<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 December 31, 1999.
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from April 1, 99 to
December 31, 1999
Commission file number ______________________
INTERUNION FINANCIAL CORPORATION
--------------------------------
(Exact name of small business issuer as specified in its charter)
Delaware 52-2002396
(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 -- 4,243,123 as of December 31, 1999
Transitional Small Business Disclosure Format (Check One) Yes [ ] No [X]
Page 1 of 9
<PAGE> 2
INTERUNION FINANCIAL CORPORATION
UNAUDITED CONSOLIDATED STATEMENT OF OPERATIONS AND DEFICIT
FOR THE PERIOD ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
31-Dec-99 31-Dec-98 31-Dec-99 31-Dec-98
<S> <C> <C> <C> <C>
REVENUE
Investment Banking 181,875 200,907 1,059,112 466,396
Investment Management 0.00 309,838 0.00 1,049,826
Investment Income 15,586 16,757 84,567 76,584
---------- ---------- ---------- ----------
197,461 527,502 1,143,678 1,592,806
---------- ---------- ---------- ----------
EXPENSES
Selling, General & Administration 258,875 772,663 787,350 2,098,629
Amortization & Depreciation 51,104 99,890 151,863 238,289
Foreign Exchange Loss (Gain) (10,374) 1,833 (18,017) (60,964)
Interest Expense (2,907) 75,666 46,322 191,429
---------- ---------- ---------- ----------
296,608 950,052 967,518 2,467,383
---------- ---------- ---------- ----------
P&(LOSS) FROM CONTIN.OPER. BEFORE INCOME TAX (99,147) (422,550) 176,160 (874,577)
PROV. FOR INCOME TAXES (RECOVERABLE) 0 0 0 2,873
EQUITY IN NET EARN (LOSS) OF UNCONSOL. AFFILIATES (132,106) (4,962) (338,224) 0
EQUITY IN NET EARN (LOSS) OF CONSOL. AFFILIATES 659,344 2,873 659,344 (29,957)
---------- ---------- ---------- ----------
PROFIT (LOSS) FROM CONTINUOUS OPERATIONS 428,091 (430,385) 497,280 (907,407)
GAIN (LOSS) FROM DISCONTINUED OPERATIONS 0 0 0 0
GAIN (LOSS) ON DISPOSAL OF DISCONTINUED ASSETS 00 0 0
---------- ---------- ---------- ----------
NET PROFIT (LOSS) FOR THE PERIOD 428,091 (430,385) 497,280 (907,407)
FOREIGN EXCHANGE TRANSLATION EFFECT (10,559) 715 (10,559) (197,528)
RETAINED EARNINGS (DEFICIT) BEG. PERIOD (1,769,787) (2,253,884) (1,963,750) (1,578,619)
Adjustment due to dissolution of subsidiaries 81,104 81,104
RETAINED EARNINGS (DEFICIT) - END PERIOD (1,271,151) (2,683,554) (1,395,925) (2,683,554)
FINANCIAL OVERVIEW
Common Shares Outstanding 4,243,123 1,908,285 4,243,123 1,908,285
Weighted Average Shares Outstanding - Basic 3,495,390 1,930,035 3,495,390 1,817,454
EPS - From Continuing Operations (Basic) 0.122 (0.220) 0.142 (0.50)
EPS - From Discontinuing Operations (Basic) 0.000 0.00 0.00 0.00
EPS (Basic) 0.122 (0.220) 0.142 (0.50)
Weighted Avg Com. Sh. Outstanding - Diluted 4,243,123 2,893,364 4,243,123 2,592,729
Weighted Ave Pref Sh. Outstanding - Diluted 1,500,000 1,500,000 1,500,000 150,000
EPS - From Contin. Operat. (FD) 0.101 (0.220) 0.117 (0.50)
EPS - From Contin. Operat. (FD) 0.101 (0.220) 0.117 (0.50)
</TABLE>
See Accompanying Notes to Unaudited Consolidated Financial Statements
Page 2 of 9
<PAGE> 3
INTERUNION FINANCIAL CORPORATION
UNAUDITED CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
As at December 31 As at March 31
1999 1998 1999 1998
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalent 215,400 338,877 285,706 2,873,731
Marketable Securities 9,183 180,412 19,885,302 35,169,986
Due from brokers and dealers 1,368,228 587,548 0 2,012
Due from Clients 502,174 153,223 93,183 715,871
Accounts Receivable 568,409 535,942 690,374 882,491
Refundable Income Taxes 0 0 5,046 7,789
Prepaid expenses and other current assets 52,070 121,318 25,772 56,733
Notes receivable 0 415,456 973,315 616,579
Loan receivable 69,220 0 0 0
Total Current Assets 2,784,683 2,332,776 21,958,698 40,325,192
NON-CURRENT ASSETS
Property & equipment, net 1,053,180 1,315,568 1,199,953 1,425,192
Notes receivable, non-current portion 2,574,471 778,942 619,992 952,106
Other long-term assets 90,503 84,710 77,651 84,710
Investment in unconsolidated affiliates 5,492,459 4,156,363 5,591,892 3,488,322
Goodwill, net 0 1,999,918 0 2,468,210
Discontinued Assets 0 0 0 0
Total non-current assets 9,210,613 8,335,501 7,489,488 8,418,540
TOTAL ASSETS 11,995,296 10,668,277 29,448,186 48,743,732
LIABILITIES
CURRENT LIABILITIES:
Due to brokers and dealers 0 145,225 18,899,072 34,663,322
Due to clients 1,794,544 595,547 979,783
3,057,747
Accounts payable and accrued liabilities 183,559 219,489 253,476 1,063,956
Due to affiliates 13,258 0 776,213 0
Notes Payable, current portion 0 731,548 0 1,703,441
Bank Loan 0 656,313 0 0
Total Current Liabilities 1,991,361 2,348,122 20,908,544 40,488,466
Due to Related Parties 522,566 0
OTHER LIABILITIES 68,852 77,033
NOTES PAYABLE, Longterm Portion 634,467 614,944 619,992 1,485,801
Discontinued Liabilities 0 0
Deferred Income Tax Liability 0 0
TOTAL LIABILITIES 2,625,828 3,554,484 21,528,536 42,051,300
SHAREHOLDER'S EQUITY
Capital Stock and additional paid-in capital 10,765,393 9,367,677 9,902,363 8,271,051
Accumulated Comprehensive Income (10,559) (203,294) 0 0
Cumulative Translation Adjustment 0 0 (18,963) (5,051)
Retained Earnings (Deficit) (1,395,925) (2,050,590) (1,963,750) (1,573,568)
Total Shareholders' Equity 9,369,468 7,113,793 7,919,650 6,692,432
TOTAL LIABILITIES & SHAREHOLDERS' EQUITY 11,995,296 10,668,277 29,448,186 48,743,732
</TABLE>
See accompanying Notes to Unaudited Consolidated Financial Statements
Page 3 of 9
<PAGE> 4
INTERUNION FINANCIAL CORPORATION
UNAUDITED CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
As at December 31 As at March 31
1999 1998 1999 1998
---------- --------- --------- ---------
<S> <C> <C> <C> <C>
SHAREHOLDERS' EQUITY
Class A Preferred Stock, $0.10 par value 150,000 150,000 150,000 150,000
Authorized - 1,500,000 shares
Issued outstanding - 1,500,000
Class B Preferred stock, $0.10 par value 0 0
authorized - 1,000,000 shares
Issued and outstanding - none
Class C Preferred Stock, $0.10 par value 0 0
Authorized - 1,000 shares
Issued and outstanding - none
Common Stock, $0.01 par value
Authorized - 5,000,000 in 1999; 2,500,000 in 1998
Issued and outstanding - 4,243,123 in 1999; 2,114,425 in 1998 4,343 1,936 2,114 1,654
Additional paid-in-capital 10,661,050 9,215,741 9,750,249 8,119,397
Accumulated Comprehensive Income (10,559) (203,294) 0 0
CUMULATIVE TRANSLATION ADJUSTMENT 0 0 (18,963) (5,051)
ACCUMULATED DEFICIT (1,395,925) (2,050,590) (1,963,750) (1,573,568)
Total Shareholders' Equity 9,369,468 7,113,793 7,919,650 6,692,432
Total Liabilities and Sheholders' Equity 11,995,296 10,668,277 29,448,186 48,743,732
</TABLE>
See Accompanying Notes to Consolidated Financial Statements
Page 4 of 9
<PAGE> 5
INTERUNION FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOW
FOR THE THREE MONTHS ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
9 Months to 12 Months to
31-Dec-99 31-Dec-98 31-Dec-99 31-Dec-98
----------- ----------- ----------- ---------
<S> <C> <C> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES
Net Income (loss) 497,280 (907,407) (390,182) (15,287)
Adjustment to reconcile net profit (loss) to net
cash provided by (used in) operating activities
Depreciation and amortization 151,863 238,289 200,171 240,886
Loss on equity investments (321,120) 492,917 0
Gain on sale of securities by subsidiary (486,099) 0
Gain on disposal of discontinued operations 0 0 (804,174)
Non cash compensation 0 87,500 60,000
Non cash expenses (income) (14,475) 40,000 0
Deferred income taxes 0 0 (85,000)
Unrealized loss (gain) in marketable securities 15,608 (11,814) 159,831
313,548 (653,510) (68,243) (443,744)
Changes in operating assets and liabilities net of effects from
the purchase/divestiture of InterUnion Asset Mgmt. Ltd
Decrease (increase) in due to/from brokers and dealers, net (20,267,300) (35,447,946) (15,762,238) 1,814,508
Decrease (increase) in due to/from client, net 405,770 (1,545,921) (1,455,276) 6,988,991
Decrease (increase) in marketable securities 19,876,120 35,198,633 15,242,302 (5,871,852)
Increase (decrease) in accounts receivable & other assets 31,493 282,643 124,263 (452,610)
Increase (decrease) in accounts payable & accrued liab (832,872) (531,887) (572,359) 633,103
Increase (decrease) in assets and liabilities related to/
discontined operations 0 0 0 (287,734)
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES (473,241) (2,697,988) (2,490,815) 2,380,662
CASH FLOW FROM FINANCING ACTIVITIES
Net proceeds on issuance of capital stock 863,030 133,000 133,000 270,000
Increase (decrease) in due to related parties 0 628,428 771,109 0
Proceeds (repayment) of notes payable (995,639) (916,763) (103,448) 1,508,712
Proceeds (repayment) of bank loan 0 699,378
NET CASH PROVIDED BY FINANCING ACTIVITIES (132,609) 544,043 800,661 1,778,712
CASH FLOW FROM INVESTING ACTIVITIES
Purchase of property and equipment, net (6,532) (7,438) (2,0,32)
Purchase of long-term investment, net 0 (364,184) (437,363) (485,336)
Cash acquired on acquisition of subsidiary 0 0 0
Cash divested on sale of security by subsidiary 0 (195,304) 0
Investment in notes receivable 0 0 (257,767) (1,299,935)
NET CASH USED IN INVESTING ACTIVITIES 0 (370,716) (897,872) (1,787,303)
NET INCREASE (DECREASE) IN CASH (70,306) (2,524,661) (2,588,026) 2,372,071
CASH AND CASH EQUIVALENTS - Beginning of Year 285,706 2,873,731 2,873,731 349,738
cash - Acquired on acquisition 151,922
CASH AND CASH EQUIVALENTS - End of Year 215,400 349,070 285,705 2,873,731
</TABLE>
See Accompanying Notes to Unaudited Consolidated Financial Statements
Page 5 of 9
<PAGE> 6
PART 1 - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
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 Principals. 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, 1999, included in its Form 10-KSB for the year
ended March 31, 1999.
2. Earning per share is computed using the weighted average number of common
shares outstanding during the period. Loss per share is computed using the
weighted average number of common shares outstanding during the period.
ITEM - MANAGEMENT'S DISCUSSION AND ANALYSIS
(1) OVERVIEW
During the first nine months of fiscal 2000 ending December 31, 1999, InterUnion
reported consolidated revenues of $1,143,679 versus $1,592,808 a year earlier.
The revenue during the third fiscal quarter ending December 31, 1999 was
$197,461 versus $527,502 a year earlier.
Selected financial data from InterUnion's financial statements is (figures in
'000s except per share data)
<TABLE>
<CAPTION>
9 mos ended 9 mos ended 9 mos ended
Dec. 31, 99 Dec. 31, 98 Dec. 31, 97
<S> <C> <C> <C>
Revenues 1,144 1,593 3,080
Net Profit 497 (907) 597
EPS - Operations (basic) 0.142 (0.500) 0.490
EPS - Discontinued Operations (basic) 0.000 0.000 0.670
EPS (Basic) 0.142 0.500 0.490
working Capital 793 (205) 888
Cash Fllow 314 (653) 855
Total Assets 11,995 10,902 8,926
Shareholder's Equity 9,369 6,559 5,928
</TABLE>
During the quarter ending December 1999, the Company implemented a
number of recommendations from its board of directors:
a) Simplification of corporate structure: after the consolidation of the
Company's Canadian management activities under one 44% owned
subsidiary, InterUnion Asset Management Limited, the Company continued
to reduce the number of subsidiaries through a reallocation of their
business to other operating entities or the merging of their
activities, thus allowing a simpler corporate chart;
b) Closer monitoring of its 44% owned subsidiary InterUnion Asset
Management Limited, in co-operation with the other 56% shareholder
which should result into implementing better controls, lower costs and
increased profitability;
c) Better exposure through the creation of a website: www.
interunion-financial.com .
Page 6 of 9
<PAGE> 7
During the third quarter ending December 31, 1999, the Company also:
a) Issued 2,218,690 Common Shares for conversion of debt, increasing the
total number of Common Shares by 111.5%.
b) recovered $1,071,014.80 of outstanding loans;
c) acquired, through its 44% owned subsidiary, InterUnion Asset
Management, a 75% interest into P.J.Doherty an Ottawa, Canada, based
money manager with about Can$640 million of assets under management for
individuals and institutions, thus bringing the assets under management
to over $1.5 billion
(2) NET REVENUES
During the first nine months of fiscal 2000, ending December 31, 1999,
InterUnion reported consolidated revenues of $1,143,679 versus $1,592,906 a year
earlier, a decrease of 28%. Investment banking revenues increased by 127% to
$1,059,112 from $466,396 the previous year. Investment management revenues were
nil versus $1,049,826 a year earlier, as they are now accounted for on the
equity basis.through the Company's 44% ownership in InterUnion Asset Management
Limited.
Net earnings of the Company will continue to be affected by InterUnion Asset
Management Limited which as a consolidator in its industry will continue to be
affected by amortisation, write-off and other costs associated with its
acquisitions.
(3) EXPENSES
During the first nine months of fiscal 1999, InterUnion reduced its expenses
from $2,467,383 a year earlier to $987,096 representing a decrease of 61%. This
decrease is attributable to continuing reduction (over 60%) in general and
administration through the rationalisation of equipment
(communication/information) as well as a reduction of interest expenses (75%).
(4) NET INCOME
Net income from operations (basic) for the nine months ending December 31, 1999
was $497,280 or $0.142 per Common Share, versus a loss of $907,407 or $0.50 per
share a year earlier, representing a 155% increase. The increase in EPS is due
to increased investment banking activity as well as from the sale of certain
assets belonging to Marbury Trading Corp which resulted in a one time profit of
$659,344.
The basic weighted average number of Common Shares outstanding for the nine
months ending December 31, 1999 is 3,495,390 versus 1,817,454 a year earlier, an
increase of 92.3% which indicates a book value per Common Share of $2.21 for
4,243,123 Common Shares versus $3.44 for 1,817,454. The increase is due to the
issuance of shares resulting from the conversion of debt (see -- Liquidity and
Capital Resources).
5) LIQUIDITY AND CAPITAL RESOURCES
In order to meet its growth plans and fund 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 common stock under
Regulation "D" or Regulation "S". The following are details of these private
placements during the previous three fiscal years:
Page 7 of 9
<PAGE> 8
<TABLE>
<CAPTION>
Date # of Shares Amount Type
<S> <C> <C> <C>
May 1998 17,002 68,008 Regulation "D"
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 2,014,198 905,680 Regulation "S"
November 1999 114,500 57,250 Regulation "S"
</TABLE>
(6) CONCLUDING REMARKS
Thereare 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 specified
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 investor's 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 period ending
December 31, 1999, accurately reflect the operation of the Company of 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 have also reviewed its previous audited annual financial statements for
the year ended March 31, 1999.
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 and should be evaluated in the context of
these factors.
PART 11 - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
The Company is not a party to any pending legal proceedings nor is its property
the subject of a pending legal proceeding for which the claims, exclusive
of interest and costs, exceed 10% of the current assets of the Company on a
consolidated basis.
ITEM 2 - CHANGES IN SECURITIES
None.
ITEM 3 - DEFAULTS UPON SENIOR SECURITIES
Therehave 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
Page 8 of 9
<PAGE> 9
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
Date __December 14, 99______________________ /s/ Georges Benarroch, Director
(Signature)*_____________________
Date __December 14, 1999 /s/ Robert Crosbie, Director
(Signature)*_____________________
* Print the name of each signing officer under his signature.
Page 9 of 9
<PAGE> 10
INTERUNION ASSET MANAGEMENT LIMITED
FINANCIAL STATEMENTS
FOR THE 3 AND 9 MONTHS ENDED DECEMBER 31, 1999 AND DECEMBER 31, 1998
<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 6-16
</TABLE>
1
<PAGE> 11
COMPLIANCE CERTIFICATE
- -------------------------------------------------------------------------------
To: Working Ventures Canadian Inc. ("WV")
InterUnion Financial Corporation ("IUFC")
Date: December 31, 1999
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, 1999:
(a) the attached financial statements delivered pursuant to the
Agreement have been prepared in accordance with generally accepted
accounting 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 the date
hereof;
(b) the Corporation is in compliance with all taxes and other withholding
obligations and has accrued unpaid vacation pay in its financial
statements;
(c) 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;
(d) 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 March
8, 1999 (the "SHARE PURCHASE AGREEMENT")) and to the best of its
knowledge is in compliance with all applicable Environmental Laws; and
(e) 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 this ____ day of January, 2000.
By: ____________________________________ except for note 1 below
Name: Russell Lindsay
Title: Senior Vice-President & Chief Financial Officer
Note 1: Black Investment Management Limited have approximately $152,000
unremitted payroll deductions and $119,000 unremitted GST collected.
2
<PAGE> 12
InterUnion Asset Management Limited
Consolidated Balance Sheets
(as at December 31)
<TABLE>
<CAPTION>
December 31 December 31
1999 1998
----------- -----------
<S> <C> <C>
Assets
Current:
Cash $ 518,175 $ 100,438
Marketable secuities, at market (note 4) 2,662,243 61,029
Accounts receivable and accrued revenue (note 5) 705,253 700,226
Prepaid expenses 94,645 67,568
Income taxes recoverable - 8,213
------------ ----------
3,980,316 937,474
Management contracts (note 6) 2,401,190 -
Capital assets, net (note 7) 461,895 103,026
Investments, at cost (note 8) 71,668 204,478
Goodwill (note 9) 12,927,701 7,799,303
------------ ----------
Total assets $ 19,842,770 $9,044,281
Liabilities
Current:
Bank indebtedness (note 10) $ 275,424 $ 280,467
Accounts payable and accrued liabilities 1,001,243 910,461
Current portion of long term debt 32,400 152,400
Income taxes payable 101,353 -
------------ ----------
1,410,420 1,343,328
Deferred liabilities and inducements (note 11) 148,406 5,330,964
Long term debt (note 13) 89,800 1,026,860
Preference shares (note 14) 3,500,000 -
Other liabilities 9,986 -
------------ ----------
5,158,612 7,701,152
------------ ----------
Non-controlling interest 446,708 466,853
------------ ----------
SHAREHOLDERS' EQUITY
Shareholders' equity:
Share capital (note 15) 16,358,558 1,374,000
Deficit (2,121,108) (497,724)
------------ ----------
Total shareholders' equity 14,237,450 876,276
------------ ----------
Total liabilities and shareholders' equity $ 19,842,770 $9,044,281
</TABLE>
See accompanying notes to consolidated financial statements. Approved by the
Board:
Director Director
----------------------------- -----------------------------
3
<PAGE> 13
InterUnion Asset Management Limited
Consolidated Statements of Operations and Deficit
(for the periods ended December 31)
<TABLE>
<CAPTION>
3 months ended 3 months ended 9 months ended 9 months ended
December 31 December 31 December 31 December 31
1999 1998 1999 1998
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Revenue:
Management fees $ 1,419,655 $1,055,280 $ 3,763,881 $3,709,921
Other income (loss) (35,095) 68,078 (71,327) 112,587
----------- ---------- ----------- ----------
1,384,560 1,123,358 3,692,554 3,822,508
----------- ---------- ----------- ----------
Operating expense
Commission and incentives 270,042 187,420 728,170 573,865
Salaries and benefits 772,044 597,228 1,915,050 1,718,093
Marketing and advertising 98,112 317,643 418,143 810,679
Office and general 304,451 193,223 976,211 719,729
Professional fees 35,371 10,218 152,468 84,094
Amortization of management contracts 48,810 -- 98,810 --
Amortization of capital assets 22,067 (1,178) 47,147 23,061
----------- ---------- ----------- ----------
1,550,897 1,304,554 4,335,999 3,929,521
----------- ---------- ----------- ----------
Operating loss (166,337) (181,196) (643,445) (107,013)
----------- ---------- ----------- ----------
NON-OPERATING EXPENSE:
Interest 37,508 16,132 49,138 24,789
Interest on long term debt 11,946 15,257 16,433 39,099
Amortization of goodwill 149,902 104,641 369,798 313,920
----------- ---------- ----------- ----------
199,356 136,030 435,369 377,808
LOSS BEFORE NON-CONTROLLING INTEREST
AND INCOME TAXES (365,693) (317,226) (1,078,814) (484,821)
Income taxes (recovery) (note 16) 68,056 (24,415) 126,442 (10,538)
----------- ---------- ----------- ----------
LOSS BEFORE NON-CONTROLLING INTEREST (433,749) (292,811) (1,205,256) (474,283)
Non-controlling interest 897 (69,046) (74,814) 4,122
----------- ---------- ----------- ----------
Net loss, for the period (note 17) (434,646) (223,765) (1,130,442) (478,405)
Deficit, beginning of period (1,686,462) (273,959) (990,666) (19,319)
----------- ---------- ----------- ----------
Deficit, end of period $(2,121,108) $(497,724) $(2,121,108) $ (497,724)
----------- ---------- ----------- ----------
</TABLE>
See accompanying notes to consolidated financial statements
4
<PAGE> 14
InterUnion Asset Management Limited
Consolidated Cash Flow Statements
(for the periods ended December 31)
<TABLE>
<CAPTION>
3 months ended 3 months ended 9 months ended 9 months ended
December 31 December 31 December 31 December 31
1999 1998 1999 1998
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Cash flow from operating activities
Net loss $ (434,646) $ (223,765) $(1,130,442) $ (478,405)
Adjustments for:
Amortization of goodwill 149,902 104,641 369,798 313,920
Amortization of management
contracts 48,810 -- 98,810 --
Amortization of capital assets 22,067 (1,178) 47,147 23,061
Deferred rent inducements (8,808) (1,818) (59,147) (5,456)
Non-controlling interest (897) 69,046 74,814 (4,122)
Decrease (increase) in working
capital 4,002,315 87,130 (2,941,470) (1,173,601)
----------- ----------- ----------- -----------
3,778,743 34,056 (3,540,490) (1,324,603)
----------- ----------- ----------- -----------
Cash flows from investing activities
Acquisition of capital assets (4,929) 5,928 (268,302) (95,800)
Acquisiton of goodwill & management
contract, net of cash acquired (3,727,495) -- (3,976,443) --
Net advances from (prepayments to)
related parties -- -- (6,003) (30,000)
----------- ----------- ----------- -----------
Cash flows from (used) in
financing activities (3,732,424) 5,928 (4,250,748) (125,800)
----------- ----------- ----------- -----------
Cash flows from financing activites
Increase (decrease) in bank indebtedness (44,647) 9,349 275,424 280,467
Increase (decrease) of deferred revenue 9,504 (37,960) 31,038 83,804
Increase (decrease) in long term debt (8,100) 24,700 (132,768) 977,737
Dividend paid to non-controlling
interest -- (8,490) -- (21,105)
----------- ----------- ----------- -----------
Cash flows from (used) in financing
activites (43,243) (12,401) 173,694 1,320,903
----------- ----------- ----------- -----------
Net increase (decrease) in cash 3,076 27,583 (7,617,544) (129,500)
Cash at beginning of period 515,099 72,855 8,135,719 229,938
----------- ----------- ----------- -----------
Cash at end of period $ 518,175 $ 100,438 $ 518,175 $ 100,438
----------- ----------- ----------- -----------
Interest and income taxes paid
Interest paid $ 29,455 $ 30,459 $ 45,572 $ 58,936
Income taxes paid (received) 5,618 (26,488) (336) 7,512
=========== =========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE> 15
INTERUNION ASSET MANAGEMENT LIMITED
Notes to Consolidated Financial Statements
December 31, 1999 and December 31, 1998
(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.,
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
requires 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 and are amortized on a
straight-line basis over a five year period (unless otherwise stated).
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:
Computer equipment 30% declining balance
Furniture and fixtures 20% declining balance
Leasehold improvements over the term of lease on a
straight line basis
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 20 years (unless otherwise
stated). The value of goodwill is evaluated regularly by reviewing the
returns of the related business, taking into account the risk
associated with the investment. Any impairment in the value of the
goodwill is written off against earnings.
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
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 and
long term debt. Unless otherwise noted, it is management's opinion
that the company is not exposed to significant interest risks arising
from these financial instruments. The fair value of these financial
instruments approximate their carrying values, unless otherwise noted.
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) 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
The following are the acquisitions during the periods. These acquisitions
were accounted for by the purchase method and consolidated from the
respective effective date of acquisition, except where noted.
1998 Acquisitions:
o 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 Ltd 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.
1999 Acquisitions:
o 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%.
o The Company purchased an additional 3,000 shares in Black Investment
Management Ltd. on July 22, 1999 for cash consideration of $105,000.
o On November 19, 1999, the Company completed the acquisition of 75% of
P.J. Doherty & Associates Co. Ltd., the primary business of which
is to provide discretionary and advisory portfolio management
services. The goodwill of $5,353,911 resulting from this acquisition
is amortized over 15 years.
7
<PAGE> 17
The assets acquired and consideration given are as follows:
<TABLE>
<CAPTION>
1999 1998
----------- ------------
<S> <C> <C>
Cash $ 33,637 $ 90,823
Net assets (liabilities) acquired,
at fair value 309,726 (490,992)
----------- -----------
$ 343,363 $ (400,169)
----------- -----------
Consideration
Cash 2,010,080 --
Class A Preferred Shares 3,500,000 --
Share capital - common shares -- 5,143,491
Direct acquisition expenses 121,942 --
----------- -----------
5,946,252 5,143,491
----------- -----------
Goodwill $ 5,602,889 $ 5,543,660
=========== ===========
</TABLE>
The following table reflects, on a pro-forma basis, the combined results of
InterUnion Asset Management Limited as if the P.J. Doherty & Associates Co.
Ltd. acquisition had taken place at April 1, 1998.
<TABLE>
<CAPTION>
9 months ended 9 months ended
December 31, December 31,
1999 1998
--------------- ---------------
<S> <C> <C>
Revenue $ 5,167,350 $ 5,152,389
Operating Income (Loss) (430,175) 100,289
Net Loss (1,499,126) (917,007)
Basic loss per common share (0.96) (1.33)
</TABLE>
4. MARKETABLE SECURITIES
Marketable securities are recorded at market values and comprise the
following:
<TABLE>
<CAPTION>
1999 1998
----------- ---------
<S> <C> <C>
Bankers Acceptance (under one year) $ 2,279,087 $ --
Money Market Mutual Funds 338,079 --
Other Mutual Funds 45,077 61,029
----------- ---------
$ 2,662,243 $ 61,029
=========== =========
</TABLE>
5. ACCOUNTS RECEIVABLE AND ACCRUED REVENUE
Accounts receivable and accrued revenue comprise the following:
<TABLE>
<CAPTION>
1999 1998
--------- ---------
<S> <C> <C>
Trade receivables and accrued revenue $ 484,923 $ 588,896
Notes receivable (note 12) 200,000 91,000
Related party (note 12) 20,330 20,330
--------- ---------
$ 705,253 $ 700,226
========= =========
</TABLE>
The notes receivable are non-interest bearing and the balances are expected
to be repaid in the current fiscal year.
8
<PAGE> 18
6. MANAGEMENT CONTRACTS
Management contracts comprise the following:
<TABLE>
<CAPTION>
1999 1998
------------------------------------------ ---------
Accumulated Net Book Net Book
Cost Amortization Value Value
----------- ------------ ----------- ---------
<S> <C> <C> <C> <C>
Management contract $ 500,000 $ 75,000 $ 425,000 $ --
Non-competition agreement 2,000,000 23,810 1,976,190 --
----------- -------- ----------- ---------
$ 2,500,000 $ 98,810 $ 2,401,190 $ --
=========== ======== =========== =========
</TABLE>
Non-competition agreements with principal individuals at P.J. Doherty &
Associates Co. Ltd are amortized over a period of 7 years.
7. CAPITAL ASSETS
Capital assets comprise the following:
<TABLE>
<CAPTION>
1999 1998
------------------------------------------ ---------
Accumulated Net Book Net Book
Cost Amortization Value Value
----------- ------------ ----------- ---------
<S> <C> <C> <C> <C>
Computer equipment $ 609,155 $ 417,909 $ 191,246 $ 56,766
Furniture, fixtures and other 427,349 295,451 131,898 46,260
Leasehold improvements 155,366 16,615 138,751 --
----------- --------- --------- ---------
$ 1,191,870 $ 729,975 $ 461,895 $ 103,026
=========== ========= ========= =========
</TABLE>
Amortization expense during the year was $47,147 (1998; $23,061).
8. INVESTMENTS
Investments are carried at the lower of cost and fair value and include the
following:
<TABLE>
<CAPTION>
1999 1998
--------- ---------
<S> <C> <C>
27,224 common shares of InterUnion Financial Corporation, $ 17,190 $ 150,000
a shareholder of the Company, held by a subsidiary of the
company (quoted market value - $17,190)
44,477 Class A preference shares of Kanata Capital Inc., a 44,478 44,478
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)
Other investments 10,000 10,000
--------- ---------
$ 71,668 $ 204,478
========= =========
</TABLE>
9. GOODWILL
<TABLE>
<CAPTION>
1999 1998
------------ -----------
<S> <C> <C>
Cost $ 13,775,881 $ 8,179,109
Accumulated amortization 848,180 379,806
------------ -----------
$ 12,927,701 $ 7,799,303
============ ===========
</TABLE>
10. BANK INDEBTEDNESS
<TABLE>
<CAPTION>
1999 1998
--------- ---------
<S> <C> <C>
Demand bank loans bearing interest at prime +1/2% to +3/4% $ 128,449 $ 100,000
Overdraft 146,975 180,467
--------- ---------
$ 275,424 $ 280,467
========= =========
</TABLE>
The demand bank loans are guaranteed by two of a subsidiary Company's
shareholders.
9
<PAGE> 19
11. DEFERRED LIABILITIES AND LEASE INDUCEMENTS
Deferred liabilities and lease inducements compromise the following:
<TABLE>
<CAPTION>
1999 1998
--------- -----------
<S> <C> <C>
Deferred revenue $ 105,703 $ 83,804
Deferred rent inducement 42,703 103,669
Deferred share issuance (note 3) -- 5,143,491
--------- -----------
$ 148,406 $ 5,330,964
========= ===========
</TABLE>
The 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 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.
12. RELATED PARTY TRANSACTIONS
Significant related party transactions are as follows:
<TABLE>
<CAPTION>
1999 1998
--------- ---------
<S> <C> <C>
Revenue
Management fees from corporation of which a
subsidiary shareholder has operational control $ -- $ 117,000
Rent from corporation owned by common
subsidiary shareholders -- 9,000
Expenses
Mutual fund administration fees to the majority
shareholder of the company 91,787 --
Management fees to a corporation controlled
by minority shareholder of the company -- 12,600
Rent, no formal agreement in place,
to corporation controlled by a minority
shareholder of the company 18,900 18,900
Trailer fees to corporations controlled
by an officer of a subsidiary company -- 52,515
Management fees to a corporation controlled
by a director and officer of the company -- 90,000
Marketing fees to a company controlled by an
officer of the company 31,250 56,250
</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
Related party balances in the accounts are as follows:
<TABLE>
<S> <C> <C>
Accounts receivable from a corporation with common
subsidiary shareholders $ 20,330 $ 20,330
Notes receivable from an officer of a subsidiary company 200,000 91,000
Accounts payable due to a corporation controlled by an officer of a
subsidiary company -- 4,082
Accounts payable due to the minority shareholder of the company -- 50,370
Accounts payable due to minority shareholders of a subsidiary 78,680 --
company
</TABLE>
These balances are interest-free, unsecured, payable on demand and have
arisen from the provision of services referred to above.
13. LONG-TERM DEBT
<TABLE>
<CAPTION>
1999 1998
---------- -----------
<S> <C> <C>
Demand installment loan, monthly principal payments of $2,700,
interest at prime plus 2%. Unless demanded, balance is due
on October 15, 2000. $ 122,200 $ 154,600
Bank loan bearing interest at prime, repayable in monthly principal
installments of $10,000 plus interest, secured by a general security
agreement and a guarantee of the subsidiary -- 975,537
10% note payable to a director and non-controlling interest
shareholder, due on demand -- 49,123
---------- -----------
122,200 1,179,260
Less: current portion 32,400 152,400
---------- -----------
$ 89,800 $ 1,026,860
========== ===========
</TABLE>
During the prior fiscal period, the demand installment loan was negotiated
in order to eliminate certain subsidiary shareholder loans. The term loan
is secured by a general assignment of book debts and a general security
agreement of a subsidiary. Two of the subsidiary shareholders have a
personal guarantee on the debt. One subsidiary shareholder has guaranteed
up to $125,000 and the other shareholder has guaranteed an unlimited
amount.
14. 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 November 19, 2002, subject to certain provisions with
respect to non-payment of dividends and an Initial Public Offering of the
Common Shares of the Company) 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 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%
11
<PAGE> 21
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.
15. 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 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 14).
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(1) $ --
--------- ---------- ----------- ------------
December 31, 1998 234,292 -- 1,374,000 --
Jan 21, 1999 455,699 310,000 5,143,491(2) 4,920,533(1)
Mar 8, 1999 310,000 (310,010) 4,920,533(3) 4,920,533)
Mar 8, 1999 568,160 4,920,534(1) --
--------- ---------- ----------- ------------
Closing
Share Capital:
December 31,
1999 1,568,161 -- $ 16,358,558 $ --
========= ========== ============ ===========
</TABLE>
(1) issued for cash
(2) issued on acquisition of subsidiaries
(3) Preference Share conversion
During the prior 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.
12
<PAGE> 22
Vested Options
<TABLE>
<CAPTION>
------------------Number of Option-------------
Year Vested Exercise Outstanding Issued (vested) Exercised Outstanding
Granted expiry price December 31, December 31,
date 1998 1999
----------- -------- -------- ------------ --------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
1999 Jan 21, $16.13 -- 36,300 -- 36,300
2009
1999 Jan 21, $0.001 -- 22,000 -- 22,000
2009
1999 May 10, $13.00 -- 6,417 -- 6,417
2009
</TABLE>
Unvested Options
<TABLE>
<CAPTION>
------------------Number of Option-------------
Year Vested Exercise Outstanding Issued Vested Outstanding
granted expiry price December 31, December 31,
date 1998 1999
----------- -------- -------- ------------ --------------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
1999 Jan 21, $0.001 -- 37,000 11,000 26,000
2009
1999 May 10, $13.00 -- 32,000 6,417 26,583
2009
</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 dates from March 31, 2000
to March 31, 2002 if performance criteria is not met. Unvested options with
an exercise price of $13.00 will vest evenly over a three year term.
16. INCOME TAXES
The Company's effective income tax rate used in determining the provisions
for income taxes is as follows:
<TABLE>
<CAPTION>
1999 1998
------ ------
<S> <C> <C>
Combined statutory tax rate (recovery) (44.6)% (44.6)%
Deduct:
Non-deductible expenses, amortization of goodwill and 56.3% 46.5%
unrecognized losses carried forward
Small business reduction rate -- (4.1)%
------ ------
Effective income tax rate 11.7% (2.2)%
====== ======
</TABLE>
As at December 31, 1999 the consolidated group had approximately
$1,141,000 of non-capital losses (1998 - $191,000) and $133,000 of
unrealized capital losses (1998 - $0) which may be carried forward and
utilized to reduce future years' taxable income and capital gains,
respectively. Capital losses can be carried forward indefinitely. The
right to claim the non capital losses expires as follows:
<TABLE>
<CAPTION>
Expiry
------
<S> <C>
2005 $ 450,000
2006 691,000
----------
$1,141,000
</TABLE>
13
<PAGE> 23
During the period, the Company's future income tax asset increased by
$315,000 (1998 - $85,000) and totaled $509,000 (1998 - $85,000) after
applying the statutory tax rate to the non-capital losses described above.
Subsequently, the net change to the valuation allowance during the period,
and the total valuation allowance as at December 31, 1999 provided by the
Company, increased by $315,000 (1998 - $85,000) and totaled $509,000 (1998
- $85,000) to reduce the future income tax asset, reflecting the
uncertainty of realization of the future income tax asset.
17. LOSS PER SHARE
Basic loss per share has been calculated on a weighted average basis of
common shares outstanding during the period.
<TABLE>
<CAPTION>
1999 1998
--------- ----------
<S> <C> <C>
Weighted average common shares
- basic calculation 1,568,161 689,991
</TABLE>
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 vested options in computing diluted loss per share because
their effects were antidilutive.
<TABLE>
<CAPTION>
1999 1998
--------- ----------
<S> <C> <C>
Basic loss per share $(0.72) $(0.69)
</TABLE>
18. 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>
<S> <C> <C>
2000 $402,000
2001 382,000
2002 239,000
2003 215,000
2004 83,001
</TABLE>
The Company has employment contracts and obligations with eight of its
employees at the following yearly base salaries amount:
<TABLE>
<S> <C> <C>
2000 $1,363,000
2001 1,210,000
2002 717,000
2003 490,000
2004 449,000
</TABLE>
19. 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. The effects of the Year 2000 Issue
may be experienced before, on, or after January 1, 2000.
The Company uses third party applications or suppliers for its major
information systems and reporting. These systems will either be upgraded
and tested to be in compliance for the year 2000 or the Company will take
necessary steps to replace the supplier. If the Year 2000 Issue is not
addressed by the Company
14
<PAGE> 24
and its major customers, suppliers and other third party business
associates, the impact on the Company's operations and financial reporting
may range from minor errors to significant systems failure which could
affect the Company's ability to conduct normal business operations. It is
not possible to be certain that all aspects of the Year 2000 Issue
affecting the Company, including those related in the efforts of employers,
suppliers, or other third parties, will be fully resolved.
20. 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 December 31 between Canadian
GAAP and accounting principles generally accepted in the United States
("U.S. GAAP") are described below.
Stock Based Compensation
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. The
intrinsic-value of unvested options granted is estimated to be $597,000
(1998 - $0) with a vesting period of 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 $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
$149,250. Had the Company booked compensation expense in accordance with
APB 25, basic loss per share would have been increased by $0.10 (1998 -
$0).
The estimated fair value of the underlying equity at December 31, 1999 was
$13.00. As such, compensation costs under SFAS 123 would have totaled
$227,700 (1998 - $0) 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, basic
earnings per share would have been reduced by $0.04 (1998 - $0).
The application of U.S. GAAP would have the following approximate effects
on the Company's consolidated financial statements:
<TABLE>
<CAPTION>
1999 1998
------------- ----------
<S> <C> <C>
Net loss based on Canadian GAAP $ (1,130,442) $ (478,405)
Stock based compensation (149,250) --
--
------------ ----------
Net loss based on U.S. GAAP $ (1,279,692) $ (478,405)
============ ==========
Loss per common share - Canadian GAAP $ (.72) $ (.69)
- U.S. GAAP (.82) (.69)
</TABLE>
Comprehensive Income
15
<PAGE> 25
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 the consolidated financial
statements.
21. COMPARATIVE CONSOLIDATED FINANCIAL STATEMENTS
The comparative quarterly consolidated financial statements have been
reclassified from statements previously presented to conform to the
presentation of the current quarterly consolidated financial statements.
16
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM INTERUNION
FINANCIAL CORPORATION AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
10-Q513 FILING.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-2000
<PERIOD-START> APR-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 215,400
<SECURITIES> 9,183
<RECEIVABLES> 568,409
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 2,784,683
<PP&E> 1,053,180
<DEPRECIATION> 151,863
<TOTAL-ASSETS> 11,995,296
<CURRENT-LIABILITIES> 1,991,361
<BONDS> 0
0
150,000
<COMMON> 4,343
<OTHER-SE> 9,215,125
<TOTAL-LIABILITY-AND-EQUITY> 11,995,296
<SALES> 0
<TOTAL-REVENUES> 1,464,797
<CGS> 0
<TOTAL-COSTS> 787,349
<OTHER-EXPENSES> 133,846
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 46,322
<INCOME-PRETAX> 497,280
<INCOME-TAX> 0
<INCOME-CONTINUING> 497,280
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 497,280
<EPS-BASIC> 0.142
<EPS-DILUTED> 0.117
</TABLE>
