<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB/A
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended December 31, 1996
---------------------------
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from _____________ to ____________
Commission file number _______________________________
INTERUNION FINANCIAL CORPORATION
--------------------------------
(Exact name of small business issuer as specified in its charter)
Delaware 87-0520294
- -------- ----------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
249 Royal Palm Way, Suite 301 H, Palm Beach, Fl 33480
- ----------------------------------------------- -----
(Address of principal executive offices) (Zip Code)
(561) 820-0084
- --------------
(Issuer's telephone number)
- ------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report)
Check whether the issuer (1) filed all reports required to be filed by section
13 or 15(d) of the Exchange Act during the past 12 months (or 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 [ ]
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court. Yes [ ] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of share outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: $0.001 Par Value Common Shares -
969,714 as of December 31, 1996.
Transitional Small Business Disclosure Format (Check One) Yes [ ] No [X]
Page 1 of 11
<PAGE> 2
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
INTERUNION FINANCIAL CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS AND DEFICIT
FOR THE SIX MONTHS ENDED DECEMBER 31, 1996
(Expressed in U.S. Dollars)
<TABLE>
<CAPTION>
9 mos ended 9 mos ended 12 mos ended 12 mos ended
Dec-96 Dec-95 Mar-96 Mar-95
----------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
REVENUES
Commissions, trading & investment income 3,443,639 2,919,984 4,500,899 3,971,160
Sales 1,966,380
Fee Revenue 465,950 1,153,465 1,356,297 56,907
---------- ---------- ---------- ----------
5,875,969 4,073,449 5,857,196 4,028,067
---------- ---------- ---------- ----------
EXPENSES
Cost of Goods Sold 1,966,380
Selling, Marketing & Research 2,633,920 3,113,672 4,207,289 2,868,886
Salaries & Benefits 854,072 511,131 759,361 291,687
General & Administration 525,580 471,474 702,938 796,673
Other Expenses (1,990) (320) 13,132
Foreign Exchange Loss (Gain) 10,689 (19,892) (20,902) (247)
Interest & Bank Charges Expense (Income) (17,956) (30,620) (37,337) 5,830
Amortization & Depreciation 246,844 163,301 218,084 24,272
---------- ---------- ---------- ----------
6,217,539 4,208,746 5,842,565 3,987,101
---------- ---------- ---------- ----------
PROFIT (LOSS) FROM CONTINUING OPERATIONS
(341,570) (135,297) 14,631 40,966
Loss from Discontinued Operation (94,252) (94,252) (184,845)
Gain on Disposal of Discontinued Assets 409,418 409,418
---------- ---------- ---------- ----------
PROFIT (LOSS) FOR THE PERIOD - BEFORE INCOME TAXES (341,570) 179,869 329,797 (143,879)
PROVISION FOR INCOME TAXES (RECOVERABLE) 5,111 8,236 28,231 9,441
---------- ---------- ---------- ----------
NET PROFIT (LOSS) FOR THE PERIOD (346,681) 171,633 301,566 (134,438)
RETAINED EARNINGS (DEFICIT) - BEGINNING OF PERIOD 167,128 (134,438) (134,438) 0
---------- ---------- ---------- ----------
RETAINED EARNINGS (DEFICIT) - END OF PERIOD (179,553) 37,195 167,128 (134,438)
========== ========== ========== ==========
FINANCIAL OVERVIEW
Common Shares Outstanding 969,714 566,572 692,572 369,058
Weighted Average Shares Outstanding 807,984 490,866 501,335 157,531
EPS - From Continuing Operations (0.43) (0.26) 0.03 0.26
EPS - After Discontinued Operations (0.43) 0.35 0.60 (0.85)
</TABLE>
See Accompanying Notes
Page 2 of 11
<PAGE> 3
INTERUNION FINANCIAL CORPORATION
CONSOLIDATED BALANCE SHEET
AS AT DECEMBER 31, 1996
(Expressed in U.S. Dollars)
<TABLE>
<CAPTION>
9 mos ended 9 mos ended 12 mos ended 12 mos ended
Dec-96 Dec-95 Mar-96 Mar-95
----------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
CURRENT ASSETS
Cash 587,912 821,471 722,795 490,681
Due from brokers and dealers 374,455 284,791 1,168,190 172,944
Client deposits 932,037 1,508,579 2,093,966 21,147,890
Marketable securities 627,911 152,776 2,625,585 15,682,071
Accounts receivable 588,819 390,150 208,727 55,262
Income tax receivable 26,294 21,207 1,597 15,866
Sundry assets and prepaid expenses 114,071 41,377 75,906 31,615
----------- ----------- ----------- -----------
3,251,499 3,220,351 6,896,766 37,596,329
----------- ----------- ----------- -----------
CAPITAL ASSETS 852,621 966,254 948,892 933,380
START-UP COSTS 372,983 365,536 438,803
LONG TERM INVESTMENTS 1,038,844 912,939 913,834 900,361
DEFERRED CHARGES 165,342 195,789 184,944 234,574
GOODWILL AND NON-CURRENT ASSETS 1,043,574 1,100,756 1,086,461 1,143,982
DISCONTINUED ASSETS 240,693
----------- ----------- ----------- -----------
3,473,364 3,541,274 3,572,934 3,452,990
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
6,724,683 6,761,625 10,469,700 41,049,319
=========== =========== =========== ===========
CURRENT LIABILITIES
Due to brokers and dealers 133,735 2,499,665 30,168,593
Due to clients 831,710 1,564,155 3,035,310 6,368,681
Accounts payable and accrued liabilities 1,396,812 1,103,036 675,623 283,459
----------- ----------- ----------- -----------
2,228,522 2,800,926 6,210,598 36,820,733
----------- ----------- ----------- -----------
DUE TO RELATED PARTIES 119,462 100,873
DISCONTINUED LIABILITIES 499,377
----------- ----------- ----------- -----------
0 0 119,462 600,250
----------- ----------- ----------- -----------
SHAREHOLDERS EQUITY
Capital Stock and additional paid-in capital 4,675,894 3,744,767 3,972,512 3,762,774
Retained Earnings (Deficit) (179,553) 37,195 167,128 (134,438)
----------- ----------- ----------- -----------
4,496,341 3,781,962 4,139,640 3,628,336
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
6,724,863 6,761,625 10,469,700 41,049,319
=========== =========== =========== ===========
</TABLE>
See Accompanying Notes
Page 3 of 11
<PAGE> 4
INTERUNION FINANCIAL CORPORATION
CONSOLIDATED STATEMENT OF CHANGES IN FINANCIAL POSITION
FOR THE NINE MONTHS ENDED DECEMBER 31, 1996
(Expressed in U.S. Dollars)
<TABLE>
<CAPTION>
9 mos ended 9 mos ended 12 mos ended 12 mos ended
Dec-96 Dec-95 Mar-96 Mar-95
----------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net Income (Loss) (346,681) 171,633 301,566 (134,438)
Amortization 246,844 163,301 218,084 24,272
Gain on disposition of discontinued operations (409,418) (409,418)
----------- ----------- ----------- -----------
(99,837) (74,484) 110,232 (110,166)
Increase (decrease) in due to brokers and
dealers, net (1,705,930) (30,146,705) (28,664,174) 29,995,649
Increase (decrease) in due to clients (1,041,671) 14,834,785 15,720,553 (14,779,209)
Increase (decrease) in marketable securities 1,997,674 15,529,295 13,056,486 (15,682,071)
Increase (decrease) in accounts receivable &
sundry assets (442,954) (349,991) (183,487) (102,741)
Decrease (increase) in accounts payable and
accrued liabilities 721,189 819,577 392,164 283,460
----------- ----------- ----------- -----------
CASH PROVIDED (USED) BY OPERATING ACTIVITIES (571,529) 587,707 431,774 (395,078)
----------- ----------- ----------- -----------
FINANCING ACTIVITIES
Capital stock and additional paid-in capital
issued 703,382 395,000 555,000 3,762,774
Increase (decrease) in due to related parties (119,462) 77,864 18,589 100,872
----------- ----------- ----------- -----------
CASH PROVIDED (USED) BY FINANCING ACTIVITIES 583,920 472,864 573,589 3,863,646
----------- ----------- ----------- -----------
INVESTING ACTIVITIES
Capital assets (5,288) (131,768) (132,533) (957,653)
Start-up costs (365,536) (438,803)
Long term investments (12,578) (13,472) (900,361)
Deferred & Reorganization Costs (16,976) 14,015 (61,632) (234,574)
Goodwill (1,143,982)
Investment in subsidiaries (125,010) (507,456)
Acquisition Costs
Discontinued operations (258,684) (126,809) 258,684
----------- ----------- ----------- -----------
CASH PROVIDED (USED) IN INVESTING ACTIVITIES (147,274) (754,551) (773,249) (3,485,343)
----------- ----------- ----------- -----------
INCREASE (DECREASE) IN CASH (134,883) 330,790 232,114 (16,775)
CASH - BEGINNING OF YEAR 722,795 490,681 490,681
CASH ACQUIRED ON ACQUISITION OF SUBSIDIARIES
507,456
----------- ----------- ----------- -----------
CASH - END OF YEAR 587,912 821,471 722,795 490,681
=========== =========== =========== ===========
</TABLE>
See Accompanying Notes
Page 4 of 11
<PAGE> 5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
1. Interim information is unaudited; however, in the opinion of the Company's
management, all adjustments necessary for a fair statement of interim results
have been included in accordance with Generally Accepted Accounting Principles
in Canada. All adjustments are of a normal recurring nature unless specified in
a separate note included in these Notes to Consolidated Financial Statements.
The results for interim periods are not necessarily indicative of results to be
expected for the entire year. These financial statements and notes should be
read in conjunction with the Company's annual consolidated financial statements
and the notes thereto for the fiscal year ended March 31, 1996, included in its
Form 10-SB/A for the year ended March 31, 1996 (the "1996 Form 10-SB/A"). As of
March 31, 1997, the Company will report solely under US GAAP.
2. In the second quarter of 1997, the Company issued 277,142 common shares for
gross proceeds to the Company of US$759,710. The Company incurred approximately
US$56,328 in costs associated with the issuance of these common shares: these
costs are accounted for as a deduction from the gross proceeds.
3. Earnings per share is computed using the weighted average number of common
shares outstanding during the period. Loss per share is computed using the
weighted average number of common shares outstanding during the period.
4. Reconciling Canadian GAAP to U.S. GAAP: The following is a reconciliation of
Net Income under Canadian GAAP to U.S. GAAP for the 9 months ending December 31.
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Net Income (Loss), in accordance with
Canadian GAAP (346,681) 171,633
Start-up Costs 65,820 (365,536)
Reorganization Costs 40,586 36,419
Deferred Costs (16,979) --
Acquisitions (53,723) (401,832)
---------- ----------
Net Income (Loss), in accordance with U.S.
GAAP (310,977) (559,316)
Retained Earning, Opening (1,328,128) (823,502)
---------- ----------
Retained Earning, Ending (1,639,105) (1,382,818)
========== ==========
</TABLE>
The following is a reconciliation of Shareholders' Equity under
Canadian GAAP to U.S. GAAP as at December 31.
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Shareholders' Equity, in accordance with
Canadian GAAP 4,496,341 3,781,962
Start-up Costs (372,983) (365,536)
Reorganization Costs (139,660) (193,457)
Deferred Costs (16,979) --
Long-term Investments (773,834) (773,834)
Acquisitions 233,368 (42,984)
Shareholders's Equity, in accordance with
U.S. GAAP 3,426,253 2,406,151
</TABLE>
Below is a summary of the reconciliation note that can be obtained in
the Company's Consolidated Financial Statements. In addition, any new
information has been added.
a) Start-up Costs: The Company's policy as permissible under Canadian GAAP
has been to capitalize the result of the first year of operation for the auction
house. Under U.S. GAAP, these amounts are charged to earnings as incurred.
b) Reorganization Costs: The Company's policy as permissible under
Canadian GAAP has been to capitalize Reorganization Costs. Under U.S. GAAP,
these amounts are charged to earnings as incurred.
Page 5 of 11
<PAGE> 6
c) Deferred Costs and Acquisition Costs: The Company's policy as
permissible under Canadian GAAP is to capitalize Deferred Costs and Acquisition
Costs. These costs are then amortized over five (5) year, on a straight line
basis. Should during this time the capitalized amount no longer carry a benefit
to the Company, the unamortize amount will be charged to earnings at that time.
The Company capitalized $16,979 in the nine month ending December 31, 1996, as
deferred costs and acquisition costs. Under U.S. GAAP, the Company's policy is
to charged to earnings these deferred costs when incurred. Acquisitions costs
would be added to the cost of the acquisition is those costs meet the
requirement outlined in APB 16, otherwise, these would be charged to earnings
when incurred.
d) Long-term Investments: Shares of the Company held by a subsidiary
have not been eliminated under Canadian GAAP as they are held for resale. Under
U.S. GAAP, these shares would be eliminated in consolidation. In addition, under
Canadian GAAP the sale of these shares would be treated as a capital
transaction. Under U.S. GAAP, the sale of these shares will not be treated as a
capital transaction.
e) Acquisitions: Under US GAAP, the Company's acquisitions of its
subsidiaries are required to be accounted for either as a purchase or a pooling
of interest depending on whether or not there is any beneficial change in
control. U.S. GAAP requires the value of the assets acquired to be based on the
value of the consideration given under the purchase method. Whereas, under
Canadian GAAP, assets acquired are valued on the basis of the fair market value
of the assets at the date acquired. In the pooling of interest method where
there is no effective change in beneficial ownership the assets are consolidated
using their historical values and retained earnings are carried forward with no
adjustments.
This difference in GAAP in the application of the purchase method
described above would have caused the Company to carry the ITM software at a
greater value under US GAAP. The original carrying value under Canadian GAAP is
$864,554, while under US GAAP that amount is $1,924,443, for an increase of
$1,059,889. The value of the software was determined at acquisition on the basis
that Bearhill Limited ("Bearhill") had no liabilities and no other asset except
the ITM Software that was created in-house. Therefore, since the transaction was
done at arms length, the fair market value of the ITM Software was determined to
be the value of the transaction. Under both Canadian and US GAAP, this amount is
being charged to earnings on a straight line basis.
After recognizing the new value for the software and evaluating the
carrying cost in accordance with SFAS 121 "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be disposed of", it was decided
that no reduction in the carrying value was required. The cash flow stream that
justifies the Company to maintain the current carrying value is the revenues
that Guardian Timing Services receive on a continuous basis by utilizing the ITM
Software. The Company did not consider the Option Agreement that was entered
into in its cash flow stream.
In accounting for the purchase of Guardian Timing Services Inc.
("Guardian") under US GAAP, Goodwill in the amount of $438,138 would have been
recorded as a result in the difference in the purchase accounting described
above. Under U.S. GAAP, this Goodwill must be charged to operations over a
period not to exceed forty (40) years. The Company's policy is to amortize this
amount over a period of twenty (20) years starting in fiscal 1996, on a
straight-line basis under U.S. GAAP as it is under Canadian GAAP. No Goodwill
for Guardian was recognized under Canadian GAAP as the Guardian and Bearhill
purchase was treated as a single acquisition due to their common beneficial
controlling shareholder. Therefore, in accordance with Canadian GAAP, all value
in excess of the carrying amounts was attributed to the ITM Software.
I & B Inc. and its subsidiaries, Credifinance Capital Inc.,
Credifinance Securities Limited and 95% of Rosedale Realty Limited were acquired
on a tax free basis. In connection with these transactions the company incurred
professional fees. It is the Company's policy, in accordance with Canadian GAAP
to capitalize and to amortize them over a period of five (5) years, on a
straight-line basis. Under US GAAP, these cost must be charged to operations
when incurred.
Under Canadian GAAP, Goodwill in the amount of $1,143,982 was recorded.
This amount represented the Au `N Ag deficit at the time of the change in
control. Under US GAAP, this amount is recorded as a reduction in Additional
Paid-In Capital.
f) Shareholders Equity and Additional Paid-In Capital: The variances
between Canadian GAAP and US GAAP are due to the different methods of accounting
for the disposition of Rosedale Realty Corporation.
g) Income Taxes: Under Canadian GAAP the deferral method is used to
account for the timing differences between accounting and taxable income. U.S
GAAP (SFAS 109, "Accounting for Income Taxes"), requires the use of the
liability method to account for the differences between the accounting basis and
the income tax basis of assets and
Page 6 of 11
<PAGE> 7
liabilities. Under the liability method, deferred assets and liabilities are
recognized for temporary differences between the accounting basis and the taxes
basis for the respective assets and liabilities based on currently enacted tax
rates.
Temporary differences, therefore, would arise from the requirements
under SFAS 109 to provide for deferred income taxes on the difference between
book value of assets and liabilities recorded under U.S. GAAP and their
respective tax values.
In addition, Canadian GAAP requires that the tax benefit of net
operating losses available to reduce future tax liabilities only be recorded
when "virtual certainty" (as defined by section 3470 of the Handbook of the
Canadian Institute of Chartered Accountants) of their use to reduce taxable
income in the carry-forward period exists. FSAS 109 requires that such benefits
be recorded if it is more likely than not that such losses will be used to
reduce future income tax liabilities in the carry forward period.
There are no significant items that would have a difference between
their carrying value based on U.S. GAAP and their respective tax values.
h) Statement of Changes In Financial Position: Canadian GAAP presentation
requires a Statement of Changes in Financial Position. U.S. GAAP requires a
Statement of Changes in Cash Flows. The Canadian GAAP presentation contains
similar information and disclosures except as described below to that required
by U.S. GAAP.
Under U.S. GAAP, investing and financing activities of an enterprise
that do not result in cash receipts or cash payments are reported in
supplemental information to the Statement of Cash Flows and not in the Statement
of Cash Flows.
i) Earnings (Loss) Per Share: Under Canadian and U.S GAAP, the earnings
(loss) per share is computed on the basis of weighted average number of common
shares outstanding. The effect of common shares equivalents arising from stock
options was not included as they are anti-dilutive using the treasury method.
page 7 of 11
<PAGE> 8
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS
(1) OVERVIEW
During the third quarter of fiscal 1997, InterUnion reported consolidated
revenue of US $2.55 million versus $1.46 million a year earlier. Commission and
fee revenues were $1.29 million versus $1.46 million a year earlier, or a
decrease of just over 11.6%. Sales from Reeve, Mackay, the Company auction
subsidiary, represented the balance in 1996. They are no comparative figures
from Reeve, Mackay for the nine months of fiscal 1996 as it was created midway
through that fiscal year and revenues and expenses for the first fiscal year
were capitalized and are being charged to earnings over five years.
Revenues for the nine months to December 1996 were $5,875,969 versus $4,073,449,
an increase of 44.3%.
InterUnion's revenue growth and financial overview (figures in 000's except per
share data):
<TABLE>
<CAPTION>
3 mo ended 3 mo ended 9 mo ended 9 mo ended
Dec-96 Dec-95 Dec-96 Dec-95
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Commission Income 1,144 763 3,444 2,920
Sales 1,256 1,966
Fee Revenue 149 697 466 1,153
Total Revenues 2,549 1,460 5,876 4,073
Cost of Goods Sold 1,256 1,966
Net Revenues (i) 1,293 1,460 3,910 4,073
Net Profit (Loss) (278) (100) (347) 172
EPS - Operations (0.34) (0.21) (0.43) (0.26)
EPS (0.34) (0.21) (0.43) 0.35
Common Share, # 969,714 566,572 969,714 566,572
Working Capital 1,023 419 1,023 419
Cash Flow (194) (47) (100) (74)
Shareholders' Equity 4,496 3,782 4,496 3,782
Book Value Per Share 4.64 6.68 4.64 6.68
</TABLE>
(i) This amount is equal to Total Revenues under U.S. GAAP. In fiscal year 1996,
Total Revenues, under U.S. GAAP would have been $6,169,578.
(2) NET REVENUES
During the third quarter of fiscal 1997, InterUnion reported consolidated
revenue of US $2.55 million versus $1.46 million a year earlier. Commission and
fee revenues were $1.29 million versus $1.46 million a year earlier, or a
decrease of just over 11.6%. Revenues for the nine months to December 1996 were
$5,875,969 versus $4,073,449, an increase of 44.3%. However, on the basis of
commission and fee revenues alone, the Company's revenues (according to US GAAP)
would been reduced to a decrease of 4% to $3.9 million. The decrease is due to
the fact that income derived from Credifinance Securities, the Company's
Broker/Dealer, was adversely affected when its president and a number of sales
people on the institutional desk left to create their own firm. The Company has
subsequently replaced these individuals and has successfully completed a number
of new financings.
Third quarter revenues increased from $1.02 million in the second quarter to
$1.29 million, for a 26.3% growth rate. This increase is due to the seasonal
high that the auction business is exposed to. This season begins in October,
otherwise revenue would have been unchanged, as Reeve, Mackay is the Company's
only subsidiary that has seasonal swings in revenues.
(3) COST OF REVENUES
Costs of revenues for the quarter decreased 3.8% to $1.28 million from $1.33
million for the same quarter a year earlier. The decrease in dollars is
attributable to the decrease in revenues (according to US GAAP) of 4%, since
these costs tend to fluctuate in the same direction as revenues.
Page 8 of 11
<PAGE> 9
As a percentage of net revenues, costs did increase to 98.7% from 91.3%. The
reason for this increase was due to the fact that the goods consigned to the
auction house for sales that were held in the third quarter were at a lower
commission rate then the published rate. This lower rate was given to attract
goods from prominent individuals. Reeve, Mackay's marketing plan is to go after
these types of consignors at first in order to receive additional coverage in
both the local and national presses, then once it has established a presence,
Reeve, Mackay will diminish its aggressiveness concerning this source of goods.
(4) NET EARNINGS
Net loss from operations for the nine months ending December 31, 1996 was
$346,681 or $0.43 per share versus a loss of $143,533 or $0.26 per share a year
earlier. Net loss for the three months ending December 1996 is $278,025 or $0.34
per share versus a loss of $100,197 or $0.21 in 1995. These figures do not
include an extra ordinary gain of $409,418 in 1995 on the disposal of Rosedale
Realty, nor does it include the operating loss of this unit's discontinued
operation of $94,252. The increase in the loss is due to the start-up of a new
auction business, Reeve, Mackay. When Reeve, Mackay was launched, management did
not anticipate to reach break-even until the third year of operations, fiscal
1998.
The average number of common shares outstanding for the nine months ending
December 31, 1996 is 807,984 versus 490,866 a year earlier. The Company issued
additional shares in the form of Regulation "D" during the year in order to
finance the cash flow requirements of its subsidiaries.
(5) LIQUIDITY AND CAPITAL RESOURCES
The Company does not have any long term debt. In order to meet its growth plans
and any operating cash requirement the Company's current policy is to issue
additional capital stock. To date the Company has done this either through the
issuance of Confidential Private Placement Offerings under Regulation "D" or
Regulation "S". The following are details of these private placements:
<TABLE>
<CAPTION>
Date # of Shares Amount Type
---- ----------- ------ ----
<S> <C> <C> <C>
April 1994 2,500 10,000 Regulation "D"
May 1994 5,000 20,000 Regulation "D"
July 1994 11,250 35,000 Regulation "D"
August 1994 43,511 87,022 Regulation "D"
October 1994 5,000 50,000 Regulation "D"
March 1995 75,000 300,000 Regulation "D"
June 1995 62,500 125,000 Regulation "D"
October 1995 100,000 200,000 Regulation "D" & "S"
March 1996 160,000 320,000 Regulation "D"
September 1996 277,142 759,710 Regulation "D"
</TABLE>
Reeve, Mackay has been in operation for approximately 18 months and InterUnion
did not expect its operation to be profitable prior to its third year. Since
inception, Reeve Mackay has posted a loss of approximately $750,000, of which
$438,000 was during the first year of operation. For the nine months ending
December 31, 1997, Reeve Mackay lost over $300,000 versus an anticipated loss of
approximately $145,000. During that period, Reeve, Mackay has broken even in
just three separate months.
Reeve, Mackay's sales have been according to schedule, however, their expenses
have exceeded pro-forma budgets. Reeve, Mackay was adversely affected due to
negotiated commissions on two major collections. The cost of reducing the
commission charged to the consignors was required in order to be awarded the
mandate of selling the goods on behalf of the consignor. The success of the
auctions that presented these collections to the public was instrumental to the
Company's objective to gain industry approval as a viable alternative to the
competition. Additional costs over-run was due to the larger than expected
number of items in each of the autumn auctions which drastically increased the
cost of cataloguing and processing. In addition, marketing and advertising
expenditures ran over budget.
The continuous operating problem has caused the company to have a substantial
working capital deficit of over $325,000. The Company has managed to date to
finance this deficit by deferring the payment on the goods sold on behalf of its
consignors and delaying suppliers. To date certain consignors have requested to
have their goods returned,
Page 9 of 11
<PAGE> 10
however, Reeve, Mackay has been able to replace these consigned goods as the
number of active consignors continues to grow. This is demonstrated by the fact
that Reeve, Mackay has more collectors' auctions than any other competing
auctioneer in Toronto.
To date, suppliers have not refused to provide services. However, should
suppliers and particularly consignors as a group start to withdraw their goods
the company's auction subsidiary's ability to operate would be in jeopardy
unless the Company agrees to inject the additional cash as required. Currently,
Reeve, Mackay's liabilities have not been guaranteed by any other subsidiary
within the group nor by InterUnion, itself.
The auction house management team is currently investigating various strategies
to reverse the current trend on the bottom line and the working capital deficit.
Should no formal plan be adopted during the fourth quarter, the Company will
write down the full amount that it is carrying as start-up costs in the amount
of $372,980 under Canadian GAAP. Under U.S. GAAP this amount has already been
eliminated from the balance sheet, as it was charged to earnings when incurred.
(6) CONCLUDING REMARKS
There are no other known trends, events or uncertainties that may have, or are
reasonably likely to have, a material impact on the Company's short-term or
long-term liquidity.
In addition, there is no significant income or losses that has risen from the
Company's continuing operations that has not been analyzed or discussed above.
Nor has there been any material change in any line item that is presented on the
financial statements which has also not been discussed above.
Page 10 of 11
<PAGE> 11
ITEM 1 - LEGAL PROCEEDINGS.
The Company is not a party to any pending legal proceeding, nor is its property
the subject of a pending legal proceeding for which the claims, exclusive of
interest and costs, exceed 10% of the current assets of the Company on a
consolidated basis.
As reported in our Form 10-SB, a Statement of Claim was filed in Ontario Court
(General Division) on May 31, 1996 against Credifinance Securities Limited,
InterUnion Financial Corporation, Georges Benarroch and Ann Glover by Mr. John
Illidge, a former President and Chief Operating Officer of Credifinance
Securities Limited and Director of the Company. The plaintiff is seeking in
excess of $1.8 million. In the opinion of management and its legal advisors, the
likelihood that this law suit will adversely affect the Company is negligible
There has not been any change in the status of this claim.
ITEM 2 - CHANGES IN SECURITIES
None.
ITEM 3 - DEFAULTS UPON SENIOR SECURITIES
There have been no defaults in the payment of principal or interest with respect
to any senior indebtedness of InterUnion Financial Corporation.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5 - OTHER INFORMATION
None.
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
Exhibit 27 Financial Data Schedule (for S.E.C. use only).
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
InterUnion Financial Corporation
--------------------------------
(Registrant)
Date March 31, 1997 /s/ Georges Benarroch, Director
-------------- --------------------------------
(Signature)*
Date March 31, 1997 /s/ Ann Glover, Director
-------------- --------------------------------
(Signature)*
* Print the name and title of each signing officer under his signature.
Page 11 of 11
