<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended SEPTEMBER 30, 2000
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from _____________ to ____________
Commission file number ___________________________________
INTERUNION FINANCIAL CORPORATION
(Exact name of small business issuer as specified in its charter)
Delaware 87-0520294
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
249 Royal Palm Way, Suite 301 H, Palm Beach, Fl 33480
(Address of principal executive offices) (Zip Code)
(561) 820 - 0084 (561) 655 - 0146
(Issuer's telephone number) (Issuer's telecopier number)
------------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Check whether the issuer (1) filed all reports required to be filed by section
13 or 15(d) of the Exchange Act during the past 12 months (or such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes [X] No [ ]
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required to be
filed by Section 12, 13 or 15 (d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court. Yes [ ] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: $0.001 Par Value Common Shares -
18,999,373 as of September 30, 2000.
Transitional Small Business Disclosure Format (Check One) Yes [ ] No [X]
Page 1 of 9
<PAGE> 2
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
INTERUNION FINANCIAL CORPORATION
UNAUDITED CONSOLIDATED STATEMENT OF OPERATIONS AND DEFICIT
FOR THE PERIOD ENDED SEPTEMBER 30, 2000
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
---------------------------- ----------------------------
30-Sep-00 30-Sep-99 31-Sep-00 31-Sep-99
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
REVENUES
Investment Banking $ 26,972 $ 50,475 $ 269,199 $ 410,295
Interest Income 46,621 29,257 46,898 62,242
------------ ------------ ------------ ------------
73,593 79,732 316,097 472,537
------------ ------------ ------------ ------------
EXPENSES
Selling, General & Administration 239,988 48,415 278,288 93,378
Amortization & Depreciation 254 33,951 507 96,492
Foreign Exchange Loss (Gain) 45,805 90,828 45,542 (9,854)
Write-down of Investment 30,090 0 30,090 0
Interest Expense 17,187 5,188 0 13,317
------------ ------------ ------------ ------------
333,324 178,382 354,427 193,333
------------ ------------ ------------ ------------
LOSSESS BEFORE GAIN ON SALE ON ISSUANCE (259,731) (98,650) (38,330) 279,204
OF SECURITY OF SUBSIDIARY & EQUITY IN NET LOSSES OF
UNCONSOL. AFFILIATE
EQUITY IN NET LOSSES OF UNCONSOL. AFFILIATE (88,546) (58,605) (265,743) (206,118)
PROFIT (LOSS) FROM THE CONTINUING OPERATIONS (348,277) (157,255) (304,073) 73,086
PROFIT (LOSS) FROM DISCONTINUED OPERATIONS) 454,228 5,994 358,169 (3,895)
GAIN (LOSS) ON DISPOSAL OF DISCONTINUED
ASSETS/SUBS (1,413,686) 0 (1,413,686) 0
------------ ------------ ------------ ------------
NET PROFIT (LOSS) FOR THE PERIOD (1,307,735) (151,261) (1,359,590) 69,191
FOREIGN EXCHANGE TRANSLATION EFFECT 13,365 7,526 0 (18,963)
RETAINED EARNINGS (DEFICIT) BEG. PERIOD (5,590,975) (1,769,787) (5,525,755) (1,963,750)
RETAINED EARNINGS (DEFICIT) - END PERIOD (6,885,345) (1,913,522) (6,885,345) (1,913,522)
FINANCIAL OVERVIEW
Common Shares Outstanding 18,999,373 2,114,425 18,999,373 2,114,425
Weighted Average Common Shares Outstanding - Basic 4,814,590 1,855,386 4,814,590 1,855,386
EPS - From Continuing Operations (Basic) (0.072) (0.085) (0.063) 0.039
EPS - From Discontinuing Operations (Basic) 0.094 0.003 0.074 (0.002)
EPS (0.271) (0.081) (0.282) 0.037
Preferred Shares Outstanding -- 1,500,000 -- 1,500,000
</TABLE>
See Accompanying Notes to Un-audited Consolidated Financial Statements
Page 2 of 9
<PAGE> 3
INTERUNION FINANCIAL CORPORATION
UNAUDITED CONSOLIDATED BALANCE SHEET
AS AT SEPTEMBER 30, 2000
<TABLE>
<CAPTION>
As at September 30 As at March 31
---------------------------- ----------------------------
2000 1999 2000 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 1,793 231,924 441,884 285,706
Marketable securities 0 93,554 32,520 19,885,302
Due from brokers and dealers 0 2,700,647 3,237,515 0
Due from clients 0 279,988 180,855 93,183
Accounts receivable 64,028 715,861 168,506 690,374
Receivable from Affiliates 0 0 27,555 0
Refundable Income Taxes 7,502 0 6,709 5,046
Prepaid expenses and other current assets 14,949 40,042 22,938 25,772
Notes receivable 0 1,057,433 1,001,414 973,315
Loan Receivable 0 0 59,495 0
------------ ------------ ------------ ------------
Total Current Assets 88,272 5,119,449 5,179,391 21,958,698
------------ ------------ ------------ ------------
NON-CURRENT ASSETS
Property & equipment, net 5,080 1,076,802 42,679 1,199,953
Notes receivable, non-current portion 1,483,607 628,577 783,286 619,992
Other long-term assets 0 156,630 77,493 77,651
Investment in unconsolidated affiliates 3,088,847 5,625,295 3,639,680 5,591,892
Total Non-current Assets 4,577,534 7,487,304 4,543,138 7,489,488
------------ ------------ ------------ ------------
Total Assets $ 4,665,806 $ 12,606,753 $ 9,722,529 $ 29,448,186
============ ============ ============ ============
LIABILITIES
CURRENT LIABILITIES
Due to brokers and dealers $ 0 0 0 18,899,072
Due to clients 0 2,854,918 3,247,166 979,783
Accounts payable and accrued liabilities 72,974 244,397 433,157 253,476
Due to affiliates 1,405 833,386 168,382 0
Notes payable, current portion 0 56,635 0 776,213
------------ ------------ ------------ ------------
Total Current Liabilities 74,379 3,989,336 3,848,705 20,908,544
------------ ------------ ------------ ------------
NON-CURRENT LIABILITIES
Notes payable, long term portion 860,479 628,577 633,286 619,992
Total Liabilities $ 934,859 $ 4,617,913 $ 4,481,991 $ 21,528,536
============ ============ ============ ============
SHAREHOLDERS' EQUITY
Capital Stock and additional paid-in capital 10,616,293 9,902,363 10,766,293 9,902,363
Cumulative Translation Adjustment 0 (18,963) 37,439 (18,963)
Retained Earnings (Deficit) (6,885,345) (1,894,560) (5,563,194) (1,963,750)
------------ ------------ ------------ ------------
Total Shareholder's Equity 3,730,948 7,988,840 5,240,538 7,919,650
------------ ------------ ------------ ------------
Total Liabilities & Shareholder's Equity $ 4,665,806 $ 12,606,753 $ 9,722,529 $ 29,448,186
============ ============ ============ ============
</TABLE>
See Accompanying Notes to Un-audited Consolidated Financial Statements
Page 3 of 9
<PAGE> 4
INTERUNION FINANCIAL CORPORATION
UNAUDITED CONSOLIDATED BALANCE SHEET
AS AT SEPTEMBER 30, 2000
<TABLE>
<CAPTION>
As at September 30 As at March 31
------------------------- -------------------------
2000 1999 2000 1999
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
SHAREHOLDER'S EQUITY
Class A Preferred Stock, $0.10 par value 0 150,000 150,000 150,000
Authorized - 1,500,000 shares
Issued and outstanding - 1,500,000
Class B Preferred Stock, $0.10 par value
Authorized - 1,000 shares
Issued and outstanding - None 0 0 0 0
Class C Preferred Stock, $0.10 par value
Authorized - 1,000 shares
Issued and outstanding - None 0 0 0 0
Common Stock, $0.001 par value
Authorized - 10,000,000 in 2000 and 5,000,000 in 1999
Issued and outstanding
- 18,999,373 in 2000; 2,114,425 in 1999 153,999 2,114 4,243 2,114
Additional paid in capital 10,462,293 9,750,249 10,612,050 9,750,249
Accumulated Comprehensive Income 0 0 0 0
CUMULATIVE TRANSLATION ADJUSTMENT 0 (18,963) 37,439 (18,963)
ACCUMULATED DEFICIT (6,885,345) (1,894,560) (5,563,194) (1,963,750)
Total Shareholder's Equity 3,730,947 7,988,840 5,240,538 7,919,650
Total Liabilities and Shareholder's Equity 4,665,806 12,606,753 9,722,529 29,448,186
</TABLE>
See Accompanying Notes to Un-audited Consolidated Financial Statements
Page 4 of 9
<PAGE> 5
INTERUNION FINANCIAL CORPORATION
UNAUDITED CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE PERIOD ENDED
<TABLE>
<CAPTION>
6 Months to 12 Months to
---------------------------- ----------------------------
30-Sep-00 30-Sep-99 31-Mar-00 31-Mar-99
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES
Net income (loss) $ (1,359,590) 69,190 (3,599,444) (390,182)
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities
Depreciation and amortization 507 100,849 1,165,392 200,171
Loss (gain) on equity investment 265,743 206,118 1,021,500 492,917
Gain on sale of securities by subsidiary 0 0 0 (486,099)
Loss (gain) on disposal of discontinued operations (358,169) 0 0 0
Non cash compensation 0 0 87,500
Loss on Disposal of Asset (Subsidiary) 1,413,686 0 0 0
Non cash expenses (income) 924 0 387,633 40,000
Unrealized loss (gain) in marketable securities 0 (7,643) 1,255,987 (11,814)
------------ ------------ ------------ ------------
(36,899) 368,514 231,068 (67,507)
Changes in operating assets and liabilities
Decrease (increase) in due to/from brokers and
dealers, net 3,237,515 (21,599,719) (22,136,587) (15,762,238)
Decrease (increase) in due to/from clients, net (3,066,311) 1,688,330 2,179,710 (1,455,276)
Decrease (increase) in marketable securities 32,520 19,791,748 19,852,782 15,242,302
Increase (decrease) in accounts receivable and
other assets 198,724 (34,711) 463,545 124,263
Increase (decrease) in accounts payable and
Accrued liabilities (105,319) (9,079) (428,150) (572,359)
------------ ------------ ------------ ------------
NET CASH PROVIDED (USED) BY OPERATING
ACTIVITIES 260,230 205,083 162,368 (2,490,815)
------------ ------------ ------------ ------------
CASH FLOW FROM FINANCING ACTIVITIES
Treasury Stock (Stock acquired in lieu of
Note Receiv) (150,000) 0 0 133,000
Increase (decrease) in due to related parties 0 57,173 0 771,109
Proceeds (repayment) of notes payable 0 (48,050) 0 (103,448)
------------ ------------ ------------ ------------
NET CASH PROVIDED BY FINANCING ACTIVITIES (150,000) 9,123 0 800,661
CASH FLOW FROM INVESTING ACTIVITIES
Purchase of property and equipment, net 0 0 (6,190) (7,438)
Purchase of long term investment, net 0 (175,284) 0 (437,363)
Cash divested on sale of security by subsidiary 0 0 0 (195,304)
Investment in notes receivable (550,321) (92,703) 0 (257,766)
------------ ------------ ------------ ------------
NET CASH USED IN INVESTING ACTIVITIES (550,321) (267,987) (6,190) (897,871)
NET INCREASE (DECREASE) IN CASH (440,091) (53,781) 156,178 (2,588,025)
CASH AND CASH EQUIVALENT- Beginning of year 441,884 285,705 285,706 2,873,731
CASH AND CASH EQUIVALENT - END OF YEAR $ 1,793 $ 231,924 $ 441,884 $ 285,706
============ ============ ============ ============
</TABLE>
See Accompanying Notes to Un-audited Consolidated Financial Statements
Page 5 of 9
<PAGE> 6
INTERUNION FINANCIAL CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000
================================================================================
1. Interim information is unaudited; however, in the opinion of management, all
adjustments necessary for a fair statement of interim results have been included
in accordance with Generally Accepted Accounting Principles. All adjustments are
of a normal recurring nature unless specified in a separate note included in
these Notes to Unaudited Consolidated Financial Statements. The results for
interim periods are not necessarily indicative of results to be expected for the
entire fiscal year. These financial statements and notes should be read in
conjunction with the Company's annual consolidated financial statements and the
notes thereto for the fiscal year ended March 31, 2000, included in its Form
10-KSB for the year ended March 31,2000.
2. Earning (loss) per share is computed using the weighted average number of
common shares outstanding during the period.
CAPITAL STOCK AND ADDITIONAL PAID-IN-CAPITAL
In June 2000, the Company acquired its 243,750 Common Share at the rate of
$0.6153 per share in settlement of $150,000 note receivable from an unrelated
party.
In September 2000, the Company converted its Class "A" Preferred Shares into
Common Shares at the rate of 1 to 10. Consequently, in lieu of 1,500,000 Class
"A" Preferred Shares the Company issued 15,000,000 Common Shares from the
treasury under regulation "S".
SALE OF ASSETS AND DISCONTINUATION OF OPERATIONS
During the second quarter, the Company sold its investment banking subsidiary,
Credifinance Capital Corp. (CFCC). Effective September 30, 2000, Credifinance
Capital Corp. is no longer part of the Company. As a result of the disposal of
the operations of Credifinance Capital Corp. as of September 30, 2000, the
Company reported a profit of $358,169 from discontinuation of the operations.
The consolidated profit of Credifinance Capital Corp. of $358,169 is shown as a
separate line on the consolidated statement of operations of the Company as of
September 30, 2000.
However, as a result of disposal of discontinued assets of Credifiance Capital
Corp. the Company incurred a loss of $1,413,686
As a result of transfer of certain assets and liabilities between the Companies,
InterUnion Financial Corporation owes an amount of $227,193 to the discontinued
Company (CFCC).
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS
(1) OVERVIEW
During the 2nd quarter of fiscal 2001, InterUnion reported consolidated revenues
of $73,593 versus $79,732 a year earlier, representing a decline of $6,139 or
7.7%.
Page 6 of 9
<PAGE> 7
Selected financial data from InterUnion's financial statements is (figures in
000's except per share data):
<TABLE>
<CAPTION>
3 mos. ended 3 mos. ended 3 mos. Ended
Sept.- 00 Sept.- 99 Sept. - 98
------------ ------------ ------------
<S> <C> <C> <C>
Working Capital 14 1,130 (15)
Cash Flow 260 205 (2,941)
Total Assets 4,666 12,607 10,668
Shareholders' Equity 3,731 7,989 7,114
Common Share, # 18,999,373 2,114,425 1,935,945
Book Value Per Share 0.196 3.87 3.67
</TABLE>
(2) NET REVENUES
For the first 6 months of fiscal 2001, InterUnion reported consolidated revenues
of $316,097 versus $472,537 a year earlier, a decrease of 33%. Revenues for the
3 months ending September 30, 2000 were $75,593 versus $79,732, a decrease of
8%. The decrease is attributable to a general slowdown in investment banking
fees as uncertaiity continues to weigh on market activity.
(3) EXPENSES
Selling, general and administration expenses for the first six months of fiscal
2001 increased by $184,910 to $278,288 from $93,378 a year earlier. This
translates into a 198% increase which is due to a provision of $211,075 set
asaide for Credifinance Securities Limited in its appeal in the case against
Cable Satisfaction.
(4) NET INCOME FOR 6 MONTHS UNTIL SEPTEMBER 30, 2000
Net loss from operations for the 6 months ending September 30, 2000 was a loss
of $1,359,590 or $0.271 per share, based on a weighted average number of shares
of 4,814,590 versus a loss of $151,261 or $0.081 per share, based on a weighted
average number of shares of 1,855,386. The increase of loss per share is due to
loss on the disposal of discontinued assets.
As a result of the disposal of the operations of Credifinance Capital Corp. as
of September 30, 2000, the Company reported a profit of $358,169 from
discontinuation of the operations. The consolidated profit of Credifinance
Capital Corp. of $358,169 is shown as a separate line on the consolidated
statement of operations of the Company as of September 30, 2000.
During the same period the Company recorded a loss of $1,413,686 from disposal
of discontinued assets.
The weighted average number of common shares outstanding for the six months
ending September 30, 2000 is 4,814,590 versus 1,855,386 a year earlier. The
Company issued 15,000,000 common shares during the period for the redemption of
1,500,000 Class A Preference Shares.
(5) LIQUIDITY AND CAPITAL RESOURCES
<TABLE>
<CAPTION>
Date Number of Shares Amount Type
---- ---------------- ------ ----
<S> <C> <C> <C>
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"
November 1999 114,500 57,250 Regulation "S"
</TABLE>
Page 7 of 9
<PAGE> 8
<TABLE>
<CAPTION>
Date Number of Shares Amount Type
---- ---------------- ------ ----
<S> <C> <C> <C>
November 1999 2,014,198 805,679 Regulation "S"
September 2000 15,000,000 150,000 Regulation "S"
</TABLE>
(6) CONCLUDING REMARKS
There are no other known trends, events or uncertainties that may have, or are
reasonably likely to have, a material impact on the Company's short-term or
long-term liquidity that have not been discussed above.
In addition, there is no significant income or loss that has risen from the
Company's continuing operations that has not been analyzed or discussed above.
In addition, there has not been any material change in any line item that is
presented on the financial statements that has not been discussed above.
(7) CERTAIN RISK FACTORS WHICH MAY IMPACT FUTURE OPERATIONS
The Company and its subsidiaries operate in a rapidly changing environment that
involves a number of factors, some of which are beyond management's control,
such as financial market trends and investors' appetite for new financings. It
should also be emphasized that, should the Company not be successful in
completing its own financing (either by debt or by the issuance of securities
from treasury), its strategy to grow by acquisition will be affected.
In the opinion of management the financial statements for the periods ending
September 30, 2000 accurately reflect the operations of the Company and its
subsidiaries. The Company has taken every reasonable step to ensure itself that
its quarterly financial statements do not represent a distorted picture to
anyone having a business reason to review such statements and who has also
reviewed its previous audited annual financial statements for the year ended
March 31, 2000.
Forward-looking statements included in Management's Analysis and Discussion
reflects management's best judgment based on known factors, and involves risks
and uncertainties. Actual results could differ materially from those anticipated
in these forward-looking statements. Forward-looking information is provided by
InterUnion pursuant to the safe harbor established by recent securities
legislation and should be evaluated in the context of these factors.
PART II - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
Credifinance Securities Limited, an ultimate wholly owned subsidiary of the
Company until disposal on September 30,2000, had filed a claim against a client
in 1997 for which it had raised a C$15,000,000 convertible debenture, on the
Superior Court of Montreal (Quebec). The claim was originally not contested.
However, the Company faced a claim from two employees of Credifinance Securities
Limited for commissions, termination allowance and damages. In compliance with a
court order, the total amount of the commission, C373,920 (US$249,663) was
placed in an escrow with Montreal Trust. On May 29, 2000, the Superior Court of
Montreal (Quebec) rendered a judgement ordering Credifinance Securities Limited
to pay C$579,617 (US$387,005) plus accrued interest to the cross claimants. The
above amount has been fully provided by Credifinance Capital Corp.(CFCC), the
holding company of Credifinance Securities Limited in the consolidated financial
statement of the CFCC for the quarter ended September 30, 2000.
Upon advice from its counsel who has advised that the May 29, 2000 judgement has
a strong chance of reversal, Credifinance Securities filed an appeal in the
Supreme Court in Quebec on June 29, 2000.
Effective September 30, 2000, as a result of disposition of Credifinance Capital
Corp., the Company has no potential obligatin to this law suit.
ITEM 2 - CHANGES IN SECURITIES
In the 1st quarter ending June 30, 2000 the Company acquired its 243,750 Common
Shares at the rate of $0.6153 per share for $150,000 in settlement of the note
receivable of $150,000 from an unrelated party. The above shares are held in
treasury. Consequently, the number of outstanding Common Shares declined to
3,999,373 from 4,232,290 as of March 31, 2000.
Page 8 of 9
<PAGE> 9
In September 2000, the Company converted its Class "A" Preferred Shares into
Common Shares at the rate of 1 to 10. Consequently, in lieu of 1,500,000 Class
"A" Preferred Shares the Company issued 15,000,000 Common Shares from the
treasury under regulation "S".
ITEM 3 - DEFAULTS UPON SENIOR SECURITIES
There have been no defaults in the payment of principal or interest with respect
to any senior indebtedness of InterUnion Financial Corporation.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5 - OTHER INFORMATION
None.
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
Exhibit 27 Financial Data Schedule (for SEC use only).
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
InterUnion Financial Corporation
----------------------------------
(Registrant)
Date Novermber 14, 2000 /s/ Georges Benarroch, Director
----------------------------------
(Signature)*
* Print the name and title of each signing officer under his signature.
Page 9 of 9
<PAGE> 10
INTERUNION ASSET MANAGEMENT LIMITED
FINANCIAL STATEMENTS
FOR THE 3 AND 6 MONTHS ENDED SEPTEMBER 30, 2000 AND SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
CONTENTS
--------
<S> <C>
COMPLIANCE CERTIFICATE 2
FINANCIAL STATEMENTS
BALANCE SHEETS 3
STATEMENTS OF OPERATIONS AND DEFICIT 4
STATEMENTS OF CASH FLOWS 5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 6-17
</TABLE>
<PAGE> 11
QUARTERLY COMPLIANCE CERTIFICATE
--------------------------------------------------------------------------------
To: Working Ventures Canadian Fund Inc. ("WV")
InterUnion Financial Corporation ("IUFC")
Date: October 22, 2000
I, Russell Lindsay, of InterUnion Asset Management Limited (the "CORPORATION"),
hereby certify for and on behalf of the Corporation, intending that the same may
be relied upon by you without further enquiry, that since April 1, 2000:
(a) the attached financial statements delivered pursuant to the Agreement
have been prepared in accordance with generally accepted principles in
effect on the date of such financial statements and the information
contained therein is true and correct in all material aspects, subject
only to year-end audit adjustments, and presents fairly and
consistently the results of operations and changes in the financial
position of the Corporation as of and to September 30, 2000;
(b) the Corporation is in compliance with all taxes and other withholding
obligations and has accrued unpaid vacation pay in its financial
statements;
(b) the Corporation has (i) made all deductions for taxes or other
obligations required to be deducted and has paid the same to the proper
tax or other receiving officers; (ii) remitted to the appropriate tax
authority, on a timely basis, all amounts collected on account of goods
and services taxes and provincial sales taxes; and (iii) remitted to
the appropriate receiving officer, on a timely basis, all amounts
required to be paid by it in connection with workman's compensation
legislation;
(c) the Corporation is not aware of any breach or potential breach by the
Corporation of any Environmental Laws (as such term is defined in the
Share Purchase Agreement entered into between the parties as of January
21, 1999 (the "SHARE PURCHASE AGREEMENT")) and to the best of its
knowledge is in compliance with all applicable Environmental Laws; and
(d) the Corporation is not aware of any year 2000 issues of the Corporation
or its major customers or suppliers that would have a material adverse
effect on the Corporation or its Business and the Corporation is in
compliance with its year 2000 policy.
All capitalized terms not defined herein have the meaning specified thereto in
the Share Purchase Agreement.
Witness my hand and the corporate seal of the Corporation this 22nd day of
October, 2000.
By:___________________________________
Name: Russell Lindsay
Title: Senior Vice-President
& Chief Financial Officer
2
<PAGE> 12
INTERUNION ASSET MANAGEMENT LIMITED
Consolidated Balance Sheets (unaudited)
(amounts expressed in Canadian dollars unless otherwise stated)
(as at September 30, 2000 and March 31, 2000)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
September 30, March 31,
2000 2000
------------ ------------
<S> <C> <C>
Assets
Current:
Cash $ 857,299 $ 525,621
Marketable securities, at market (note 4) 1,792,191 1,991,800
Accounts receivable and accrued revenue (note 10) 380,308 472,166
Prepaid expenses 58,419 71,317
------------ ------------
3,088,217 3,060,904
Future income tax asset 26,108 26,108
Management contracts, net (note 5) 1,761,905 2,304,762
Capital assets, net (note 6) 392,555 447,006
Investments, at cost (note 7) 64,713 71,477
Goodwill (note 8) 12,218,975 12,703,851
------------ ------------
Total assets $ 17,552,473 $ 18,614,108
============ ============
Liabilities
Current:
Bank indebtedness $ 41,662 $ 36,853
Accounts payable and accrued liabilities (note 10) 557,794 542,578
Current portion of long term debt 18,000 69,339
Income taxes payable 80,406 146,840
------------ ------------
697,862 795,610
Deferred revenue and inducements (note 9) 129,016 121,864
Long term debt (note 11) 48,500 151,224
Other liabilities 87,500 43,750
Preference shares (note 12) 3,500,000 3,500,000
------------ ------------
4,462,878 4,612,448
------------ ------------
Non-controlling interest 250,526 301,869
------------ ------------
Shareholders' Equity
Shareholders' equity:
Share capital (note 13) 16,358,558 16,358,558
Deficit (3,519,489) (2,658,767)
------------ ------------
Total shareholders' equity 12,839,069 13,699,791
------------ ------------
Total liabilities and shareholders' equity $ 17,552,473 $ 18,614,108
============ ============
</TABLE>
See accompanying notes to consolidated financial statements
3
<PAGE> 13
INTERUNION ASSET MANAGEMENT LIMITED
Consolidated Statements of Operations and Deficit (unaudited)
(amounts expressed in Canadian dollars unless otherwise stated)
(for the periods ended September 30)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
3 months ended 3 months ended 6 months ended 6 months ended
September 30, September 30, September 30, September 30,
2000 1999 2000 1999
------------- -------------- ------------- -------------
<S> <C> <C> <C> <C>
Revenue:
Management fees $ 1,500,779 $ 1,164,781 $ 3,044,979 $ 2,344,226
Other income (loss) (note 3 and 10) 226,479 21,799 212,955 (36,232)
------------- -------------- ------------- -------------
1,727,258 1,186,580 3,257,934 2,307,994
------------- -------------- ------------- -------------
Operating expense
Commission and incentives 214,104 249,056 409,428 469,523
Salaries and benefits 818,977 645,596 1,705,112 1,175,609
Marketing and advertising 38,089 70,944 93,413 282,204
Office and general 318,214 361,631 659,563 665,589
Professional fees 153,120 56,887 261,933 117,097
Amortization of management contracts 96,428 25,000 192,857 50,000
Amortization of capital assets 31,787 17,262 68,282 25,080
------------- -------------- ------------- -------------
1,670,719 1,426,376 3,390,588 2,785,102
============= ============== ============= =============
Operating income (loss) before undernoted 56,539 (239,796) (132,654) (477,108)
------------- -------------- ------------- -------------
Interest expense
Current 1,920 6,071 30,223 11,630
Long term 47,066 1,570 94,738 4,487
------------- -------------- ------------- -------------
48,986 7,641 124,961 16,117
------------- -------------- ------------- -------------
Income (loss) before amortization of goodwill,
non-controlling interest and income taxes 7,553 (247,437) (257,615) (493,225)
------------- -------------- ------------- -------------
Income taxes (note 14)
Current income taxes 91,659 44,080 209,911 58,386
------------- -------------- ------------- -------------
91,659 44,080 209,911 58,386
============= ============== ============= =============
Loss before amortization of goodwill
and non-controlling interest (84,106) (291,517) (467,526) (551,611)
Amortization of goodwill 198,970 113,090 397,940 219,896
============= ============== ============= =============
Loss before non-controlling interest (283,076) (404,607) (865,466) (771,507)
Non-controlling interest (944) (44,067) (4,744) (75,711)
============= ============== ============= =============
Net loss, for the period (282,132) (360,540) (860,722) (695,796)
Deficit, beginning of period (3,237,357) (1,325,922) (2,658,767) (990,666)
============= ============== ============= =============
Deficit, end of period $ (3,519,489) $ (1,686,462) $ (3,519,489) $ (1,686,462)
============= ============== ============= =============
</TABLE>
See accompanying notes to consolidated financial statements
4
<PAGE> 14
INTERUNION ASSET MANAGEMENT LIMITED
Consolidated Statements of Cash Flows (unaudited)
(amounts expressed in Canadian dollars unless otherwise stated)
(for the periods ended September 30)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
3 months ended 3 months ended 6 months ended 6 months ended
September 30, September 30, September 30, September 30,
2000 1999 2000 1999
--------------- -------------- -------------- ---------------
<S> <C> <C> <C> <C>
Cash flows fromoperating activities
Net loss $ (282,132) $ (360,540) $ (860,722) $ (695,796)
Adjustments for:
Amortization of goodwill 198,970 113,090 397,940 219,896
Amortization of management contracts 96,428 25,000 192,857 50,000
Amortization of capital assets 31,787 17,262 68,282 25,080
Deferred rent inducements (790) (1,819) (1,580) (3,638)
Unrealized loss on investment 4,383 26,000 6,764 116,000
Gain on sale (248,027) -- (248,027) --
Non-controlling interest 944 44,067 4,744 75,711
Changes in non-cash working capital
Decrease (increase) in accounts receivable 38,017 (33,808) 91,858 (155,480)
Increase (decrease) in accounts payable 101,611 (107,300) 15,216 (364,529)
Increase (decrease) in income taxes payable 12,633 11,855 (66,434) 39,006
Other items, net (63,922) (106,213) (27,274) (250,573)
---------- ----------- ----------- -----------
(110,098) (372,406) (426,376) (944,323)
---------- ----------- ----------- -----------
Cash flows frominvesting activities
Acquisition of capital assets, net of disposals (9,666) (174,672) (13,831) (263,373)
Dispositions (acquisitions),
net of cash acquired (disposed) 762,798 (84,286) 762,798 (248,948)
Sale (purchase) of marketable securities (108,868) (6,263,559) 199,609 (6,108,517)
---------- ----------- ----------- -----------
644,264 (6,522,517) 948,576 (6,620,838)
---------- ----------- ----------- -----------
Cash flows fromfinancing activities
Increase in bank indebtedness 41,662 59,829 4,809 94,376
Increase (decrease) in deferred revenue and inducements (3,600) (30,200) 8,732 (25,167)
Repayments of long termborrowings (132,379) (16,568) (154,063) (124,668)
Dividend paid to non-controlling interest (25,000) -- (50,000) --
---------- ----------- ----------- -----------
(119,317) 13,061 (190,522) (55,459)
---------- ----------- ----------- -----------
Net increase (decrease) in cash 414,849 (6,881,862) 331,678 (7,620,620)
Cash at beginning of period 442,450 7,396,961 525,621 8,135,719
---------- ----------- ----------- -----------
Cash at end of period $ 857,299 $ 515,099 $ 857,299 $ 515,099
========== =========== =========== ===========
Supplemental Cash Flows Information
Interest paid $ 33,756 $ 8,092 $ 65,981 $ 16,117
Income taxes paid 74,743 4,827 298,477 7,073
========== =========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements
5
<PAGE> 15
INTERUNION ASSET MANAGEMENT LIMITED
Notes to Consolidated Financial Statements
September 30, 2000
(amounts expressed in Canadian dollars unless otherwise stated)
--------------------------------------------------------------------------------
1. NATURE OF BUSINESS
InterUnion Asset Management Limited, formerly Cluster Asset Management
Limited, was incorporated on August 13, 1997 under the laws of Ontario.
The principal business activities of InterUnion Asset Management
Limited and its subsidiaries are discretionary and advisory portfolio
management services for its clients and the acquisition of investment
management firms.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a) Principles of Consolidation
These consolidated financial statements include the accounts
of InterUnion Asset Management Limited and its subsidiaries.
The principal operating subsidiaries are A.I.L. Investment
Services Inc. (see note 3), Black Investment Management Ltd.,
Glen Ardith-Frazer Corporation, Guardian Timing Services Inc.,
Leon Frazer, Black & Associates Limited, and P.J. Doherty &
Associates Co. Ltd. Unless the context implies otherwise, the
term "Company" collectively refers to InterUnion Asset
Management Limited and all of its subsidiaries.
b) Marketable Securities
Marketable securities are valued at market and unrealized
gains and losses are reflected in income.
c) Management Contracts
Management contracts are recorded at cost less accumulated
amortization and are amortized on a straight-line basis over
periods from 5 to 7 years. The Company assesses the value of
its management contracts by considering the future economic
benefit associated with the revenue capacity of the related
contracted items.
d) Capital Assets
Capital assets are recorded at cost less accumulated
amortization. Amortization is provided on the following basis:
<TABLE>
<S> <C>
Computer equipment 30% declining balance
Furniture and fixtures 20% declining balance
Leasehold improvements over the term of lease
on a straight line basis
</TABLE>
e) Goodwill
Goodwill being the excess of cost over assigned values of net
assets acquired, is stated at cost less amortization.
Amortization is provided on a straight-line basis over periods
from 15 to 20 years. The value of goodwill is evaluated
regularly by reviewing, among other items, the undiscounted
cash flows relating to the returns of the related business,
and by taking into account the risk associated with the
investment. Any impairment in the value of the goodwill is
written off against operations.
f) Revenue Recognition
Revenue is recognized by the Company on an earned basis. For
its services, the Company is entitled to an annual fee payable
monthly or quarterly, depending on its agreement with the
client. Fees are calculated based on the fair market value of
the portfolio at the end of each month. Fees billed in advance
are recorded as deferred revenue and taken into income evenly
over the term of the stated billing.
6
<PAGE> 16
INTERUNION ASSET MANAGEMENT LIMITED
Notes to Consolidated Financial Statements
September 30, 2000
(amounts expressed in Canadian dollars unless otherwise stated)
--------------------------------------------------------------------------------
g) Financial Instruments
The Company's financial instruments consist of cash, bank
indebtedness, marketable securities, accounts receivable,
investments, accounts payable and accrued liabilities, due to
related parties, preference shares and long term debt. It is
management's opinion that the Company is not exposed to
significant interest risks arising from these financial
instruments. Unless otherwise noted, the fair value of these
financial instruments approximates their carrying values.
The Company is exposed to credit risk on the accounts
receivable from its customers. Management has adopted credit
policies in an effort to minimize those risks. The Company
does not have a significant exposure to any individual
customer or counter-party.
h) Income Taxes
As recommended by The Canadian Institute of Chartered
Accountants, effective April 1, 1999, the Corporation adopted
the liability method of accounting for income taxes. The
provisions were applied retroactively with no significant
impact to prior period financial statements. Under this
method, future tax assets and liabilities are recognized for
temporary differences between the financial reporting and tax
bases of assets and liabilities as well as for the benefit of
losses available to be carried forward to future years for tax
purposes that are likely to be realized.
i) Stock-Based Compensation Plan
The Company's stock-based compensation arrangements are
described in Note 13. No compensation expense is recognized
for these arrangements when stock options are issued to
employees. Any consideration paid by employees on exercise of
stock options is credited to share capital. If stock options
are repurchased from employees, the excess of the
consideration paid over the carrying amount of the stock
option cancelled is charged to retained earnings.
j) Use of Estimates
The preparation of financial statements in accordance with
generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported
amounts of assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from
management's best estimates as additional information becomes
available in the future.
3. ACQUISITIONS AND DISPOSITIONS
The following are acquisitions made during the periods. These
acquisitions were accounted for by the purchase method and consolidated
from the respective effective date of acquisition, except where noted.
Fiscal 1999 Acquisitions:
- Effective January 21, 1999, the Company acquired 100% of
Guardian Timing Services Inc., 45% of Black Investment
Management Ltd., 33% of Leon Frazer, Black & Associates
Limited and indirectly through Black Investment Management
Limited an additional 14.4% of Leon Frazer, Black &
Associates. The former parent company, InterUnion Financial
Corporation sold the investments for shares of the Company.
The sale was accounted for using the carrying values of the
parent company at January 21, 1999 and reflects a continuity
of interest. The Company has accounted for the operations of
the investments with an effective date of April 1, 1998.
7
<PAGE> 17
INTERUNION ASSET MANAGEMENT LIMITED
Notes to Consolidated Financial Statements
September 30, 2000
(amounts expressed in Canadian dollars unless otherwise stated)
--------------------------------------------------------------------------------
Fiscal 2000 Acquisitions:
- The Company purchased an additional 5,978 shares in Black
Investment Management Limited on April 13, 1999 for cash
considerations of $209,230. The purchase increased the
Company's ownership to 50.5%.
- The Company purchased an additional 3,000 shares in Black
Investment Management Limited on July 22, 1999 for cash
consideration of $105,000.
- On November 19, 1999, the Company completed the acquisition of
75% of P.J. Doherty & Associates Co. Ltd. for total
consideration of $7,632,022. Goodwill of $5,340,879 resulting
from this acquisition is being amortized over 15 years.
The assets acquired and consideration given are as follows:
<TABLE>
<CAPTION>
12 months ended
March 31, 2000
---------------
<S> <C>
Cash $ 44,849
Net assets (liabilities) acquired,
at fair value 311,601
Management contracts 2,000,000
------------
2,356,450
------------
Consideration
Cash 4,324,310
Class A Preference Shares 3,500,000
Direct acquisition expenses 121,942
------------
7,946,252
------------
Goodwill $ 5,589,802
============
</TABLE>
Fiscal 2001 Dispositions:
- On September 29, 2000, the Company sold its share ownership in
A.I.L. Investment Services Inc. (AILISI), a wholly owned
subsidiary, for cash proceeds of $650,000. AILISI provided all
management and administrative services for one mutual fund
corporation. The primary asset of AILISI was a management
contract with a net book value of $350,000 on the date of
sale. Included in `Other income' is a net gain of $218,000
resulting from this transaction
4. MARKETABLE SECURITIES
Marketable securities are recorded at market values and comprise the
following:
<TABLE>
<CAPTION>
September 30, March 31,
2000 2000
--------------- ----------------
<S> <C> <C>
Bankers Acceptance $ 1,293,793 $ 1,554,482
Money Market Mutual Funds 498,398 393,309
Other Mutual Funds -- 44,009
--------------- ----------------
$ 1,792,191 $ 1,991,800
=============== ================
</TABLE>
The Bankers Acceptance matures on November 1, 2000. Annualized yield on
this security is 5.64%.
8
<PAGE> 18
INTERUNION ASSET MANAGEMENT LIMITED
Notes to Consolidated Financial Statements
September 30, 2000
(amounts expressed in Canadian dollars unless otherwise stated)
--------------------------------------------------------------------------------
5. MANAGEMENT CONTRACTS
Management contracts comprise the following:
<TABLE>
<CAPTION>
September 30, 2000 March 31, 2000
------------------------------------------------------ --------------
Accumulated Net Book Net Book
Cost Amortization Value Value
------------- --------------- --------------- ------------
<S> <C> <C> <C> <C>
Management contract $ -- $ -- $ -- $ 400,000
(see note 3)
Non-competition agreement 2,000,000 238,096 1,761,905 1,904,762
------------- --------------- --------------- ------------
$ 2,000,000 $ 238,096 $ 1,761,905 $ 2,304,762
============= =============== =============== ============
</TABLE>
6. CAPITAL ASSETS
Capital assets comprise the following:
<TABLE>
<CAPTION>
September 30, 2000 March 31, 2000
------------------------------------------------------ --------------
Accumulated Net Book Net Book
Cost Amortization Value Value
------------- --------------- --------------- ------------
<S> <C> <C> <C> <C>
Computer equipment $ 627,913 $ 473,313 $ 154,600 $ 176,879
Furniture, fixtures and other 441,084 316,509 124,575 137,785
Leasehold improvements 158,276 44,895 113,380 132,342
------------- --------------- --------------- ------------
$ 1,227,273 $ 834,717 $ 392,555 $ 447,006
============= =============== =============== ============
</TABLE>
7. INVESTMENTS
Investments are carried at the lower of cost and fair value and include
the following:
<TABLE>
<CAPTION>
September 30, March 31,
2000 2000
-------------- -------------
<S> <C> <C>
27,224 common shares of InterUnion Financial Corporation,
a shareholder of the Company, held by a subsidiary of the
company (quoted market value - $10,236,
March 31, 2000 - $36,997) $ 10,236 $ 17,000
44,477 Class A preference shares of Kanata Capital Inc., a
corporation controlled by minority shareholders of and held by a
subsidiary (it is impractical to determine a fair value as the
company is privately held and there is no ready market) 44,477 44,477
Other investments 10,000 10,000
-------------- -------------
$ 64,713 $ 71,477
============== =============
</TABLE>
8. GOODWILL
<TABLE>
<CAPTION>
September 30, March 31,
2000 2000
-------------- -------------
<S> <C> <C>
Cost $ 13,675,099 $ 13,762,035
Accumulated amortization 1,456,124 1,058,184
-------------- -------------
$ 12,218,975 $ 12,703,851
============== =============
</TABLE>
9
<PAGE> 19
INTERUNION ASSET MANAGEMENT LIMITED
Notes to Consolidated Financial Statements
September 30, 2000
(amounts expressed in Canadian dollars unless otherwise stated)
--------------------------------------------------------------------------------
9. DEFERRED REVENUE AND LEASE INDUCEMENTS
Deferred revenue and lease inducements compromise the following:
<TABLE>
<CAPTION>
September 30, March 31,
2000 2000
------------- -------------
<S> <C> <C>
Deferred revenue $ 86,226 $ 76,493
Deferred rent inducement 42,790 45,371
------------- -------------
$ 129,016 $ 121,864
============= =============
</TABLE>
A controlled company's lease at its Toronto premises provides for
rent-free periods and periods of significantly reduced rent. In order
to properly reflect these rental inducements over the term of the
lease, the total lease payments have been aggregated and allocated over
the term of the lease on a straight-line basis. This treatment of
rental inducements has given rise to deferred rent inducements which
will be applied to income over the term of the lease.
The controlled company has sub-let certain of its leased premises for
the term of the lease. Included in deferred rent inducement are
expenses associated with the sub-lease arrangement which have been
deferred and will be amortized over the remaining life of the
sub-lease.
10. RELATED PARTY TRANSACTIONS
Transactions with shareholders, officers and directors of the Company,
its subsidiaries and companies influenced by the aforementioned parties
are considered related party transactions.
Summary of the related party transactions affecting the accounts are as
follows:
<TABLE>
<CAPTION>
6 months ended 6 months ended
September 30, September 30,
2000 1999
-------------- --------------
<S> <C> <C>
Revenue
Management fees $ 57,300 $ 86,670
Other income 29,700 --
Expenses
Commissions and incentives 46,800 --
Interest expense 87,500 --
Office and general 12,600 106,050
Professional fees 122,500 --
</TABLE>
These transactions are in the normal course of operations and are
measured at the exchange values (the amount of consideration
established and agreed to by the related parties), which approximate
the arm's length equivalent values.
10
<PAGE> 20
INTERUNION ASSET MANAGEMENT LIMITED
Notes to Consolidated Financial Statements
September 30, 2000
(amounts expressed in Canadian dollars unless otherwise stated)
--------------------------------------------------------------------------------
Other related party transactions are as follows:
Effective February 29, 2000, the Company acquired an
additional 7,610 shares in Leon Frazer, Black & Associates
Limited in exchange for 100% of the Company's investment in
The Glen Ardith-Frazer Corporation. The transaction was
accounted for using the Company's carrying value of $2,356,927
at February 29, 2000 and represents a continuity of interest.
The acquisition increased the Company's direct ownership to
59.2%.
On March 7, 2000, Black Investment Management Limited
transferred 192 shares in Leon Frazer, Black & Associates to
the Company as a financing set up fee. This transfer was not
deemed to occur in the normal course of operations and has
been measured at the carrying amount (net book value) of
$41,170 of the shares issued as payment.
Related party balances in the accounts are as follows:
<TABLE>
<CAPTION>
September 30, March 30,
2000 2000
------------- ---------
<S> <C> <C>
Accounts receivable $ 20,330 $ 71,460
Accounts payable 38,440 46,880
Other liabilities 87,500 43,740
</TABLE>
These balances are interest-free, unsecured, payable on demand and have
arisen from the transactions referred to above (except for Other
liabilities which is due on November 19, 2002 and has arisen on
issuance of preferred shares).
11. LONG-TERM DEBT
<TABLE>
<CAPTION>
September 30, March 31,
2000 2000
-------------- ---------------
<S> <C> <C>
Demand installment loan, monthly principal payments of $2,700, interest
at prime plus 2%. The loan was repaid during the current quarter. $ -- $ 114,100
Demand bank loan, interest at prime +1/2%, monthly principal
payments of $1,500 commencing January 2000 66,500 75,500
Bank loan, interest at prime + 1 1/2%, 30 monthly principal payments of
$1,095 commencing September 1999, secured by computer equipment -- 25,164
10% note payable to a director and non-controlling interest
shareholder, due on demand -- 5,799
-------------- ---------------
66,500 220,563
Less: current portion 18,000 69,339
-------------- ---------------
$ 48,500 $ 151,224
============== ===============
</TABLE>
The demand bank loan is guaranteed by two of a subsidiary company's
shareholders.
12. PREFERENCE SHARES
3,500 Cumulative Redeemable Convertible Class A Preference Shares (with
a value equal to $1,000 per share) were issued on November 19, 1999 as
consideration for the acquisition of P.J. Doherty & Associates Co. Ltd.
These Class A Preference Shares are redeemable at the option of either
the holders (commencing
11
<PAGE> 21
INTERUNION ASSET MANAGEMENT LIMITED
Notes to Consolidated Financial Statements
September 30, 2000
(amounts expressed in Canadian dollars unless otherwise stated)
--------------------------------------------------------------------------------
November 19, 2002, subject to certain provisions for early redemption
arising from non-payment of dividends and an Initial Public Offering of
the Common Shares of the Company prior to November 19, 2002) or the
Company (commencing November 19, 2001) at $1,000 per share. In the
instance that the Class A Preference Shares are redeemed by the
Company, the holders are entitled to a cash premium of 2.5% per annum,
calculated from the original issue date together with all dividends
accruing thereon whether or not declared. At any time after issuance,
each Class A Preference Share is convertible to 78.408 Common Shares
(see note 13) at a conversion price of $12.7538 per Common Share
(subject to certain provisions with respect to the issuance of
additional Common Shares). Holders of these Class A Preference Shares
are entitled to quarterly cumulative cash dividends of: i.) 2.50% per
annum until the third anniversary of the original issue date; and ii.)
5.00% per annum, thereafter. Holders of these Class A Preference Shares
are also entitled to an additional dividend of 2.50% per annum accruing
until and payable on the earlier of: i.) the third anniversary of the
original issue date; ii.) the date on which Common Shares are delivered
to the holder pursuant to a conversion of Class A Preference Shares;
and iii.) the redemption of such Class A Preference Shares. As these
Class A Preference Shares are redeemable at the option of the holders,
the value of these shares have been classified as long-term debt on the
balance sheet. These Class A Preference Shares are collateralized by a
pledge by the Company of 4,000,000 common shares in the capital of P.J.
Doherty & Associates Co. Ltd. valued at $4,000,000.
13. SHARE CAPITAL
The authorized share capital of the Company consists of an unlimited
number of Common Shares and an unlimited number of Preference Shares
(issuable in series).
The Preference Shares are voting, convertible, and rank in priority to
the Common Shares with respect to the payment of dividends and the
distribution of assets on liquidation, dissolution, or wind-up. The
remaining conditions attached to the Preference Shares are to be fixed
by the Directors of the Corporation before any series of Preference
Shares are issued. During the prior year, 310,010 convertible
Preference Shares were issued and converted to Common shares on a 1 for
1 basis.
During the prior year, the articles of the Company were amended to
cancel the existing Preference Shares and to authorize the issuance of
an unlimited number of Class A and Class B Preference Shares, issuable
in Series (note 12).
Details of issued share capital are as follows:
<TABLE>
<CAPTION>
----------Shares------------ ----------------Amount--------------
Common Preference Common Preference
--------- ---------- ------------- ------------
<S> <C> <C> <C> <C>
Opening Share Capital:
April 1, 1998 234,292 -- $ 1,374,000 $ --
--------- -------- ------------- -------------
Jan 21, 1999 455,699 310,010 5,143,491 (2) 4,920,533 (1)
Mar 8, 1999 310,010 (310,010) 4,920,533 (3) (4,920,533)
Mar 8, 1999 568,160 -- 4,920,534 (1) --
--------- -------- ------------- -------------
Closing Share Capital:
September 30, 1999 & 2000 1,568,161 -- $ 16,358,558 $ --
========= ======== ============= =============
</TABLE>
(1) issued for cash
(2) issued on acquisition of subsidiaries
(3) Preference Share conversion
12
<PAGE> 22
INTERUNION ASSET MANAGEMENT LIMITED
Notes to Consolidated Financial Statements
September 30, 2000
(amounts expressed in Canadian dollars unless otherwise stated)
--------------------------------------------------------------------------------
A common stock warrant was issued to the majority shareholder of the
Company on March 8, 1999. Under the terms of the warrant, in the event
that the assets under management as represented on March 8, 1999 are
subsequently determined to be less than 95% of said representation, the
majority shareholder is entitled to receive additional common shares of
the Company. As at September 30, 2000, the rights represented by the
common stock warrant were exercised by the majority shareholder.
Consequently, management has estimated that approximately 89,000 common
shares will be issued to the majority shareholder subsequent to the
current period end. In addition, the transaction will prompt the option
and preferred share adjustment clauses in the respective agreements. A
total of approximately 5,300 additional stock options will be issued to
present stock option holders and the conversion ratio for Class A
Preference shareholders will be adjusted to approximately 82.86 common
shares for each Class A preference share.
During a prior fiscal period the Board of Directors of the Company
approved the granting of options to employees to purchase up to 136,300
common shares of the Company which may be granted from time to time.
Various vesting requirements are associated with each employee grant.
Vested Options
<TABLE>
<CAPTION>
-----------------------Number of Options------------------------
Fiscal Vested Exercise Outstanding, Issued Exercised Outstanding,
year expiry date price September 30, (vested) September 30,
granted 1999 2000
------- ----------- -------- ------------- ------ --------- -------------
<S> <C> <C> <C> <C> <C> <C>
1999 Jan 21, 2009 $16.13 36,300 -- -- 36,300
1999 Jan 21, 2009 $0.001 11,000 11,000 -- 22,000
2000 May 10, 2009 $13.00 3,667 11,000 -- 14,667
</TABLE>
Unvested Options
<TABLE>
<CAPTION>
---------------------------Number of Options --------------------------
Fiscal Vested Exercise Outstanding, Issued Vested Forfeited Outstanding,
year expiry date price September 30, September 30,
granted 1999 2000
------- ----------- -------- ------------- ------ ------ --------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
1999 Jan 21, 2009 $0.001 37,000 -- 11,000 15,000 11,000
2000 May 10, 2009 $13.00 29,333 -- 11,000 -- 18,333
</TABLE>
Unvested options with an exercise price of $0.001 will vest on the
basis of specific employee performance related to the acquisition of
assets under management. The unvested options will expire on March 31,
2001 if performance criteria is not met. Unvested options with an
exercise price of $13.00 will vest evenly over a three-year term.
13
<PAGE> 23
INTERUNION ASSET MANAGEMENT LIMITED
Notes to Consolidated Financial Statements
September 30, 2000
(amounts expressed in Canadian dollars unless otherwise stated)
--------------------------------------------------------------------------------
14. INCOME TAXES
The Company's effective income tax rate used in determining the
provision for income taxes is as follows:
<TABLE>
<CAPTION>
6 months ended 6 months ended
September 30, September 30,
2000 1999
-------------- --------------
<S> <C> <C>
Combined statutory tax rate (recovery) (44.6%) (44.6)%
Deduct:
Non-deductible expenses 12.4 4.9
Temporary differences 9.8 8.9
Unrecognized losses carried forward 148.8 43.4
Non-taxable gains (43.5) --
Other, net (1.4) (0.8)
-------------- --------------
Effective income tax rate 81.5% 11.8 %
============== ==============
</TABLE>
As at September 30, 2000, the consolidated group had approximately
$1,593,000 of non-capital losses (March 31, 2000 - $1,512,000) and
$378,000 (March 31, 2000 - $13,000) of capital losses which may be
carried forward and utilized to reduce future years' taxable income and
capital gains, respectively. These figures reflect the reduction of
$516,000 in non-capital losses arising from the sale of AILISI. Capital
losses can be carried forward indefinitely. The right to claim the
non-capital losses expires as follows:
<TABLE>
<CAPTION>
Expiry
------
<S> <C>
2006 $ 281,000
2007 757,000
2008 555,000
---------
1,593,000
=========
</TABLE>
During the period, the Company's future income tax asset increased by
$255,000 and totaled $1,056,000 (March 31, 2000 - $801,000) after
applying the statutory tax rate to the temporary differences and
non-capital and capital losses described above.
Subsequently, the net change to the valuation allowance during the
period, and the total valuation allowance as at September 30, 2000
provided by the Company, increased by $255,000 and totaled $1,030,000
(March 31, 2000 - $775,000) to reduce the future income tax asset,
reflecting the uncertainty of full realization of the future income tax
asset.
15. LOSS PER SHARE
Basic loss per share has been calculated on a weighted average basis of
common shares outstanding during the period.
<TABLE>
<CAPTION>
6 months ended 6 months ended
September 30, September 30,
2000 1999
-------------- --------------
<S> <C> <C>
Weighted average common shares
- basic calculation 1,568,161 1,568,161
</TABLE>
14
<PAGE> 24
INTERUNION ASSET MANAGEMENT LIMITED
Notes to Consolidated Financial Statements
September 30, 2000
(amounts expressed in Canadian dollars unless otherwise stated)
--------------------------------------------------------------------------------
The calculations of fully diluted earnings per share is based upon the
common shares outstanding during the period as above and not adjusted
by the unexercised convertible Class A Preference shares and vested
options in computing diluted loss per share because their effects were
antidilutive.
<TABLE>
<CAPTION>
6 months ended 6 months ended
September 30, September 30,
2000 1999
-------------- --------------
<S> <C> <C>
Basic loss per share $ (0.55) $ (0.44)
</TABLE>
16. COMMITMENTS
The Company has basic lease payments exclusive of operating costs for
the premises and office equipment for the next five years as follows:
<TABLE>
<CAPTION>
12 months ended
September 30
---------------
<S> <C>
2001 315,000
2002 208,000
2003 132,000
2004 48,000
2005 --
</TABLE>
The Company has employment contracts and obligations with seven of its
employees at the following yearly base salaries amount:
<TABLE>
<CAPTION>
12 months ended
September 30
---------------
<S> <C>
2001 1,167,000
2002 819,000
2003 515,000
2004 490,000
2005 82,000
</TABLE>
17. UNCERTAINTY DUE TO THE YEAR 2000 ISSUE
The Year 2000 Issue arises because many computerized systems use two
digits rather than four to identify a year. Date-sensitive systems may
recognize the year 2000 as 1900 or some other date, resulting in errors
when information using year 2000 dates is processed. In addition,
similar problems may arise in some systems which use certain dates in
1999 to represent something other than a date. Although the change in
date has occurred, it is not possible to conclude that all aspects of
the Year 2000 Issue that may affect the Company, including those
related to customers, suppliers, or other third parties, have been
fully resolved.
18. RECONCILIATION OF CANADIAN AND UNITED STATES GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES
The consolidated financial statements of the Company are prepared in
accordance with accounting principles generally accepted in Canada
("Canadian GAAP"). Material differences at September 30 between
Canadian GAAP and accounting principles generally accepted in the
United States ("U.S. GAAP") are described below:
15
<PAGE> 25
INTERUNION ASSET MANAGEMENT LIMITED
Notes to Consolidated Financial Statements
September 30, 2000
(amounts expressed in Canadian dollars unless otherwise stated)
--------------------------------------------------------------------------------
a) Statements of Operations:
The application of U.S. GAAP would have the following effect on net
loss for the quarter and loss per common share as reported:
<TABLE>
<CAPTION>
6 months ended 6 months ended
September 30, September 30,
2000 1999
--------------- --------------
<S> <C> <C>
Net loss for the period, Canadian GAAP $ (860,722) $ (695,796)
Stock based compensation (i) (34,470) (99,500)
--------------- --------------
Net loss for the period, U.S. GAAP $ (895,192) $ (795,296)
=============== ==============
Loss per common share under U.S. GAAP $ (0.57) $ (0.51)
</TABLE>
(i) Stock-Based Compensation Expense
The Company does not recognize compensation expense for stock
options granted. Under U.S. GAAP, Accounting Principles Board
("APB") Opinion No. 25 requires that stock based compensation
cost be recorded using the intrinsic-value method. FASB
Statement of Financial Accounting Standard ("SFAS") No. 123
encourages the Company to record compensation expense using
the fair-value method. In reconciling Canadian GAAP with U.S.
GAAP, the Company has chosen to measure compensation costs
related to stock options in accordance with APB 25.
Under APB 25 the intrinsic-value of vested options would have
been $0 (1999 - $0). The intrinsic-value of unvested options
is estimated to be $177,000 (1999 - $597,000) with a vesting
period of two years (1999 - three years). Accordingly, had the
Company recognized compensation cost related to the unvested
options the intrinsic value would have been amortized over the
vesting period, or in amounts of $88,500 (1999 - $199,000) in
each vesting year. Management's best estimate is that the
performance conditions attached to the unvested options will
be met. Total compensation cost for the period under APB 25
would have been $34,470 (1999 - $99,500). Had the Company
booked compensation expense in accordance with APB 25, basic
loss per share would have been increased by $0.02 (1999 -
$0.06).
(ii) Common Stock Warrant
Under U.S. GAAP, the common shares to be issued to the
majority shareholder subsequent to the current period end
would be reflected as issued for no consideration as at
September 30, 2000. The inclusion of these common shares would
not have a significant impact on loss per common share
reported under U.S. GAAP.
b) Other Disclosures:
(i) Stock-Based Compensation Expense
For unvested options issued in the prior fiscal year, the
estimated fair value of the underlying equity at date of
issuance was $13.00. As such, compensation costs under SFAS
123 would have totaled $0 (1999 - $227,700) with a vesting
period of three years.
The fair value estimates were determined using the
Black-Scholes option-pricing model. Valuation was based on a
risk-free interest rate of 5.46%, an expected term of 10
years, an expected volatility of 30% and no expected
dividends. Had the Company booked compensation expense, loss
per common share would have been increased by $0 (1999 -
$0.15).
16
<PAGE> 26
INTERUNION ASSET MANAGEMENT LIMITED
Notes to Consolidated Financial Statements
September 30, 2000
(amounts expressed in Canadian dollars unless otherwise stated)
--------------------------------------------------------------------------------
(ii) Comprehensive Income
FASB SFAS No. 130 introduced the concept of Comprehensive
Income. Under this pronouncement, U.S. GAAP requires companies
to report Comprehensive Income as a measure of overall
performance. Comprehensive Income includes net income and all
other changes in equity, exclusive of shareholders'
contributions or any distributions to shareholders. The
application of FASB SFAS N0. 130 would not have a material
effect on net loss for the year and loss per common share as
reported under U.S. GAAP.
19. COMPARATIVE CONSOLIDATED FINANCIAL STATEMENTS
Certain comparative figures have been restated to conform with the
current year's presentation.
17
