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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14C INFORMATION
Information Statement Pursuant to Section 14(C)
of the Securities Exchange Act of 1934
Check the appropriate box:
[ ] Preliminary Information Statement
[ ] Confidential, or Use of the Commission Only (as permitted by Rule
14-a-6(e)(2))
[X] Definitive Information Statement
- --------------------------------------------------------------------------------
INTERUNION FINANCIAL CORPORATION
(Name of Registrant As Specified In its Charter)
- --------------------------------------------------------------------------------
Payment of Filing Fee (Check the appropriate box):
[X] No Fee Required.
[ ] Fee computed on table below per Exchange Act Rules 14-c-5(g) and 0-11
1) Title of each class of securities to which transaction applies:
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
4) Proposed maximum aggregate value of transaction:
5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number
or the Form or Schedule and the date of its filing.
1) Amount previously paid:
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:
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INTERUNION FINANCIAL CORPORATION
SUITE 301H, 249 ROYAL PALM WAY
PALM BEACH, FLORIDA 33480
(561) 820-0084
INFORMATION STATEMENT
July 16, 1997
DATE, TIME AND PLACE INFORMATION
This Information Statement is being mailed to the shareholders of InterUnion
Financial Corporation (the "Corporation") on or about July 29, 1997, in
connection with the Special Meeting to be held in lieu of the Annual Meeting of
Shareholders of the Corporation on August 18, 1997 at 11:00 a.m. at Suite 301H,
249 Royal Palm Way, Palm Beach, Florida 33480.
WE ARE NOT ASKING YOU FOR A PROXY AND YOU ARE REQUESTED NOT TO
SEND US A PROXY
ACTIONS TO BE TAKEN
1. To have this Special Meeting held in lieu of an annual meeting of the
shareholders for 1997.
2. To receive the consolidated financial statements of the Corporation for the
fiscal year ended March 31, 1997, together with the report of the auditors
therein and the Annual Report of the directors to the shareholders.
3. To elect the Board of Directors to serve until the next annual meeting.
4. To appoint auditors and to authorize the Board of Directors to fix
remuneration to be paid to the auditors.
5. To approve an amendment (the "Amendment") to the Corporation's Certificate
of Incorporation, as amended to decrease the authorized Common Stock from
100,000,000 shares to 2,500,000 shares, to decrease the authorized Class B
Preferred Stock from 50,000,000 shares to 1,000 shares and to decrease
the authorized Class C Preferred Stock from 50,000,000 shares to 1,000
shares. The decrease in authorized Common Stock, Class B Preferred Stock
and Class C Preferred Stock will reduce the calculation of Franchise Tax as
computed by the State of Delaware pursuant to the laws of the State of
Delaware.
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DISSENTERS' RIGHTS OF APPROVAL
The corporate action described in this Information Statement will not afford to
shareholders the opportunity to dissent from the action described herein.
VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF
CLASS OF SECURITY SHARES OUTSTANDING NUMBER OF VOTES
- ----------------- ------------------ ---------------
Common Stock 1,298,136 1,298,136
Preferred Class A Stock 1,500,000 150,000,000
Each holder of the shares properly registered at the close of business on the
day next preceding the day on which the Notice of Special Meeting of
Shareholders is given will be entitled to one vote for each share of Common
Stock and one hundred votes for each share of Class A preferred Stock held by
such holder on all matters to come before the meeting except to the extent that
such holder has transferred any such shares after the record date and the
transferee of such shares established ownership thereof and makes a written
demand, not later than 10 days before the meeting, to be included in the list of
shareholders entitled to vote at the meeting, in which case the transferee will
be entitled to vote such shares.
Information with regards to Item 403 of Regulation S-B is not required as no
solicitation is being sought.
DIRECTORS AND EXECUTIVE OFFICERS
No material proceedings involve any directors, executive officers or persons
nominated or person chose by the Corporation to become a director or executive
officer of the Corporation which is adverse to the Corporation.
a) DIRECTORS AND EXECUTIVE OFFICERS
<TABLE>
<CAPTION>
NAME, MUNICIPALITY
OF RESIDENCE AGE LENGTH OF SERVICE
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
Georges Benarroch 50 Appointed as President and Chairman
Toronto, Ontario, Canada of the Board of Directors,
March 21, 1994
T. Jack Gary, III 56 Appointed as Secretary,
West Palm Beach, Florida January 30, 1995
Ann Glover 47 Appointed to Board of Directors,
Toronto, Ontario, Canada February 17, 1995
</TABLE>
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<TABLE>
<S> <C> <C>
Jacques Meyer de Stadelhofen 49 Appointed to Board of Directors,
Geneva, Switzerland December 16, 1994
Karen Lynn Bolens 50 Appointed to Board of Directors,
Geneva, Switzerland December 16, 1994
Selwyn Kletz 52 Vice-President
Toronto, Ontario Canada Nominated to Board of Directors,
April 1, 1997
Dr. Colin Bier 51 Nominated to Board of Directors,
Montreal, Quebec, Canada April 7, 1997
</TABLE>
GEORGES BENARROCH is the President, Chief Executive Officer and Chief
Financial Officer of the Company. He is also the Chief Executive Officer,
and Chairman of the Board of Credifinance Securities Limited, President,
Chief Executive Officer, and Chairman of the Board of Credifinance Capital
Inc. and Chief Executive Officer, and Chairman of the Board of Reeve,
Mackay & Associates, Ltd. -- all wholly-owned subsidiaries of the Company.
Since 1977, Mr. Benarroch has held the position of officer and
partner/director with various investment firms and private/public companies
in the United States, Canada and Europe. He has been a senior partner
and/or seat holder of a member firm in Canada since 1982. His experience
covers all types of corporate financings.
T. JACK GARY, III is the Secretary of the Company. He is also Branch
Manager of the West Palm Beach, Florida, office of Raymond James &
Associates, a national brokerage firm. From 1988 to 1992, Mr. Gary was the
President of Crown Financial Advisors, Inc., an investment advisory firm,
and Crown Capital Advisors, Inc., a registered investment advisor. From
April, 1992 to 1995, Mr. Gary was Chief Executive Officer of Crown
Financial and Executive Vice President of Crown Capital Advisors, Inc. Mr.
Gary will devote approximately 10% of his time to his duties as Secretary
at InterUnion.
ANN GLOVER serves as a Director of the Company. She is a Director,
Secretary/Treasurer of Credifinance Securities Limited a subsidiary of the
Company. Ms. Glover has been a Director, Secretary/Treasurer and Chief
Compliance Officer of Credifinance Securities Limited since 1991. Ms.
Glover will devote approximately 10% of her time to InterUnion as she is
also a director and officer of Credifinance Securities Limited.
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JACQUES MEYER DE STADELHOFEN serves as a Director of the Company. Since
1981 through and including the present time, he has practised as an
attorney, specializing in tax and financial matters for international
corporations and charitable organizations. Mr. Stadelhofen's duties for
InterUnion will be limited to his participation at Board Meetings.
KAREN LYNN BOLENS serves as a Director of the Company. Since 1985 through
and including the present time, she has practised as an associate attorney,
specializing in corporate, estate and family law for international clients.
Ms. Bolens' duties for InterUnion will be limited to her participation at
Board Meetings.
SELWYN J. KLETZ has held the position of officer and partner/director with
various investment firms and private/public companies in Canada and South
Africa. His experience in the investment industry covers research,
investment banking, merchant banking, corporate finance and investment
management. Mr. Kletz will be devoting 100% of his time to InterUnion.
DR. COLIN BIER holds the position of consultant in Toxicoloy and
Bioregulatory Affairs o ABA BioResearch Inc. Since 1988, Dr. Bier has held
the position of officer and/or directorwith various laboratories and, since
1978, has been a lecturer at McGill and Concordia Universities. Dr. Bier
serves on the Board of Directors of Recetpagen Ltd. inwhich InterUnion has
a controlling interest. Dr. Bier's duties for InterUnion will be limited t
his participation at Board Meetings.
(1) No director of InterUnion is currently a director of any other
reporting company.
(2) Under Section 1 ARTICLE III, of the Corporation's By-Laws, the
directors shall serve until the next annual meeting of the
stockholders, as prescribed by the Board of Directors, at which time
directors are elected by the stockholders.
(3) No director, executive officer and beneficial owner of more than ten
percent (10%) of any class of equity securities of the Corporation
failed to file on a timely basis reports required by section 16(a) of
the Exchange Act during the most recent two fiscal years to the best
of the Corporation's knowledge. Company's knowledge.
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(b) IDENTIFY SIGNIFICANT EMPLOYEES
The Corporation does not expect to receive a significant contribution from
employees that are not executive officers.
(c) FAMILY RELATIONSHIPS
Currently, there are no directors, executive officers or persons nominated
or person nominated by the Corporation to become a director or executive
officer of the Corporation who are related to any individual who currently
holds the position of director or executive officer or is nominated to one
of the said positions.
(d) INVOLVEMENT IN CERTAIN LEGAL PROCEEDINGS
No material events have occurred in the last five years that would affect
the evaluation of the ability or integrity of any director, person
nominated to become a director, executive officer, promoter or control
person of the Company.
(e) COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
For the two fiscal years ended March 31, 1997, to the best of the
Corporation's knowledge no director, executive officer and beneficial owner
of more than ten percent (10%) of any class of equity securities of the
Company failed to file on a timely basis reports required by section 16(a)
of the Exchange Act.
(f) SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following are known by the Corporation to be the beneficial owner of
more than five percent of any class of the said issue's voting securities.
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<TABLE>
<CAPTION>
Title Name and Address Amount and Nature Percent
of Class of Beneficial Owner of Beneficial Owner of Class
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Common RIF Capital Inc. (1) 536,499 41.33%
Price Waterhouse Centre
PO Box 634C
St. Michael, Barbados, WI
Common Selwyn Kletz 100,000 7.70%
499 Riverside Drive
Toronto, Ontario Canada
--------- -----
TOTAL 636,499 49.03%
========= =====
Preferred A RIF Capital Inc. 1,500,000 100%
Price Waterhouse Centre
PO Box 634C
St. Michael, Barbados, WI
</TABLE>
(g) RELATED PARTY TRANSACTIONS
In the proposed acquisition of New Researches Corporation ("NRC"), the
vendors are RIF Capital Inc. and Central Investment Trust. Both are related
parties as RIF Capital Inc. controls the Company and Central Investment
Trust owns all of the issued and outstanding common shares of RIF Capital
Inc.
The terms of the acquisition is as follows:
a. The Corporation shall pay to the Vendors or at their discretion, a
non-refundable Option fee of US$80,000 on or before December 15, 1996.
b. The Option shall expire on December 15, 1997 ("Closing Date").
c. The Corporation shall provide written notice of its intention to
exercise the Option to the Vendors and NRC.
d. The purchase price paid by InterUnion to the Vendors, upon exercise of
the option shall be:
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i) US$2,000,000 payable on or before the Closing Date (4:00 p.m.
Palm Beach time); and
ii) Upon the sale of any of the common shares of Genesis, including
any shares issued pursuant to the exercise of the common share
purchase warrants of Genesis, including any shares issued
pursuant to the exercise of the common share purchase warrants of
Genesis, after the Closing Date, InterUnion shall pay to the
Vendors eighty percent (80%) of the proceeds realized from such
sales, in excess of C$1.00 per share. This condition shall not
expire except by mutual agreement of all parties to this
Agreement.
e. In the event that NRC receives a bona fide offer from a third party to
purchase its common shares during the term of the Option and, if NRC
should desire to accept said offer, NRC shall immediately forward a
copy of the offer to the Corporation. The Corporation shall have a
period of ten calendar days from the receipt of the offer to counter
the offer or exercise the Option by giving notice, at its sole
discretion, in accordance with term c. If the Corporation fails to
match the offer from the third party and to declare the Option to be
null and void.
COMPENSATION OF DIRECTORIES AND EXECUTIVE OFFICERS
(a) SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Name & Principal Fiscal Other Long Term All Other
Position Year Salary Bonus Compensation Compensation Compensation
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Georges Benarroch 1996 None None $50,000* None None
President & CEO 1997 None None None None None
Selwyn J. Kletz 1996 None None None None None
Vice-President 1997 None None None 13,265 None
</TABLE>
*Georges Benarroch was paid $50,000 as compensation for services subsequent to
the end of the fiscal year ending March 31, 1996. No other officer was paid
compensation. Mr. Benarroch was paid his compensation in the form of cash.
(b) ALL COMPENSATION COVERED
The Company's Board of Directors has approved payment of $1,750 for the
services of each of its independent directors for the fiscal year ending
March 31, 1997.
The Corporation has no current options, warrants, SARs, long-term incentive
plans, pension or profit-sharing plans, or other compensation plans, in
effect regarding any employees of the Corporation
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The Corporation has no agreement or understanding, express or implied, with
any officer or director, or any other person regarding employment with the
Company or compensation for services.
Section 14 of ARTICLE III of the By-Laws of the Company provides that
directors do not receive any stated salary for their services as directors.
However, by board resolution, a fixed fee and expenses of attendance may be
allowed for each meeting. These limitations do not affect compensation for
a person serving as an officer of otherwise for the Company and receiving
compensation therefor.
INDEPENDENT PUBLIC ACCOUNTANTS
Effective Mach 4, 1997, the Corporation engaged Goldstein, Golub, Kessler &
Corporation, P.C. ("GGK") of New York as its independent public accountants.
GGK, a member of Nexia International, replaces Mintz & Partners ("Mintz"), also
a member of Nexia International. Mintz's report on the Corporation's financial
statements during the two most recent fiscal years and all subsequent interim
periods preceding the date hereof contained no adverse opinion or a disclaimer
of opinion, and was not qualified as to uncertainty, audit scope or accounting
principles. The directors of the Corporation approved the decision to change
independent public accountants.
During the last two fiscal years and subsequent interim period to the date
hereof, there were no disagreements between the Corporation and Mintz on any
matters of accounting principles or practices, financial disclosure, or auditing
scope or procedure, which disagreements, if not resolved to satisfaction of
Mintz, would have caused it to make a reference to the subject matter of the
disagreements in connection with its reports.
No "reportable events" as defined in Item 304(a)(1)(ii), occurred with respect
to the Corporation within the last two fiscal years and the subsequent interim
period to the date hereof.
During the last two fiscal years and the subsequent interim period to the date
hereof, InterUnion did not consult GGK regarding any matter or events set forth
in Item 304(a)(2)(ii) of Regulation S-B.
The Corporation has no standing audit, nominating or compensation committees. No
meetings of the Board of Directors were held during the last full fiscal year.
No director has resigned or declined to stand for re-election to the Board of
Directors since the date of the last annual meeting of shareholders.
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The Corporation has not been advised by GGK that its representative will attend
the Special Meeting of Shareholders on August 18, 1997.
AMENDMENT TO CHARTER, BYLAWS OR OTHER DOCUMENTS
The shareholders will be asked to approve an amendment to the Corporation's
Certificate of Incorporation, as amended, to decrease the authorized Common
Stock from 100,000,000 shares to 2,500,000 shares to decrease the authorized
Class B Preferred Stock from 50,000,000 shares to 1,000 shares and to
decrease the authorized Class C Preferred Stock from 50,000,000 shares to
1,000 shares. The decrease in authorized Common Stock, Class B Preferred
Stock and Class C Preferred Stock will reduce the calculation of Franchise Tax
as computed by the State of Delaware pursuant to the State of Delaware.
VOTING PROCEDURE
a) The vote required for approval or election, other than for the approval of
auditors, shall be a majority.
b) No record date to determine which shareholders will be allowed to vote at
this Special Meeting has been set. Therefore, under the General Corporation
Law of Delaware, Section 213(a), shareholders entitled to notice and to
vote will be those shareholders properly registered at the close of
business on the day next preceding the day on which notice is given.
INTEREST OF CERTAIN PERSONS IN OR OPPOSITION TO MATTERS TO BE ACTED
UPON
a) None of the directors, officers, nominees for election as director or
associates of the directors or officers have any interest in the matters to
be acted upon other than the interest of the general shareholders.
b) None of the directors intends to oppose any action to be taken by the
Corporation at the meeting.
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INTERUNION FINANCIAL CORPORATION
ANNUAL REPORT TO SHAREHOLDERS
July 29, 1997
DESCRIPTION OF BUSINESS
(a) BUSINESS DEVELOPMENT
On February 7, 1994, the shareholders of AU 'N AG, INC., a Utah
corporation, approved without dissent, a proposal to change the domicile of
the Company through the merger of the Company into AU 'N AG, INC., a
Delaware corporation to be formed.
On February 15, 1994 a Certificate of Incorporation of AU 'N AG, INC., a
Delaware corporation, was filed with the office of the Secretary of State,
Division of Corporations, State of Delaware.
On February 15, 1994, the date of incorporation of AU 'N AG, Inc. of
Delaware, the directors of that corporation approved a Pre-Organization
Subscription and Letter of Non-Distributive Intent executed by the
President of AU 'N AG, Inc., the Delaware corporation, for $10.00 with the
understanding that the shares would be immediately canceled upon the
effective date of the merger between AU 'N AG, INC. of Delaware and AU 'N
AG, INC. of Utah. These shares were issued by the Company in reliance upon
the exemption from the registration requirements of the Securities Act of
1933, as amended, as provided by Section 4(2) of that Act and upon a
similar exemption contained in applicable state securities laws. The shares
received by AU 'N AG, INC. were restricted securities, subject to Rule 144
promulgated under the Securities Act of 1933, as amended.
Further on February 15, 1994, a Plan and Agreement of Merger of AU 'NAG,
INC. (Utah) and AU 'N AG, INC. (Delaware) was executed. On the same day a
Certificate of Merger was executed by the above corporations. This
Certificate of Merger was filed in the office of the Secretary of Delaware
on March 10, 1994. Under the Certificate of Merger AU 'N AG, INC., the
Delaware Corporation, was the surviving corporation.
Under the terms of the above-referenced merger each share of common stock
of AU 'N AG, INC. (Utah) was converted into one share of AU 'N AG,
INC.(Delaware). At the time of its incorporation, AU 'N AG, Inc. (Delaware)
had total authorized capital stock in the amount of 50,000,000 shares at
$.001 par value. Each holder of AU 'N AG, INC. (Utah) upon surrender to AU
'N AG, INC.(Delaware) of one or more certificates for such shares for
cancellation received one or more certificates for the number of shares of
common stock of AU 'N AG, INC. (Delaware) represented by the certificates
of AU 'N AG, INC.(Utah) so surrendered for cancellation by such holder.
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As a result of the above-referenced merger, 23,297,800 shares of common
stock of AU 'N AG, INC. (Delaware) were issued to the shareholders of the
corporation formerly known as AU 'N AG, INC. (Utah). At the time of the
merger, AU 'N AG, INC. (Utah) had no assets and was an inactive
corporation.
As provided in the Plan and Agreement of Merger, the sole purpose of the
above-referenced merger was to change the issuer's domicile from Utah to
Delaware and the exchange of securities from one corporation to another
was, in the opinion of management, therefore outside of the provisions of
Rule 145 as promulgated by the Securities & Exchange Commission. Further,
it is the position of management that the exchange of stock was a
transaction by an issuer not involving any public offering and thus was
within the protection of Section 4(2) of the Securities Act of 1933, and
exempted from registration requirements.
On April 11, 1994, a Certificate of Amendment of the Certificate of
Incorporation of AU 'N AG, INC. (Delaware) was executed, providing that the
name of the Company be changed to: INTERUNION FINANCIAL CORPORATION ("IFC"
or the "Company"). This change of name was filed by the office of the
Secretary of State of Delaware on April 19, 1994.
Subsequent to a filing of information submitted to the National Association
of Securities Dealers, Inc. (NASD) pursuant to Schedule H of the NASD
By-Laws and Rule 15c 2-11 under the Securities Act of 1934, on July 27,
1994 IFC was cleared for listing on the OTC Bulletin Board. The Company
currently trades under the symbol: IUFC.
Subsequent to approval by the required shareholders at a meeting held
October 14, 1994, the common stock was reverse split at a ratio of ten (10)
to one (1). Further, based upon shareholder approval at that meeting, a
Certificate of Amendment was filed with the Secretary of State, State of
Delaware, showing capitalization as follows:
(1) 100,000,000 shares of common voting stock at $.001 par value.
(2) 1,500,000 shares of Class A preferred stock at $.10 par value.
(3) 50,000,000 shares of Class B preferred stock with par value to be set
by the Board of Directors.
(4) 50,000,000 shares of Class C preferred stock with par value to be set
by the Board of Directors.
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On January 18, 1995 the Company acquired all of the stock of BEARHILL
LIMITED, a British Virgin Islands corporation, for the issuance of 22,262
shares of common stock (adjusted for the 20 for 1 reverse stock split of
May 1996). On January 18, 1995 the Company also acquired all of the stock
of GUARDIAN TIMING SERVICES, INC., a corporation organized under the laws
of Ontario, Canada, for the issuance of 5,566 shares of common stock
(adjusted for the 20 for 1 reverse stock split of May 1996).
Upon application to the Florida Department of State, on February 2, 1995,
the Company was qualified and authorized to transact business in the State
of Florida. The Company moved its principal office to 249 Royal Palm Way,
Suite 301-H, Palm Beach, Florida 33480.
On March 20, 1995, the Company acquired all of the stock of I & B, INC., a
Delaware corporation, CREDIFINANCE CAPITAL INC., a corporation organized
under the laws of Ontario, Canada, CREDIFINANCE SECURITIES LIMITED., a
corporation organized under the laws of Ontario, Canada, and ninety-five
percent (95%) of the stock of ROSEDALE REALTY CORPORATION, a corporation
organized under the laws of Ontario, Canada, for the issuance of 75,000
shares of common stock (adjusted for the 20 for 1 reverse stock split of
May 1996). The Company further acquired the remaining outstanding stock of
ROSEDALE REALTY CORPORATION for the issuance of 1,230 shares of common
stock (adjusted for the 20 for 1 reverse stock split of May 1996). It
should be noted that in 1996 the Company disposed, by way of an assignment
in bankruptcy, of its shares in ROSEDALE REALTY CORPORATION. This
assignment was a voluntary petition filed by Credifinance Capital, Inc.,
the owner of Rosedale, on September 29, 1995. The decision to file for
bankruptcy was made after negotiations for a merger of Rosedale with
another firm were unsuccessful. Rosedale had never been profitable
subsequent to its acquisition and Credifinance Capital, Inc. made the
decision to cease financing Rosedale's operations. The bankruptcy was
concluded and there are no outstanding lawsuits against either Credifinance
Capital, Inc. or the parent, InterUnion Financial Corporation. (See Note 9
of InterUnion Financial Corporation Notes to Consolidated Financial
Statements, March 31, 1997).
At a special meeting of the shareholders held on May 17, 1996, the Board of
Directors was authorized to reverse split all authorized shares in a ratio
of twenty (20) to one (1). At the time of this authorization, the total of
all issued and outstanding voting shares of stock was 13,851,156.
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REEVE, MACKAY & ASSOCIATES LTD was formed May 15, 1995 as a corporation
organized under the laws of Ontario, Canada. All capital stock of this
corporation was originally issued to InterUnion Financial Corporation.
Reeve, Mackay is a wholly-owned subsidiary of the Company. Due to Reeve,
Mackay's continued operating deficit and cash requirements, the Company has
decided to dispose of its investment. The Company is currently engaged in
discussions with potential buyers and anticipates to fully recover its cash
advances and investments in Reeve, Mackay.
On September 26, 1996, the Company acquired an option to purchase all of
the outstanding shares of NEW RESEARCHES CORPORATION. NEW RESEARCHES is a
corporation organized under the laws of Panama. The Company has until
December 15, 1997 to exercise its option.
On January 19, 1997, the Company entered into an agreement where it would
act as an investment banker in the recapitalization of RECEPTAGEN Ltd.
RECEPTAGEN is a corporation incorporated under the laws of Canada.
RECEPTAGEN currently trades on the Toronto Stock Exchange (RCG) and the
NASDAQ Over-the-Counter (RCEPF). Upon completion of the recapitalization of
RECEPTAGEN, the Company will own over 40% of the outstanding common stock
of RECEPTAGEN.
Currently, it is not the intention of the Company to consider its
investment in RECEPTAGEN as an integral part of its business outside of its
bridge financing and special situation activities.
(b) BUSINESS OF ISSUER
GENERAL
The Company was formed to acquire a majority interest in existing
securities firms, banks, insurance companies, and other financial and
brokerage companies. The Company intends to actively engage in the business
of the companies in which it invests by serving as an "information link"
between these companies. The Company's goal in providing this information
link is to improve access to new markets and business opportunities for
these companies.
The Company also may provide bridge financing, which involves providing
capital to a private company, to assist the company in making a public
offering of its stock.
In addition, the Company may invest up to 40% of its total assets
(exclusive of government securities and cash items), on an unconsolidated
basis, in debt or equity securities issued by privately held firms, and in
securities listed in markets that are open to public investment in Europe
and North America.
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InterUnion is both a holding company and an operating company engaging in
activities separate from the activities of its named subsidiaries.
Specifically, InterUnion derives independent revenues from financial
consulting, the bridge financing of pre-IPOs, and its participation in new
ventures.
PRODUCTS AND/OR SERVICES OF ACTIVE SUBSIDIARIES
In addition to the operations of InterUnion Financial Corporation as the parent,
the Company owns operating subsidiary corporations. A description of the
business operations of these subsidiary corporations, each of which is
wholly-owned, is as follows:
(1) CREDIFINANCE SECURITIES LIMITED
Credifinance Securities Limited. ("Credifinance") is an investment bank
with offices in Toronto and Montreal, and is a member of the Investment
Dealers Association of Canada, The Toronto Stock Exchange, Montreal
Exchange and the International Securities Market Association. Credifinance
has 25 employees engaged in fixed income and equity trading for Canadian
institutions and in corporate finance. Credifinance's six person research
team provides perspective on equity markets, companies and industries in
Canada.
Credifinance was started in 1991, engaging in institutional trading,
investment banking and research. The consolidation in the
brokerage/investment banking industry in Canada created opportunities for
small companies to provide better service to institutions. This unit began
by specializing in the trading of less than investment grade bonds. In
1991-92, it expanded into equity trading for its institutional clients.
Unlike the large brokerage firms, Credifinance acts strictly as an agent,
and does not take positions against its clients.
To enhance its service for the institutional clients, Credifinance has
developed research capability focusing on:
- biotechnology
- communications and media
- software
- telecommunications
- metals, minerals and precious metals mining
- oil and gas
- industrial products
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Credifinance's corporate finance activities consist primarily of
underwritings for small and medium-size companies. Between 1993 and 1995,
Credifinance was the sole underwriter in five transactions, ranging in
value from C (Canadian) $1.5 to $5.4 million; co-underwriter in two
transactions of C$32.5 million and C$11 million; participated in a C$135
million co-bought deal; and was involved in two special transactions of
C$10 and C$15 million.
In fiscal 1996, Credifinance's corporate finance department participated in
4 deals and raised in excess of C$15.3 million. In fiscal 1997,
Credifinance participated in 9 deals and raised in excess of C$150 million.
The firm is continuing an aggressive expansion in the underwriting of
companies in those sectors in which Credifinance's research specializes.
(2) GUARDIAN TIMING SERVICES INC.
Guardian Timing Services, Inc. ("Guardian") is an investment management
firm located in Toronto, Canada, currently having approximately C$75
million in assets under management. Guardian manages the Canadian Protected
Fund, the Protected American Fund and the First America Fund. It uses a
proprietary ITM market timing model owned by Bearhill Limited, Inc.,
another subsidiary of the Company.
(3) CREDIFINANCE CAPITAL INC.
Credifinance Capital, Inc. is an investment corporation located in Toronto,
Canada. The business activities of this subsidiary corporation are limited
to proprietary security investing using its own capital resources.
(4) BEARHILL LIMITED
Bearhill Limited ("Bearhill") is an investment management firm.
On September 9, 1994 Bearhill entered into an ITM SOFTWARE DEVELOPMENT
AGREEMENT with Guardian Timing Services, Inc. ("Guardian"). This Agreement
acknowledged that Bearhill owns the proprietary rights to certain computer
software known as ITM Software, which is a computer software program which
is used to generate buy and sell signals with respect to any stock market
monitored. The parties entered into the above-referenced agreement because
Bearhill wishes to market investment advisory services internationally and
it requires computer software in order to generate market timing signals.
Guardian, in turn, has agreed to perform the development of Release I of
the ITM software and the related documentation upon the terms and
conditions of the Agreement.
6
<PAGE> 17
The forecasting technique used by the ITM market timing model involves
general market indicators, interest rates and monetary analysis, market
perception indicators, and various statistical data to detect trends. An
earlier version of the market timing model predicted the stock market
downturn in October, 1987, allowing Guardian's clients to get out of the
market 10 days prior to the downturn. The model is continually updated and
has been credited with successfully avoiding many of the overall market
declines in the early part of the 1990s.
On November 30, 1995 a Letter of Understanding was issued between a major
Canadian bank (the "Bank") and Guardian Timing Services, Inc., InterUnion
Financial Corporation, Havensight Holdings Ltd. and Bearhill Limited. This
Letter of Understanding was issued as a condition precedent to the
execution of an Investment Management Agreement pursuant to which the Bank
will retain the services of Guardian Timing Services, Inc. with regard to
the management of an investment portfolio with a minimum size of
$10,000,000 (Canadian).
The material terms of the Letter of Understanding may be summarized as
follows:
a. As a consideration of the Bank entering into the Investment Management
Agreement, Bearhill (the owner of the ITM software) grants to the Bank
an irrevocable option to acquire the ITM. If BNS elects to exercise
its option, the Bank shall acquire 100% of the Class B shares of
Bearhill (the Class B shares shall represent 30% of the equity of
Bearhill) for $750,000 and shall enter into an agreement to acquire
the ITM for $30 million. This acquisition price of $30 million shall
be financed by $10 million in cash and a $20 million 15-year
non-recourse promissory note, with principal payable at the end of the
term. The option as amended on April 16, 1997, calls for renewal for a
4-year indefinite term at the discretion of the Bank, subject to the
payment of an option fee annually (in advance) commencing on April 23,
1996. The option fee for the year commencing April 23, 1996 is
C$25,000; the following year is C$25,000, the following year is
C$50,000 and the final year is $50,000.
b. Even if the option is exercised, Guardian Timing Services, Inc.(GTS)
retains the right (if J.P. Fruchet is in its employment) to be
provided with the market signals generated by the ITM at no cost,
provided that no more than $200 million of assets (or a larger amount
as may be managed when notice to exercise the option is given) are
managed using the ITM signals.
c. If the option is exercised, Bearhill is to use the $750,000 obtained
for the Class B shares as working capital. The $10 million paid in
cash shall be divided with $1.6 million going to a trust account and
$8.4 million invested in Class 1 shares of the Nirvana Fund. All
principal payments under the note are to be invested in Class 1
shares.
7
<PAGE> 18
d. Bearhill is to pay the Bank for use of the timing signals generated by
the ITM (exercise of the option) 15% of its gross revenue as a fee. If
this fee is not sufficient to satisfy the Bank's interest obligations
under the note, any deficiency shall be satisfied by Bearhill.
e. The only shares of Bearhill outstanding as of the date of this Letter
of Understanding are Class A shares, now representing 100% of the
equity of Bearhill, held currently by InterUnion.
NOTE: The Letter of Understanding incorrectly states that
the Class A shares are held equally by InterUnion and
Havensight. Actually, this equal ownership will occur at such
time as the ITM software owned by Bearhill is to be sold to any
party. This Letter of Understanding contemplates that such a
sale is to occur. For a further explanation, see the Agreement
starting at page E-55.
f. If the Class B shares are issued upon the exercise of the option by
the Bank, the Class B shares shall receive 80% of all dividends paid
by Bearhill until the Bank has received $20 million, after which time
the Class A and Class B shareholders are too share equally.
g. Havensight and InterUnion each grant to the Bank an immediate option
to acquire their respective Class A shares at a price equal to 90% of
the book value, upon the occurrence of one or more of the following
events:
i. the Note is satisfied in full prior to its maturity,
ii. the Class B shareholders have received an aggregate of
$25,000,000 in dividends from Bearhill,
iii. Bearhill defaults on any of its obligations to the Bank, becomes
insolvent or commits an act of bankruptcy, or
iv. the Nirvana Fund under performs (meaning that the Fund's return
averages less than 10% per annum compounded annually over any
36-month period).
Subsequent to the execution of the above-referenced Letter of Understanding, on
December 20, 1995 an Investment Management Agreement was issued between Guardian
and the Bank.
8
<PAGE> 19
This Agreement formally appoints Guardian as the investment manager of an
investment portfolio with an initial value of $10 million (Canadian). Guardian
is to use the market timing signals generated by the software developed by
Bearhill known as the "ITM Software" in handling the investment decisions of the
investment portfolio. The Agreement is to continue until either party gives at
least 30 days written notice of termination.
Under the provisions of Schedule A, Guardian is to receive a management fee of
1/2 of one percent per month of the net asset value of the Portfolio determined
at the end of each month and payable quarterly. There may be a bonus payable to
Guardian annually determined under the more restrictive of two calculations, as
specifically provided in Paragraph 4 of Schedule A of the said Agreement.
Schedule A provides that the minimum fee and bonus to be paid to Guardian under
the Agreement is $50,000 (Canadian).
Subsequent to the acquisition of Bearhill by InterUnion (as the result of the
purchase of all outstanding stock of Bearhill which was owned by Havensight
Holdings, Ltd.), on January 19, 1995 an Agreement was executed between
Havensight and InterUnion providing that if InterUnion should conclude an
agreement of sale of the ITM software owned by Bearhill, Havensight will have
the right to buy one-half of the Bearhill stock for a nominal
consideration($1.00).
COMPETITION
The search for potentially profitable investments is intensely competitive. A
list of actual and potential competitors would include the multinational banks,
regional banks, thrift institutions, investment banks, brokerage firms, finance
and leasing companies, merchant banks, venture capitalists and other financial
service companies. The Company may be at a disadvantage when competing with
firms with substantially greater financial and management resources and
capabilities than the Company.
The issue of competition also directly impacts the subsidiary companies owned by
InterUnion Financial Corporation. Credifinance Securities Limited concentrates
on providing underwritings for small and medium-sized technology-intensive
companies. Credifinance must compete with underwriting companies in Canada that
are superior in asset strength and staff. Guardian Timing Services Inc. and
Bearhill Limited both operate as managers of funds. A decline in their
investment performance could cause the loss of these essential accounts. If the
ITM market timing model used by both of these companies should not show an
accurate forecast the companies could lose the managed accounts to larger
investment management firms.
9
<PAGE> 20
GROWTH STRATEGY
The growth strategy consists of two complementary components:
o Investing in the existing portfolio of financial services companies, and
acquiring, when the appropriate opportunities arise, major positions in
investment managers, banks, thrifts, brokerage houses and other financial
services companies (e.g. leasing, insurance) positioned in niche markets;
and
o Expansion of bridge financing and investment banking activities.
However, any acquisition will represent the second phase in the Company's growth
strategy. The first phase involves building up the existing operations to more
completely utilize the existing resources and to capitalize on each unit's
competitive strengths. For example, the Montreal office of Credifinance, where
its President is located, has been expanded and is fully bilingual, staffed by
French Canadians to better serve Quebec institutions. The corporate finance
capabilities of Credifinance will continue to be expanded to fully utilize the
unit's research and corporate finance capabilities and trading networks.
Additional capital will enable InterUnion to participate in more bridge
financing opportunities that in turn, will provide more corporate finance work
for Credifinance; and will permit Credifinance to increase its block trading
activity.
GOVERNMENT REGULATION
The operating activities of InterUnion Financial Corporation are not subject to
governmental regulatory agencies. The investment management services of Bearhill
Limited are not subject to direct government regulation in Canada.
Credifinance Securities Limited is a member of the Investment Dealers
Association of Canada, The Toronto Stock Exchange, The Montreal Exchange and the
International Securities Market Association. As such, it is subject to the
rules, regulations, and administrative rulings of these entities.
Guardian Timing Services Inc. is regulated by the Ontario Securities Commission
The auction firm of Reeve, Mackay is not subject to Canadian government
regulation.
10
<PAGE> 21
InterUnion Financial Corporation is not subject to the Investment Company Act of
1940 (the "Act"). Section 3(a)(3) of the Act defines an "investment company" as
"any issuer which . . . owns or proposes to acquire investment securities having
a value exceeding 40 per cent of the value of such issuer's total assets
(exclusive of Government securities and cash items)on an unconsolidated basis."
"Investment securities" are defined for purposes of this section as "all
securities except (A) Government securities, (B) securities issued by employees'
securities companies, and (C) securities issued by majority-owned subsidiaries
of the owner which are not investment companies."
The Company is not an investment company because it will invest no more than 40%
of its total assets (excluding government securities and cash items), on an
unconsolidated basis, in "investment securities" as defined in the Act. The
Company considers its primary business to be engaging in non-investment company
businesses through majority owned companies.
EMPLOYEES
The employees of the Company and its subsidiaries are all full-time employees.
The total number of such employees is listed below:
InterUnion Financial Corporation 3
Bearhill Limited 0
Guardian Timing Services Inc. 2
Credifinance Capital Inc. 2
Credifinance Securities Limited 25
--
Total Employees 32
==
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
(a) MARKET INFORMATION
The issuer's common equity is traded on the OTC Bulletin Board under the
symbol: IUFC.
The high and low sale prices for each quarter within the last two fiscal
years are as follows.
11
<PAGE> 22
<TABLE>
======================================================================================
PERIOD OPEN HIGH LOW CLOSE
- ------ ---- ---- --- -----
<S> <C> <C> <C> <C> <C>
FY 96 Qtr 1 $80.00 $85.00 $32.50 $40.00
FY 96 Qtr 2 40.00 50.00 15.00 30.00
FY 96 Qtr 3 30.00 32.50 10.63 21.25
FY 96 Qtr 4 21.25 21.25 5.00 13.75
FY 97 Qtr 1 13.75 13.75 5.00 7.00
FY 97 Qtr 2 7.00 15.00 4.75 5.00
FY 97 Qtr 3 5.00 6.00 4.50 4.50
FY 97 Qtr 4 4.50 6.00 4.50 5.00
======================================================================================
</TABLE>
(b) HOLDERS
The approximate number of holders of record of each class of common equity
is as follows:
================================================================================
CLASS OF STOCK NUMBER OF HOLDERS
-------------- -----------------
Common Share 385
Class A Preferred 1
Class B Preferred 0
Class C Preferred 0
================================================================================
(c) DIVIDENDS
The company has never declared or paid dividends on its common stock or its
preferred stock. There are no restrictions, other than state law that may
be applicable, that limit the ability to payout all earnings as dividends.
The Board of Directors does not anticipate paying any dividends in the
foreseeable future; it intends to retain its distributable earnings, if
any, for the expansion and development of its business.
12
<PAGE> 23
(d) RECENT SALES OF UNREGISTERED SECURITIES
(i) SALES PURSUANT TO REGULATION D
The following sales were made by the Company within the past three (3)
years in reliance upon an exemption from the registration requirements
of the Securities Act of 1933, as amended, as contained within
Regulation D, Rule 504, promulgated by the Securities and Exchange
Commission:
<TABLE>
<CAPTION>
==============================================================================================
TITLE OF CLASS NUMBER SHARES PRICE PER SHARE CONSIDERATION DATE OF SALE
- -------------- ------------- --------------- ------------- ------------
<S> <C> <C> <C> <C>
Common 84,900 $0.29 $24,621 April 1994
Common 8,750 4.00 35,000 April 1994
Common 5,000 4.00 20,000 May 1994
Common 6,250 4.00 25,000 July 1994
Common 5,000 2.00 10,000 July 1994
Common 18,511 2.00 37,022 August 1994
Common 25,000 2.00 50,000 August 1994
Common 50,000 1.00 50,000 October 1994
Common 75,000 4.00 300,000 March 1994
Common 62,500 2.00 125,000 June 1995
Common 160,000 2.00 320,000 March 1996
==============================================================================================
</TABLE>
NOTES TO SALES PURSUANT TO REGULATION D
(1) All sales of securities are shown based upon subsequent reverse stock
splits as approved by the shareholders (1 for 10 in October 14, 1994 and 1
for 20 in May 17, 1996).
(2) All sales were made directly by the Company as issuer. No commissions or
underwriting discounts were paid in connection with the sales.
(3) The class of persons to whom the Company sold the above-referenced
securities were individuals or entities whom the Company had reason to
believe were either accredited investors within the meaning of Regulation
Section 230.501 or were investors having such knowledge and experience in
financial and business matters that the purchaser could properly evaluate
the risks and merits of the investment.
(4) All sales as shown above were made to non-U.S. persons.
13
<PAGE> 24
(5) The company specifically relied upon compliance with Rule 504 of Regulation
D (Regulation Section 230.504). The Company qualified for Rule 504 because
all offers and sales were made by the issuer, the Company was not subject
to the reporting requirements of Section 13 or 15(d) of the Exchange Act,
the Company was not an investment company, and the Company was not a
development stage company. Further, the Company was in compliance with the
conditions as set forth in Regulation Section 230.504(b).
(B) SALES PURSUANT TO REGULATION S
The following sales were made by the Company within the past three (3)
years in reliance upon an exemption from the registration requirements of
the Securities Act of 1933, as amended, as contained within Regulation S
promulgated by the Securities and Exchange Commission:
<TABLE>
<CAPTION>
========================================================================================================================
Title of Class Number Shares Price Per Share Consideration Commission Date of Sale
- -------------- ------------- --------------- ------------- ---------- ------------
<S> <C> <C> <C> <C> <C>
Class A Preferred 1,500,000 0.10 $50,000 $ nil Dec. 1994
Common 100,000 2.00 200,000 nil Oct. 1995
Common 1,000 20.00 Services nil
Common 151,500 1.00 151,500 nil August 1996
Common 105,642 5.00 528,210 32,371 October 1996
========================================================================================================================
</TABLE>
NOTES TO SALES PURSUANT TO REGULATION S
(1) All sales of securities are shown based upon subsequent reverse stock
splits as approved by the shareholders (1 for 10 in October 14, 1994 and 1
for 20 in May 17, 1996).
(2) All sales were made directly by the Company as issuer.
(3) The class of persons to whom the Company sold the above-referenced
securities were individuals or entities whom the Company had reason to
believe were either accredited investors within the meaning of Regulation
Section 230.501 or were investors having such knowledge and experience in
financial and business matters that the purchaser could properly evaluate
the risks and merits of the investment.
(4) All sales as shown above were made to non-U.S. persons.
14
<PAGE> 25
(5) The company specifically relied upon compliance with Regulation S as
promulgated by the Securities and Exchanges Commission. The Company was in
compliance with Category 3 of Rule 903 of Regulation S which provides an
issuer safe harbor. Under this Category the Company complied with the two
general conditions of Rule 903(a) and (b) and to transactional and offering
restrictions by the execution of an investor Subscription Agreement, and
the placing of the appropriate restrictive legend on the stock
certificate(s).
(6) The 1,000 common shares issued for services in March 1996, was for work
done in connection with the development of a business plan and market
research for said business plan. These shares were given to a non related
party.
15
<PAGE> 26
DIRECTORS AND EXECUTIVE OFFICERS
No material proceedings involve any directors, executive officers or persons
nominated or person chose by the Corporation to become a director or executive
officer of the Corporation which is adverse to the Corporation.
a) DIRECTORS AND EXECUTIVE OFFICERS
<TABLE>
<CAPTION>
NAME, MUNICIPALITY
OF RESIDENCE AGE LENGTH OF SERVICE
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
Georges Benarroch 50 Appointed as President and Chairman
Toronto, Ontario, Canada of the Board of Directors,
March 21, 1994
T. Jack Gary, III 56 Appointed as Secretary,
West Palm Beach, Florida January 30, 1995
Ann Glover 47 Appointed to Board of Directors,
Toronto, Ontario, Canada February 17, 1995
</TABLE>
16
<PAGE> 27
<TABLE>
<S> <C> <C>
Jacques Meyer de Stadelhofen 49 Appointed to Board of Directors,
Geneva, Switzerland December 16, 1994
Karen Lynn Bolens 50 Appointed to Board of Directors,
Geneva, Switzerland December 16, 1994
Selwyn Kletz 52 Vice-President
Toronto, Ontario Canada Nominated to Board of Directors,
April 1, 1997
Dr. Colin Bier 51 Nominated to Board of Directors,
Montreal, Quebec, Canada April 7, 1997
</TABLE>
GEORGES BENARROCH is the President, Chief Executive Officer and Chief
Financial Officer of the Company. He is also the Chief Executive Officer,
and Chairman of the Board of Credifinance Securities Limited, President,
Chief Executive Officer, and Chairman of the Board of Credifinance Capital
Inc. and Chief Executive Officer, and Chairman of the Board of Reeve,
Mackay & Associates, Ltd. -- all wholly-owned subsidiaries of the Company.
Since 1977, Mr. Benarroch has held the position of officer and
partner/director with various investment firms and private/public companies
in the United States, Canada and Europe. He has been a senior partner
and/or seat holder of a member firm in Canada since 1982. His experience
covers all types of corporate financings.
T. JACK GARY, III is the Secretary of the Company. He is also Branch
Manager of the West Palm Beach, Florida, office of Raymond James &
Associates, a national brokerage firm. From 1988 to 1992, Mr. Gary was the
President of Crown Financial Advisors, Inc., an investment advisory firm,
and Crown Capital Advisors, Inc., a registered investment advisor. From
April, 1992 to 1995, Mr. Gary was Chief Executive Officer of Crown
Financial and Executive Vice President of Crown Capital Advisors, Inc. Mr.
Gary will devote approximately 10% of his time to his duties as Secretary
at InterUnion.
ANN GLOVER serves as a Director of the Company. She is a Director,
Secretary/Treasurer of Credifinance Securities Limited a subsidiary of the
Company. Ms. Glover has been a Director, Secretary/Treasurer and Chief
Compliance Officer of Credifinance Securities Limited since 1991. Ms.
Glover will devote approximately 10% of her time to InterUnion as she is
also a director and officer of Credifinance Securities Limited.
17
<PAGE> 28
JACQUES MEYER DE STADELHOFEN serves as a Director of the Company. Since
1981 through and including the present time, he has practised as an
attorney, specializing in tax and financial matters for international
corporations and charitable organizations. Mr. Stadelhofen's duties for
InterUnion will be limited to his participation at Board Meetings.
KAREN LYNN BOLENS serves as a Director of the Company. Since 1985 through
and including the present time, she has practised as an associate attorney,
specializing in corporate, estate and family law for international clients.
Ms. Bolens' duties for InterUnion will be limited to her participation at
Board Meetings.
SELWYN J. KLETZ has held the position of officer and partner/director with
various investment firms and private/public companies in Canada and South
Africa. His experience in the investment industry covers research,
investment banking, merchant banking, corporate finance and investment
management. Mr. Kletz will be devoting 100% of his time to InterUnion.
DR. COLIN BIER holds the position of consultant in Toxicoloy and
Bioregulatory Affairs o ABA BioResearch Inc. Since 1988, Dr. Bier has held
the position of officer and/or directorwith various laboratories and, since
1978, has been a lecturer at McGill and Concordia Universities. Dr. Bier
serves on the Board of Directors of Recetpagen Ltd. inwhich InterUnion has
a controlling interest. Dr. Bier's duties for InterUnion will be limited t
his participation at Board Meetings.
(1) No director of InterUnion is currently a director of any other
reporting company.
(2) Under Section 1 ARTICLE III, of the Corporation's By-Laws, the
directors shall serve until the next annual meeting of the
stockholders, as prescribed by the Board of Directors, at which time
directors are elected by the stockholders.
(3) No director, executive officer and beneficial owner of more than ten
percent (10%) of any class of equity securities of the Corporation
failed to file on a timely basis reports required by section 16(a) of
the Exchange Act during the most recent two fiscal years to the best
of the Corporation's knowledge.
18
<PAGE> 29
(b) IDENTIFY SIGNIFICANT EMPLOYEES
The Corporation does not expect to receive a significant contribution from
employees that are not executive officers.
(c) FAMILY RELATIONSHIPS
Currently, there are no directors, executive officers or persons nominated
or person nominated by the Corporation to become a director or executive
officer of the Corporation who are related to any individual who currently
holds the position of director or executive officer or is nominated to one
of the said positions.
(d) INVOLVEMENT IN CERTAIN LEGAL PROCEEDINGS
No material events have occurred in the last five years that would affect
the evaluation of the ability or integrity of any director, person
nominated to become a director, executive officer, promoter or control
person of the Company.
(e) COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
For the two fiscal years ended March 31, 1997, to the best of the
Corporation's knowledge no director, executive officer and beneficial owner
of more than ten percent (10%) of any class of equity securities of the
Company failed to file on a timely basis reports required by section 16(a)
of the Exchange Act.
(f) SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following are known by the Corporation to be the beneficial owner of
more than five percent of any class of the said issue's voting securities.
19
<PAGE> 30
<TABLE>
<CAPTION>
Title Name and Address Amount and Nature Percent
of Class of Beneficial Owner of Beneficial Owner of Class
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Common RIF Capital Inc. (1) 536,499 41.33%
Price Waterhouse Centre
PO Box 634C
St. Michael, Barbados, WI
Common Selwyn Kletz 100,000 7.70%
499 Riverside Drive
Toronto, Ontario Canada
--------- -----
TOTAL 636,499 49.03%
========= =====
Preferred A RIF Capital Inc. 1,500,000 100%
Price Waterhouse Centre
PO Box 634C
St. Michael, Barbados, WI
</TABLE>
(g) RELATED PARTY TRANSACTIONS
In the proposed acquisition of New Researches Corporation ("NRC"), the
vendors are RIF Capital Inc. and Central Investment Trust. Both are related
parties as RIF Capital Inc. controls the Company and Central Investment
Trust owns all of the issued and outstanding common shares of RIF Capital
Inc.
The terms of the acquisition is as follows:
a. The Corporation shall pay to the Vendors or at their discretion, a
non-refundable Option fee of US$80,000 on or before December 15, 1996.
b. The Option shall expire on December 15, 1997 ("Closing Date").
c. The Corporation shall provide written notice of its intention to
exercise the Option to the Vendors and NRC.
d. The purchase price paid by InterUnion to the Vendors, upon exercise of
the option shall be:
20
<PAGE> 31
i) US$2,000,000 payable on or before the Closing Date (4:00 p.m.
Palm Beach time); and
ii) Upon the sale of any of the common shares of Genesis, including
any shares issued pursuant to the exercise of the common share
purchase warrants of Genesis, including any shares issued
pursuant to the exercise of the common share purchase warrants of
Genesis, after the Closing Date, InterUnion shall pay to the
Vendors eighty percent (80%) of the proceeds realized from such
sales, in excess of C$1.00 per share. This condition shall not
expire except by mutual agreement of all parties to this
Agreement.
e. In the event that NRC receives a bona fide offer from a third party to
purchase its common shares during the term of the Option and, if NRC
should desire to accept said offer, NRC shall immediately forward a
copy of the offer to the Corporation. The Corporation shall have a
period of ten calendar days from the receipt of the offer to counter
the offer or exercise the Option by giving notice, at its sole
discretion, in accordance with term c. If the Corporation fails to
match the offer from the third party and to declare the Option to be
null and void.
COMPENSATION OF DIRECTORIES AND EXECUTIVE OFFICERS
(a) SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Name & Principal Fiscal Other Long Term All Other
Position Year Salary Bonus Compensation Compensation Compensation
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Georges Benarroch 1996 None None $50,000* None None
President & CEO 1997 None None None None None
Selwyn J. Kletz 1996 None None None None None
Vice-President 1997 None None None 13,265 None
</TABLE>
*Georges Benarroch was paid $50,000 as compensation for services subsequent to
the end of the fiscal year ending March 31, 1996. No other officer was paid
compensation. Mr. Benarroch was paid his compensation in the form of cash.
(b) ALL COMPENSATION COVERED
The Company's Board of Directors has approved payment of $1,750 for the
services of each of its independent directors for the fiscal year ending
March 31, 1997.
The Corporation has no current options, warrants, SARs, long-term incentive
plans, pension or profit-sharing plans, or other compensation plans, in
effect regarding any employees of the Corporation
21
<PAGE> 32
The Corporation has no agreement or understanding, express or implied, with
any officer or director, or any other person regarding employment with the
Company or compensation for services.
Section 14 of ARTICLE III of the By-Laws of the Company provides that
directors do not receive any stated salary for their services as directors.
However, by board resolution, a fixed fee and expenses of attendance may be
allowed for each meeting. These limitations do not affect compensation for
a person serving as an officer of otherwise for the Company and receiving
compensation therefor.
22
<PAGE> 33
MANAGEMENT'S DISCUSSION AND ANALYSIS
(a) OVERVIEW
InterUnion Financial Corporation (the "Company") was incorporated on
February 7, 1994. The underlying operational strategy of the Company is to
acquire a significant influence in operating companies primarily of a
financial nature on the basis of an exchange of stock, with certain
additional incentives (such as stock warrants) depending upon the
particular company to be acquired, and to actively participate in the
management of these companies. Accordingly, the Company has acquired the
following operating subsidiary corporations as outlined below:
<TABLE>
<CAPTION>
CORPORATION ACQUIRED NATURE OF THE COMPANY DATE ACQUIRED
-------------------- --------------------- -------------
<S> <C> <C>
Bearhill Limited Investment Management 1-18-95
Guardian Timing Services, Inc. Investment Management 1-18-95
Credifinance Capital Inc. Investment Company 3-20-95
Credifinance Securities Limited Investment Bank 3-20-95
Rosedale Realty Corporation Real Estate Sales 3-20-95
Reeve, Mackay & Associates Ltd. Auction Sales 5-15-95
</TABLE>
Note: All of the above-listed subsidiaries are active, with the exception
of Rosedale Realty Corporation which was disposed of by the Company
pursuant to an assignment in bankruptcy in 1996. In addition, the
Company is actively pursuing the sale of Reeve, Mackay & Associates
Ltd.
23
<PAGE> 34
Because of the nature of the Company as a holding company, it was to be expected
that no revenues would be realized initially after the date the Company
commenced business operations. All funding to the Company from its inception to
the date of its first subsidiary acquisition was derived from a series of
private (non-registered) sales of stock under Regulation D as promulgated by the
United States Securities and Exchange Commission.
The Company commenced its revenues stream with its first acquisitions on January
18, 1995. The following table shows the gross revenue from its subsidiaries
prior to consolidation and elimination for the completed years of 1995, 1996 and
1997. The table also includes gross revenues generated by InterUnion, itself.
The table does not include revenue from Rosedale Realty Corporation due to its
termination in 1996 or Reeve, Mackay & Associates as the Company plans to divest
itself of this entity.
<TABLE>
<CAPTION>
COMPANY FY 1995 FY 1996 FY 1997
<S> <C> <C> <C>
Bearhill -0- 30,000 14,000
Guardian Timing 65,000 355,000 365,000
Credifinance Capital -0- 65,000 313,000
Credifinance Securities 4,000,000 4,500,000 3,725,000
InterUnion 5,000 900,000 1,475,000
--------- --------- ---------
Total 4,070,000 5,850,000 5,892,000
========= ========= =========
</TABLE>
Bearhill Limited is an investment management firm. However, the primary asset of
Bearhill remains its ownership of a computer software program, ITM Software. If
the Bank exercises an option to purchase the ITM Software this could produce
major revenue for the Company. If the option is not exercised, Bearhill will not
be adversely affected nor will the Company.
Guardian Timing Services Inc. is an investment management firm. The increase in
revenues from $63,240 in fiscal 1995 to $355,904 in fiscal 1996 is due primarily
to the fact that income from Guardian is included in fiscal 1995 was for only 3
months. In addition, assets under management for Guardian have risen from C$20
million in fiscal 1995 to C$80 million in fiscal 1996 and maintained that level
in fiscal 1997 which explains the low growth in fiscal 1997.
Credifinance Capital Inc. primarily invests its own capital resources. There is
no reason to expect any consequential change in attained and projected revenues.
Credifinance Securities Limited is an investment bank. The revenues for fiscal
year 1997 were 17.2% lower than attained revenues in fiscal 1996. The decrease
is primarily attributable to the refocusing of its activities from agency
trading to corporate finance. Management expects revenues to return to the $4 -
5 million level by the end of fiscal 1998.
InterUnion Financial Corporation's increase in revenue from $900,000 in fiscal
1996 to
24
<PAGE> 35
$1,475,000 is due to a stronger than expected return on its marketable
securities. As of March 31, 1997, this revenue had not been realized. InterUnion
derives its own revenues primarily from bridge financing and special situations
and some limited investment in marketable securities.
Although the Company did secure certain bridge financing in the first half of
fiscal 1997, in the latter portion of the fiscal year it became heavily involved
in financial negotiations with two corporations:
1. New Researches Corporation, a Geneva based company whose primary asset is
ownership of approximately 3.2 million shares and 200,000 warrants of
Genesis Microchip, Inc., a Canadian corporation.
In early 1990, a decision was made to re-structure Genesis as a "fabless"
semiconductor company emphasizing engineering intensive and video/image DSP
oriented integrated circuits (ICs). At the same time, the ASIC design
business continued to grow. Genesis began investing heavily in research and
development in order to bring to market a number of ICs aimed at providing
new capabilities to the emerging multimedia/video networking/video
editing/projection system/high end display markets as well as the
existing video/image markets in the medical, industrial, broadcast,
compression and commercial image processing fields.
Genesis is positioned to become an important supplier of leading edge
video/image resizing, de-interlacing and related video DSP ICs. With the
introduction of its GENESIS SCALING and GENESIS VIDEO LINE DOUBLING series
of ICs, board-level reference design and software solutions, Genesis has
entered the next state of its corporate development as a volume IC
supplier, with almost all of its revenues coming from the sale of IC
product.
Audited financial statements of Genesis, dated May 31, 1996, show that
Genesis had revenue in FY 1995 of CDN $388,000 and revenue in FY 1996 of
CDN $1,892,000. Genesis anticipates that it will file a public registration
within the next 12 months.
After extensive negotiation, InterUnion entered into a Letter of
Understanding with New Researches Corporation et al. as of September 26,
1996 which granted to InterUnion an irrevocable option to acquire 3,216,667
common shares and 200,000 common share purchase warrants of Genesis
Microchip, Inc. The terms of this option may be summarized as follows:
a. InterUnion paid $80,000 (US) to the Vendors, as defined in The
Letter of Understanding for the option rights.
25
<PAGE> 36
b. The option has an expiration date of December 15, 1997
c. If the option is exercised, InterUnion shall pay to the Vendors the
sum of $2 million (US) and upon sales of the Genesis stock, InterUnion
is to pay to the Vendors 80% of the proceeds of such sales in excess
of CDN $1.00 per share.
d. If the Vendors receive a bona fide offer from a third party to
purchase the New Researches shares, InterUnion shall then have the
right to counter the offer or exercise its option.
2. Receptagen Ltd. Is a Canadian public corporation involved in biotechnology
(drug discovery and development) and the sales of its products. InterUnion
has entered into an agreement (subject to the approval by creditors of
Receptagen) to provide a secured bridge loan to that company exchangeable
into a convertible debenture. Also, the Company will give trade creditors
of that company its common stock in exchange for their debt and then plan
to convert the debt into shares of Receptagen. Creditors approval was
received in April 1997.
An agreement between InterUnion and Receptagen was executed as a Letter of
Agreement on January 7, 1997. This agreement was subsequently modified to
reflect the creditors approval and may be summarized as follows:
a. The recapitalization of Receptagen will be done in three stages.
b. The first stage involves a bridge loan from InterUnion of CDN $400,000
to maintain the Company's operations until the proceeds from the
proposed Special Warrants Offering are released to the Company. CDN
$100,000 is available to the Company as of February 7, 1997. The
bridge loan is secured by a security agreement, granting security in
patents and patent rights, and is convertible into units at CDN $0.105
per unit for a period of five years. Each unit consists of common
shares and common share purchase warrants of Receptagen Ltd. pursuant
to a secured convertible debenture.
c. In stage two, the trade creditors will exchange their debt of
approximately CDN $9 million for shares of stock of InterUnion. The
creditors will received CDN $0.20 per CDN $1.00 in InterUnion shares,
amounting to approximately 260,000 shares and 213,000 share purchase
warrants with an exercise price of USD $4.00. InterUnion will then
receive units of Receptagen at CDN $0.07 per unit, the amount of which
depends upon the settlement amount with the creditors. Each unit
consists of one common share and one non-transferable common share
purchase warrant with an exercise price of CDN $0.14.
26
<PAGE> 37
d. The third stage involves an agreement between Receptagen Ltd. and
Credifinance Securities Limited, a Canadian investment dealer based in
Toronto with seats on both The Montreal and Toronto Stock Exchanges,
and a wholly-owned subsidiary of Credifinance Capital Inc., for a
$2,500,000 Special Warrants Offering priced at CDN $0.116 per Special
Warrant. Receptagen was successful in raising the funds as the
subscription was closed on May 23, 1997.
In the event that InterUnion should decide to exercise its option to purchase
the stock of New Researches Corporation, it will obtain the necessary cash by a
private placement offering of its stock under Rule 506. However, if Central
Investment Trust, acting for RIF Capital, is agreeable, this acquisition may be
achieved by the issuance of a promissory note to the vendor and the issuance of
InterUnion stock.
There is no assurance that the Company will find acceptable companies for bridge
financing in the future and there is no method of forecasting this probability
except on a historical basis.
Cost of Revenues
The principal elements comprising costs of revenues are: commissions paid out
and salaries paid to research analysts. In general, non-administrative personnel
within InterUnion are remunerated solely on performance, as this permits the
Company to keep overhead to a minimum and to maintain a high correlation between
its revenues and its personnel costs, as InterUnion and its subsidiaries are
extremely labor intensive. The only exception to this remuneration policy was
Reeve, Mackay, where the salaries are fixed but the marketing and research
expense can fluctuate with the size of the auction. Therefore, commissions paid
out and marketing expenditures are the most important expense and generally rise
and fall along with revenues of the Company.
Across all of the Company's subsidiaries, the contribution margin (contribution
margin is defined as Revenues less variable expenses) was 43.0% in fiscal 1997
versus 36.1% in 1996 versus 33.4% in 1995. The increase in margin is primarily
due to a shift in Credifinance revenue from secondary market agency to primary
market revenue from corporate finance and underwriting activities. The Company
expects to maintain these margins due to the growth in revenues summarized above
and the stability of its commission payout structure.
Interest Income Net of Interest Expense
The Company's only debt that causes a revenue or an expense arises from its
broker/dealer operation and from funds borrowed on a short term basis for its
trading activity. This amount is not expected to be significant with respect to
revenues on a yearly or quarterly basis.
27
<PAGE> 38
Discontinued Operations
The Company acquired Rosedale Realty Corporation in March 1995. Rosedale
recorded operating losses of $94,253 in 1996. As a result of continuing losses
and further analysis, Management felt that the prospect of future profit was not
sufficient for Rosedale to be retained as a subsidiary. Therefore, fiscal 1996
will be the last year in which the income statement will carry any item
regarding Rosedale, as the Company disposed of it.
In May 1995, Reeve, Mackay and Associates Ltd. was created to act as the
Company's auction subsidiary. Reeve, Mackay recorded operating losses of
$390,829 and $452,291 in 1997 and 1996 respectively. Due to the competitive
nature of the auction industry and the difference in the compensation philosophy
of the Company, management has decided to divest itself of its investment in
Reeve, Mackay. The Company expects to complete this process within the first
half of fiscal 1998.
Exposure to International Operations
Although all of the Company's revenues are generated from North America, 26% was
derived from the United States in 1997 and less then 15% in 1996; the balance is
primarily earned in Canada. Therefore, a small foreign exchange risk does exist.
Due to the size of the risk and that each company within the InterUnion Group
operates independently of each other, the Company does not purchase any
derivative products to offset this risk. In addition, the Company considers
North America as its domestic market.
Seasonal
InterUnion Financial Corporation and its subsidiaries do not operate in any
business which is affected by changes in season.
(b) RESULTS OF OPERATIONS
Fiscal 1997 marks a number of firsts for the Company.
o The first year as a reporting company, as our Form 10-SB cleared the
SEC;
o The first year that the Company reports solely under US GAAP; and
o The first year that the Company is reporting profit from continuing
operations.
28
<PAGE> 39
Financial highlights are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Revenues 5,712,183 5,857,157 4,028,068
Income from continuing operations 160,676 (75,378) (179,468)
Discontinued Operations (390,829) (429,248) (184,845)
Net Loss (230,153) (504,626) (364,313)
Assets 38,820,507 9,364,007 40,404,190
Shareholders' Equity 3,639,337 3,033,848 2,983,475
Working Capital 1,750,889 928,268 775,965
Book Value per Share 3.75 4.38 8.08
Common Shares Outstanding 969,714 692,558 369,058
</TABLE>
Fiscal Year 1997 Compared to Fiscal Year 1996
(1) Overview
In fiscal 1997, revenues decreased by $144,974 (or 2.5%) over fiscal year
1996. For the year, costs of revenues as a percentage of sales decreased to
67.1% from 71.8% a year earlier. Fixed overhead and non cash expenses also
decreased by 61,082 or 4.2%. These three factors contributed to the Company
realizing income from continuing operations of $160,676 versus a loss of
$75,378 a year earlier. The Company reported a net loss of $230,153 in 1997
versus a net loss of $504,626 due to the losses the Company recorded in
relation to Rosedale Realty Corporation and Reeve, Mackay & Associates as
discontinued operations. Excluding these discontinued operations, the
Company's earnings per share from continuing operations was $0.18 versus a
loss of $0.15 a year earlier.
(2) Revenues
Revenues decreased by $144,974 (or 2.5%) over fiscal year 1996 (from
$5,857,196 to $5,712,183). The majority of the decrease came from the
activities of Credifinance Securities Limited, the Company's main operating
subsidiary, as its revenue decreased almost $800,000 or 17.8% (from
$4,532,482 to $3,727,292). The reason why Credifinance Securities's
revenues decreased was due to the firm restructuring its efforts from
agency activities to corporate finance activities. This decrease was offset
by an increase in InterUnion's revenues of almost $0.6 million or 62.1%
(from $911,094 to $1,477,062).
29
<PAGE> 40
(3) Cost of Revenues
Costs of revenues (Selling, General and Administrative expenditures) for
the year decreased by $515,520 or 9.0% to $5,214,477 from $5,729,997. This
decrease is due to the fact that the Company's revenues are generated more
from underwritings then from buy and sell orders, where it retains a
greater percentage, as variable costs decreased to 57.2% of revenues from
63.9% a year earlier. In addition cost cutting of fixed overhead
contributed a savings of approximately $125,000. The Company was able to
cut personnel due to the change in target market.
(4) Income from Continuing Operations
Income from continuing operations net of the provision for income taxes,
increased to $160,676, or $0.18 per share, from a loss of $75,378, or $0.15
per share, a year earlier. As discussed above the increase in profitability
has been attained by the combination of two things. The Company is deriving
its revenues from sources where the commissions to be paid out are less
(underwriting versus agency) and the cost saving discussed above. The
average number of common shares outstanding for the year ending March 31,
1997 is 907,097 versus 501,335 a year earlier. These figures do not include
losses of $390,829 and $429,248 in 1997 and 1996 respectively due to the
discontinued operations of Reeve, Mackay & Associates Ltd. and Rosedale
Realty Corporation.
Fiscal Year 1996 Compared to Fiscal Year 1995
(1) Overview
In fiscal 1996 revenues increased by over $1.8 million(or 45.4%) over
fiscal year 1995. For the year, costs of revenues as a percentage of sales
decreased to 63.9% from 66.6%. Fixed overhead and non cash expenses
increased $128,334 or 9.7% to $1,452,313 from $1,323,979. The loss from
continuing operations decreased to $75,378 from $179,468. The Company
overall reported a Net Loss of $504,626 in 1996 versus a loss of $364,313
after discontinued operations. Excluding these discontinued operations, the
Company's loss per share from continuing operations was $0.15 versus $1.14
a year earlier.
(2) Revenues
Revenues increased by over $1.8 million (or 45.4%) over fiscal year 1995
(from $4,028,067 to $5,857,196). The majority of the increase came from the
activities of InterUnion itself, as it had almost $1 million in revenues on
its own in 1996 versus only interest income of $5,270 a year earlier. In
addition, Guardian Timing's contribution to the Company increased to
$355,904 from $63,240. Without these two revenue sources, InterUnion's
growth in revenue would have been just 13.2%.
30
<PAGE> 41
(3) Cost of Revenues
Costs of revenues (Selling, General and Administrative expenditures) for
the year increased by $1,538,042 or 36.7% to $5,729,997 from $4,191,955.
This increase is due to additional commissions to be paid out due to
increased revenues and the fact that the Company hired additional staff in
anticipation of the increasing business that the bull market was providing.
The hiring was done in advance of the business in order to be prepared for
the higher volume.
(4) Loss from Continuing Operations
Loss from continuing operations net of provision for income taxes for the
year was $75,378 or $0.15 per share versus $179,468 or $1.14 per share a
year earlier. The average number of common shares outstanding for the year
ending March 31, 1996 is 501,335 versus 157,531a year earlier. These
figures do not include losses of $429,248 and $184,845 in 1996 and 1995
respectively due to the discontinued operations of Reeve, Mackay &
Associates Ltd. and Rosedale Realty Corporation.
(c) LIQUIDITY AND CAPITAL RESOURCES
The Company does not have any long term debt. In order to meet its growth
plans and any operating cash requirements 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 "S"
</TABLE>
Currently all operating units with the exception of Reeve, Mackay are
contributing positive cash flows. Therefore, the Company does not anticipate the
need to raise further funds unless required to conclude an acquisition. Previous
cash requirements were needed to fund the operations of Reeve. Mackay &
Associates Ltd and Rosedale Realty Corporation. As stated earlier, the Company
has started to search for a purchaser of Reeve, Mackay and the Company has
already divested itself of Rosedale.
31
<PAGE> 42
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 have 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.
Certain statements constitute "forward looking statements" within the meaning of
the Private Securities Litigations Reform Act of 1995. Such forward looking
statements involve risks, uncertainties and other factors which may cause the
actual results, performance and achievements of the Corporation to be materially
different from future results, performance or achievement expressed or implied
by such forward looking statements.
FINANCIAL STATEMENTS
The audited consolidated financial statements for InterUnion Financial
Corporation, covering fiscal years ended March 31, 1997 and 1996 are submitted
in compliance with the requirements of Item 310 of Regulation S-B.
32
<PAGE> 43
INTERUNION FINANCIAL CORPORATION
CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1997
<PAGE> 44
INTERUNION FINANCIAL CORPORATION
MARCH 31, 1997
CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Independent Auditor's Reports F-2
Consolidated Financial Statements:
Consolidated Balance Sheet F-4
Consolidated Statement of Operations F-6
Consolidated Statement of Shareholders' Equity F-7
Consolidated Statement of Cash Flows F-8
Notes to Consolidated Financial Statements F-9 To F-18
</TABLE>
F-1
<PAGE> 45
INDEPENDENT AUDITOR'S REPORT
To The Directors and Shareholders,
InterUnion Financial Corporation
We have audited the accompanying consolidated balance sheet of InterUnion
Financial Corporation as of March 31, 1997 and the related consolidated
statements of operations, shareholders' equity and cash flows for the year then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of InterUnion Financial
Corporation as of March 31, 1997 and the results of its operations and its cash
flows for the year then ended in conformity with generally accepted accounting
principles.
/s/ GOLDSTEIN GOLUB KESSLER & COMPANY, P.C.
May 14, 1997
F-2
<PAGE> 46
INDEPENDENT AUDITOR'S REPORT
To The Directors and Shareholders,
InterUnion Financial Corporation
We have audited the accompanying consolidated statement of operations,
shareholders' equity and cash flows of InterUnion Financial Corporation and
subsidiaries for the year ended March 31, 1996. These consolidated financial
statements are the responsibility of the company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the results of operations and its cash flows
of InterUnion Financial Corporation for the year ended March 31, 1996 in
conformity with generally accepted accounting principles.
/s/ Mintz Partners
Toronto, Ontario
May 14, 1997
F-3
<PAGE> 47
INTERUNION FINANCIAL CORPORATION
CONSOLIDATED BALANCE SHEET
MARCH 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
A S S E T S
-----------
<S> <C>
CURRENT ASSETS
Cash (Note 2(b)) $ 349,738
Due from brokers and dealers (Note 2(c)) 166,062
Due from clients (Note 2(c)) 5,967,989
Marketable securities (Notes 2(b) and 3) 29,457,965
Accounts receivable 226,663
Income tax receivable 22,197
Prepaid expenses and other current assets 151,483
-----------
Total current assets 36,342,097
-----------
OTHER ASSETS
Property & equipment, net (Note 2(d) and 4) 1,609,905
Long-term investments (Note 2(e)) 256,945
Goodwill, net of accumulated amortization of $43,816 (Note 2(f)) 394,332
Deferred income tax asset, net of valuation allowance
of $60,000 (Note 10) --
Assets related to discontinued operations (Note 9(b)) 217,228
-----------
2,478,410
-----------
Total Assets $38,820,507
===========
</TABLE>
- --------------------------------------------------------------------------------
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
F-4
<PAGE> 48
INTERUNION FINANCIAL CORPORATION
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
MARCH 31, 1997
- -----------------------------------------------------------------------------------
L I A B I L I T I E S
---------------------
CURRENT LIABILITIES
<S> <C>
Due to brokers and dealers (Note 2(c)) $ 33,012,864
Due to clients (Note 2(c)) 1,320,874
Accounts payable and accrued liabilities 257,470
------------
Total current liabilities 34,591,208
LIABILITIES RELATED TO DISCONTINUED OPERATIONS (Note 9(b)) 504,962
DEFERRED INCOME TAX LIABILITY (Note 10) 85,000
------------
Total liabilities 35,181,170
------------
COMMITMENTS AND CONTINGENCIES (Note 7)
S H A R E H O L D E R S' E Q U I T Y
-------------------------------------
CAPITAL STOCK AND ADDITIONAL PAID-IN CAPITAL (Note 5) 5,206,815
ACCUMULATED DEFICIT (1,567,478)
------------
Total shareholders' equity 3,639,337
------------
Total Liabilities and Shareholders' Equity $ 38,820,507
============
</TABLE>
- --------------------------------------------------------------------------------
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
F-5
<PAGE> 49
INTERUNION FINANCIAL CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE YEAR ENDED MARCH 31, 1997 1996
- ---------------------------------------------------------------------------------------------
<S> <C> <C>
REVENUES
Commissions, trading and investment income $ 4,843,951 $ 4,500,899
Fee revenue 868,232 1,356,297
----------- -----------
5,712,183 5,857,157
----------- -----------
EXPENSES
Selling, General and Administrative 5,214,477 5,729,997
Loss (Gain) on foreign exchange 31,067 (33,057)
Interest income (net of interest expense of
2,631 and 30,272, respectively) (23,034) (37,337)
Depreciation and Amortization 240,912 244,739
----------- -----------
5,463,422 5,904,341
----------- -----------
INCOME (LOSS) FROM CONTINUING OPERATIONS
BEFORE PROVISION FOR INCOME TAXES 248,761 (47,146)
----------- -----------
PROVISION FOR INCOME TAXES 88,085 28,232
----------- -----------
INCOME (LOSS) FROM CONTINUING OPERATIONS 160,676 (75,378)
LOSS FROM DISCONTINUED OPERATIONS (Note 9 (a) & (b)) (390,829) (546,544)
GAIN ON DISPOSITION OF SUBSIDIARY (Note 9 (a)) -- 117,296
----------- -----------
NET LOSS (230,153) (504,626)
=========== ===========
EARNINGS (LOSS) PER COMMON SHARE (Note 2(h))
Continuing operations $ 0.18 $ (0.15)
=========== ===========
Discontinued operations $ (0.43) $ (0.86)
=========== ===========
Net loss $ (0.25) $ (1.01)
=========== ===========
Weighted average common shares outstanding 907,097 501,335
=========== ===========
</TABLE>
- --------------------------------------------------------------------------------
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
F-6
<PAGE> 50
INTERUNION FINANCIAL CORPORATION
CONSOLIDATED STATEMENT OF SHAREHOLDERS EQUITY
<TABLE>
<CAPTION>
FOR THE YEARS ENDED MARCH 31, 1997 AND 1996
- -----------------------------------------------------------------------------------------------------------------------------
Cumulative
Foreign
Number Additional Currency
of Paid-in Translation
Shares Amount Capital Adjustment Total
<S> <C> <C> <C> <C> <C>
Preferred Shares
Balance, March 31, 1996 1,500,000 $ 150,000 $ -- $ -- $ 150,000
----------- ----------- ----------- ----------- -----------
Common Shares
Balance, March 31, 1995 369,058 369 3,656,607 -- 3,656,976
Issued during the year
net of issue costs 323,500 324 554,676 -- 555,000
----------- ----------- ----------- ----------- -----------
Balance, March 31, 1996 692,558 693 4,211,283 -- 4,211,976
Adjustment, reverse split 14 -- -- -- --
Issued during the year
net of issue costs 277,142 277 727,062 -- 727,339
Compensation related to
stock options (Note 6) -- -- 117,500 -- 117,500
----------- ----------- ----------- ----------- -----------
Balance, March 31, 1997 969,714 970 5,055,845 -- 5,056,815
----------- ----------- ----------- ----------- -----------
Share Capital 2,469,714 150,970 5,055,845 -- 5,206,815
----------- ----------- ----------- ----------- -----------
Deficit
Balance, March 31, 1995 -- -- -- -- (823,502)
Net Loss for fiscal 1996 -- -- -- -- (504,626)
----------- ----------- ----------- ----------- -----------
Balance, March 31, 1996 -- (1,328,128)
Foreign currency translation
adjustment (Note 2(g)) -- -- -- (9,197) (9,197)
Net loss for fiscal 1997 -- -- -- -- (230,153)
----------- ----------- ----------- ----------- -----------
Balance, March 31, 1997 -- -- -- (1,567,478)
----------- ----------- ----------- ----------- -----------
Total Shareholders' Equity 2,469,714 $ 150,970 $ 5,055,845 $ (9,197) $(3,639,337)
=========== =========== =========== =========== ===========
</TABLE>
- --------------------------------------------------------------------------------
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
F-7
<PAGE> 51
INTERUNION FINANCIAL CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEAR ENDED MARCH 31 1997 1996
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (230,153) $ (504,626)
Adjustments to reconcile net loss to net cash
used in operating activities
Depreciation and Amortization 240,912 244,739
Non cash compensation - stock options (Note 6) 117,500 --
Deferred income taxes (Note 10) 85,000 --
Gain on disposition of subsidiary -- (117,296)
------------ ------------
213,259 (377,182)
Changes in operating assets and liabilities
Increase (decrease) in due to/from brokers and dealers, net 31,515,327 (28,663,907)
Decrease (increase) in due to/from client, net (5,588,459) 15,720,553
Increase (decrease) in marketable securities (26,882,380) 13,056,486
Increase in accounts receivable and other assets (184,970) (136,916)
Increase in accounts payable and accrued liabilities (56,560) 30,571
Increase in assets and liabilites related to
discontinued operations (Note 9) 129,296 31,629
------------ ------------
NET CASH USED IN OPERATING ACTIVITIES (854,487) (338,767)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net proceeds on issuance of capital stock 727,339 555,000
Proceeds (Repayment) of loans payable (119,462) 18,589
------------ ------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 607,877 573,589
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of long-term investments (66,945) (13,472)
Purchase of property and equipment (10,866) (37,872)
------------ ------------
NET CASH PROVIDED BY INVESTING ACTIVITIES (77,811) (51,344)
------------ ------------
NET INCREASE (DECREASE) IN CASH (324,421) 183,478
CASH - Beginning of Year 674,159 490,681
------------ ------------
CASH - End of Year $ 349,738 $ 674,159
============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the period for interest $ 2,631 $ 30,272
Cash paid during the period for income taxes 15,160 15,406
</TABLE>
- --------------------------------------------------------------------------------
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
F-8
<PAGE> 52
INTERUNION FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1997
- --------------------------------------------------------------------------------
1. BASIS OF FINANCIAL STATEMENT PRESENTATION
During the year, InterUnion Financial Corporation ("the Company")
decided to report solely as per U.S. Generally Accepted Accounting Principles.
In prior years, the Company reported in accordance with Canadian Generally
Accepted Accounting Principles.
2. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Company was formed to acquire a majority interest in financial
companies located in the United States and Canada, as well, to provide bridge
financing and special situation investments. Currently, the Company's operating
interests are a broker/dealer and investment management firm.
The preparation of financial statements in conformity with Generally
Accepted Accounting Principles used in the United States of America ("GAAP")
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the dates of financial statements and the reported amounts of
operating revenues and expenses during the reporting periods. Actual results
could differ from those estimates.
a) Principles of Consolidation
The consolidated financial statements of the Company, a Delaware
Corporation, contains the financial position, results of operations and cash
flows of InterUnion Financial Corporation and its subsidiaries, Bearhill
Limited, Credifinance Capital Inc., Credifinance Securities Limited, Guardian
Timing Services Inc. and I & B Inc. All intercompany balances and transactions
have been eliminated in consolidation.
b) Cash and Marketable Securities
The Company maintains its cash and investments in financial
institutions which, at times, may exceed federally insured limits in the United
States and Canada. The Company has not experienced any losses in such accounts.
Marketable securities carried on a short-term basis are classified as
either "trading" or "available for sale" (Note 3). Marketable securities being
held as long-term investments are classified as "held-to-maturity" (Note 3) and
are carried at cost. All gains and losses are calculated using the average cost
basis.
c) Security Transactions
Security transactions are recorded in accordance with industry practice
in the accounts on trade date. Commission income and related expenses for
transactions executed but not yet settled are accrued as of the financial
statement date.
In accordance with Canadian industry practice, the balances due from
and to brokers, dealers and clients may include the trading balances of clients
at the end of the reporting period and may not be an indication of the
investment activity of the Company. These balances may fluctuate significantly.
- --------------------------------------------------------------------------------
/Continued...
F-9
<PAGE> 53
INTERUNION FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1997
- --------------------------------------------------------------------------------
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued
d) Property and Equipment
Property and equipment are stated at cost less accumulated
depreciation. It is the company's policy to provide depreciation using straight
line and accelerated methods over the estimated useful lives of the property and
equipment.
e) Long-Term Investments
Long-term investments, in non-marketable securities where a controlling
interest or significant influence is not exercised, are recorded at cost.
Stock exchange seats are recorded at cost and are included in long-term
investments. Declines in market value are only recorded when there is an
indication of permanent decline in value.
f) Goodwill
In accordance with U.S. Generally Accepted Accounting Principles,
goodwill is being amortized over a period of 20 years on a straight line basis.
At each balance sheet date, the Company evaluates the period of amortization of
intangible assets. The factors used in evaluating the period of amortization
include: (i) current operating results, (ii) projected operating results, and
(iii) any other material factors that effect the continuity of the business.
g) Translation of Foreign Currencies
In accordance with SFAS 52, "Foreign Currency Translation", the
financial statements of certain subsidiaries of the Company are measured using
local currency as the functional currency. Assets and liabilities have been
translated at current exchange rates and related revenue and expenses have been
translated at average monthly exchange rates. The aggregate effect of
translation gains and losses has been deferred and is relocated as a separate
component of shareholders' equity until there is a sale or liquidation of the
underlying foreign investment.
- --------------------------------------------------------------------------------
/Continued...
F-10
<PAGE> 54
INTERUNION FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1997
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued
h) Earnings Per Share
Earnings per common share and common share equivalent share are
calculated by dividing the net income available to holders of common stock by
the weighted average number of common shares and common equivalent shares
outstanding.
The number of common shares outstanding is increased by the number of
shares issuable on the exercise of options or warrants when the market price of
the common stock exceeds the exercise price of the warrant or option and the
effect would not be antidilutive. This increase in the number of common shares
is reduced by the number of common shares that are assumed to have been
purchased with the proceeds from the exercise of the warrants or options at the
average market price during the period.
In February 1997, the Financial Accounting Standards Board issued SFAS
No. 128, "Earnings Per Share". SFAS No. 128 requires dual presentation of basic
earnings per share ("EPS") and diluted EPS on the face of all statements of
earnings issued for periods ending after December 15, 1997, for all entities
with complex capital structures. Basic EPS is computed by dividing the weighted
average number of common shares outstanding for the period. Diluted EPS reflects
the potential dilution that could occur from common shares issuable through the
exercise or conversion of stock options, restricted stock awards, warrants and
convertible securities. The Company does not anticipate that the adoption of
SFAS No. 128 will have a material effect on EPS.
i) Stock Based Compensation
The Company accounts for employee stock options in accordance with APB
No. 25, "Accounting for Stock Issued to Employees". Under APB No. 25, the
Company applies the intrinsic value method of accounting.
SFAS No. 123, "Accounting for Stock-Based Compensation", prescribes the
recognition of compensation expense based on fair value of options determined on
the grant date. However, SFAS No. 123 allows companies currently applying APB
No. 25 to continue applying the intrinsic value method under APB. No. 25. For
companies that continue applying the intrinsic value method, SFAS No. 123
mandates certain pro forma disclosures as if the fair value method had been
utilised. (Note 6)
- --------------------------------------------------------------------------------
/Continued...
F-11
<PAGE> 55
INTERUNION FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1997
- --------------------------------------------------------------------------------
3. MARKETABLE SECURITIES
<TABLE>
<CAPTION>
As of March 31, 1997 ORIGINAL CARRYING MARKET
COST VALUE VALUE
----------- ----------- -----------
<S> <C> <C> <C>
Trading securities $29,006,131 $29,457,965 $29,457,965
Available for Sale -- -- --
Held to maturity -- -- --
----------- ----------- -----------
Total $29,006,131 $29,457,965 $29,457,965
=========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
For the year ending March 31, 1997 1996
--------- ----------
<S> <C> <C>
Proceeds from Securities classified as Available for sale 2,500,000 16,032,500
Gross Realized Gains (Losses) from securities
classified as Available for sale 335 67,585
Gross Realized Gains (Losses) due to change
in classification to Trading from Available for sale -- --
Change in Net Unrealized Gains (Losses)
On Available for Sale Securities -- --
Change in Net Unrealized Gains (Losses) on Trading
Securities included in Revenues 529,854 --
</TABLE>
4. PROPERTY AND EQUIPMENT
<TABLE>
<CAPTION>
ACCUMULATED NET CARRYING AMOUNT
COST AMORTIZATION 1997
---------- ------------ -------------------
<S> <C> <C> <C>
Computer hardware and software 104,046 67,838 36,208
ITM Computer software
(Notes 2(d) and 8) 1,924,443 384,888 1,539,555
Furniture, fixtures and equipment 69,786 35,644 34,142
Leasehold improvements 1,735 1,735 --
---------- ---------- ----------
$2,100,010 $ 490,105 $1,609,905
========== ========== ==========
</TABLE>
In applying SFAS 121 "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be disposed of", the Company periodically
evaluates its property and equipment for impairment whenever events or changes
in circumstances indicate that the carrying amount of an asset may not be
recoverable. As of the date of these financial statements no reduction in the
carrying value of any asset was required.
- --------------------------------------------------------------------------------
/Continued...
F-12
<PAGE> 56
INTERUNION FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1997
- --------------------------------------------------------------------------------
5. CAPITAL STOCK AND ADDITIONAL PAID-IN CAPITAL
On May 17, 1996, shareholders' approved a twenty (20) to one (1)
reverse stock split. All references to number of shares and exercise prices
have been adjusted accordingly.
<TABLE>
<CAPTION>
Authorized
<S> <C>
1,500,000 Non-cumulative, non-participating, ($0.10 par value) Class A
Preference shares entitled to 100 votes for every one share
issued
50,000,000 Non-cumulative, non-participating, non-voting Class B preference shares with
a par value to be determined at the date of first issuance
50,000,000 Non-cumulative, non-participating, non-voting, convertible into common
shares at a conversion rate to be determined at the date of first issuance
100,000,000 Common shares ($0.001 par value)
</TABLE>
The changes to capital stock and additional paid-in capital are
summarized as follows:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31, 1997 YEAR ENDED MARCH 31, 1996
------------------------- -------------------------
SHARES AMOUNTS SHARES AMOUNTS
-------- ---------- -------- ---------
<S> <C> <C> <C> <C>
For cash 277,142 $ 759,710 322,500 $ 645,000
For services 1,000 20,000
Adjustment for reverse split 14
Issuing costs (32,371) (110,000)
-------- --------- ------- ----------
Total 277,156 $ 727,339 323,500 $ 555,000
======== ========= ======= ==========
</TABLE>
During July 1996, the Company issued 277,142 shares for gross proceeds
of $759,142. Of these shares, 105,642 had warrants attached to them. Each
warrant entitles the holder to purchase 1 additional common share at $6.00
within one year. A value of $78,175 was assigned to the warrants.
6. OPTIONS AND WARRANTS
The Company applies APB No. 25 in accounting for stock option issued to
employees. Accordingly, the intrinsic value of the option as of the grant date
has been recognized as compensation. Had the compensation cost for the Company's
stock option plan been recognized based upon the fair value on the grant date
under the methodology prescribed by SFAS No. 123, the Company's income from
continuing operations and earnings per share for the year ended March 31, 1997
would have been impacted as indicated in the following table. The proforma
results below reflect only the impact of the options granted. No options were
granted during the year ended March 31, 1996.
<TABLE>
<CAPTION>
1997
-------------------------
REPORTED PRO FORMA
-------- ---------
<S> <C> <C>
Income (loss) from continuing operations 160,676 (50,888)
Net loss (230,153) (441,718)
EPS from continuing operations 0.18 (0.05)
EPS (0.25) (0.47)
</TABLE>
- --------------------------------------------------------------------------------
/CONTINUED...
F-13
<PAGE> 57
INTERUNION FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1997
- --------------------------------------------------------------------------------
6. OPTIONS AND WARRANTS - continued
The fair value of the options granted, which is charged to operations
over the option vesting period in determining the proforma impact, is estimated
on the date of grant using the Black-Scholes option-pricing model with the
following weighted average assumptions:
Expected life of the option 2 years
Risk free interest rate 5.2%
Expected volatility 50%
Expected dividend yield 0%
Presented below is a summary of stock option plan activity for the
periods shown:
<TABLE>
<CAPTION>
WT. AVG. WT. AVG.
EXERCISE OPTIONS EXERCISE
NUMBER PRICE EXERCISABLE PRICE
------- --------- ------- ---------
<S> <C> <C> <C> <C>
Balance, April 1, 1995 40,250 $ 40.00 42,250 $ 40.00
Cancelled 40,250 40.00 42,250 40.00
------- --------- ------- ---------
Balance, April 1, 1996 -- -- -- --
Granted 190,000 4.00 190,000 4.00
------- --------- ------- ---------
Balance, March 31, 1997 190,000 $ 4.00 190,000 $ 4.00
======= ========= ======= =========
</TABLE>
The following table summarizes information for options and warrants
currently outstanding and exercisable at March 31, 1997
<TABLE>
<CAPTION>
OUTSTANDING EXERCISABLE
-------------------------------------- --------------------------
WT. AVG. WT. AVG. WT. AVG.
REMAINING REMAINING EXERCISE
PRICE NUMBER LIFE EXERCISE PRICE NUMBER PRICE
----- ------ ---- -------------- ------- ----------
<S> <C> <C> <C> <C> <C>
$4.00 190,000 2 $4.00 190,000 $4.00
NUMBER EXERCISE EXPIRE
OF OPTIONS PRICE DATE
---------- -------- ------
100,000 $4.00 December 1998
90,000 $4.00 February 1999
</TABLE>
7. COMMITMENTS AND CONTINGENCIES
The Company leases warehouse and office space under a number of leases
expiring at various dates through to January 2002. The Company also has a number
of commitments with regards to information suppliers that expire at various
dates through to January 1998. The total minimum annual rentals, exclusive of
additional operating costs, under the leases for the company's premises and
information systems in each of the next five fiscal years are approximately:
1998 161,000
1999 74,000
2000 74,000
2001 63,000
2002 53,000
Payments under the above mentioned leases that have been charged to
operations for the periods ending March 31, 1997 and 1996 amount to $414,539 and
$388,234, respectively.
- --------------------------------------------------------------------------------
/CONTINUED...
F-14
<PAGE> 58
INTERUNION FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1997
7. COMMITMENTS AND CONTINGENCIES - continued
The Company is a defendant is several unrelated lawsuits arising out of
the ordinary course of business. Management believes these actions are without
merit and intends to defend them vigorously. An estimate of the Company's
liability, if any, associated with these matters cannot be made at this time.
8. SALES COMMITMENT
The company entered into an option agreement in fiscal 1996 with a
major international financial institution whereby software ("ITM Software")
owned by its subsidiary, Bearhill Limited ("Bearhill") may be sold for proceeds
to the Company of approximately $15,000,000 CDN (March 31, 1997 - $11,000,000
USD). The company's interest in this software is through its interest in
Bearhill and is carried at $1,539,555 which is included in property and
equipment (Note 4).
During the life of the non-transferable option, Bearhill will receive
an option fee from the option holder annually in order to maintain the option.
The decision to exercise this option is at the full and unlimited discretion of
the option holder. Subsequent to year end, on April 16, 1997, the agreement had
been modified solely with regards to the option premium that is to be paid. It
was agreed that the annual option fee would be paid at the beginning of the
corresponding periods as follows:
<TABLE>
<CAPTION>
CDN USD
------- -------
<S> <C> <C>
For the year beginning April 23, 1996 $25,000 $18,060
For the year beginning April 23, 1997 25,000 18,060
For the year beginning April 23, 1998 50,000 36,120
For the year beginning April 23, 1999 50,000 36,120
</TABLE>
9. DISCONTINUED OPERATIONS
(a) During fiscal 1996, the Company disposed, by way of an assignment in
bankruptcy, its real estate subsidiary, Rosedale Realty Corporation.
The Company reported an extra ordinary gain upon disposition. The gain
is the result of the excess of the forgiveness of the debt exceeded the carrying
cost of the investment in and advances to Rosedale Realty Corporation.
(b) During fiscal 1997, the Company decided to dispose of its auction
subsidiary, Reeve, Mackay & Associates Ltd. A formal plan has been adopted and
the Company has entered into a discussion with regards to the sale of the
Company's auction business which is carried out by Reeve, Mackay & Associates
Ltd. As per APB No. 30, the Company has recorded the operating losses as a
separate item on the Consolidated Statement of Operations. No loss has been
accrued at March 31, 1997 as the Company does not expect to incur a loss upon
disposition.
Reeve, Mackay has been named as a defendant in a lawsuit. Reeve,
Mackay's potential liability ranges from $5,000 to $175,000. Management
believes, however, that the ultimate outcome of this lawsuit will not have a
material adverse effect on the Company's financial position.
- --------------------------------------------------------------------------------
/CONTINUED...
F-15
<PAGE> 59
INTERUNION FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1997
- --------------------------------------------------------------------------------
10. INCOME TAXES
The provision for income taxes consists of:
Year Ended March 31, 1997 1996
---- ----
Domestic
Current $ -- $ --
Deferred 85,000 --
Foreign
Current 3,085 28,232
Deferred -- --
------- -------
Total provision for income taxes $88,085 $28,232
======= =======
The total provision for income taxes differs from that amount which
would be computed by applying the United States federal income tax rate to
income (loss) before provision for income taxes. The reason for these
differences are as follows:
<TABLE>
<CAPTION>
Year Ended March 31, 1997 1996
---------------- ------------------
AMOUNT % AMOUNT %
------- --- -------- ---
<S> <C> <C> <C> <C>
Statutory income tax rate (recovery) $84,500 34 $(16,000) 34
Other non-deductible items 10,500 4 31,500 (67)
Other 6,915 (3) 12,732 (27)
------- --- -------- ---
Net taxes (recovery) and effective rate $88,085 35 $ 28,232 (60)
======= === ======== ===
</TABLE>
The Company recognizes deferred tax liabilities and assets for the expected
future tax consequences of temporary differences between the carrying amounts
and the tax basis of assets and liabilities and net operating loss
carryforwards. Temporary differences and carryforwards which give rise to
deferred tax assets and liabilities are as follows at March 31, 1997:
<TABLE>
<CAPTION>
COMPONENT TAX EFFECT
--------- ----------
<S> <C> <C>
Net operating losses - foreign $ 150,000 60,000
Less valuation allowance (150,000) (60,000)
--------- --------
Net deferred asset $ -- --
========= ========
Net operating losses - domestic $ 90,000 15,000
Unrealized gains - domestic (550,000) (100,000)
--------- --------
Net deferred liability $(460,000) (85,000)
========= ========
</TABLE>
At March 31, 1997, the Company had cumulative net operating loss
carryforwards of approximately $90,000 and $150,000 in the United States and
Canada, respectively. These amounts will expire in various years through 2012.
In addition, the Company had net capital loss carryforwards available to offset
future capital gains of approximately $550,000.
- --------------------------------------------------------------------------------
/CONTINUED...
F-16
<PAGE> 60
INTERUNION FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1997
- --------------------------------------------------------------------------------
11. GEOGRAPHICAL AREA SEGMENTATION
The following tables summaries the revenues, operating profits (losses)
from continuing operations and identifiable assets by geographical area.
<TABLE>
<CAPTION>
ADJUSTMENTS
UNITED &
CANADA STATES OTHER ELIMINATION CONSOLIDATED
------ ------ ----- ----------- ------------
<S> <C> <C> <C> <C> <C>
For the year ended and as of March 31, 1997
Revenue from
unaffiliated customers $ 4,220,784 $ 1,477,062 $14,337 $ -- $ 5,712,183
Revenue from
intersegments 292,567 -- -- (292,567) --
------------ ----------- ------- --------- -----------
Total revenue 4,513,351 1,477,062 14,337 -- 5,712,183
============ =========== ======= ========= ===========
Depreciation & Amortization 25,986 574 0 214,352 240,912
============ =========== ======= ========= ===========
Operating profit 104,931 550,424 8,680 (238,308) 425,727
============ =========== ======= =========
General corporate
expenses 200,000
Interest expenses, net (23,034)
Income from continuing -----------
Operations before provision
for income taxes 248,761
===========
Identifiable assets 12,792,699 25,990,456 37,352 -- 38,820,507
============ =========== ======= ========= ===========
For the year ended and as of March 31, 1996
Revenue from
unaffiliated customers $ 4,915,350 $ 911,094 $30,751 $ -- $ 5,857,195
Revenue from
intersegments 17,606 -- -- (17,606) --
------------ ----------- ------- --------- -----------
Total revenue 4,932,956 911,094 30,751 (17,606) 5,857,195
============ =========== ======= ========= ===========
Depreciation & Amortization 28,153 2,234 -- 214,352 244,739
============ =========== ======= ========= ===========
Operating profit 209,969 116,961 27,939 (214,352) 140,517
============ =========== ======= =========
General corporate
expenses 225,000
Interest expenses, net (37,337)
Loss from continuing -----------
Operations before provision
for income taxes (47,146)
===========
Identifiable assets 6,462,306 2,873,162 28,539 -- 9,364,007
============ =========== ======= ========= ===========
</TABLE>
For both fiscal years ended March 31, 1997 and March 31, 1996 the
company did not have any customers that represented revenues in excess of 10%
nor did it have any operating company outside of the financial services business
segment.
- --------------------------------------------------------------------------------
/CONTINUED...
F-17
<PAGE> 61
INTERUNION FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1997
- --------------------------------------------------------------------------------
12. SUBSEQUENT TRANSACTIONS
During fiscal 1997, the Company entered into an agreement where it
would act as an investment banker in the recapitalization of Receptagen Ltd.,
whereby, the Company made available to Receptagen a credit facility of C$400,000
(USD$290,000). This credit facility will be exchangeable for a convertible
debenture of Receptagen which converts into units of Receptagen at a rate of
C$0.105 per unit. Each unit is itself exchangeable, after the private placement
outlined below, into one common share and one share purchase warrant at C$0.14
within two years. The credit facility was fully subscribed by investors other
then the Company.
On April 7, 1997, all creditors of Receptagen agreed to exchange debt
of approximately C$9 million for shares of the Company issued under Regulation
"S" of the United State Securities Act of 1933, at a rate of C$0.20 per C$1.00
of debt. The Company expects to issue approximately 260,000 shares valued at
USD$4.00 per share for this transaction in addition to 213,000 share purchase
warrant at USD$4.00. In exchange, the Company will receive C$0.20 per C$1.00 of
debt of Receptagen acquired from creditors in the form of convertible debenture.
This debenture is convertible into unit "A" of Receptagen at a rate of C$0.07
per unit. Each unit `A' is exchangeable into one common share and one share
purchase warrant at C$0.14 within two years.
The third phase of the recapitalization of Receptagen involves a
private placement of C$2.5 million in Special Warrants, which is expected to
close May 21, 1997. The offering price of these Special Warrants is C$0.116 and
they are exchangeable into one common share and one share purchase warrant at
C$0.14 within two years.
Each Receptagen unit is exchangeable for one common share and one
common share purchase warrant at C$0.14 for two years. All securities issued by
Receptagen under its recapitalization plan will be qualified under a prospectus
to be filed with the Ontario Securities Commission (the "Qualifying
Jurisdiction") on or before September 23, 1997. Receptagen is currently traded
on the Toronto Stock Exchange ("RCG") and the NASD Over-the-Counter Bulletin
Board ("RCEPF").
13. RELATED PARTY TRANSACTION
During fiscal 1997, the Company paid a company owned by a director
approximately $40,000 which has been included as rent expense. In turn, this
company has paid an unrelated party $40,000 as rent for these same premises that
only the Company is occupying.
On September 26, 1996. the Company paid $80,000 to acquire an option to
purchase all of the outstanding shares of New Research Corporation. The option
to acquire all of the outstanding shares of New Research Corporation expires on
December 15, 1997. New Research is owned by the majority shareholder of the
Company.
- --------------------------------------------------------------------------------
F-18
