Document is copied.
U.S. Securities and Exchange Commission
Washington, D.C. 20549
Form 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 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: 26,939,729 shares of common
stock as of November 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 Sheets as of September 30, 2000 and
December 31, 1999 ....................................... 4
b) Consolidated Statements of Operations for the
three and nine months ended September 30, 2000 and 1999 ...5
c) Consolidated Statements of Cash Flows for the
three and nine months ended September 30, 2000 and 1999 ...6
d) Notes to Consolidated Financial Statements ........ 7 to 11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF
OPERATIONS ............................................. 11 to 19
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS ............................................ 19
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K ............................. 20
a) EXHIBITS ................................................ 20
b) REPORTS ON FORM 8-K ..................................... 20
SIGNATURES .................................................................. 20
EXHIBIT 27 .................................................................. 21
<PAGE>
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Laidlaw Global Corporation and Subsidiaries
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
As of As of
September 30, 2000 December 31, 1999
------------------ -----------------
(Unaudited)
<S> <C> <C>
ASSETS
Cash and Cash Equivalents $ 3,512,555 $ 10,131,242
Due from Clearing Broker & Other Receivables 6,547,203 3,488,265
Marketable Securities Owned 1,511,434 2,291,414
Goodwill in H&R Acquisition Corp and Westminster Securities Corp., net 7,070,439 7,362,029
Property, Equipment and Leasehold Improvements (net of accumulated 5,498,924 3,152,900
depreciation and amortization)
Deferred Tax Receivable 800,173 800,000
Secured Demand Note 600,000 600,000
Other Assets 2,517,584 2,992,065
------------ ------------
TOTAL ASSETS $ 28,058,312 $ 30,817,915
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Notes Payable $ 429,000 $ 929,000
Marketable Securities Sold but not yet Purchased 486,407 360,125
Accounts Payable and Accrued Expenses 2,563,591 3,373,633
Commission and Compensation Payable 519,884 1,308,454
Capitalized Lease Obligations 880,451 763,660
Other Liabilities 1,311,185 1,373,937
------------ ------------
TOTAL LIABILITIES 6,190,518 8,108,809
------------ ------------
COMMITMENTS AND CONTINGENCIES
Subordinated borrowings 600,000 600,000
Minority Interest 5,040,916 5,942,266
STOCKHOLDERS' EQUITY
Common Stock; $.00001 par value; 50,000,000 shares authorized
of the company at September 30, 2000 and December 31, 1999; 26,961,929
and 26,617,929 shares issued and outstanding by the Company on
September 30, 2000 and December 31, 1999, respectively 270 266
Additional Paid - In Capital 34,750,051 33,747,210
Treasury Stock (40,224) --
Accumulated Deficit (18,483,219) (17,580,636)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 16,226,878 16,166,840
------------ ------------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $ 28,058,312 $ 30,817,915
============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
<PAGE>
Laidlaw Global Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
------------------------------- --------------------------------
2000 1999 2000 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
REVENUES
Gross commissions $ 780,835 $ 6,203,571 $ 12,671,046 $ 12,833,072
Asset management fees 1,385,912 1,423,445 4,165,247 4,421,944
Corporate finance & private placement fee 1,486,458 187,577 3,494,465 885,969
Investment income, trading profit
and corporate finance fees (83,943) 191,882 33,973 1,341,309
Other 357,584 494,241 1,015,187 858,694
------------ ------------ ------------ ------------
Total Revenue 3,926,846 8,500,716 21,379,918 20,340,988
------------ ------------ ------------ ------------
EXPENSES
Salaries and other employee costs 1,914,645 1,838,540 6,783,722 4,985,800
Commissions 876,437 2,982,887 5,595,006 6,427,979
Clearing and floor brokerage 368,007 272,589 1,321,967 904,884
Occupancy 785,226 399,409 2,175,226 1,172,479
Travel and entertainment 177,454 108,711 1,514,237 431,229
Professional fees 354,969 314,011 1,296,278 551,092
Dues and assessments 164,603 92,738 597,742 161,667
Quotes & information 479,986 292,137 1,211,966 724,638
Telephone 154,980 141,777 493,313 385,850
Office supplies, postage, messengers, printing 180,069 174,147 675,692 369,160
Interest 77,395 98,976 280,975 523,084
Amortization of goodwill 118,802 95,680 356,336 182,034
Other expenses 429,464 341,761 766,775 487,141
------------ ------------ ------------ ------------
Total Expenses 6,082,037 7,153,363 23,069,235 17,307,037
------------ ------------ ------------ ------------
Income (loss) before minority interest (2,155,191) 1,347,353 (1,689,317) 3,033,951
Minority interest (345,336) 77,195 (901,349) 187,002
------------ ------------ ------------ ------------
Income (loss) before taxes: (1,809,855) 1,270,158 (787,968) 2,846,949
Income Taxes 16,600 -- 114,615 --
------------ ------------ ------------ ------------
NET INCOME (LOSS) (1,826,455) 1,270,158 (902,583) 2,846,949
Accumulated deficit, beginning of (16,656,764) (21,035,122) (17,580,636) (22,611,913)
------------ ------------ ------------ ------------
period
Accumulated deficit, end of period $(18,483,219) $(19,764,964) $(18,483,219) $(19,764,964)
============ ============ ============ ============
NET INCOME (LOSS) PER SHARE
Basic ($ .07) $ .05 ($ .03) $ .16
============ ============ ============ ============
Diluted ($ .07) $ .04 ($ .03) $ .13
============ ============ ============ ============
WEEIGHTED AVERAGE NUMBER OF SHARES
OUSTANDING
Basic 26,950,080 27,299,268 26,866,840 17,718,245
============ ============ ============ ============
Diluted 26,950,080 31,129,008 26,866,840 22,681,722
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
<PAGE>
Laidlaw Global Corporation and Subsidiaries
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Three months ended September 30, Nine months ended September 30,
2000 1999 2000 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ (1,826,455) $ 1,270,158 $ (902,583) $ 2,846,949
Adjustments to reconcile net income to net
Cash used by operating activities:
Amortization 97,220 80,268 291,590 182,033
Depreciation 473,518 91,878 1,139,570 80,146
Deferred tax benefits 35,337 -- (173) --
Minority interest in earnings (345,337) 77,196 (901,350) 73,002
(Increase) decrease in:
Due from clearing brokers and other receivables 189,592 (855,320) (2,334,326) (2,676,672)
Marketable securities owned 152,340 (1,086,603) 779,980 (1,104,866)
Other assets (145,280) (1,341,199) (250,131) (1,346,495)
Marketable securities sold but not yet purchased 298,817 15,485 126,282 11,175
Accounts payable and accrued expenses 8,440 419,336 (850,266) (458,728)
Commission and compensation payable 47,733 668,192 (788,570) 1,098,610
Capital lease obligation 4,924 (12,743) (219,839) 101,773
Other liabilities (9,633) 153,405 (62,752) (172,903)
------------ ------------ ------------ ------------
Net cash used in operating activities (1,018,784) (519,947) (3,972,568) (1,365,976)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of Property, Equipment and Leasehold Improvements (988,727) (103,142) (3,148,964) (203,865)
------------ ------------ ------------ ------------
Net cash used in investing activities (988,727) (103,142) (3,148,964) (203,865)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of 8% Convertible Subordinated Note -- -- -- 5,540,000
Repayment of notes payable -- (150,000) (500,000) (2,206,261)
Issuance of common stock 1,250 200,149 1,002,845 200,149
------------ ------------ ------------ ------------
Net cash provided by financing activities 1,250 50,149 502,845 3,533,888
------------ ------------ ------------ ------------
NET (DECREASE) INCREASE IN CASH (2,006,261) (572,940) (6,618,687) 1,964,047
CASH - BEGINNING OF PERIOD 5,518,816 4,476,416 10,131,242 1,939,429
------------ ------------ ------------ ------------
CASH - END OF PERIOD $ 3,512,555 $ 3,903,476 $ 3,512,555 $ 3,903,476
============ ============ ============ ============
Supplemental disclosure for cash flow information:
Cash paid during the period for interest $ 68,395 $ 89,976 $ 253,975 $ 496,084
Cash paid during the period for taxes $ -- $ 1,040 $ 88,493 $ 8,270
Supplemental schedule of non cash investing and financing activities:
During the periods ended September 30, 2000 and 1999 the
following transactions occurred:
Conversion of 8% Convertible Subordinated Notes to Equity -- 2,248,276 -- 9,912,000
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 78,424 -- 336,630 145,176
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
<PAGE>
Laidlaw Global Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As of September 30, 2000 and December 31, 1999
And for the three and nine Months Ended September 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, 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 Company was a majority owned subsidiary of Pacific USA Holdings
Corporation ("PUSA"), a wholly owned subsidiary of Pacific Electric Wire and
Cable Co., Ltd., a Taiwanese industrial company. As of September 30, 2000, the
majority ownership of the Company by PUSA and Europ Continents Holding is
approximately 36%.
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. 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 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.
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 - 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
September 30, 2000, Laidlaw Global Securities had net capital of $3,424,627
which was $3,324,627 in excess of its required net capital of $100,000 and
Westminster Securities Corporation had net capital of $2,022,829, which was
$1,922,829 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
<PAGE>
net capital. As of September 30, 2000, Globeshare had net capital of $568,097,
which was $550,006 in excess of its required net capital of $18,091.
NOTE D - 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.
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.
NOTE E - 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
<PAGE>
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 September 30, 2000 and September 30, 1999 other than commissions, 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 $3,827,104 and $2,734,972, respectively, which approximate
18% and 13%, respectively, of external revenue. Additionally, the Company had no
significant individual customers (domestic or foreign) as of September 30, 2000,
or for each of the two periods ended September 30, 2000 and September 30, 1999.
The following table sets forth the net revenues of these industry segments
of the Company's business.
Nine months ended September 30
----------------------------
2000 1999
------------ ------------
(Unaudited)
Revenue from external customers
Asset management $ 3,356,931 $ 3,240,292
Brokerage 16,172,248 16,680,763
Corporate and other 1,850,739 419,933
------------ ------------
Total external revenue $ 21,379,918 $ 20,340,988
============ ============
Inter-segment revenue
Asset management $ --
Brokerage $ 150,000 149,850
Corporate and other -- --
------------ ------------
Total inter-segment revenue $ 150,000 $ 149,850
============ ============
Net income (loss)
Asset management $ 582,487 $ 797,218
Brokerage 953,300 2,873,514
Corporate and other (2,438,370) (823,783)
------------ ------------
Total net income (loss) $ (902,583) $ 2,846,949
============ ============
Total assets
Asset management $ 3,327,770 $ 3,795,406
Brokerage 13,592,020 10,202,006
Corporate and other 11,138,523 8,912,380
------------ ------------
Total assets $ 28,058,313 $ 22,909,792
============ ============
<PAGE>
NOTE F - 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 September 30, Nine Months ended September 30,
------------------------------ ------------------------------
2000 1999 2000 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Numerator
Net (loss) income ($ 1,826,455) $ 1,270,158 ($ 902,583) $ 2,846,949
------------ ------------ ------------ ------------
Net (loss) income applicable to common shares
for basic earnings per share (1,826,455) 1,270,158 (902,583) 2,846,949
Effect of dilutive securities
Interest expense on Euro-notes -- 12,870 -- 38,610
Amortization of Euro-note costs -- 22,470 -- 22,470
------------ ------------ ------------ ------------
Net (loss) income applicable to common shares
for diluted earnings per share ($ 1,826,455) $ 1,305,498 ($ 902,583) $ 2,908,029
============ ============ ============ ============
Denominator
Weighted-average common shares for basic
earnings per share 26,950,080 27,299,268 26,866,840 17,718,245
Weighted-average effect of dilutive securities
Employee stock options -- 2,937,894 -- 4,071,631
Warrants -- 891,846 -- 891,846
------------ ------------ ------------ ------------
Weighted-average common and common equivalent
shares for diluted earnings per share 26,950,080 31,129,008 26,866,840 22,681,722
============ ============ ============ ============
Earnings (loss) per common share
Basic ($ .07) $ .05 ($ .03) $ .16
============ ============ ============ ============
Diluted ($ .07) $ .04 ($ .03) $ .13
============ ============ ============ ============
</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, and
options to purchase common stock at a range of $.83 to $8.00 for 4,201,663
shares which were outstanding during the three and nine months ended September
30, 2000. Also included in 1999 were 398,696 Class A Common Stock Purchase
Warrants and 398,696 Class B Common Stock Purchase Warrants which expired on
July 24, 2000. However, for the three and nine months ended September 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.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Overview
<PAGE>
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., received approval for NASD membership as a broker-dealer on
February 8, 2000. Operations of the on-line broker were transferred from
Globeshare as a division of Laidlaw Global Securities to Globeshare as a
broker-dealer on May 18, 2000. Global Electronic Exchange, Inc. changed its name
to GlobeShare Group, Inc. on November 1, 2000.
Market fluctuations in both U.S. and overseas markets, as well as 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 service 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, sees
itself as becoming a
<PAGE>
"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 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 Nine Months Ended September 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 and third
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 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 31% during the second and third quarters. 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.
<PAGE>
The European economy continued to grow during the third 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 and third quarters.
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.
During the third quarter, however, most of the capital markets in Asia
experienced a decline principally due to concerns of investors regarding the
region's longer-term global competitiveness.
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 certain overseas
securities markets 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 and third quarters have 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 overseas market offerings that brought fees 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 accounted
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 income of
LGS for the second quarter of 2000. The impact of these significant transactions
on LGC and the LGS subsidiary show a newly 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 and Europe, we do
<PAGE>
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 in 1999 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 investment entities. 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 nine
months of 2000 at Westminster were respectively $6,221,385 and $639,647. All
comparisons have to take into account that Westminster Securities Corp. only
became a subsidiary of the Group on or about July 1, 1999.
The continued erosion of the Greek Capital Markets resulted in the virtual
elimination of revenue for Lead Capital in third quarter. To avoid incurring
additional losses in its Greek subsidiary, Laidlaw decided to cease the
operations of Lead on August, 2000. Certain Greek regulatory requirements have
to be met before the dissolution of the corporation and the business can be
completed.
All of the aforementioned factors contributed to Laidlaw's consolidated net
loss of $902,583 for the first nine months of 2000. However, if the loss derived
from the operations of the Internet company Global Electronic Exchange and its
wholly owned subsidiary Globeshare and the one time charge against income
relative to the cessation of operations of the Greek subsidiary Lead Capital
were deducted from the consolidated results of operations, Laidlaw's traditional
business resulted in a net profit of $869,309. The decrease in the profit of
Laidlaw's traditional lines of business compared to the net profit of $2,846,949
in the first nine months of 1999 was attributed mainly to the reduction in
commission revenue from institutional customers of Laidlaw Global Securities due
substantially to the NASDAQ correction and the sharp correction in some overseas
securities markets as explained previously. This material decrease in revenue
was, however, partially offset by fees earned during the first quarter from the
clients' participation in overseas securities offerings, fees derived from the
transactions with the Luxembourg euro-continent group during the second quarter,
and an increase in commission revenue contributed by the Westminster Securities
Corporation subsidiary. Throughout the first three 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 Laidlaw Pacific acquisition has also continued to have no 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. Laidlaw clients were recently able to
participate in a Hong-Kong private placement as a result of contacts obtained
through the Hong Kong subsidiary.
<PAGE>
In the third 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 investments 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 59% and 63% of total revenues for
the nine months ended September 30, 2000 and September 30, 1999, respectively,
are geographically categorized as follows:
For the nine months ended September 30, 2000, revenues of $3.0 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 $13.2
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 nine months ended
September 30, 1999, most of the commissions were generated by Laidlaw Global
Securities since the Westminster subsidiary was merged into the group only on
July 1, 1999. Revenues of $8.3 million were generated from activities on behalf
of foreign and U.S. institutional customers in foreign markets.
Asset Management fees from Howe & Rusling and partly from Laidlaw Global
Securities amount to $4,165,247 and $4,421,944 for the nine months ended
September 30, 2000 and September 30, 1999, which represent 20% and 22% of the
firm's revenue for the respective periods. Corporate finance fees of Laidlaw
Global Securities and Westminster amount to $3,494,465 for the nine months ended
September 30, 2000, comprising 16% of the firm's revenues. For the nine months
ended September 30, 1999, corporate finance fees of Laidlaw Global Securities
amounting to $885,969 accounted for 4% of total revenue.
In the future Laidlaw will seek to diversify its commission revenues by
generating a large portion of its revenues both from an expanded retail customer
business in Laidlaw Global Securities and 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 nine months ended September
30, 2000 increased to $6.8 million from $5.0 million for the nine months ended
September 30,1999. Salaries and other employee
<PAGE>
expenses for the three months ended September 30,2000 increased to $1.9 million
from $1.8 million for the three months ended September 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 nine months ended September 30, 2000 decreased
to $5.6 million from $6.4 million for the nine months ended September 30, 1999.
The decrease is attributable to the decrease in commission revenue. Commissions
expense for the three months ended September 30, 2000 decreased to $876,437 from
$3.0 million for the three months ended September 30, 1999. The decrease is
attributable to the decrease in commission revenue for the third quarter of
2000.
Clearing and floor brokerage expenses for the nine months ended September
30, 2000 increased to $1.3 million from $904,884 for the nine months ended
September 30, 1999. Clearing and floor brokerage expenses for the three months
ended September 30, 2000 increased to $368,007 from $272,589 for the three
months ended September 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 for the nine months ended September 30, 2000 increased
to $2.2 million from $1.2 million for the nine months ended September 30, 1999.
Occupancy expenses for the three months ended September 30, 2000 increased to
$785,226 from $399,409 for the three months ended September 30, 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.
Travel and entertainment expenses for the nine months ended September 30,
2000 increased to $1.5 from $431,229 for the nine months ended September 30,
1999. Travel and entertainment expenses for the three months ended September 30,
2000 increased to $177,454 from $108,711 for the three months ended September
30, 1999. The increase in travel and entertainment 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, Inc.
Professional fees for the nine months ended September 30, 2000 increased
to $1.3 million from $551,092 for the nine months ended September 30, 1999.
Professional fees increased to $354,969 for the three months ended September 30,
2000 from $314,011 for the three months ended September 30, 1999. The increase
in professional fees resulted from the addition of Westminster, the accounting
and legal
<PAGE>
fees related to the SEC regulatory filings, the fees paid to public relations
firms related to the efforts to promote the Laidlaw and Globeshare names here
and overseas, and the fees paid to outside technical consultants and an
executive recruitment firm.
All other expenses for the nine months ended September 30, 2000 increased
to $4.4 million from $2.8 million for the nine months ended September 30, 1999.
All other expenses for the three months ended September 30, 2000 increased to
$1.6 million from $1.2 million for the three months ended September 30, 1999.
These expenses consist, among other things, of 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,
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.
Liquidity and Capital Resources
The credit worthiness of Laidlaw has improved substantially in 1999 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. However, there has been a substantial reduction in the cash and cash
equivalents balance as of September 30, 2000 as compared to December 31, 1999
principally due to the reduction of net income, the repayment of H & R
Acquisition Corp. notes payable, 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 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
<PAGE>
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 sustained positive liquidity and financial position of Laidlaw for
the nine months ended September 30, 2000 despite the net loss incurred on a year
to date basis. The increase in total assets as of September 30, 2000 compared to
those as of September 30, 1999 resulted from Laidlaw's enhanced profitability,
the corporate acquisitions and the establishment of Global Electronic Exchange,
Inc. However, the decrease in total assets as of September 30, 2000 compared to
those of December 31, 1999 is attributed mainly to the loss sustained for the
first nine months of 2000. The improvement in the leverage ratio and book value
per share resulted from the increase in equity capital due to the net positive
impact of the consolidated net profit in 1999 even after deducting the loss as
of September 30, 2000, and the conversion of the 8% Convertible Notes, and the
12% Senior Secured Euro Notes in Laidlaw Common Stock during the second quarter
of 1999.
<TABLE>
<CAPTION>
As of As of As of
September 2000 December 1999 September 1999
(in $ except for ratios)
<S> <C> <C> <C>
Adjusted Assets (1) 28,058,312 30,817,915 22,909,792
Leverage Ratio (2) 1.73 1.91 1.65
Adjusted Leverage Ratio (3) 1.73 1.91 1.65
Book value per share (4) 0.60 0.61 0.49
</TABLE>
(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
<PAGE>
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 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.
Laidlaw is a party to other legal proceedings which Management believes
should not have a material adverse impact on its business or assets.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibit 27 - Financial Data Schedule
b) Reports on Form 8-K
On September 29, 2000 the Company filed a Form 8-K publicly disclosing the
resignation of Anastasio Carayannis from his position as the Chief Executive
Officer and Chairman of the Board.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed by the undersigned thereunto
duly authorized.
LAIDLAW GLOBAL CORPORATION
November 14, 2000 By: /s/ Roger Bendelac
-----------------------
Roger Bendelac,
President
22
