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, 2001
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 (I.R.S. Employer
of 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: 26,816,080 shares of common
stock as of September 30, 2001.
Transitional Small Business Disclosure Format (check one)
Yes [_] No [X]
TABLE OF CONTENTS
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
a) Consolidated Balance Sheets as of September 30, 2001 and
December 31, 2000 ...................................................... 4
b) Consolidated Statements of Operations and Other Comprehensive Income
for the three and nine months ended September 30, 2001 and 2000...........5
c) Consolidated Statement of Changes In Stockholders' Equity................6
d) Consolidated Statements of Cash Flows for nine months
ended September 30, 2001 and 2000........................................7
e) Notes to Consolidated Financial Statements........................ 8 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
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Laidlaw Global Corporation and Subsidiaries
CONSOLIDATED BALANCE SHEETS
As of As of
September 30, 2001 December 31, 2000
------------------ -----------------
(Unaudited)
ASSETS
Cash and cash equivalents $ 737,460 $ 1,899,274
Receivable from clearing broker and other receivables 2,678,776 3,335,284
Securities owned, at market value 664,228 1,897,838
Goodwill, net of accumulated amortization 4,237,023 6,973,219
Property, equipment and leasehold improvements at cost, net of accumulated 3,794,747 5,120,130
depreciation and amortization
Notes receivable 300,000 600,000
Deposits 1,201,992 584,452
Prepaid and other 1,563,878 2,360,380
------------ ------------
$ 15,178,104 $ 22,770,577
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Notes payable $ 3,012,462 $ 429,000
Securities sold but not yet purchased, at market value 128,150 182,983
Accounts payable and accrued expenses 3,496,714 3,489,866
Commissions and compensation payable 2,005,619 1,644,411
Capitalized lease obligations 543,141 778,731
Deferred revenue 559,380 624,879
Deferred rent 535,186 557,475
Other 193,980 112,978
------------ ------------
10,474,632 7,820,323
------------ ------------
Commitments and contingencies
Subordinated borrowings -- 600,000
Minority interest 3,365,793 4,477,143
Stockholders' equity
Common Stock; $.00001 par value; 50,000,000 shares authorized of the Company at
September 30, 2001 and December 31, 2000; 31,961,929 and 27,461,929 shares
issued by the Company on September 30, 2001 and December 31, 2000, respectively 320 275
Additional paid - in capital 35,719,450 34,892,352
Accumulated other comprehensive loss arising from cumulative translation
adjustment (39,337) --
Treasury stock, at cost (5,145,850 shares and 352,600 shares as of (2,221,339) (257,713)
September 30, 2001 and December 31, 2000, respectively)
Accumulated deficit (32,121,415) (24,761,803)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 1,337,679 9,873,111
------------ ------------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $ 15,178,104 $ 22,770,577
============ ============
The accompanying notes are an integral part of these consolidated statements.
Laidlaw Global Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS AND OTHER COMPREHENSIVE INCOME (Unaudited)
Three months ended Nine months ended
September 30, September 30,
------------------------------- -------------------------------
2001 2000 2001 2000
------------ ------------ ------------ ------------
REVENUES
Gross commissions $ 847,430 $ 780,835 $ 6,177,300 $ 12,671,046
Asset management fees 1,231,587 1,385,912 3,806,137 4,165,247
Corporate finance & private placement fees -- 1,486,458 268,158 3,494,465
Investment income & trading profits 649,129 (83,943) 1,245,406 33,973
Other 275,160 357,584 614,699 1,015,187
------------ ------------ ------------ ------------
Total Revenue 3,003,306 3,926,846 12,111,700 21,379,918
------------ ------------ ------------ ------------
EXPENSES
Salaries and other employee costs 1,985,082 1,914,645 6,227,519 6,783,722
Commissions 788,269 876,437 3,151,736 5,595,006
Clearing and floor brokerage 85,506 368,007 780,335 1,321,967
Occupancy 380,219 288,966 1,227,884 1,035,656
Depreciation 578,296 496,260 1,671,970 1,139,570
Advertising & contributions 90,132 97,710 215,726 1,037,575
Travel and entertainment 114,720 79,744 322,304 476,662
Professional fees 283,450 354,969 1,046,168 1,296,278
Dues and assessments 54,612 164,603 438,103 597,742
Quotes & information 369,517 634,966 1,508,867 1,705,279
Office supplies, postage, messengers, printing 145,507 180,069 584,873 675,692
Interest 197,852 77,395 420,046 280,975
Loss from sale of subsidiary -- 275,441 1,615,722 275,441
Provision for doubtful accounts -- -- 582,368 --
Other 153,761 272,825 787,159 847,670
------------ ------------ ------------ ------------
Total Expenses 5,226,923 6,082,037 20,580,780 23,069,235
------------ ------------ ------------ ------------
Loss before minority interest (2,223,617) (2,155,191) (8,469,080) (1,689,317)
Minority interest (71,895) (345,336) (1,109,468) (901,349)
------------ ------------ ------------ ------------
Loss before taxes: (2,151,722) (1,809,855) (7,359,612) (787,968)
Income Taxes -- 16,600 -- 114,615
------------ ------------ ------------ ------------
NET LOSS (2,151,722) (1,826,455) (7,359,612) (902,583)
Accumulated deficit, beginning of period (29,969,693) (16,656,764) (24,761,803) (17,580,636)
------------ ------------ ------------ ------------
Accumulated deficit, end of period $(32,121,415) $(18,483,219) $(32,121,415) $(18,483,219)
============ ============ ============ ============
NET LOSS PER SHARE
Basic $ (.09) $ (.07) $ (.28) $ (.03)
============ ============ ============ ============
Diluted $ (.09) $ (.07) $ (.28) $ (.03)
============ ============ ============ ============
WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING
Basic 24,721,822 26,950,080 26,041,738 26,866,840
============ ============ ============ ============
Diluted 24,721,822 26,950,080 26,041,738 26,866,840
============ ============ ============ ============
Laidlaw Global Corporation and Subsidiaries
CONSOLIDATED STATEMENT OF CHANGES IN
STOCKHOLDERS' EQUITY
Nine months ended September 30, 2001
Additional
Shares Preferred Common paid-in Accumulated Treasury
issued stock stock capital deficit Stock
------------ ----------- --------- ------------ ------------ --------
Balance at December 31, 1998,
as previously reported 11,744,887 $250,000 $117 $20,092,729 $(22,611,917) $--
Prior period adjustment (1,190,799)
----------- -------- ---- ------------ ------------- ------------
Balance at December 31, 1998,
as restated 11,744,887 250,000 117 20,092,729 (23,802,716) --
Conversion of preferred stock
into common stock 3,750 (250,000) -- 250,000
Issuance of common stock to
Fi-Tek's stockholders 1,499,949 15 1,485
Issuance of common stock upon
conversion of 8%
subordinated
notes 5,853,630 59 7,578,559
Issuance of common stock upon
conversion of 12% senior
secured
Euro-notes 1,372,674 14 1,767,267
Issuance of common stock for
the acquisition of
Westminster Securities
Corporation 4,500,000 45 3,749,955
Issuance of common stock upon
exercise of stock options 1,571,039 15 247,216
Issuance of common stock for
the acquisition of Lead
Capital, S.A 72,000 1 59,999
Net income, as restated 4,753,469
----------- -------- ---- ------------ ------------- ------------
Balance at December 31, 1999,
as restated 26,617,929 -- 266 33,747,210 (19,049,247) --
Issuance of common stock for the
acquisition of Laidlaw Pacific (Asia) 200,000 2 556,398
Issuance of common stock upon
exercise of stock options 144,000 2 119,999
Issuance of common stock pursuant
to consulting services
agreement 500,000 5 468,745
Purchase of treasury stock (352,600) (257,713)
Net loss (5,712,556)
----------- -------- ---- ------------ ------------- ------------
Balance at December 31, 2000 27,109,329 -- 275 34,892,352 (24,761,803) (257,713)
----------- -------- ---- ------------ ------------- ------------
Purchase of treasury stock (293,250) (73,626)
Repurchase of shares into treasury (4,500,000) (1,890,000)
pursuant to sale of Westminster
Securities Corporation
Issuance of shares pursuant to the
exchange of Globeshare Group Inc. stock
for Laidlaw Global Corporation stock on
a one to one-basis 4,500,000 45 719,955
Warrant issued to PUSA pursuant to
issuance of Senior Secured Note 107,143
Net loss (7,359,612)
Other comprehensive loss arising from
foreign currency translation adjustments
Total Comprehensive Loss
----------- -------- ---- ------------ ------------- ------------
Balance at September 30, 2001 26,816,079 -- $320 $ 35,719,450 $ (32,121,415) $(2,221,339)
=========== ======== ==== ============ ============= ============
Other Accumulated
comprehensive
income (loss) Total
------------- ------------
Balance at December 31, 1998,
as previously reported $ -- $(2,269,071)
Prior period adjustment (1,190,799)
---------- ------------
Balance at December 31, 1998,
as restated (3,459,870)
Conversion of preferred stock
into common stock --
Issuance of common stock to
Fi-Tek's stockholders 1,500
Issuance of common stock upon
conversion of 8%
subordinated
notes 7,578,618
Issuance of common stock upon
conversion of 12% senior
secured
Euro-notes 1,767,281
Issuance of common stock for
the acquisition of
Westminster Securities
Corporation 3,750,000
Issuance of common stock upon
exercise of stock options 247,231
Issuance of common stock for
the acquisition of Lead
Capital, S.A 60,000
Net income, as restated 4,753,469
---------- ------------
Balance at December 31, 1999,
as restated 14,698,229
Issuance of common stock for the
acquisition of Laidlaw Pacific (Asia) 556,400
Issuance of common stock upon
exercise of stock options 120,001
Issuance of common stock pursuant
to consulting services
agreement 468,750
Purchase of treasury stock (257,713)
Net loss (5,712,556)
---------- ------------
Balance at December 31, 2000 9,873,111
---------- ------------
Purchase of treasury stock (73,626)
Repurchase of shares into treasury (1,890,000)
pursuant to sale of Westminster
Securities Corporation
Issuance of shares pursuant to the exchange of
Globeshare Group Inc. stock for Laidlaw Global
Corporation stock on a one to one-basis 720,000
Warrant issued to PUSA pursuant to
issuance of Senior Secured Note 107,143
Net loss (7,359,612)
Other comprehensive loss arising from
foreign currency translation adjustments (39,337) (39,337)
---------- -----------
Balance at September 30, 2001 $(39,337) $(1,337,679)
========== ===========
The accompanying notes are an integral part of these consolidated statements.
Laidlaw Global Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine months ended September 30,
2001 2000
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (7,359,612) $ (902,583)
Adjustments to reconcile net loss to net
Cash used in operating activities:
Amortization 273,673 291,590
Depreciation 1,671,970 1,139,570
Deferred tax benefits -- (173)
Deferred rent (22,289) (13,982)
Minority interest in earnings (1,109,467) (901,350)
Loss from sale of subsidiary 1,615,722 --
Foreign currency translation adjustment (39,337) --
Provision for doubtful accounts 582,368 --
(Increase) decrease in operating assets:
Due from clearing brokers and other receivables (428,305) (2,334,326)
Marketable securities owned 531,705 779,980
Deposit (633,020) 138,409
Prepaid and other asset 11,401 (388,540)
Increase (decrease) in operating liabilities
Marketable securities sold but not yet purchased 199,591 126,282
Securities loaned 65 --
Accounts payable and accrued expenses 579,092 (850,266)
Customers' margin deposit 34,309 --
Commission and compensation payable 361,208 (788,570)
Deferred revenue (65,499) (3,138)
Other liabilities 46,628 (45,632)
------------ ------------
Net cash used in operating activities (3,749,797) (3,752,729)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of Property, Equipment and Leasehold Improvements (450,259) (3,148,964)
Payment for leased equipment (278,737) (219,839)
------------ ------------
Net cash used in investing activities (728,996) (3,368,803)
CASH FLOWS FROM FINANCING ACTIVITIES
Purchase of treasury stock (73,626) --
Repayment of notes payable -- (500,000)
Issuance of common stock -- 1,002,845
Proceeds from issuance of notes payable 2,690,605 --
Proceeds from sale of subsidiary 700,000 --
------------ ------------
Net cash provided by financing activities 3,316,979 502,845
------------ ------------
CASH - BEGINNING OF PERIOD 1,899,274 10,131,242
------------ ------------
CASH - END OF PERIOD $ 737,460 $ 3,512,555
============ ============
Supplemental disclosure for cash flow information:
Cash paid during the period for interest $ 369,332 $ 253,975
Cash paid during the period for taxes $ 11,320 $ 88,493
Supplemental schedule of non cash investing and financing activities:
During the periods ended September 30, 2001 and 2000 the following
transactions occurred:
Purchases of equipment through capital lease 43,147 336,630
The accompanying notes are an integral part of these consolidated statements.
Laidlaw Global Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As of September 30, 2001 and for the three and nine months ended September 30,
2001 and 2000
NOTE A - ORGANIZATION AND BASIS OF PRESENTATION
Laidlaw Global Corporation (the "Company") is a holding company whose wholly- or
majority-owned operating subsidiaries include Laidlaw Holdings, Inc. ("Laidlaw
Holdings") Laidlaw Global Securities, Inc. ("Laidlaw Global Securities"),
Westminster Securities Corporation, ("Westminster"), which the Company sold in
June, 2001, H&R Acquisition Corporation ("HRAC"), an 81%-owned subsidiary which
maintains a 100% interest in Howe & Rusling, Inc., a registered investment
advisory firm, Globeshare Group, Inc., ("GGI"), a 90%-owned internet-based
investment services company established on June 14, 1999 which maintains a 100%
interest in Globeshare, Inc. ("Globeshare"), an internet-based broker-dealer,
Laidlaw Pacific (Asia) Ltd. (LPA), a registered broker-dealer and Investment
Advisor with the Hong Kong Securities and Futures Commission, and Laidlaw
International, S.A., a 99.8% owned newly established broker-dealer based in
France. The business activities include securities brokerage, investment
banking, asset management and investment advisory services to individual
investors, corporations, pension plans and institutions worldwide.
Due to the continuing losses incurred by the Globeshare, Inc. operations, the
Company deemed it best for economic reasons to integrate the operations of the
on-line broker as a division of Laidlaw Global Securities. The combination of
the operations, which would eliminate the redundancy of services and reduce
operating costs, was made effective on October 5, 2001.
On June 12, 2001, the Company sold Westminster Securities Corporation. Both the
Company and Westminster agreed to treat May 31, 2001 as the effective date of
the transaction for financial statement purposes. Accordingly, all assets,
liabilities, equity and results of operations of Westminster for fiscal 2001
incorporated in the consolidated financial statements pertain to the two and
five months ended May 31, 2001.
The Company has continued its initiative to expand its operational and financial
structure throughout Europe and Asia as the Company has entered into a number of
commission-sharing arrangements with foreign-based broker-dealers. Any
commission revenue generated as a result of these arrangements will be
denominated in U.S. dollars. Accordingly, the Company has determined that its
functional currency for its foreign branch operations is the U.S. dollar. The
financial position and results of operations of the Company's foreign
subsidiaries, Laidlaw Pacific (Asia) Ltd. (LPA) and Laidlaw International S.A.,
are measured using local currency as the functional currency. Revenues and
expenses of the subsidiaries have been translated into U.S. dollars at average
exchange rates prevailing during the period. Assets and liabilities have been
translated at the rates of exchange at the balance sheet date. Any resulting
translation adjustments are made directly to "Other Comprehensive Income," a
separate component of "Stockholders' equity," Gains and losses resulting from
other foreign currency transactions are included in the consolidated statement
of operations.
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 accounting principles
generally accepted in the United States of America. 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 20, 2001. Results of the interim periods are not necessarily indicative of
the results to be obtained for a full fiscal year.
NOTE B - LIQUIDITY AND CAPITAL RESOURCES
For the nine months ended September 30, 2001, the Company continued to incur
losses from operations amounting to approximately $7.3 million, which, in part,
resulted from the development and building of the Company's Global Online
Trading and Investment Services Group (GGI), the loss from the sale of the
Westminster subsidiary amounting to $1,611,072, which resulted from the
revaluation of the Company stock bought back pursuant to the sale, as well as a
significant reduction in commission revenue as a result of a major drop in
institutional commission business. As a result of these matters, the Company has
continued to experience cash flow problems. Although the Company believes that
it will have the resources to maintain its operations through the remainder of
the fiscal year through cost control measures which have been instituted, cash
flow from continuing growth of operations, and financial support from existing
shareholders which has been promised orally, the Company may need to seek
additional infusions of capital. Management is in discussion with prospective
investors to furnish such capital, but no definitive purchase agreements have
been executed and there is no assurance that we will be able to finalize such an
agreement.
The sale of the Westminster Securities Corporation subsidiary was completed on
June 13, 2001. The consideration consisted of: Prepayment of $600,000 of
Westminster's indebtedness to the Company; payment of $100,000 in cash at the
closing of the Transaction; and payment of $300,000 plus interest at 10% per
annum payable in two installments of principal of $150,000 and interest due on
April 19, 2002 and April 19, 2003; and transfer to the Company of the 4,500,000
shares of its common stock owned by members of Westminster's management. The
consideration for the Transaction was determined on the basis of a return by
Westminster and the Company to each other of the consideration given when
Westminster became a subsidiary of the Company in July 1999, plus additional
amounts to reflect incremental increases in value determined by the parties.
NOTE C - RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
SFAS No. 144
In August 2001, the FASB issued statement of Financial Accounting Standard No.
144 "Accounting for the Impairment or Disposal of Long Lived Assets", ("SFAS
144"). This statement is effective for fiscal years beginning after December 15,
2001. This supercedes SFAS 121, while retaining many of the requirements of such
statement. The Company is currently evaluating the impact of the statement.
SFAS No. 141 and 142
The Financial Accounting Standards Board issued SFAS No. 141, "Business
Combinations" and SFAS 142, "Goodwill and Other Intangible Assets" in July 2001.
The new standards require that all business combinations initiated after June
30, 2001 must be accounted for under the purchase method. In addition, all
intangible assets acquired that are obtained through contractual or legal right,
or are capable of being separately sold, transferred, licensed, rented or
exchanged shall be recognized as an asset apart from goodwill. Goodwill and
intangibles with indefinite lives will no longer be subject to amortization, but
will be subject to at least an annual assessment for impairment by applying a
fair value based test.
The Company will continue to amortize goodwill existing at September 30, 2001
under its current method until January 2, 2002. Thereafter, annual and quarterly
goodwill amortization of $140,681 and $35,170 respectively, will no longer be
recognized. By June 30, 2002, the Company will perform a transitional fair value
based impairment test and if the fair value is less than the recorded value at
January 1, 2001, the Company will record an impairment loss in the March 31,
2002 quarter, as a cumulative effect of a change in accounting principle.
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 for
Laidlaw Global Securities and Globeshare. At September 30, 2001, Laidlaw Global
Securities was required to maintain minimum net capital of $100,000 and had
total net capital of $350,050 which was $250,050 in excess of its minimum
requirement. Globeshare was required to maintain minimum net capital of $10,736
and had total net capital of $36,899 which is $26,163 in excess of its minimum
requirement.
NOTE E - NOTES PAYABLE AND SUBORDINATED BORROWINGS
Notes payable and borrowings under subordination agreements at September 30,
2001 consist of the following:
September 30,
2001
----------
Senior secured Euro-notes, 12% due 2002 - Laidlaw Holdings 429,000
Note, 10% due 2001 - Laidlaw Global Corp. $ 150,000
Note, 8% due 2002 - Laidlaw International ` 454,891
Convertible subordinated note, 12% due 2002 - Laidlaw Global Corp. 400,000
Convertible subordinated note, 10% due 2002 - Globeshare Group. Inc. 250,000
Bridge note dated August 31, 2001 in the principal amount of
$1,450,000 - 12% due November 30, 2001 1,000,000
Note, 7% due October 2001 - Laidlaw Global Corp. 400,000
----------
$3,083,891
Less: Debt issue discount 71,429
----------
$3,012,462
==========
The 12% senior secured Euro-notes ("EuroNotes") were issued in 1997 in units of
$100,000 with a five-year warrant to purchase 6,881 shares of the Company's
nonvoting common stock, $0.05 par value per share, at the exercise price or
$4.36 per share. The EuroNotes are convertible into the Company's voting common
stock at an exchange rate of $1.37 per share. The EuroNotes are redeemable at
the option of the Company, in whole or in part, together with accrued and unpaid
interest except that no redemption was permitted prior to December 31, 1999. The
EuroNotes contain certain covenants that limit the ability of the Company to
pay dividends or make distributions, repurchase equity interests or sell or
otherwise dispose of assets of the Company's subsidiaries.
The EuroNotes are collateralized by the outstanding shares of the Company's
subsidiary, HRAC, which owns 100% of the outstanding common stock of Howe &
Rusling, with 20% subject to Howe & Rusling, Inc. employee options.
On June 29, 2001, the Company obtained a 30-day 10% loan. On October 3, 2001,
the Company paid $75,000 and the loan extended the payment of the balance and
accrued interest to November, 2001.
On March 20, 2001, Laidlaw International, S.A. obtained a loan through the
issuance of an 8% note in which the principal and interest are due in one year.
On January 30, 2001, the Company obtained a loan through the issuance of a 12%
subordinated note. Under the terms of the note, the Company shall make quarterly
interest payments. If the Company defaults as defined in the agreement, then the
Noteholder may, in lieu of payment of the Principal Amount, convert the Note
into common stock of the Company at the conversion price of $0.50 per Common
Share.
On April 5, 2001, Globeshare Group, Inc. obtained a loan through the issuance of
a 10% convertible subordinated note in which the interest is due on a semi-
annual basis and the principal is due upon maturity in one year. Under the terms
of the note, the noteholder may convert into Globeshare Group, Inc. stock at the
greater of $.65 per share or 40% discount from the initial public offering price
per share or into Laidlaw Global Corp. common shares at a price of $.55 per
share.
On August 31, 2001, the Company obtained a bridge loan in the amount of
$1,450,000 from Pacific USA Holdings Corp. ("Lender"), which is the parent
company of Laidlaw's largest shareholder, PUSA Investment Company, through the
issuance of a 12% secured promissory note. Repayment of the note is secured by a
pledge of Laidlaw's interest in the outstanding stock of HRAC. Lender only
funded $1,000,000 of the bridge loan reserving the balance to repay the
EuroNotes, scheduled for November 26, 2001, thereby making the collateral
available. In connection with the loan, Laidlaw issued the Lender a 2 year
warrant to acquire 1,435,000 shares of its common stock at an exercise price of
$0.11 per share. The Company computed the fiar value of the warrant of $107,143.
The valuation resulted in a note discount and a corresponding increase to
additional paid-in capital. On September 27, 2001, the Company obtained a short
term 7% loan. This loan was paid in full in October, 2001.
NOTE F - 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.
Management of the Company, after consultation with outside legal counsel,
believes that the resolution of these proceedings will not result in any
material adverse effects on the Company's financial position. In the opinion of
management of the Company, amounts accrued for awards or assessments in
connection with these matters are adequate
Galacticomm Technologies, Inc. vs. 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 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. Although it is to early to preduct any outcome, 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.
Greek Capital Market Commission vs. Laidlaw Global Corporation, Inc.
The Company has been named, as well as its subsidiary Laidlaw Global Securities,
in an administrative proceeding involving the Greek Capital Market Commission
("CMC"). In early 2000, representatives of the Company were introduced to a
representative of Elektra S.A. ("Elektra"), an entity whose securities are
publicly traded in Greece, in order to discuss a business strategy by which the
Company would assist in the sale of a significant amount of Elektra's shares by
certain of its stockholders. Following meetings with such persons, Elektra
announced in the spring of 2000 that its principal shareholders would sell up to
3,000,000 shares of its stock. On March 28, 2000, Elektra sold two million
shares of its stock to institutional investors through a Greek brokerage firm,
Contalexis Financial Services.
On February 28, 2001, the CMC, an administrative body which reviews securities
issues in Greece, found that Laidlaw Global Securities violated certain
notification requirements to the CMC and Elektra. According to the CMC's
findings, the Company (i) failed to notify the CMC and Elektra of the March 28,
2000 acquisition of Elektra shares and (ii) failed to notify the Athens Stock
Exchange of the Company's assignment of voting rights and participation of share
capital in Elektra. The Company believes that, since neither it nor any
subsidiary, including the Company, ever owned shares of Elektra, and for the
other reasons set forth below, both of these findings are without merit and
factually inaccurate and will be overturned on appeal.
Additionally, the CMC alleged that a representative of the Company falsely
stated to the public that the Company was interested in holding Elektra shares
two days prior to selling such shares. Since the Company never held shares of
Elektra, management believes that such statements were misquoted by the Greek
press. The subsidiary Laidlaw Global Securities was assessed fines of
approximately $79,000 and $77,000, respectively, for the first two findings. The
Company was assessed a fine of approximately $408,000 for the third finding.
These fines were levied after reviewing response letters filed by the Company's
Greek counsel. Greek counsel to the Company will be filing Remedy Petitions
before the CMC against the decisions assessing the fines, which is a form of an
administrative proceeding. In the event the Remedy Petitions are rejected by the
CMC, the Parent will file Writs of Annulment before the Conseil d'Etat, which is
the Greek Court having jurisdiction over such matters. Since neither the
Company, nor any of its subsidiaries, including the Company, has (i) ever owned
shares of Elektra, (ii) ever acted as a principal or agent for the purchase or
sale of shares of Elektra, (iii) acted as a broker-dealer of securities of
Elektra, or (iv) ever stated, publicly or otherwise, that it, or any of its
subsidiaries, did hold, or intended to hold or own, shares of Elektra, it
believes that the findings of the CMC will be overturned on appeal.
NOTE G - INDUSTRY SEGMENTS
In 2001 and prior years, the Company operated in two principal segments of the
financial services industry: Asset Management and Broker-Dealer activities.
Corporate services consist of general and administrative services that are
provided to the segments from a centralized location and are included in
corporate and other.
Asset Management and Investment: 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. The
Company's 81% owned subsidiary, H & R Acquisition Corp. is primarily engaged in
this segment.
Broker-Dealer: Activities include underwriting public offerings of securities,
arranging private placements and providing client advisory services, trading,
and brokerage services including conducting research on, originating and
distributing both foreign and domestic equity and fixed income securities on a
commission basis to both institutional and individual investors throughout the
United States and abroad and for their own proprietary trading accounts through
both online Internet and traditional means.
Laidlaw Global Securities, the Company's wholly owned subsidiary, is
substantially engaged in traditional trading, brokerage and investment banking
services.
Westminster, the Company's majority owned subsidiary which was sold in June
2001, is substantially engaged in traditional trading and brokerage services.
See Note B.
Globeshare, the Company's 90% owned subsidiary, is substantially engaged in
providing online trading, brokerage, and investment services.
Laidlaw International S.A., the Company's newly established 99.8% owned French
subsidiary, is substantially engaged in traditional trading and brokerage
services.
Foreign Operations and Major Customers: Although the Company has continued 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, 2001 and September 30, 2000 other than commission and
Investment Banking revenues from the activities of Laidlaw Global Securities on
behalf of foreign and U.S. customers in foreign markets, amounting to $6,188 and
$3,827,104, respectively. The newly established Laidlaw International subsidiary
generated commissions and trading gains of $1,369,358 for the nine months ended
September 30, 2001 from the transactions in the French market and the other
European Union countries, in particular, the German market. These revenues of
Laidlaw Global Securities and Laidlaw International, S.A. represent 11% and 18%
of revenues for the nine months ended September 30, 2001 and September 30, 2000,
respectively. Additionally, the Company had no significant individual customers
(domestic or foreign) as of September 30, 2001, or for each of the two periods
ended September 30, 2001 and September 30, 2000.
The following table sets forth the net revenues of these industry segments of
the Company's business.
For the nine months ended September 30,
---------------------------------------
2001 2000
------------ ------------
(Unaudited)
Revenue from external customers
Asset management - H&R Acquisition $ 3,297,555 $ 3,607,675
Brokerage:
Laidlaw Global Securities 2,926,572 9,592,126
Westminster Securities Corp. 2,775,885 6,221,384
Globeshare Group Inc. and Globeshare Inc. 695,398 120,422
Lead Capital S.A. -- 336,190
Laidlaw Pacific (Asia) Ltd. -- --
Laidlaw International S.A 1,399,493 --
Corporate and other 1,016,797 1,502,121
------------ ------------
Total external revenue $ 12,111,700 $ 21,379,918
============ ============
Inter-segment revenue
Brokerage - Laidlaw Global Securities $ 150,000 $ 150,000
------------ ------------
Total inter-segment revenue $ 150,000 $ 150,000
============ ============
Net loss
Asset management - H&R Acquisition $ 387,028 $ 582,486
Brokerage:
Laidlaw Global Securities (2,514,864) 339,357
Westminster Securities Corp. (362,665) 639,647
Globeshare Group Inc. and Globeshare Inc. (1,900,563) (1,496,450)
Laidlaw Pacific (Asia) Ltd. -- --
Lead Capital S.A -- (48,999)
Laidlaw International S.A (868,009) --
Corporate and other (2,100,539) (918,624)
------------ ------------
Total net income (loss) $ (7,359,612) $ (902,583)
============ ============
Total assets
Asset management - H&R Acquisition $ 3,727,323 $ 3,803,240
Brokerage:
Laidlaw Global Securities 3,466,850 7,871,046
Westminster Securities Corp. -- 3,821,521
Globeshare Group Inc. and Globeshare Inc. 2,910,877 3,163,101
Lead Capital S.A -- --
Laidlaw Pacific (Asia) Ltd. 874,570 873,808
Laidlaw International S.A 2,062,069 --
Corporate and other 2,136,415 8,525,598
------------ ------------
Total assets $ 15,178,104 $ 28,058,314
============ ============
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 loss applicable to common shares and
weighted-average common and common equivalent shares of the basic and diluted
earnings per common share computations:
Three Months ended September 30, Nine Months ended September 30,
------------------------------ ------------------------------
2001 2000 2001 2000
------------ ------------ ------------ ------------
(Unaudited) (Unaudited)
Numerator
Net loss $ (2,151,722) $ (1,826,455) $ (7,359,612) $ (902,583)
------------ ------------ ------------ -----------
Net loss applicable to common shares
for basic earnings per share (2,151,722) (1,826,455) (7,359,612) (902,583)
Effect of dilutive securities
Interest expense on Euro-notes -- -- -- --
Amortization of Euro-note costs -- -- -- --
------------ ------------ ------------ -----------
Net loss applicable to common shares
for diluted earnings per share $ (2,151,722) $ (1,826,455) $ (7,359,612) $ (902,583)
============ ============ ============ ===========
Denominator
Weighted-average common shares for basic
earnings per share 24,721,822 26,950,080 26,041,738 26,866,840
Weighted-average effect of dilutive securities
Employee stock options -- -- -- --
Warrants -- -- -- --
------------ ------------ ------------ -----------
Weighted-average common and common equivalent
shares for diluted earnings per share 24,721,822 26,950,080 26,041,738 26,866,840
============ ============ ============ ===========
Earnings (loss) per common share
Basic $ (.09) $ (.07) $ (.28) $ (.03)
============ ============ ============ ===========
Diluted $ (.09) $ (.07) $ (.28) $ (.03)
============ ============ ============ ===========
All outstanding warrants and options were excluded from the computation of the
diluted earnings per share because the Company incurred losses for the nine and
three months period ended September 30, 2001 and September 30, 2000 and the
effect would have been antidilutive.
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 operates in these businesses through its
subsidiary, Laidlaw Holdings, Inc., a holding company which owns 100% of Laidlaw
Global Securities, Inc., and 81% of H & R Acquisition Corp. Westminster
Securities Corporation, a NYSE member firm acquired by Laidlaw on July 1, 1999,
was sold on June 13, 2001. The sale of Westminster Securities Corporation was
completed pursuant to the Amended and Restated Stock Purchase Agreement dated
June 7, 2001. The Agreement stipulated that the transactions shall be treated
solely for tax and financial reporting purposes as having an effective date of
May 31, 2001. Accordingly, the information for fiscal 2001 for Westminster
incorporated in this report pertains to the two and five months ended May 31,
2001. Laidlaw has a third subsidiary, Globeshare Group, Inc. (formerly Global
Electronic Exchange, Inc.), a holding company that owns 100% of Globeshare,
Inc., an online broker-dealer. Globeshare, which commenced its U.S. operations
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. Globeshare Group, Inc. changed its name from Global
Electronic Exchange, Inc. on November 1, 2000. A fourth subsidiary is a French
broker/dealer called Laidlaw International, S.A. Through this subsidiary,
Laidlaw Global Corporation aims to move forward with new opportunities
throughout the European Community, and in the French marketplace in particular.
In April 2001, Laidlaw International was granted the license to operate as a
broker/dealer by Banque de France.
Market fluctuations in both U.S. and overseas markets, as well as economic
factors may materially affect Laidlaw's 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 that 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.
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 equities, 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 position itself in markets where it believes it has an advantage over
its 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 "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 in which it is involved.
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 the technological advancements in the internet and the
growth of electronic commerce in recent years will continue to present both
challenges and opportunities to the Company. Laidlaw gives special importance to
innovations in this field, which have and will continue to lead to significant
changes in the financial markets and financial services industry as a whole.
Results of Operations For the Nine Months Ended September 30, 2001 and 2000
The overall weakness in the global market and economic conditions that emerged
during the second half of fiscal 2000 persisted during the first nine months of
fiscal 2001, which contributed to the decline in the Company's net revenues and
net income as compared to the nine months ended September 30, 2000.
In the U.S., there was a continuation of the difficult market and economic
conditions that emerged during the latter half of fiscal 2000. The rate of U.S.
economic growth slowed significantly, reflecting lower levels of corporate
investment, consumption and consumer confidence, as well as higher levels of
unemployment. These conditions, coupled with indications of slowing corporate
earnings growth, contributed to declines in the U.S. equity markets, as the
major stock market indices (the Standard & Poor's 500, the Dow Jones Industrial
Average and the NASDAQ) all declined during the first nine months of the year.
The decline in the market values of Internet and technology-related stocks was
particularly significant. On September 11, 2001, the U.S. experienced terrorist
attacks targeted against New York City and Washington, D.C. The attacks in New
York resulted in the destruction of the World Trade Center complex and the
temporary closing of the debt and equity financial markets in the U.S. The
attacks had an immediate impact on global economies, financial markets and
certain industries. There is also much uncertainty regarding the potential
long-term effects of these attacks. In the future, fears of global recession,
war and additional acts of terrorism in the aftermath of the September 11, 2001
attacks may continue to influence the course of global economies and financial
markets. All these factors contributed to the Federal Reserve Board (the
"Fed")action of continued aggressive easing of interest rates to foster
financial conditions that will support strengthening economic growth and prevent
the U. S. economy from slipping into a recession. During the quarter ended
September 30, 2001, the Fed lowered the overnight lending rate by an aggregate
of 0.75 percentage points on two separate occasions. During the nine month
period ended September 30, 2001, the Fed has lowered the overnight lending rate
by an aggregate of 3.50 percentage points. Subsequent to quarter end, the Fed
lowered the overnight lending rate and the discount rate by an additional 0.50
percentage points in both October 2001 and November 2001. This series of
interest rate cuts represents one of the most profound monetary policy relief on
record.
In Europe, the level of business and consumer confidence, which remained
relatively strong during the first quarter of fiscal 2001, has slowed noticeably
from the more rapid rates seen early last year. The levels of employment and
industrial production decreased during the third quarter compared to those in
the second fiscal quarter. In early May, the European Central Bank (the "ECB"),
which had raised interest rates within the European Union (the "EU") by an
aggregate of 1.75 percentage points during fiscal 2000, surprised the markets
with a 25 basis points reduction of its interest rates on concerns of increasing
indications of slowing
economic growth within the EU, and the impact of the overall slowdown in global
economic activity. Since there remained much uncertainty as to the region's
future growth prospects in light of slower U. S. economic performance and a
weakened global economy, the ECB lowered the benchmark interest rate within the
EU by 0.25 percentage points in August, 2001 and by 0.50 percentage points in
September, 2001.
The difficult market and economic conditions that characterized the first six
months of 2001, including higher levels of market volatility, decreased
investment banking activity and institutional and retail investor participation
in the financial markets, further deteriorated in the third fiscal quarter. It
is currently not clear when these market and economic conditions will improve.
In addition, the Company's broker-dealer subsidiary, Laidlaw Global Securities,
Inc. has historically experienced a seasonal slowdown of business activity
during the summer months which started during the latter part of the second
quarter and ended in the third quarter.
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 commission
revenues from institutional customers. The concomitant correction of the NASDAQ
did not help either. As a result, our first nine months saw a substantial
reduction in institutional commissions earned by the Laidlaw Global Securities,
Inc. subsidiary.
Mergers and acquisitions were robust during the first half of fiscal 2000. As
economic growth moderated and profits weakened, capital spending decelerated
sharply during the second half of 2000 and continued through the first three
quarters of 2001.
The markets for the underwriting of securities also were negatively impacted by
the generally volatile market and economic conditions that existed during much
of the first nine months of 2001. The considerable drop in valuations in some
sectors and the elevated volatility of equity price movements caused the pace of
initial public offerings to slow markedly over the year. The slowdown was
particularly evident in the technology sector. In total, the dollar amount of
initial public offerings by domestic non-financial companies tapered off
substantially in the first nine months of the year to its lowest level in two
years. This adverse economic climate has negatively affected Laidlaw's
subsidiaries and the revenues generated from investment banking activities.
Currently all the strategic partnership agreements signed by Globeshare Group,
Inc. provide for revenue sharing based on the source of the customer and the
location of the trade. Other than maintenance of the trading systems and web
sites, Laidlaw and its subsidiary have no financial obligations to any of the
strategic partners.
The new Board of Directors has continued its efforts to position Laidlaw in new
markets and ventures. Management has continued to focus its activities in areas
that take into consideration the cost structure of Laidlaw and the constraint to
allocate resources efficiently and in priority to ventures that can reasonably
be expected to self-finance on a short term basis.
In conjunction with its business development focus, Management has upgraded the
Paris, France operation into a fully licensed brokerage firm to enable the
Company to move forward with new opportunities throughout the European
Community, and in the French marketplace in particular. The Company set up a new
entity named Laidlaw International S.A. Since Laidlaw International acquired its
license and started operations in April 2001, it has been generating average
daily revenues of as much as approximately 15,000 euros solely from its equities
business. With the expected addition of more brokers and once contracts are
signed with the clearing brokers, it expects to augment its revenues from the
futures and options markets.
Laidlaw posted a loss of $2.1 million in the third fiscal quarter of 2001,
compared to the net loss of $1.8 million in the third fiscal quarter of 2000.
This increase in net loss is due to the adverse economic conditions experienced
both domestically and internationally. Globally, the foreign markets overall
experienced a decline during the second half of 2000, which continued to
deteriorate during the first nine months of 2001. Generally weak stock prices in
emerging markets, coupled with low trading volume, adversely affecting Laidlaw.
Domestically, the steep decline of Nasdaq had a great impact on Laidlaw as its
institutional clients mostly invested in the technology sector. The combination
of sharp reduction in commission revenues from overseas markets, the drop in
volume received from institutional investors, and the decrease in the minority
interest in the Globeshare Group, Inc. subsidiary effective August, 2001, has
resulted in an increase of approximately $316,000 in net loss for the third
fiscal quarter of 2001 as compared to the third fiscal quarter of 2000.
Basic loss per common share was $.09 and $.28 in the quarter and nine month
period ended September 30, 2001, respectively, as compared to $.07 and $.03
basic loss per share in the quarter and nine month period ended September 30,
2000.
All three subsidiaries, namely Laidlaw Global Securities, Inc. and Globeshare
Group, Inc., and Laidlaw International, S.A., contributed to the loss incurred
in the third quarter of 2001. Laidlaw Global Securities, Inc. saw a sharp
decrease in its commissions volume strictly related to the market performance of
the emerging global markets and the NASDAQ market in the U.S. Globeshare Group,
Inc. presented a particularly difficult problem for the group due to the high
cost of technological development still required at a time of sharp reduction of
the commissions volume generated in light of the reduction in commissions
resulting from financials markets that have consistently moved down since March
2000. In many instances, the lack of development of technological connections
has affected the ability of the partners to generate commissions business. The
operations of Globeshare in the third quarter of 2001 resulted in a loss to the
Company of $564,006. The market for electronic brokerage services over the
Internet is rapidly evolving and intensely competitive. In view of the losses
realized in the first three quarters of 2001 and in fiscal year 2000, management
at Globeshare is reviewing its marketing strategy, the cost structure and the
services and products which Globeshare has been offering to the industry and
what changes may be necessary to achieve market acceptance and profitability.
Globeshare has already shifted the direction of its marketing efforts from
individuals to institutions, including other broker/dealers. This change in
focus should reduce fixed costs and future cash requirements to increase market
penetration. The French subsidiary Laidlaw International incurred a loss of
$290,560 since it is still building a revenue base to absorb its fixed costs and
the expenses involved in the setting up of its operations.
All of the aforementioned factors contributed to Laidlaw's consolidated net loss
of $2,151,722 for the three months ended September 30, 2001. However, if the
loss derived from the operations of the Internet company Globeshare Group, Inc.
and its wholly owned subsidiary Globeshare were deducted from the consolidated
results of operations , Laidlaw's traditional business resulted in a net loss of
only $1,441,349. The increase in the loss of Laidlaw's traditional lines of
business compared to the net loss of $1,255,019 for the nine months ended
September 30, 2000 was mainly due to the reduction in commission revenue from
institutional customers of Laidlaw Global Securities, which was caused primarily
by the corrections in NASDAQ and in some overseas securities markets, the loss
incurred by Laidlaw International from its initial operating months, and the
impact of the September 11, 2001 terrorist attacks on the financial markets and
the global economy.
In 2001 and the prior years, Laidlaw operated 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 51% and 59% of total revenues for the
nine months ended September 30, 2001 and September 30, 2000, respectively, are
geographically categorized as follows:
For the nine months ended September 30, 2001, revenues of $778,555 were
generated from the activities of Laidlaw Global Securities on behalf of foreign
and U.S. institutional customers in foreign markets and revenues of $4.4 million
were generated from the activities of Laidlaw Global Securities and Westminster
in the U.S. markets. Globeshare generated revenues of $898,995 from online
trading
U.S. and overseas customers. Laidlaw International generated revenues of $1.4
million from the transactions in the French market and other European Union
countries, in particular, the German market. 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.
Asset Management fees from Howe & Rusling and partly from Laidlaw Global
Securities amount to $3,806,137 and $4,165,247 for the nine months ended
September 30, 2001 and September 30, 2000, respectively, which represent 32% and
20% of the firm's revenue for the respective periods. Corporate finance fees of
Laidlaw Global Securities amount to $268,158 and $3,464,465 for the nine months
ended September 30, 2001 and September 30, 2000, respectively, which represent
2% and 16% of the firm's revenue for the respective periods. Trading profit of
Laidlaw Global Securities, Laidlaw International, S.A. and Westminster amount to
$1,245,406 for the nine months ended September 30, 2001, which represents 10% of
the firm's revenue. Trading profit of Laidlaw Global Securities and Westminster
amount to $33,973 for the nine months ended September 30, 2000, which represents
.16% of the firm's revenue. Other revenue, which consists principally of
interest income and rebates on securities trades, amount to $614,699 and
$1,015,187 for the nine months ended September 30, 2001 and September 30, 2000,
respectively, which represent 5% of the firm's revenue for both periods.
In the future Laidlaw will aim at diversifying its commission revenues by
generating a large portion of its revenues from an expanded retail customer
business in Laidlaw Global Securities.
Salaries and other employee costs for the nine months ended September 30, 2001
decreased to $6.2 million from $6.8 million for the nine months ended September
30, 2000. Salaries and other employee costs for the three months ended September
30, 2001 increased to $2.0 million from $1.9 million for the three months ended
September 30, 2000. The decrease in this expense on a nine month basis primarily
relates to the reduction of personnel in the Laidlaw Global Securities and
Globeshare subsidiaries, the retirement of a key officer in Howe and Rusling,
Inc., and reduction in this expense effective June, 2001 resulting from the sale
of Westminster. The increase in this expense on a quarterly basis resulted from
the relevant costs incurred by the Laidlaw International subsidiary which
started its operations in April, 2001.
Commissions expense for the nine months ended September 30, 2001 decreased to
$3.2 million from $5.6 million for the nine months ended September 30, 2000.
Commissions expense for the three months ended September 30, 2001 decreased to
$788,269 from $876,437 for the three months ended September 30, 2000. The
decrease is attributable to the decrease in commission revenue.
Clearing expenses for the nine months ended September 30, 2001 decreased to
$780,335 from $1.3 million for the nine months ended September 30, 2000.
Clearing expenses for the three months ended September 30, 2001 decreased to
$85,506 from $368,007 for the three months ended September 30, 2000. Clearing
expenses, which primarily consist of amounts paid to the broker-dealers'
clearing agent for processing and clearing customers' trades, reflect the
reduction in such expenses related to the decline in commission revenue.
Rent and utility expenses for the nine months ended September 30, 2001 increased
to $1.2 million from $1.0 million for the nine months ended September 30, 2000.
Rent and utility expenses for the three months ended September 30, 2001
increased to $380,219 from $288,966 for the three months ended September 30,
2000. Rent and utility expenses include cost of leasing office space and space
with our Internet service provider. The increase is primarily attributable to
the fact that the Globeshare subsidiary had incurred these expenses starting
only in May, 2000 and to the expense incurred by the newly established Laidlaw
International S.A. subsidiary.
Depreciation and amortization expenses for the nine months ended September 30,
2001 increased to $1.7 million from $1.1 for the nine months ended September 30,
2000. Depreciation and amortization expenses for the three months ended
September 30, 2001 increased to $578,296 from $496,260 for the three months
ended September 30, 2000. Depreciation and amortization expenses, which include
depreciation of equipment and amortization of software development costs,
increased primarily due to the increment in such expenses related to the
technology infrastructure developed for the Globeshare Group subsidiary.
Client-related marketing expenses for the nine months ended September 30, 2001
decreased to $215,726 from $1.0 million for the nine months ended September 30,
2000. Client-related marketing expenses for the three months ended September 30,
2001 decreased to $90,132 from $97,710 for the three months ended September 30,
2000. The decrease in client-related marketing expenses resulted from the
efforts of management in reducing costs in developing strategic alliances in
promoting brand name recognition for Laidlaw and Globeshare.
Travel and entertainment expenses for the nine months ended September 30, 2001
decreased to $322,304 from $476,662 for the nine months ended September 30,
2000. The decrease in travel and entertainment expenses are also attributed to
the efforts of management to minimize costs in light of the difficult market
conditions that continually persist in 2001. Travel and entertainment expenses
for the three months ended September 30, 2001 increased to $114,720 from $79,714
for the three months ended September 30, 2000. The increase in travel and
entertainment expenses pertain to those incurred by Laidlaw International in its
client development efforts and to the increased marketing cost of H & R
Acquisition Corp.
Professional fees for the nine months ended September 30, 2001 decreased to $1.0
million from $1.3 million for the nine months ended September 30, 2000.
Professional fees for the three months ended September 30, 2001 decreased to
$283,450 from $354,969 for the three months ended September 30, 2000. The
decrease in professional fees resulted from the reduction of the accounting and
legal fees, fees paid to public relations firms, and the fees paid to outside
technical consultants and an executive recruitment firm. Fewer additional SEC
filings were made other than the regular quarterly and annual audited reports.
Dues and assessments for the nine months ended September 30, 2001 decreased to
$438,103 from $597,742 for the nine months ended September 30, 2000. Dues and
assessments for the three months ended September 30, 2001 decreased to $54,612
from $164,603 for the three months ended September 30, 2000. The decrease in
dues and assessments resulted from reduction of the registration fees paid to
the NASD and the various states by Laidlaw Global Securities with the
resignation of certain personnel and from the diminished state corporate income
taxes. The sale of the Westminster subsidiary also contributed to the reduction
of dues effective the month of June, 2001. The decrease, however, was partially
offset by the increase in dues and assessments paid by Laidlaw International.
Communications and information systems expenses for the nine months ended
September 30, 2001 decreased to $1.5 million from $1.7 million for the nine
months ended September 30, 2000. Communications and information systems for the
three months ended September 30, 2001 decreased to $369,517 from $634,966 for
the three months ended September 30, 2000. Communications and information
systems expenses, which include telephone, quotes and other information costs,
increased primarily due to the increment in such expenses related to the
operations of Globeshare and Laidlaw International. The internet-based
operations of Globeshare necessitated the use of services for obtaining quotes
in foreign markets. The increase in the expenses was partially offset by the
reduction of services during the second quarter in fiscal 2001 compared to the
second quarter in fiscal 2000 when certain charges were incurred to set up the
communication and information systems for the Globeshare subsidiary. Also, in
fiscal 2001, management decided to reduce the services utilized by Globeshare
due to the low volume of production and the sale of Westminster positively
impacted the expense in June, 2001.
Interest expense for the nine months ended September 30, 2001 increased to
$420,046 from $280,975 for the nine months ended September 30, 2000. Interest
expense for the three months ended September 30, 2001 increased to $197,852 from
$77,395 for the three months ended September 30, 2000. The increase in interest
expense resulted from lease contracts entered into with computer hardware and
Internet infrastructure providers for the Globeshare subsidiary and from the
financing obtained in fiscal 2001 for the operational funds of the Company. The
increase in interest expense was partially offset, however, by the decrease
which resulted from the settlement of the $500,000 H & R Acquisition note
payable in 2000 and the reduction in the inventory positions of the Westminster
subsidiary in 2001, thereby lowering the carrying cost charged by its clearing
broker.
As previously reported in the Current Report on Form 8-K of the Company dated
June 13, 2001, the sale of Westminster closed in escrow on June 12, 2001, the
documents and consideration were released from escrow on June 13, 2001, and the
parties agreed to treat May 31, 2001 as the effective date of the Transaction
for financial purposes. The Company recognized a loss of $1.6 million as a
result of the sale.
All other expenses for the nine months ended September 30, 2001 decreased to
$1.4 million from $1.5 for the nine months ended September 30, 2000. All other
expenses for the three months ended September 30, 2001 decreased to $299,268
from $452,894 for the three months ended September 30, 2000. These expenses
consist, among other things, of amortization of goodwill, office supplies,
insurance, and other miscellaneous expenses. The decrease in these expenses, net
of the increase in these expenses related to the Laidlaw International
subsidiary operations, resulted from the reduced cost of operations stemming
from the contraction in the volume of operations and the sale of Westminster
effected on May 31, 2001.
Liquidity and Capital Resources
There has been a substantial reduction in the cash and cash equivalents balance
as of September 30, 2001 compared to September 30, 2000 principally due to the
increase in net loss, and the acquisition of computer hardware and software
relative to the infrastructure build up amounting to approximately $3.3 million
for 2000 and the first three months of 2001 for the Globeshare Group subsidiary.
As a result of these matters, the Company has continued to experience cash flow
problems. Although the Company believes that it will have the resources to
maintain its operations through the remainder of the fiscal year through cost
control measures which have been instituted, cash flow from continuing growth of
operations, and financial support from existing shareholders which has been
promised orally, the Company may need to seek additional infusions of capital.
Management is in discussion with prospective investors to furnish such capital,
but no definitive purchase agreements have been executed and there is no
assurance that we will be able to finalize such an agreement.
In addition to the funding through private financing, the Company's strategic
plan to achieve improved profitability and liquidity focuses on the following:
o Cost Containment: We will seek to continually minimize operating costs and
convert fixed costs to variable costs, where appropriate. Recently,
decisions were made to enhance the profitability of Laidlaw by reviewing
and reorganizing its operating infrastructure, which will result in
significant expense reduction. With the integration of the operations of
Globeshare into Laidlaw Global Securities, Laidlaw expects to achieve
savings in employment costs and other operational expenditures.
o Brokerage: A focal point of our strategic incentive is to restructure and
build our brokerage base. With the expected continuing stream of revenue
from Laidlaw International, which has been averaging 12,000 to 15,000 Euros
daily on the equities business alone since it commenced operations in
April, 2001, Laidlaw expects the Laidlaw Global Securities subsidiary to
benefit from this through the execution of trades in the U.S. market.
Laidlaw believes this will facilitate the addition of new brokers in
Laidlaw Global Securities and the eventual development of Laidlaw
international business in the European Market and increase the potential of
attracting high net worth retail and institutional sales producers.
If the cashflow problems continue and we are unable to obtain financing from the
sale of our equity and/or debt securities, the ability of the Company to
implement its strategic plan and continue the current levels of its operations
will be impaired.
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 liquidity and financial position of Laidlaw for the nine months
ended September, 2001 despite the net loss incurred on a year to date basis. The
decrease in total assets as of September 30, 2001 compared to those as of
December 31, 2000 attributed mainly to the loss sustained for the first nine
months of 2001.
As of As of
September 2001 December 2000
(in $ except for ratios)
Adjusted Assets (1) 15,178,104 22,770,577
Leverage Ratio (2) 10.35 2.31
Adjusted Leverage Ratio (3) 10.35 2.31
Book value per share (4) 0.05 0.36
Quick ratio (5) .32 1.44
(1) Adjusted assets represent total assets.
(2) Leverage ratio equals total assets divided by equity capital.
(3) Adjusted leverage ratio equals adjusted assets divided by equity capital.
(4) Book value per share was based on common shares outstanding at the end of
the respective periods.
(5) Quick ratio equals liquid assets divided by current liabilities.
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 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. Although it is to early to preduct any oucome, in although it is too
early to predict any outcome, 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.
Greek Capital Market Commission vs. Laidlaw Global Corporation
The Company has been named, as well as the its subsidiary Laidlaw Global
Securities, in an administrative proceeding involving the Greek Capital Market
Commission ("CMC"). In early 2000, representatives of the Company were
introduced to a representative of Elektra S.A. ("Elektra"), an entity whose
securities are publicly traded in Greece, in order to discuss a business
strategy by which the Company would assist in the sale of a significant amount
of Elektra's shares by certain of its stockholders. Following meetings with such
persons, Elektra announced in the spring of 2000 that its principal shareholders
would sell up to 3,000,000 shares of its stock. On March 28, 2000, Elektra sold
two million shares of its stock to institutional investors through a Greek
brokerage firm, Contalexis Financial Services.
On February 28, 2001, the CMC, an administrative body which reviews securities
issues in Greece, found that Laidlaw Global Securities violated certain
notification requirements to the CMC and Elektra. According to the CMC's
findings, the Company (i) failed to notify the CMC and Elektra of the March 28,
2000 acquisition of Elektra shares and (ii) failed to notify the Athens Stock
Exchange of the Company's assignment of voting rights and participation of share
capital in Elektra. The Company believes that, since neither it nor any
subsidiary, including the Company, ever owned shares of Elektra, and for the
other reasons set forth below, both of these findings are without merit and
factually inaccurate and will be overturned on appeal.
Additionally, the CMC alleged that a representative of the Company falsely
stated to the public that the Company was interested in holding Elektra shares
two days prior to selling such shares. Since the Company never held shares of
Elektra, management believes that such statements were misquoted by the Greek
press. The subsidiary Laidlaw Global Securities was assessed fines of
approximately $79,000 and $77,000, respectively, for the first two findings. The
Company was assessed a fine of approximately $408,000 for the third finding.
These fines were levied after reviewing response letters filed by the Company's
Greek counsel. Greek counsel to the Company will be filing Remedy Petitions
before the CMC against the decisions assessing the fines, which is a form of an
administrative proceeding. In the event the Remedy Petitions are rejected by the
CMC, the Parent will file Writs of Annulment before the Conseil d'Etat, which is
the Greek Court having jurisdiction over such matters. Since neither the
Company, nor any of its subsidiaries, including the Company, has (i) ever owned
shares of Elektra, (ii) ever acted as a principal or agent for the purchase or
sale of shares of Elektra, (iii) acted as a broker-dealer of securities of
Elektra, or (iv) ever stated, publicly or otherwise, that it, or any of its
subsidiaries, did hold, or intended to hold or own, shares of Elektra, it
believes that the findings of the CMC will be overturned on appeal.
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
Reports on Form 8-K
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
May 14, 2001 By: /s/ Roger Bendelac
-----------------------
Roger Bendelac,
President