<PAGE> 1
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-KSB
PURSUANT TO SECTION 13 0R 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended: March 31, 1999 Commission File No: 000-28638
INTERUNION FINANCIAL CORPORATION
(Exact name of small business issuer as specified in its charter)
Delaware 87-0520294
- -------- ----------
(State or other jurisdiction (IRS Employer Identification No.)
of incorporation or organization)
249 Royal Palm Way, Suite 301 H, Palm Beach, Fl 33480
- ----------------------------------------------- -----
(Address of principal executive offices) (Zip Code)
(561) 820-0084 (561) 655-0146
- -------------- --------------
(Issuer's telephone number) (Issuer's telecopier number)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12 (g) of the Act: Common Stock
$0.001 Par Value
Check whether the issuer (1) filed all reports required to be filed by section
13 or 15(d) of the Exchange Act during the past 12 months (or such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes [x] No [ ]
Check if there is no disclosure of delinquent filers in response to item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of the registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this form 10-KSB. [x]
State issuer's revenues for its most recent fiscal year: $1,463,884
State the aggregate market value of the voting stock held by non-affiliates
computed by reference to the price at which the stock was sold, or the average
bid and ask prices of such stock, as of a specified date within the past 60
days. $3,194,955 As at June 28, 1999
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of share outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: $0.001 Par Value Common Shares -
2,114,425 as of June 28,1999.
Transitional Small Business Disclosure Format (Check One) Yes [ ] No [x]
Page 1 of 24
<PAGE> 2
INTERUNION FINANCIAL CORPORATION
FORM 10-KSB
TABLE OF CONTENTS
PART I ...................................................................... 3
Item 1 DESCRIPTION OF BUSINESS .......................................... 3
Item 2 DESCRIPTION OF PROPERTY .......................................... 7
Item 3 LEGAL PROCEEDINGS ................................................ 7
Item 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS .............. 7
PART II ..................................................................... 8
Item 5 MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS ......... 8
Item 6 MANAGEMENT'S DISCUSSION AND ANALYSIS ............................. 10
Item 7 FINANCIAL STATEMENTS ............................................. 16
Item 8 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE ............................................. 16
PART III .................................................................... 17
Item 9 DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT ................ 17
Item 10 EXECUTIVE COMPENSATION .......................................... 19
Item 11 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT .. 20
Item 12 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS .................. 22
Item 13 EXHIBITS AND REPORTS ON FORM 8-K ................................ 23
Page 2 of 24
<PAGE> 3
PART I
Item 1 DESCRIPTION OF BUSINESS
(A) BUSINESS DEVELOPMENT
INTERUNION FINANCIAL CORPORATION (the "Company"), is a Delaware corporation. The
Company carries its activities in two main sectors: (i) merchant banking and
(ii) investment banking. Merchant banking activities focus on restructuring
and/or consolidating as principal, in order to capitalize smaller or
privately/family held companies and attract institutional interest. Investment
banking activities focus on advisory services and raising of capital, as agent,
for small and medium size corporations, public or private which are either
looking for institutional financing or strategic alliances in sectors in which
InterUnion Financial Corporation has recognized research and corporate finance
strength.
The Company's policy is not to get involved in the corporations it advises or
provides financing to when acting as agent, and to limit the extent of its
involvement in the corporations in which it acts as principal.
In fiscal 1996, the Company had the following subsidiaries and / or affiliates:
BEARHILL LIMITED ("BHL"), CREDIFINANCE CAPITAL INC. ("CFCI"), CREDIFINANCE
SECURITIES LIMITED ("CFSL"), GUARDIAN TIMING SERVICES, INC. ("GTS"), I & B, Inc.
("I&B") and REEVE, MACKAY AND ASSOCIATES LTD ("RMA").
On May 17, 1996, at a special meeting of shareholders, the Board of Directors
was authorized to consolidate all of the authorized Common Shares in a ratio of
twenty (20) to one (1). At the date of the meeting, the total of issued and
outstanding voting shares of stock was 13,851,156.
On January 19, 1997, the Company received from RECEPTAGEN LIMTED, ("RCG") a
restructuring mandate. RCG is a corporation incorporated under the laws of
Canada. RCG is a publicly reporting company in both the United States and
Canada. RCG is currently not trading on any exchange or over-the-counter market.
At the present time, it is not the intention of the Company to go beyond its
investment or merchant banking mandate and consider its investment in RCG other
than temporary.
On July 1, 1997, the Company acquired for cash and notes payable, a one third
interest in LEON FRAZER, BLACK & ASSOCIATES LIMITED. ("LFB"), a corporation
organized under the laws of Ontario, Canada. On the same day, the Company sold
its interest in RMA.
On August 18, 1997, at the Company's Shareholders' meeting the following
capitalization was approved:
2,500,000 shares of common voting stock at $0.001 par value.
1,500,000 shares of Class A preferred stock at $0.10 par value.
1,000 shares of Class B preferred stock at $0.10 par value.
1,000 shares of Class C preferred stock at $0.10 par value.
A Certificate of Amendment was filed with the Secretary of State, State of
Delaware, reflecting the above modification.
Effective March 1, 1998, the Company acquired all of the outstanding common
stock of CLUSTER ASSET MANAGEMENT LIMITED ("CAM"), which include its only asset
and wholly owned subsidiary, THE GLEN ARDITH-FRAZER CORPORATION ("GAF"), through
the issuance of 213,194 shares of Common Shares and 106,597 Shares Purchase
Warrants of the Company. Both CAM and GAF corporations organized under the laws
of Ontario. On May 26, 1998, CAM changed its name to INTERUNION ASSET MANAGEMENT
LIMITED ("IUAM").
Effective March 31, 1998, the Company acquired 45% of the outstanding common
shares of BLACK INVESTMENT MANAGEMENT LIMITED ("BIM"), a corporation organized
under the laws of Ontario, for
Page 3 of 24
<PAGE> 4
the issuance of 216,640 shares of common stock of the Company and cash. BIM also
has a 31.9% interest in LFB.
On September 3, 1998, at the Company's Shareholders' meeting it was approved
that the Company is authorized to issue up to 5,000,000 shares of common voting
stock at $0.001 par value.
On January 25, 1999, the Company, through a roll over of its interests,
reorganized its investment management companies; BIM, GTS and LFB, into IUAM.
The purpose of the reorganization was to allow IUAM to implement its business
plan and continue its acquisition program, on a tax effective basis, as a
consolidator of Canadian investment management companies and get access to an
institutional strategic alliance. That restructuring has allowed the Company to
include its IUAM ownership in its merchant banking activities.
On January 25, 1999, IUAM issued 310,010 convertible preferred shares to Working
Venture Canadian Fund ("WVCF") for gross proceeds of C$5,000,000. (C$ is the
symbol used for the Canadian currency, unless preceded by C, all dollar amounts
are US dollars). Each convertible preferred share is convertible into one common
share of IUAM and gives the holder one vote per share. WVCF is a Canadian
institutional investor with more than $500 million in funds under
administration. WVCF's only fund is a labor sponsored fund with approximately
400 shareholders. Investors in these funds receive an immediate tax credit of up
to 40% of the amount invested.
On March 9,1999, WVCF converted their Convertible Preferred Shares in IUAM
Common Shares and acquired an additional 568,160 Common Shares for C$5,000,000.
At that point, the ownership structure of IUAM became WVCF 56% and IUFC 44%.
Concurrent with that last financing, IUAM incorporated a new entity, AIL
INVESTMENT SERVICES LIMITED ("AILIS"). The objective of AILIS being to create a
family of mutual funds in order to expand WVCF's product line. The funds raised
by expanding the products sold by WVCF's sales force would be managed by the
various investment managers within the IUAM group.
In April 1999, IUAM acquired 5,978 shares of BIM to own 50.5% of the issued and
outstanding Common Shares of BIM.
(B) BUSINESS OF ISSUER
GENERAL
The Company was formed as a "business bank" which would acquire, when possible,
a majority interest in financial services companies in order to expand its
investment banking and merchant banking activities.
The Company provides bridge financing and development capital as part of its
investment banking activities. Financing can be provided to companies outside
the financial service sector and can be extended for a period of up to five
years, depending on the complexity of the undertaking.
InterUnion is both a holding and an operating company as it engages in
activities which can be separate from the activities of its named subsidiaries:
InterUnion derives independent revenues from its own investment banking and
merchant banking activities.
PRODUCTS AND/OR SERVICES OF ACTIVE SUBSIDIARIES
In addition to the operations of InterUnion Financial Corporation as the parent,
the Company owns operating subsidiaries. These subsidiaries are; Credifinance
Capital, Inc., Credifinance Securities Limited and Marbury Trading Corporation.
In addition to these subsidiaries, the Company has a 44% interest in InterUnion
Asset Management Limited. IUAM is a holding company with interests in Canadian
investment management companies.
Page 4 of 24
<PAGE> 5
(1) INVESTMENT BANKING
Credifinance Capital, Inc. ("CFCI") is an investment corporation located in
Toronto, Canada. The business of this company is to advise and/or act as agent
in the trading of international securities essentially for its European and
offshore clients on both the primary and secondary markets. CFCI owns
Credifinance Securities Limited.
Credifinance Securities Limited ("CFSL") started operations in September 1991 as
an institutional boutique active in trading for the accounts of its Canadian
clients, in the fixed income and equity markets. CFSL acts exclusively as agent
and its specialized research is the basis for its underwriting and corporate
finance activities that focus on small and medium size companies in select
sectors.
CFSL is a member of the Canadian Investment Dealers Association, the Toronto
Stock Exchange and the Montreal Exchange. CFSL is also a member of the
International Securities Market Association.
(2) MERCHANT BANKING
Marbury Trading Corporation ("MTC") is a Panama corporation with administrative
office in Geneva, Switzerland. The business of Marbury is to take debt and
equity positions in companies for which InterUnion acts directly or through its
investment banking subsidiary for the purpose of restructuring, merger or
acquisition. Such investments can be carried from a few months up to 5 years
depending on the complexity of the transaction. Although MTC's, and therefore
the Company's, interest in the reorganized companies can be substantial at
times, the objective is either to dispose of its interest over time or reduce it
to a minority position upon completing its mandate.
Currently MTC's investment is limited to its interest in Receptagen.
Bearhill Limited ("BHL") is located in the British Virgin Islands. BHL owns the
proprietary rights to certain computer software known as ITM Software, which is
a computer software program used to generate buy and sell signals with respect
to any stock market monitored. 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. 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.
Currently, BHL has granted exclusive rights to Guardian Timing Services, Inc.
("GTS") to use the ITM Software. As partial consideration for this right, GTS
has to maintain the development of the ITM software and any similar product that
GTS could develop is to be the sole property of BHL. It is the Company's
objective to maximize the value of this asset since it no longer owns 100% of
GTS, which could include the exercise, its intellectual property rights.
(3) INVESTMENT MANAGEMENT
The Company's primary interest in the investment management business is through
its 44% ownership of IUAM based in Toronto, Canada. IUAM's investment management
activities are carried out through Guardian Timing Services, Inc, Black
Investment Management Limited, Leon Frazer, Black & Associates Limited, The Glen
Ardith-Frazer Corporation and A.I.L. Investment Services Limited. Working
Venture Canadian Fund owns the remaining 56%. In addition, the Company owns 100%
of Bearhill Limited.
Guardian Timing Services, Inc. ("GTS") is an independent investment and fund
management firm located in Toronto, Canada, with approximately C$100 million in
assets under management. GTS manages the Canadian Protected Fund, the Protected
American Fund and the First America Fund, in addition to being the co-manager of
the India Excel Fund. It uses the proprietary ITM market timing model owned by
BHL, a subsidiary of the Company.
Page 5 of 24
<PAGE> 6
Black Investment Management Limited ("BIM") is an independent investment counsel
based in Toronto, Canada, that provides professional management of financial
assets for pension funds, corporations, foundations, mutual funds and group
investment plans. Mr. Paul Black and Mr. Robert W. Crosbie established BIM in
1973. BIM has approximately C$300 million in assets under administration. IUAM
has a 50.5% interest in BIM.
Leon Frazer, Black & Associates Limited ("LFB") was established in 1939 and is
the second oldest independent counseling and investment management firm in
Toronto, Canada. LFB manages about C$250 million of assets for high net worth
individuals. IUAM has a 33.3% direct interest in LFB as well as an additional
16% indirect interest through BIM, which owns 31.7% directly.
The Glen Ardith-Frazer Corporation ("GAF") is an independent investment counsel
located in Toronto, Canada that provides discretionary management to both
institutional and private clients. GAF has approximately C$150 million in assets
under administration.
A.I.L. Investment Services Limited ("AILIS") was recently incorporated in
Ontario. The objective of AILIS is to create a full family of mutual funds that
is to be managed by affiliated companies within the IUAM Group. The distribution
and marketing of the mutual funds themselves will be done by WVCF. AILIS is
wholly owned by IUAM.
The Company has reached its objective to consolidate and capitalize through an
association with an institutional investor, its Canadian investment management
activities through a pure play vehicle, which could facilitate and accelerate
its acquisition program. Going forward, the Company will be considering its
interest in the Canadian investment management industry as part of its
investment banking activity.
COMPETITION
Competition is a part of every business. InterUnion faces competition directly
and through its subsidiaries from larger, better-capitalized financial service
companies as well as smaller, also better capitalized niche companies. These
companies can be commercial / investment / merchant banks, thrift institutions,
venture capital firms, etc. In addition, the Company is a minority investor in
IUAM, albeit with extensive minority shareholders rights granted under a
Shareholders Agreement. The performance of the assets under administration by
IUAM and its subsidiaries is a factor that could adversely affect the results of
the Company, as poor performance or loss of key portfolio managers may cause
clients to move their assets to other investment management companies.
GROWTH STRATEGY
Since inception, InterUnion's strategy has been to be a "business bank" i.e. to
be able to take advantage of investing/advisory opportunities. These
opportunities can include the temporary involvement of the Company in pure
financial service transactions. InterUnion's business will retain the purchase
and selling of companies or part of companies which will use InterUnion's
investment banking services as well as its ability to pay cash and/or issue its
own security in order to complete corporate transactions. InterUnion's strategy
is also to reduce its shareholders' risk by ensuring that its book value is
spread among various interests and does not depend on only one sector of
activity or only one operating company. InterUnion has been successful in
managing its investors' risk as today there is a sufficient number of
professionals with adequate credentials and experience in the various operations
who at the same time are shareholders of InterUnion. In time, as InterUnion gets
a larger and more diversified shareholder base, that strategy should help
InterUnion to grow and enable it to obtain outside financing.
The investment management activity of the Company through IUAM should continue
to expand as: (i) IUAM has now been converted into a pure Canadian consolidator,
(ii) IUAM has the necessary resources to acquire firms either with cash or
stock, in a tax efficient manner and (iii) IUAM will also be able to benefit
from its ownership of AILIS to grow as it can benefit from the resources of its
main shareholder, WWCF.
Page 6 of 24
<PAGE> 7
GOVERNMENT REGULATION
The operating activities of the Company are not subject to governmental
regulatory agencies, except for:
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
compliance, rules and regulations of these self-regulatory organizations.
Black Investment Management Limited, The Glen Ardith-Frazer Corporation,
Guardian Timing Services Inc. and Leon Frazer Black & Associates Limited are
regulated by the Ontario Securities Commission.
EMPLOYEES
InterUnion has 12 full time employees within its majority owned subsidiaries.
Item 2 DESCRIPTION OF PROPERTY
The Company does not own real estate.
The Company has leasehold interests in real estate as shown below, and all
premises are in good condition.
<TABLE>
<CAPTION>
Gross Area Annual Rent
Lessee & Location of Premises (Sq. Ft.) Term Per Sq. Ft.
----------------------------- ----------- --------------- ------------
<S> <C> <C> <C>
InterUnion Financial Corporation 300 Mar. 98-Feb. 99 $15.32
Suite 301
249 Royal Palm Way
Palm Beach, Florida
Credifinance Securities Limited 3,310 Feb. 97-Jan. 02 C$22.00
Suite 3303
130 Adelaide Street W
Toronto, Ontario
Credifinance Securities Limited 927 Jul. 97-Jan. 02 C$15.00
Suite 3304
130 Adelaide Street W
Toronto, Ontario
</TABLE>
Item 3 LEGAL PROCEEDINGS
Not applicable
Item 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the fourth quarter of the fiscal year covered by this report, there was
no matter brought to a vote of security holders, through the solicitation of
proxies or otherwise.
Page 7 of 24
<PAGE> 8
PART II
Item 5 MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
(a) MARKET INFORMATION
The issuer's common equity is traded on the NASD 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.
<TABLE>
<CAPTION>
Period Open High Low Close
------ ----- ----- ----- -----
<S> <C> <C> <C> <C>
FY98 Qtr 1 $5.00 $6.50 $4.00 $6.00
FY98 Qtr 2 6.00 6.75 4.50 4.50
FY98 Qtr 3 4.50 5.75 4.00 4.50
FY98 Qtr 4 4.50 5.50 3.50 3.50
FY99 Qtr 1 3.50 4.75 3.47 3.75
FY99 Qtr 2 4.12 5.75 4.00 4.80
FY99 Qtr 3 4.75 4.85 2.62 4.06
FY99 Qtr 4 4.06 5.12 4.00 4.25
</TABLE>
(b) HOLDERS
The approximate number of holders of record of each class of stock is as
follows:
<TABLE>
<CAPTION>
Class of Stock Number of Holders
-------------- -----------------
<S> <C>
Common Share 450
Class A Preferred 1
Class B Preferred none issued
Class C Preferred none issued
</TABLE>
(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, those limit the ability to pay out all earnings as dividends. The
Board of Directors does not anticipate paying any dividends in the foreseeable
future; it intends to retain the earnings which could be distributed, if any,
for the operations, expansion and development of its business.
(d) RECENT SALES OF UNREGISTERED SECURITIES
(i) SALES PURSUANT TO REGULATION D
The Company has not made any sales 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, promulgated by the
Securities and Exchange Commission.
Page 8 of 24
<PAGE> 9
(B) SALES PURSUANT TO REGULATION S
The following sales of Common Stock 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 of Price per
(1)(2)(3)(4) Shares Share Consideration Commission Date
------------------ ----------------- --------------- ------------------ ------------------ --------------------
<S> <C> <C> <C> <C> <C>
Common(5) 20,000 4.00 80,000 Nil July 1996
Common 151,500 1.00 151,500 Nil August 1996
Common 105,642 5.00 528,210 32,371 October 1996
Common(6) 229,453 5.00 1,147,265 Nil April 1997
Common(7) 60,000 3.00 180,000 Nil June 1997
Common(8) 15,000 6.00 90,000 Nil August 1997
Common(9) 213,194 4.00 852,776 Nil February 1998
Common(10) 216,640 3.64 788,569 Nil April 1998
Common(11) 17,002 4.00 68,008 Nil May 1998
Common 35,000 4.00 140,000 7,000 June 1998
Common(11) 262,142 4.00 1,048,568 Nil July 1998
Common(11) 10,000 4.00 40,000 Nil December 1998
Common(11) 180,000 3.50 630,000 63,000 February 1999
Common(12) 25,000 3.50 87,500 Nil March 1999
Common(11) 1,140 4.00 4,560 Nil March 1999
</TABLE>
NOTES TO SALES PURSUANT TO REGULATION S
(1) All sales were made directly by the Company as issuer.
(2) 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.
(3) All sales as shown above were made to non-U.S. persons.
(4) 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).
(5) These shares were issued on the conversion of a debenture.
(6) These shares were issued with regards to the Receptagen restructuring.
The consideration was determined by the price of the common stock at
the time of the transaction. These shares were given to a non-related
party.
(7) These shares were issued upon the exercise of employee stock options,
previously granted to Mr. Selwyn J. Kletz.
(8) These shares were issued upon the exercise of warrants.
(9) These shares were issued in the acquisition of IUAM. The consideration
received was 91.55% of all of the issued and outstanding shares of
IUAM. The valuation of IUAM was determined by an arms lengths
transaction. These shares were given to a non-related party.
Page 9 of 24
<PAGE> 10
(10) These shares were issued in the acquisition of BIM. The consideration
received was 45% of all of the issued and outstanding shares of BIM.
The valuation of BIM was determined by an arms lengths transaction.
These shares were given to a non-related party.
(11) These shares were issued in settlement of an equal amount due to the
purchaser of the common stock.
(12) These shares issued for services received from the Chairman of the
Company, Mr. Robert Crosbie.
Item 6 MANAGEMENT'S DISCUSSION AND ANALYSIS
(a) OVERVIEW
InterUnion Financial Corporation, ("IUFC" or "InterUnion"), was incorporated on
February 7, 1994. InterUnion's strategy is to acquire, when possible, a majority
interest in financial services business. InterUnion and its subsidiaries,
(collectively the "Company"), also provides bridge financing or takes equity
positions as part of its merchant banking. The Company acquires companies or
interests in companies for cash but preferably for common shares of the Company
with additional incentives for vending shareholders via common share purchase
warrant and stock options for management. Since 1994, the Company has acquired:
<TABLE>
<CAPTION>
Corporation Acquired or Invested In Nature of the Company Date
----------------------------------- --------------------- ----
<S> <C> <C>
Bearhill Limited ("BHL") Investment Software January 1995
Guardian Timing Services, Inc. ("GTS") Investment Management January 1995
Credifinance Capital Inc. ("CFCI") Investment Company March 1995
Credifinance Securities Limited ("CFSL") Investment Bank March 1995
Rosedale Realty Corporation ("RRC") Real Estate Sales March 1995
Reeve, Mackay & Associates Ltd. ("RMA") Auction Sales May 1995
Receptagen Limited ("RCG") Biotechnology April 1997
Leon Frazer, Black & Associates Limited ("LFB") Investment Management July 1997
InterUnion Asset Management Limited ("IUAM") Investment Management March 1998
The Glen Ardith-Corporation ("GAF") Investment Management March 1998
Black Investment Management Limited ("BIM") Investment Management March 1998
AIL Investment Services Limited ("AILIS") Investment Management March 1999
</TABLE>
Note: 1 InterUnion still has an interest in all of these companies
with the exception of Rosedale Realty Corporation and
Reeve, Mackay & Associates.
2 IUAM changed its name from Cluster Asset Management Limited in
April 1998.
The Company realigned its interest in its Canadian investment management
business in 1999, in order to facilitate its growth strategy. The results of
this realignment placed the Company's interest in BIM, GTS and LFB under IUAM,
which already held the interest of GAF. The purpose of the realignment was to
allow IUAM to implement its business plan and continue its acquisition program,
on a tax effective basis, of Canadian investment management companies and get
access to an institutional strategic alliance, as a consolidator of the Canadian
investment management business.
IUAM also issued 878,170 Common Shares for gross proceeds of C$10 million from
Working Venture Canadian Fund ("WVCF"). The effect of this transaction reduced
the Company's interest in IUAM to 44% from 100%. In addition, as part of the
transaction, IUAM and its subsidiaries will have the marketing support of WVCF's
marketing department, therefore adding an aggressive internal growth strategy to
its previous growth by acquisition only. This internal growth strategy is to be
implemented by having AILIS, a wholly owned subsidiary of IUAM and managed by
personnel from WVCF, create a family of mutual funds to be sold through WVCF's
distribution. IUAM's portfolio managers will manage these funds, therefore
leveraging its current infrastructure.
Page 10 of 24
<PAGE> 11
The following table is a summary of IUAM's interest in the above mentioned
investment management firms.
<TABLE>
<CAPTION>
Direct Indirect Total Control
------- -------- ------- --------
<S> <C> <C> <C> <C>
BIM 50.50% 0.00% 50.50% 50.50%
GTS 100.00% 0.00% 100.00% 100.00%
GAF 100.00% 0.00% 100.00 100.00%
LFB 33.33% 16.10% 49.40% 65.28%
AILIS 100.00% 0.00% 100.00% 100.00%
</TABLE>
Although, IUAM's total interest in LFB is 49.4% (16.1% is through BIM's 31.9%
interest in LFB), IUAM controls 65.3% of LFB, as IUAM owns a majority of BIM.
Since the Company's interest in IUAM is 44% and it has three of the seven board
seats, IUAM will be accounted for on the equity method going forward, in
addition to being considered part of its investment banking activities.
Revenues
Revenues are primarily comprised of success fees and work fees. The success fees
are for mandates related to the raising of funds and for merger and acquisition
activity. The Company also receives work fees for larger merger and acquisition
mandates in addition to special assignments that can include fairness opinions,
valuations, sponsorships, etc. The revenue that the Company receives is also a
factor to the amount of support InterUnion has had to date been required to lend
to the investment management companies. Until recently, InterUnion has dedicated
a very large percentage of its human and financial resources to the investment
management group without adequate compensation in order to allow its growth and
obtain financing. Now that IUAM is funded, the Company will be able to direct
its resources to its other activities and benefit from its interest in the
growth of IUAM. However, success depends on business and market conditions.
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. Therefore, commissions paid out are the most
important expense and generally rise and fall along with the revenues of the
Company.
Across all of the Company's subsidiaries, the contribution margin (contribution
margin is defined as revenues less variable expenses) was 69.1% in fiscal 1999
versus 48.4% and 43.0% in each of the previous two years. The substantial
increase in fiscal 1999 is due to the reduction in revenues and thus the
corresponding pay out to commission personnel. The previous increase in margin
is primarily due to a shift in CFSL's revenues from secondary market agency to
primary market revenue from corporate finance and underwriting activities. The
Company expects to maintain margins in this range due to the stability of its
commission pay out structure.
Interest Income
The Company invests its cash in government issued treasury bills that give rise
to interest income. Additional interest income comes from the spread between the
interest that the Company receives over and above what is paid to its clients on
their deposits by its clearing agent. This amount is not expected to be
significant with respect to revenues on a yearly or quarterly basis.
Page 11 of 24
<PAGE> 12
Interest Expense
The Company's debt is the result of its investment management acquisition
program and the need for the investment management group of InterUnion's
personnel for its day to day administration and reporting requirements. A
substantial amount of this debt has been converted into common stock of the
Company, and therefore, such expense should be reduced during the following
fiscal year, subject to its merchant banking activities.
Gain on Issuance of Security
The Company has recognized a gain of $486,099 on the issuance of the equity by
IUAM. This resulted from the increase in the value of the price paid for by the
purchaser over and above the cost of that of the Company's. The Company did not
receive any compensation of any kind for this transaction nor can it give any
assurance that it can realize this amount in the future should it seek to divest
itself of its investment, due to market conditions at the time of the sale.
Discontinued Operations
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, prior to recording a small
profit in the first quarter of 1998. The Company sold its interest in Reeve,
Mackay in July 1997.
Exposure to International Operations
Although all of the Company's revenues are generated in North America, all of
its subsidiaries are located in Canada. Therefore the Canadian Dollar involves a
certain degree of foreign exchange risk. Due to the small size of the risk and
to the fact that each company within the InterUnion Group operates independently
of each other, the Company does not purchase any derivative products to offset
that 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 that is affected by changes in season.
(b) RESULTS OF OPERATIONS
Fiscal 1997 marked 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 reported a profit from continuing
operations.
Fiscal 1998 was no exception.
o The first year with only finance services companies within its group;
o The first year that investment management assets within the group
exceeded that of investment banking, excluding treasury bills.
Fiscal 1999 continued the trend with InterUnion realizing a capital profit from
its foray in to the investment management business.
Page 12 of 24
<PAGE> 13
Financial highlights are as follows:
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
Revenues 1,463,884 3,115,407 5,737,848
Income (loss) excluding
discontinued operations (390,182) (819,461) 160,676
Discontinued Operations -- 804,174 (390,829)
Net Loss (390,182) (15,287) (230,153)
Assets 29,448,186 48,743,732 38,820,507
Shareholders' Equity 7,919,650 6,692,432 3,639,337
Working Capital 1,773,590 (163,274) 1,750,889
Common Shares Outstanding 2,114,425 1,654,001 969,714
Book Value per Common Share 3.67 4.05 3.60
</TABLE>
Fiscal Year 1999 Compared to Fiscal Year 1998
(1) Overview
Although revenues decreased by $1,651,523 (or 53%) over fiscal year 1998, most
other items on the income statement improved. Costs of revenues as a percentage
of sales decreased to 57.2% from 65.0% a year earlier, due to the reduction in
revenues and the various payout structure within the Company. Fixed overhead and
non cash expenses decreased by $932,079 or 53.5%, the management looked to match
costs to a declining revenue base. The Company's loss from operations was
improved to $390,182 from $819,461, or 52%, as a net result of both variable
costs and overhead being reduced at a faster rate than that of revenues.
In realigning the Company's investment management firms and the subsequent
issuance of stock by IUAM, the Company was able to record a gain of $486,099.
This gain was greater than the operating loss of $436,917 the Company had to
record from this investment. The Company does not expect to record future gains
of this type, but does expect continued losses from its interest in IUAM.
However, should IUAM apply itself significant cost savings can be made, as it
has not started to maximize the use of its capital and benefit from the
synergies a consolidator should have. The Company would like to state that such
potential cost saving is beyond its direct control, as it no longer controls
IUAM.
Additional, losses from unconsolidated affiliates were due to the Company's
interest in Receptagen Ltd. This amount is not expected to continue as the
Company's interest is below 20% and continues to decrease as Receptagen issues
its own Common Stock to meet its obligations.
Earnings per share for fiscal 1999 was a loss of $0.21 versus a loss of $0.01 a
year earlier. The basic average number of common shares outstanding for the year
ending March 31, 1999 is 1,855,386 versus 1,232,100 a year earlier.
(2) Revenues
Revenues decreased by $1,651,523 (or 53%) over fiscal year 1998 (from $3,115,407
to $1,463,884). CFSL's decrease in revenues can account for $1,544,230 or 93.4%
of the overall reduction. The cause of this reduction is two fold: (i) difficult
market conditions for raising capital for small companies; and (ii) the time and
effort spent, without compensation, to realign its investment management
interests into IUAM and raise the financing necessary for that affiliate; and
(iii) the de-consolidation of the Company's interest in its investment
management affiliates.
Page 13 of 24
<PAGE> 14
(3) Cost of Revenues
Costs of revenues (Selling, General and Administrative expenditures) for the
year decreased by $2,169,589 or 59.0% to $1,504,959 from $3,674,548. This
decrease is due to the fact that the Company's main expense is commission earned
as a function of revenues and the de-consolidation of the Company's interest in
its investment management affiliates.
(4) Net Loss
Net loss for the period was $390,182 versus $15,287, a year earlier. Losses from
operations (revenues less expenses) was $383,364 versus $819,461 the year
before. The reduced operating loss is due to a faster reduction in compensation
expense and overhead costs versus the reduction in revenues. This year the
Company recorded a gain of $486,099 on the issuance of security by a subsidiary,
IUAM. The Company does not expect to record such gains in the future. The
Company also recorded a loss from operations from its equity investment in the
amount of $492,917 versus $8,310 a year earlier. The difference of $484,607 is
due to the fact that most of this loss, $263,600 is amortization for which this
is the first year, and is expected to continue. Of the balance, $173,017 is due
to the Company's share of IUAM's operating losses. It is the Company's hope that
IUAM's management team will strive to reduce its operating losses. In addition,
last year the Company recorded an accounting gain of $804,174 in fiscal 1998 on
the sale of Reeve, Mackay, for which the Company recorded a loss in fiscal 1997
of $390,829 as discontinued operations.
Basic losses per share before discontinued operations were $0.21 versus $0.66 a
year earlier. Basic weighted average common shares outstanding this year was
1,855,386 versus 1,232,100.
Fiscal Year 1998 Compared to Fiscal Year 1997
(1) Overview
In fiscal 1998, revenues decreased by $2,622,411 (or 45.7%) over fiscal year
1997. For the year, costs of revenues as a percentage of sales decreased to
65.0% from 67.1% a year earlier. Fixed overhead and non cash expenses increased
by $311,322 or 22.0%. The reduction in revenues and the increase in non variable
expenses were too great to be over come by the reduction in cost of sales and
caused a loss from operations in the amount of $819,461 versus a profit of
$160,676 a year earlier. The Company reported a net loss of $15,287 versus
$230,153 in fiscal 1997. The reduction in the loss is due to the accounting gain
of the sale of Reeve, Mackay & Associates Limited. Earnings per share for fiscal
1998 was a loss of $0.01 versus a loss of $0.25 a year earlier. The average
number of common shares outstanding for the year ending March 31, 1998 is
1,232,100 versus 899,859 a year earlier.
(2) Revenues
Revenues decreased by $2,622,411 (or 45.7%) over fiscal year 1997 (from
$5,712,183 to $3,115,407). The decrease came from the activities of Credifinance
Securities Limited and the reversal of an unrealized gain of the Company's
portfolio of warrants, received as additional compensation for corporate finance
mandates. The value of these warrants decreased by approximately $825,000.
Revenues for InterUnion itself also decreased by about $600,000, due to its
concentrating its resources on the restructuring of RCG. Revenues for
Credifinance decreased almost $1,300,000 or 34.5% (from $3,727,292 to
$2,439,951). Credifinance's decrease in revenue was essentially due to the
market conditions affecting small cap underwriting.
(3) Cost of Revenues
Costs of revenues (Selling, General and Administrative expenditures) for the
year decreased by $1,539,929 or 29.5% to $3,674,548 from $5,214,477. This
decrease is due to the fact that the Company's main expense is commission earned
as a function of revenues.
Page 14 of 24
<PAGE> 15
(4) Income
Income net of the provision for income taxes, decreased to a loss of $819,461,
or $0.66 per share, from a profit of $160,676, or $0.18 per share, a year
earlier. As discussed previously, the decrease in profitability has been
attributed to the decrease in the value of the warrant portfolio and reduction
in revenues due to investors lack of interest in small cap companies. The
average number of common shares outstanding for the year ending March 31, 1998
is 1,232,100 versus 899,859 a year earlier. These figures do no include an
accounting gain of $804,174 in fiscal 1998 on the sale of Reeve, Mackay, for
which the Company recorded a loss in fiscal 1997 of $390,829 as discontinued
operations.
Per share numbers are based on weighted number of shares outstanding of
1,232,100 in fiscal 1998 versus 899,859 for fiscal 1997.
(c) LIQUIDITY AND CAPITAL RESOURCES
In order to meet its growth plans and fund any operating cash requirements, the
Company's policy is to issue additional capital stock, when possible. 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 during the previous three fiscal years:
<TABLE>
<CAPTION>
Date # of Shares Amount Type
<S> <C> <C> <C>
July 1996 20,000 80,000 Regulation "S"
August 1996 151,500 151,500 Regulation "S"
October 1996 105,642 528,210 Regulation "S"
April 1997 229,453 1,147,265 Regulation "S"
June 1997 60,000 180,000 Regulation "S"
August 1997 15,000 90,000 Regulation "S"
February 1998 213,194 852,776 Regulation "S"
April 1998 216,640 788,569 Regulation "S"
May 1998 17,002 68,008 Regulation "S"
June 1998 35,000 140,000 Regulation "S"
July 1998 262,142 1,048,568 Regulation "S"
December 1998 10,000 40,000 Regulation "S"
February 1999 180,000 630,000 Regulation "S"
March 1999 25,000 87,500 Regulation "S"
March 1999 1,140 4,560 Regulation "S"
</TABLE>
In addition to the above, IUAM raised C$10 million directly, thereby reducing
the Company's interest to 44%. These funds were used to eliminate a bank loan of
approximately C$1 million and fund the AILIS venture, C$500,000. The balance of
the funds will be used for acquisitions and operations.
Shareholders received one Right for every four (4) common share. Each Right gave
the holder the right to acquire a common share of the Company at $2.80 per
share, subject to a minimum of $1,500,000 raised. The Company's controlling
shareholder, RIF Capital, had agreed to subscribe on a pro-rata basis. Due to
the minimum subscription level not being met, the right offering was not closed.
NASDAQ advised the Company that its application for listing on the SmallCap
market was declined, as the minimum bid price per share was not greater than
$4.00.
The Company is considering the listing of its Preferred Shares on the
Over-the-Counter Bulletin Board.
New Accounting Pronouncements
Financial Derivatives and Hedging Activities: In June 1998, Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" was released. For fiscal years beginning after June 15,
1999, the statement requires the accounting and disclosure of gains and losses
Page 15 of 24
<PAGE> 16
on certain financial instruments. Management does not believe that this
pronouncement will have any significant effect on the Company.
Start-up Costs: In April 1998, Statement of Position (SOP) 98-5 Accounting for
Costs of Start-up Activities was issued. For fiscal years beginning after
December 15, 1999, SOP requires that pre-opening costs be expensed as incurred.
Management has not yet determined the impact that this pronouncement will have
on the Company.
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 that has also not been discussed above.
Year 2000 ("Y2K"): The Company is affected by both its own computer information
systems and by third parties with which it has business relations, in the
processing of data relating to the Y2K problem. The Company has either upgrading
or replaced 75% of its internal software systems and 60% of the hardware.
Management anticipates to finalize its preparation for the Y2K by September
1999, delays were cause due to analysis and testing of certain systems and
limited resources.
Recognizing that the Company can not give any assurances in regards to the
whether its own computer systems or those owned by third parties will be
operational after December 31,1999, even after taking all reasonable assurances,
the Company has developed a contingency plan. Such plans include the replacement
of the Company's own systems and / or changing its collaborating partners.
Irrespective of the outcome, the Company does not anticipate significant lost
revenues relating to the Y2K problem due to failure of its own systems or that
of its third party associates.
This Form 10-KSB contains certain forward-looking statements within the meaning
of the Private Securities Litigation Reform Act of 1995. For this purpose any
statements contained in this Form 10-KSB that are not statements of historical
fact may be deemed to be forward-looking statements. Without limiting the
foregoing, words such as "may", "will", "expect", "believe", "anticipate",
"estimate" or "continue" or comparable terminology are intended to identify
forward-looking statements. These statements by their nature involve substantial
risks and uncertainties, and actual results may differ materially depending on a
variety of factors, many of which are not within the Company's control. These
factors include but are limited to economic conditions generally and in the
industries in which the Company's customers & investee participate in;
competition within these industries and that of the Company's, including
competition from much larger competitors; technological advances which could
render the Company's services less competitive or absolete; failure by the
Company successfully to improve its skills or anticipate current or prospective
customers' needs; price increases or other limitations by the Company for use or
its services and delays, reductions or cancellations of mandates previously
placed with the Company
Item 7 FINANCIAL STATEMENTS
The audited consolidated financial statements for InterUnion Financial
Corporation, covering fiscal years ended March 31, 1999 and 1998 are submitted
in compliance with the requirements of Item 310 of Regulation S-B.
Item 8 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Page 16 of 24
<PAGE> 17
Effective May 5, 1999, the Company retained BDO Dunwoody, LLP ("BDO") as its new
certifying accountants. BDO replaced Ahearn, Jasco + Company, P.A. ("AJC") as
reported on InterUnion's fiscal 1998 financial statements. The 1998 opinion
contained no adverse opinion or disclaimer of opinion, and was not qualified as
to uncertainty, audit scope or accounting principles. The decision to change
accountants was recommended by the Company's Audit Committee and approved by the
Company's Board of Directors.
During the last two fiscal years and subsequent interim period to the date
hereof, there were no disagreements between InterUnion and its certifying
accountants on any matters of accounting principles or practices, financial
statement disclosure, or auditing scope or procedure, which disagreements, if
not resolved to satisfaction of the certifying accountants, would have caused it
to make a reference to the subject matter of the disagreements in connection
with its reports.
None of the reportable events described in Item 304(a)(1)(ii) occurred with
respect to InterUnion within the last two fiscal years and the subsequent
interim period to the date of change. During the last two fiscal years and the
subsequent interim period to the date of change, InterUnion did not consult BDO
regarding any matter or events set forth in Item 304(a)(2)(i) and (ii) of
Regulation S-B.
PART III
Item 9 DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
(a) IDENTIFY DIRECTORS AND EXECUTIVE OFFICERS
<TABLE>
<CAPTION>
Name, Municipality of Residence Age Length of Service
- ------------------------------- --- --------------------------------
<S> <C> <C>
Robert W. Crosbie 69 Chairman of the Board and
Toronto, Ontario Appointed Vice-President
September 3, 1998
Georges Benarroch 52 Member of the Board and
Paris, France Appointed as President and
Chief Financial Officer
March 21, 1994
Selwyn J. Kletz 53 Appointed as Vice-President
Toronto, Ontario August 18, 1997
Canada
T. Jack Gary, III 57 Appointed as Secretary
West Palm Beach, Florida January 30, 1995
Karen Lynn Bolens 51 Appointed as Member of the Board
Geneva, Switzerland December 16, 1994
</TABLE>
ROBERT W. CROSBIE is the Chairman of the Board of the Company, as well as a
Vice-President and is a member of the IUAM board of Directors. Mr. Crosbie was
Chairman of the Board of Black Investment Management Limited from 1973 until
1998. Mr. Crosbie is also a member of Thistle Mining (THT).
Page 17 of 24
<PAGE> 18
GEORGES BENARROCH is the President, Chief Executive Officer of the Company as
well as a Director and Chairman of the Audit Committee. 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. -- all wholly-owned subsidiaries of the Company and Chairman of
InterUnion Asset Management Limited. He is also the President of Equibank Inc.
SELWYN J. KLETZ is Vice-President of the Company. He is also President and a
member of the board of Guardian Timing Services, Inc. and InterUnion Asset
Management Limited, in addition to being a Director of Black Investment
Management Limited, The Glen-Ardith Frazer Corporation and Leon Frazer, Black &
Associates Limited. Mr. Kletz will be devoting 100% of his time to the
activities of InterUnion Asset Management Limited.
T. JACK GARY, III is the Secretary of the Company. He is Manager of the West
Palm Beach, Florida, office of Raymond James & Associates, a national brokerage
firm, having held that position since 1995 as well as a Director. Mr. Gary will
devote the time required to fulfill his duties as Secretary at InterUnion.
KAREN LYNN BOLENS serves as a Director of the Company. Since 1985 through and
including the present time, she has practiced 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 and as a member of the Audit Committee.
(1) No director of InterUnion is currently a director of any other
reporting company, with the following exception: Georges Benarroch and
Karen Lynn Bolens are directors of Receptagen Limited which is a
publicly reporting company in the United States and Canada.
(2) Under Section 1, ARTICLE III, of the 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) In accordance with Item 405 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 during the most recent
two fiscal years to the best of the Company's knowledge.
(b) AUDIT COMMITTEE
The Audit Committee had three meetings since approving the financial statements
for the previous year. The first meeting was to approve the change in auditors.
The second meeting was to review the Company's accounting policies while the
third meeting was to recommend to the Board of Director that the March 31, 1999
Consolidated Financial Statements be approved and presented to the shareholders.
(c) IDENTIFY SIGNIFICANT EMPLOYEES
The Company does not expect to receive a significant contribution from employees
that are not executive officers.
(d) FAMILY RELATIONSHIPS
Currently, there are no directors, executive officers or persons nominated or
persons chosen by the Company to become a director or executive officer of the
Company who are directly related to an individual who currently holds the
position of director or executive officer or is nominated to one of the said
positions.
(e) INVOLVEMENT IN CERTAIN LEGAL PROCEEDINGS
Page 18 of 24
<PAGE> 19
There are no material events that 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.
(f) COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
For the two fiscal years ended March 31, 1998, to the best of the Company'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.
Item 10 EXECUTIVE COMPENSATION
(A) SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Name and Fiscal Base Other Long Term All other Total
Principal Position Year Salary Bonus Compensation Compensation Compensation
- ---------------------- ------ ----------- ----------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Georges Benarroch 1999 None None None $30,000(1) $30,000
President & CEO 1998 None None None $30,000(1) $30,000
1997 None None None None None
Robert W. Crosbie 1999 $18,230(2) $87,500(3) None $83,044(2) $188,774
Vice-President 1998 $45,885(2) None None $27,097(2) $72,980
1997 None None None None None
Selwyn J. Kletz (4) 1999 $27,621(5) None $259,763(6) $197,794(7) $485,178
Vice-President 1998 $75,245 $60,000(8) None $355,000(9) $490,245
1997 None None None $13,265(10) $13,265
T. Jack Gary 1999 None None $42,500(11) None $42,500
Corporate Secretary 1998 None None None None None
1997 None None None None None
</TABLE>
(1) This amount represents life, disability and medical insurance and
certain expenses.
(2) This was paid by Black Investment Management Limited, a subsidiary of
IUAM, for services unrelated to those offered to InterUnion Financial
Corporation.
(3) This represents 25,000 Common Shares of the Company.
(4) Mr. Selwyn Kletz resigned as a Director of the Company on April 6,
1999. He continues to be InterUnion Asset Management Limited's
President and Chief Executive Officer, as well as an Officer of the
Company.
(5) This amount was paid by IUAM to Mr. Kletz, as President and CEO.
(6) This represents long term stock options granted by IUAM to Mr. Kletz.
The terms of these options are as follows: (i) 36,300 options to
acquire one common share of IUAM at C$16.1284 prior to January 25,
2009; and (ii) 11,000 options to acquire one common share of IUAM at
C$0.001 prior to January 25, 2009. In addition, Mr. Kletz receive two
other option series of 11,000 options to vested upon IUAM acquiring, by
way of acquisition, $500,000,000 in assets under administration, if
done prior to April 1, 2001. The second series is vested upon IUAM
acquiring, by way of acquisition, $750,000,000 in assets under
administration, if done after March 31, 2001 and prior to April 1,
2002. Had these two series be vested immediately, Mr.
Kletz's compensation would have risen by $235,217, to $716,395.
(7) This amount represents $64,900 for life, disability and medical
insurance and $132,894 paid to a company controlled by Mr. Kletz for
services.
Page 19 of 24
<PAGE> 20
(8) This amount represents 60,000 short-term stock options, that was fully
exercised.
(9) This amount represents $168,200 for life, disability and medical
insurance and $186,800 paid to a company controlled by Mr. Kletz for
services.
(10) This amount was paid to a company controlled by Mr. Kletz for services.
(11) This amount represents 50,000 stock option with an expiry date of
September 3, 2001 and an exercise price of $4.00 per share.
(B) ALL COMPENSATION COVERED
The Company has no formal options, warrants, SARs, long-term incentive plans,
pension or profit-sharing plans, or other compensation plans, in effect
regarding any employees of the Company.
The Company feels that it does not have to include executive compensation for an
executive officer of any subsidiary because under Rule 3b-7 under the Exchange
Act (17 CFR 240.3b-7) no executive officer(s) of any subsidiary perform(s)
policy making functions for the registrant.
The Company 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 InterUnion 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 or otherwise for the Company and receiving compensation therefor. 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 31,1998 and
1999.
Item 11 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
(a) SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following persons (including any group as defined in Regulation S-B, Section
228.403) are known to InterUnion Financial Corporation, as the issuer, to be the
beneficial owner of more than five percent (5%) of any class of the said
issuer's voting securities.
<TABLE>
<CAPTION>
Title of Name and Address of Amount and Nature of Percentage
Class Beneficial Owner Beneficial Owner of Class
- ---------------------- ----------------------------------------- -------------------- ----------
<S> <C> <C> <C>
Common RIF Capital Inc.(1) 310,449 14.7%
Price Waterhouse Centre
PO Box 634C
St. Michael, Barbados, WI
Common William Tynkaluk & 259,142 12.3%
George Frazer
8 King St. East
Toronto, Ontario
Canada
</TABLE>
Page 20 of 24
<PAGE> 21
<TABLE>
<S> <C> <C> <C>
Common Financiera Hispano-Suiza, SA 255,490 12.1%
10 Rue Pierre-Fatio
Geneva, Switerland CH1204
Common Zephyr Trading Corporation 180,000 8.5%
c/o Jonston and Associates
P.M.B. #11, Arawak House
Turks and Caicos Island
British West Indies
Common Selwyn J. Kletz 100,000 4.7%
499 Riverside Drive
Toronto, Ontario
Canada M6S 4B6
Common Paul F. Black, Joyce D. Black, Gregory P. 109,890 4.6%
Black, Paul F. Black Jr.
110 Yonge Street, #1701
Toronto, Ontario
Canada M5C 1T4
Total 1,202,549 56.9%
Preferred A RIF Capital Inc. (1) 1,500,000 100.0%
Price Waterhouse Centre
PO Box 634C
St. Michael, Barbados, WI
</TABLE>
- ------
(1) RIF Capital Inc. is wholly owned by Central Investment Trust.
Safeguardian Limited is the sole protector of Central Investment Trust
and is neither a beneficiary of the Trust or its subsidiaries.
(b) SECURITY OWNERSHIP OF MANAGEMENT
The following information lists, as to each class, equity securities
beneficially owned by all directors and nominees, and of the directors and
nominees of the issuer, as a group.
<TABLE>
<CAPTION>
Title of Name and Address of Amount and Nature of Percentage
Class Beneficial Owner Beneficial Owner of Class
- ---------------------- ----------------------------------------- -------------------- ----------
<S> <C> <C> <C>
Common Safeguardian Limited 310,449 14.7%
PO Box 316 Trustee
Jardine House (voting power of
1 Hesley Street Central Investment
St. Helier, Jersey, UK JE4 8UD Trust
Common Robert W. Crosbie 78,508 4.7%
110 Yonge Street, #1701
Toronto, Ontario
Canada M5C 1T4
</TABLE>
Page 21 of 24
<PAGE> 22
<TABLE>
<S> <C> <C> <C>
Common Selwyn J. Kletz 100,000 4.7%
499 Riverside Drive
Toronto, Ontario
Canada M6S 4B6
Common Georges Benarroch --- 0.0%
68 rue Spontini
Paris, France 75016
Common Karen Lynn Bolens --- 0.0%
10 rue Pierre Fatio
Geneva, Switzerland 1204
Common T. Jack Gary, III --- 0.0%
515 North Flagler Drive, #1500
West Palm Beach, Florida 33401
Preferred A Safeguardian Limited 1,500,000 100.0%
PO Box 316 Trustee
Jardine House (voting power of
1 Hesley Street Central Investment
St. Helier, Jersey, UK JE4 8UD Trust
Common Directors and Executive Officers 388,957 18.4%
as a group (4 people)
Preferred A Directors and Executive Officers 1,500,000 100.0%
as a group (1 person)
</TABLE>
NOTE TO (A) AND (B): As to the beneficial owner(s) of the securities
listed above in (a) and (b), no such owner has
any right to acquire within sixty (60) days or
otherwise, the right to acquire shares from options,
warrants, rights, conversion privileges or similar
obligations.
(c) CHANGES IN CONTROL
Currently, there is no such arrangement that may result in a change in control
of the Company.
Item 12 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
(a) CERTAIN RELATED TRANSACTIONS
During fiscal 1999 the Company and IUAM were involved in the following related
party transactions:
The Company paid $33,145 directly to Witpan Inc. ("Witpan") for
various services and IUAM paid $132,582. Witpan also paid the Company
$64,950, for investment research services. Mr. Selwyn J. Kletz
controls Witpan.
LFB paid Mr. William Tynkaluk and Mr. George Frazer C$250,000 each for
their approval to have the management contract of the mutual fund
Associate Investors, transferred from LFB to AILIS. LFB received the
funds from AILIS, which borrowed them from IUAM.
Page 22 of 24
<PAGE> 23
In addition, LFB paid a firm controlled by Mr. Tynkaluk C$45,000 in
consulting fees and C$11,000 to a firm controlled by Mr. Frazer, also
for consulting services.
Spriter Investments Limited ("Spriter") received C$75,000 from IUAM for
marketing services. Spriter is controlled by Mr. Bruce Taylor an
executive of IUAM and GAF. Spriter received C$33,332 a year earlier.
GTS paid Havensight Holdings Corp ("Havensight") C$85,488 for marketing
and referral services. Havensight sold BHL to the Company in 1995. The
Company has no documents to believe that Havensight is controlled by
Mr. Jean-Pierre Fruchet, the developer of BHL's ITM software.
During fiscal 1998 the Company and IUAM were involved in the following related
party transactions:
The Company paid $186,765 to Witpan for services render in the
acquisition of Leon, Frazer, Black & Associates Limited, Cluster Asset
Management Limited, The Glen-Ardith Frazer Corporation and Black
Investment Limited. In addition, the Company received $135,000 from
Witpan, for investment research services.
For services rendered in the restructuring of RCG, the Company paid
RIF Capital Inc. $300,000 in fiscal 1998.
Spriter Investments Limited ("Spriter") received C$33,332 from GAF for
marketing services. Spriter is controlled by Mr. Bruce Taylor an
executive of IUAM and GAF. Spriter received C$33,332 a year earlier.
Item 13 EXHIBITS AND REPORTS ON FORM 8-K
(a) Listing of Exhibits
<TABLE>
<CAPTION>
Exhibit Page
Table Number Exhibit Name Number
<C> <S> <C>
(2)(i) Unanimous Consent in Lieu of The First Meeting of the Board +
of Directors of AU 'N AG, INC. (A Delaware Corporation)
(2)(ii) Pre-Organization Subscription and Letter of Non-Distributive Intent +
(2)(iii) Plan and Agreement of Merger +
(2)(iv) Certificate of Merger, dated February 15, 1994 +
(3)(i) Certificate of Incorporation of AU 'N AG, INC. Dated February 15, 1994 +
(3)(ii) Certificate of Amendment of Certificate of Incorporation of AU 'N +
AG, INC. Dated April 11, 1994
(3)(iii) Certificate of Amendment of Certificate of Incorporation of AU 'N +
AG, INC. Dated April 11, 1994
(3)(iv) Bylaws of InterUnion Financial Corporation +
(4) Instruments Defining the Rights of Security Holders Including Indentures +
(21) Subsidiaries of InterUnion E-1
</TABLE>
Page 23 of 24
<PAGE> 24
<TABLE>
<C> <S> <C>
(27) Financial Data Schedule E-2
</TABLE>
+ Incorporated by reference to the Company's Registration Statement on
Form 10-KSB filed on June 20, 1997.
(b) Reports on Form 8-K Subsequent to the Third Quarter
<TABLE>
<CAPTION>
Exhibit Page
Table Number Exhibit Name Number
<C> <S> <C>
(10) Working Venture Canadian Fund's Investment in InterUnion Asset Management Limited ++
(16) Letter on change in certifying accountant +++
</TABLE>
++ Incorporated by reference to the Company's Registration Statement on
Form 8-K filed on March 16, 1999.
+++ Incorporated by reference to the Company's Registration Statement on
Form 8-K filed on April 27 1999 and May 6,1999.
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934,
the registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
INTERUNION FINANCIAL CORPORATION
Date: July 13, 1999 By: /s/ [Robert W. Crosbie]
- ------------------------ ---------------------------------
Robert W. Crosbie
Chairman, Board of Directors
In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the registrant and in their capacities on the
dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
- ------------------------------ ------------------------------------- -------------------
<S> <C> <C>
s/s [Georges Benarroch] President and Chief Executive Officer July 13, 1999
- ------------------------------
Georges Benarroch
s/s [Karen Lynn Bolens] Director July 13, 1999
- ------------------------------
Karen Lynn Bolens
</TABLE>
Page 24 of 24
<PAGE> 25
====================================================
INTERUNION FINANCIAL CORPORATION
CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999 and 1998
====================================================
<PAGE> 26
INTERUNION FINANCIAL CORPORATION
MARCH 31, 1999 and 1998
CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
Independent Auditoris Reports:
March 31, 1999 - BDO Dunwoody LLP F - 2
March 31, 1998 - Ahearn, Jasco + Company, P.A. F - 3
Consolidated Financial Statements:
Consolidated Balance Sheets F - 4
Consolidated Statements of Operations F - 6
Consolidated Statements of Shareholders' Equity F - 7
Consolidated Statements of Cash Flows F - 8
Notes to Consolidated Financial Statements F - 9 To F - 22
</TABLE>
F - 1
<PAGE> 27
================================================================================
INDEPENDENT AUDITORS' REPORT
================================================================================
To the Shareholders of
InterUnion Financial Corporation
We have audited the accompanying consolidated balance sheet of InterUnion
Financial Corporation as of March 31, 1999, and the related consolidated
statements of operations, shareholders' equity, and cash flows for the year
ended March 31, 1999. 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 consolidated financial statements referred to above present
fairly, in all material respects, the financial position of InterUnion Financial
Corporation as of March 31, 1999, and the results of its operations and its cash
flows for the year ended March 31, 1999 in conformity with generally accepted
accounting principles.
BDO Dunwoody LLP
Toronto, Canada
May 27, 1999
F - 2
<PAGE> 28
================================================================================
INDEPENDENT AUDITORS' REPORT
================================================================================
To The Board of Directors,
InterUnion Financial Corporation
We have audited the accompanying consolidated balance sheet of InterUnion
Financial Corporation and its subsidiaries (the "Company") as of March 31, 1998,
and the related consolidated statements of operations, shareholders' equity, and
cash flows for the year then ended. These consolidated financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated 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 consolidated financial statements referred to above present
fairly, in all material respects, the financial position of InterUnion Financial
Corporation and its subsidiaries as of March 31, 1998, and the results of its
operations and its cash flows for the year then ended in conformity with
generally accepted accounting principles.
Ahearn, Jasco + Company, P.A.
Pompano Beach, Florida
May 29, 1998
F - 3
<PAGE> 29
INTERUNION FINANCIAL CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31, 1999 1998
- --------- ----------------- -----------------
A S S E T S
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 285,706 $ 2,873,731
Marketable securities 19,885,302 35,169,986
Due from clients 93,183 715,871
Due from brokers and dealers --- 2,012
Accounts receivable 690,374 882,491
Refundable income taxes 5,046 7,789
Notes receivable, current portion 973,315 616,579
Prepaid expenses and other current assets 25,772 56,733
----------------- -----------------
Total current assets 21,958,698 40,325,192
----------------- -----------------
OTHER NON-CURRENT ASSETS
Property & equipment, net 1,199,953 1,425,192
Notes receivable, non-current portion 619,992 952,106
Other long-term assets 77,651 84,710
Investment in unconsolidated affiliates 5,591,892 3,488,322
Goodwill, net --- 2,468,210
----------------- -----------------
Total non-current assets 7,489,488 8,418,540
----------------- -----------------
Total Assets $ 29,448,186 $ 48,743,732
================= =================
</TABLE>
See Notes to Consolidated Financial Statements F - 4
<PAGE> 30
INTERUNION FINANCIAL CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31, 1999 1998
- --------- -------------- --------------
L I A B I L I T I E S
<S> <C> <C>
CURRENT LIABILITIES
Accounts payable and accrued liabilities $ 253,476 $ 1,063,956
Due to clients 979,783 3,057,747
Due to brokers and dealers 18,899,072 34,663,322
Due to affiliates 776,213 ---
Notes payables, current portion --- 1,703,441
-------------- --------------
Total current liabilities 20,908,544 40,488,466
OTHER LIABILITIES --- 77,033
NOTES PAYABLE 619,992 1,485,801
-------------- --------------
Total liabilities 21,528,536 42,051,300
-------------- --------------
COMMITMENTS AND CONTINGENCIES
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
Class A Preferred Stock, $0.10 par value
Authorized - 1,500,000 shares
Issued and outstanding - 1,500,000 150,000 150,000
Class B Preferred Stock, $0.10 par value
Authorized - 1,000 shares
Issued and outstanding - None --- ---
Class C Preferred Stock, $0.10 par value
Authorized - 1,000 shares
Issued and outstanding - None --- ---
Common Stock, $0.001 par value
Authorized - 5,000,000 in 1999, 2,500,000 in 1998
Issued and outstanding - 2,114,425 in 1999, 1,654,001 in 1998 2,114 1,654
Additional Paid-In Capital 9,750,249 8,119,397
CUMULATIVE TRANSLATION ADJUSTMENT (18,963) (5,051)
ACCUMULATED DEFICIT (1,963,750) (1,573,568)
--------------- --------------
Total shareholders' equity 8,402,811 6,692,432
-------------- --------------
Total Liabilities and Shareholders' Equity $ 29,448,186 $ 48,743,732
============== ==============
</TABLE>
See Notes to Consolidated Financial Statements F - 5
<PAGE> 31
INTERUNION FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED MARCH 31, 1999 1998
- ----------------------------- -------------- --------------
<S> <C> <C>
REVENUES
Investment Banking $ 1,348,466 $ 2,642,958
Investment Management --- 370,871
Interest income 115,418 101,578
-------------- --------------
1,463,884 3,115,407
-------------- --------------
EXPENSES
Selling, General and Administrative 1,504,959 3,674,548
Depreciation and Amortization 200,171 240,886
Foreign exchange loss (gain) (104,493) 17,361
Interest expense 246,611 76,627
-------------- --------------
1,847,248 4,009,422
-------------- --------------
LOSS BEFORE INCOME TAXES AND EQUITY IN NET
EARNINGS (LOSSES) OF UNCONSOLIDATED AFFILIATES (383,364) (894,015)
GAIN ON SALE ON ISSUANCE OF SECURITY BY SUBSIDIARY 486,099 ---
EQUITY IN NET LOSSES OF UNCONSOLIDATED AFFILIATES (492,917) (8,310)
BENEFIT (PROVISION) FOR INCOME TAXES --- 82,864
-------------- --------------
LOSS (390,182) (819,461)
GAIN FROM DISCONTINUED OPERATIONS --- 691
GAIN ON DISPOSITION OF SUBSIDIARY --- 803,483
-------------- --------------
NET LOSS $ (390,182) $ (15,287)
============== ==============
EARNINGS (LOSS) PER COMMON SHARE - Basic and Diluted
Continuing operations $ (0.21) $ (0.66)
============== =============
Discontinued operations $ N/A $ 0.65
============== =============
Net loss $ (0.21) $ (0.01)
============== =============
Weighted average common shares outstanding 1,855,386 1,232,100
============== =============
Weighted average preferred shares outstanding 1,500,000 1,500,000
============== =============
</TABLE>
See Notes to Consolidated Financial Statements F - 6
<PAGE> 32
INTERUNION FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED MARCH 31, 1999 AND 1998
<TABLE>
<CAPTION>
Number Additional Share
of Paid-in Capital
Shares Amount Capital Totals
<S> <C> <C> <C> <C>
Preferred Shares
Balances,
March 31, 1999 & 1998 1,500,000 $ 150,000 $ --- $ 150,000
============= =============== ============= ===============
Common Shares
Balance, March 31, 1997 969,714 970 5,055,845 5,056,815
Issued during the year
Exercise of warrants 15,000 15 89,985 90,000
Exercise of options 60,000 60 179,940 180,000
Investments 659,287 659 3,002,327 3,002,986
Cancellation (50,000) (50) (268,700) (268,750)
Compensation related to
stock options --- --- 60,000 60,000
------------- --------------- ------------- ---------------
Balance, March 31, 1998 1,654,001 1,654 8,119,397 8,121,051
Issued during the year
Net of issue costs 35,000 35 132,965 133,000
Investments 48,366 48 193,416 193,464
In cancellation of debt 411,918 412 1,494,648 1,495,060
For Services 35,000 35 127,465 127,500
Cancellation (69,860) (70) (317,642) (317,712)
------------- --------------- ------------- ---------------
Balance, March 31, 1999 2,114,425 2,114 9,750,249 9,752,363
Total Share Capital 3,614,425 $ 152,114 $ 9,750,249 $ 9,902,363
============= =============== ============= ===============
</TABLE>
<TABLE>
<CAPTION>
Cumulative
Foreign
Currency
Deficit and Foreign currency Translation Comprehensive
translation adjustment Adjustment Deficit Income
<S> <C> <C> <C>
Balance, March 31, 1997 $ (9,197) $ (1,558,281) $
Foreign currency translation
adjustment 4,146 --- 4,146
Net loss for fiscal 1998 --- (15,287) (15,287)
--------------- ------------- ---------------
Balance, March 31, 1998 (5,051) (1,573,568) (11,141)
===============
Foreign currency translation
adjustment (13,912) --- (13,912)
Net loss for fiscal 1999 --- (390,182) (390,182)
--------------- ------------- ---------------
Balance, March 31, 1999 $ (18,963) $ (1,963,750) $ (404,094)
=============== ============= ===============
</TABLE>
See Notes to Consolidated Financial Statements F - 7
<PAGE> 33
INTERUNION FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED MARCH 31, 1999 1998
- ----------------------------- -------------- --------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (390,182) $ (15,287)
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities
Depreciation and amortization 200,171 240,886
Loss on equity investments 492,917 ---
Gain on sale of securities by subsidiary (486,099) ---
Gain on disposal of discontinued operations --- (804,174)
Non cash compensation 87,500 60,000
Non cash expenses 40,000 ---
Deferred income taxes --- (85,000)
Unrealized loss (gain) in marketable securities (11,814) 159,831
-------------- --------------
(68,243) (443,744)
Changes in operating assets and liabilities net of effects from
the purchase/divestiture of InterUnion Asset Management Limited
Increase in due to/from brokers and dealers, net (15,762,238) 1,814,508
Decrease (increase) in due to/from client, net (1,455,276) 6,988,991
Decrease (increase) in marketable securities 15,242,302 (5,871,852)
Increase in accounts receivable and other assets 124,263 (452,610)
Increase (decrease) in accounts payable and accrued liabilities (572,359) 633,103
Increase (decrease) in assets and liabilities related to
discontinued operations --- (287,734)
-------------- ---------------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES (2,490,815) 2,380,662
-------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net proceeds on issuance of capital stock 133,000 270,000
Proceeds of due to related parties 771,109 ---
Proceeds (repayment) of notes payable (103,448) 1,508,712
-------------- --------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 800,661 1,778,712
-------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment, net (7,438) (2,032)
Purchase of long-term investments, net (437,363) (485,336)
Cash acquired on acquisition of subsidiary --- 151,922
Cash divested on sale of security by subsidiary (195,304) ---
Investment in notes receivable (257,767) (1,299,935)
-------------- --------------
NET CASH USED IN INVESTING ACTIVITIES (897,872) (1,635,381)
-------------- --------------
NET INCREASE (DECREASE) IN CASH (2,588,026) 2,523,993
CASH AND CASH EQUIVALENTS - Beginning of Year 2,873,731 349,738
-------------- --------------
CASH AND CASH EQUIVALENTS - End of Year $ 285,705 $ 2,873,731
============== ==============
</TABLE>
For supplemental disclosure information for the Consolidated Statement of Cash
flows, see note 15.
See Notes to Consolidated Financial Statements F - 8
<PAGE> 34
INTERUNION FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999 AND 1998
1. ORGANIZATION AND BASIS OF PRESENTATION
Description of Business: InterUnion Financial Corporation ("IUFC") and
its subsidiaries (collectively the "Company") are engaged in financial services
with activities in investment banking, securities brokerage, and money
management.
Principles of Consolidation: The consolidated financial statements
include the accounts of IUFC and all wholly owned and majority owned
subsidiaries from their respective dates of acquisition, after the elimination
of all significant inter-company transactions and balances. The consolidated
subsidiaries of IUFC are Bearhill Limited, Credifinance Capital Inc.,
Credifinance Realty Corp., Credifinance Securities Limited, I & B Inc., and
Marbury Trading Corporation. Investments in affiliates, representing 20% to 50%
of the ownership, are accounted for under the equity method. Under the equity
method, the Company records its proportionate share of income (loss) of the
affiliate (net of the amortization of the excess of the purchase price over the
net assets acquired) to results of operations, with this amount either added to
(deducted from) the cost of the investment. Dividends received from affiliates
who are accounted for on the equity basis are deducted from the carrying value
of the investment. Equity method affiliates are InterUnion Asset Management
Limited and its subsidiaries; Black Investment Management Limited, Guardian
Timing Services Limited, Leon Frazer, Black & Associates Limited and The Glen
Ardith-Frazer Corporation. Investments in affiliates representing less than 20%
ownership are accounted for under the cost method.
Use of Estimates: The preparation of financial statements in accordance
with generally accepted accounting principles requires management to make
estimates and assumptions. These estimates and assumptions affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the dates of the financial statements and reported amounts of
revenues and expenses during the reporting periods. Actual results could differ
from those estimates and assumptions.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cash and Cash Equivalents: Cash and cash equivalents include demand
deposits with banks, money market accounts, and other short term investments
with original maturities of 90 days or less. Balances of cash and cash
equivalents in financial institutions may at times exceed the government-insured
limits.
Marketable Securities: The Company classifies its marketable securities
into one of three categories: trading, held to maturity, or available for sale.
Trading securities, which are bought and held primarily for the purpose of
selling them in the near term, are recorded at fair value with gains and losses
included in earnings. Held-to-maturity securities, which are securities that the
Company has the ability and the intent to hold until maturity, are recorded at
amortized cost and adjusted for amortization or accretion of premiums or
discounts. All other investments in marketable securities not classified as
either trading or held-to-maturity are classified as available-for-sale and are
reported at fair value. Unrealized gains and losses on securities classified as
available for sale are reported as a separate component of shareholders' equity
until realized. Market values of marketable securities are based on the last day
of the fiscal year. A decline in market value of any available-for-sale or
held-to-maturity security below cost that is deemed other than temporary is
charged to earning, resulting in the establishment of a new cost basis for the
security.
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.
/Continued... F - 9
<PAGE> 35
INTERUNION FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999 AND 1998
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 are due to the Company's
ownership of Credifinance Securities Limited, a Canadian broker/dealer. These
balances may fluctuate significantly.
Property and Equipment: Property and equipment are stated at cost less
accumulated amortization. Amortization is computed using straight line and
accelerated methods over the estimated useful lives of the asset.
Other Long Term Assets: Stock exchange seats are recorded at cost and
are included in other long-term assets. Declines in market value are only
recorded when there is an indication of permanent decline in value.
Goodwill: Following purchase accounting for businesses acquired,
goodwill represents the excess of the purchase price over the fair value of
the net assets acquired, and is being amortized over a period of 20 years on a
straight line basis. Accumulated amortization as of March 31, 1999 and 1998 was
$0 and $74,240, respectively.
Long-lived Assets: As prescribed by the Statement of Financial
Accounting (SFAS) No. 121, "Accounting for the Impairment of Long-lived Assets
and for Long-lived Assets to be Disposed of," the Company assesses the
recoverability of its long-lived assets (including goodwill) by determining
whether the asset balance can be recovered over the remaining depreciation or
amortization period through projected undiscounted future cash flows. As of
March 31, 1999, no impairment of any asset was recognized.
Fair Value of Financial Assets: The carrying value of cash and cash
equivalents, due from (to) clients, accounts receivable, accounts payable,
accrued liabilities, notes receivable, notes payable and due to affiliates
approximates the fair value. In addition, unless described elsewhere, the
carrying value of all financial assets approximate the fair value based on terms
and interest rates currently available to the Company.
Income Recognition: Revenues are recognized once the mandate is
completed. Gains and losses resulting from the issuance of shares by
subsidiaries is recorded as income or loss in the year the transaction gains and
losses are realized.
Income Taxes: The Company provides for federal and state income taxes
currently payable, as well as for those deferred because of timing differences
between reporting income and expenses for financial statement purposes versus
tax purposes. Deferred tax assets and liabilities are recognized for the future
tax consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
basis. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect of a change in
tax rates is recognized as income or expense in the period that includes the
enactment date.
The Company and its U.S. subsidiaries file U.S. federal and state
income returns. Non-U.S. subsidiaries, which are consolidated for financial
reporting, file tax returns outside the U.S., and therefore separate provisions
for income taxes have been determined for these entities. Except for return of
capital and selected dividends, the Company intends to reinvest the unremitted
earnings of its non-U.S. subsidiaries and postpone their remittance
indefinitely. Accordingly, no provision for U.S. income taxes for non-U.S.
subsidiaries was required for any year presented.
/Continued... F - 10
<PAGE> 36
INTERUNION FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999 AND 1998
Translation of Foreign Currencies: In accordance with SFAS No.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. Gains and losses resulting from the translation of subsidiaries financial
statements are included as a separate component of shareholders' equity. Any
gains or losses resulting from foreign currency transactions are included in
results of operations.
Earnings per Share: Net Income (loss) per share is reported in
accordance with 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. 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. In certain circumstances, the conversion of these
options, warrants and convertible securities are excluded from diluted EPS if
the effect of such inclusion is anti-dilutive. No reconciliation of the
numerators and denominators of basic and diluted earnings per share is provided
since the effect would be anti-dilutive.
Stock Based Compensation: The Company accounts for employee stock
options accordance with Accounting Principles Board ("APB") Opinion 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 in applying
the intrinsic value method, SFAS No. 123 mandates certain pro forma disclosures
as if the fair value method had been utilized.
Comprehensive Income: As of April 1, 1998, the Company adopted
Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive
Income". This statement establishes standards for reporting and display of
comprehensive income and its components. Comprehensive income is net income plus
certain items that are recorded directly to shareholders' equity bypassing net
income. The adoption of this Statement had no effect on the Company's results of
operations or financial position as the only item that is added to Net income
(loss) is foreign currency adjustments.
Segmented Information: In fiscal 1999, the Company adopted SFAS No. 131
"Disclosures About Segments of an Enterprise and Related Information". SFAS No.
131 requires that the Company discloses its operations by business segments as
viewed by management: Investment Banking which includes its merchant banking
activities and Investment Management. Previously reported segmented information
has been restated.
Financial Derivatives and Hedging Activities: In June 1998, Statement
of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" was released. For fiscal years beginning
after June 15, 1999, the statement requires the accounting and disclosure of
gains and losses on certain financial instruments. Management does not believe
that this pronouncement will have any significant effect on the Company.
Start-up Costs: In April 1998, Statement of Position (SOP) 98-5
Accounting for Costs of Start-up Activities was issued. For fiscal years
beginning after December 15, 1999, SOP requires that pre-opening costs be
expensed as incurred. Management has not yet determined the impact that this
pronouncement will have on the Company.
/Continued... F - 11
<PAGE> 37
INTERUNION FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1998 AND 1997
Other: All amounts in these financial statements are in United States
dollars unless indicated with a "C" to represent Canadian dollar presentation.
Certain information on the 1998 financial statements has been reclassified to
conform to the 1999 presentation.
3. MARKETABLE SECURITIES
<TABLE>
<CAPTION>
Original Carrying Market
Cost Value Value
--------------- ---------------- ----------------
<S> <C> <C> <C>
As of March 31, 1999
Trading securities $ 19,932,518 $ 19,885,302 $ 19,885,302
Available for Sale --- --- ---
Held to maturity --- --- ---
--------------- --------------- ----------------
Total $ 19,932,518 $ 19,885,302 $ 19,885,302
=============== =============== ================
As of March 31, 1998
Trading securities $ 35,335,725 $ 35,169,986 $ 35,169,986
Available for Sale --- --- ---
Held to maturity --- --- ---
--------------- --------------- ----------------
Total $ 35,335,725 $ 35,169,986 $ 35,169,986
=============== =============== ================
</TABLE>
The majority of marketable securities are pledged as security to the
due to brokers and dealers.
<TABLE>
<CAPTION>
For the year ending March 31, 1999 1998
--------------- ----------------
<S> <C> <C>
Proceeds from securities classified as available for sale $ --- $ ---
Gross realized gains (losses) from securities
classified as available for sale --- ---
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 (11,814) (159,831)
</TABLE>
4. PROPERTY AND EQUIPMENT
<TABLE>
<CAPTION>
March 31
-----------------------------------
1999 1998
--------------- ----------------
<S> <C> <C>
Computer hardware and software $ 82,120 $ 126,595
ITM Computer software 1,924,443 1,924,443
Furniture, fixtures and equipment 58,409 70,650
Leasehold improvements 1,735 1,735
--------------- ----------------
Total cost 2,066,707 2,123,423
Less: accumulated amortization 866,754 692,231
--------------- ----------------
$ 1,199,953 $ 1,425,192
=============== ================
</TABLE>
Amortization expense amounted to $200,171 and $210,462, respectively,
for the years ended March 31, 1999 and 1998.
/Continued... F - 12
<PAGE> 38
INTERUNION FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999 AND 1998
5. NOTES RECEIVABLE
<TABLE>
<CAPTION>
1999 1998
------------- -------------
<S> <C> <C>
Note receivable from Receptagen Ltd. with no minimum periodic
payment, due June 30, 1999 plus interest at the rate of
11%, loan is secured by a pledge on all assets $ 973,315 $ 616,579
Note receivable from Receptagen Ltd. with no minimum periodic
payment, no maturity and no rate of interest($292,229 + C$494,431);
see notes payable for corresponding obligation 619,992 641,255
Note receivable from the purchaser of the Company's auction subsidiary
with no minimum periodic payment, due June 30,2002 plus interest at
the
rate of 5.5%; purchaser may prepay any amount with no penalty --- 310,851
------------- -------------
Total 1,593,503 1,568,685
Less: current portion 973,315 616,579
------------- -------------
Non-current portion $ 619,992 $ 952,106
============= =============
</TABLE>
The fair value of the non-interest bearing notes receivable from
Receptagen Ltd., as well as the corresponding obligation described in note 6,
cannot be determined because of the unique nature of these instruments.
6. NOTES PAYABLE
<TABLE>
<CAPTION>
1999 1998
--------------- --------------
<S> <C> <C>
Note payable to a related party in the amount of C$75,000 plus
interest at the rate of 9%, due July 31, 1999 $ 52,777 $ ---
Note payable to a related party in the amount of $695,000 plus
interest at the rate of 11%, due July 31, 1999 723,436 ---
Note payable, non-interest bearing, to the former shareholders of The
Glen-Ardith Frazer Corporation with no minimum periodic payment,
$662,412 and $476,857 originally due June 2, 1998 and August
29, 2000 respectively; discounted for recording using a rate of 8% --- 1,139,269
Note payable with no minimum periodic payment, originally due
September 15, 1998 plus interest at the rate of 11%, 265,750
common shares were issued as collateral --- 616,579
Note payable to the co developer of Receptagen Ltd.'s research with
no minimum periodic payment, no maturity and no rate of interest
($292,229 + C$494,431); see note receivable for corresponding asset 619,992 641,255
Note payable, non-interest bearing, to the former shareholders of
Leon Frazer, Black & Associates Limited with no minimum periodic
payment, $414,964 and $377,205 originally due July 2, 1998
and 1999 respectively; discounted for recording using a rate of 8% --- 792,169
--------------- --------------
Total 1,396,205 3,189,242
Less: current portion 776,213 1,703,441
--------------- --------------
Long-term portion $ 619,992 $ 1,485,801
=============== ==============
</TABLE>
/Continued... F - 13
<PAGE> 39
INTERUNION FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999 AND 1998
7. ACQUISITIONS AND EQUITY INVESTMENTS
Leon Frazer, Black & Associates Ltd.: On July 2, 1997, IUFC acquired a
one third interest in all of the issued and outstanding shares of Leon Frazer,
Black & Associates Ltd. ("LFB") for cash of C$650,000, notes payable of
C$550,000 and acquisition costs of $170,000.
This investment will be accounted for using the equity method. The
difference between the carrying value of this investment and the underlying
equity in net assets is $1 million, and this amount will be amortized to equity
in earnings of unconsolidated affiliates over 20 years.
InterUnion Asset Management Limited: Effective March 1, 1998, IUFC
acquired a 91.55% direct interest in all of the issued and outstanding shares of
InterUnion Asset Management Limited ("IUAM") for 213,194 IUFC common shares and
106,597 share purchase warrants of valued at $852,776, assumption of debt valued
at $1,197,924 and acquisition costs of $59,768. Each share purchase warrant
entitles the holder to acquire an additional share of IUFC common stock at $5.00
within two years. The acquisition has been accounted for using the purchase
method and, accordingly, the purchase price has been allocated to the assets
purchased and the liabilities assumed based upon the fair values at the date of
acquisition. The excess of the purchase price over the fair value of the net
assets acquired was $2.07 million. This amount was recorded as goodwill in
fiscal 1998 and will be amortized over 20 years. Goodwill previously recorded in
fiscal 1998 has been reclassified as a component of Investment in unconsolidated
affiliated, as the Company will be accounting for its interest in IUAM on the
equity method.
The net purchased price was allocated as follows:
<TABLE>
<S> <C>
Working capital $ 19,945
Property and equipment 21,085
Excess Purchase Price Over Net Tangible Assets 2,069,438
----------
Purchase price $2,110,468
==========
</TABLE>
IUAM's sole asset at the time of acquisition was a Canadian money
management firm, The Glen Ardith-Frazer Corporation ("GAF"), which was acquired
by IUAM in September 1997. In July 1998, IUFC acquired the remaining 8.45% of
IUAM, which was previously owned by LFB for 27,224 Common Shares at a value of
$108,896. This amount will be amortized over the remaining period of the
original excess purchase price of assets acquired.
Black Investment Management Limited.: Effective March 31, 1998, IUFC
acquired a 45% direct interest in all of the issued and outstanding shares of
Black Investment Management Limited ("BIM") for cash of $202,480, 216,640 shares
of IUFC common stock valued at $788,570, assumption of notes payable of $430,806
and acquisition costs of $67,151. BIM also owns 31.7% of LFB directly.
This investment will be accounted for using the equity method. The
difference between the carrying value of this investment and the underlying
equity in net assets is $1.3 million, and this amount will be amortized to
equity in earnings of unconsolidated affiliates over 20 years.
/Continued... F - 14
<PAGE> 40
INTERUNION FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999 AND 1998
The following table summarizes, on an un-audited pro-forma basis, the
combined results of the Company had the acquisition of consolidated affiliates
had taken place at the beginning of fiscal 1998. Appropriate pro-forma
adjustments have been made to reflect the accounting used in recording these
acquisitions. This pro-forma information does not purport to be indicative of
the results of operations that would have been resulted had the acquisitions
been in effect for the entire periods presented, and is not intended to be a
projection of future results or trends.
Pro-forma earnings data, 12 months to March 31, 1998
<TABLE>
<S> <C>
Revenue $4,057,806
Loss from continuing operations (821,212)
Net loss (17,083)
Loss per share (0.01)
</TABLE>
The following table reflects, on an audited and un-audited pro-forma
basis, certain summarized financial information with regards to IUFC's equity
method affiliates.
<TABLE>
<CAPTION>
LFB BIM
12 Months Ended 12 Months Ended
Dec 31/97 Mar 31/98 Dec 31/97 Mar 31/98
Audited Unaudited Audited Unaudited
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Assets $ 250,747 $ 357,134 $ 816,759 $ 730,269
Liabilities 206,824 300,513 883,257 291,938
Revenues 909,170 811,051 918,856 929,233
Net Income 58,292 41,206 14,903 45,022
</TABLE>
On January 25th, 1999, the Company reorganized its investment
management interest in order to have them all under one holding company,
InterUnion Asset Management Limited ("IUAM"). The Company's interest at the time
of the reorganization were:
<TABLE>
<CAPTION>
Directly Indirectly
-------- ----------
<S> <C> <C>
Black Investment Management Limited 45.0%
Guardian Timing Services Limited 100.0%
Leon, Frazer, Black & Associates Ltd. 33.3% 14.4%
The Glen Ardith-Frazer Corporation 100.0%
</TABLE>
Thereafter, IUAM issued 310,010 convertible preferred shares for
C$5,000,000 to Working Ventures Canadian Fund ("WVCF"). Each of these shares is
exchangeable into one common share of IUAM. Thus reducing the Company's interest
to 69%. This transaction will be accounted for as of January 1, 1999.
On March 9th, 1999, WVCF converted their convertible preferred shares
in to common shares and subscribed for an additional 569,160 common shares for
C$5,000,000, thereby diluting the Company's interest to 44%. This transaction
will be accounted for as of March 31, 1999.
On April 13, 1999, IUAM acquired an additional 5,978 common shares of
BIM C$209,230 in cash bring their interest in BIM up to 50.5%.
The Company is amortizing the excess purchase price paid over net
tangible assets, at the rate of $263,600 per year for all acquisitions. In
fiscal 1998, $37,800 was amortized against equity earnings and $30,424 as
goodwill.
/Continued... F - 15
<PAGE> 41
INTERUNION FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999 AND 1998
The following is summarized information from IUAM's Audited
Consolidated Statements
<TABLE>
<CAPTION>
March 1999 March 1998
----------- -----------
<S> <C> <C>
Current assets $5,990,243 $ 218,886
Non-current assets, excluding goodwill 354,832 21,381
Goodwill 5,432,327 1,813,895
Current liabilities 765,506 999,661
Non-current liabilities 331,652 98,211
Redeemable preferred stock 0 0
Minority interests 154,542 0
Revenues 3,272,158 447,913
Expenses 4,066,241 465,171
Income from continuing operations (583,594) (17,258)
Net Income (430,008) (13,638)
</TABLE>
8. CAPITAL STOCK
On September 4,199, the shareholders voted to increase the authorized
number of Common Shares to 5,000,000 from 2,500,000.
Currently, the number of shares that the Company is authorized to
issued under each class of stock is:
1,500,000 Class A Preferred Shares, ($0.10 par value), entitled to
100 votes for every one share issued, annual dividends, if
declared by the directors, at a rate of $0.01 per share,
non-cumulative
1,000 Class B Preferred Shares, ($0.10 par value), non-voting,
annual dividends, if declared by the directors, at a rate
to be determined by the directors at the first issuance of
these shares, non-cumulative
1,000 Class C Preferred Shares, ($0.10 par value), non-voting,
annual dividends, if declared by the directors, at a rate
to be determined by the directors at the first issuance of
these shares, non-cumulative. These shares are convertible
into common stock at terms determined by the directors
when these shares are issued.
5,000,000 Common shares ($0.001 par value), each share has one vote
During fiscal 1998, the Company issued 659,287 shares of Common Stock
and 106,597 Common Stock purchase warrants for investments in affiliates. The
Company issued 60,000 and 15,000 shares of Common Stock upon the exercise of
stock options and warrants. In addition, the Company cancelled 50,000 Common
Shares that it received in reduction of the note receivable from the purchaser
of Reeve, Mackay & Associates Ltd, which were acquired in the open market. Value
on cancellation was based on the quoted price the day of cancellation.
During fiscal 1999, the Company issued 35,000 shares of Common Stock
and 17,500 Common Stock purchase warrants for net proceeds of $133,000 and
21,142 shares of Common Stock as per its debt assumption agreement with
Receptagen Ltd at the market price at the time of the agreement. The Company
issued 27,224 shares of Common Stock for investments in affiliates, 411,918
shares of common stock for the cancellation of debt in the amount of $1,494,260
and 35,000 shares of Common Stock in lieu of payment for an aggregate amount of
$127,500. In addition, the Company cancelled 69,860 shares that it received in
reduction of the note receivable amounting to $318,000 from the purchaser of
Reeve, Mackay & Associates Ltd, which were acquired in the open market. Value on
cancellation was based on the quoted price the day of cancellation.
/Continued... F - 16
<PAGE> 42
INTERUNION FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999 AND 1998
9. STOCK OPTIONS AND WARRANTS
The Company currently issues stock options at the direction of the
Board of Directors. To date, non-qualified stock options have been granted to
select key employees under terms and conditions determined by the Board of
Directors at the time the options are issued. Presented below is a summary of
stock option plan activity:
<TABLE>
<CAPTION>
Wt. Avg. Wt. Avg.
Exercise Options Exercise
Number Price Exercisable Price
----------- ----------- ------------ -----------
<S> <C> <C> <C> <C>
Balance, April 1,1997 190,000 $ 4.00 190,000 $ 4.00
Cancelled (145,000) 4.00 (145,000) 4.00
Granted 135,000 3.56 135,000 3.56
Exercised (60,000) 3.00 (60,000) 3.00
------------ ----------- ------------- -----------
Balance, April 1, 1998 120,000 4.00 120,000 4.00
Cancelled (10,000) 4.00 (10,000) 4.00
Granted 250,000 4.00 150,000 4.00
----------- ----------- ------------ -----------
Balance, March 31,1999 360,000 $ 4.00 260,000 $ 4.00
=========== =========== ============ ===========
</TABLE>
Options and warrants outstanding and exercisable at March 31, 1999 are
as follows:
<TABLE>
<CAPTION>
Outstanding Exercisable
--------------------------------------------------------------------- --------------------------
Wt. Avg. Wt. Avg. Wt. Avg.
Expiry Remaining Remaining Exercise
Price Number Date Life Exercise Price Number Price
----- ------ ---- ---- -------------- ------ -----
<S> <C> <C> <C> <C> <C> <C>
$ 5.00 215,323 April 1999 *1 $ 5.00 215,323 $ 5.00
4.00 106,597 February 2000 *1 4.00 106,597 4.00
5.00 17,500 March 2000 *1 5.00 17,500 5.00
4.00 110,000 August 2001 *2 4.00 110,000 4.00
4.00 50,000 September 2003 *5 4.00 50,000 4.00
4.00 200,000 May 2005 *6 4.00 100,000 4.00
</TABLE>
* = Less than.
SFAS No.123 requires entities that account for awards for stock-based
compensation to employees in accordance with APB No.25 to present pro forma
disclosures of net income and earnings per share as if compensation cost was
measured at the date of grant based on fair value of the award. The fair value
for these options was estimated at the date of grant using a Black-Scholes
option pricing model with the following weighted-average assumptions:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Expected life of the option 5 - 7 years 2 years
Risk free interest rate 5.0 % 5.5 %
Expected volatility 20.0 % 20.0 %
Expected dividend yield 0.0 % 0.0 %
</TABLE>
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions including the expected stock price
volatility. Because the Company's employee stock options have characteristics
significantly different from those of traded options, and because changes in the
subjective input assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its employee stock options.
/Continued... F - 17
<PAGE> 43
INTERUNION FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999 AND 1998
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, 1999 and 1998 would have been
impacted as indicated in the following table. The proforma results below reflect
only the impact of the options granted. EPS is presented following SFAS No. 128.
<TABLE>
<CAPTION>
1999 1998
--------------------------- -------------------------
Reported Proforma Reported Proforma
------------- ------------- ------------- -----------
<S> <C> <C> <C> <C>
Income (loss) $ (390,182) $ (493,857) $ (819,461) $ (852,806)
Net loss (390,182) (493,857) (15,287) (48,632)
Basic EPS from continuing operations (0.21) (0.27) (0.66) (0.69)
Basic EPS (0.21) (0.27) (0.01) (0.04)
Diluted EPS from continuing operations (0.21) (0.27) (0.66) (0.69)
Diluted EPS (0.21) (0.27) (0.01) (0.04)
</TABLE>
11. DISCONTINUED OPERATIONS
During fiscal 1997, the Company adopted a formal plan to dispose of its
auction subsidiary, Reeve, Mackay & Associates Ltd. As a result, the Company
reclassified the operating losses and the net assets of the subsidiary as
separate items on the financial statements. No loss on disposition was accrued
at March 31,1997.
In July 1997, the Company sold the auction subsidiary. The operating
loss that was incurred by Reeve, Mackay until the date of sale is recorded as
operating losses from discontinued operations. The gain from discontinued
operations is equal to the excess of the liability over the assets carried by
the Company, resulted from the investment in and advances to Reeve, Mackay.
12. INCOME TAXES
IUFC files US Federal income tax returns for its US operations and its
US subsidiaries. Separate returns are filed, as locally required, for each of
its foreign subsidiaries. The provision for income taxes consists of:
<TABLE>
<CAPTION>
Year Ended March 31, 1999 1998
-------------------- ---- ----
<S> <C> <C>
Domestic
Current $ --- $ ---
Deferred --- (85,000)
Foreign
Current --- 2,136
Deferred --- ---
------------- --------------
Total provision for income taxes $ --- $ (82,864)
============= ==============
</TABLE>
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 reasons for these
differences are as follows:
/Continued... F - 18
<PAGE> 44
INTERUNION FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999 AND 1998
<TABLE>
<CAPTION>
Year Ended March 31, 1999 1998
-------------------- ----------------------- ----------------------
Amount % Amount %
------------ ---- ----------- -----
<S> <C> <C> <C> <C>
Statutory income tax rate (recovery) $ (132,700) (34) $ (300,000) (34)
Foreign taxes payable --- 0 2,136 0
Gain on issuance of security by subsidiary 165,000 42 --- 0
Use of losses carried forward (165,000) (42) --- 0
Effect of non taxable gain on
disposition of subsidiary --- 0 275,000 31
Non-deductible items 30,000 8 17,500 2
Other, including valuation
allowance adjustment 102,700 26 (77,500) (9)
------------ ------ ----------- -----
Net taxes (recovery) and effective rate $ --- 0 $ (82,864) (10)
============ ====== =========== =====-
</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
carry-forwards. Temporary differences and carry-forwards, which give rise to,
deferred tax assets and liabilities are as follows:
<TABLE>
<CAPTION>
March 31, 1999 March 31, 1998
------------------------------ ------------------------------
Component Tax Effect Component Tax Effect
------------ ------------- ------------ ------------
<S> <C> <C> <C> <C>
Net operating losses - domestic $ 376,000 $ 150,000 $ 310,000 $ 45,000
Unrealized gains - domestic --- --- (6,000) (900)
Less valuation allowance (376,000) (150,000) (304,000) (44,100)
------------ ------------- ------------ ------------
Net deferred asset $ --- $ --- $ --- $ ---
============ ============= ============ ============
Net operating losses - foreign $ 336,000 $ 134,000 $ 363,000 $ 145,000
Less valuation allowance (336,000) (134,000) (363,000) (145,000)
------------ ------------- ------------ ------------
Net deferred asset $ --- $ --- $ --- $ ---
============ ============= ============ ============
</TABLE>
At March 31, 1999, the Company had cumulative net operating loss
carry-forwards of approximately $376,000 and $336,000 in the United States and
Canada, respectively. These amounts will expire in various years through 2014.
In addition, the Company has capital loss carry-forward of approximately
$700,000 for tax purposes. The related deferred tax asset has been completely
offset by a valuation allowance. This amount will expire in various years
beginning in 2001. The Company has no significant deferred tax liabilities
13. RELATED PARTY TRANSACTIONS
Directors, officers or employees of the Company may also be officers of
and serve on the board of directors of companies in which IUFC or its
subsidiaries have invested. This is considered to be in the normal course of
IUFC's business.
During the period ending March 31, 1999, the Company paid an entity
owned by one a director and officer of IUAM approximately $33,145 directly and
$132,582 by IUAM. This same entity received $186,765 the year before. The
Company received $64,950 and $135,000, from the same entity for advisory
services for the period ending March 31, 1999 and 1998, respectively.
/Continued... F - 19
<PAGE> 45
INTERUNION FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999 AND 1998
During the period ending March 31, 1998, the Company paid an entity
related common ownership approximately $300,000 for advisory fees.
The Company paid an entity related by common ownership approximately
$26,500 and $35,000, during fiscal 1999 and 1998 respectively, which has been
included as rent expense. In turn, this related company has paid an unrelated
entity $26,500 and $40,000 as rent for these same premises.
14. COMMITMENTS AND CONTINGENCIES
The Company leases office space under a number of operating 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 2001. 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:
<TABLE>
<S> <C>
2000 $ 90,000
2001 60,000
2002 50,000
2003 ---
2004 ---
</TABLE>
Payments under the above mentioned leases that have been charged to
operations for the periods ending March 31, 1999 and 1998 amount to $246,597 and
$352,666, respectively.
From time to time the Company is exposed to claims and legal actions in
the normal course of business, some of which are initiated by the Company. At
March 31, 1999, management believes that any such outstanding issues will be
resolved without significantly impairing the financial condition of the Company.
15. SUPPLEMENTAL CASH FLOW DISCLOSURE
The following is additional information regarding the Consolidated
Statement of Cash Flows:
Supplemental disclosure of cash flow information:
<TABLE>
<CAPTION>
1999 1998
--------------- --------------
<S> <C> <C>
Cash paid during the period for interest $ 111,887 $ 76,627
Cash paid during the period for income taxes --- 11,231
Supplemental disclosure of non-cash financing and investing:
Stock issued for long-term investments 108,868 3,002,986
Notes payable assumed in acquisitions --- 430,896
Liabilities paid by issuing common stock 1,622,172 ---
Common stock cancelled 317,712 268,750
</TABLE>
/Continued... F - 20
<PAGE> 46
INTERUNION FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999 AND 1998
16. SEGMENTED INFORMATION
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, 1999
Revenue from
unaffiliated customers $ 1,011,995 $ 357,468 $ 94,421 $ --- $ 1,463,884
Revenue from
inter-segments 119,494 42,179 --- (161,673) ---
--------------- ------------ ------------- ---------------- --------------
Total revenue 1,131,489 399,647 94,421 (161,673) 1,463,884
=============== ============ ============= =============== ==============
Depreciation
& Amortization 6,997 730 192,444 --- 200,171
=============== ============ ============= =============== ==============
Operating profit 256,182 (67,410) (197,343) --- (8,571)
=============== ============ ============= ===============
General corporate
expenses 135,000
Interest expenses, net 246,611
Income from continuing
Operations before provision
for income taxes (390,182)
==============
Identifiable assets 6,506,729 751,718 22,189,739 --- 29,448,186
=============== ============ ============= =============== ==============
For the year ended and as of March 31, 1998
Revenue from
unaffiliated customers $ 3,343,052 $ (262,065) $ 34,420 $ --- $ 3,115,407
Revenue from
inter-segments 312,745 50,000 --- (362,745) ---
--------------- ------------ ------------- ---------------- --------------
Total revenue 3,655,797 212,065 34,420 --- 3,115,407
=============== ============ ============= =============== ==============
Depreciation
& Amortization 47,450 992 192,444 --- 240,886
=============== ============ ============= =============== ==============
Operating profit 198,085 (693,742) (248,309) --- (743,966)
=============== ============ ============= ===============
General corporate
expenses 175,000
Interest expenses, net (24,951)
==============
Income from continuing
Operations before provision
for income taxes (894,015)
==============
Identifiable assets 9,102,875 1,679,781 37,961,076 --- 48,743,732
=============== ============ ============= =============== ==============
</TABLE>
/Continued... F - 21
<PAGE> 47
INTERUNION FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999 AND 1998
The following tables summaries the revenues, operating profits (losses)
from continuing operations and identifiable assets by business segments for
fiscal 1998. For fiscal 1999, the Company did not have any activities outside
the investment banking segment with the exception of its interest in IUAM. Such
interest is accounted for on the equity basis.
<TABLE>
<CAPTION>
Adjustments
Investment Investment &
Banking Management Elimination Consolidated
-------------- ------------- ---------------- --------------
<S> <C> <C> <C> <C>
For the year ended and as of March 31, 1998
Revenue from
unaffiliated customers $ 2,726,695 $ 388,712 $ --- $ 3,115,407
Revenue from
inter-segments 79,600 --- (79,600) ---
-------------- ------------- ---------------- --------------
Total revenue 2,806,295 94,421 (79,600) 3,115,407
============== ============= =============== ==============
Depreciation
& Amortization 18,034 222,852 --- 240,886
============== ============= =============== ==============
Operating profit (499,051) (244,915) --- (743,966)
============== ============= ===============
General corporate
expenses 175,000
Interest expenses, net (24,951)
--------------
Income from continuing
Operations before provision
for income taxes (894,015)
==============
Identifiable assets 46,275,406 2,468,326 --- 48,743,732
============== ============= =============== ==============
</TABLE>
For the fiscal year ended March 31, 1999, the Company had two customers
that generated over 10% of revenues. The first customer represented 38.9%, while
the second represented 11.4%. There were no customers that represented in excess
of 10% for the fiscal year ended March 31, 1998.
F - 22
<PAGE> 1
EXHIBIT 21
SUBSIDIARIES
OF
INTERUNION FINANCIAL CORPORATION
<TABLE>
<CAPTION>
Name of Subsidiary Jurisdiction of Incorporation
- ------------------ -----------------------------
<S> <C>
Bearhill Limited British Virgin Islands
Credifinance Capital Inc. Ontario, Canada
Credifinance Realty Corp. Ontario, Canada
Credifinance Securities Ltd. Ontario, Canada
I & B Inc. State of Delaware
Marbury Trading Corporation Panama
</TABLE>
NOTE: All subsidiaries do business under their official names.
Page E-1 of E-2
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
INTERUNION FINANCIAL CORPORATION CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR
ENDED MARCH 31, 1999.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-START> APR-01-1998
<PERIOD-END> MAR-31-1999
<CASH> 285,706
<SECURITIES> 19,885,302
<RECEIVABLES> 690,374
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 21,958,698
<PP&E> 2,065,928
<DEPRECIATION> (865,975)
<TOTAL-ASSETS> 29,448,186
<CURRENT-LIABILITIES> 20,908,544
<BONDS> 619,992
0
150,000
<COMMON> 2,114
<OTHER-SE> 9,750,249
<TOTAL-LIABILITY-AND-EQUITY> 29,448,186
<SALES> 0
<TOTAL-REVENUES> 1,463,884
<CGS> 0
<TOTAL-COSTS> 1,504,959
<OTHER-EXPENSES> 95,678
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 246,611
<INCOME-PRETAX> (390,182)
<INCOME-TAX> 0
<INCOME-CONTINUING> (390,182)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (390,182)
<EPS-BASIC> (0.21)
<EPS-DILUTED> (0.21)
</TABLE>
