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, 2002
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: 33,174,565 shares of common stock as
of September 30, 2002.
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 at September 30, 2002 and
December 31, 2001 ...................................................... 3
b) Consolidated Statements of Operations for the three and nine months
ended September 30, 2002 and 2001 ...................................... 4
c) Consolidated Statements of Cash Flows for the three and nine months
ended September 30, 2002 and 2001 ...................................... 5
d) Notes to Consolidated Financial Statements ............................. 6 to 11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS ......................................... 12 to 16
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS ................................................. 17 to 18
ITEM 5. OTHER INFORMATION ................................................. 19
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) EXHIBITS ..................................................... 19 to 20
b) REPORTS ON FORM 8-K .......................................... 20 to 21
SIGNATURES ................................................................ 21
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Laidlaw Global Corporation and Subsidiaries
CONSOLIDATED BALANCE SHEETS
September 30, 2002 December 31, 2001
------------------ -----------------
(Unaudited)
ASSETS
Cash and cash equivalents $ 123,922 $ 2,220,119
Receivable from clearing broker and other receivables 105,321 248,600
Securities owned, at market value 2,360,013 314,764
Equipment and leasehold improvements -net 411,654 679,708
Notes receivable 150,000 2,215,000
Deposits 366,662 379,485
Prepaid and other 222,230 588,442
------------ ------------
TOTAL ASSETS $ 3,739,802 $ 6,646,118
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Notes payable $ 2,492,636 $ 732,058
Securities sold but not yet purchased, at market value -- 930
Accounts payable and accrued expenses 2,540,167 2,825,152
Commissions and compensation payable 75,473 243,656
Capitalized lease obligations 133,533 421,701
Deferred revenue -- 99,722
Deferred rent 505,468 527,756
Other payable 30,000 30,000
------------ ------------
5,777,277 4,880,975
------------ ------------
Commitments and contingencies
Stockholders' equity
Common Stock; $.00001 par value; 50,000,000 shares
authorized of the Company; 38,974,866 and 33,211,439 shares
issued by the Company as of September 30, 2002 and December 31,
2001, respectively 390 332
Additional paid - in capital 40,025,806 40,131,868
Treasury stock, at cost (5,800,300 shares and 5,632,500 shares (2,491,365) (2,415,054)
as of September 30, 2002 and December 31, 2001, respectively)
Accumulated deficit (39,572,306) (35,952,003)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY (NET DEFICIT) (2,037,475) 1,765,143
------------ ------------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $ 3,739,802 $ 6,646,118
============ ============
The accompanying notes are an integral part of these consolidated statements.
3
Laidlaw Global Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three months ended Nine months ended
September 30, September 30,
------------------------------ ------------------------------
2002 2001 2002 2001
------------ ------------ ------------ ------------
REVENUES
Gross commissions $ 209,700 $ 847,430 $ 2,105,037 $ 6,177,300
Asset management fees 52,692 1,231,587 172,397 3,806,137
Corporate finance & private placement fees 12,500 -- 106,389 268,158
Investment trading profits (losses) (283,584) 649,129 (1,041,593) 1,245,406
Other 59,547 275,160 148,798 614,699
------------ ------------ ------------ ------------
Total Revenue 50,855 3,003,306 1,491,028 12,111,700
------------ ------------ ------------ ------------
EXPENSES
Salaries and other employee costs 476,326 1,985,082 1,602,519 6,227,519
Charge (reversal of charge) related to variable options (153,797) -- (754,712) --
Commissions 126,311 788,269 1,057,043 3,151,736
Clearing and floor brokerage 46,637 85,506 248,887 780,335
Occupancy 219,224 380,219 568,580 1,227,884
Depreciation 88,573 578,296 268,053 1,671,970
Advertising & contributions 2,295 90,132 6,280 215,726
Travel and entertainment 65,080 114,720 221,394 322,304
Professional fees 308,330 283,450 1,183,899 l,046,168
Dues and assessments 24,243 54,612 113,177 438,103
Quotes & information 140,174 369,517 477,574 1,508,867
Office supplies, postage, messengers, printing 41,766 145,507 139,250 584,873
Interest 30,524 197,852 84,254 420,046
Loss from sale of subsidiary (275,000) -- (238,530) 1,615,722
Settlement of liability -- -- (289,879) --
Exchange of subsidiary shareholder's stock -- -- 73,708 --
Provision for doubtful accounts 96,212 -- 151,640 582,368
Other 79,056 153,761 198,194 787,159
------------ ------------ ------------ ------------
Total Expenses 1,315,954 5,226,923 5,111,331 20,580,780
------------ ------------ ------------ ------------
Loss before minority interest (1,265,099) (2,223,617) (3,620,303) (8,469,080)
Minority interest -- (71,895) -- (1,109,468)
------------ ------------ ------------ ------------
Loss before taxes: (1,265,099) (2,151,722) (3,620,303) (7,359,612)
Income Taxes -- -- -- --
------------ ------------ ------------ ------------
NET LOSS (1,265,099) (2,151,722) (3,620,303) (7,359,612)
Accumulated deficit, beginning of period (38,307,207) (29,969,693) (35,952,003) (24,761,803)
------------ ------------ ------------ ------------
Accumulated deficit, end of period $(39,572,306) $(32,121,415) $(39,572,306) $(32,121,415)
============ ============ ============ ============
NET LOSS PER SHARE
Basic $ (.04) $ (.09) $ (.13) $ (.28)
============ ============ ============ ============
Diluted $ (.04) $ (.09) $ (.13) $ (.28)
============ ============ ============ ============
WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING
Basic 29,849,032 24,721,822 28,505,804 26,041,738
============ ============ ============ ============
Diluted 29,849,032 24,721,822 28,505,804 26,041,738
============ ============ ============ ============
The accompanying notes are an integral part of these consolidated statements.
4
Laidlaw Global Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three months ended September 30, Nine months ended September 30,
2002 2001 2002 2001
----------- ----------- ----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $(1,265,099) $(2,151,722) $(3,620,303) $(7,359,612)
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Amortization -- 47,716 -- 273,673
Depreciation 88,574 578,296 268,054 1,671,970
Deferred rent (7,429) (7,430) (22,288) (22,289)
Minority interest in earnings -- (71,895) -- (1,109,467)
Loss from sale of subsidiary -- -- -- 1,615,722
Foreign exchange difference -- 40,165 -- (39,337)
Provision for doubtful account 96,212 -- 151,640 582,368
Charge in connection with share exchange -- -- 73,708 --
Reversal of charge related to variable options (153,797) -- (754,712) --
Unrealized loss on securities 134,015 -- 271,825 --
(Increase) decrease in operating assets:
Due from clearing brokers and other receivables (81,948) (565,045) 143,279 (428,305)
Marketable securities owned 121,665 2,452,402 175,562 531,705
Deposit -- (44,818) 12,823 (633,020)
Prepaid and other asset 83,958 (117,771) 214,572 11,401
Increase (decrease) in operating liabilities
Marketable securities sold but not yet purchased (42,500) 128,150 (930) 199,591
Securities loaned -- (2,528,909) -- 65
Accounts payable and accrued expenses 184,326 953,773 (284,985) 579,092
Customers' margin deposit -- (1,664,751) -- 34,309
Commission and compensation payable (36,839) 59,805 (168,183) 361,208
Deferred revenue -- (16,952) (99,722) (65,499)
Other liabilities -- 39,507 -- 46,628
----------- ----------- ----------- -----------
Net cash provided by (used in) operating activities (878,862) (2,869,479) (3,639,660) (3,749,797)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of Equipment and Leasehold Improvements -- (90,499) -- (450,259)
----------- ----------- ----------- -----------
Net cash used in investing activities -- (90,499) -- (450,259)
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of common stock 500,000 -- 500,000 --
Purchase of treasury stock (2,168) (48,207) (76,311) (73,626)
Repayment of notes payable (25,000) -- (657,058) --
Proceeds from collection of notes receivable -- -- 2,065,000 --
Proceeds from issuance of notes payable -- 1,465,840 -- 2,690,605
Proceeds from sale of subsidiary -- -- -- 700,000
Payment for leased equipment (102,210) (106,264) (288,168) (278,737)
----------- ----------- ----------- -----------
Net cash provided by (used in) financing activities 370,622 1,311,369 1,543,463 3,038,242
----------- ----------- ----------- -----------
NET (DECREASE) INCREASE IN CASH (508,240) (1,648,609) (2,096,197) (1,161,814)
CASH - BEGINNING OF PERIOD 632,162 2,386,069 2,220,119 1,899,274
----------- ----------- ----------- -----------
CASH - END OF PERIOD $ 123,922 $ 737,460 $ 123,922 $ 737,460
=========== =========== =========== ===========
Supplemental disclosure for cash flow information:
Cash paid during the period for interest $ 30,524 $ 162,138 $ 84,254 $ 369,332
Cash paid during the period for taxes $ -- $ 735 $ 21,351 $ 11,320
Supplemental schedule of non cash investing and
financing activities:
During the periods ended June 30, 2002 and 2001 the
following transactions occurred:
Purchases of equipment through capital lease -- -- -- 43,147
Securities for notes payable 731,250 -- 2,492,636 --
Conversion of note payable and interest into
Common stock -- -- 75,000 --
The accompanying notes are an integral part of these consolidated statements.
5
Laidlaw Global Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As of September 30, 2002
And for the nine and three months ended September 30, 2002 and 2001
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), the
operations of which the Company started to unwind in mid-November, 2002,
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., (H&R) which the Company sold
in December, 2001, Globeshare Group, Inc., (GGI), formerly Global Electronic
Exchange, Inc. a 97%-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, whose operations were integrated
with Laidlaw Global Securities in October, 2001, Laidlaw Pacific (Asia) Ltd.
(LPA), a registered broker-dealer and Investment Advisor with the Hong Kong
Securities and Futures Commission, which ceased operations in 2001, and Laidlaw
International, S.A., (LI) a 99.8% owned broker-dealer based in France, which
ceased operations in April, 2002. The business activities included securities
brokerage, investment banking, asset management and investment advisory services
to individual investors, corporations, pension plans and institutions worldwide.
On April 6, 2001, LPA ceased business activity to avoid incurring any further
costs of maintaining a dormant operation. Its license was revoked in May, 2001.
On June 12, 2001, the Company sold its common stock interest in Westminster
pursuant to an Amended and Restated Stock Purchase Agreement dated June 7, 2001.
The parties to the transaction agreed to treat May 31, 2001 as the effective
date of the transaction for financial statement purposes. Accordingly, results
of operations of Westminster for fiscal 2001 incorporated in the consolidated
financial statements pertain to the period through May 31, 2001.
Due to the continuing losses incurred by the Globeshare 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 December 26, 2001, the Company sold its interest in HRAC pursuant to a Stock
Purchase Agreement dated December 21, 2001. Accordingly, all assets,
liabilities, equity and results of operations of H & R for fiscal 2001 pertain
to the period through December 26, 2001.
On November 14, 2002, the Company announced that its Board of Directors has
adopted a resolution confirming its recent decision announced on November 6,
2002 stating the goal of fulfilling an orderly and responsible unwinding of the
operations of its broker-dealer subsidiary, Laidlaw Global Securities, Inc. In
that light, Laidlaw Global Securities, Inc. filed a Uniform Request Withdrawal
from Broker-Dealer Registration on November 13, 2002.
The accompanying consolidated financial statements have been prepared on a going
concern basis, which contemplates the realization of assets and satisfaction of
liabilities in the normal course of business. The Company has suffered recurring
losses and has a significant accumulated deficit as of September 30, 2002. In
addition, the Company continues to incur substantial losses. Accordingly, the
Company anticipates that it will require additional sources of funding during
2002 and during at least the next twelve months to maintain its operations and
to provide sufficient operating capital for its operations. The Company is
dependent on outside sources of financing and is presently pursuing several
alternatives, although no additional financing is imminent. These conditions
raise substantial doubt about the ability of the Company to continue as a going
concern. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
6
NOTE B - RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In July, 2001, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 141, Business Combinations (SFAS
No. 141) and Statement of Financial Accounting Standards No. 142, Goodwill and
Other Intangible Assets (SFAS No. 142). The new standards require that all
business combinations initiated after June 30, 2001 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. There was no material impact
to the Company from its adoption of SFAS NO. 142.
In August 2001, the FASB issued statement of Financial Accounting Standard No.
144 Accounting for the Impairment or Disposal of Long Lived Assets. This
statement is effective for fiscal years beginning after December 15, 2001. This
supercedes Statement of Financial Accounting Standards No. 121 "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of", while retaining many of the requirements of such statement. The Company is
currently evaluating the impact of the statement.
NOTE C - NET CAPITAL REQUIREMENTS
Laidlaw Global Securities, Inc. is subject to the Securities and Exchange
Commission's Uniform Net Capital Rule (SEC Rule 15c3-1), which requires the
maintenance of minimum net capital and requires that the ratio of aggregate
indebtedness to net capital, both as defined, shall not exceed 15 to 1 for
Laidlaw Global Securities. At September 30, 2002, Laidlaw Global Securities was
required to maintain minimum net capital of $115,158 and had total net capital
of $357,103 which was $241,945 was in excess of its minimum requirement. As
discussed in Note D, during the quarter ended September 30, 2002 Laidlaw Global
Securities received $1,197,174 of additional capital and a $67,673 paydown on an
intercompany receivable from the Company.
NOTE D - NOTES PAYABLE AND SUBORDINATED BORROWINGS
Notes payable and borrowings under subordination agreements at September 30,
2002 consist of the following:
Note Payable, 4% due 11/15/02 $ 1,033,598
Note Payable, 4% due 11/15/02 727,788
Note Payable, 4% due 11/01/02 731,250
-----------
$ 2,492,636
===========
On March 14, 2001, LI obtained a loan of $446,350 through the issuance of an 8%
note in which the principal and interest are due in one year. This loan was
assumed by the Company in December 2001 in the amount of $482,058 which included
interest of $35,708 to original maturity date. 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 $0.30 per Common Share. In March and April of 2002, the
terms were renegotiated wherein $50,000 of the note was converted into 333,329
shares of the Company's stock with the balance of the principal and interest
payable in varying installments with the final payment due in May 2002. No
additional interest is charged on the note from March 14, 2002 until May 2002.
On April 5, 2001, GGI obtained a loan of $250,000 through the issuance of a 10%
convertible subordinated note in which the interest is due on a semi-annual
basis and the principal on April 5, 2002. Under the terms of the note, the
noteholder may convert into GGI stock at the greater of $.65 per share or a 40%
discount from the initial public offering price per share or into Company common
shares at a price of $.55 per share. In March and April 2002 the terms were
renegotiated wherein $50,000 of the note was converted into 166,670 shares of
the Company's common stock and the balance is repayable in varying installment
payments through August, 2002. No additional interest is charged on the note
from April 5, 2002 until August 2002.
7
In March 2002, the Company borrowed securities worth $397,600 from a related
party and returned the same by the end of the month. In connection with these
borrowings, the Company accrued interest at the rate of 8% for the period the
securities were borrowed.
In May, 2002, the Company borrowed securities worth $1,033,598 from a related
party through the issuance of a 4% promissory note due June 30, 2002. Under the
terms of the loan agreement, the Lender acknowledges a fixed valuation for the
securities and agrees to accept the return of such securities as full repayment
of the principal sum due on the Note notwithstanding the market valuation of the
securities on the Repayment date. The lender reserves the right to demand the
return of the securities in lieu of any other form of repayment. At maturity,
this note was extended under the same terms to expire on September 15, 2002. The
note was again extended twice under the same terms to expire on September 30,
2002 and November 15, 2002. As of September 30, 2002, $1,000,000 of these
securities were contributed by the Company as capital to Laidlaw Global
Securities. On November 13, 2002, the Company decided to withdraw the membership
of Laidlaw Global Securities from the NASD. On November 15, 2002, all the
securities borrowed on the note were returned, which constituted full payment of
the principal. A 90-day extension of payment for any interest due on the loan
has been agreed upon until March 15, 2003. As discussed in Note A, the Company
is dependent on outside sources of financing and is presently pursuing several
alternatives.
In June, 2002, the Company borrowed securities worth $727,788 from a related
party through the issuance of a 4% promissory note due September 15, 2002. At
maturity, this note was extended twice under the same terms to expire on
September 30, 2002 and November 15, 2002.Under the terms of the loan agreement,
the Lender acknowledges a fixed valuation for the securities and agrees to
accept the return of such securities as full repayment of the principal sum due
on the Note notwithstanding the market valuation of the securities on the
Repayment date. The lender reserves the right to demand the return of the
securities in lieu of any other form of repayment. As of September 30, 2002, the
Company had transferred all of these borrowed securities to the Laidlaw Global
Securities, Inc. subsidiary as a partial payment of its intercompany liability.
On November 13, 2002, the Company decided to withdraw the membership of Laidlaw
Global Securities from the NASD. On November 15, 2002, all the securities
borrowed on the note were returned, which constituted full payment of the
principal. A 90-day extension of payment for any interest due on the loan has
been agreed upon until March 15, 2003. As discussed in Note A, the Company is
dependent on outside sources of financing and is presently pursuing several
alternatives.
In August, 2002, Laidlaw Holdings, Inc. borrowed securities worth $731,250 from
a shareholder through the issuance of a 4% promissory note due November 1, 2002.
At maturity, this note was extended under the same terms to expire on November
15, 2002. Under the terms of the loan agreement, the Lender acknowledges a fixed
valuation for the securities and agrees to accept the return of such securities
as full repayment of the principal sum due on the Note notwithstanding the
market valuation of the securities on the Repayment date. The lender reserves
the right to demand the return of the securities in lieu of any other form of
repayment. As of September 30, 2002, $697,175 of these securities were
contributed by the Company as capital to the Laidlaw Global Securities and
$34,075 of these securities were transferred to Laidlaw Global Securities, Inc.
as a partial payment of its intercompany liability. On November 13, 2002, the
Company decided to withdraw the membership of Laidlaw Global Securities from the
NASD. On November 15, 2002, all the securities borrowed on the note were
returned, which constituted full payment of the principal. A 90-day extension of
payment for any interest due on the loan has been agreed upon until March 15,
2003. As discussed in Note A, the Company is dependent on outside sources of
financing and is presently pursuing several alternatives.
On June 15, 2002, Laidlaw and London Capital Group Ltd. ("LCG"), a British
Virgin Island company, signed a stock purchase agreement whereby LCG agreed to
purchase from Laidlaw an equity interest representing 51% of the voting shares
of Laidlaw on a fully diluted basis. LCG was to purchase this equity on or
before June 28, 2002 for US $3.2 million.
LCG was not able to meet the initial closing date. In consideration of Laidlaw
extending the closing to July 30, 2002 or such earlier date as the parties may
agree, LCG assigned to Laidlaw a third party demand note from an entity publicly
traded on the London Stock Exchange, in the agreed upon amount of 2,356,060
Euros ( US$ 2,329,248) secured only by a reciprocal note of Laidlaw to LCG. LCG
further agreed that in the event that LCG did not close the purchase by July 30,
2002 for any reason other than the action of Laidlaw, it would forgive $500,000
of the repayment obligation on the reciprocal note.
On July 30, 2002, LCG failed to abide by the terms of the funding agreement.
8
Laidlaw notified LCG that the transaction terminated and maintained its right to
a $500,000 penalty under the terms of the agreement. Subsequently, upon the
request of LCG which assured Laidlaw that it has arranged for the necessary
funds to complete a revised proposal, Laidlaw agreed to voluntarily refrain from
seeking the enforcement of its penalty in order to provide LCG with an
opportunity to submit a revised proposal. Laidlaw initially agreed to wait until
August 16, 2002 before acting and then agreed to extend that deadline to August
31, 2002. No revised proposal has been received and Laidlaw may enforce the
penalty under the terms of its agreement with LCG. There is no assurance that
Laidlaw will receive the $500,000 penalty due it under the terms of the
agreement.
NOTE E - COMMITMENTS AND CONTINGENCIES
Litigation
Galacticomm Technologies, Inc. vs. Laidlaw Global Securities, Inc.
The Company is a defendant in a legal matter involving the underwriting and
initial public offering of Galacticomm Technologies, Inc. ("Galacticomm")
shares. The Company acted as a member of a selling group, pursuant to which the
Company 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, the Company
agreed to guarantee the purchase of an additional 20,000 shares and warrants if
deemed necessary. The Company satisfied all its commitments as part of its
agreement with the lead underwriters. Prior to the settlement of the IPO, the
lead underwriters aborted the IPO based upon what they, in their sole
discretion, believed was a declining market in the U.S. and abroad. Pursuant to
the underwriting agreement between Galacticomm and the lead underwriters, the
lead underwriters had the right, in their sole discretion, to abort the IPO in
the event of adverse conditions. Galacticomm commenced suit against the
underwriting group in a Florida state court seeking damages for breach of the
underwriting agreement. On October 23, 2002, the Company and Galacticomm signed
a mutual release of all claims whereby Laidlaw would remunerate $75,000, payable
in 4 monthly installments.
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 found 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 and the Company have been assessed fines
and penalties aggregating 1,257,168 Euros (US$1,119,004).
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, 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. The Company's counsel in Greece has advised
that in their opinion, the fines imposed by the CMC are civil fines and can only
be enforced against the assets of the Company in Greece. Further, they advise
that any enforcement of fine in the United States would require commencing a new
action in the United States.
9
Plural, Inc. vs. Laidlaw Global Corporation, et. al.
In November, 2001, Plural instituted action in the New York State Supreme Court
for services rendered pursuant to a computer consulting agreement. Plural
claimed approximately $700,000 is due them pursuant to the agreement. In June,
2002, Plural and Laidlaw entered into a settlement agreement wherein the payment
by Laidlaw of $40,000 to Plural by August 2, 2002 shall cause all claims or
counterclaims which are or could be asserted, including but not limited to those
set forth in the Complaint and the draft counterclaims, to be dismissed with
prejudice, without costs, for which purpose either party may tender an
appropriate form of judgment to the Court, on notice. Payment of the settlement
amount has been made by Laidlaw.
Estate of Harold Slote v. Laidlaw Global Securities, Inc.("LGS"), Drake Capital
Securties, Inc. ("Drake"), Gruntal & Co., LLC ("Gruntal") et al.
The Claimant alleges that a registered representative while employed at LGS,
Drake and Gruntal, made investments on behalf of Harold Slote which were
unsuitable and in contravention of Mr. Slote's investment goals. Plaintiff seeks
$36,091 in compensatory damages against LGS and $571,193 from all defendants for
alleged lost opportunities, interest, attorney's fees, costs and punitive
damages. In response to the motion by LGS counsel, the case was dismissed in
August, 2002.
Liptak v. Laidlaw Holdings Asset Mangement, Inc. Laidlaw Global Securities, Inc.
et al
The Claimant alleges unauthorized trades, unsuitability, fraud, conversion,
breach of fiduciary duty by a former registered representative and failure to
properly supervise. A hearing was held on the matter by an NASD arbitration
panel in July 2002 and post-hearing memoranda have been submitted. Claimant
seeks damages in excess of $750,000. LGS was aware that the registered
representative had been terminated by another broker/dealer for "selling away",
i.e. conducting business on behalf of the a customer outside of the firm and
without the firm's knowledge.
LGS hired the registered representative but imposed enhanced
supervisory/compliance procedures. Notwithstanding the procedures and
unbeknownst to LGS, the registered representative continued the practice of
"selling away" and the issue is whether LGS took necessary measures to prevent
the registered representative from harming his customers while at LGS. On the
merits of the denial of liability position by LGS, the decision in favor of
Laidlaw was rendered in June, 2002.
Bergmann v. Laidlaw Global Securities, Inc. and Roger Bendelac
Claimant seeks $953,000 in damages alleging Roger Bendelac, now the Company's
Chief Executive Officer, failed to sell Claimant's shares of the Company when
directed to do so. Claimant's father obtained shares of the Company in August
1999 upon the conversion of a convertible note issued by Laidlaw Holdings, Inc.
Mr. Bergmann sought to sell the shares in January 2000. Pursuant to the
requirements of Rule 144, Claimant was not eligible to sell the shares until
August 2000 by which time the value of the shares had dropped substantially. It
should be noted that the purchase costs by the Claimant's father in Laidlaw
shares at stake in litigation never exceeded $100,000. Further, Mr. Bendelac had
become the Chief Executive Officer of the Company and no longer handled the
Bergmann account. Special Counsel has interposed an answer to the Statement of
Claim and petitioned the NASD for dismissal of the claim based upon applicable
law. The NASD has not yet appointed a panel to hear the matter.
Thomas v. Laidlaw Global Securities, Inc., Coleman & Co. and Andrew Fine.
Claimant alleges the respondents are liable to him for an amount between
$100,000 and $500,000. Claimant was a customer of LGS and Andrew Fine was his
former registered representative. Prior to becoming a broker at LGS, Mr. Fine
worked at Coleman & Co. where Mr. Thomas was his customer. The account was
subsequently transferred from Coleman & Co. to LGS when Mr. Fine became employed
by LGS.
Claimant alleges broker Fine subjected his account to unnecessary risks contrary
to his investment objectives. Claimant focuses his complaint on investments in a
company known as Razorfish, Inc., a company which is now the target of intense
regulatory scrutiny for committing securities fraud. In making representations
to his customer. Mr. Fine believed the information disseminated by Razorfish to
be correct.
The acts complained of by Mr. Thomas occurred while Mr. Fine was employed at
Coleman & Co. Stock of Razorfish was purchased for the Thomas account before the
account was transferred to LGS. The Thomas account at LGS never exceeded
approximately $20,000 and any exposure to the Company is limited. It is
anticipated that the matter will be set for trial in late 2002 or early 2003.
David Bottoms vs. Laidlaw Holding, Inc. and Laidlaw Global Corporation.
Mr. Bottoms has filed a petition in front of the Supreme Court of State of New
York against Laidlaw Global Corporation ("Laidlaw") and Laidlaw Holdings, Inc.
seeking to restrain Laidlaw from the use of the proceeds of the sale of assets
and a motion to show cause will be argued on November 21, 2002.
Laidlaw had signed two contractual agreements with Mr. Bottoms in connection
with the sale of its shares of H&R. Mr. Bottoms inserted himself into the
transaction by claiming he owned an option on the Laidlaw shares when in fact,
Ladlaw considered and still considers that Mr. Bottoms only owned an option on
the shares of the minority shareholders. In order to allow the sale to proceed
without awaiting the results of litigation, Laidlaw made the decision
contemporaneous to the sale of its H&R unit to agree to a payment of $ 300,000
to Mr. Bottoms and signed a second agreement with Mr. Bottoms for consulting
services that would provide for quarterly payments of $ 25,000 a quarter for a
period of three years. Laidlaw made the first two quarterly payments and decided
to stop making any further payments Mr. Bottoms having performed none of the
consulting services he had promised. The matter of this dispute will be
arbitrated in front of the American Arbitration Association as per the
arbitration agreement clause that was part of those agreements.
Mr. Bottoms is seeking $ 257,000 as accelerated payments on the consulting
agreement due to his allegation of default under the terms of the agreement.
Laidlaw intends to counter-claim for the initial payment of $ 300,000 and its
first two installment payments on the consulting agreement since the signatory
of the original agreement on behalf of Laidlaw has now confirmed that the
intention of the initial agreement never intended to provide any option to Mr.
Bottoms on the H&R shares of Laidlaw but solely on the minority shareholders'
shares. Laidlaw intends to vigorously defend this action and assert its
counter-claim in due course.
NASD Regulatory Matter
The NASD has commenced a formal investigation against LGS pertaining to certain
trading activities that LGS engaged in, in the stock of the Company during the
period June through September, 1999. The NASD alleges that a firm trader and
others improperly traded restricted shares of the Company from the LGS
proprietary account. LGS is one of the targets of the investigation and pursuant
to the invitation of the NASD, furnished a Wells submission (legal brief
outlining the reasons why charges should not be brought) to them.
On November 15, 2002, LGS has signed a settlement agreement with the NASD that
resolves this matter. The acceptance of the settlement agreed and signed with
the NASD counsel is subject to further NASD and SEC reviews. The terms can only
be disclosed when the NASD elects to make them public.
American Stock Exchange listing matter
The Board of Laidlaw Global Corporation intends to meet no later than November
20, 2002 to evaluate all investment proposals and options available to it with
the purpose of formulating a Plan to fulfill its goal of complying with all
American Stock Exchange listing requirements within a short period of time and
terminating the broker-dealer subsidiary.
The Board of Laidlaw Global Corporation states that there are no guarantees that
the American Stock Exchange will deem the future plans acceptable to the
maintenance of the listing but states that it will spare no effort to structure
a Plan within a few days after the November 20 scheduled meeting which will be
submitted to shareholders' approval and to the American Stock Exchange in short
order.
The Company is subject to various other legal actions and claims arising out of
the conduct of its business. 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 in connection with
these matters are adequate.
10
NOTE F - INDUSTRY SEGMENTS
In 2002 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.
Broker-Dealer: Activities include underwriting public offerings of securities,
arranging private placements and providing client advisory services, trading,
and brokerage services including conducting research, 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.
Laidlaw Global Securities, the Company's majority owned subsidiary, was
substantially engaged in traditional trading, brokerage and investment banking
services.
Foreign Operations and Major Customers: The Company had no significant assets or
revenues (either external or intercompany) from operations in foreign countries
for each of the nine-month periods ended September 30, 2002 and 2001 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 $52,500 and $6,188 respectively, which approximates 3.52% and .05% of
external revenue, respectively. Additionally, the Company had no significant
individual customers (domestic or foreign) as of September 30, 2002, or for each
of the nine-month periods ended September 30, 2002 and 2001.
The following table sets forth the net revenues of these industry segments of
the Company's business.
Nine months ended September 30,
-------------------------------
2002 2001
----------- ------------
(Unaudited)
Revenue from external customers
Asset management $ 172,397 $ 3,297,555
Brokerage 1,286,584 7,797,348
Corporate and other 32,047 1,016,797
----------- ------------
Total external revenue $ 1,491,028 $ 12,111,700
=========== ============
Net (loss)
Asset management $ -- $ 387,028
Brokerage (2,942,414) (5,646,101)
Corporate and other (677,889) (2,100,539)
----------- ------------
Total net (loss) $(3,620,303) $ (7,359,612)
=========== ============
Total assets (1)
Asset management $ -- $ 3,727,323
Brokerage 2,755,998 9,314,366
Corporate and other 983,804 2,136,415
----------- ------------
Total assets $ 3,739,802 $ 15,178,104
=========== ============
(1) The decrease in assets is primarily due to the sale of the Westminster
Securities Corp. subsidiary in May, 2001, the sale of H&R Acquisition Corp. in
December, 2001 and the asset write-down in 2001 to adjust Globeshare's
investment in computer hardware and customized software to their estimated net
realizable value.
NOTE G - LOSS PER COMMON SHARE
Loss per common share are computed in accordance with Statement of Financial
Accounting Standards 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:
Nine Months ended September 30,
-------------------------------
2002 2001
------------ ------------
(Unaudited)
Numerator
Net loss applicable to common shares for basic
and diluted earnings per share $ (3,620,303) $ (7,359,612)
------------ ------------
Denominator
Weighted-average common shares for basic
and diluted earnings per share 28,505,804 26,041,738
------------ ------------
Loss per common share
Basic and diluted $ (.13) $ (.28)
============ ============
All outstanding warrants and options were excluded from the computation of the
diluted earnings per share because the Company incurred losses for the nine
month period ended September 30, 2002 and 2001 and the effect would have been
antidilutive.
11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Overview
Laidlaw Global Corporation is a financial services firm that has operated in two
business segments: brokerage, which includes investment banking and sales and
trading, and asset management.
Asset management activities included raising and investing capital and providing
financial advice to companies and individuals throughout the United States and
overseas. Through this group, Laidlaw provided client advisory services.
Laidlaw has started the process of unwinding the operations of the Laidlaw
Global Securities subsidiary in accordance with its board resolution adopted on
November 14, 2002. See "Recent Developments".
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.
Laidlaw has operated through a number of separate entities owned directly by
Laidlaw Global Corporation or through its wholly owned subsidiary, Laidlaw
Holdings, Inc. Laidlaw Global Securities, Inc. provides brokerage services and
is wholly owned by Laidlaw Holdings, Inc. Howe & Rusling, Inc. provided
management services of financial assets and was owned by H&R Acquisition Corp.,
81% of whose stock was owned by Laidlaw Holdings, Inc. Westminster Securities
Corporation, a NYSE member firm acquired by Laidlaw on July 1, 1999 also
provided general brokerage services. Another subsidiary, Globeshare Group, Inc.
(formerly Global Electronic Exchange, Inc.),was a holding company that owned
100% of Globeshare, Inc., an online broker-dealer. The last subsidiary was a
French broker/dealer called Laidlaw International, S.A., located in France,
which was granted the license to operate as a broker/dealer by Banque de France
in April 2001.
Numerous changes in the operation of the businesses of Laidlaw Global
Corporation occurred during fiscal year 2001.The interest in H&R Acquisition
Corp. was sold on December 26, 2001 pursuant to a Stock Purchase Agreement dated
December 21, 2001. Accordingly, the information for fiscal 2001 for H & R
Acquisition Corp. pertains to the period January 1 to December 26, 2001.
Westminster Securities Corporation was sold on June 12, 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 five months ended May 31, 2001. Globeshare, Inc. filed for withdrawal of
its registration as a broker/dealer with the NASD on November 20, 2001. The
operations and customer accounts of the on-line broker were transferred to
Laidlaw Global Securities on October 5, 2001 after duly informing the customers.
After September 11, 2001, the European market, an essential part of the business
generated by the French subsidiary, Laidlaw International, deteriorated and had
not recovered. In early February, 2002, the French Commission Bancaire demanded
a capital increase of 2 million Euros in order to maintain the French subsidiary
in compliance with French Net Capital Regulations. Laidlaw Global Corporation
had to make a hard decision since it could not support its European operations
while keeping adequate capital for the U.S. operations. With a very short
deadline imposed by the French regulatory authority, Laidlaw Global Corporation
determined not to provide the additional capital and this resulted in the
nomination of an Administrator for Laidlaw International by the Commission
Bancaire. Effective April 11, 2002, the French Administrator committed to a
process of liquidation. Accordingly, the Company recognized a loss as of
December 31, 2001 from the write off of all its investment in the French
subsidiary amounting to $634,562. In March 2002, the Company incurred an
additional expense of $35,264 in connection with the final settlement in closing
the operations of the French subsidiary as required by the French Administrator.
12
Market fluctuations in both U.S. and overseas markets, as well as general global
economic factors significantly affected Laidlaw's operations. These factors
included 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 have affected 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 also affected Laidlaw's
ability to achieve its strategic objectives, including growth in assets under
management, investment banking and brokerage service activities.
Laidlaw's securities business, particularly its involvement in primary and
secondary markets in domestic and overseas markets was subject to substantial
positive and negative fluctuations caused by a variety of factors that could not
be predicted with great certainty. These factors included variations in the fair
value of securities and other financial products and the volatility and
liquidity of global trading markets. Fluctuations also occured 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 were also 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 had
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.
Critical Accounting Policies
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
the disclosure of contingent assets and liabilities at the dates of the
financial statements and the reported amounts of revenues and expenses during
the reporting periods. Note A to the Consolidated Financial Statements in the
Company's Annual Report on Form 10-K for the year ended December 31, 2001,
describes the significant accounting policies and methods used in the
preparation of the Consolidated Financial Statements. The following lists some
of the Company's critical accounting policies impacted by judgments, assumptions
and estimates.
Revenue Recognition
Securities Transactions
Customers' securities transactions are recorded on a settlement-date basis with
related commission income and expenses recorded on a trade-date basis.
Proprietary securities transactions are recorded on a trade-date basis. Profit
and loss arising from all securities transactions entered into for the account
and risk of the Company are recorded on a trade-date basis.
Securities are valued at market value, and securities not readily marketable are
valued at fair value as determined by management. The resulting difference
between cost and market (or fair value) is included in trading gains, net.
Securities sold, but not yet purchased, consist of trading securities at market
values. The difference between the proceeds received from securities sold short
and the current market value is included in trading gains, net.
Investment Banking Fees
Investment banking fees include gains, losses and fees, net of syndicate
expenses, arising from securities offerings in which the Company acts as an
underwriter or agent. These fees are recorded on the offering date, sales
concessions on the settlement date and underwriting fees at the time the
underwriting is completed and the income is reasonably determinable.
Corporate Finance Fees
Corporate finance fees are received from providing advisory and due diligence
services for proposed financings that do not result in either the offering of
private or public financing. Fees are recognized when the services are
performed.
Asset Management Fees
The Company computes asset management fees and the related commission payout on
a quarterly basis and amortizes them for financial statement purposes on a
monthly basis.
Impairment of Long-Lived Assets
The Company assesses potential impairment of its long-lived assets, which
include its property and equipment and its identifiable intangibles such as
software development costs and deferred charges under the guidance of SFAS
144"Accounting for the Impairment or Disposal of Long-Lived Assets". The Company
continually determines if a permanent impairment of its long-lived assets has
occurred and the write-down of the assets to their fair values and charge
current operations for the measured impairment is required.
Income Taxes
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date. The Company records a valuation
allowance on deferred tax assets when appropriate to reflect the expected future
tax benefits to be realized. In determining the appropriate valuation allowance,
certain judgments are made relating to recoverability of deferred tax assets,
use of tax loss carryforwards, level of expected future taxable income and
available tax planning strategies. These judgments are routinely reviewed by
management. For further discussion, see Notes A and L to the Consolidated
Financial Statements in the Company's Annual Report on Form 10-K for the year
ended December 31, 2001.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest Rate Risk
As of September 30, 2002, the Company did not have any derivatives, non
fixed-interest debt or hedges outstanding. Therefore, the Company was not
subject to interest rate risk.
CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
The Chief Executive Officer (CEO) and Chief Financial Officer (CFO) have
evaluated the Company's disclosure controls and procedures, as defined in the
rules of the SEC, within 90 days of the filing of the date of this report and
have determined that such controls and procedures were effective in ensuring
that material information relating to the Company and its consolidated
subsidiaries was made known to them during the period covered by this report.
Internal Controls
The CEO and CFO are primarily responsible for the accuracy of the financial
information that is presented in this report. To meet their responsibility for
financial reporting, they have established internal controls and procedures
which they believe are adequate to provide reasonable assurance that the
Company's assets are protected from loss. These internal controls are reviewed
by the independent accountants to support their audit work. In addition, our
Audit Committee, which is composed entirely of outside directors, meets
regularly with management and the independent accountants to review accounting,
auditing and financial matters. This Committee and the independent accountants
have free access to each other, with or without management being present.
Recent Developments
On September 20 and 24, 2002, respectively, Messrs. Jean-Marc Beaujolin and
Carlos P. Campbell resigned as directors. On November 5, 2002, Messrs Jack
Takacs and Michael K. McCraw resigned as directors. In order to reduce operating
expenses, management has elected not to renew its directors' and officers' ("D
and O") liability insurance coverage. Nor has it acquired retroactive coverage.
On November 14, 2002 Mr. Stanley Ira Birnbaum, an attorney-at-law, was elected
to the Board of Directors.
13
On November 5, 2002, Eisner LLP was dismissed as independent accountant for
Laidlaw Global Corporation. On November 4, 2002, Laidlaw engaged Weinick Sanders
Leventhal & Co., LLP as its new independent accountant for fiscal year ended
December 31, 2002. Laidlaw's decision to replace the Eisner firm is in line with
management's overall efforts to reduce operating expenses.
On November 6, 2002, Laidlaw's management announced that it intends to terminate
the activities of its broker-dealer subsidiary Laidlaw Global Securities, Inc.
and that it was negotiating the sale of the broker-dealer's assets. Laidlaw has
filed for the withdrawal of the membership of Laidlaw Global Securities from the
NASD. Management has announced that it is in the process of receiving and
evaluating various investment proposals related to the American Stock Exchange
listed parent company, prior to submission to the Board of Directors. If an
understanding with a third party cannot be reached, Laidlaw will have to
consider all alternatives including the potential of termination or sale of all
its remaining assets.
Global Economic and Market Developments in the Three and Nine Months Ended
September 30, 2002
The difficult global market conditions that existed during the first six months
of 2002 worsened in the third quarter ended September 30, 2002.
In Europe, certain business survey data within the region projected weak future
economic recovery. Although the actual rate of economic growth was lower than
previously anticipated, the region experienced generally stable economic
conditions. As a result of these developments as well as concerns about the
weakness in domestic demand, the difficult conditions in the global financial
markets, and the appreciation of the euro relative to the U.S. dollar, the
European Central Bank (ECB) left the benchmark interest rate unchanged during
the quarter.
In the U.S., economic growth continued at a sluggish pace. Although the
quarterly average unemployment rate decreased .2% in the third quarter to 5.7%,
the equity markets continued to decline, and consumer confidence continued to
erode due to continuing concerns on the possible risks from global political
events and terrorism and increased concerns regarding the quality of corporate
financial reporting, corporate governance, unethical or illegal corporate
practices, and several significant corporate bankruptcies. To address the
concerns regarding growing distrust of corporate reporting and management, the
Securities and Exchange Commission (the "SEC") responded by, among other things,
requiring chief executive officers and chief financial officers of companies
with large market capitalization to certify the accuracy of certain prior
financial reports and other SEC filings. In addition, the U.S. Congress passed
the Sarbanes-Oxley Act of 2002, which includes broad legislation affecting
public companies with provisions covering corporate governance and management,
new disclosure requirements, oversight of the accounting profession and auditor
independence. Against that backdrop and with monetary policy having been eased
substantially, the Federal Open Market Committee (FOMC) decided not to make any
further rate cutbacks during the first nine months of fiscal 2002. However,
during their monthly meeting on November 6, 2002, the FOMC surprisingly decided
to cut the federal funds rate by 50 basis points to a 40-year low of 1.25
percent in order to presumably prod the laggard business economies back into
activity. Low interest would motivate consumers to keep spending and businesses
to invest, forces that would eventually bolster economic growth.
These uncertain and turbulent market and economic environments adversely
affected the results of operations of Laidlaw Global Securities, Inc. (LGS or
LGSI), the remaining subsidiary of the Company, for the first nine months of
fiscal 2002, as the net income for each of its two business segments (brokerage
and asset management) declined from the levels in fiscal 2001. LGSI's brokerage
business recorded lower revenues from its investment banking, institutional
sales and trading, and individual securities activities in fiscal 2002 as
compared with fiscal 2001. The decline in revenues in the LGSI's asset
management business reflected a decrease in customer assets under management and
supervision, primarily as a result of the sale of H & R Acquisition Corp. in
2001.
The Company continued its efforts to position Laidlaw in new markets and
ventures, while trying to optimize the business structure of Laidlaw. These
efforts have included the sale and closing of subsidiaries, where it was
determined that such efforts were in the best interest of the company as a
whole. Management continued to focus its activities in areas that took into
consideration the operational structure of Laidlaw and the need to allocate
resources efficiently giving priority to ventures that can reasonably be
expected to self-finance on a short term basis.
Results of Operations For the Three and Nine Month Periods Ended September 30,
2002 and 2001
Laidlaw posted a loss of $1.4 million in the third fiscal quarter of 2002,
compared to the net loss of $2.1 million in the third fiscal quarter of 2001.
While there was a decrease in the net loss, losses continue due to the adverse
economic conditions experienced both domestically and internationally that
persisted in the third quarter of 2002 since the market decline that started the
second half of 2000. Generally weak stock prices in emerging markets, coupled
with low trading volume, adversely affected Laidlaw.
14
Domestically, the steep decline of Nasdaq had a great impact on Laidlaw, as its
institutional clients focused their investments 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 sale of loss
generating subsidiaries in fiscal 2001 have resulted in a decrease of
approximately $732,800 in net loss from operations in the third quarter of 2002
as compared to the third quarter of 2001. In addition, in May 2002, the Company
recorded a credit of $289,879 related to the settlement of a liability. This
credit was, however, partially offset by a charge pertinent to stock options
subject to variable pricing.
Basic loss per common share was $.04 and $.13 in the three and nine month period
ended September 30, 2002, respectively, as compared to a basic loss of $.09 and
$.28 in the three and nine month period ended September 30, 2001.
Operations of two subsidiaries, Laidlaw Global Securities, Inc. and Globeshare
Group, Inc., significantly contributed to the loss incurred during the third
quarter of fiscal 2002. 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.
still incurred interest expense on the note payable which was fully paid in
August, 2002 and on equipment lease contracts.
Laidlaw's income is derived from its operation in two principal segments of the
financial services industry, namely asset management and brokerage activities.
Income from those activities is summarized as follows.
Brokerage commission revenues which represent 141% (inclusive of investment
trading losses) and 51% of total revenues for the nine month periods ended
September 30, 2002 and September 30, 2001, respectively, are geographically
categorized as follows:
For the nine months ended September 30, 2002, LGSI generated revenues of
$308,859 from its activities on behalf of foreign and U.S. institutional
customers and $1.8 million from it activities in the U.S. markets. For the nine
months ended September 30, 2001, revenues of $778,555 were generated from the
activities of LGSI on behalf of foreign and U.S. institutional customers and
$4.4 million were generated from the activities of LGSI and Westminster
Securities Corporation in the U.S. markets. Globeshare generated $898,955
revenues 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. The
investors transacting in the U.S. markets are both U.S. and non U.S. entities
and individuals.
Asset Management fees from LGSI amount to $172,397 for the nine months ended
Septenber 30, 2002, which represent 12% of the firm's revenue for the period.
Asset Management fees from Howe & Rusling and partly from LGSI amount to $3.8
million for the nine months ended September 30, 2001, which represent 32% of the
firm's revenue for the period. Corporate finance fees of LGSI amount to $106,389
and $268,158 for the nine months ended September 30, 2002 and September 30,
2001, respectively, which represent 7% and 2% of the firm's revenue for the
respective periods. Trading loss of LGSI amount to $1,041,593 for the nine
months ended September 30, 2002.Trading profit of LGSI, 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. Other revenue, which
consists principally of interest income and rebates on securities trades, amount
to $148,798 and $614,699 for the nine months ended September 30, 2002 and
September 30, 2001, respectively, which represent 10% and 5% of the firm's
revenue for the respective periods.
Salaries and other employee costs for the nine months ended September 30, 2002
decreased to $1.6 million from $6.2 million for the nine months ended September
30, 2001. Salaries and other employee costs for the three months ended September
30, 2002 decreased to $476,326 from $1.9 million for the three months ended
September 30, 2001. The decrease in this expense primarily relates to the
reduction of personnel in the LGSI, the cessation of operations of Globeshare,
Inc. and Laidlaw International, and the sale of Westminster and H & R
Acquisition Corp.
The Company recorded a net credit of $754,711 for the nine months ended
September 30, 2002 and a credit of $153,797 for the three months ended September
30, 2002 related to stock options subject to variable pricing. The net credit
resulted in a corresponding decrease in additional paid-in capital and the
charge resulted in a corresponding increase in said capital account.
Commissions expense for the nine months ended September 30, 2002 decreased to
$1.1 million from $3.2 million for the nine months ended September 30, 2001.
Commissions expense for the three months ended September 30, 2002 decreased to
$126,311 from $788,269 for the three months ended September 30, 2001. The
decrease is attributable to the decrease in commission revenue.
Clearing expenses for the nine months ended September 30, 2002 decreased to
$248,887 from $780,335 for the nine months ended September 30, 2001. Clearing
expenses for the three months ended September 30, 2002 decreased to $46,637 from
$85,506 for the nine months ended September 30, 2001. 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.
Occupany expenses for the nine months ended September 30, 2002 decreased to
$568,580 from $1.2 million for the nine months ended September 30, 2001.
Occupancy expenses for the three months ended September 30, 2002 decreased to
$219,224 from $380,219 for the three months ended September 30, 2001. Occupancy
expenses include cost of leasing office space and space with our Internet
service provider. The decrease is primarily attributable to the rental income
received from Westminster Securities Corp. starting June 2001, the increase in
rental income from the sublease of another office space in New York to a
non-affiliated party, the sale of H & R Acquisition Corp., and the cessation of
the Laidlaw International operations.
Depreciation and amortization expenses for the nine months ended September 30,
2002 decreased to $268,053 from $1.7 million for the nine months ended September
30, 2001. Depreciation and amortization expenses for the three months ended
September 30, 2002 decreased to $88,573 from $578,296 for the three months ended
September 30, 2001. Depreciation and amortization expenses, which include
depreciation of equipment and amortization of software development costs,
decreased primarily due to the asset write down recorded in 2001 to adjust
Globeshare's investment in computer hardware and customized application software
to their net realizable value, to the sale of Westminster and H & R Acquisition
Corp., and the cessation of operations of Laidlaw International.
15
Advertising and contribution expenses for the nine months ended September 30,
2002 decreased to $6,280 from $215,726 for the nine months ended September 30,
2001. Advertising and contribution expenses for the three months ended September
30, 2002 decreased to $2,295 from $90,132 for the three months ended September
30, 2001. The decrease in advertising and contribution expenses resulted from
the efforts of management in reducing costs as well as the sale of Westminster
and H & R Acquisition Corp. and the cessation of operations of Globeshare and
Laidlaw International.
Travel and entertainment expenses for the nine months ended September 30, 2002
decreased to $221,394 from $322,304 for the nine months ended September 30,
2001. Travel and entertainment expenses for the three months ended September 30,
2002 decreased to $65,080 from $114,720 for the three months ended September 30,
2001. The decrease in travel and entertainment expenses are attributed to the
efforts of management to minimize costs in light of the difficult market
conditions that continually persisted in 2002 as well as the sale of Westminster
and H & R Acquisition Corp. and the cessation of operations of Globeshare and
Laidlaw International.
Professional fees for the nine months ended September 30, 2002 increased to $1.2
million from $1.0 million for the nine months ended September 30, 2001.
Professional fees for the three months ended September 30, 2002 increased to
$308,330 from $283,450 for the three months ended September 30, 2001. The
increase in professional fees resulted from the incremental accounting fees
incurred pertinent to the change of auditors in March, 2002 and the year-end
audit of Laidlaw International in France. The increase was partially offset by
the decrease in professional fees with the sale of Westminster and H & R
Acquisition Corp. and the cessation of operations of Globeshare and Laidlaw
International.
Dues and assessments for the nine months ended September 30, 2002 decreased to
$113,177 from $438,103 for the nine months ended September 30, 2001. Dues and
assessments for the three months ended September 30, 2002 decreased to $23,243
from $54,612 for the three months ended September 30, 2001. 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 Westminster in June, 2001 and H & R Acquisition Corp. in December, 2001 as
well as the cessation of operations of Globeshare, inc. and Laidlaw
International also contributed to the reduction of dues.
Quotes and information systems expenses for the nine months ended September 30,
2002 decreased to $477,574 from $1.5 million for the nine months ended September
30, 2001. Quotes and information systems expenses for the three months ended
September 30, 2002 decreased to $140,174 from $369,517 for the three months
ended September 30, 2001. Quotes and information systems expenses, which include
telephone, quotes and other information costs, decreased due to the reduction of
services with the cessation of operations of Globeshare, Inc. and Laidlaw
International in the last quarter of 2001 and the sale of the Westminster
Securities effected in June 2001.
Interest expense for the nine months ended September 30, 2002 decreased to
$84,254 from $420,046 for the nine months ended September 30, 2001. Interest
expense for the three months ended September 30, 2002 decreased to $30,524 from
$197,852 for the three months ended September 30, 2001. The decrease in interest
expense resulted from the settlement of most of the borrowings by the Company in
2001 and the elimination of the carrying costs charged by the clearing brokers
of the Westminster and Laidlaw International subsidiaries for their inventory
positions.
Net gain on sale of subsidiaries of $238,530 for the nine months ended September
30, 2002 represents a $275,000 reversal of accrued equipment lease of Laidlaw
International, $35,264 additional expense incurred by the Company in March, 2002
pertinent to the final settlement of the cessation of operations of the Laidlaw
International subsidiary as required by the French administrator, and $1,206
loss on the cessation of operations of Laidlaw Pacific (Asia), a subsidiary that
was not operational since its acquisition.
The Company recognized a loss of $1.6 million as a result of the sale of its
Westminster subsidiary as of May 31, 2001.
The Company recognized a credit of $289,879 for the nine months ended September
30, 2002 pertinent to the settlement in June, 2002 of the claims by and
counterclaims against Plural, a software developer.
There was no amortization of goodwill for the nine and three months ended
September 30, 2002 as compared to the charges of $273,673 and $47,716 for the
nine and three months ended September 30, 2001, respectively. All the goodwill
were written off upon the sale of the Westminster and H & R Acquisition Corp.
subsidiaries.
All other expenses for the nine months ended September 30, 2002 decreased to
$489,084 from $1,680,727 for the three months ended September 30, 2001. All
other expenses for the three months ended September 30, 2002 decreased to
$217,034 from $251,552 for the three months ended September 30, 2001. These
expenses consist, among other things, of office supplies, insurance, bad debts,
and other miscellaneous expenses. The decrease in these expenses resulted from
the reduced cost of operations stemming from the contraction in the volume of
operations, the cessation of operations of Globeshare, Inc. and Laidlaw
International and the sale of Westminster effected on May 31, 2001 and H & R
Acquisition Corp.on December 26, 2001.
SUBSEQUENT EVENTS
On June 15, 2002, Laidlaw and London Capital Group Ltd. ("LCG"), a British
Virgin Island company, signed a stock purchase agreement whereby LCG agreed to
purchase from Laidlaw an equity interest representing 51% of the voting shares
of Laidlaw on a fully diluted basis. LCG was to purchase this equity on or
before June 28, 2002 for US $3.2 million.
LCG was not able to meet the initial closing date. In consideration of Laidlaw
extending the closing to July 30, 2002 or such earlier date as the parties may
agree, LCG assigned to Laidlaw a third party demand note from an entity publicly
traded on the London Stock Exchange, in the agreed upon amount of 2,356,060
Euros (US$ 2,329,248) secured only by a reciprocal note of Laidlaw to LCG. LCG
further agreed that in the event that LCG did not close the purchase by July 30,
2002 for any reason other than the action of Laidlaw, it would forgive $500,000
of the repayment obligation on the reciprocal note.
On July 30, 2002, LCG failed to abide by the terms of the funding agreement.
Laidlaw notified LCG that the transaction terminated and maintained its right to
a $500,000 penalty under the terms of the agreement. Subsequently, upon the
request of LCG which assured Laidlaw that it has arranged for the necessary
funds to complete a revised proposal, Laidlaw agreed to voluntarily refrain from
seeking the enforcement of its penalty in order to provide LCG with an
opportunity to submit a revised proposal. Laidlaw initially agreed to wait until
August 16, 2002 before acting and then agreed to extend that deadline to August
31, 2002. No revised proposal has been received and Laidlaw may enforce the
penalty under the terms of its agreement with LCG. There is no assurance that
Laidlaw will receive the $500,000 penalty due it under the terms of the
agreement.
On July 31, 2002, an unrelated party purchased 5,000,000 shares of the Company's
common stock for $500,000. These proceeds were contributed by the Company as
capital to Laidlaw Global Securities.
The Company received notice from the American Stock Exchange Staff, dated August
9, 2002, notifying the Company that it accepted the Company's plan of compliance
and granted the Company an extension of time to regain compliance with the
continued listing standards. However, the acceptance by the Exchange is
conditional and that in addition to updates, no less frequently than quarterly,
and periodic review by the Exchange, the Company must, by September 10, 2002,
provide proof of receipt of funds in line with its proposed business plan and
operational needs and resolve or take substantial steps to resolve any open
issues relating to listing additional shares as currently before the Exchange.
Failure to fulfill these requirements may result in delisting by the Exchange.
The Company has not fully met its obligations under its plan of compliance.
The Board of Laidlaw Global Corporation intends to meet no later than November
20, 2002 to evaluate all investment proposals and options available to it with
the purpose of formulating a Plan to fulfill its goal of complying with all
American Stock Exchange listing requirements within a short period of time and
terminating the broker-dealer subsidiary.
The Board of Laidlaw Global Corporation states that there are no guarantees that
the American Stock Exchange will deem the future plans acceptable to the
maintenance of the listing but states that it will spare no effort to structure
a Plan within a few days after the November 20 scheduled meeting which will be
submitted to shareholders' approval and to the American Stock Exchange in short
order.
Liquidity and Capital Resources
The Company has incurred continuing net losses through the first nine months of
fiscal 2002. As a result of these matters, the Company has continued to
experience net cash outflows from operations. The Company is in the process of
receiving and evaluating various investment proposals related to Laidlaw. If an
understanding with a third party cannot be reached, the Company will have to
consider all alternatives including the potential termination of operations or
sale of all its remaining assets.
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PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Galacticomm Technologies, Inc. v. Laidlaw Global Securities, Inc.
The Company is a defendant in a legal matter involving the underwriting and
initial public offering of Galacticomm Technologies, Inc. ("Galacticomm")
shares. The Company acted as a member of a selling group, pursuant to which the
Company 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, the Company
agreed to guarantee the purchase of an additional 20,000 shares and warrants if
deemed necessary. Prior to the settlement of the IPO, the Company had satisfied
all its commitments as part of its agreement with the lead underwriters. Prior
to the settlement of the IPO, the lead underwriters aborted the IPO based upon
what they, in their sole discretion, believed was a declining market in the U.S.
and abroad. Pursuant to the underwriting agreement between Galacticomm and the
lead underwriters, the lead underwriters had the right, in their sole
discretion, to abort the IPO in the event of adverse conditions. Galacticomm
commenced suit against the underwriting group in a Florida state court seeking
damages for breach of the underwriting agreement. On October 23, 2002, the
Company and Galacticomm signed a mutual release of all claims whereby Laidlaw
would remunerate $75,000 payable in 4 monthly installments.
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 found 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 and the Company have been assessed fines
and penalties aggregating 1,257,168 Euros (US$1,119,004).
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, 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. The Company's counsel in Greece has advised
that in their opinion, the fines imposed by the CMC are civil fines and can only
be enforced against the assets of the Company in Greece. Further, they advise
that any enforcement of fine in the United States would require commencing a new
action in the United States.
Plural, Inc. vs. Laidlaw Global Corporation, et. al.
In November, 2001, Plural instituted action in the New York State Supreme Court
for services rendered pursuant to a computer consulting agreement. Plural
claimed approximately $700,000 is due them pursuant to the agreement. In June,
2002, Plural and Laidlaw entered into a settlement agreement wherein the payment
by Laidlaw of $40,000 to Plural by August 2, 2002 shall cause all claims or
counterclaims which are or could be asserted, including but not limited to those
set forth in the Complaint and the draft counterclaims, to be dismissed with
prejudice, without costs, for which purpose either party may tender an
appropriate form of judgment to the Court, on notice. Payment of the settlement
amount has been made by Laidlaw.
17
Estate of Harold Slote v. Laidlaw Global Securities, Inc.("LGS"), Drake Capital
Securties, Inc. ("Drake"), Gruntal & Co., LLC ("Gruntal") et al.
The Claimant alleges that a registered representative while employed at LGS,
Drake and Gruntal, made investments on behalf of Harold Slote which were
unsuitable and in contravention of Mr. Slote's investment goals. Plaintiff seeks
$36,091 in compensatory damages against LGS and $571,193 from all defendants for
alleged lost opportunities, interest, attorney's fees, costs and punitive
damages. The case was dismissed in August, 2002.
Liptak v. Laidlaw Holdings Asset Mangement, Inc. Laidlaw Global Securities, Inc.
et al
The Claimant alleges unauthorized trades, unsuitability, fraud, conversion,
breach of fiduciary duty by a former registered representative and failure to
properly supervise. A hearing was held on the matter by an NASD arbitration
panel in July 2002 and post-hearing memoranda have been submitted. Claimant
seeks damages in excess of $750,000. LGS was aware that the registered
representative had been terminated by another broker/dealer for "selling away",
i.e. conducting business on behalf of the a customer outside of the firm and
without the firm's knowledge.
LGS hired the registered representative but imposed enhanced
supervisory/compliance procedures. Notwithstanding the procedures and
unbeknownst to LGS, the registered representative continued the practice of
"selling away" and the issue is whether LGS took necessary measures to prevent
the registered representative from harming his customers while at LGS. On the
merits of denial of liability by LGS, a decision in favor of Laidlaw was
rendered in June 2002.
Bergmann v. Laidlaw Global Corp. and Roger Bendelac
Claimant seeks $953,000 in damages alleging Roger Bendelac, now the Company's
Chief Executive Officer, failed to sell Claimant's shares of the Company when
directed to do so. Claimant's father obtained shares of the Company in August
1999 upon the conversion of a convertible note issued by Laidlaw Holdings, Inc.
Mr. Bergmann sought to sell the shares in January 2000. Pursuant to the
requirements of Rule 144, Claimant was not eligible to sell the shares until
August 2000 by which time the value of the shares had dropped substantially. It
should be noted that the investment account of the claimant's father in Laidlaw
Shares never exceeded $100,000. Further, Mr. Bendelac had become the Chief
Executive Officer of the Company and no longer handled the Bergmann account.
Special Counsel has interposed an answer to the Statement of Claim and
petitioned the NASD for dismissal of the claim based upon applicable law. The
NASD has not yet appointed a panel to hear the matter.
Thomas v. Laidlaw Global Securities, Inc., Coleman & Co. and Andrew Fine.
Claimant alleges the respondents are liable to him for an amount between
$100,000 and $500,000. Claimant was a customer of LGS and Andrew Fine was his
former registered representative. Prior to becoming a broker at LGS, Mr. Fine
worked at Coleman & Co. where Mr. Thomas was his customer. The account was
subsequently transferred from Coleman & Co. to LGS when Mr. Fine became employed
by LGS.
Claimant alleges broker Fine subjected his account to unnecessary risks contrary
to his investment objectives. Claimant focuses his complaint on investments in a
company known as Razorfish, Inc., a company which is now the target of intense
regulatory scrutiny for committing securities fraud. In making representations
to his customer. Mr. Fine believed the information disseminated by Razorfish to
be correct.
The acts complained of by Mr. Thomas occurred while Mr. Fine was employed at
Coleman & Co. Stock of Razorfish was purchased for the Thomas account before the
account was transferred to LGS. The Thomas account at LGS never exceeded
approximately $20,000 and any exposure to the Company is limited. It is
anticipated that the matter will be set for trial in late 2002 or early 2003.
NASD Regulatory Matter
The NASD has commenced a formal investigation against LGS pertaining to certain
trading activities that LGS engaged in, in the stock of the Company during the
period June through September, 1999. The NASD alleges that a firm trader and
others improperly traded restricted shares of the Company from the LGS
proprietary account. LGS is one of the targets of the investigation and pursuant
to the invitation of the NASD, furnished a Wells submission (legal brief
outlining the reasons why charges should not be brought) to them.
On November 15, 2002, LGS has signed a settlement agreement with the NASD that
resolves this matter. The acceptance of the settlement agreed and signed with
the NASD counsel is subject to further NASD and SEC reviews. The terms can only
be disclosed when the NASD elects to make them public.
David Bottoms vs. Laidlaw Holding, Inc. and Laidlaw Global Corporation.
Mr. Bottoms has filed a petition in front of the Supreme Court of State of New
York against Laidlaw Global Corporation ("Laidlaw") and Laidlaw Holdings, Inc.
seeking to restrain Laidlaw from the use of the proceeds of the sale of assets
and a motion to show cause will be argued on November 21, 2002.
Laidlaw had signed two contractual agreements with Mr. Bottoms in connection
with the sale of its shares of H&R. Mr. Bottoms inserted himself into the
transaction by claiming he owned an option on the Laidlaw shares when in fact,
Ladlaw considered and still considers that Mr. Bottoms only owned an option on
the shares of the minority shareholders. In order to allow the sale to proceed
without awaiting the results of litigation, Laidlaw made the decision
contemporaneous to the sale of its H&R unit to agree to a payment of $ 300,000
to Mr. Bottoms and signed a second agreement with Mr. Bottoms for consulting
services that would provide for quarterly payments of $ 25,000 a quarter for a
period of three years. Laidlaw made the first two quarterly payments and decided
to stop making any further payments Mr. Bottoms having performed none of the
consulting services he had promised. The matter of this dispute will be
arbitrated in front of the American Arbitration Association as per the
arbitration agreement clause that was part of those agreements.
Mr. Bottoms is seeking $ 257,000 as accelerated payments on the consulting
agreement due to his allegation of default under the terms of the agreement.
Laidlaw intends to counter-claim for the initial payment of $ 300,000 and its
first two installment payments on the consulting agreement since the signatory
of the original agreement on behalf of Laidlaw has now confirmed that the
intention of the initial agreement never intended to provide any option to Mr.
Bottoms on the H&R shares of Laidlaw but solely on the minority shareholders'
shares. Laidlaw intends to vigorously defend this action and assert its
counter-claim in due course.
The Company is subject to various other legal actions and claims arising out of
the conduct of its business. 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 in connection with
these matters are adequate.
18
ITEM 5. OTHER INFORMATION
On March 5, 2002, Grant Thornton LLP ("Grant") notified the Laidlaw Board of
Directors that pursuant to Section 10A of the Exchange Act of 1934 (the "Grant
Report"), in their belief, an illegal act or acts may have occurred at Laidlaw
during 2001 with respect to the repricing of stock options. Grant alleged in
part that neither management nor the Board of Directors had taken sufficient
steps to determine whether an illegal act had occurred within the meaning of
Section 10A of the Exchange Act of 1934 and, accordingly, Grant notified the
Securities and Exchange Commission (SEC). The Company has been notified that the
SEC has commenced an informal investigation into this matter.
Laidlaw has received notice from NASD Regulation, Inc. ("NASD"), that its staff
has made a preliminary determination to recommend that disciplinary action be
brought against Laidlaw's subsidiary Laidlaw Global Securities, Inc., for
allegedly violating certain NASD Conduct Rules by engaging in sales of
unregistered securities of Laidlaw during the period June 9-September 9, 1999.
The notice permits us to file a statement with the NASD setting forth why such
an action should not be brought and we intend to do so.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
EXHIBIT NO. DESCRIPTION
2.1 Amended and Restated Plan and Agreement of Reorganization by and
among Laidlaw Holdings, Inc., Fi-Tek V, Inc., Westminster Securities
Corporation and shareholders of the companies, dated May 27, 1999(1)
3.1 Certificate of Incorporation of Laidlaw and amendments thereto(2)
3.2 By-Laws of Laidlaw(2)
4.1 Specimen Laidlaw Common Stock Certificate(2)
4.2 Specimen Fi-Tek V, Inc. Class A Warrant(2)
19
4.3 Specimen Fi-Tek V, Inc. Class B Warrant(2)
10.1 Employment Agreement between Registrant and Anastasio Carayannis,
dated as of January 1, 2000(3)
10.2 Employment Agreement between Registrant and Roger Bendelac, dated as
of January 1, 2000(3)
10.3 Employment Agreement between Registrant and Daniel Bendelac, dated
as of January 1, 2000(3)
10.4 Exchange Agreement to acquire Laidlaw Pacific, dated May 20, 1999(4)
10.5 Amendment to Exchange Agreement to acquire Laidlaw Pacific, dated
March 29, 2000(4)
10.6 Employment Agreements between Registrant and Roger Bendelac dated as
of July 12, 2001(6)
10.7 Employment Agreements between Registrant and Harit Jolly dated as of
July 12, 2001(6)
21.1 List of Subsidiaries of Laidlaw Global Corporation(5)
99.1 Certification Pursuant to 18 U.S.C. Section 1350, As Adopted
Pursuant to Section 906 Sarbanes-Oxley Act of 2002
99.2 Certification Pursuant to 18 U.S.C. Section 1350, As Adopted
Pursuant to Section 906 Sarbanes-Oxley Act of 2002
----------
(1) Such document is hereby incorporated herein by reference to Laidlaw's
Current Report on Form 8-K dated June 8, 1999.
(2) Such document is hereby incorporated herein by reference to Laidlaw's
Registration Statement on Form 8-A filed October 15, 1999.
(3) Such document is hereby incorporated herein by reference to Laidlaw's
Registration Statement on Form SB-2 filed February 14, 2000.
(4) Such document is hereby incorporated herein by reference to Laidlaw's
Current Report on Form 8-K filed April 12, 2000.
(5) Such document is incorporated by reference to Laidlaw's Annual Report on
Form 10-KSB filed on May 17, 2002.
(6) Such document is incorporated by reference to Laidlaw's Report on Form
10-QSB filed on May 30, 2002.
(b) Reports on Form 8-K
On November 8, 2002 Laidlaw filed a Current Report stating it had dismissed
Eisner LLP as its independent accountant for fiscal year ended December 31, 2002
and engaged the firm of Weinick Sanders Leventhal & Co., LLP.
20
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 19, 2002 By: /s/ Roger Bendelac
--------------------------
Roger Bendelac,
Chief Executive Officer
21