<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 JUNE 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 --
3,999,373 as of June 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 JUNE 30, 2000
<TABLE>
<CAPTION>
Three Months Ended Twelve Months Ended
------------------ -------------------
30-Jun-00 30-Jun-99 31-Mar-00 31-Mar-99
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
REVENUES
Investment Banking $ 587,523 $ 581,060 $ 1,377,368 $ 1,348,466
Interest Income 9,272 35,643 63,003 115,418
------------- ------------- ------------- ------------
596,795 616,703 1,440,371 1,463,884
------------- ------------- ------------- ------------
EXPENSES
Selling, General & Administration 472,849 260,316 1,421,892 1,504,959
Amortization & Depreciation 2,533 64,406 1,165,392 200,171
Foreign Exchange Loss (Gain) (5,537) (100,401) 3,521 (104,493)
Write-down of Investment 0 0 1,251,334 0
Interest Expense 1,608 24,417 176,176 246,611
------------- ------------- ------------- -------------
471,453 248,738 4,018,315 1,847,248
------------- ------------- ------------- -------------
PROFIT (LOSS) BEFORE GAIN ON SALE ON
ISSUANCE OF SECURITY BY SUBSIDIARY AND
EQUITY IN NET LOSSES OF UNCONSOL. SUBSIDIARY 125,342 367,965 (2,577,944) (383,364)
GAIN ON SALE ON ISSUANCE OF SECURITY BY SUBSIDIARY 0 0 0 486,099
EQUITY IN NET EARNING (LOSSES) OF
UNCONSOLIDATED AFFILIATES (177,197) (147,513) (1,021,500) (492,917)
------------- ------------- ------------- -------------
PROFIT (LOSS) FOR THE PERIOD (51,855) 220,452 (3,599,444) (390,182)
FOREIGN EXCHANGE TRANSLATION EFFECT (13,365) (7,526) 56,402 (13,912)
COMPREHENSIVE INCOME (LOSS) (65,220) 212,926 (3,543,042) (404,094)
------------- ------------- ------------- -------------
RETAINED EARNINGS (DEFICIT)
- Beginning of Period (5,563,194) (1,982,713) (1,963,750) (1,573,568)
------------- ------------- ------------- -------------
RETAINED EARNINGS (DEFICIT)
- End of Period $ (5,615,049) $ (1,769,787) $ (5,563,194) $ (1,963,750)
============= ============ ============= =============
EARNINGS (LOSS) PER COMMON SHARE - Basic and Diluted
Earning (loss) Per Share (Basic) (0.012) 0.118 (1.208) (0.210)
Earning (loss) Per Share (Fully Diluted) (0.012) 0.118 (1.208) (0.210)
Common Shares Outstanding 3,999,373 2,114,425 4,243,123 1,908,285
Weighted Average Common Share Outstanding 4,232,290 1,855,386 2,980,763 1,855,386
Weighted Average Preferred Share Outstanding 1,500,000 1,500,000 1,500,000 1,500,000
</TABLE>
See Accompanying Notes to Unaudited Consolidated Financial Statements
Page 2 of 9
<PAGE> 3
INTERUNION FINANCIAL CORPORATION
UNAUDITED CONSOLIDATED BALANCE SHEET
AS AT JUNE 30, 2000
<TABLE>
<CAPTION>
As at June 30, As at March 31,
-------------- ---------------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ (4,529,937) $ 197,143 $ 441,884 $ 285,706
Marketable securities 5,002,609 111,102 32,520 19,885,302
Due from brokers and dealers 39,277 2,373,535 3,237,515 0
Due from clients 5,330,405 377,700 180,855 93,183
Accounts receivable 145,810 741,451 168,506 690,374
Receivable from Affiliates 35,783 0 27,555 0
Income tax receivable 7,110 5,448 6,709 5,046
Prepaid expenses and other current assets 29,602 48,770 22,938 25,772
Notes receivable 1,161,667 1,001,592 1,001,414 973,315
Loan Receivable 58,466 0 59,495 0
-------------- ------------- -------------- -------------
Total Current Assets 7,280,791 4,856,741 5,179,391 21,958,698
-------------- ------------- -------------- -------------
NON-CURRENT ASSETS
Property & equipment, net 42,215 1,148,278 42,679 1,199,953
Notes receivable, non-current portion 633,286 630,117 783,286 619,992
Other long-term assets 77,493 75,173 77,493 77,651
Investment in unconsolidated affiliates 3,462,483 5,745,201 3,639,680 5,591,892
-------------- ------------- -------------- -------------
Total Non-current Assets 4,215,476 7,598,769 4,543,138 7,489,488
-------------- ------------- -------------- -------------
Total Assets $ 11,496,267 $ 12,455,510 $ 9,722,529 $ 29,448,186
============== ============= ============== =============
CURRENT LIABILITIES
Due to brokers and dealers $ 2,297,027 $ 0 $ 0 $ 18,899,072
Due to clients 3,044,415 2,618,752 3,247,166 979,783
Accounts payable and accrued liabilities 483,230 285,236 433,157 253,476
Due to affiliates 12,990 733,206 168,382 0
Notes payable, current portion 0 55,623 0 776,213
-------------- ------------- -------------- -------------
Total Current Liabilities 5,837,662 3,692,817 3,848,705 20,908,544
-------------- ------------- -------------- -------------
NON-CURRENT LIABILITIES
Notes payable, long term portion 633,286 630,117 633,286 619,992
Total Liabilities $ 6,470,949 $ 4,322,934 $ 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
Accumulated translation adjustment 24,072 (26,489) 37,439 (18,963)
Retained Earnings (Deficit) (5,615,049) (1,743,298) (5,563,194) (1,963,750)
--------------- -------------- --------------- --------------
Total Shareholder's Equity 5,025,318 8,132,576 5,240,538 7,919,650
-------------- ------------- -------------- -------------
Total Liabilities & Shareholder's Equity $ 11,496,267 $ 12,455,510 $ 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 JUNE 30, 2000
<TABLE>
<CAPTION>
As at June 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 150,000 150,000 150,000 150,000
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 - 5,000,000 in 2000 and 1999
Issued and outstanding
- 3,999,373 in 2000; 2,114,425 in 1999 4,243 2,114 4,243 2,114
Treasury Stock
Acquired 243,750 Common Stock in June 2000 (244) 0 0 0
<S> <C> <C> <C> <C>
Additional paid in capital 10,462,294 9,750,249 10,612,050 9,750,249
CUMULATIVE TRANSLATION ADJUSTMENT 24,074 (26,489) 37,439 (18,963)
CUMULATIVE DEFICIT (5,615,049) (1,743,298) (5,563,194) (1,963,750)
Total Shareholder's Equity 5,025,318 8,132,576 5,240,538 7,919,650
Total Liabilities and Shareholder's Equity 11,496,267 12,455,510 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>
3 Months to 12 Months to
30-Jun-00 30-Jun-99 31-Mar-00 31-Mar-99
<S> <C> <C> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES
Net income (loss) $ (51,855) $ 220,452 $ (3,599,444) $ (390,182)
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities
Amortization 2,533 64,406 1,165,392 200,171
Equity and net loss on investment 177,197 147,513 1,021,500 492,917
Gain on sale of securities by subsidiary 0 0 0 (486,099)
Non cash compensation 0 0 0 87,500
Non cash operating expense (39,292) 0 387,633 40,000
Unrealized gain (loss) on marketable securities 25,917 (100,401) 1,255,987 (11,814)
-------------- -------------- -------------- --------------
114,500 331,970 231,068 (67,507)
Increase (decrease) in due to/from brokers and
dealers, net 5,495,265 (21,272,607) (22,136,587) (15,762,238)
Decrease (increase) in due to/from clients, net (5,352,301) 1,354,451 2,179,710 (1,455,276)
Decrease (increase) in marketable securities (4,970,089) 19,774,200 19,852,782 15,242,302
Increase (decrease) in accounts receivable and
other assets (153,877) (74,478) 463,545 124,263
Increase (decrease) in accounts payable and
Accrued liabilities (105,319) 31,760 (428,150) (572,359)
--------------- ------------- --------------- --------------
NET CASH PROVIDED (USED) BY OPERATING
ACTIVITIES (4,971,821) 145,296 162,368 (2,490,815)
--------------- ------------- -------------- --------------
CASH FLOW FROM FINANCING ACTIVITIES
Net proceeds on issuance (acquisition) of capital stock (150,000) 0 0 133,000
Increase (decrease) in due to related parties 0 (43,007) 0 771,109
Proceeds (repayment) of notes payable 0 17,221 0 (103,448)
-------------- ------------- -------------- --------------
NET CASH PROVIDED BY FINANCING ACTIVITIES (150,000) (25,786) 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 (208,072) 0 (437,363)
Cash divested on sale of security by subsidiary 0 0 0 (195,304)
Investment in notes receivable 150,000 0 0 (257,766)
-------------- ------------- -------------- --------------
CASH USED IN INVESTING ACTIVITIES 150,000 (208,072) (6,190) (897,871)
INCREASE (DECREASE) IN CASH (4,971,821) (88,562) 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 $ (4,529,937) $ 197,143 $ 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 JUNE 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. 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.
3. Earning (loss) per share is computed using the weighted average number of
common shares outstanding during the period.
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS
(1) OVERVIEW
During the first three months of fiscal 2001, InterUnion reported consolidated
revenues of $596,795 versus $616,703 a year earlier, representing a decline of
$19,908 or 3%.
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
Jun.- 00 Jun.- 99 Jun. - 98
------------ ------------ ------------
<S> <C> <C> <C>
Working Capital 1,443 1,164 (503)
Cash Flow 115 332 (70)
Total Assets 11,496 12,502 12,031
Shareholders' Equity 5,025 8,179 6,518
Common Share, # 3,999 2,114 1,673
Book Value Per Share 1.26 3.87 3.89
</TABLE>
(2) NET REVENUES
During the first three months of fiscal 2001, InterUnion reported consolidated
revenues of $596,795 versus $616,703 a year earlier, for a decrease of 3%.
Investment banking revenues increased by 1% to 587,523 from $581,060 the
previous year. However, the interest income declined by 74% to $9,272 from
$35,643 a year earlier. The decline in the interest income is attributed to the
settlement of the interest bearing notes receivable in the 3rd quarter of the
fiscal year 2000.
(3) EXPENSES
During the first three months, the Company reported consolidated expenses of
$471,453 as compared to $248,738 a year earlier representing an increase of
$222,715 or 90%. The increase in the expenses is mainly attributed to an
increase in sales commission pay out. However, the Company's consolidated
amortization and depreciation expense reduced by 96% to $2,533 from $64,406 a
year earlier.
Page 6 of 9
<PAGE> 7
(4) NET INCOME
Net loss from operations (basic) for the three months ending June 30, 2000 was
$51,855 or $0.012 per share versus a profit of $220,452 or $0.118 per share a
year earlier. The decrease in EPS was due to: (i) a decrease of 3% ($19,908) in
the revenue of the quarter generated from investment banking and interest
earnings; and (ii) a decrease in foreign exchange gain of $94,864 in the 1st
quarter of 2001 as compared to the same period last year.
The basic weighted average number of common shares outstanding for the three
months ending June 2000 and June 1999 was 4,232,290 versus 1,855,386 a year
earlier. The increase was due to the issuance of 2,128,698 shares in the form of
Regulation "S" during the fiscal year ended March 31, 2000, by canceling the
debt from its controlling shareholder, RIF Capital Inc. and for repayment of
certain notes payable by RIF Capital Inc.
(5) LIQUIDITY AND CAPITAL RESOURCES
In order to meet its growth plans and fund any operating cash requirements, the
Company's policy is to issue additional capital stock, when possible. To date
the Company has done this either through the issuance of common stock under
Regulation "D" or Regulation "S". The following are details of these private
placements during the previous three fiscal years:
<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
November 1999 2,014,198 805,679 Regulation "S
</TABLE>
When market conditions do not allow the issuance of Common Shares, the Company
issues other instruments such as Promissory Notes and/or Preferred Shares.
(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.
Page 7 of 9
<PAGE> 8
(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
June 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, 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 was fully provided for
and included in the general and administration expenses in the consolidated
financial statement of the Company for the fiscal year ended as of March 31,
2000.
Upon advice from its counsel who has advised that the May 29, 2000 judgement has
a strong chance of reversal, Credifinance Securities has filed an appeal in the
Supreme Court in Quebec on June 29, 2000.
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.
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.
Page 8 of 9
<PAGE> 9
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 August 11, 2000 /s/ Georges Benarroch, Director
--------------- ------------------------------------
(Signature)*
Date August 11, 2000 /s/ Muriel Woodtli, 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 THREE MONTHS ENDED JUNE 30, 1999 AND JUNE 30, 2000
<TABLE>
<CAPTION>
CONTENTS
--------------------------------------------------------------------------------
<S> <C>
COMPLIANCE CERTIFICATE A-2
FINANCIAL STATEMENTS
BALANCE SHEETS A-3
STATEMENTS OF OPERATIONS AND DEFICIT A-4
STATEMENTS OF CASH FLOWS A-5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS A-6-16
</TABLE>
<PAGE> 11
QUARTERLY COMPLIANCE CERTIFICATE
--------------------------------------------------------------------------------
To: Working Ventures Canadian Fund Inc. ("WV")
InterUnion Financial Corporation ("IUFC")
Date: July 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 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 June 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;
(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 January 21, 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 and the corporate seal of the Corporation this 22nd
day of July, 2000.
By: (Signed by "Russell Lindsay")
-------------------------------
Name: Russell Lindsay
Title: Senior Vice-President
& Chief Financial Officer
A-2
<PAGE> 12
InterUnion Asset Management Limited
Consolidated Balance Sheets (unaudited)
(amounts expressed in Canadian dollars unless otherwise stated)
(as at June 30)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
2000 1999
------------ -------------
<S> <C> <C>
Assets
Current:
Cash $ 442,450 $ 7,396,961
Marketable securities, at market (note 4) 1,683,323 54,500
Accounts receivable and accrued revenue (note 10) 418,325 732,476
Prepaid expenses 48,943 80,854
Income taxes recoverable -- --
Future income tax asset 26,108 --
------------ -------------
2,619,149 8,264,791
Management contracts, net (note 5) 2,208,333 475,000
Capital assets, net (note 6) 414,676 201,671
Investments, at cost (note 7) 69,096 114,477
Goodwill (note 8) 12,504,881 7,751,913
------------ -------------
Total assets $ 17,816,135 $ 16,807,852
</TABLE>
--------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Liabilities
Current:
Bank indebtedness $ -- $ 260,242
Accounts payable and accrued liabilities
(note 10) 456,183 769,657
Current portion of long term debt 63,540 32,400
Income taxes payable 67,773 831
------------ -------------
587,496 1,063,130
Deferred revenue and inducements (note 9) 133,406 179,729
Long term debt (note 11) 135,339 114,468
Other liabilities 65,625 --
Preference shares (note 12) 3,500,000 --
------------ -------------
4,421,866 1,357,327
------------ -------------
Non-controlling interest 273,068 417,889
------------ -------------
Shareholders' Equity
Shareholders' equity:
Share capital (note 13) 16,358,558 16,358,558
Deficit (3,237,357) (1,325,922)
------------ -------------
Total shareholders' equity 13,121,201 15,032,636
------------ -------------
Total liabilities and shareholders' equity $ 17,816,135 $ 16,807,852
</TABLE>
--------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements
A-3
<PAGE> 13
InterUnion Asset Management Limited
Consolidated Statements of Operations and Deficit (unaudited)
(amounts expressed in Canadian dollars unless otherwise stated)
(For the three months ended June 30)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
2000 1999
------------ -----------
<S> <C> <C>
Revenue:
Management fees $ 1,544,200 $ 1,179,445
Other income (loss) (13,524) (58,031)
------------ -----------
1,530,676 1,121,414
------------ -----------
Operating expense
Commission and incentives 195,324 238,131
Salaries and benefits 886,135 512,349
Marketing and advertising 55,324 211,260
Office and general 341,349 303,958
Professional fees 108,813 60,210
Amortization of management contracts 96,429 25,000
Amortization of capital assets 36,495 7,818
------------ -----------
1,719,869 1,358,726
------------ -----------
Operating loss before undernoted (189,193) (237,312)
------------ -----------
Interest expense
Current 28,303 5,559
Long term 47,672 2,917
------------ -----------
75,975 8,476
------------ -----------
Loss before amortization of goodwill,
non-controlling interest and income taxes (265,168) (245,788)
------------ -----------
Income taxes (note 14)
Current income taxes 118,252 14,306
------------ -----------
118,252 14,306
------------ -----------
Loss before amortization of goodwill
and non-controlling interest (383,420) (260,094)
Amortization of goodwill 198,970 106,806
------------ -----------
Loss before non-controlling interest (582,390) (366,900)
Non-controlling interest (3,800) (31,644)
------------ -----------
Net loss, for the period (578,590) (335,256)
Deficit, beginning of period (2,658,767) (990,666)
------------ -----------
Deficit, end of period $ (3,237,357) $(1,325,922)
</TABLE>
--------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements
A-4
<PAGE> 14
InterUnion Asset Management Limited
Consolidated Statements of Cash Flows (unaudited)
(amounts expressed in Canadian dollars unless otherwise stated)
(For the three months ended June 30)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
2000 1999
------------ ----------
<S> <C> <C>
Cash flows from operating activities
Net loss $ (578,590) $ (335,256)
Adjustments for:
Amortization of goodwill 198,970 106,806
Amortization of management contracts 96,429 25,000
Amortization of capital assets 36,495 7,818
Deferred rent inducements (790) (1,819)
Unrealized loss on investment 2,380 90,000
Non-controlling interest (3,800) (31,644)
Changes in non-cash working capital
Decrease (increase) in accounts receivable 53,841 (121,672)
Decrease in accounts payable (86,395) (257,229)
Increase (decrease) in income taxes payable (79,067) 27,151
Other items, net 44,249 (81,098)
------------ ----------
(316,278) (571,943)
------------ ----------
Cash flows from investing activities
Acquisition of capital assets, net of disposals (4,165) (88,701)
Acquisitions, net of cash acquired -- (164,636)
Sale of marketable securities 308,477 155,042
------------ ----------
304,312 (98,295)
------------ ----------
Cash flows from financing activities
Increase (decrease) in bank indebtedness (36,853) 34,547
Increase in deferred revenue and inducements 12,332 5,033
Repayments of long term borrowings (21,684) (108,100)
Dividend paid to non-controlling interest (25,000) --
------------ ----------
(71,205) (68,520)
------------ ----------
Net increase (decrease) in cash (83,171) (738,758)
Cash at beginning of period 525,621 8,135,719
------------ ----------
Cash at end of period $ 442,450 $7,396,961
--------------------------------------------------------------------------------
Supplemental Cash Flows Information
Interest paid $ 32,225 $ 8,025
Income taxes paid 223,734 2,246
</TABLE>
--------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements
A-5
<PAGE> 15
INTERUNION ASSET MANAGEMENT LIMITED
Notes to Consolidated Financial Statements
June 30, 2000 and June 30, 1999
(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
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.
A-6
<PAGE> 16
INTERUNION ASSET MANAGEMENT LIMITED
Notes to Consolidated Financial Statements
June 30, 2000 and June 30, 1999
(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
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:
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 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.
Fiscal 2000 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%.
A-7
<PAGE> 17
INTERUNION ASSET MANAGEMENT LIMITED
Notes to Consolidated Financial Statements
June 30, 2000 and June 30, 1999
(amounts expressed in Canadian dollars unless otherwise stated)
--------------------------------------------------------------------------------
o The Company purchased an additional 3,000 shares in Black Investment
Management Limited 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. 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 3 months
ended ended
June 30, 2000 June 30, 1999
------------- -------------
<S> <C> <C>
Cash $ 44,849 $ --
Net assets (liabilities) acquired,
at fair value 267,007 44,594
Management contracts 2,000,000 --
------------- ------------
2,311,856 44,594
------------- ------------
Consideration
Cash 4,115,080 209,230
Class A Preference Shares 3,500,000 --
Share capital -- common shares -- --
Direct acquisition expenses 121,942 --
------------- ------------
7,737,022 209,230
------------- ------------
Goodwill $ 5,425,166 $ 164,636
============= ============
</TABLE>
--------------------------------------------------------------------------------
4. MARKETABLE SECURITIES
Marketable securities are recorded at market values and comprise the
following:
<TABLE>
<CAPTION>
June 30, 2000 June 30, 1999
------------- -------------
<S> <C> <C>
Bankers Acceptance $ 1,275,947 $ --
Money Market Mutual Funds 365,374 3,038
Other Mutual Funds 42,002 51,462
------------- -------------
$ 1,683,323 $ 54,500
============= =============
</TABLE>
The Bankers Acceptance matures on November 1, 2000. Annualized yield on
this security is 5.64%.
--------------------------------------------------------------------------------
5. MANAGEMENT CONTRACTS
Management contracts comprise the following:
<TABLE>
<CAPTION>
June 30, 2000 June 30, 1999
------------------------------------------ -------------
Accumulated Net Book Net Book
Cost Amortization Value Value
---------- ------------- ---------- -------------
<S> <C> <C> <C> <C>
Management contract $ 500,000 $ 125,000 $ 375,000 $ 475,000
Non-competition agreement 2,000,000 166,667 1,833,333 --
---------- ------------- ---------- -------------
$2,500,000 $ 291,667 $2,208,333 $ 475,000
========== ============= ========== =============
</TABLE>
A-8
<PAGE> 18
INTERUNION ASSET MANAGEMENT LIMITED
Notes to Consolidated Financial Statements
June 30, 2000 and June 30, 1999
(amounts expressed in Canadian dollars unless otherwise stated)
--------------------------------------------------------------------------------
6. CAPITAL ASSETS
Capital assets comprise the following:
<TABLE>
<CAPTION>
June 30, 2000 June 30, 1999
------------------------------------------- --------------
Accumulated Net Book Net Book
Cost Amortization Value Value
---------- ------------- --------- -------------
<S> <C> <C> <C> <C>
Computer equipment $ 618,184 $ 457,519 $ 160,665 $ 85,364
Furniture, fixtures and other 441,210 310,060 131,150 55,133
Leasehold improvements 158,276 35,415 122,861 61,174
---------- ------------- --------- -------------
$1,217,670 $ 802,994 $ 414,676 $ 201,671
========== ============= ========= =============
</TABLE>
--------------------------------------------------------------------------------
7. INVESTMENTS
Investments are carried at the lower of cost and fair value and include the
following:
<TABLE>
<CAPTION>
June 30, 2000 June 30, 1999
-------------- -------------
<S> <C> <C>
27,224 common shares of InterUnion Financial Corporation, $ 14,619 $ 60,000
a shareholder of the Company, held by a subsidiary of the
company (quoted market value - $14,619, 1999 - $60,000)
44,477 Class A preference shares of Kanata Capital Inc., a 44,477 44,477
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
-------------- -------------
$ 69,096 $ 114,477
============== =============
</TABLE>
--------------------------------------------------------------------------------
8. GOODWILL
<TABLE>
<CAPTION>
June 30, 2000 June 30, 1999
--------------- --------------
<S> <C> <C>
Cost $ 13,762,035 $ 8,343,163
Accumulated amortization 1,257,154 591,250
--------------- --------------
$ 12,504,881 $ 7,751,913
=============== ==============
</TABLE>
--------------------------------------------------------------------------------
9. DEFERRED REVENUE AND LEASE INDUCEMENTS
Deferred revenue and lease inducements compromise the following:
<TABLE>
<CAPTION>
June 30, 2000 June 30,1999
---------------- --------------
<S> <C> <C>
Deferred revenue $ 91,831 $ 79,698
Deferred rent inducement 41,575 100,031
---------------- --------------
$ 133,406 $ 179,729
================ ==============
</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.
A-9
<PAGE> 19
INTERUNION ASSET MANAGEMENT LIMITED
Notes to Consolidated Financial Statements
June 30, 2000 and June 30, 1999
(amounts expressed in Canadian dollars unless otherwise stated)
--------------------------------------------------------------------------------
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>
3 months 3 months
ended ended
June 30, 2000 June 30,1999
-------------- -------------
<S> <C> <C>
Revenue
Management fees $ 20,200 $ --
Expenses
Commissions and incentives 23,150 --
Interest expense 43,750 --
Office and general 6,300 25,050
Professional fees 57,000 --
</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.
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>
June 30, 2000 June 30, 1999
-------------- -------------
<S> <C> <C>
Accounts receivable $ 51,275 $ 171,600
Accounts payable 30,005 --
Other liabilities 65,625 --
</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).
A-10
<PAGE> 20
INTERUNION ASSET MANAGEMENT LIMITED
Notes to Consolidated Financial Statements
June 30, 2000 and June 30, 1999
(amounts expressed in Canadian dollars unless otherwise stated)
--------------------------------------------------------------------------------
11. LONG-TERM DEBT
<TABLE>
<CAPTION>
June 30, 2000 June 30, 1999
-------------- --------------
<S> <C> <C>
Demand installment loan, monthly principal payments of $2,700, interest
at prime plus 2%. Unless demanded, balance is due on August 15, 2003. $ 106,000 $ 138,400
Demand bank loan, interest at prime +1/2%, monthly principal
payments of $1,500 commencing January 2000 71,000 --
Bank loan, interest at prime + 1 1/2%, 30 monthly principal payments
of $1,095 commencing September 1999, secured by computer equipment 21,879 --
10% note payable to a director and non-controlling interest
shareholder, due on demand -- 8,468
-------------- --------------
198,879 146,868
Less: current portion 63,540 32,400
-------------- --------------
$ 135,339 $ 114,468
============== ==============
</TABLE>
During a prior fiscal period, the demand installment loan was negotiated in
order to eliminate a certain subsidiary's shareholder loans. This loan is
secured by a general assignment of book debts and a general security
agreement of a subsidiary. Two of the subsidiary's 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.
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 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 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.
A-11
<PAGE> 21
INTERUNION ASSET MANAGEMENT LIMITED
Notes to Consolidated Financial Statements
June 30, 2000 and June 30, 1999
(amounts expressed in Canadian dollars unless otherwise stated)
--------------------------------------------------------------------------------
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 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>
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:
June 30, 1999 & 2000 1,568,161 -- $16,358,558 $ --
========= ======== =========== ==========
</TABLE>
(1) issued for cash
(2 )issued on acquisition of subsidiaries
(3) Preference Share conversion
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. Consequently, management has estimated that approximately
54,000 common shares will be issued to the majority shareholder subsequent
to the current period end.
A-12
<PAGE> 22
INTERUNION ASSET MANAGEMENT LIMITED
Notes to Consolidated Financial Statements
June 30, 2000 and June 30, 1999
(amounts expressed in Canadian dollars unless otherwise stated)
--------------------------------------------------------------------------------
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.
<TABLE>
<CAPTION>
Vested Options Number of Options
----------------- ------------------------------------------------------------------
Fiscal Vested Exercise Outstanding, Issued Exercised Outstanding,
year expiry price June 30, 1999 (vested) June 30, 2000
granted date
------- ------- -------- ------------- -------- --------- -------------
<S> <C> <C> <C> <C> <C> <C>
1999 Jan 21, $16.13 36,300 -- -- 36,300
2009
1999 Jan 21, $0.001 11,000 11,000 -- 22,000
2009
2000 May 10, $13.00 917 11,000 -- 11,917
2009
</TABLE>
<TABLE>
<CAPTION>
Unvested Options Number of Options
------------------ ---------------------------------------------------------------------
Fiscal Vested Exercise Outstanding, Issued Vested Forfeited Outstanding,
year expiry price June 30, 1999 June 30, 2000
granted date
------- ------- -------- ------------- ------ ------- --------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
1999 Jan 21, $0.001 37,000 -- 11,000 15,000 11,000
2009
2000 May 10, $13.00 32,083 -- 11,000 -- 21,083
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 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.
--------------------------------------------------------------------------------
14. INCOME TAXES
The Company's effective income tax rate used in determining the provision
for income taxes is as follows:
<TABLE>
<CAPTION>
3 months 3 months
ended ended
June 30, 2000 June 30, 1999
------------- -------------
<S> <C> <C>
Combined statutory tax rate (recovery) (44.6)% (44.6)%
Deduct:
Non-deductible expenses 4.9 8.5
Temporary differences 12.9 15.7
Unrecognized losses carried forward 70.5 39.5
Other, net .9 (13.3)
------------- -------------
Effective income tax rate (recovery) 44.6 % 5.8 %
============= =============
</TABLE>
A-13
<PAGE> 23
INTERUNION ASSET MANAGEMENT LIMITED
Notes to Consolidated Financial Statements
June 30, 2000 and June 30, 1999
(amounts expressed in Canadian dollars unless otherwise stated)
--------------------------------------------------------------------------------
As at June 30, 2000, the consolidated group had approximately $1,916,000
of non-capital losses (1999 -- $640,000) and $0 (1999 -- $90,000) of
capital losses 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>
2006 $ 357,000
2007 1,155,000
2008 404,000
----------
1,916,000
</TABLE>
During the period, the Company's future income tax asset increased by
$735,000 (1999 -- $85,000) and totaled $1,014,000 (1999 -- $279,000) after
applying the statutory tax rate to the temporary differences and
non-capital losses described above.
Subsequently, the net change to the valuation allowance during the period,
and the total valuation allowance as at June 30, 2000 provided by the
Company, increased by $735,000 (1999 -- $85,000) and totaled $988,000
(1999 -- $279,000) 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>
3 months 3 months
ended ended
June 30, 2000 June 30, 1999
------------- -------------
<S> <C> <C>
Weighted average common shares
-- basic calculation 1,568,161 1,568,161
</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 convertible Class A Preference shares and vested options in
computing diluted loss per share because their effects were antidilutive.
<TABLE>
<CAPTION>
3 months 3 months
ended ended
June 30, 2000 June 30, 1999
-------------- --------------
<S> <C> <C>
Basic loss per share $ (0.37) $ (0.21)
</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
June 30
---------
<S> <C>
2001 322,000
2002 246,000
2003 141,000
2004 76,000
2005 --
</TABLE>
A-14
<PAGE> 24
INTERUNION ASSET MANAGEMENT LIMITED
Notes to Consolidated Financial Statements
June 30, 2000 and June 30, 1999
(amounts expressed in Canadian dollars unless otherwise stated)
--------------------------------------------------------------------------------
The Company has employment contracts and obligations with seven of its
employees at the following yearly base salaries amount:
<TABLE>
<CAPTION>
12 months
ended
June 30
----------
<S> <C>
2001 1,225,000
2002 917,000
2003 553,000
2004 490,000
2005 205,000
</TABLE>
As at May 31, 2000, the Company entered into an agreement to sell its share
ownership in A.I.L. Investment Services Inc. (AILISI), a wholly owned
subsidiary. AILISI provides all management and administrative services for
one mutual fund corporation. Completion of the sale is conditional upon the
conversion of the managed fund from a mutual fund corporation to a mutual
fund trust to be established by the purchaser and a change in the auditors
of the managed fund. If the shareholders of the managed fund approve the
aforementioned conditions and regulatory approval is received, the sale is
expected to be completed in August 2000.
--------------------------------------------------------------------------------
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 June 30 between Canadian GAAP
and accounting principles generally accepted in the United States ("U.S.
GAAP") are described below:
(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>
3 months 3 months
ended ended
June 30, 2000 June 30, 1999
------------- -------------
<S> <C> <C>
Net loss for the period, Canadian GAAP $ (578,590) $ (335,256)
Stock based compensation (i) (17,235) (49,750)
------------- -------------
Net loss for the period, U.S. GAAP $ (595,825) $ (385,006)
============= =============
Loss per common share under U.S. GAAP $ (0.38) $ (0.25)
</TABLE>
A-15
<PAGE> 25
INTERUNION ASSET MANAGEMENT LIMITED
Notes to Consolidated Financial Statements
June 30, 2000 and June 30, 1999
(amounts expressed in Canadian dollars unless otherwise stated)
--------------------------------------------------------------------------------
(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 $17,235 (1999 --
$49,750). Had the Company booked compensation expense in
accordance with APB 25, basic loss per share would have been
increased by $0.01 (1999 -- $0.04).
(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 June 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 current 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).
(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.
A-16
