U.S. Securities and Exchange Commission
Washington, D.C. 20549
Form 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________ to ___________
Commission file number 0-27681
LAIDLAW GLOBAL CORPORATION
(Exact name of small business issuer as specified in its charter)
Delaware 13-4093923
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
100 Park Avenue
New York, NY 10017
(Address of principal executive offices)
(212) 376-8800
(Issuer's telephone number, including area code)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements for the past
90 days.
Yes [X] No [ ]
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date: 26,960,429 shares of common
stock as of August 1, 2000.
Transitional Small Business Disclosure Format (check one)
Yes [_] No [X]
<PAGE>
TABLE OF CONTENTS
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
a) Consolidated Balance Sheet as of June 30 and
December 31, 1999 ....................................... 4
b) Consolidated Statements of Operations for the
three and six months ended June 30, 2000 and 1999 ....... 5
c) Consolidated Statements of Cash Flows for the
three and six months ended June 30, 2000 and 1999 ....... 6
d) Notes to Consolidated Financial Statements ........ 7 to 16
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF
OPERATIONS ............................................. 17 to 22
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS ............................................ 21
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K ............................. 22
a) EXHIBITS ................................................ 22
b) REPORTS ON FORM 8-K ..................................... 22
SIGNATURES .................................................................. 22
EXHIBIT 27 ..................................................................N/A
3
<PAGE>
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Laidlaw Global Corporation and Subsidiaries
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
As of As of
June 30, 2000 December 31, 1999
------------- -----------------
(Unaudited)
<S> <C> <C>
ASSETS
Cash and Cash Equivalents $ 5,518,816 $ 10,131,242
Escrow Deposit with Clearing Broker 405,500 --
Due from Clearing Broker & Other Receivables 6,736,795 3,488,265
Marketable Securities Owned 1,663,774 2,291,414
Goodwill in H&R Acquisition Corp and Westminster Securities Corp., net 7,167,659 7,362,029
Property, Equipment and Leasehold Improvements (net of accumulated 4,983,715 3,152,900
depreciation and amortization)
Deferred Tax Receivable 835,510 800,000
Secured Demand Note 600,000 600,000
Other Assets 2,372,304 2,992,065
------------ ------------
TOTAL ASSETS $ 30,284,073 $ 30,817,915
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Notes Payable $ 429,000 $ 929,000
Marketable Securities Sold but not yet Purchased 187,590 360,125
Private Placement Escrow Fund Payable 405,500 --
Accounts Payable and Accrued Expenses 2,514,927 3,373,633
Commission and Compensation Payable 472,151 1,308,454
Capitalized Lease Obligations 875,527 763,660
Other Liabilities 1,320,818 1,373,937
------------ ------------
TOTAL LIABILITIES 6,205,513 8,108,809
------------ ------------
COMMITMENTS AND CONTINGENCIES
Subordinated borrowings 600,000 600,000
Minority Interest 5,386,253 5,942,266
STOCKHOLDERS' EQUITY
Common Stock; $.00001 par value; 50,000,000 shares authorized of
the company at June 30, 2000 and December 31, 1999; 26,960,429
and 26,617,929 shares issued and outstanding by the Company on
June 30, 2000 and December 31, 1999, respectively 270 266
Additional Paid - In Capital 34,748,801 33,747,210
Accumulated Deficit (16,656,764) (17,580,636)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 18,092,307 16,166,840
------------ ------------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $ 30,284,073 $ 30,817,915
============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
4
<PAGE>
Laidlaw Global Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
------------------------------- --------------------------------
2000 1999 2000 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
REVENUES
Gross commissions $ 3,173,962 $ 4,494,175 $ 11,890,211 $ 6,629,501
Asset management fees 1,393,608 1,516,658 2,779,335 2,998,499
Investment income, trading profit
and corporate finance fees 1,731,854 512,537 2,125,923 1,847,819
Other 286,652 138,481 657,603 364,453
------------ ------------ ------------ ------------
Total Revenue 6,586,076 6,661,851 17,453,072 11,840,272
------------ ------------ ------------ ------------
EXPENSES
Salaries and other employee costs 2,406,613 1,536,995 4,869,077 3,147,260
Commissions 1,280,270 2,273,510 4,718,569 3,445,092
Clearing and occupancy 1,057,228 698,664 2,343,960 1,405,365
Travel and entertainment 914,019 217,285 1,336,783 322,518
Professional fees 508,801 161,741 941,309 237,081
Dues and assessments 199,118 43,879 433,139 68,929
Other 1,132,058 793,015 2,344,361 1,527,429
------------ ------------ ------------ ------------
Total Expenses 7,498,107 5,725,089 16,987,198 10,153,674
------------ ------------ ------------ ------------
Income (loss) before minority interest (912,031) 936,762 465,874 1,686,598
Minority interest (375,364) 69,425 (556,013) 109,807
------------ ------------ ------------ ------------
Income (loss) before taxes: (536,667) 867,337 1,021,887 1,576,791
Income Taxes 35,245 -- 98,015 --
------------ ------------ ------------ ------------
NET INCOME (LOSS) (571,912) 867,337 923,872 1,576,791
Accumulated deficit, beginning of (16,084,852) (21,949,938) (17,580,636) (22,659,392)
------------ ------------ ------------ ------------
period
Accumulated deficit, end of period $(16,656,764) $(21,082,601) $(16,656,764) $(21,082,601)
============ ============ ============ ============
NET INCOME (LOSS) PER SHARE
Basic $ (.02) $ .06 $ .03 $ .12
============ ============ ============ ============
Diluted $ (.02) $ .05 $ .03 $ .10
============ ============ ============ ============
WEEIGHTED AVERAGE NUMBER OF SHARES
OUSTANDING
Basic 26,959,929 13,921,762 26,825,221 12,832,665
============ ============ ============ ============
Diluted 26,959,929 17,501,490 30,521,126 16,351,631
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
5
<PAGE>
Laidlaw Global Corporation and Subsidiaries
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Three months ended June 30, Six months ended June 30,
2000 1999 2000 1999
---------------------------- ----------------------------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ (571,912) $ 867,337 $ 923,872 $ 1,576,791
Adjustments to reconcile net income to net
Cash used by operating activities:
Amortization 97,221 18,510 194,370 37,020
Depreciation 377,302 93,007 666,052 173,785
Deferred tax benefits (35,510) -- (35,510) --
Minority interest in earnings (375,364) 69,425 (556,013) 109,807
(Increase) decrease in:
Due from clearing brokers and other receivables 1,614,650 (833,300) (2,523,918) (1,821,352)
Marketable securities owned 785,391 (724,888) 627,640 (18,263)
Other assets 459,413 (71,430) (104,851) (4,744)
Marketable securities sold but not yet purchased (1,636,587) (1,994) (172,535) (4,310)
Accounts payable and accrued expenses 202,879 303,123 (858,706) (992,065)
Commission and compensation payable (836,902) 424,044 (836,303) 430,418
Capital lease obligation (87,783) (8,183) (146,339) (30,660)
Other liabilities (2,455) (260,185) (53,119) (442,100)
------------ ------------ ------------ ------------
Net cash used in operating activities (9,657) (124,534) (2,875,360) (985,673)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of Property, Equipment and Leasehold Improvements (1,018,876) (93,618) (2,238,661) (141,064)
------------ ------------ ------------ ------------
Net cash used in investing activities (1,018,876) (93,618) (2,238,661) (141,064)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of 8% Convertible Subordinated Note -- 5,240,000 -- 5,540,000
Repayment of notes payable (500,000) (1,486,276) (500,000) (1,876,276)
Issuance of common stock 2,500 -- 1,001,595 --
------------ ------------ ------------ ------------
Net cash provided by financing activities (497,500) 3,753,724 501,595 3,663,724
------------ ------------ ------------ ------------
NET (DECREASE) IN CASH (1,526,033) 3,535,572 (4,612,426) 2,536,987
CASH - BEGINNING OF PERIOD 7,044,849 940,844 10,131,242 1,939,429
------------ ------------ ------------ ------------
CASH - END OF PERIOD $ 5,518,816 $ 4,476,416 $ 5,518,816 $ 4,476,416
============ ============ ============ ============
Supplemental disclosure for cash flow information:
Cash paid during the period for interest $ 90,175 $ 252,291 $ 185,580 $ 424,108
Cash paid during the period for taxes $ 67,564 $ 2,080 $ 88,493 $ 7,230
Supplemental schedule of non cash investing
and financing activities:
During the periods ended June 30, 2000 and
1999 the following transactions occurred:
Conversion of 8% Convertible Subordinated Notes to Equity 7,663,724 7,663,724
Issuance of common stock upon purchase of
Laidlaw Pacific ("Asia") Ltd. 348,313
Management fee receivable applied to loan from H&R 455,150
Purchases of equipment through capital lease 258,206 145,176
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
6
<PAGE>
Laidlaw Global Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As of June 30, 2000 and December 31, 1999
And for the three and six Months Ended June 30, 2000 and 1999
NOTE A - ORGANIZATION AND BASIS OF PRESENTATION
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, Global Electronic Exchange Inc.,
("GEE"), a 59%-owned development-stage, internet-based investment services
company, Lead Capital, S.A. ("Lead"), a 99% owned broker-dealer located in
Greece, and Laidlaw Pacific ("Asia") Ltd (LPA), an investment advisory firm
incorporated under the laws of Hong Kong. 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.
The accompanying unaudited consolidated financial statements include the
accounts of the Company and its subsidiaries. All significant intercompany
balances and transactions have been eliminated in consolidation.
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
7
<PAGE>
Laidlaw Global Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
As of June 30, 2000 and December 31, 1999
And for the three and six Months Ended June 30, 2000 and 1999
NOTE A (continued)
company.
As a result 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 acquistion of Westminster, Lead and LPA, the
majority ownership of the Company by PUSA and EC is approximately 39% as of
June 30, 2000.
These financial statements that have been prepared pursuant to the rules
and regulations of the Securities and Exchange Commission (the "SEC") and,
in the opinion of management, reflect all adjustments necessary for a fair
presentation of the results for the periods presented in conformity with
generally accepted accounting principles. These financial statements should
be read in
8
<PAGE>
Laidlaw Global Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
As of June 30, 2000 and December 31, 1999
And for the three and six Months Ended June 30, 2000 and 1999
NOTE A (continued)
conjunction with the Company's audited financial statements included in the
Company's annual report on Form 10-KSB filed with the SEC on April 17,
2000. Results of the interim periods are not necessarily indicative of the
results to be obtained for a full fiscal year.
9
<PAGE>
Laidlaw Global Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
As of June 30, 2000 and December 31, 1999
And for the three and six Months Ended June 30, 2000 and 1999
NOTE B - ACQUISITION OF LAIDLAW PACIFIC ("ASIA") LTD.
On March 29, 2000, the Company acquired Laidlaw Pacific ("Asia") Ltd.
(LPA), an investment advisory company incorporated under the laws of Hong
Kong. The amount paid was 200,000 shares of common stock of the Company and
HK$4M. The purchase price was allocated to the net assets acquired based on
their estimated fair values. On March 31, 2000, LPA's assets were
approximately HK$6,874,000 (US$882,844), which included cash received of
US$534,531. The purchase price approximated the fair value of net assets;
therefore, no goodwill was recorded.
The acquisition of LPA described above was 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 three months ended March 31, 2000 and 1999. The pro forma
adjustments are based upon historical results of the combining entities as
follows: Global and its accounting predecessor, Holdings, for the three
months ended March 31, 2000 and 1999 and LPA for the three months ended
March 31, 2000 and 1999.
2000 1999
------------ ------------
(Unaudited)
Net income (loss) $ 1,558,554 $ 713,186
Pro forma adjustments:
Net income from LPA (19,091) 20,226
------------ ------------
Pro forma net income (loss) $ 1,539,463 $ 733,412
Pro forma net earnings (loss) per
common share:
Basic $ .06 $ .06
Diluted $ .05 $ .05
Pro forma weighted average outstanding
common shares:
Basic 26,890,512 11,943,567
Diluted 30,686,813 15,139,271
Subsequent to March 31, 2000, LPA's results of operations are included in
the consolidated financial statements.
NOTE C - STOCKHOLDERS' EQUITY.
The Company issued 3,000 shares of common stock in connection with the
exercise of employee stock options on April 12, 2000 at $.83 per share.
10
<PAGE>
Laidlaw Global Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
As of June 30, 2000 and December 31, 1999
And for the three and six Months Ended June 30, 2000 and 1999
NOTE D - 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 June 30, 2000, Laidlaw Global Securities had net capital of
$4,325,811 which was $4,207,301 in excess of its required net capital of
$118,510 and Westminster Securities Corporation had net capital of
$1,936,403, which was $1,836,403 in excess of its required net capital of
$100,000.
The Company's subsidiary Global Electronic Exchange, Inc. has a 100% owned
broker-dealer subsidiary Globeshare, Inc. which was accepted as a member of
the NASD on February 8, 2000. During the first year of its operation,
Globeshare must accordingly meet the minimum net capital requirement and
maintain an 8 to 1 ratio of aggregate indebtedness to net capital. As of
June 30, 2000, Globeshare had net capital of $1,066,167, which was
$1,061,167 in excess of its required net capital of $5,000.
NOTE E - COMMITMENTS AND CONTINGENCIES
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 their commitments as part
of their 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 the State
Court of Florida seeking damages for breach of the underwriting agreement.
11
<PAGE>
Laidlaw Global Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
As of June 30, 2000 and December 31, 1999
And for the three and six Months Ended June 30, 2000 and 1999
NOTE E (continued)
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.
12
<PAGE>
Laidlaw Global Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
As of June 30, 2000 and December 31, 1999
And for the three and six Months Ended June 30, 2000 and 1999
NOTE F - INDUSTRY SEGMENTS
The Company operates in two principal segments of the financial services
industry: Asset Management and Brokerage activities, which includes
investment banking. 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.
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
periods ended June 30, 2000 and June 30, 1999 other than commission, fees
and Investment Banking revenues from the activities of Laidlaw Global Corp.
and Laidlaw Global Securities on behalf of foreign and U.S. customers in
foreign markets, amounting to $3,837,995 and $1,000,455, respectively,
which approximate 22% and 8%, respectively, of external revenue.
Additionally, the Company had no significant individual customers (domestic
or foreign) as of June 30, 2000, or for each of the two periods ended June
30, 2000 and June 30, 1999.
13
<PAGE>
Laidlaw Global Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
As of June 30, 2000 and December 31, 1999
And for the three and six Months Ended June 30, 2000 and 1999
NOTE F (continued)
The following table sets forth the net revenues of these industry segments
of the Company's business.
Six months ended June 30
----------------------------
2000 1999
------------ ------------
(Unaudited)
Revenue from external customers
Asset management $ 2,779,335 $ 2,998,499
Brokerage 14,016,134 8,477,320
Corporate and other 657,603 364,453
------------ ------------
Total external revenue $ 17,453,072 $ 11,840,272
============ ============
Inter-segment revenue
Asset management $ --
Brokerage $ 100,002 312,121
Corporate and other -- --
------------ ------------
Total inter-segment revenue $ 100,002 $ 312,121
============ ============
Net income (loss)
Asset management $ 362,013 $ 468,125
Brokerage 1,817,976 1,576,656
Corporate and other (1,256,117) (467,990)
------------ ------------
Total net income (loss) $ 923,872 $ 1,576,791
============ ============
Total assets
Asset management $ 3,414,736 $ 3,362,673
Brokerage 14,519,548 9,731,466
Corporate and other 12,349,789 6,615,836
------------ ------------
Total assets $ 30,284,073 $ 19,709,975
============ ============
14
<PAGE>
Laidlaw Global Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
As of June 30, 2000 and December 31, 1999
And for the three and six Months Ended June 30, 2000 and 1999
NOTE G - 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. 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 six months ended June 30, 2000 and
1999. 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 would
have decreased from ($571,912) and $867,337 to ($634,067) and $274,775 for
the three months ended June 30, 2000 and 1999, respectively. The Company's
net income would have decreased from $923,872 and $1,576,791 to $799,563
and $391,667 for the six months ended June 30, 2000 and 1999, respectively.
15
<PAGE>
Laidlaw Global Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
As of June 30, 2000 and December 31, 1999
And for the three and six Months Ended June 30, 2000 and 1999
NOTE H - EARNINGS PER COMMON SHARE
Earnings per common share are computed in accordance with SFAS No. 128,
"Earnings Per Share." Basic earnings per share excludes the dilutive
effects of options and convertible securities and is calculated by dividing
income available to common shareholders by the weighted-average number of
common shares outstanding for the period. Diluted earnings per share
reflect all potentially dilutive securities, as well as the related effect
on net income. Set forth below is the reconciliation of net income (loss)
applicable to common shares and weighted-average common and common
equivalent shares of the basic and diluted earnings per common share
computations:
<TABLE>
<CAPTION>
Three Months ended June 30, Six Months ended June 30,
---------------------------- ---------------------------
2000 1999 2000 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Numerator
Net (loss) income ($ 571,912) $ 867,337 $ 923,872 $ 1,576,791
------------ ------------ ------------ ------------
Net (loss) income applicable to common shares
for basic earnings per share (571,912) 867,337 923,872 1,576,791
Effect of dilutive securities
Interest expense on Euro-notes 12,870 -- 25,740 --
------------ ------------ ------------ ------------
Net (loss) income applicable to common shares
for diluted earnings per share ($ 559,042) $ 867,337 $ 949,612 $ 1,576,791
============ ============ ============ ============
Denominator
Weighted-average common shares for basic
earnings per share 26,959,929 13,921,762 26,825,221 12,832,665
Weighted-average effect of dilutive securities
Employee stock options -- 3,362,375 2,804,059 3,363,063
Warrants -- 217,353 891,846 155,903
------------ ------------ ------------ ------------
Weighted-average common and common equivalent
shares for diluted earnings per share 26,959,929 17,501,490 30,521,126 16,351,631
============ ============ ============ ============
Earnings (loss) per common share
Basic ($ 0.02) $ .06 $ .03 $ .12
============ ============ ============ ============
Diluted ($ 0.02) $ .05 $ .03 $ .10
============ ============ ============ ============
</TABLE>
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,
398,696 Class A Common Stock Purchase Warrants and 398,696 Class B Common
Stock Purchase Warrants. Also included are options to purchase common stock
at a range of $.83 to $8.00 for 2,703,163 shares which were outstanding
during the three and six months ended June 20, 2000. However, for the three
months ended June 30, 2000, these warrants and options were excluded from
the computation of the diluted earnings per share because the Company
incurred a loss and the effect would have been antidilutive.
16
<PAGE>
Laidlaw Global Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
As of June 30, 2000 and December 31, 1999
And for the three and six Months Ended June 30, 2000 and 1999
ITEM 2. 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 two business segments: brokerage, which includes investment banking
and sales and trading, and asset management. It has two subsidiaries that
operate in both 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, an 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 wholly owned broker-dealer
subsidiary Globeshare, Inc. ("Globeshare"). Globeshare, which commenced its U.S.
operation in October 1999 and operated initially as a division of Laidlaw Global
Securities, Inc., has received approval for NASD membership as a broker-dealer
on February 8, 2000. Operations of the on-line broker have transferred from
Globeshare as a division of Laidlaw Global Securities to Globeshare as a
broker-dealer on May 18, 2000.
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.
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
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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.
Results of Operations For the Six Months Ended June 30, 2000 and 1999
Global market and economic conditions were generally favorable during much
of the first quarter of 2000 and strengthened during the second quarter as
output growth in many of the major economies was strong and many emerging market
countries continued their recovery. However, financial markets within many
regions exhibited a higher degree of volatility enhanced by a succession of rate
increases in the United States.
The United States continued its longest period of economic expansion as
growth was fueled by increased levels of consumer confidence and spending, low
levels of unemployment and high demand for imports. In an effort to slow the
pace of economic growth and alleviate possible inflationary pressures, the
Federal Reserve raised overnight interest rates by 1% during the first half of
the year. The U.S. equity markets were strong in the first quarter and the
beginning of the second quarter, but corrections in the technology and
telecommunications sectors led to sharp declines in major equity markets,
particularly the Nasdaq, which fell 30% during the second quarter. Fixed income
markets were also affected as rising interest rates, widening credit spreads and
reduced new issues led to a decrease in secondary market activity. Difficult
market conditions reduced the volume of customer securities transactions,
including listed agency and over-the-counter equity products.
The European economy continued to grow during the second quarter, fueled by
a competitive exchange rate and expansion in domestic demand. Concerns about a
potential rise in inflation, resulting from economic growth and rising oil
prices, prompted the European Central Bank to raise short-term interest rates
during the second quarter.
Japan generated economic growth during the second quarter as consumption
and investment increased. The recovery in Japan helped boost economic growth in
the rest of Asia which continued its rebound after the recent recession.
The composition of our net revenues has varied over time as financial
markets and the scope of our operations have changed. The composition of net
revenues can also vary over the shorter term due to fluctuations in U.S. and
global economic and market conditions. As a result, period-to-period comparisons
may not be meaningful. In addition, the sharp correction in the Greek securities
market has affected our ability to generate additional commissions revenues from
institutional customers. The concomitant correction of the NASDAQ did not help
either. As a result our second quarter has seen a substantial reduction of the
institutional commissions earned by the Laidlaw Global Securities, Inc.
subsidiary.
Laidlaw, through its investment banking and advisory services, was able to
have its clients participate in a secondary offering in the Greek Stock Market
that brought a fee in excess of $1 million thus contributing in a large part to
the good performance of the first quarter of 2000.
During the second quarter of 2000, Laidlaw Global Corporation ("LGC") acted
as an intermediary in the sale of a German Bank to a group of investors based in
Luxembourg. Though the transaction is still subject to the approval of the
German banking authorities, a portion of the fee committed to be paid to LGC by
the Luxembourg euro-continent group is irrevocable and is therefore acccounted
for the second quarter earnings of LGC. Laidlaw Global Securities, Inc. (LGS)
also entered into an agreement with the above-mentioned group of investors
whereby LGS would provide them with financial advisory services. The
non-refundable fee due upon signing of the agreement and the amount for
reimbursement of expenses on a non- accountable basis were included in the books
of LGS for the month of June 2000. These transactions of great impact on LGC and
the LGS subsidiary show a new developed pattern whereby Advisory and Merger and
Acquisitions Investment Banking activities have provided for a significant
proportion of LGC and LGS revenues both in 1999 and in 2000.
Global Electronic Exchange, Inc., the Internet related 59% owned subsidiary
has realized great improvement in terms of its ability to deliver product and
services through Globeshare, Inc., the broker-dealer it owns. Nevertheless, the
continuous development costs coupled with the slowing down of trading activities
brought upon by the NASDAQ correction has not allowed profitability to occur
yet. As market conditions change and Globeshare is able to draw benefits from
several new relationships it has established in Latin America, we do
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expect a positive turn for the activities of that subsidiary with a lower impact
on the earnings reduction the consolidation of its earnings has provided so far.
The 99.7% owned Westminster subsidiary started last year a service that
allows direct access to the floor of the New York Stock Exchange for large
institutional and private customers, for which there is limited competition and
a large demand from first rate investment outfits. This new service enabled
Westminster to overcome the NASDAQ correction and as a result has provided
consistent revenues and profits to the parent company. Revenues and net profit
for the first six months of 2000 at Westminster were respectively $4,615,286 and
$623,894. All comparisons have to take into account that Westminster Securities
Corp. only became a subsidiary of the Group on or about July 1, 1999.
All of the aforementioned factors contributed to Laidlaw's consolidated net
income of $923,872 for the first six months of 2000. However, if the loss
derived from the operations of the Internet company Global Electronic Exchange
and its wholly owned subsidiary Globeshare were deducted from the consolidated
figure, Laidlaw's traditional business netted a profit of $1,848,886. The
increase in the profit of Laidlaw's traditional lines of business compared to
the net profit of $1,576,791 in the first half of 1999 is attributed mainly to
the fees earned during the first quarter from the clients' participation in a
secondary offering in the Greek Stock Market, fees derived from the transactions
with the Luxembourg euro-continent group during the second quarter, and an
overall increase in the commission revenue as augmented by the Westminster
Securities Corp. subsidiary. During the second quarter of 2000, however, Laidlaw
Global Securities experienced contraction of commission income from
institutional customers due substantially to the NASDAQ correction and the sharp
correction in the Greek securities market as explained previously. Throughout
the first and second quarters of 2000, Laidlaw sustained increases in salaries
and employee benefits and travel and promotional expenditures related to the
acquisition of the new subsidiaries and the efforts to develop more business and
clientele for the newly merged group.
The acquisition of Lead Capital continues to be immaterial 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's business opportunities in Greece have been enhanced.
The Laidlaw Pacific acquisition has also continued to have immaterial
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, Laidlaw clients were recently able to
participate in a Hong-Kong private placement as a result of contacts obtained
through the Hong Kong subsidiary.
In the second quarter of 2000, Laidlaw continued to operate in two
principal segments of the financial services industry, namely asset management
and brokerage 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.
Brokerage activities include underwriting public offerings of securities,
arranging private placements and providing client advisory services, trading,
conducting research on, originating and distributing equity and fixed income
securities on a commission basis and for their own proprietary trading accounts.
The commission revenues which represent 68% and 31% of total revenues for
the six months ended June 30, 2000 and June 30, 1999, respectively, are
geographically categorized as follows:
For the six months ended June 30, 2000, revenues of $2.9 million were
generated from the activities of Laidlaw Global Securities on behalf of foreign
and U.S. institutional customers in foreign markets and revenues of $9 million
were generated from the activities of Laidlaw Global Securities and Westminster
in the U.S. markets. The investors transacting in the U.S. markets are both U.S.
and non-U.S. entities and individuals. For the six months ended June 30, 1999,
all commisions were generated by Laidlaw Global Securities, the only
broker-dealer of the company at that time. Revenues of $3.7 million were
generated from activities on behalf of foreign and U.S. institutional customers
in foreign markets.
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Asset Management fees from Howe & Rusling and partly from Laidlaw Global
Securities amount to $2,779,335 and $2,998,499 for the six months ended June 30,
2000 and June 30, 1999, which represent 16% and 25% of the firm's revenue for
the respective periods. Corporate finance fees of Laidlaw Global Securities and
Westminster amount to $2,125,923 for the six months ended June 30, 2000,
comprising 12% of the firm's revenues. For the six months ended June 30, 1999,
corporate finance fees of Laidlaw Global Securities amounting to $1,847,819
accounted for 16% of total revenue.
In the future Laidlaw will aim at diversifying its commission revenues by
generating a large portion of its revenues from the Internet business through
the development of Globeshare. Management continues to view the costs associated
with Globeshare as investment costs related to the future diversification of the
revenue sources of Laidlaw.
Salaries and other employee expenses for the six months ended June 30, 2000
increased to $4.9 million from $3.1 million for the six months ended June 30,
1999. Salaries and other employee expenses for the three months ended June 30,
2000 increased to $2.4 million from $1.5 million for the three months ended June
30, 1999. The increase in this expense primarily relates to the addition of the
Westminster compensation costs, the hiring of personnel for the Global
Electronic Exchange and the H & R Acquisition Corp. subsidiaries and additional
key professional staff.
Commissions expense for the six months ended June 30, 2000 increased to
$4.7 million from $3.4 million for the six months ended June 30, 1999. The
increase is attributable to the increase in commission revenue. Commissions
expense for the three months ended June 30, 2000 decreased to $1.3 million from
$2.3 million for the three months ended June 30, 1999. The decrease is
attributable to the decrease in commission revenue for the second quarter of
2000.
Clearing and occupancy expenses for the six months ended June 30, 2000
increased to $2.3 million from $1.4 million for the six months ended June 30,
1999. Clearing and occupancy expenses for the three months ended June 30, 2000
inceased to $1.1 million from $700,000 for the three months ended June 30, 1999.
Clearing expenses, which primarily consists of amounts paid to the
broker-dealers' clearing agent for processing and clearing customers' trades,
reflect the increased volume and growth of Laidlaw's brokerage operations and,
of course the increment in such expenses related to the operations of
Westminster which was consolidated to the group starting in July 1, 1999.
Occupancy expenses, which include cost of leasing office space and space with
our internet service provider and of depreciating equipment and amortizing
software development costs, increased primarily due to the technology
infrastructure developed for Global Electronic Exchange. Management expects the
costs related to technology development will continue to grow as Laidlaw
continues to invest in Global Electronic Exchange and enhances the other
subsidiaries' infrastructure to enable Laidlaw as a whole to compete better in
the industry.
All other expenses for the six months ended June 30, 2000 increased to $5
million from $2.2 million for the six months ended June 30, 1999. All other
expenses for the three months ended June 30, 2000 increased to $2.8 million from
$1.2 million for the three months ended June 30, 1999. These expenses consist,
among other things, of legal, accounting and other professional fees, travel and
promotional costs, quotes and information system costs, office supplies, dues
and registration fees with the NASD and the various states, amortization of
goodwill, telephone costs, and interest. With the advent of the reverse merger
and the acquisitions, professional fees and goodwill amortization increased. The
addition of the Westminster and Global Electronic Exchange subsidiaries to the
group necessarily increased operational costs of communications, supplies and
membership dues. The increase in travel and promotional costs are relative to
the efforts of management in developing strategic alliances with foreign
partners and in promoting brand name recognition for Laidlaw and Globeshare, the
on-line broker-dealer subsidiary of Global Electronic Exchange.
Liquidity and Capital Resources
The credit worthiness 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 in the summer of 1999 yielded a strong response from the note holders
who 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. There has been a substantial reduction in the cash balance as of
June 30, 2000 as compared to that of June 30, 1999 principally due to the
reduction of net income and the acquisition of computer hardware and software
relative to the infrastructure build up for Globeshare.
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
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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 six
months ended June 30, 2000. The substantial increase in total assets as of June
30, 2000 compared to those as of June 30, 1999 resulted from Laidlaw's increased
profitability, the corporate acquisitions and the establishment of Global
Electronic Exchange, Inc. The improvement in the leverage ratio and book value
per share resulted from the increase in equity capital due to the augmented
consolidated net income generated by Laidlaw for the first half of 2000 and the
conversion of the 8% Convertible Notes, and the 12% Senior Secured Euro Notes in
Laidlaw Common Stock during the third quarter of 1999.
As of As of
June 2000 June 1999
(in $ except for ratios)
Adjusted Assets (1) 30,284,073 19,177,427
Leverage Ratio (2) 1.67 2.77
Adjusted Leverage Ratio (3) 1.67 2.77
Book value per share (4) 0.67 .55
(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.
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Galacticomm Technologies, Inc. v. Laidlaw Global Securities, Inc.
The Company's wholly owned subsidiary Laidlaw Global Securities, Inc. is
currently a defendant in a legal matter involving the underwriting and initial
public offering ("IPO") of Galacticomm Technologies, Inc. securities. The lead
underwriters for the Galacticomm IPO were First Equity Corporation of Florida
and Security Capital Trading, Inc. ("Lead Underwriters"). The Lead Underwriters
entered into a sub-underwriting agreement with various sub-underwriters,
including Laidlaw Global Securities. Pursuant to said Agreement, Laidlaw Global
Securities agreed to purchase 200,000 shares of Galacticomm at $5.40 per share
($1,080,000), and 200,000 warrants of Galacticomm at $.09 per warrant ($18,000).
Additionally, Laidlaw Global Securities agreed to guarantee the purchase of up
to an additional 20,000 shares and warrants if deemed necessary.
On the eve 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 terms of 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
("Market Out" theory). Galacticomm commenced suit against the entire
underwriting group in the State Court of Florida seeking damages for breach of
the underwriting agreement. The Sub-Underwriters jointly engaged Florida counsel
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to defend them in this proceeding. All of the underwriters are vigorously
defending this matter under the theory that the Lead Underwriters were justified
in aborting the IPO based upon a dramatic downturn in the world financial
community which jeopardized all of the underwriters' abilities to sell
Galacticomm's shares to its investors at the time of the IPO. Registrant
believes that it has a meritorious defense to the claims against it.
The sub-underwriters, including Laidlaw Global Securities, have filed
cross-claims against the Lead Underwriters seeking indemnification in the event
all of the underwriters are found to be liable. Additionally, counsel for
Laidlaw Global Securities has had conversations with Galacticomm's counsel about
the possibility of settling out of the litigation. These negotiations are
on-going. In the event a settlement cannot be reached, and in the further event
of an adverse decision after trial, based upon the Underwriting Agreement,
Laidlaw Global Securities' liability cannot exceed its underwriting commitment.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibit 27 - Financial Data Schedule
b) Reports on Form 8-K
The Registrant did not file any reports on Form 8-K during the three
month period ended June 30, 2000
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed by the undersigned thereunto
duly authorized.
LAIDLAW GLOBAL CORPORATION
August 14, 2000 By: /s/ Roger Bendelac
-----------------------
Roger Bendelac,
President
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