance with net capital requirements of these and other regulators
could limit those operations of our subsidiaries that require the intensive use
of capital, such as underwriting and trading activities and the financing of
customer account balances, and also could restrict our ability to withdraw
capital from our regulated subsidiaries, which in turn could limit our ability
to repay debt or pay dividends on our common stock.
Application of Securities Act and Exchange Act to Internet Business
The Securities Act governs the offer and sale of securities. The Exchange
Act governs, among other things, the operation of the securities markets and
broker-dealers. When enacted, the Securities Act and the Exchange Act did not
contemplate the conduct of a securities business through the Internet. Although
the Commission, in releases and no-action letters, has provided guidance on
various issues related to the offer and sale of securities and the conduct of a
securities business through the Internet, the application of the laws to the
conduct of a securities business through the Internet continue to evolve.
Uncertainty regarding these issues may adversely affect the viability and
profitability of our business.
Item 2. Description of Property.
Our principal executive offices, which are occupied by Laidlaw, Laidlaw
Global Securities, Westminster and Global Electronic Exchange, are located on
the 25th, 27th, 28th and 29th floors at 100 Park Avenue, New York, New York and
comprise approximately 30,467 square feet of leased space. The lease of space
located on the 25th and 27th floors expires in 2005 and the lease of space
located on the 28th and 29th floors expires in 2010.
15
<PAGE>
Outside New York, Laidlaw Global Securities occupies 900 square feet of
office space in Miami, Florida. Westminster occupies 650 square feet of office
space in Miami, Florida. Howe & Rusling's executive office is located at 120
East Avenue, Rochester, New York. Howe & Rusling leases office space aggregating
approximately 7,333 square feet under a lease that expires February 28, 2007.
Consistent with our global approach to our business, Laidlaw Global
Securities also leases on a month-to-month basis 500 square feet of office space
in Paris, France. Laidlaw Global Securities and Lead Capital lease on a
month-to-month basis 1,500 square feet of office space in Athens, Greece.
Item 3. Legal Proceedings.
In the normal course of business, we are subject to various legal
proceedings. However, in management's opinion, there are no legal proceedings
pending against us or any of our subsidiaries that would have a material adverse
effect on our financial position, results of operations or liquidity.
Item 4. Submission of Matters to a Vote of Security Holders.
No matters were submitted to a vote of security holders during the fourth
quarter of the fiscal year ended December 31, 1999.
Item 5. Market for Common Equity and Related Stockholder Matters.
Market Information
The common stock of Laidlaw is traded on the OTC Bulletin Board. Since the
acquisition of Laidlaw Holdings on June 8, 1999, the common stock has been
traded under the symbol LAIG. Prior to the acquisition, the common stock was
traded under the symbol FTKV. The following table sets forth the closing high
and low bid prices for each of the periods indicated below for Laidlaw's common
stock. The market prices have been adjusted to give retroactive effect to the
Reverse Stock Split and the Forward Stock Split. The quotations reflect
inter-dealer prices, without retail mark-up, mark-down or commission and may not
represent actual transactions:
<TABLE>
<CAPTION>
--------------------------------------------
1999 1998
--------------------------------------------
Bid Prices Bid Prices
--------------------------------------------
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Period High Low High Low
- ----------------------------------------------------------------------------------------
First Quarter............................. -- -- -- --
- ----------------------------------------------------------------------------------------
Second Quarter............................ $13.42 $0.43 -- --
- ----------------------------------------------------------------------------------------
Third Quarter............................. $21.08 $12.50 -- --
- ----------------------------------------------------------------------------------------
Fourth Quarter............................ $18.125 $7.625 -- --
- ----------------------------------------------------------------------------------------
</TABLE>
16
<PAGE>
Holders
On April 7, 2000, there were 204 holders of record of Laidlaw's common
stock.
Dividends
Laidlaw has never declared or paid cash dividends on its common stock.
Laidlaw currently intends to retain earnings, if any, to support its growth
strategy and does not anticipate paying cash dividends in the foreseeable
future. Payment of future dividends, if any, will be at the discretion of
Laidlaw's Board of Directors after taking into account various factors,
including Laidlaw's financial condition, operating results, current and
anticipated cash needs and plans for expansion.
Application for Listing On The American Stock Exchange
In January 2000, we made application to trade our common stock on The
American Stock Exchange. No assurance can be given that such application will be
approved, nor can we predict when any action will be taken under such
application.
Recent Sales of Unregistered Securities
Issuance pursuant to the Reorganization: On June 8, 1999, Laidlaw, formerly
known as Fi-Tek V, Inc., acquired approximately 99% of the issued and
outstanding shares of common stock of Laidlaw Holdings pursuant to a Plan and
Agreement of Reorganization among Laidlaw Holdings, Fi-Tek V, Inc., Westminster
and the principal stockholders of such companies, dated May 27, 1999. As a
result of such transactions, on June 8, 1999, Laidlaw issued 13,109,137 shares
of its common stock to stockholders of Laidlaw Holdings. Also, pursuant to the
Reorganization Agreement, on July 1, 1999, Laidlaw issued 4,500,000 shares of
common stock for substantially all of the issued and outstanding common stock of
Westminster. See Description of Business - Recent Developments - The
Reorganization.
Issuance of 12% Senior Secured Euro-Notes Due 2002 (the "Euro-Notes"): From
April 1997 to May 1997, Laidlaw Holdings offered, on a "best efforts" basis a
minimum of 50 Units and a maximum of 80 Units, each Unit consisting of 5 year
12% Senior Secured Notes in the principal amount of $100,000 and a 5 year
warrant to purchase 6,881 shares of non-voting common stock of Laidlaw Holdings,
at an exercise price of $4.36 per share (the "Common Stock Purchase Warrants").
Euro-Notes in the aggregate principal amount of $2,305,000 were sold. The
Euro-Notes were sold to (i) 3 domestic accredited investors pursuant to an
exemption from registration under Regulation D of the Securities Act; and to
(ii) 15 foreign accredited investors under Regulation S of the Securities Act.
Subsequent to the Reorganization, Laidlaw granted to holders of the
Euro-Notes the right to exchange the Euro-Notes and Common Stock Purchase
Warrants issued with the Euro-Notes for shares of common stock of Laidlaw at the
rate of $2.05 per share for each Euro-Note exchanged, and the right to obtain
common stock of Laidlaw upon exercise of the Common Stock Purchase Warrants
issued with the Euro-Notes upon the same terms and conditions of such warrants.
To date, 15 holders of Euro-Notes aggregating $1,876,000 in principal amount
have exchanged their notes for shares of Common Stock of Laidlaw.
17
<PAGE>
Issuance of 8% Convertible Subordinated Notes Due 2000 (the "Convertible
Notes"): From July 1998 to June 1999, Laidlaw Holdings offered, on a "best
efforts" basis, 8% Convertible Notes due 2000 in the minimum aggregate amount of
$1,000,000 and a maximum of $8,000,000. The Convertible Notes, are convertible
into common stock of Laidlaw Holdings at a price of $2.05 per share, subject to
adjustment under certain conditions. Interest on the Convertible Notes shall
accrue on a semi-annual basis until the date of the conversion. 125 Convertible
Notes aggregating $8 million in principal were sold. The Convertible Notes were
sold to (i) 19 domestic accredited investors pursuant to an exemption from
registration under Regulation D of the Securities Act; and to (ii) 50 foreign
accredited investors under Regulation S of the Securities Act.
Subsequent to the Reorganization, Laidlaw assumed the obligations of
Laidlaw Holdings with respect to the conversion rights of holders of the
Convertible Notes. As a result, holders of the Convertible Notes could convert
such notes into common stock of Laidlaw at the rate of $2.05 per share, upon the
same terms and conditions of conversion privileges set forth in the Convertible
Notes. To date, 69 holders of Convertible Notes aggregating $8 million in
principal amount have converted their notes into shares of common stock of
Laidlaw.
Item 6. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Overview
Laidlaw Global Corporation is a global financial services firm that
operates in three business segments: investment banking, sales and trading and
asset management. It has two subsidiaries that operate in all three segments:
Laidlaw Holdings, Inc., a holding company which owns 100% of Laidlaw Global
Securities, Inc., and 81% of Howe & Rusling, Inc., and Westminster Securities
Corporation, a NYSE member firm which was acquired by Laidlaw on July 1, 1999.
Laidlaw has a third subsidiary Global Electronic Exchange Inc. which is a
development stage company that is in the process of creating a global on-line
trading network through its broker-dealer subsidiary Globeshare, Inc. Globeshare
commenced its U.S. operation in October 1999 and is operated as a division of
Laidlaw Global Securities. Globeshare, a wholly owned subsidiary of Global
Electronic Exchange has received approval for NASD membership as a broker-dealer
on February 8, 2000. Operations of the on-line broker will transfer from
Globeshare as a division of Laidlaw Global Securities to Globeshare on or prior
to May 31, 2000.
Laidlaw's results of operations for the year ended December 31, 1999 and
1998 are herein discussed. All share and per share information presented herein
have been retroactively adjusted to reflect the three-for-two stock split,
effected in the form of a stock dividend, declared September 9, 1999 and payable
October 14, 1999 to shareholders of record as of September 23, 1999. For the
purpose of this analysis, the operating subsidiaries acquired by Laidlaw are
deemed retroactively consolidated into the public company.
18
<PAGE>
Market fluctuations and economic factors may materially affect Laidlaw'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 are important factors which may
affect Laidlaw'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 Laidlaw'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 Global Electronic Exchange which will continue to require
substantial resources.
Laidlaw'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.
Laidlaw'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 Laidlaw's
strategy has been to situate itself in markets where it believes it has an
advantage over competition due to strong local connections and access to foreign
brokerage firms and investors. Laidlaw 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. Laidlaw 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. Laidlaw'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 Laidlaw to remain profitable
and competitive.
19
<PAGE>
Laidlaw believes that technological advancements in the Internet and the
growth of electronic commerce will continue to present both challenges and
opportunities to Laidlaw and could lead to significant changes and innovations
in the financial markets and financial services industry as a whole. Laidlaw's
initiatives in this area have included the participation in the development of
Global Electronic Exchange which proposes both an intended financial portal
under the name GEE Link and the on-line broker, Globeshare, currently enabling
investors to purchase securities in 22 different equity markets around the
world. Laidlaw expects to continue to augment these initiatives in the future
with the stated goal of making the Globeshare system operational for 50
different equity markets worldwide.
Global market and economic conditions were generally favorable during much
of fiscal 1999. Financial markets within many regions exhibited improved
performance and, although experiencing periods of volatility, benefited from a
succession of global interest rate cuts which were made in late 1998. These
interest rate actions helped stabilize economies throughout the world and
contributed to the global recovery from the extremely turbulent and uncertain
conditions that existed during the latter half of fiscal 1998. During that
period, severe economic turmoil in Russia, Asia and certain emerging market
nations adversely affected investor confidence and led to periods of high
volatility, low levels of liquidity and increased credit spreads, creating
difficult conditions in the global financial markets. The improved global market
and economic environment contributed to Laidlaw's record results in fiscal 1999.
Laidlaw's securities business generated record levels of net income and net
revenues.
In the U.S., market conditions benefited from robust corporate earnings and
the strong performance of the domestic economy, which continued to exhibit
positive fundamentals and a high rate of growth. During much of fiscal 1999, the
U.S. economy was characterized by several favorable trends, such as historically
low levels of unemployment, high levels of consumer confidence and spending, and
a high demand for imports. The domestic economy also was positively impacted by
the overall improvement in global market and economic conditions, as many
non-U.S. regions continued to recover from the difficult conditions that existed
during the end of fiscal 1998. However, throughout fiscal 1999, there were
persistent indications that U.S. economic growth was proceeding at a brisk pace
and at a higher rate than anticipated. Such indications, coupled with the tight
domestic labor market, increasing wage pressures and the renewed vigor in
international markets, led to fears of accelerating inflation. In an effort to
slow the U.S. economy and to mitigate inflationary pressures, during fiscal 1999
the Federal Reserve Board (the "Fed") raised the overnight lending rate by 0.25%
on three separate occasions and also raised the discount rate by 0.25% on two
separate occasions. Such increases reversed the Fed's interest rate actions that
occurred in the fourth quarter of fiscal 1998, when it lowered the overnight
lending rate by a total of 0.75%. At the conclusion of fiscal 1999, the Fed
announced that it was adopting a neutral bias toward interest rates. However,
there still remained much uncertainty as to whether additional interest rate
actions might be taken in the event that indications of inflationary pressures
continue to persist in the future.
20
<PAGE>
Mergers and acquisitions were robust during fiscal 1999. During fiscal
1999, there also was a significant increase in the volume of cross-border
transactions, primarily driven by higher levels of activity in the European
merger and acquisition markets. In 1999, Laidlaw Global Securities acted as
intermediary in the purchase of 80% of the outstanding shares of Newmark Homes,
Corp. a U.S. publicly traded company, by Technical Olympic, a listed concern on
the Athens Exchange.
The markets for the underwriting of securities also were positively
impacted by the generally favorable market and economic conditions which existed
during much of fiscal 1999. Laidlaw's subsidiaries have mostly benefited through
the initiation of private financings which largely contributed to its investment
banking revenues.
It is Laidlaw's current objective to have the Global Electronic Exchange
project functional and operating prior to year-end with respect to accessing,
through local securities firms, the foreign markets already signed on. Plural
(formerly known as Micro-Modeling Associates) a software solution provider has
continued to be associated closely in providing Laidlaw with software solutions
and technological assistance for the Global Electronic Exchange venture. In
order to assure that the Global Electronic Exchange project in its current
building phase does not drain the resources of Laidlaw, Global Electronic
Exchange has accessed financing through private sources of equity financing. In
doing so, the dilution effect to Laidlaw's stake in Global Electronic Exchange
was kept to a minimum. In 2000, Laidlaw intends to further finance its Global
Electronic Exchange efforts through additional private placements.
Currently all the strategic partnership agreements signed by Global
Electronic Exchange provide for revenue sharing based on the source of the
customer and the location of the trade. Other than maintenance of the trading
systems and web sites, Laidlaw and its subsidiary have no financial obligations
to any of the strategic partners that are participating in the trading
Globeshare network.
The new Board of Directors has continued its efforts to position Laidlaw in
new markets and ventures. Management has continued to focus its activities in
areas that take into consideration the cost structure of Laidlaw 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.
Results of Operations
For the Years Ended December 31, 1999 and 1998
Laidlaw went from a net loss of $3.3 million in fiscal 1998 (excluding the
results of operations of Westminster) to a net income of $5.0 million on a
consolidated basis.
21
<PAGE>
Laidlaw took advantage of its loss-carry forward to the extent of
$5,212,602. It expects to continue using these tax benefits in 2000 and as a
result has made a provision for $800,000 in its net income based on the
potential economic benefit to be drawn from its unused tax loss, assuming a
level of activity in 2000 that equals or surpasses 1999.
Basic earnings per common share increased to $.26 in fiscal 1999 compared
to a loss of $.48 in fiscal 1998.
The increase in net income for the year ended December 31, 1999 from the
prior year was due to both the re-structuring of its operations and to higher
commissions generated out of emerging and foreign markets. The Laidlaw Global
Securities subsidiary has experienced a great level of success in establishing
the Laidlaw Global Securities brand locally with our strategic partners. Private
placement offerings and advisory work mostly generated investment banking
revenues with a large advisory fee in the fourth quarter of 1998 generated from
the Newmark Homes transaction.
The operational restructuring of Laidlaw took place under the leadership of
Anastasio Carayannis who was made the Chief Operating Officer of the Laidlaw
Global Securities subsidiary in the Fall of 1998 and the Chief Executive Officer
on or about December 1999. Roger Bendelac who was heading Strategic Affiliates
and Branches for Laidlaw Global Securities was made the Chief Operating Officer
of the Laidlaw Global Securities subsidiary in December 1999.
The restructuring commenced in the summer of 1998. All Departments and
functions of the firms were affected. The Corporate Finance Department
essentially became the service arm of the strategic alliances of Laidlaw while
at the same time refocusing its efforts toward Private Financing and Advisory
work. A reduction in personnel to reflect the demands made on a lighter
structure saved in excess of 30% of the salary costs of that Department. The
same process took place with respect to the Operations Department and the
Compliance Department of the Laidlaw Global Securities subsidiary where the
salary costs were reduced due to a reduction in overall staffing of the division
coupled with the promotion of new personnel and the implementation of simplified
reporting structures. As a result of attrition through retirement as opposed to
outright suppression of employment there were limited costs related to severance
pay. The optimal restructuring of these departments resulted in savings of 20%
of personnel costs without reducing work effectiveness.
The Paris office downsized its personnel from ten to three professionals
resulting in the reduction of the costs associated with that office without any
interruption of Laidlaw Global Securities' presence in that market. Several
foreign clients of Laidlaw Global Securities are now being served directly from
New York.
Several quotation and informational service costs were reduced through the
use of information accessed through the Internet.
22
<PAGE>
The Westminster subsidiary, which became part of the Laidlaw 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. However its move to space
formerly occupied by Laidlaw created a saving of office rental costs for the
firm as a whole. Several other services such as the use of common computer,
communications and networking maintenance personnel created substantial savings.
The economies of scale realized by the merger should have a material impact
on the overall firm in the long term.
On the revenue side, 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. The
Westminster subsidiary which had a strong first half in 1999 has shown signs of
resuming a stronger pace toward year-end. It is expected that this trend will
further materialize in the near future.
The acquisition of Lead Capital is currently not material with respect to
the impact of the consolidation of Lead Capital's operating results into
Laidlaw. However, Lead Capital's acquisition has resulted in intangible and
tangible advantages to Laidlaw by providing strong local contacts for the
Corporate Finance Department of Laidlaw Global Securities and investors for
Laidlaw Global Securities products. As a result of the close relationship with
Lead Capital, Laidlaw business opportunities in Greece have been enhanced.
The Laidlaw Pacific acquisition will not have any material impact at the
level of the consolidation of the results of that operation since the
acquisition only involved the acquiring of the licenses for corporate finance
and money management, cash and two employees. The benefits of that acquisition
are in the process of materializing through increased contacts and the access to
new transactions. Any business developed in that region of the world does not
give rise to foreign currency risks since any contract entered into is generally
denominated in U.S. dollars and relate to functions and services provided in the
U.S. for the entities introduced to Laidlaw.
In 1999 and the prior years, Laidlaw operated in two principal segments of
the financial services industry, namely asset management and broker-dealer
activities. Corporate services consist of general and administrative services
that 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 United
States and overseas. Through this group, Laidlaw 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.
23
<PAGE>
The commission revenues which represent 77.4% of total revenues are
geographically categorized as follows:
Revenues of $5,855,499 were generated from the activities of Laidlaw Global
Securities on behalf of foreign and U.S. institutional customers in foreign
markets and revenues of $17,883,907 were generated from the activities of
Laidlaw Global Securities and Westminster in the U.S. markets. 75% of such
revenues were generated from the accounts of institutional customers and 25%
were generated from the accounts of high net-worth investors. The investors
transacting in the U.S. markets are both U.S. and non-U.S. entities and
individuals.
Asset Management fees from Howe & Rusling and partly from Laidlaw Global
Securities amount to $4,860,319 which is 15.8% of the firm's revenue. Corporate
finance fees of Laidlaw Global Securities and Westminster amount to $1,538,985
comprising 5.02% of the firms revenues
In the future Laidlaw will aim to diversify its commission revenues by
generating a large portion of its revenues from the Internet business through
the development of Globeshare. Management views the costs associated with
Globeshare as costs related investments for the future diversification of the
revenue sources of Laidlaw.
In the U.S., favorable market conditions improved the 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 created good opportunities for Laidlaw throughout fiscal 1999.
24
<PAGE>
Liquidity and Capital Reserves
The creditworthiness of Laidlaw has improved substantially as a result of
the conversion of $8 million of its 8% Convertible Notes into equity. An offer
to exchange the 12% Senior Secured Euro-Notes into shares of common stock of
Laidlaw yielded a strong response from the note holders who have agreed to
exchange $1.9 million in principal indebtedness of the total $2.305 million for
Laidlaw common stock. The change in debt structure has begun to have a material
impact on Laidlaw's cash flow due to material interest expense savings and the
availability of funds for operations instead of debt repayments.
Laidlaw 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,
Laidlaw may need to raise additional funds. Funds will initially be raised
through the issuance of private equity securities in the Global Electronic
Exchange subsidiary. Though Laidlaw'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 should result in an
overall reduced dilution effect on Laidlaw. Laidlaw 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.
The Balance Sheet
The following table sets forth our total assets, adjusted assets, leverage
ratios and book value per share. The purpose of illustrating these ratios is to
indicate the improved liquidity and financial position of Laidlaw for the year
ended December 31, 1999. The substantial increase in total assets in 1999
resulted from Laidlaw's profitability, the corporate acquisitions and the
establishment of Global Electronic Exchange. The improvement in the leverage
ratio and book value per share resulted from the increase in equity capital due
to the net income generated by Laidlaw in 1999 and the conversion of the 8%
Convertible Notes, and the 12% Senior Secured Euro-Notes into Laidlaw Common
Stock.
As of As of
December 1999 December 1998
(in $ except for ratios)
Adjusted Assets (1) 30,817,915 9,588,872
Leverage Ratio (2) 1.91 (4.23)
Adjusted Leverage Ratio (3) 1.91 (4.23)
Book value per share (4) 0.61 (.29)
(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 was based on common shares outstanding at December 31,
1999 and 1998.
25
<PAGE>
Year 2000 Disclosure
Most businesses, financial and other institutions around the world are
reviewing and modifying their computer systems to ensure that they are Year 2000
compliant. The issue, in general terms, is that many existing computer systems
and microprocessors (including those in non-information technology equipment and
systems) use only two digits to identify a year in the date field with the
assumption that the first two digits of the year are always "19". Consequently,
on January 1, 2000, computers that were not Year 2000 compliant may have read
the year as 1900. Systems that calculate, compare or sort using the incorrect
date may have malfunctioned. At and since January 1, 2000, Year 2000 problems
have not been significant and wide-spread computer failures have not
materialized. However, Year 2000 problems could still occur, especially at
quarter end and at year end.
As with all companies in the securities industry, we are extremely
dependent upon the proper functioning of our computer systems. Any failure of
our systems to be Year 2000 compliant, or unknown errors or defects in our
system, would have a material adverse effect on 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 and cause
the generation of erroneous results (or no results at all) 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, reputational harm and legal liability.
To date, to the best of our knowledge, we have not experienced any material
disruptions in our operations as a result of Year 2000 problems, nor have we
incurred any unplanned expenses to address Year 2000 concerns.
We depend upon the proper functioning of the computer systems of others.
These parties include trading counterparties, financial intermediaries such as
securities, depositories, clearing agencies, clearing houses and commercial
banks and vendors such as providers of telecommunication services and other
utilities. We continue to evaluate with whom we have important financial or
operational relationships to determine the extent of their Year 2000 compliance.
We do not possess adequate information from all such parties about the effect of
the Year 2000 on their systems to evaluate the effectiveness of their efforts.
In many instances, we are not in a position to verify the accuracy or
completeness of the information we receive from third parties and as a result
are dependent on their willingness and ability to disclose, and to address,
their Year 2000 problems.
26
<PAGE>
Item 7. Financial Statements.
In response to this Item, financial information contained on pages 41 to 70
of this Annual Report for the year ended December 31, 1999 is incorporated
herein by reference.
Item 8. Changes In and Disagreements With Accountants on Accounting and
Financial Disclosure.
On August 19, 1999, Comiskey & Company, P.C., Laidlaw's principal
independent auditor for the previous two fiscal years, was dismissed due to the
change in control of Laidlaw pursuant to the Reorganization Agreement. Our
principal shareholders and new board of directors determined that it was in the
best interest of Laidlaw to retain the firm of Grant Thornton LLP who served as
the independent auditors of Laidlaw's subsidiary Laidlaw Holdings, commencing
with the fiscal year ending December 31, 1998. On or about August 16, 1999, our
board of directors approved the engagement of Grant Thornton LLP to serve as
Laidlaw's independent auditor. Further, on or about that same date, Grant
Thornton LLP entered into an agreement with Laidlaw to provide such independent
auditor services.
The reports of Comiskey & Company, P.C. on Laidlaw's financial statements
did not contain an adverse opinion or disclaimer and was not qualified as to
audit scope or accounting principals. There were no disagreements, whether or
not resolved, with Comiskey & Company, P.C. on any matter of accounting
principles or practices, financial statement disclosure, or auditing scope or
procedure, which if not resolved to the former accountant's satisfaction, would
have caused it to make reference to the subject matter thereof in connection
with its report.
PART II
Item 9. Directors, Executive Officers, Promoters and Control Persons.
Directors and Executive Officers
As a condition of the Reorganization Agreement, the officers and directors
of Laidlaw Holdings became the officers and directors of Laidlaw. The
Reorganization Agreement also provided that John P. O'Shea, the President and
Director of Westminster, would serve as a director of Laidlaw. The following
table lists the executive officers and directors of Laidlaw:
Name Age Position
- ---- --- --------
Anastasio Carayannis 40 Chairman of the Board, Chief Executive
Officer and Director
Roger Bendelac 42 President, Chief Operating Officer, Chief
Financial Officer, Secretary and Director
Daniel Bendelac 50 Vice-Chairman of the Board and Executive
Director
Larry D. Horner 65 Chairman Emeritus and Director
Jean-Marc Beaujolin 55 Director
Billimac C. Bradley 65 Director
Robert K. F. Ma 45 Director
John P. O'Shea 42 Director
27
<PAGE>
Anastasio Carayannis has served as Chief Executive Officer and as Chairman
of the Board of Laidlaw since November 1999. From June 1999 to November 1999, he
served as President, Chief Operating Officer and Director of Laidlaw. From
January 1999 to November 1999, he served as President, Chief Operating Officer
and Director of Laidlaw Holdings. He has also served as an executive officer and
director of Laidlaw Global Securities since March 1999 and as Chairman of the
Board and Chief Executive Officer of Global Electronic Exchange since its
inception in February of 1999. From 1994 to 1996, Mr. Carayannis served as head
of Prudential Securities Private Alliance Group. From 1989 to 1994, he served as
the Director of Private Client Alliance at Oppenheimer & Co., Inc.
Roger Bendelac has served as President and Chief Operating Officer of
Laidlaw since November 1999. He has also served as Chief Financial Officer,
Secretary and Director of Laidlaw since June 1999. From July 1997 to November
1999, Mr. Bendelac served as Chief Financial Officer, Secretary and as a member
of the Board of Laidlaw Holdings. He has also served as an executive officer and
director of Laidlaw Global Securities since March 1999 and as President, Chief
Financial Officer, Secretary, Treasurer and Director of Global Electronic
Exchange since its inception in February of 1999. From 1989 to 1997, Mr.
Bendelac served as an investment executive with Westminster Securities
Corporation.
Daniel Bendelac has served as the Vice-Chairman of the Board and Executive
Director of Laidlaw since November 1999. He has also served as a director of
Laidlaw since June 1999. From July 1997 to November 1999, he served as a
director of Laidlaw Holdings. He has also served as Vice Chairman of the Board
of Global Electronic Exchange since its inception in February of 1999. From 1992
to August 1998 Mr. Bendelac served as a Managing Director at First
Intercontinental Group.
28
<PAGE>
Larry D. Horner has served as Chairman Emeritus and as a member of the
Board of Laidlaw since November 1999. From June 1999 to November 1999, he served
as Chief Executive Officer, Chairman of the Board and Director of Laidlaw. From
June 1999 to November 1999, he served as Chief Executive Officer, Chairman of
the Board and Director of Laidlaw Holdings. Mr. Horner has served as Chairman of
the Board of Laidlaw Pacific since October 1994. He has also served as Chairman
of the Board of Laidlaw Global Securities since March 1999 and as a director of
Global Electronic Exchange since its inception in February of 1999. Mr. Horner
has spent over 36 years with KPMG International as well as KPMG Peat Marwick
(U.S.A.) where he served as Chairman of the Board and Chief Executive Officer
from 1984 to 1990. Mr. Horner also serves as a board member to several
corporations including Pacific USA Holdings Corp., Asia Pacific Wire & Cable
Co., Ltd., American General Corp., Phillips Petroleum Company, Lotus
Biochemical, Inc., Newmark Homes, Corp. and Atlantis Plastic Corporation.
Billimac C. Bradley has served as a director of Laidlaw since June 1999 and
as a director of Laidlaw Holdings since July 1995. Since 1991, Mr. Bradley has
served as the Chief Executive Officer of Pacific USA Holdings Corp., where he is
responsible for developing the United States operation's basis strategies and
operating plans. Before joining Pacific USA Holdings Corp., Mr. Bradley spent 23
years as a partner of KPMG Peat Marwick and served on its Board of Directors.
Jean-Marc Beaujolin has served as a director of Laidlaw since June 1999 and
as a director of Laidlaw Holdings since October of 1994. Since 1974, Mr.
Beaujolin has served as the Chairman of the Board of Europ Continents Holding, a
holding company quoted on the Luxembourg stock exchange and principally engaged
in distribution, real estate and financial services in South East Asia. Europ
Continents Holding deals specifically in industrial goods and equipment such as
medical supplies and automotive parts.
Robert K. F. Ma has served as a director of Laidlaw since June 1999 and as
a director of Laidlaw Holdings since July 1995. Mr. Ma has also held various
Executive Director positions at Laidlaw Pacific Financial Services Limited, the
parent company of Laidlaw Pacific, and all of its subsidiaries since 1994. Since
March 1997, he has served as the Chief Financial Officer and Director of Asia
Pacific Wire & Cable Corp., Ltd. He is also a Director, or Alternate Director,
of Texwinca Holdings Limited and Pudong Development Holdings Limited which are
companies listed on various foreign exchanges. From 1986 to 1991, he served as
Vice President and Senior Account Executive of NMB Postbank Groep N.V. were he
was responsible for loan origination and syndication work prior to heading its
merger and acquisition team. Mr. Ma is a fellow member of the Institute of
Chartered Accountants in England & Wales, an associate member of the Institute
of Chartered Accountants of Canada and a fellow of the Hong Kong Society of
Accountants. He has also participated in direct investments in advisory and
principal roles throughout Asia and the United States.
29
<PAGE>
John P. O'Shea has served as a director of Laidlaw since July 1, 1999.
Since September 1998, he has served as President and Chief Operating Officer of
Westminster. He joined the Board of Directors of Westminster in January 1997,
after serving 10 years as Vice President. From 1982 to 1987, Mr. O'Shea served
as Syndicate Manager of Yammer & Co., an American Stock Exchange Member Firm. He
is an Allied Member of the NYSE and is a Member of the New York Board of Trade.
He is also the owner of the Las Vegas Coyotes, a professional roller hockey
team. He received a BA and MA in Economics from the University of Cincinnati.
Key Employees
Thomas Rusling has served as the President of Howe & Rusling since 1965. He
is a member of Howe & Rusling's Executive Committee, Investment Committee and
Strategy Group. Mr. Rusling has more than three decades of portfolio management
and corporate experience. He received a BA in Economics from Yale University and
later achieved the Chartered Financial Analyst designation.
Jack Anderson has served as the Executive Vice President of Howe & Rusling
since 1977. He is a member of Howe & Rusling's Executive and Investment
Committees. Prior to joining Howe & Rusling, Mr. Anderson served as a financial
accountant for a Fortune 500 company and as an account executive for a respected
brokerage firm. He received a BS in Engineering from Brown University and an MBA
from Boston University.
Daniel Luskind has served as the Co-Chairman of the Board of Westminster
since September 1998. Prior to becoming Co-Chairman, he served as President of
Westminster since its inception in 1971. Mr. Luskind is a Certified Public
Accountant.
Henry Krauss has served as the Co-Chairman and Secretary of Westminster
since September 1998. Prior to becoming Co-Chairman, he served as Secretary and
Treasurer of Westminster since its inception in 1971.
Committees on the Board
The Board of Directors has established a Stock Option Committee, composed
of Larry D. Horner, the Chairman Emeritus and an independent director of
Laidlaw, and Jean-Marc Beaujolin, an independent director of Laidlaw, who are
responsible for administering the Laidlaw 1999 Omnibus Plan. The members of the
Stock Option Committee are no longer eligible to participate in the Omnibus Plan
and qualify as disinterested persons for purposes of Rule 16b-3(c)(2)(i) of the
Exchange Act.
Our Board of Directors has also established an Audit Committee, also
composed of Messrs. Horner and Beaujolin. The Audit Committee will review the
results and scope of the audit and other services provided by our independent
auditors as well as review our accounting and control procedures and policies.
30
<PAGE>
Section 16(a) Beneficial Ownership Reporting Compliance
The following persons and entities have previously filed a Form 3 with the
Commission. However, each such person and entity did not file such form on a
timely basis as required by section 16(a) of the Exchange Act during the most
recent fiscal year:
Anastasio Carayannis - Director and Officer
Roger Bendelac - Director and Officer
Daniel Bendelac - Director and Officer
Larry D. Horner - Director
John P. O'Shea - Director
Jean-Marc Beaujolin - Director
Billimac C. Bradley - Director
Robert K. F. Ma - Director
PUSA Investment Company - 28% Shareholder
Item 10. Executive Compensation.
Summary Compensation
The following table summarizes calendar 1999 compensation for services in
all capacities of our executive officers.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Long-Term Compensation
Annual Compensation Awards Payouts
Securities LTIP All Other
Name and Principal Salary Bonus Underlying Payouts Compensation
Position Year ($) ($) Options (#) ($) ($)
- -------- ---- --- --- ----------- --- ---
<S> <C> <C> <C> <C> <C> <C>
Anastasio Carayannis, Chief
Executive Officer 1999 175,000 302,000 62,700 -- 629,469
1998 158,333 -- -- -- 242,200
1997 150,000 -- -- -- 216,697
Roger Bendelac, President, Chief
Operating Officer, Chief Financial
Officer and Secretary 1999 101,250 98,000 62,700 -- 177,067
1998 -- -- 225,000 -- 154,233
1997 -- -- -- -- 66,410
Daniel Bendelac, Executive Director 1999 150,000 100,000 62,700 -- 34,103
1998 50,577 -- 375,000 -- 10,000
1997 -- -- -- -- --
</TABLE>
31
<PAGE>
Bonuses awarded in 1999 were accrued in December 1999 and paid in January
2000. All other compensation was earned from commissions generated by the
Laidlaw Global Securities business.
Options Granted
The following table sets forth information with respect to stock options
granted under the Laidlaw Omnibus Plan between May 15, 1997 and April 7, 2000 to
executive officers of Laidlaw and its subsidiaries.
OPTIONS GRANTED FROM THE PERIOD BEGINNING
MAY 15, 1997 AND ENDING ARPIL 7, 2000
<TABLE>
<CAPTION>
Percentage of
Total Options Potential Realizable
Granted to Value at Assumed
Number of Employees in the Annual Rates of Stock
Securities period beginning Exercise Price Appreciation for
Underlying May 15, 1997 and Price Per Option Terms(3)
Options ended April 7, Share Expiration
Name Granted(1) 2000(2) ($) Date 5%($) 10%($)
- ---- ---------- ------- --- ---- ----- ------
<S> <C> <C> <C> <C> <C> <C>
Anastasio
Carayannis 62,700 1.42% 2.33 5/28/04 479,655 509,124
Roger Bendelac 225,000 5.11% 2.33 1/15/03 1,721,250 1,827,000
62,700 1.42% 2.33 5/28/04 479,655 509,124
Daniel Bendelac 375,000 8.51% 2.33 9/3/03 2,868,750 3,045,000
62,700 1.42% 2.33 5/28/04 479,655 509,124
</TABLE>
- ----------
(1) Such options are incentive options granted pursuant to and in accordance
with the Laidlaw 1999 Omnibus Plan.
(2) Based on an aggregate of 4,405,250 options granted to employees during the
period beginning May 15, 1997 and ending April 7, 2000.
(3) In accordance with the rules of the Commission, shown are the hypothetical
gains or "option spreads" that would exist for the respective options.
These gains are based on assumed rates of annual compounded stock price
appreciation of 5% and 10% from the date the option was granted over the
full option term, assuming a fair market value equal to the exercise price
per share on the date of grant. The 5% and 10% assumed rates of
appreciation are mandated by the Commission and do not represent our
estimate projection of future increases in the price of our common stock.
32
<PAGE>
Aggregate Option Exercises and Option Values
The following table sets forth information as of April 7, 2000 with respect
to exercisable and unexercisable stock options held by the executive officers of
Laidlaw and its subsidiaries.
AGGREGATE OPTION EXERCISES AS OF APRIL 7, 2000
<TABLE>
<CAPTION>
Number of Securities Value of Unexercisable
Underlying Unexercised In-the-Money Options at
Shares Options at April 7, April 7, 2000
Acquired on Value Realized 2000 Exercisable / Exercisable /
Name Exercise (#) ($)(1) Unexercisable Unexercisable
- ----- ------------ ------ ------------- -------------
<S> <C> <C> <C> <C>
Anastasio Carayannis 1,210,500 8,473,500 62,700 / 0 --
Roger Bendelac 150,000 1,050,000 287,700 / 0 --
</TABLE>
- ----------
(1) Based on the fair market value of our common stock at April 7, 2000, of
$7.00 per share, less the exercise price for such shares.
Executive Officer Employment Agreements
We have entered into one-year employment agreements with Anastasio
Carayannis, as our Chairman of the Board of Directors and Chief Executive
Officer, Roger Bendelac as our President, Chief Operating Officer, Chief
Financial Officer and Secretary, and Daniel Bendelac as our Vice-Chairman of the
Board of Directors. The executives are entitled to base salaries per annum,
initially as follows: Anastasio Carayannis, $185,000; Roger Bendelac, $165,000;
and Daniel Bendelac, $165,000. Anastasio Carayannis and Roger Bendelac are also
entitled to a 40% payout on all gross commissions generated from their customer
accounts. The executives are each entitled to annual bonuses as the compensation
committee of our board of directors may determine based upon the performance and
achievement of specified goals of Laidlaw. If, by March 30, 2000, no bonus plan
has been implemented, and Laidlaw's net income for the year ending December 31,
2000 shall equal that earned by Laidlaw for the year ended December 31, 1999,
then the executives will each be entitled to a bonus of no less than 50% of the
bonus they will each receive for the prior year. Each of the executives have
agreed not to compete with us during the term of employment. Each of the
employment agreements include customary provisions entitling us to terminate the
executive's employment for cause or upon incapacitation or extended disability
of the executive. The employment agreements also include customary provisions to
protect our confidential information and ensure that we will own, among other
things, customer lists, products and business plans.
33
<PAGE>
Item 11. Security Ownership of Certain Beneficial Owners and Management.
The following table sets forth certain information regarding beneficial
ownership of Laidlaw's common stock as of April 7, 2000, by (i) each person
known by Laidlaw to be the beneficial owner of more than 5% of the outstanding
Common Stock; (ii) each director of Laidlaw; (iii) each executive officer of
Laidlaw; and (iv) all executive officers and directors of Laidlaw as a group.
<TABLE>
<CAPTION>
Number of Shares Percentage of Common Equity
Name of Beneficial Owner Beneficially Owned(1) Beneficially Owned(2)
- ------------------------ --------------------- ---------------------
<S> <C> <C>
PUSA Investment Company(3) 8,391,983 28.3%
Europ Continents Holding(4) 2,076,516 7.0%
Larry Horner(5) 62,700 0.21%
Anastasio Carayannis(6) 1,273,200 4.29%
Roger Bendelac(7) 437,700 1.48%
Daniel Bendelac(8) 437,700 1.48%
Billimac C. Bradley(9) 0 0%
Jean-Marc Beaujolin(10) 0 0%
Robert K. F. Ma(11) 0 0%
John P. O'Shea 1,500,000 5.06%
Daniel Luskind 1,500,000 5.06%
Henry Krauss 1,500,000 5.06%
All Directors and Executive Officers as
a Group 3,711,300 12.52%
</TABLE>
34
<PAGE>
- ----------
(1) Beneficial ownership is determined in accordance with the rules of the
Commission. In general, a person who has voting power and/or investment
power with respect to securities is treated as a beneficial owner of those
securities. For purposes of this table, shares subject to the Common Stock
Purchase Warrants, Class A and B Warrants and options exercisable within 60
days of April 7, 2000 are considered as beneficially owned by the person
holding such securities. To our knowledge, except as set forth in the
footnotes to this table, we believe that the persons named in this table
have sole voting and investment power with respect to the shares shown.
Except as otherwise indicated, the address of each of the directors and
executive officers and 5% stockholders in this table is as follows: Laidlaw
Global Corporation, 100 Park Avenue, New York, New York 10017.
(2) Percentage beneficially owned is based upon 29,653,626 shares of common
stock issued and outstanding as of April 7, 2000 including 2,696,196 shares
of common stock issuable upon exercise of outstanding warrants and employee
stock options including: (a) 94,454 Common Stock Purchase Warrants; (b)
398,696 Class A Warrants; (c) 398,696 Class B Warrants; and (d) 1,804,350
employee stock options granted under the Laidlaw 1999 Omnibus Plan which
are exercisable within 60 days of April 7, 2000.
(3) The address for PUSA Investment Company is 2740 North Dallas Parkway, Suite
200, Plano, Texas 75093.
(4) The address for Europ Continents Holding is 4 Avenue Laurent Cely, 92606
Asnieves Codex, France. Jean-Marc Beaujolin, a director of Laidlaw, is also
the Chairman of the Board of Directors of Euro Continents Holding.
(5) Includes 62,700 shares of common stock issuable upon the exercise of
options exercisable within 60 days of April 7, 2000. Larry Horner is also
the Chairman of the Board of Directors of Pacific USA Holdings Corp which
is the parent company of PUSA Investment Company, the 28% owner of our
common stock.
(6) Includes 62,700 shares of common stock issuable upon the exercise of
options exercisable within 60 days of April 7, 2000.
(7) Includes 287,700 shares of common stock issuable upon the exercise of
options exercisable within 60 days of April 7, 2000.
(8) Includes 437,700 shares of common stock issuable upon the exercise of
options exercisable within 60 days of April 7, 2000.
(9) The address for Billimac Bradley is 2740 North Dallas Parkway, Suite 200,
Plano, Texas 75093. Billimac Bradley is also the Chief Executive Officer of
Pacific
USA Holdings Corp. which is the parent company of PUSA Investment Company,
the 28% owner of our common stock.
(10) The address for Jean-Marc Beaujolin is 4 Avenue Laurent Cely, 92606
Asnieves, Codex, France.
(11) The address for Robert K. F. Ma is 39 Gloucester Road, Wanchai, Hong Kong.
35
<PAGE>
Item 12. Certain Relationships and Related Transactions.
Since April 7, 1998, we have not been a party to any transaction or series
of similar transactions in which the amount involved exceeds $60,000 and in
which any director, executive officer, or holder of more than 5% its common
stock had or will have a direct or indirect material interest other than:
o normal compensation arrangements which are described under Item 10
above; and
o the transactions described below.
All future transactions, including loans, if any, between Laidlaw and its
officers, directors and principal shareholders and their affiliates and any
transactions between Laidlaw and any entity with which its officers, directors
or principal shareholders are affiliated will be subject to the approval of a
majority of Laidlaw's board of directors, including the majority of the
independent and disinterested outside directors of the board of directors and
must be on terms no less favorable to Laidlaw than could be obtained from
unaffiliated third parties.
Shares Exchanged for Laidlaw Holdings, Inc. 12% Senior Secured Euro-Notes
Subsequent to the Reorganization, Laidlaw granted to holders of the Laidlaw
Holdings 12% Senior Secured Euro-Notes the right to exchange the Euro-Notes and
Common Stock Purchase Warrants issued with the Euro-Notes for shares of common
stock of Laidlaw at the rate of $2.05 per share for each Euro-Note exchanged,
and the right to obtain common stock of Laidlaw upon exercise of the Common
Stock Purchase Warrants issued with the Euro-Notes upon the same terms and
conditions of such warrants. To date, 15 holders of Euro-Notes aggregating
$1,876,000 in principal amount have exchanged their notes for shares of common
stock of Laidlaw.
Shares Exchanged for Laidlaw Holdings, Inc. 8% Convertible Subordinated Notes
Subsequent to the Reorganization, Laidlaw assumed the obligations of
Laidlaw Holdings with respect to the conversion rights of holders of the Laidlaw
Holdings 8% Convertible Notes. As a result, holders of the Convertible Notes
could convert such notes into common stock of Laidlaw at the rate of $2.05 per
share, upon the same terms and conditions of conversion privileges set forth in
the Convertible Notes. To date, 69 holders of Convertible Notes aggregating $8
million in principal amount have converted their notes into shares of common
stock of Laidlaw.
36
<PAGE>
Loan from PUSA Investment Company
Laidlaw received loans from PUSA Investment Company, the 28% shareholder of
Laidlaw, for which it pays interest. The loans are used to help pay operating
expenses and fund capital requirements on one of its subsidiaries. Interest on
such loans amounted to $26,263 and $37,037 for the years ended December 31, 1999
and 1998, respectively.
Finder's Fee to John O'Shea
Pursuant to a Letter of Intent dated April 30, 1999 between Laidlaw
Holdings and Westminster to enter into the Reorganization, Laidlaw Holdings paid
a finder's fee of $50,000 to John O'Shea, one of our directors.
Formation of Global Electronic Exchange and Globeshare
In January 1999, Laidlaw, in a joint venture with several individuals
associated with Laidlaw, formed Global Electronic Exchange and its broker-dealer
subsidiary, Globeshare. Laidlaw received 8,190,000 shares of Global Electronic
Exchange common stock in exchange for expenses paid and services rendered by
Laidlaw on its behalf in the amount of $558,770. This resulted in a 59%
ownership in Global Electronic Exchange by Laidlaw as of December 31, 1999. In
association with the private placement of Global Electronic Exchange common
stock under Regulation D of the Securities Act, Laidlaw Global Securities
received $440,190 for services rendered as placement agent.
Sale of Subsidiary of PUSA Investment Company
On December 15, 1999, PUSA Investment Company, the 28% shareholder of
Laidlaw, sold its wholly owned subsidiary Newmark Homes, Corp. Laidlaw Global
Securities served as investment banker in connection with the transaction and
earned commission income of $2,150,000.
Acquisition of Laidlaw Pacific from PUSA Investment Company
On May 20, 1999, Laidlaw entered into an agreement with Pacific USA
Holdings Corp. ("Pacific") to acquire its subsidiary Laidlaw Pacific, a Hong
Kong based investment advisor which was incorporated in June 2, 1992. On March
29, 2000, Pacific's wholly owned subsidiaries PUSA Investment Company, the 28%
shareholder of the Company ("PUSA"), and Laildaw Pacific Financial Services Ltd.
completed an amended and restated agreement to acquire Laidlaw Pacific. The
amount paid was 200,000 shares of common stock of Laidlaw and $HK 4 million.
Laidlaw Pacific agreed to pay a dividend to Laidlaw Pacific Financial Services
Ltd. equal to $HK 3 million. Further it consented to grant an option to Laidlaw
to receive a dividend equal to $HK 4 million, should it elect to withdraw such
funds from Laidlaw Pacific. PUSA Investment Company represented to Laidlaw that,
at the time of closing, Laidlaw Pacific would have cash in the amount of $HK 11
million, all licenses to engage in the investment banking business in Hong Kong,
and no liabilities. Laidlaw Pacific is a registered Dealer and Investment
advisor with the Hong Kong Securities and Futures Commission. Its principal
activities are corporate financial advisory services.
37
<PAGE>
Item 13. Exhibits and Reports on Form 8-K.
(a) Exhibits
EXHIBIT NO. DESCRIPTION
2.1 Amended and Restated Plan and Agreement of Reorganization by
and among Laidlaw Holdings, Inc., Fi-Tek V, Inc.,
Westminster Securities Corporation and shareholders of the
companies, dated May 27, 1999(1)
3.1 Certificate of Incorporation of Laidlaw and amendments
thereto(2)
3.2 By-Laws of Laidlaw(2)
4.1 Specimen Laidlaw Common Stock Certificate(2)
4.2 Specimen Fi-Tek V, Inc. Class A Warrant(2)
4.3 Specimen Fi-Tek V, Inc. Class B Warrant(2)
10.1 Employment Agreement between Registrant and Anastasio
Carayannis, dated as of January 1, 2000(3)
10.2 Employment Agreement between Registrant and Roger Bendelac,
dated as of January 1, 2000(3)
10.3 Employment Agreement between Registrant and Daniel Bendelac,
dated as of January 1, 2000(3)
10.4 Exchange Agreement to acquire Laidlaw Pacific, dated May 20,
1999(4)
10.5 Amendment to Exchange Agreement to acquire Laidlaw Pacific,
dated March 29, 2000(4)
21.1 List of Subsidiaries of Laidlaw Global Corporation
27.1 Financial Data Schedule
38
<PAGE>
- ----------
(1) Such document if hereby incorporated herein by reference to Laidlaw's
Current Report on Form 8-K dated June 8, 1999.
(2) Such document if hereby incorporated herein by reference to Laidlaw's
Registration Statement on Form 8-A filed October 15, 1999.
(3) Such document if hereby incorporated herein by reference to Laidlaw's
Registration Statement on Form SB-2 filed February 14, 2000.
(4) Such document is hereby incorporated herein by reference to Laidlaw's
Current Report on Form 8-K filed April 12, 2000.
(b) Reports on Form 8-K
On December 21, 1999, Laidlaw filed a Current Report on Form 8-K announcing
the resignation of Larry D. Horner as Chairman of the Board and Chief Executive
Officer of Laidlaw and the further realignment of company management.
On October 13, 1999, Laidlaw filed an amendment to its Current Report on
Form 8-K filed July 14, 1999 reporting the acquisition of Westminster pursuant
to the Reorganization Agreement (the "Amendment"). The Amendment included
historical financial statements for Westminster for the years ended January 31,
1999 and 1998.
39
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the Registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
LAIDLAW GLOBAL CORPORATION
By: /s/ Roger Bendelac
----------------------------------
Roger Bendelac,
President, Chief Operating Officer,
Chief Financial Officer, Secretary
and Director
In accordance with the Exchange Act, this report has been signed below by
the following persons on behalf of the Registrant and in the capacities and on
the dates indicated:
Signature Title Date
- --------- ----- ----
/s/ Anastasio Carayannis
- ------------------------ Chairman of the Board and
Anastasio Carayannis Chief Executive Officer April 14, 2000
/s/ Roger Bendelac
- ------------------------ President, Chief Operating Officer, April 14, 2000
Roger Bendelac Chief Financial Officer, Secretary
and Director
/s/ Daniel Bendelac
- ------------------------ Vice-Chairman of the Board April 14, 2000
Daniel Bendelac
/s/ Billimac Bradley
- ------------------------ Director April 14, 2000
Billimac Bradley
/s/ Jean-Marc Beaujolin
- ------------------------ Director April 14, 2000
Jean-Marc Beaujolin
/s/ Robert Ma
- ------------------------ Director April 14, 2000
Robert Ma
/s/ John O'Shea
- ------------------------ Director April 14, 2000
John O'Shea
/s/ Larry D. Horner
- ------------------------ Chairman Emeritus and Director April 14, 2000
Larry D. Horner
40
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Stockholders of
Laidlaw Global Corporation and Subsidiaries
We have audited the accompanying consolidated balance sheet of Laidlaw Global
Corporation and Subsidiaries (the "Company") as of December 31, 1999, and the
related consolidated statements of operations, changes in stockholders' equity
(deficit) and cash flows for each of the two years in the period ended December
31, 1999. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of the Company at
December 31, 1999, and the consolidated results of their operations and their
consolidated cash flows for each of the two years in the period ended December
31, 1999, in conformity with generally accepted accounting principles.
/s/ Grant Thornton LLP
- ----------------------
New York, New York
March 15, 2000
(except for Note Q, the date of which is March 29, 2000)
41
<PAGE>
Laidlaw Global Corporation and Subsidiaries
CONSOLIDATED BALANCE SHEET
December 31, 1999
<TABLE>
<CAPTION>
ASSETS
<S> <C>
Cash and cash equivalents $ 10,131,242
Receivable from clearing broker 3,488,265
Securities owned, at market value 2,291,414
Equipment and leasehold improvements at cost, net of
accumulated depreciation and amortization of $1,308,381 3,152,900
Goodwill, net of accumulated amortization of $926,697 7,362,029
Investment banking fees receivable 781,112
Deposits 725,847
Secured demand notes 600,000
Prepaid and other assets 1,485,106
Deferred income taxes 800,000
------------
$ 30,817,915
============
LIABILITIES AND STOCKHOLDERS' EQUITY
Notes payable $ 929,000
Accounts payable and accrued expenses 3,373,633
Commissions and compensation payable 1,308,454
Securities sold but not yet purchased, at market value 360,125
Litigation claims payable 158,611
Capitalized lease obligations 763,660
Deferred revenue 640,404
Deferred rent 574,922
------------
8,108,809
Commitments and contingencies
Subordinated borrowings 600,000
Minority interest 5,942,266
Stockholders' equity
Common stock, voting, $.00001 par value; 50,000,000
shares authorized; 26,617,929 shares issued and outstanding 266
Additional paid-in capital 33,747,210
Accumulated deficit (17,580,636)
------------
16,166,840
------------
$ 30,817,915
============
</TABLE>
The accompanying notes are an integral part of this statement.
42
<PAGE>
Laidlaw Global Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS
Year ended December 31,
1999 1998
------------ ------------
Revenues
Commissions $ 14,639,815 $ 5,803,642
Trading gains, net 6,674,763 3,195,045
Investment banking fees 1,233,089 1,498,242
Corporate finance fees 1,256,160 1,062,341
Asset management fees 5,816,344 5,978,185
Interest 713,665 298,972
Other 353,269 413,654
------------ ------------
30,687,105 18,250,081
------------ ------------
Expenses
Commissions 9,421,384 5,705,142
Salary and benefits 7,678,983 7,626,936
Professional fees 1,001,206 701,199
Communications and information systems 1,473,379 1,366,441
Clearing fees 1,374,133 1,195,581
Rent and utilities 1,204,320 1,389,420
Client-related marketing 205,473 427,178
Depreciation and amortization 668,404 379,256
Interest 601,666 741,944
Office 633,248 411,844
Dues and assessments 364,501 158,191
Travel and entertainment 752,522 513,039
Other 980,728 844,807
------------ ------------
26,359,947 21,460,978
------------ ------------
Income (loss) before minority interest 4,327,158 (3,210,897)
Minority interest (95,877) (98,945)
------------ ------------
Income (loss) before income tax benefit 4,231,281 (3,309,842)
Income tax benefit 800,000 --
------------ ------------
NET INCOME (LOSS) $ 5,031,281 $ (3,309,842)
============ ============
Net income (loss) per share
Basic $ 0.26 $ (0.48)
============ ============
Diluted $ 0.21 $ (0.48)
============ ============
Weighted average number of shares outstanding
Basic 19,338,877 6,957,522
============ ============
Diluted 24,045,852 6,957,522
============ ============
The accompanying notes are an integral part of these statements.
43
<PAGE>
Laidlaw Global Corporation and Subsidiaries
CONSOLIDATED STATEMENT OF CHANGES IN
STOCKHOLDERS' EQUITY (DEFICIT)
Years ended December 31, 1999 and 1998
<TABLE>
<CAPTION>
Additional
Shares Preferred Common paid-in Accumulated
outstanding stock stock capital deficit Total
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1997 8,258,794 250,000 82 $ 15,889,002 $(19,302,075) $ (3,162,991)
Issuance of common stock upon
conversion of PUSA notes
receivable to common stock 3,486,093 35 4,203,727 4,203,727
Net loss (3,309,842) (3,309,842)
------------ ------------ ------------ ------------ ------------ ------------
Balance at December 31, 1998 11,744,887 250,000 117 20,092,729 (22,611,917) (2,269,071)
Conversion of preferred stock
into common stock 3,750 (250,000) -- 250,000 --
Issuance of common stock to
Fi-Tek's stockholders 1,499,949 15 1,485 1,500
Issuance of common stock upon
conversion of 8%
subordinated
notes 5,853,630 59 7,578,559 7,578,618
Issuance of common stock upon
conversion of 12% senior
secured
Euro-notes 1,372,674 14 1,767,267 1,767,281
Issuance of common stock for
the acquisition of
Westminster Securities
Corporation 4,500,000 45 3,749,955 3,750,000
Issuance of common stock upon
exercise of stock options 1,571,039 15 247,216 247,231
Issuance of common stock for
the acquisition of Lead
Capital, S.A 72,000 1 59,999 60,000
Net income 5,031,281 5,031,281
------------ ------------ ------------ ------------ ------------ ------------
Balance at December 31, 1999 26,617,929 -- 266 $ 33,747,210 $(17,580,636) $ 16,166,840
============ ============ ============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of this statement.
44
<PAGE>
Laidlaw Global Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year ended December 31,
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Cash flows from operating activities
Net income (loss) $ 5,031,281 $(3,309,842)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities
Depreciation and amortization 668,404 379,256
Deferred income taxes (800,000) --
Minority interest in earnings 95,877 98,945
(Increase) decrease in operating assets
Restricted cash - limited partnership -- 134,547
Receivable from clearing broker (3,329,030) 454,733
Securities owned, at market value (1,094,412) (731,927)
Investment banking fees receivable (359,289) (388,532)
Deposits (353,854) 9,077
Prepaid and other assets (1,384,456) 48,327
Asset management fees receivable 401,216 125,139
Increase (decrease) in operating liabilities
Accounts payable and accrued expenses 1,052,691 31,186
Commissions and compensation payable 613,529 (131,360)
Securities sold but not yet purchased at market value 351,575 --
Litigation claims payable (313,812) (250,000)
Deferred revenue 55,940 88,349
Deferred rent (19,971) (203,153)
----------- -----------
Net cash provided by (used in) operating activities 615,689 (3,645,255)
----------- -----------
Cash flows from investing activities
Purchase of equipment and leasehold improvements (1,944,180) (183,460)
Payments to minority shareholders (95,877) --
----------- -----------
Net cash used in investing activities (2,040,057) (183,460)
----------- -----------
</TABLE>
45
<PAGE>
Laidlaw Global Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
Year ended December 31,
<TABLE>
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
Cash flows from financing activities
Proceeds from issuance of notes payable $ -- $ 2,425,000
Repayment of notes payable (1,775,000) (1,075,270)
Payments for leased equipment -- (38,596)
Proceeds from (repayment of) 12% senior secured Euro-notes 85,000 (85,000)
Proceeds from issuance of convertible subordinated notes 5,540,000 2,460,000
Proceeds from issuance of common stock 247,231 --
Proceeds from private placements for GEE 5,518,950 --
------------ ------------
Net cash provided by financing activities 9,616,181 3,686,134
------------ ------------
Net increase (decrease) in cash and cash equivalents 8,191,813 (142,581)
Cash and cash equivalents, beginning of year 1,939,429 2,082,010
------------ ------------
Cash and cash equivalents, end of year $ 10,131,242 $ 1,939,429
============ ============
Supplemental disclosures of cash flow information:
Cash paid during the year for
Interest $ 225,913 $ 716,564
Supplemental schedule of noncash investing and financing activities
During the years ended December 31, 1999 and 1998 the following transactions
occurred:
Issuance of secured demand notes of Westminster $ 600,000 $ --
Equipment acquired under capital leases 763,660
Issuance of common stock upon conversion of PUSA notes -- 4,203,762
Issuance of common stock upon conversion of 8% subordinated notes 7,578,618 --
Issuance of common stock upon conversion of 12% senior secured
of Euro-notes 1,767,281 --
Conversion of cumulative preferred stock into common stock 250,000 --
Issuance of common stock to Fi-tek's stockholders 1,500 --
</TABLE>
46
<PAGE>
Laidlaw Global Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
Year ended December 31,
<TABLE>
<CAPTION>
1999
-----------
<S> <C>
The Company acquired substantially all of the common stock
of various entities for common stock of the Company. The net
assets purchased consisted of the following:
Receivable from clearing broker $ 74,645
Securities owned, at market value 311,758
Accounts and notes receivable 217,614
Property , plant and equipment, net 103,682
Other assets 18,324
Commissions payable (50,972)
Securities sold, but not yet purchased, at market value (8,550)
Litigation claims payable (2,423)
Accounts payable, accrued expenses and other (609,432)
-----------
Net assets purchased 54,646
Goodwill 3,705,444
Less Common stock issued (3,810,000)
-----------
Net cash received from acquisitions $ (49,910)
===========
</TABLE>
The accompanying notes are an integral part of these statements.
47
<PAGE>
Laidlaw Global Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended December 31, 1999 and 1998
NOTE A - ORGANIZATION AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
1. Organization
Laidlaw Global Corporation (the "Company") (formerly Laidlaw Holdings,
Inc.) ("Laidlaw Holdings") is a holding company whose wholly- or
majority-owned operating subsidiaries include Laidlaw Global
Securities, Inc. ("Laidlaw Global Securities"), Westminster Securities
Corporation, ("Westminster"), H&R Acquisition Corporation ("HRAC"), an
81%-owned subsidiary which maintains a 100% interest in Howe &
Rusling, Inc., a registered investment advisory firm, and Global
Electronic Exchange Inc., ("GEE"), a 59%-owned development-stage,
internet-based investment services company established on June 14,
1999. The Company's business activities include securities brokerage,
investment banking, asset management and investment advisory services
to individual investors, corporations, pension plans and institutions
worldwide.
On June 8, 1999, Fi-Tek V, Inc. ("Fi-Tek"), a nonoperating public
company with 1,500,000 common shares outstanding and immaterial net
assets, acquired more than 99% of the outstanding common stock of
Laidlaw Holdings in exchange for 13,109,137 shares of Fi-Tek (the
"Acquisition"). Simultaneously with the closing of the Acquisition,
Fi-Tek changed its name to Laidlaw Global Corporation. In accordance
with the acquisition, immediately prior to the acquisition Fi-Tek
caused a 1-for-32.4778 reverse stock split reducing the issued and
outstanding stock to 1,500,000 shares. Under generally accepted
accounting principles, the acquisition is considered to be a capital
transaction in substance, rather than a business combination. That is,
the Acquisition is equivalent to the issuance of stock by Laidlaw
Holdings for the net monetary assets of Fi-Tek, accompanied by a
recapitalization, and is accounted for as a change in capital
structure. Accordingly, the accounting for the Acquisition is
identical to that resulting from a reverse acquisition, except that no
goodwill is recorded. Under reverse takeover accounting, the
post-reverse acquisition comparative historical financial statements
of the "legal acquirer," Fi-Tek, are those of the "legal acquiree,"
Laidlaw Holdings (i.e., the accounting acquirer). The Company and
Laidlaw Holdings are collectively considered the Company.
The Company was a majority-owned subsidiary of Pacific USA Holdings
Corporation ("PUSA"), a wholly-owned subsidiary of Pacific Electric
Wire & Cable Co., Ltd., a Taiwanese industrial company. In addition to
PUSA, Europe Continents Holdings ("EC") was the other major
stockholder of the Company. Together, PUSA and EC owned 99.53% of the
Company as of December 31, 1998.
48
<PAGE>
Laidlaw Global Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Years ended December 31, 1999 and 1998
NOTE A (continued)
On July 1, 1999, the Company acquired 99.7% of the issued and
outstanding common stock of Westminster for 4,500,000 shares of the
Company's common stock valued at $.83 per share. The transaction has
been accounted for as a purchase and resulted in the recognition of
$3,722,984 of goodwill. Goodwill is being amortized over 15 years
using the straight-line method.
As a result of the conversion of the convertible subordinated notes
during June 1999, the conversion of approximately $1,900,000 of senior
secured Euro-notes during July and August 1999 and the acquisition of
Westminster, the majority ownership of the Company by PUSA and EC
decreased to approximately 39% as of December 31, 1999.
2. Principles of Consolidation
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.
3. Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions in determining the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the reported period. Actual results could differ
from these estimates.
4. Reclassification
Certain reclassifications have been made to prior period amounts to
conform to the current period presentation.
5. Cash and Cash Equivalents
Cash and cash equivalents include cash in bank accounts and deposits
in money market accounts with maturities of three months or less when
purchased.
49
<PAGE>
Laidlaw Global Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Years ended December 31, 1999 and 1998
NOTE A (continued)
6. Foreign Currency Translation
The Company has begun to initialize its plans to expand its
operational and financial structure throughout Europe and Asia as the
Company has entered into a number of commission-sharing arrangements
with foreign-based broker-dealers. Any commission revenue generated as
a result of these arrangements will be denominated in U.S. dollars.
Accordingly, the Company has determined that its functional currency
for its foreign branch operations is the U.S. dollar. The financial
position and results of operations of the Company's foreign
subsidiary, Lead Capital, S.A. ("Lead"), are measured using local
currency as the functional currency. Revenues and expenses of the
subsidiary have been translated into U.S. dollars at average exchange
rates prevailing during the period. Assets and liabilities have been
translated at the rates of exchange at the balance sheet date. Any
resulting translation adjustments are made directly to a separate
component of "Stockholders' equity." Gains and losses resulting from
other foreign currency transactions are included in the consolidated
statement of operations.
7. 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.
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.
8. Securities Sold, But Not Yet Purchased
Securities sold, but not yet purchased, consist of trading securities
at market values. The difference between the proceeds received from
securities sold short and the current market value is included in
trading gains, net.
50
<PAGE>
Laidlaw Global Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Years ended December 31, 1999 and 1998
NOTE A (continued)
9. Commissions
Commissions and related clearing expenses are recorded on a trade-date
basis as securities transactions occur.
10. Equipment and Leasehold Improvements
Equipment and leasehold improvements, which include computer equipment
and software, are stated at cost, less accumulated depreciation and
amortization. Depreciation and amortization on equipment and capital
leases are recognized on a straight-line basis over the estimated
useful lives of the assets ranging from three 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.
11. Goodwill
Goodwill, which represents the excess of purchase price over fair
value of net assets acquired, is amortized on a straight-line basis
over a period of fifteen to thirty years, the expected periods to be
benefited. The Company assesses the recoverability of these intangible
assets 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.
12. Deferred Rent Liability
The Company's lease for office space provides for no rental payments
during the first fourteen months of the lease and scheduled 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.
51
<PAGE>
Laidlaw Global Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Years ended December 31, 1999 and 1998
NOTE A (continued)
13. Investment Banking Fees
Investment banking 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.
14. 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.
15. Asset Management Fees
The Company computes income and commission expense on a quarterly
basis and amortizes them for financial statement purposes on a monthly
basis.
16. 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.
52
<PAGE>
Laidlaw Global Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Years ended December 31, 1999 and 1998
NOTE A (continued)
17. 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 all periods reflect the retroactive
effect of the aforementioned stock split as well as the 1-for-32.4778
reverse stock split in connection with the recapitalization on June 8,
1999, and the change in par value of voting common stock from $0.05 to
$0.00001.
NOTE B - SECURITIES OWNED AND SECURITIES SOLD, BUT NOT YET PURCHASED
Securities owned and securities sold, but not yet purchased consist of
trading and investment securities at market values, as follows:
December 31, 1999
-----------------------------
Sold, but
not yet
Owned purchased
---------- ----------
Equity securities $ 896,713 $ 91,963
Money market instruments 1,387,701 --
Corporate bonds 7,000 268,162
---------- ----------
$2,291,414 $ 360,125
========== ==========
53
<PAGE>
Laidlaw Global Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Years ended December 31, 1999 and 1998
NOTE C - EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Equipment and leasehold improvements consist of:
December 31,
1999
-----------
Furniture and office equipment $ 746,658
Computer equipment and software 3,474,354
Leasehold improvements 240,269
-----------
4,461,281
Accumulated depreciation and amortization (1,308,381)
-----------
Equipment and leasehold improvements, net $ 3,152,900
===========
NOTE D - NOTES PAYABLE AND SUBORDINATED BORROWINGS
Notes payable and borrowings under subordination agreements at December 31,
1999 consist of the following:
December 31,
1999
-----------
8% note payable to PUSA, principal and interest
due January 20, 2000 $ 500,000
Senior secured Euro-notes, 12% due 2002 429,000
-----------
$ 929,000
===========
6% secured demand note collateral agreements,
principal due July 1, 2002 and interest payable
quarterly $ 600,000
-----------
$ 600,000
===========
54
<PAGE>
Laidlaw Global Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Years ended December 31, 1999 and 1998
NOTE D (continued)
The 12% senior secured Euro-notes ("Notes") were issued in 1997 in units of
$100,000 with a five-year warrant to purchase 6,881 shares of the Company's
nonvoting common stock, $0.05 par value per share, at the exercise price or
$4.36 per share. The notes are convertible into the Company's voting common
stock at an exchange rate of $1.37 per share. The Notes are redeemable at
the option of the Company, in whole or in part, together with accrued and
unpaid interest except that no redemption may be made prior to December 31,
1999. 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, HRAC, which owns 100% of the outstanding common stock of Howe &
Rusling, with 20% subject to Howe & Rusling, Inc. employee options. In
addition to the Notes, a portion of its shares of capital stock of HRAC are
pledged to PUSA. Each of the Noteholders and PUSA have a proportionate
security interest in HRAC stock.
As of December 31, 1999, approximately $1,876,000 of the outstanding senior
secured Euro-notes were converted to voting common stock.
On July 1, 1999, Westminster obtained 6%, 3-year subordinated loans in the
amount of $600,000 from several of its principal officers and directors.
The purpose of these loans was to provide Westminster with regulatory
capital under SEC Rule 15c3-1 (Uniform Net Capital Rule). To the extent
that such borrowings are required for Westminster's continued compliance
with minimum net capital requirements, they may not be repaid.
Borrowings subordinated to the claims of general creditors at December 31,
1999, obtained by the Company through its acquisition of Westminster are
available in computing net capital under the Securities and Exchange
Commission's ("SEC's") uniform capital rule. To the extent that such
borrowings are required for Westminster's continued compliance with minimum
net capital requirements, they may not be repaid.
55
<PAGE>
Laidlaw Global Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Years ended December 31, 1999 and 1998
NOTE D (continued)
The following schedule illustrates the maturity of the notes payable and
subordinated borrowings for the next five years as of December 31, 1999:
Matured notes
Year ending December 31, payable
-------------
2000 $ 500,000
2001 --
2002 1,029,000
2003 --
-----------
$ 1,529,000
===========
NOTE E- ACQUISITION OF BUSINESSES
As discussed in Note A, subsequent to the Fi-Tek acquisition on June 8
1999, on July 1, 1999, the Company acquired 99.7% of the issued and
outstanding common stock of Westminster for 4,500,000 shares of the
Company's common stock valued at $.83 per share. The purchase price was
allocated to the net assets acquired based on their estimated fair values.
On July 1, 1999, Westminster's assets and liabilities were approximately
$1,069,000 and $1,041,000, respectively. The excess of the purchase price
over the fair value of the net assets acquired (goodwill) was $3,722,984,
which is being amortized on a straight-line basis over 15 years.
On December 15, 1999, the Company acquired Lead Capital, S.A. ("Lead"), a
broker-dealer located in Greece, which commenced operations during 1999.
The transaction was completed by the payment of cash in the amount of
$118,260 and 72,000 shares of the Company's stock as of December 31, 1999.
The purchase price was allocated to the net assets acquired based on their
estimated fair values. On December 31, 1999, Lead's assets and liabilities
were approximately $425,000 and $237,000, respectively. The purchase price
approximated the fair value of net assets; therefore, no goodwill was
recorded.
56
<PAGE>
Laidlaw Global Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Years ended December 31, 1999 and 1998
NOTE E (continued)
The acquisitions of Westminster and Lead described above were accounted for
by the purchase method. Accordingly, the accompanying consolidated
statements of operations do not include any revenues or expenses related to
these acquisitions prior to the respective closing dates.
Following are the Company's pro forma results of operations, which are
presented for the years ended December 31, 1999 and 1998. The pro forma
adjustments are based upon historical results of the combining entities as
follows: Global and its accounting predecessor, Holdings, for the years
ended December 1999 and 1998; Fi-Tek for the six months ended June 30, 1999
and for the year ended December 31, 1998; Westminster for the year ended
January 31, 1999 and for the six months ended June 30 1999 and Lead for the
year ended December 31, 1999.
<TABLE>
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
Net income (loss) $ 5,031,281 $ (3,309,842)
Pro forma adjustments:
Net (loss) from Fi-Tek (10,420) (4,115)
Net income from Westminster 500,776 815,542
Westminster goodwill amortization expense (124,170) (248,340)
Net income from Lead 83,248 --
------------ ------------
Pro forma net income (loss) $ 5,480,715 $ (2,746,755)
============ ============
Pro forma net earnings (loss) per common share:
Basic $.22 $(.21)
Diluted .19 --
Pro forma weighted average outstanding common shares:
Basic 25,410,877 12,957,522
Diluted 28,617,852 --
</TABLE>
These unaudited pro forma results have been prepared for comparative
purposes only and do not purport to be indicative of the results of
operations which would have actually resulted had the combinations been in
effect on January 1, 1998, or of future results of operations.
57
<PAGE>
Laidlaw Global Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Years ended December 31, 1999 and 1998
NOTE F - RELATED PARTY TRANSACTIONS
The Company receives loans from 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 $26,263 and $37,037 for the years ended December 31, 1999 and
1998, respectively.
In January 1999, the Company, in a joint venture with several individuals
associated with the Company, formed Global Electronic Exchange Inc.
("GEE") and its broker-dealer subsidiary, Globeshare. GEE is a
development-stage, internet-based international investment services
company, including operations in securities trading, investment banking,
asset management and real estate. The Company received 8,190,000 shares of
GEE common stock in exchange for expenses paid and services rendered by the
Company on its behalf in the amount of $558,770. This resulted in a 59%
ownership in GEE by the Company as of December 31, 1999.
In association with the private placement of GEE common stock, Laidlaw
Global Securities received $440,190 in corporate finance fees.
Westminster obtained a $600,000 subordinated loan from the Company in order
to provide Westminster with regulatory capital under SEC Rule15c3-1 (Net
Capital Rule). This loan may not be repaid and is not convertible into
common shares of the Company.
On December 15, 1999, an affiliate of PUSA and a 28% shareholder of the
Company sold its wholly owned subsidiary for which Laidlaw Global
Securities served as investment banker in connection with the transaction
and earned commission income of $2,150,000 which is included in the
Company's consolidated statements of operations.
NOTE G - NET CAPITAL REQUIREMENTS
The Company's broker-dealer subsidiaries 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 December 31, 1999, Laidlaw Global Securities had net capital of
$3,783,827, which was $3,625,308 in excess of its required net capital of
$158,519. At December 31, 1999, Westminster had net capital of $1,306,555,
which was $1,206,555 in excess of its required net capital of $100,000.
58
<PAGE>
Laidlaw Global Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Years ended December 31, 1999 and 1998
NOTE H - STOCKHOLDERS' EQUITY
In connection with the recapitalization on June 8, 1999, the cumulative,
convertible preferred stock, Series C was converted into 2,500 shares of
the Company's $.00001 par value common stock.
Additionally, the authorized number of voting common shares increased to
50,000,000 shares and par value decreased from $0.05 to $0.00001. In
addition, the Company eliminated the 6,100,000 shares of authorized $0.05
par value nonvoting common stock.
In conjunction with the outstanding 12% Euro-notes, 94,454 common stock
purchase warrants are outstanding at December 31, 1999, along with 398,696
Class A common stock purchase warrants and 398,696 Class B common stock
purchase warrants.
An additional 200,000 shares of the Company's common stock has been placed
in escrow pending a transaction with an affiliate of the Company.
As discussed in Note A, paragraph No. 17, all references in the financial
statements with regard to the number of shares and earnings per share for
all periods reflect the retroactive effect of the aforementioned stock
splits and change in par value.
NOTE I - 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 J - COMMITMENTS AND CONTINGENCIES
1. Lease Commitments
a. The Company leases office space under noncancelable leases
generally varying from seven to twelve years, with certain
renewal options.
59
<PAGE>
Laidlaw Global Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Years ended December 31, 1999 and 1998
NOTE J (continued)
At December 31, 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,
2000 $ 1,143,000
2001 1,149,000
2002 1,149,000
2003 1,149,000
2004 1,178,000
Thereafter 3,901,000
-----------
9,669,000
Sublease payments (1,106,000)
-----------
Net lease commitments $ 8,563,000
===========
Rent expense was $1,083,621 and $1,178,950 for the years ended
December 31, 1999 and 1998, respectively.
b. 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
December 31, 1999:
Fiscal year ending December 31,
2000 $351,966
2001 349,041
2002 243,804
-------
Total minimum payments 944,811
Less amount representing interest (181,151)
-------
Present value of net minimum
lease payments $763,660
=======
60
<PAGE>
Laidlaw Global Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Years ended December 31, 1999 and 1998
NOTE J (continued)
2. 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 addition, Laidlaw Global Securities is a defendant in a legal
matter involving the underwriting and initial public offering of
Galacticomm Technologies, Inc. ("Galacticomm") shares. Laidlaw Global
Securities acted as a member of a selling group pursuant to which
Laidlaw Global Securities agreed to Purchase 200,000 shares of
Galacticomm at $5.40 per share and 200,000 warrants of Galacticomm at
$0.09 per warrant. Additionally, Laidlaw Global Securities agreed to
guarantee the purchase of an additional 20,000 shares and warrants if
deemed necessary. Prior to the settlement of the IPO, Laidlaw Global
Securities had satisfied all its commitments as part of its agreement
with the lead underwriters. Prior to the settlement of the IPO the
lead underwriters aborted the IPO based upon what they in their sole
discretion believed was a declining market in the U.S. and abroad.
Pursuant to the underwriting agreement between Galacticomm and the
lead underwriters, the lead underwriters had the right, in their sole
discretion, to abort the IPO in the event of adverse conditions.
Galacticomm commenced suit against the underwriting group in a Florida
state court seeking damages for breach of the underwriting agreement.
In the opinion of management of the Company, amounts accrued for
awards or assessments in connection with these matters are adequate
and the ultimate resolution of these matters will not have a material
effect on the Company's financial position and results of operations.
3. Redemption Agreement With Stockholder
Under the terms of a redemption agreement between the Company and a
former stockholder, the Company is obligated to pay up to $1,050,000.
On May 15, 1999, this agreement was modified, allowing the Company to
provide the payment by the issuance of a convertible note for
$393,750. In August 1999, this note was converted to 22,702 shares of
common stock.
4. Employment Agreements
The Company maintains agreements with a key employee who also acts as
Chairman of the Board and Chief Executive Officer (the "Executive"),
subject to the following terms and conditions:
The Company will pay to the Executive an annual salary of
$185,000.
The Company shall pay an annual bonus to the Executive as the
compensation committee of the Board of Directors may determine
based upon the performance and achievement of the Company. If the
Company's net income for the year ending December 31, 2000 equals
or exceeds that earned by the Company for the year ended December
31, 1999, then the Executive will be entitled to a bonus of no
less than 50% of the bonus he will receive for the prior year.
In addition to the Base Salary and Bonus, the Company shall pay
to the Executive a commission of 40% of all gross commissions
generated from his customer accounts with any subsidiary of the
Company.
61
<PAGE>
Laidlaw Global Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Years ended December 31, 1999 and 1998
NOTE J (continued)
5. Commission-sharing Arrangements
In conjunction with the formation of GEE in January 1999, the Company
entered into commission-sharing arrangements with a number of
foreign-based broker-dealers from whom GEE receives a portion of
commission revenue pursuant to the agreements with these affiliates.
There were no significant funding commitments made by GEE or the
Company at December 31, 1999.
NOTE K - TRANSACTIONS WITH CLEARING BROKER AND CUSTOMERS
The Company conducts business with two separate clearing brokers, one of
which executes and settles all non-U.S. equity trades for the Company, on a
fully disclosed basis, on behalf of its customers and for its own
proprietary accounts pursuant to a clearance agreement. The Company earns
commissions as an introducing broker for the transactions of its customers.
In the normal course of business, the Company's customer activities involve
the execution 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.
The Company's customer securities activities are transacted on either a
cash or margin basis. In margin transactions, the clearing brokers extend
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, and has agreed to indemnify its clearing
brokers for losses that the clearing brokers may sustain from the customer
accounts introduced by the Company.
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 the December 31, 1999 market values of the related
securities, and will incur a loss if the market values of the securities
increase subsequent to December 31, 1999.
62
<PAGE>
Laidlaw Global Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Years ended December 31, 1999 and 1998
NOTE L - INCOME TAXES
As of December 31, 1999, the Company has significant operating loss
carryforwards for Federal income tax purposes available to offset future
taxable income. Such carryforward losses are scheduled to expire as
follows:
Year ending December 31,
2005 $ 970,000
2006 through 2018 15,556,000
-----------
Total operating loss carryforward $16,526,000
===========
The Company is not certain that it will realize the benefit of the entire
amount of net operating loss carryforwards. Accordingly, the deferred tax
asset applicable to operations subsequent to December 31, 1999 has been
recorded subject to a valuation allowance which the Company recorded
against the net operating losses. The Company continually reviews the
adequacy of the valuation allowance and recognizes those benefits only as
the Company's assessment indicates that it is more likely than not that
future tax benefits will be realized. The Company has continued to
experience losses except for the current year and as a result the Company
recorded an $800,000 benefit which it believes is more likely than not to
be realized.
The components of the net deferred tax asset as of December 31, 1999 and
1998 consist of the following:
December 31,
--------------------------------
1999 1998
----------- -----------
Federal $ 2,542,000 $ 4,717,000
State and local 1,564,000 3,049,000
----------- -----------
4,106,000 7,766,000
Valuation allowance (3,306,000) (7,766,000)
----------- -----------
Recorded net tax asset $ 800,000 $ --
=========== ===========
63
<PAGE>
Laidlaw Global Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Years ended December 31, 1999 and 1998
NOTE M - 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 1999 and 1998 Plan years 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 $20,048 and $71,341
for the years ended December 31, 1999 and 1998 respectively.
NOTE N - INDUSTRY SEGMENTS
In 1999 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 that 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
United States 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.
64
<PAGE>
Laidlaw Global Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Years ended December 31, 1999 and 1998
NOTE N (continued)
Foreign Operations and Major Customers: Although the Company has begun to
initiate its plans to expand its international operations in Europe and
Asia, the Company had no significant assets or revenues (either external or
intercompany) from operations in foreign countries for each of the two
years in the period ended December 31, 1999 other than commission and
Investment Banking revenues from the activities of Laidlaw Global
Securities on behalf of foreign and U.S. customers in foreign markets,
amounting to $5,855,499 and $170,000, respectively, which approximates 20%
of external revenue. Additionally, the Company had no significant
individual customers (domestic or foreign) as of December 31, 1999, or for
each of the two years in the period ended December 31, 1999.
65
<PAGE>
Laidlaw Global Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Years ended December 31, 1999 and 1998
NOTE N (continued)
The following table sets forth the net revenues of these industry segments
of the Company's business.
Year ended December 31,
-------------------------
1999 1998
----------- -----------
Revenue from external customers
Asset management $ 4,860,319 $ 4,721,527
Broker-dealer 25,164,548 13,319,445
Corporate and other 662,238 209,109
----------- -----------
Total external revenue $30,687,105 $18,250,081
=========== ===========
Inter-segment revenue
Asset management $ 62,221 $ --
Broker-dealer 350,000 199,800
Corporate and other -- --
----------- -----------
Total inter-segment revenue $ 412,221 $ 199,800
=========== ===========
Interest revenue
Asset management
Broker-dealer $ 637,890 $ 290,364
Corporate and other 75,775 8,608
----------- -----------
Total interest revenue $ 713,665 $ 298,972
=========== ===========
Interest expense
Asset management $ 123,187 $ 158,933
Broker-dealer 60,304 31,955
Corporate and other 418,175 551,056
----------- -----------
Total interest expense $ 601,666 $ 741,944
=========== ===========
Depreciation and amortization expense
Asset management $ 107,159 $ 86,328
Broker-dealer 16,635
Corporate and other 544,610 292,928
----------- -----------
Total depreciation and amortization expense $ 668,404 $ 379,256
=========== ===========
66
<PAGE>
Laidlaw Global Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Years ended December 31, 1999 and 1998
NOTE N (continued)
Year ended December 31,
-------------------------------
1999 1998
------------ ------------
Net income (loss)
Asset management $ 508,845 $ 1,024,376
Broker-dealer 5,681,940 690,697
Corporate and other (1,159,504) (5,024,915)
------------ ------------
Total net income (loss) $ 5,031,281 $ (3,309,842)
============ ============
Total assets
Asset management $ 3,888,054 $ 5,434,924
Broker-dealer 11,823,013 2,502,844
Corporate and other 15,106,848 1,651,104
------------ ------------
Total assets $ 30,817,915 $ 9,588,872
============ ============
NOTE O - STOCK OPTIONS
During 1999, the Company established a stock option plan accounted for
under APB Opinion No. 25 and related interpretations. The current plan
incorporates all outstanding options previously granted under the prior
Laidlaw Holdings and Westminster stock option plans. The plan allows the
Company to grant options to employees of the Company, its subsidiaries and
affiliates, for up to 4,350,000 shares of common stock at December 31,
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 cost has been recognized for the plan for the years
ended December 31, 1999 and 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 ("SFAS No. 123"), "Accounting for Stock-Based Compensation," the
Company's net income (loss) would have decreased (increased) from
$5,031,281 and $(3,309,842) to the amounts of $2,166,108 and $(4,287,565),
for the years ended December 31, 1999 and 1998, respectively.
67
<PAGE>
Laidlaw Global Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Years ended December 31, 1999 and 1998
NOTE O (continued)
A summary of the option activity for years ended December 31, 1999 and 1998
is as follows:
<TABLE>
<CAPTION>
Year ended December 31,
----------------------------------------------------------------
1999 1998
---------------------------- ---------------------------
Weighted- Weighted-
average average
exercise exercise
Shares price Shares price
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Balance, beginning of year 1,552,913 $1.58 -- $ --
Granted 1,485,500 0.83 1,689,888 0.83
Exercised 10,500 0.83 136,975 0.83
Balance, end of year 3,048,913 1.21 1,552,913 1.58
</TABLE>
The status of outstanding stock options is summarized as of December 31,
1999 as follows:
<TABLE>
<CAPTION>
Weighted- Weighted-
average average
remaining exercise price
Options contractual Options of options
Exercise price outstanding life (years) exercisable exercisable
-------------- ----------- -------------- ------------ ------------
<S> <C> <C> <C> <C>
$0.83 1,888,913 3.84 1,130,413 $0.83
2.16 262,500 3.84 262,500 2.16
2.33 898,500 4.41 409,500 2.33
8.00 29,000 3.84 13,000 8.00
</TABLE>
The weighted-average fair value at date of grant for those options granted
in fiscal 1999 was $1.21. The fair value of each option at date of grant
was estimated using the Black-Scholes option pricing model utilizing the
following weighted-average assumptions:
<TABLE>
<CAPTION>
Grant Risk free Expected stock Expected life
date interest rate price volatility of options
------- -------------- ----------------- -------------
<S> <C> <C> <C>
January 15, 1998 5.77% 41.63% 4
July 15, 1998 5.51 52.90 4
September 3, 1998 5.02 58.30 4
January 1, 1999 5.60 56.51 4
May 28, 1999 5.60 56.51 4
</TABLE>
68
<PAGE>
Laidlaw Global Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Years ended December 31, 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
reflect all potentially dilutive securities, as well as the related effect
on net income. Set forth below is the reconciliation of net income (loss)
applicable to common shares and weighted-average common and common
equivalent shares of the basic and diluted earnings per common share
computations:
Year ended December 31,
-------------------------
1999 1998
----------- -----------
Numerator
Net (loss) income $ 5,031,281 $(3,309,842)
----------- -----------
Net (loss) income applicable to common shares
for basic earnings per share 5,031,281 (3,309,842)
Effect of dilutive securities
Interest expense on Euro-notes 51,480
Amortization of Euro-notes costs 23,605
----------- -----------
Net (loss) income applicable to common shares
for diluted earnings per share $ 5,106,366 $(3,309,842)
=========== ===========
Denominator
Weighted-average common shares for basic
earnings per share 19,338,877 6,957,522
Weighted-average effect of dilutive securities
Employee stock options 3,815,129 --
Warrants from Euronotes 891,846 --
----------- -----------
Weighted-average common and common equivalent
shares for diluted earnings per share 24,045,852 6,957,522
=========== ===========
Earnings per common share
Basic $ 0.26 $ (0.48)
=========== ===========
Diluted $ 0.21 $ (0.48)
=========== ===========
69
<PAGE>
Laidlaw Global Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Years ended December 31, 1999 and 1998
NOTE P (continued)
Included in diluted weighted shares outstanding are 94,454 Common Stock
Purchase Warrants of the Company exchanged or to be exchanged for warrants
issued by Laidlaw Holdings together with its 12% Senior Secured Euro Notes.
Also included are 398,696 Class A Common Stock Purchase Warrants and
398,696 Class B Common Stock Purchase Warrants.
Because the Company reported a net loss during the year ended 1998, the
calculation of diluted earnings per share does not include convertible
securities, options and warrants, as they are antidilutive and would result
in a reduction of the net loss per share. If the Company had reported net
income, there would have been additional shares as of December 31, 1998
included in the calculation of diluted earnings per share.
NOTE Q - SUBSEQUENT EVENTS
On March 29, 2000, the Company completed an amended and restated agreement,
which had been originally entered into on May 20, 1999, with PUSA, Laidlaw
Pacific Financial Services Ltd. (a wholly-owned subsidiary of PUSA) and its
wholly-owned subsidiary Laidlaw Pacific (Asia) Ltd. ("Laidlaw Pacific"), a
Hong Kong based investment advisor to acquire Laidlaw Pacific. The Company
issued 200,000 shares of its common stock and paid $HK 4 million in
exchange for payment of a dividend to Laidlaw Pacific Financial Services
Ltd. equal to $HK 3 million and an option for the Company to receive a
dividend equal to $HK 4 million, should it elect to withdraw such funds
from Laidlaw Pacific. PUSA represented to the Company that, at the time of
closing, Laidlaw Pacific would have cash in the amount of $HK 11 million,
all licenses to engage in the investment banking business in Hong Kong, and
no liabilities.
70
EX. 21.1
SUBSIDIARIES OF LAIDLAW GLOBAL CORPORATION
o Laidlaw Holdings, Inc.
o Westminster Securities Corporation
o Laidlaw Global Securities, Inc.
o Global Electronic Exchange Inc. (59% interest)
o Howe & Rusling, Inc. (81% interest)
o Lead Capital S.A.
o Laidlaw Pacific (Asia) Ltd.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 10,131,242
<SECURITIES> 2,291,414
<RECEIVABLES> 4,269,377
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 16,692,033
<PP&E> 3,152,900
<DEPRECIATION> 1,308,381
<TOTAL-ASSETS> 30,817,915
<CURRENT-LIABILITIES> 5,787,090
<BONDS> 0
0
0
<COMMON> 266
<OTHER-SE> 16,166,574
<TOTAL-LIABILITY-AND-EQUITY> 30,817,915
<SALES> 0
<TOTAL-REVENUES> 30,687,105
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 25,758,281
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 601,666
<INCOME-PRETAX> 4,231,281
<INCOME-TAX> 0
<INCOME-CONTINUING> 5,031,281
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,031,281
<EPS-BASIC> .26
<EPS-DILUTED> .21
</TABLE>
