U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, DC
FORM 10-SB/A
General Form for Registration of Securities
of Small Business Issuers Under Section 12(b)
or 12(g) of the Securities Act of 1934
INTERUNION FINANCIAL CORPORATION
Delaware 87-0520294
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(State of Other jurisdictions of Incorporation of Organization) (I.R.S. Employer
Identification No.)
249 Royal Palm Way, Suite 301 H, Palm Beach, FL 33480
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(Address of Principal Executive Offices) (Zip Code)
(561) 820-0084
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(Issuer's Telephone Number)
Securities to be registered under Section 12(b) of the Act:
Title of Each Class Name of Each Exchange on Which
to be so Registered Each Class is to be Registered
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Securities to be registered under Section 12(g) of the Act:
Common Stock, par value $.001
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(Title of Class)
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(Title of Class)
INTERUNION FINANCIAL CORPORATION
FORM 10-SB/A
TABLE OF CONTENTS
PART I. PAGE
Item 1. Description of Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Item 3. Description of Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Item 4. Security Ownership of Certain Beneficial
Owners and Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Item 5. Directors, Executive Officers, Promoters
and Control Persons . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Item 6. Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Item 7. Certain Relationships and Related Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Item 8. Description of Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
PART II.
Item 1. Market Price of and Dividends on the Registrant's
Common Equity and Other Shareholder Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Item 2. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Item 3. Changes in and Disagreements with Accountants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Item 4. Recent Sales of Unregistered Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Item 5. Indemnification of Directors and Officers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
PART F/S . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
PART III.
Item 1. Index to Exhibits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
(a) BUSINESS DEVELOPMENT
On February 7, 1994, the shareholders of AU 'N AG, INC., a Utah
corporation, approved without dissent, a proposal to change the domicile of the
Company through the merger of the Company into AU 'N AG, INC., a Delaware
corporation to be formed.
On February 15, 1994 a Certificate of Incorporation of AU 'N AG, INC.,
a Delaware corporation, was filed with the office of the Secretary of State,
Division of Corporations, State of Delaware.
On February 15, 1994, the date of incorporation of AU 'N AG, Inc. of
Delaware, the directors of that corporation approved a Pre-Organization
Subscription and Letter of Non-Distributive Intent executed by the President of
AU 'N AG, Inc., the Delaware corporation for $10.00, with the understanding
that the shares would be immediately cancelled upon the effective date of the
merger between AU 'N AG, INC. of Delaware and AU 'N AG, INC. of Utah. These
shares were issued by the Company in reliance upon the exemption from the
registration requirements of the Securities Act of 1933, as amended, as
provided by Section 4(2) of that Act and upon a similiar exemption contained in
applicable state securities laws. The shares received by AU 'N AG, INC. were
restricted securities, subject to Rule 144 promulgated under the Securities Act
of 1933, as amended. See Exhibits at E-1 and E-5.
Further on February 15, 1994, a Plan and Agreement of Merger of AU 'N
AG, INC. (Utah) and AU 'N AG, INC. (Delaware) was executed. On the same day a
Certificate of Merger was executed by the above corporations. This Certificate
of Merger was filed in the office of the Secretary of Delaware on March 10,
1994. Under the Certificate of Merger AU 'N AG, INC., the Delaware
Corporation, was the surviving corporation. See Exhibit E-7 and E-12.
Under the terms of the above-referenced merger each share of common
stock of AU 'N AG, INC. (Utah) was converted into one share of AU 'N AG, INC.
(Delaware). At the time of its incorporation, AU 'N AG, Inc. (Delaware) had
total authorized capital stock in the amount of 50,000,000 shares at $.001 par
value. Each holder of AU 'N AG, INC. (Utah) upon surrender to AU 'N AG, INC.
(Delaware) of one or more certificates for such shares for cancellation
received one or more certificates for the number of shares of common stock of
AU 'N AG, INC. (Delaware) represented by the certificates of AU 'N AG, INC.
(Utah) so surrendered for cancellation by such holder.
As a result of the above-referenced merger, 23,297,800 shares of common
stock of AU 'N AG, INC. (Delaware) were issued to the shareholders of the
corporation formerly known as AU 'N AG, INC. (Utah). At the time of the
merger, AU 'N AG, INC. (Utah) had no assets and was an inactive corporation.
As provided in the Plan and Agreement of Merger, the sole purpose of
the above-referenced merger was to change the issuer's domicile from Utah to
Delaware and the exchange of securities from one corporation to another was, in
the opinion of management, therefore outside of the provisions of Rule 145 as
promulgated by the Securities & Exchange Commission. Further, it is the
position of management that the exchange of stock was a transaction by an
issuer not involving any public offering and thus was within the protection of
Section 4(2) of the Securities Act of 1933, and exempted from registration
requirements.
On April 11, 1994, a Certificate of Amendment of the Certificate of
Incorporation of AU 'N AG, INC. (Delaware) was executed, providing that the
name of the Company be changed to: INTERUNION FINANCIAL CORPORATION. This
change of name was filed by the office of the Secretary of State of Delaware n
April 19, 1994.
Subsequent to a filing of information submitted to the National
Association of Securities Dealers, Inc. (NASD) pursuant to Schedule H of the
NASD By-Laws and Rule 15c 2-11 under the Securities Act of 1934, on July 27,
1994 IFC was
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cleared for listing on the OTC Bulletin Board. The Company currently trades
under the symbol: IUFC.
Subsequent to approval by the required shareholders at a meeting held
October 14, 1994, the common stock was reverse split at a ratio of ten (10) to
one (1). Further, based upon shareholder approval at that meeting, a
Certificate of Amendment was filed with the Secretary of State, State of
Delaware, showing capitalization as follows:
(1) 100,000,000 shares of common voting stock at $.001 par value.
(2) 1,500,000 shares of Class A preferred stock at $.10 par
value.
(3) 50,000,000 shares of Class B preferred stock with par value
to be set by the Board of Directors.
(4) 50,000,000 shares of Class C preferred stock with par value
to be set by the Board of Directors.
On January 18, 1995 the Company acquired all of the stock of BEARHILL,
LIMITED, INC., a British Virgin Islands corporation, for the issuance of
444,000 shares of common stock. On January 18, 1995 the Company also acquired
all of the stock of GUARDIAN TIMING SERVICES, INC., a corporation organized
under the laws of Ontario, Canada, for the issuance of 112,112 shares of common
stock.
Upon application to the Florida Department of State, on February 2,
1995, the Company was qualified and authorized to transact business in the
State of Florida. The Company moved its principal office to 249 Royal Palm
Way, Suite 301-H, Palm Beach, Florida 33480.
On March 20, 1995, the Company acquired all of the stock of I & B,
INC., a Delaware corporation, CREDIFINANCE CAPITAL, INC., a corporation
organized under the laws of Ontario, Canada, CREDIFINANCE SECURITIES, LTD., a
corporation organized under the laws of Ontario, Canada, and Ninety-Five
percent (95%) of the stock of ROSEDALE REALTY CORPORATION, a corporation
organized under the laws of Ontario, Canada, for the issuance of 1,500,000
shares of common stock. The Company further acquired the remaining outstanding
stock of ROSEDALE REALTY CORPORATION for the issuance of 24,600 shares of
common stock. It should be noted that in 1996 the Company disposed, by way of
an assignment in bankruptcy, of its shares in ROSEDALE REALTY CORPORATION.
This assignment was a voluntary petition filed by Credifinance Capital, Inc.,
the owner of Rosedale, on September 29, 1995. The decision to file for
bankruptcy was made after negotiations for a merger of Rosedale with another
firm were unsuccessful. Rosedale had never been profitable subsequent to its
acquisition and Credifinance Capital, Inc. made the decision to cease financing
the Rosedale real estate operations. The bankruptcy was concluded and there
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are no outstanding lawsuits against either Credifinance Capital, Inc. or the
parent, InterUnion Financial Corporation. (See Note 13 of InterUnion Financial
Corporation Notes to Consolidated Financial Statements, March 31, 1996 and
1995, Part F/S).
At a special meeting of the shareholders held May 17, 1996, the Board
of Directors was authorized to reverse split all authorized shares in a ratio
of twenty (20) to one (1). At the time of this authorization, the total of all
issued and outstanding voting shares of stock was 13,851,156.
REEVE, MACKAY & ASSOCIATES LIMITED was formed May 15, 1995 as a
corporation organized under the laws of Ontario, Canada. All capital stock of
this corporation was originally issued to InterUnion Financial Corporation.
The corporation is a wholly-owned subsidiary of the Company.
(b) BUSINESS OF ISSUER
GENERAL
The Company was formed to acquire a majority interest in
existing securities firms, banks, insurance companies, and other financial and
brokerage companies located in the United States and Canada. The Company
intends to actively engage in the business of the companies in which it invests
by serving as an "information link" between these companies. The Company's
goal in providing this information link is to improve access to new markets and
business opportunities for these companies.
The Company also may provide bridge financing which involves
providing capital to a private company to assist the company in making a public
offering of its stock.
In addition, the Company may invest up to 40% of its total
assets (exclusive of government securities and cash items), on an
unconsolidated basis, in debt or equity securities issued by privately held
firms, and in securities listed in markets that are open to public investment
in Europe and North America.
InterUnion is both a holding company, acting through its
subsidiaries, and an operating company engaging in activities separate from the
activities of its named subsidiaries. Specifically, InterUnion derives
independent revenues from financial consulting, the bridge financing of
pre-IPOs, and its participation in new ventures.
5
PRODUCTS AND/OR SERVICES OF ACTIVE SUBSIDIARIES
In addition to the operations of InterUnion Financial Corporation as
the parent, the Company owns five operating subsidiary corporations. A
description of the business operations of these subsidiary corporations is as
follows:
(1) CREDIFINANCE SECURITIES, LTD.
Credifinance Securities, Ltd. ("Credifinance") is an investment bank
with office in Toronto and Montreal, and is a member of the Investment Dealers
Association of Canada, the Toronto Stock Exchange, Montreal Exchange and the
International Securities Market Association. Credifinance has 30 employees
engaged in fixed income and equity trading for Canadian institutions and in
corporate finance. Credifinance's six person research team provides
perspective on equity markets, companies and industries in Canada.
Credifinance Securities was started in 1990, engaging in institutional
trading, investment banking and research. The consolidation in the
brokerage/investment banking industry in Canada created opportunities for small
companies to provide better service to institutions. This unit began by
specializing in the trading of less than investment grade bonds. In 1991-92,
it expanded into equity trading for its institutional clients. Unlike the
large brokerage firms, Credifinance Securities acts strictly as an agent, and
does not take positions against its clients.
To enhance its service for the institutional clients, Credifinance has
developed research capability focusing on:
- biotechnology
- communications and media
- software
- telecommunications
- metals, minerals and precious metals mining
- oil and gas
- industrial products
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Credifinance's corporate finance activities consist primarily of
underwritings for small and medium-size, technology-intensive companies.
Between 1993 and 1995, Credifinance has been the sole underwriter in five
transactions, ranging in value from C (Canadian) $1.5 to $5.4 million;
co-underwriter in two transactions of C$32.5 million and C$11 million;
participated in a C$135 million co-bought deal; and has been involved in two
special transactions of C$10 and C$15 million.
In the first quarter of 1996, Credifinance has financed, through
private placements of special warrants, the following companies:
- Getty Cooper (C$5.9 million) - copper mining in British
Columbia;
- Etruscan Enterprises (C$7.0 million) - gold mining in Niger,
West Africa;
- Novadx International (C$1.8 million) - biotechnology company
commercializing in vitro tests for arthritis, osteoporosis and
other chronic diseases;
- Nortran Pharmaceuticals (C$2.0 million) - pharmaceutical
company focusing on research and commercial development of
targeted small molecule drugs; and
- Imutec (C$2.8 million) - biotechnology company engaged in the
development of immunotherapeutic products.
In additional, Mariposa Steamship Company and Mancan Gold Limited have
engaged in Credifinance as their fiscal agent to take them public in 1996.
(2) GUARDIAN TIMING SERVICES, INC.
Guardian Timing Services, Inc. ("Guardian") is an investment
management firm located in Toronto, Canada, currently having approximately C$90
million in assets under management. Guardian manages the Canadian Protected
Fund, the Protected American Fund and the First America Fund. It uses a
proprietary ITM market timing model owned by Bearhill Limited, Inc., another
subsidiary of the Company.
(3) CREDIFINANCE CAPITAL, INC.
Credifinance Capital, Inc. is an investment corporation located in
Toronto, Canada. The business activities of this subsidiary corporation are
limited to proprietary security investing using its own capital resources.
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(4) BEARHILL LIMITED, INC.
Bearhill Limited, Inc. ("Bearhill") is an investment management firm
located in Toronto, Canada. Bearhill now manages the Rexmore Fund which
invests primarily in U.S. equity mutual funds and offers management services in
the international market place.
On September 9, 1994 Bearhill entered into an ITM SOFTWARE DEVELOPMENT
AGREEMENT with Guardian Timing Services, Inc. ("Guardian"). This Agreement
acknowledged that Bearhill owns the proprietary rights to certain computer
software known as ITM Software, which is a computer software program which is
used to generate buy and sell signals with respect to any stock market
monitored. The parties entered into the above-referenced agreement because
Bearhill wishes to market investment advisory services internationally and it
requires computer software in order to generate market timing signals.
Guardian, in turn, has agreed to perform the development of Release I of the
ITM software and the related documentation upon the terms and conditions of the
Agreement. See Exhibit 10, page E-35, for details of the ITM Software
Development Agreement.
The forecasting technique used by the ITM market timing model involves
general market indicators, interest rates and monetary analysis, market
perception indicators, and various statistical data to detect trends. An
earlier version of the market timing model predicted the stock market downturn
in October, 1987, allowing Guardian clients to get out of the market 10 days
prior to the downturn. The model is continually updated and has been credited
with successfully avoiding many of the overall market declines in the early
part of the 1990s.
On November 30, 1995 a Letter of Understanding was issued between the
Bank of _________ (the name of the Bank has been omitted and filed separately
with the Securities & Exchange Commission pursuant to Rule 24b-2) and Guardian
Timing Services, Inc., InterUnion Financial Corporation, Havensight Holdings
Corp. and Bearhill Limited, Inc. Under this letter agreement, Bearhill Limited
granted to the bank an irrevocable option to acquire the ITM software owned by
Bearhill. If the bank exercises the option it is to acquire 100% of the class
B shares of Bearhill, which such shares represent 30% of equity of Bearhill for
$750,000 and shall enter into an agreement to acquire the ITM for $30 million,
under certain specific terms and conditions. The option is renewable for a
3-year indefinite term at the discretion of the bank, subject to the payment by
the bank of an annual option fee commencing January 1, 1996. The Letter of
Understanding is included as Exhibit 10, commencing at Page E-53.
(5) REEVE, MACKAY & ASSOCIATES LIMITED
Reeve, Mackay & Associates Limited ("Reeve, Mackay") commenced
business operations in July, 1995 as a Canadian auction house. Reeve, Mackay
held auctions in 1995 on a monthly basis, which has increased, due to its
successful sales, to two monthly with a continuing goal of holding four
auctions monthly. In the first nine months of operation, Reeve, Mackay
generated revenues of C$1.6 million.
As a result of its sales and a considerable amount of media attention
in the form of numerous unsolicited articles in the major Canadian press,
Reeve, Mackay has reached an agreement with two of the largest international
auction houses (Christie's and Phillips) whereby these companies have agreed to
recommend it as the Canadian auctioneers for the portion of the Canadian estates
that they will not sell in New York or London.
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COMPETITION
The search for potentially profitable investments is intensely
competitive. A list of actual and potential competitors would include the
multinational banks, regional banks, thrift institutions, investment banks,
brokerage firms, finance and leasing companies, merchant banks, venture
capitalists and other financial service companies. The Company may be at a
disadvantage when competing with firms with substantially greater financial and
management resources and capabilities than the Company.
The issue of competition also directly impacts the subsidiary
companies owned by InterUnion Financial Corporation. Credifinance Securities,
Ltd. concentrates on providing underwritings for small and medium-sized
technology-intensive companies. Credifinance must compete with underwriting
companies in Canada that are superior in asset strength and personnel staff.
Guardian Timing Services, Inc. and Bearhill Limited, Inc. both operate as
managers of funds. A decline in their investment performance could cause the
loss of these essential accounts. And if the ITM market timing model used by
both of these companies should not show an accurate forecast the companies
could lose the managed accounts to larger investment management firms.
Finally, the auction company of Reeve, Mackay & Associates Limited must
directly compete for accounts with larger internationally recognized companies
such as Christie's and Phillips. There is certainly no assurance that Reeve,
Mackay can continue to attract substantial accounts for auction.
GROWTH STRATEGY
The growth strategy consists of two complimentary components:
. Investing in the existing portfolio of financial services
companies; and acquiring, when the appropriate opportunities
arise, major positions in well-managed banks, thrifts,
brokerage houses, investment banks and other financial
services companies (e.g. leasing, insurance) positioned in
niche markets in key international money centers; and
. Expansion of bridge financing and investment banking
activities.
Entry into the U.S. market is the next step in the Company's long-term
strategy to take major positions in investment banks, brokerage houses,
insurance companies, and other financial services companies around the world.
The Company is positioning itself to take advantage of opportunities. There is
no pressure to make an acquisition at any time or at any cost.
9
But any acquisition will represent the second phase in the Company's
growth strategy. The first phase involves building up the existing operations
to more completely utilize the existing resources and to capitalize on each
unit's competitive strengths. For example, the Montreal office of Credifinance
Securities has been expanded and is fully bilingual, staffed by French
Canadians to better serve Quebec institutions. The corporate finance
capabilities of Credifinance will continue to be expanded to fully utilize the
unit's research and corporate finance capabilities and trading networks.
Additional capital will enable InterUnion to participate in more bridge
financing opportunities that in turn, will provide more corporate finance work
for Credifinance; and will permit Credifinance to increase its block trading
activity.
Bearhill will launch a new fund in 1996 and Guardian will continue to
expand the assets under its management by actively engaging in marketing for
the first time in its history. A new fund may be established for U.S.
investors.
A retail brokerage operation may be established in Canada to take
advantage of the client lists provided by Reeve, Mackay and the investment
products created by Guardian. InterUnion Financial Corporation also may create
an investment banking presence in the United States by expanding Credifinance
into this market and/or by following up on negotiations with individuals who
are part of the Company's international network. Credifinance may expand into
the United States in order to provide better service for Canadian corporations
which increasingly are being listed on NASDAQ. On the other hand, if the
latter partnership is created, this new division will provide research on
markets and industries in the European Union and emerging markets in Europe and
Asia, and trading services for U.S. clients in European and emerging markets
equities and fixed income. This unit also will develop, over time, a corporate
finance capability that will match European investment opportunities with U.S.
investors.
A high priority has been assigned to acquiring hard assets, in the
form of a bank, savings and loan company or insurance company, in order to add
stability to revenues, provide access to new sources of capital and open new
distribution channels. Moreover, these types of financial institutions will
permit IFC to offer the companies, which it will advise and assist, a complete
range of loan options. In addition, IFC will continue to search for and invest
in financial services companies with talented partners and employees,
predictable cash flows, low break evens and low marginal costs that are
complementary with the Company's existing divisions. The Company will pay for
the current cash flow with stock equity and share the incremental increase in
cash flow with the owners/managers of the companies.
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GOVERNMENT REGULATION
The operating activities of InterUnion Financial Corporation are not
subject to governmental regulatory agencies. Likewise, the Canadian investment
management companies of Guardian Timing Services and Bearhill Limited are not
subject to direct government regulation in Canada.
Credifinance Securities, Ltd. is a member of the Investment Dealers
Association of Canada, the Toronto Stock Exchange, Montreal Exchange and the
International Securities Market Association. As such, it is subject to the
rules, regulations, and administrative rulings of these entities. However,
these regulatory entities are not considered as having any adverse impact on
the ability of Credifinance to conduct its underwriting activities.
The auction firm of Reeve, Mackay is not subject to government
regulation under Canadian law.
InterUnion Financial Corporation considers itself not subject to the
Investment Company Act of 1940 (the "Act"). Section 3(a)(3) of the Act defines
an "investment company" as "any issuer which . . . owns or proposes to acquire
investment securities having a value exceeding 40 per centum of the value of
such issuer's total assets (exclusive of Government securities and cash items)
on an unconsolidated basis." "Investment securities" are defined for purposes
of this section as "all securities except (A) Government securities, (B)
securities issued by employees' securities companies, and (C) securities issued
by majority-owned subsidiaries of the owner which are not investment
companies."
The Company is not an investment company because it will invest no more
than 40% of its total assets (excluding government securities and cash items),
on an unconsolidated basis, in "investment securities" as defined in the Act.
The Company considers its primary business to be engaging in non-investment
company businesses through majority owned companies.
EMPLOYEES
The employees of the Company and its subsidiaries are all full-time
employees. The total number of such employees is listed below:
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InterUnion Financial Corporation ............................................................... 3
Credifinance Securities, Ltd. .................................................................. 30
Bearhill Limited ............................................................................... 1
Guardian Timing Services ....................................................................... 2
Reeve, Mackay & Associates Limited ............................................................. 14
--
Total Employees ....................................................................... 50
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION
During the third quarter of fiscal 1997, InterUnion reported
consolidated revenue of US $2.5 million. Revenue, net cost of goods sold by
Reeve, Mackay, the auction subsidiary, has increased 26.3% to 1,291,925. The
increase is due to the high season in the auction business, otherwise revenue
would have been unchanged, as Reeve, Mackay is the Company's only subsidiary
that has seasonal swings in revenues.
InterUnion's revenue growth and financial overview (figures in 000's
except per share data):
FY 97Q3 FY 97Q2 FY97Q1 FY 1996 FY 1995
------- ------- ------ ------- -------
Commission Income . 1,144 936 1,364 4,500 3,871
Sales .............. 1,256 194 516
Fee Revenue ........ 149 87 230 1,365 57
Total Revenues ..... 2,549 1,217 2,110 5,865 4,028
Cost of goods sold . 1,256 194 516
Net Revenues (I) ... 1,293 1,023 1,594 5,865 4,028
Net Profit (Loss) .. (277) (76) 6 302 (134)
EPS - Operations ... (0.43) (0.09) 0.01 0.03 0.24
EPS ................ (0.43) (0.09) 0.01 0.60 (0.85)
Common Share, # .... 969,714 969,714 692,572 692,572 369,058
Working Capital .... 1,023 1,143 653 1,073 776
Cash Flow .......... (1.00) 94 86 204 75
Shareholders' Equity 4,496 4,773 4,146 4,140 3,629
Book Value Per Share 4.64 4.92 5.99 5.98 9.83
(I) This amount is equal to Total Revenues under U.S. GAAP, except for fiscal
year 1996 where Total Revenues under U.S. GAAP would have recorded as US
$6,169,578.
The additional revenues from Reeve, Mackay & Associates ltd. operations
were offset by higher than normal expenditures related to the fall auctions. For
the nine months ending December 31, 1996, Reeve, Mackay lost
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in excess of US $300,000 before any tax loss benefits are recorded. The
Company's other subsidiaries have performed within the anticipated budget during
the first nine months of the current fiscal year and provided a combined net
income of US $40,400. Management does not expect any major variance during the
fourth quarter.
Net loss for the nine months ending During 31, 1996 was US $346,680 (US
$276,602 for the quarter versus US $76,104 for the second quarter).
Acquisition costs and deferred charges, some of which were previously
capitalized, have been charged to operating income in the third quarter. The
charges are in excess of US $200,000. These expenditures have all taken place in
the second and third quarter of the current fiscal year under the Company's
acquisition program. Exclusive of these costs and Reeve, Mackay's loss, the
Company would have had a nine-month pre-tax operating profit of US $160,000.
LIQUIDITY
In order to meet its growth plans, the Company issued a Confidential
Private Offering Memorandum under Regulation "S" dated September 1,1 996. This
Offering Memorandum offered for sale a maximum of 250,000 units of the company
at a price of $5.00 per unit. Each unit consists of one share common voting
stock and one warrant to purchase one share of common voting stock at $6.00 per
share, with an expiration date on the warrant of September 15, 1997. The total
offering seeks to raise $2,000,000, with anticipated net proceeds after
commissions and offering costs to be $1,775,000.
InterUnion has raised $759,710 of the $2,000,000 during the second
quarter and has a commitment for the balance of the offering. The company has
not raised any additional funds in the third quarter and does not plan to raise
any in the fourth quarter unless required to do so in order to complete an
acquisition.
CREDIFINANCE SECURITIES LIMITED
During the first quarter, a number of individuals of the institutional
desk left the Company to join a newly created firm by Credifinance's previous
President. Through the second quarter and part of the third the Company
continued the restructuring of Credifinance Securities Limited's institutional
sales desk and has taken advantage of market conditions to focus more
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active on underwriting activities in sectors in which Credifinance has expertise
in: Biotechnology, Communication, High Technology, Mining and Oil and Gas; in
addition to servicing institutional clients' trading needs.
The broker/dealer has taken advantage of its capacity to complete
financings in its niche business but has been affected by the general lack of
daily institutional trading activity. This lack of trading activity is a
phenomenon affecting all small and medium broker/dealers which restrict
themselves to agency business as opposed to taking principal trading risks. In
fact, the departure of a number of institutional sales people has benefitted
Credifinance Securities Limited since it has enabled management to restrategize
within the context of the market and ensure that a larger percentage of the
revenue is retained by the firm. Management has been positioning the
broker/dealer in a mode which would enable the firm to operate at least at break
even in the case of a "bear" market.
GUARDIAN TIMING SERVICES INC. AND BEARHILL LIMITED
The company's money management operations continue to perform as
anticipated. It should be noted that the carrying value of the ITM software need
not be adjusted as per FASB 121, "Accounting for the impairment of Long-Lived
Assets and for Long-Lived Assets to be disposed of." This is due to the fact
that the carrying value is substantiated by the management fees which Guardian
Timing Services receives. These fees would not be earned if it did not have the
use of the ITM software.
REEVE, MACKAY & ASSOCIATES LTD.
Reeve, Mackay has been in operation for approximately 18 months and
InterUnion did not expect its operation to be profitable prior to its third
year. Since inception, Reeve Mackay has posted a loss of approximately US
$750,000, of which US $438,000 was during the first year of operation. For the
nine months ending December 31, 1997, Reeve Mackay lost over US $300,000 versus
an anticipated loss of approximately US $145,000. During that period, Reeve,
Mackay has broken even in three separate months.
Sales of goods have been according to schedule, however, the costs'
components have not. The Company was adversely affected due to negotiated
commissions on two major collections. The cost of reducing the commission
charged to the consignors was required in order to be awarded the mandate. The
success of the auctions that presented these collections to the public was
instrumental to the Company's objective to gain industry
14
approval as a viable alternative to the competition. Additional costs over-run
was due to the larger than expected number of items in each of the fall auctions
which drastically increased the cost of cataloguing and processing. In addition,
marketing and advertising expenditures ran over budget.
The continuous operating problem has caused the company to have a
substantial working capital deficit of over US $325,000. The Company has managed
to date to finance this deficit by leveraging its reputation and deferring the
payment on the goods sold on behalf of its consignors and delaying suppliers. To
date certain consignors have requested to have their goods returned, however,
Reeve, Mackay has been able to replace these consigned goods as the number of
active consignors continue to grow. This is demonstrated by the fact that Reeve,
Mackay has more collectors' auctions than any other competing auctioneer in
Toronto.
To date, suppliers have not refused to provide services. However,
should suppliers and particularly consignors as a group start to withdraw their
goods the company's auction subsidiary's ability to operate would be in jeopardy
unless the Company agrees to inject the additional cash as required. Currently,
Reeve, Mackay's liabilities have not been guaranteed by any other subsidiary
within the group nor by InterUnion, itself.
The auction house management team is currently investigating various
strategies to reverse the current trend on the bottom line and the working
capital deficit. Should no formal plan be adopted during the fourth quarter, the
Company will write down the full amount that it is carrying as start-up costs in
the amount of U.S. 372,980 under Canadian GAAP. Under U.S. GAAP this amount has
already been eliminated from the balance sheet, however, a taxable benefit of US
$200,000 has been recorded and therefore would have to be written off.
ACQUISITION PROGRAM AND NEW RESEARCHES CORPORATION
During the third quarter, the Company acquired an option to purchase
100% of the outstanding shares of New Researches Corporation. New Researches is
a high technology/biotechnology venture capital firm. InterUnion's management
continues to explore opportunities for the acquisition of operating companies
that will provide additional liquidity and cash flow. Such acquisitions would be
financed by the issuance of common stock or, if required, by means of private
placement. Although Management has investigated a number of opportunities, only
the acquisition of the option on New Researches met the Company's objectives.
The company is
15
also considering special situations acquisitions linked to bridge financing
activities.
The Company is exploring various means of sharing the client base of
the three main subsidiaries in order to generate revenue and increase the
synergy between the operations.
CONCLUDING REMARKS
There are no other known trends, events or uncertainties that may have,
or are reasonably likely to have, a material impact on the Company's short-term
or long-term liquidity.
In addition, there is no significant income or losses that has risen
from the Company's continuing operations that has not been analyzed or discussed
above. Nor has there been any material change in any line item that is presented
on the financial statements which has also not been discussed above.
CERTAIN 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 a continued bull market and investors/ companies
appetite for new financings.
Forward-looking statements included in Management's Analysis and
Discussion reflect management's best judgment based on known factors and involve
risks and uncertainties. Actual results could differ material 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.
In the opinion of management the financial statements for the periods
ending December 31,1996 accurately reflect the operations of the Company and its
subsidiaries. The Company has taken every reasonable step to ensure 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 dated January 28, 1997.
16
ITEM 3. DESCRIPTION OF PROPERTY
Neither the Company nor any of its subsidiaries owns real estate.
The Company and certain of its subsidiaries do have leasehold
interests in real estate as shown below.
Lessee &
Location of Gross Area Annual Rent
Premises (S. Ft.) Term (Per S. Ft.)
- -------------------------------------------------------------------------------------------------------
Credifinance Securities, Ltd.
Suite 3303
130 Adelaide Street W 3,310 Feb. 92-Jan. 97 $16.00
Toronto, Ontario Feb. 97-Jan. 02 $22.00
Credifinance Securities, Ltd.
Suite 3304
130 Adelaide Street W 927 Feb. 93-Jan. 97 $12.00
Toronto, Ontario Jul. 97-Jan. 02 $15.00
Credifinance Securities, Ltd.
Suite 1580
1501 McGill College Ave.
Montreal, Quebec 1,386 Jun. 92-Jan. 98 $16.00
Reeve, MacKay &
Associates, Ltd.
Suite 400
163 Queen St. E
Toronto, Ontario 3,375 Jul. 96-Jun. 97 $ 5.00
Reeve, MacKay &
Associates, Ltd.
Suite 102
163 Queen St. E
Toronto, Ontario 2,053 Jul. 96-Jun. 97 $ 3.00
InterUnion Financial Corp.
Suite 301
249 Royal Palm Way
Palm Beach, Florida 1,000 Mar. 96-Feb. 97 US$365 per month
17
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
(a) SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following persons (including any group as defined in Regulation
S-B, Section 228.403) are known to InterUnion Financial Corporation, as the
issuer, to be the beneficial owner of more than five percent of any class of
the said issuer's voting securities.
Title Name and Address Amount and Nature Percent
of Class of Beneficial Owner of Beneficial Owner of Class
- ------------------------------------------------------------------------------------------------------------------------
Common RIF Capital Inc,(1) 354,121 51.13%
Price Waterhouse Centre
PO Box 634C
St. Michael, Barbados, WI
Common Capital Securities & Credit Corp. 52,144 7.53%
114 Belmont Street
Toronto, Ontario, Canada M5R 1P8
Common Finance Research Development 50,500 7.29%
(FRD) Trust
Icaza, Ruiz-Gonzalez & Alemen
Vanterpool Plaza, 2nd Floor
Wickhams Cay, PO Box 873
Road Town, Tortola, BVI
Common Financiera Hispano-Suiza, SA 50,050 7.23%
10 Rue Pierre-Fatio
Geneva, Switzerland CH1204
TOTAL 506,815 73.18%
========= =======
Preferred A RIF Capital Inc. 1,500,000 100.00%
Price Waterhouse Centre
PO Box 634C
St. Michael, Barbados, WI
____________________
(1) RIF Capital Inc. is a wholly-owned subsidiary of Equibank Inc.
which is wholly-owned by Central Investment Trust. Georges Benarroch is the
sole protector of Central Investment Trust and is not a beneficiary of the
Trust nor its subsidiaries.
(2) The principal and 100% beneficial owner of Capital Securities
and Credit Corp. is Mrs. S. Benarroch, 68 Rue Spontini, 75116 Paris, France.
(3) The principal and 100% beneficial owner of Finance Research
Development Trust is Mr. G. Serfati, Cogeser S.A.R.L., 11 bis Ave de Versaile,
75116 Paris, France.
(4) The principal and 100% beneficial owner of Franciera
Hispano-Suiza, SA is Mrs. N. Balloul, 21 rue Curial, 75019.
(5) Mrs. S. Benarroch is the mother of Georges Benarroch. The
354,121 shares as listed for RIF Capital, Inc. do not include the 52,144 shares
owned by Capital Securities & Credit Corp. Mr. Benarroch disclaims ownership
of the 52,144 shares, directly or indirectly.
18
(b) SECURITY OWNERSHIP OF MANAGEMENT
The following information lists, as to each class, equity securities
beneficially owned by all directors and nominees, and of the directors and
nominees of the issuer, as a group.
Title Name and Address Amount and Nature Percent
of Class of Beneficial Owner of Beneficial Owner of Class
- ------------------------------------------------------------------------------------------------------------------------
Common Georges Benarroch 354,121 51.13%
Suite 3303 Trustee (voting
130 Adelaide Street power) of Central
Toronto, Ontario Investment Trust
Canada, M5H 3P5
Preferred A Georges Benarroch 1,500,000 100.00%
Suite 3303 Trustee (voting
130 Adelaide Street power) of Central
Toronto, Ontario Investment Trust
Canada, M5H 3P5
Common Directors and 354,121 51.13%
Executive Officers
as a group
(1 person)
Preferred A Directors and 1,500,000 100.00%
Executive Officers
as a group
(1 Person)
NOTE TO (A) AND (B): As to the beneficial owner(s) of the securities listed
above in (a) and (b), no such owner has any right to acquire within sixty (60)
days or otherwise, the right to acquire shares from options, warrants, rights,
conversion privileges or similar obligations.
19
ITEM 5. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS
AND CONTROL PERSONS
(a) IDENTIFY DIRECTORS AND EXECUTIVE OFFICERS
Name, Municipality
of Residence Age Length of Service
- ----------------------------------------------------------------------------
Georges Benarroch 49 Appointed as President and
Toronto, Ontario Chairman of the Board,
Canada March 21, 1994
T. Jack Gary, III 55 Appointed as Secretary
West Palm Beach, Florida January 30, 1995
Ann Glover 46 Appointed to Board
Toronto, Ontario of Directors
Canada February 17, 1995
Jacques Meyer de Stadelhofen 48 Appointed to Board
Geneva, Switzerland of Directors
December 16, 1994
Karen Lynn Bolens 49 Appointed to Board
Geneva, Switzerland of Directors
December 16, 1994
GEORGES BENARROCH is the President, Chief Executive Officer and Chief
Financial Officer of the Company. He is also the President, Chief Executive
Officer, and Chairman of the Board of Credifinance Securities, Ltd.,
Credifinance Capital, Inc. and Reeve, Mackay & Associates, Ltd. -- all
wholly-owned subsidiaries of the Company. He is also the president of
Equibank.
Since 1977, Mr. Benarroch has held the position of officer and
partner/director with various investment firms and private/public companies in
the United States, Canada and Europe. He has been a senior partner and/or
20
seat holder of a member firm of the Toronto Stock Exchange since 1982. His
experience covers Euro-financings, venture capital, mining and high tech
financings and bridge financings. Between 1988 and 1990, he was one of the
largest foreign traders of Austrian and Eastern European securities. One of
his holding companies, which indirectly is the largest current shareholder of
InterUnion, owns or has owned substantial equity interest in financial
companies in North America, mining companies in California and
technology-oriented, venture capital firms.
T. JACK GARY, III is the Secretary of the Company. He is also Branch
Manager of the West Palm Beach, Florida, office of Raymond James & Associates,
a national brokerage firm, having held that position since 1995. He is the
President of Crown Financial Advisors, Inc., an investment advisory firm. From
April, 1988 to 1992 Mr. Gary was President and Chief Executive Officer of Crown
Capital Advisors, Inc., a company registered as an investment advisor with the
Securities and Exchange Commission and with the State of Florida under the
Florida Securities and Investor Protection Act. From 1992, until his
appointment with Raymond James, Mr. Gary served as Chief Executive Officer of
Crown Financial and Executive Vice President of Crown Capital Advisors, Inc.
Mr. Gary will devote approximately 10% of his time to his duties as Secretary
at InterUnion.
ANN GLOVER serves as a Director of the Company. She is a Director,
Secretary/Treasurer, and Chief Operating Officer of Credifinance Securities,
Limited a subsidiary of the Company. Ms. Glover has been an employee of
Credifinance Securities, Limited since 1991, having held the position of a
Director, Secretary/ Treasurer, and Chief Compliance Officer. Ms. Glover will
devote approximately 10% of her time to InterUnion as she is also a director
and officer of Credifinance Securities Limited.
JACQUES MEYER DE STADELHOFFEN serves as a Director of the Company.
Since 1981 through and including the present time, he has practiced as an
attorney, specializing in tax and financial matters for international
corporations and charitable organizations. Ms. Stadelhoffen's duties for
InterUnion will be limited to her participation at Board Meetings.
KAREN LYNN BOLENS serves as a Director of the Company. Since 1985
through and including the present time, she has practiced as an associate
attorney, specializing in corporate, estate and family law for international
clients. Ms. Bolens' duties for InterUnion will be limited to her
participation at Board Meetings.
(1) No director of InterUnion is currently a director of any other
reporting company.
(2) Under Section 1, ARTICLE III, of the By-Laws, the directors
serve until the next annual meeting of the stockholders, as
prescribed by the Board of Directors, at which time directors
are elected by the stockholders. A director shall hold office
until his successor is selected and qualified.
21
ITEM 6. EXECUTIVE COMPENSATION
(a) SUMMARY COMPENSATION TABLE
NAME &
PRINCIPAL FISCAL OTHER LONG TERM ALL OTHER
POSITION YEAR SALARY BONUS COMPENSATION COMPENSATION COMPENSATION
- ------------------------------------------------------------------------------------------------
Georges
Benarroch,
President 1996 None None None None None
& CEO 1997 None None $50,000* None None
*Georges Benarroch was paid $50,000 as compensation for services subsequent to
the end of the fiscal year ending March 31, 1996. No other officer was paid
compensation. Mr. Benarroch was paid his compensation in the form of cash.
(B) ALL COMPENSATION COVERED
The Company's Board of Directors has approved payment of $1,750 for
the services of each of its directors for the fiscal year ending March 31,
1997. No payments to Directors have been made as of the date of this
registration statement.
As of the date of this registration statement, the Company has no
options, warrants, SARs, long-term incentive plans, pension or profit-sharing
plans, insurance plans, medical reimbursement plans, or other compensation
plans in any form, direct or indirect, in effect regarding any employees of the
Company.
The Company feels that it does not have to include executive
compensation for an executive officer of any subsidiary because under Rule 3b-7
under the Exchange Act (17 CFR 240.3b-7) no executive officer(s) of any
subsidiary perform(s) policy making functions for the registrant.
As of the date of this registration statement, the Company has no
agreement or understanding, express or implied, with any officer or director,
or any other person regarding employment with the Company or compensation for
services.
Section 14 of ARTICLE III of the By-Laws of InterUnion provides that
directors do not receive any stated salary for their services as directors.
However, by board resolution, a fixed fee and expenses of attendance may be
allowed for each meeting. These limitations do not affect compensation for a
person serving as an officer or otherwise for the Company and receiving
compensation therefor.
It should be noted that, other than the $50,000 paid in cash to
Georges Benarroch for the 1996 fiscal year, no compensation was set or paid by
the directors for fiscal 1996. Further, no annual compensation for directors
has been set by the Board for fiscal 1997.
22
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Not applicable.
ITEM 8. DESCRIPTION OF SECURITIES
(A) COMMON STOCK
The Company is authorized to issue 100,000,000 (One Hundred Million)
shares of common voting stock, each share having one vote, at $.001 par value.
There are no fixed rights to dividends on the common stock. Dividends
may be paid as authorized by the Board of Directors in cash, in property, or in
shares of capital stock.
Section 102 of the General Corporation Law of Delaware provides that
no stockholder shall have any preemptive right to subscribe to an additional
issue of stock or to any security convertible into stock unless, and except to
the extent that, such right is expressly granted to him in the certificate of
incorporation. The Certificate of Incorporation of InterUnion Financial
Corporation contains no provision for preemptive rights.
The General Corporation Law of Delaware, in Section 214, allows for
cumulative voting if so provided in the certificate of incorporation of the
Company. The Certificate of Incorporation for InterUnion Financial Corporation
contains no provisions for cumulative voting rights.
(B) PREFERRED STOCK
(1) CLASS A PREFERRED STOCK
The Company is authorized to issue 1,500,000 (One Million Five Hundred
Thousand) shares of Class A preferred stock at $.10 par value.
The Class A preferred stock is voting stock, each share having 100
votes.
In any given fiscal year in which the directors shall declare a
dividend, the holder(s) of Class A preferred stock shall be entitled to a fixed
yearly dividend in the percentage amount, which such amount shall be fixed and
declared by the directors at the time of issuance of the Class A preferred
stock. When such a dividend is declared, the holder(s) of the Class A
preferred stock shall receive payment before any dividend shall be paid or set
apart on the common stock. The dividends in respect to the Class A preferred
stock shall be non-cumulative and shall be non-participating. These shares
carry no terms of repayment and have no terms of conversion.
23
In the event of dissolution of the Company, the holder(s) of Class A
preferred stock shall be entitled to be paid in full the par value of the
shares before any amount is to be paid to the holders of common stock or the
holders of Class B and C preferred stock.
(2) CLASS B PREFERRED STOCK
The Company is authorized to issue 50,000,000 (Fifty Million) shares
of Class B preferred stock. The par value of this stock and the yearly
dividend in a percentage amount to which the holder(s) of this stock shall be
entitled, shall be determined by the directors at the time of first issuance of
any such shares. In any given year in which the directors shall declare a
dividend, the holder(s) of the Class B preferred stock shall receive payment
before any dividend shall be set apart or paid on the common stock.
The Class B preferred stock is non-voting, non-cumulative and
non-participating. These shares carry no terms of repayment and have no terms
of conversion.
In the event of dissolution of the Company, the holder(s) of the Class
B preferred stock shall be entitled to be paid in full the par value of the
shares before any amount is to be paid to the holders of common stock or the
holders of Class C preferred stock.
(3) CLASS C PREFERRED STOCK
The Company is authorized to issue 50,000,000 (Fifty Million) shares
of Class C preferred stock. The par value of this stock and the yearly
dividend in a percentage amount to which the holder(s) of this stock shall be
entitled, shall be determined by the directors at the time of first issuance of
any such shares. In any given year in which the directors shall declare a
dividend, the holder(s) of the Class C preferred stock shall receive payment
before any dividend shall be set apart or paid on the common stock.
The Class C preferred stock is non-voting, non-cumulative and
non-participating. These shares carry no terms of repayment.
The Class C preferred stock is convertible to common voting stock,
provided, however, that the exchange ratio on such a conversion shall be
subject to the price and terms as decided by the directors, and provided
further, that the right of conversion shall be decided by the directors in
their sole discretion. In the event, upon a conversion, it shall appear that a
fraction of a common share
24
shall be issued, the Company shall pay cash for the pro rata market value of
any such fraction, market value being based upon the last sale price for a
share of common stock on the business day next prior to the date such fair
market value is to be determined.
In the event of dissolution of the Company, the holder(s) of the Class
C preferred stock shall be entitled to be paid in full the par value of the
shares before any amount is paid to the holders of common stock.
25
PART II
ITEM 1. MARKET PRICE OF AND DIVIDENDS ON THE
REGISTRANT'S COMMON EQUITY AND OTHER
SHAREHOLDER MATTERS
(a) MARKET INFORMATION
The issuer's common equity is traded on the OTC Bulletin Board under
the symbol: IUFC.
The high and low sale prices for each quarter within the last two
fiscal years and the first quarter of fiscal year 1997 are listed below. Only
two quarters are shown for fiscal year 1995 because the stock was not cleared
by the NASD for trading until July 27, 1994.
================================================================================
Open High Low Close
------ ------ ----- -----
FY 95 Qtr 3 $52.50 $100.00 $52.50 $80.00
FY 95 Qtr 4 $80.00 $102.50 $77.50 $80.00
FY 96 Qtr 1 $80.00 $ 85.00 $32.50 $40.00
FY 96 Qtr 2 $40.00 $ 50.00 $15.00 $30.00
FY 96 Qtr 3 $30.00 $ 32.50 $10.63 $21.25
FY 96 Qtr 4 $21.25 $ 21.25 $ 5.00 $13.75
FY 97 Qtr 1 $13.75 $ 13.75 $ 5.00
================================================================================
(b) HOLDERS
The approximate number of holders of record of each class of common
equity is as follows:
26
================================================================================
CLASS OF STOCK NUMBER OF HOLDERS
Common 383
Class A Preferred 1
Class B Preferred 0
Class C Preferred 0
================================================================================
(c) DIVIDENDS
The company has never declared or paid dividends on its common stock
or its preferred stock. The Board of Directors does not anticipate paying any
dividends in the foreseeable future. It intends to retain its distributable
earnings, if any, for the expansion and development of its business.
ITEM 2. LEGAL PROCEEDINGS
A Statement of Claim was filed in Ontario Court (General Division) on
May 31, 1996 against Credifinance Securities, Ltd., InterUnion Financial
Corporation, and Georges Benarroch and Ann Glover, as Directors of those
defendants. The claim was filed by John Illedge, a former President and Chief
Operating Officer of Credifinance.
The plaintiff is seeking $1,500,000 for loss of remuneration, $697,000
for unpaid wages, severance pay in the amount of $110,000 vacation pay of
$150,000, $50,000 in punitive damages, and interest and costs. It is the
contention of the plaintiff that he was constructively discharged on March 25,
1996, without notice, and that at the time of his discharge he was entitled to
the amounts claimed and that he has not been paid for such items.
It is the position of the defendants that Mr. Illedge resigned from
Credifinance Securities for the purpose of commencing a new business
relationship, that there was no constructive dismissal, and there are no monies
owing to him for past wages or otherwise as claimed. Further, Mr. Illedge is
under investigation by the Investment Dealers Association of Canada as a result
of client complaints and other regulator matters where infractions may have
occurred. It is the opinion of the defendants and its counsel that the suit
filed by Mr. Illedge has no merit in fact. As of this date the lawsuit was not
progressed due to technical deficiencies in the Statement of Claim. When
appropriate, counsel for the defendants has indicated that it will file a
motion to strike the lawsuit for lack of merit.
The Investment Dealers Association of Canada, which is the
self-regulatory body regulating all broker/dealers in Canada did not require
InterUnion Financial Corporation or its subsidiary, Credifinance Securities
Limited, to provide contingent liability for Mr. Illedge's claims nor
disclosure of the details. The Company will not incur liability if the
Association determines that the complaints against Mr. Illedge are valid.
The likelihood of a material effect on the results of operations or
liquidity of the Company, or its subsidiaries as a result of the pending
litigation is remote.
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
Not applicable.
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES
(a) SALES PURSUANT TO REGULATION D
The following sales were made by the Company within the past three (3)
years in reliance upon an exemption from the registration requirements of the
Securities Act of 1933, as amended, as contained within Regulation D, Rule 504,
promulgated by the Securities and Exchange Commission:
27
===============================================================================
Title of Class Number Shares Price per Share Consideration Date of Sale
- -------------- ------------- ------------------ ------------- --------------
Common 16,980,000 .00145 cents/share $ 24,621 April 1, 1994
Common 1,750,000 2 cents/share $ 35,000 April 22, 1994
Common 1,000,000 2 cents/share $ 20,000 May 16, 1994
Common 1,250,000 2 cents/share $ 25,000 July 26, 1994
Common 1,000,000 1 cent/share $ 10,000 July 26, 1994
Common 3,702,200 1 cent/share $ 37,022 Aug. 4, 1994
Common 5,000,000 1 cent/share $ 50,000 Aug. 17, 1994
Common 1,000,000 5 cents/share $ 50,000 Oct. 5, 1994
Common 1,500,000 20 cents/share $300,000 Mar. 23, 1994
Common 1,250,000 10 cents/share $125,000 June 5, 1995
Common 3,200,000 10 cents/share $320,000 Mar. 12, 1996
===============================================================================
NOTES TO SALES PURSUANT TO REGULATION D
(1) All sales of securities are shown based upon the shares at the
date of sale and do not reflect subsequent reverse stock splits
as approved by the shareholders.
(2) All sales were made directly by the Company as issuer. No
commissions or underwriting discounts were paid in connection
with the sales.
(3) The class of persons to whom the Company sold the
above-referenced securities were individuals or entities whom
the Company had reason to believe were either accredited
investors within the meaning of Regulation Section 230.501 or
were investors having such knowledge and experience in
financial and business matters that the purchaser could
properly evaluate the risks and merits of the investment.
(4) All sales as shown above were made to non-U.S. persons.
28
(5) The company specifically relied upon compliance with Rule 504
of Regulation D (Regulation Section 230.504). The Company
qualified for Rule 504 because all offers and sales were made
by the issuer, the Company was not subject to the reporting
requirements of Section 13 or 15(d) of the Exchange Act, the
Company was not an investment company, and the Company was not
a development stage company. Further, the Company was in
compliance with the conditions as set forth in Regulation
Section 230.504(b).
(B) SALES PURSUANT TO REGULATION S
The following sales were made by the Company within the past three (3)
years in reliance upon an exemption from the registration requirements of the
Securities Act of 1933, as amended, as contained within Regulation S
promulgated by the Securities and Exchange Commission:
================================================================================
Title of Class Number Shares Price per Share Consideration Date of Sale
- -------------- ------------- --------------- ------------- ------------
Common 2,000,000 .10 cents/share $200,000 Oct. 16, 1995
Title of Class Number Shares Price per Share Consideration Date of Sale
- -------------- ------------- --------------- ------------- ------------
Class A
Preferred 1,500,000 .10 cents/share $150,000 Dec. 21, 1994
================================================================================
NOTES TO SALES PURSUANT TO REGULATION S
(1) All sales of securities are shown based upon the shares at the
date of sale and do not reflect subsequent reverse stock splits
as approved by the shareholders.
29
(2) All sales were made directly by the Company as issuer. No
commissions or underwriting discounts were paid in connection
with the sales.
(3) The class of persons to whom the Company sold the
above-referenced securities were individuals or entities whom
the Company had reason to believe were either accredited
investors within the meaning of Regulation Section 230.501 or
were investors having such knowledge and experience in
financial and business matters that the purchaser could
properly evaluate the risks and merits of the investment.
(4) All sales as shown above were made to non-U.S. persons.
(5) The company specifically relied upon compliance with Regulation
S as promulgated by the Securities and Exchanges Commission.
The Company was in compliance with Category 3 of Rule 903 of
Regulation S which provides an issuer safe harbor. Under this
Category the Company complied with the two general conditions
of Rule 903(a) and (b) and to transactional and offering
restrictions by the execution of an investor Subscription
Agreement, and the placing of the appropriate restrictive
legend on the stock certificate(s).
ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 14 of the By-laws of the Company provides for Indemnification
to directors and officers. This section is as follows:
"Section 14. The corporation shall indemnify and reimburse
each present and future director and officer of the corporation for and
against all or part of the liabilities and expenses imposed upon or
reasonably incurred by him in connection with any claim, action, suit
or proceeding in which he may be involved or with which he may be
threatened by reason of his being or having been a director or officer
of the corporation or of any other corporation of which he shall at the
request of this corporation then be serving or theretofore have served
as a director or officer, whether or not he continues to be a director
or officer, at the time such liabilities or expenses are imposed upon
or incurred by him, including but without being limited to attorney's
fees, court costs, judgments and reasonable compromise settlements;
provided, however, that such indemnification and reimbursement shall
not
30
cover: (a) liabilities or expenses imposed or incurred in connection
with any matter as to which such director or officer shall be finally
adjudged in such action, suit or proceeding to be liable by reason of
his having been derelict in the performance of his duty as such
director of officer, or (b) liabilities or expenses (including amounts
paid in compromise settlements) imposed or incurred in connection with
any matter which shall be settled by compromise (including settlement
by consent decree or judgment) unless the board of directors of the
corporation by resolution adopted by it (i) approves such settlement
and (ii) finds that such settlement is in the best interest of the
corporation and that such director of officer has not been derelict in
the performance of his duty as such director or officer with respect to
such matter. These indemnity provisions shall be separable, and if any
portion thereof shall be finally adjudged to be invalid, or shall for
any other reason be inapplicable or ineffective, such invalidity,
inapplicability or ineffectiveness shall not affect any other portion
or any other application of such portion or any other portion which can
be given effect without the invalid, inapplicable or ineffective
portion. The rights of indemnification and reimbursement hereby
provided shall not be exclusive of other rights to which any director
of officer may be entitled as a matter of law or by votes of
stockholders or otherwise. As used in this paragraph, the terms
"director" and "officer" shall include their respective heirs,
executors and administrators."
This provision of the By-laws specifically does not provide any
measure of indemnification under circumstances whereby the director or officer
is adjudged to be derelict in the performance of his duty as an officer or
director. There would be no indemnification of an officer or director for
liabilities arising under the federal securities laws. It should be added, as
a note of explanation, that the term "derelict" as used in Section 14 is
synonymous with the term "negligent".
PART F/S
FINANCIAL STATEMENTS
The following audited consolidated financial statements for InterUnion
Financial Corporation, covering fiscal years ending March 31, 1995 and March
31, 1996 are submitted in compliance with the requirements of Item 310 of
Regulation S-B. In addition, unaudited financial statements for the period
ending June 30, 1996 are included.
31
PART III
ITEM 1. INDEX TO EXHIBITS
Exhibit Table
Number Exhibit Page No.
- ----------- ------- --------
(2)(i) Unanimous Consent in Lieu of The First
Meeting of the Board of Directors of
AU 'N AG, INC. (A Delaware Corporation) E-1
(2)(ii) Pre-Organization Subscription and Letter
of Non-Distributive Intent E-5
(2)(iii) Plan and Agreement of Merger E-7
(2)(iv) Certificate of Merger, dated February 15, 1994 E-12
(3)(i) Certificate of Incorporation of AU 'N AG,
INC. Dated February 15, 1994 E-14
(3)(ii) Certificate of Amendment of Certificate of
Incorporation of AU 'N AG, INC. Dated April
11, 1994 E-15
(3)(iii) Certificate of Amendment of Certificate of
Incorporation of InterUnion Financial
Corporation dated October 17, 1994 E-16
(3)(iv) Bylaws of InterUnion Financial Corporation E-18
(4) Instruments Defining the Rights of Security
Holders Including Indentures E-28
(10)(i) ITM Software Development Agreement E-35
(10)(ii) Letter of Understanding E-53
(21) Subsidiaries of InterUnion E-58
32
SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of 1934,
the registrant caused this first amendment to this registration statement to be
signed on its behalf by the undersigned, thereunto duly authorized.
INTERUNION FINANCIAL CORPORATION
(Registrant)
Date: February 13, 1997 By: /s/ Georges Benarroch
------------------------ -----------------------------------
Georges Benarroch
President, Chief Executive Officer
Chairman, Board of Directors
In accordance with the requirements of the Securities Exchange Act
of 1934, this Registration Statement has been signed below by the following
persons in their capacities on the dates indicated.
Signature Title Date
- --------- ----- ----
/s/ Georges Benarroch President, Chief Executive February 13, 1997
- -------------------------------- Officer, Chairman, Board of -----------------
Georges Benarroch Directors
/s/ Georges Benarroch Chief Financial Officer February 13, 1997
- -------------------------------- -----------------
Georges Benarroch
/s/ Jacques Meyer de Stadelhofen Director February 13, 1997
- -------------------------------- -----------------
Jacques Meyer de Stadelhofen
/s/ Ann Glover Director February 13, 1997
- -------------------------------- -----------------
Ann Glover
33
INTERUNION FINANCIAL CORPORATION
CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1996 AND 1995
F-1
INTERUNION FINANCIAL CORPORATION
MARCH 31, 1996 AND 1995
CONTENTS
PAGE
Auditors' Report 1
Consolidated Financial Statements:
Consolidated Balance Sheet 2
Consolidated Statement of Operations and Retained Earnings 3
Consolidated Statement of Changes in Financial Position 4
Notes to Consolidated Financial Statements 5
F-2
AUDITORS' REPORT
To The Directors,
InterUnion Financial Corporation
We have audited the consolidated balance sheet of InterUnion Financial
Corporation as at March 31, 1996 and 1995 and the consolidated statements of
operations and retained earnings and changes in financial position for the years
then ended. These financial statements are the responsibility of the company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform our audits to obtain reasonable
assurance whether the financial statements are free of material misstatement.
Audits include examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Audits also include assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial presentation.
In our opinion, these consolidated financial statements present fairly, in all
material respects, the financial position of the company as at March 31, 1996
and 1995 and the results of operations and changes in financial position for the
years then ended in accordance with generally accepted accounting principles.
/s/ MINTZ & PARTNERS
Toronto, Ontario.
May 10, 1996. CHARTERED ACCOUNTANTS
(except as to Notes 2(b), 3, 5 and 19 which
are as of January 28, 1997)
F-3
INTERUNION FINANCIAL CORPORATION
CONSOLIDATED BALANCE SHEET
(EXPRESSED IN U.S. DOLLARS)
AS AT MARCH 31 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------
A S S E T S
CURRENT ASSETS
Cash $ 722,795 $ 490,681
Due from brokers and dealers (Note 2(c)) 1,168,190 172,944
Client deposits (Note 2(c)) 2,093,966 21,147,890
Marketable securities (Notes 2(b) and 3) 2,625,585 15,682,071
Accounts receivable 208,727 55,262
Income tax receivable 1,597 15,866
Prepaid expenses and sundry assets 75,906 31,615
-------------- --------------
6,896,766 37,596,329
-------------- --------------
OTHER ASSETS
Capital assets (Note 4) 948,892 933,380
Start-up costs 438,803 --
Long-term investments 913,834 900,361
Reorganization costs 184,944 234,574
Goodwill (Note 8) 1,086,461 1,143,982
Assets of discontinued operations (Note 15) -- 240,693
-------------- --------------
3,572,934 3,452,990
-------------- --------------
$ 10,469,700 $ 41,049,319
============== ==============
APPROVED ON BEHALF OF THE BOARD:
___________________________ Director __________________________ Director
- --------------------------------------------------------------------------------
See Accompanying Notes
F-4
INTERUNION FINANCIAL CORPORATION
CONSOLIDATED BALANCE SHEET
(EXPRESSED IN U.S. DOLLARS)
AS AT MARCH 31 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------
L I A B I L I T I E S
CURRENT LIABILITIES
Due to brokers and dealers (Note 2(c)) $ 2,499,665 $ 30,168,593
Due to clients (Note 2(c)) 3,035,310 6,368,681
Accounts payable and accrued liabilities 675,623 283,459
-------------- --------------
6,210,598 36,820,733
LOANS PAYABLE (Note 6) 119,462 100,873
LIABILITIES OF DISCONTINUED OPERATIONS -- 499,377
-------------- --------------
6,330,060 37,420,983
-------------- --------------
S H A R E H O L D E R S' E Q U I T Y
CAPITAL STOCK AND ADDITIONAL PAID-IN CAPITAL 3,972,512 3,762,774
RETAINED EARNINGS (DEFICIT) 167,128 (134,438)
-------------- --------------
4,139,640 3,628,336
-------------- --------------
$ 10,469,700 $ 41,049,319
============== ==============
- -------------------------------------------------------------------------------
See Accompanying Notes
F-5
INTERUNION FINANCIAL CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS AND RETAINED EARNINGS
(EXPRESSED IN U.S. DOLLARS)
FOR THE YEAR ENDED MARCH 31 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------
REVENUES
Commissions, trading and investment income $ 4,500,899 $ 3,971,160
Fee revenue 1,356,297 56,907
-------------- --------------
5,857,196 4,028,067
-------------- --------------
EXPENSES
Selling, marketing and research 4,207,289 2,868,886
Salaries and benefits 759,361 291,687
General and administration 702,938 796,673
Other 13,132 --
Gain on foreign exchange (20,902) (247)
Interest, bank charges and interest income, net (37,337) 5,830
Amortization 218,084 24,272
-------------- --------------
5,842,565 3,987,101
-------------- --------------
INCOME FROM CONTINUING OPERATIONS 14,631 40,966
LOSS FROM DISCONTINUED OPERATIONS (94,252) (184,845)
GAIN ON DISPOSITION OF SUBSIDIARY (Note 13) 409,418 --
-------------- --------------
INCOME (LOSS) - Before income taxes 329,797 (143,879)
PROVISION FOR (RECOVERY OF) INCOME TAXES 28,231 (9,441)
-------------- --------------
NET INCOME (LOSS) 301,566 (134,438)
DEFICIT - Beginning of year (134,438) --
-------------- --------------
RETAINED EARNINGS (DEFICIT) - End of year $ 167,128 $ (134,438)
============== ==============
EARNINGS (LOSS) PER SHARE (Note 14)
From continuing operations $ 0.03 $ 0.26
============== ==============
After discontinued operations and gain on disposition of subsidiaries $ 0.60 $ (0.85)
============== ==============
- -------------------------------------------------------------------------------
See Accompanying Notes
F-6
INTERUNION FINANCIAL CORPORATION
CONSOLIDATED STATEMENT OF CHANGES IN FINANCIAL POSITION
(EXPRESSED IN U.S. DOLLARS)
FOR THE YEAR ENDED MARCH 31 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------
OPERATING ACTIVITIES
Net income (loss) $ 301,566 $ (134,438)
Items not affecting cash
Amortization 218,084 24,272
Gain on disposition of subsidiary (409,418) --
110,232 (110,166)
(Decrease) increase in due to brokers and dealers, net (28,664,174) 29,995,649
Decrease (increase) in client deposits 15,720,553 (14,779,209)
Increase (decrease) in marketable securities 13,056,486 (15,682,071)
Increase in accounts receivable and sundry assets (183,487) (102,741)
Increase in accounts payable and accrued liabilities 392,164 283,460
-------------- --------------
CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 431,774 (395,078)
-------------- --------------
FINANCING ACTIVITIES
Proceeds on issuance of capital stock and additional paid-in capital 555,000 3,762,774
Increase in loans payable 18,589 100,872
-------------- --------------
CASH PROVIDED BY FINANCING ACTIVITIES 573,589 3,863,646
-------------- --------------
INVESTING ACTIVITIES
Start-up costs (438,803) --
Long-term investments (13,472) (900,361)
Purchase of capital assets (132,533) (957,653)
Reorganization costs (61,632) (234,574)
Goodwill -- (1,143,982)
Investment in subsidiaries (Note 5) -- (507,457)
Discontinued operations (126,809) 258,684
-------------- --------------
CASH USED IN INVESTING ACTIVITIES (773,249) (3,485,343)
--------------- --------------
INCREASE (DECREASE) IN CASH 232,114 (16,775)
CASH - Beginning of Year 490,681 --
CASH ACQUIRED ON ACQUISITION OF SUBSIDIARIES -- 507,456
-------------- --------------
CASH - End of Year $ 722,795 $ 490,681
============== ==============
- -------------------------------------------------------------------------------
See Accompanying Notes
F-7
INTERUNION FINANCIAL CORPORATION (NOTE 8)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1996
(EXPRESSED IN U.S. DOLLARS)
- -------------------------------------------------------------------------------
1. CHANGE IN ACCOUNTING POLICY
During the year, the Company decided to apply, retroactively, Section
3840 of the Handbook of the Canadian Institute of Chartered
Accountants. Therefore, the company changed its method of valuing
certain subsidiaries from fair value of consideration paid, which was
based on the market price of the share given up to the carrying value
of the underlying assets to reflect that the effective control of these
subsidiaries did not change on acquisition.
In accordance with Section 3840 of the Handbook of the Canadian
Institute of Chartered Accountants, this change has been applied
retroactively, and has resulted in a restatement of 1995 balances. The
effect of this change in policy has resulted in a decrease in Goodwill
as well as Additional Paid-In Capital, of $7,103,020.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The financial statements have been prepared in accordance with
generally accepted accounting principles in Canada ("Canadian GAAP")
and reflect the following policies:
a) Principles of consolidation
The attached consolidated financial statements of InterUnion
Financial Corporation, a Delaware Corporation, ("the Company")
contains the financial position, results of operations and
changes in financial position of the Company and its
subsidiaries, Bearhill Limited, Credifinance Capital Inc.,
Credifinance Securities Limited, Guardian Timing Services
Inc., I & B Inc., and Reeve, Mackay & Associates Limited. All
transactions and balances between the company and its
subsidiaries have been eliminated.
b) Marketable securities inventory
Marketable securities carried on a short-term basis are
classified as either "trading" or "available for sale" (Note
3) and are carried at fair market value in accordance with
industry practice. Marketable securities being held as
long-term investments are classified as "held-to maturity"
(Note 3) and are carried at cost. All gains and losses are
calculated using the average cost basis.
c) Security transactions
Security transactions are recorded in accordance with industry
practice in the accounts on trade date. Commission income and
related expenses for transactions executed but not yet settled
are accrued as of the financial statement date.
In accordance with industry practice, the balances due from
and to brokers, dealers and clients may include the trading
balances of clients at the end of the reporting period and may
not be an indication of the investment activity of the
Company. These balances may fluctuate significantly.
- -------------------------------------------------------------------------------
/Continued...
F-8
INTERUNION FINANCIAL CORPORATION (NOTE 8)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1996
(EXPRESSED IN U.S. DOLLARS)
- -------------------------------------------------------------------------------
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
d) Capital assets
Capital assets are stated at cost less accumulated
amortization. It is the company's policy to provide
amortization over the estimated useful lives of the capital
assets at the following rates:
Automobile 30% on diminishing balance
Computer hardware 30% on diminishing balance
Computer software (internal use) 50% on straight-line basis
ITM computer software (Notes 7 & 14) over 10 years
Furniture and fixtures 20% on diminishing balance
Leasehold improvements over the lease term
Research materials 20% on diminishing balance
Start-up costs over 5 years
The computer software that is amortized over 10 years
represents the fair market value of the consideration given at
the time of acquiring the subsidiary. (Note 7)
e) Start-up costs
In accordance with Canadian Generally Accepted Accounting
Principles, incremental costs incurred, net of any revenues
recovered, in the period before the company's wholly-owned
auction subsidiary became fully operational, will be amortized
on a straight-line basis over 5 years commencing in the 1997
fiscal year. If at anytime, the Company determines these costs
will not be recoverable from operations or on sale of the
subsidiary they will be charged to income in the year such
determination is made.
f) Reorganization costs
In accordance with Canadian Generally Accepted Accounting
Principles, costs incurred in reorganizing the structure of
the company are being amortized on a straight-line basis over
5 years commencing in the 1996 fiscal year.
g) Goodwill
In accordance with Canadian Generally Accepted Accounting
Principles, the deficit that was in Au 'N Ag Inc. at
acquisition date (Note 8) has been recorded as goodwill and is
being amortized on a straight-line basis over 20 years
commencing in the 1996 fiscal year.
- -------------------------------------------------------------------------------
/Continued...
F-9
INTERUNION FINANCIAL CORPORATION (NOTE 8)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1996
(EXPRESSED IN U.S. DOLLARS)
- -------------------------------------------------------------------------------
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
h) Long-Term Investments
Long-term investment in non-marketable securities where
control or significant influence is not exercised are recorded
at cost. The long-term investment in shares of the company
held by a subsidiary at the date of acquisition by the Company
of the particular subsidiary is included with long-term
investments until sold. The sale of these shares will be
accounted for as a capital transaction.
Stock exchange seats are recorded at cost and are included in
long-term investments. Declines in market value are only
recorded when there is an indication of permanent decline in
value.
i) Valuation of Subsidiaries Acquired
Subsidiaries acquired from non-related parties are valued at
acquisition based on the fair market value of the underlying
assets acquired.
j) Additional Paid-in Capital
Additional paid-in capital represents the proceeds on issuance
of common shares in excess of par value of shares issued, net
of costs to issue such shares. Contribution of assets for
which no liabilities were incurred, consideration paid or
shares given up are also included as additional paid in
capital at the value assigned to the assets at the time of
receipt.
k) Translation of Foreign Currencies
Foreign currency amounts have been translated to U.S. funds as
follows:
i) Monetary assets and liabilities, at the rate of
exchange prevailing on the balance sheet date.
ii) Revenues and expenses, at average rate of exchange
for the month of the transaction.
Gains and losses on translation of foreign currencies,
which are not significant, are included in the
statement of operations.
l) Capital Leases
Leases which transfer substantially all of the benefits and
risks incident of ownership of the property to the company,
are treated as "capital leases" and are recorded as the
acquisition of an asset and the incurrence of an obligation.
- -------------------------------------------------------------------------------
/Continued...
F-10
INTERUNION FINANCIAL CORPORATION (NOTE 8)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1996
(EXPRESSED IN U.S. DOLLARS)
- -------------------------------------------------------------------------------
3. MARKETABLE SECURITIES
Carrying Market
AS OF MARCH 31, 1996 Value Value
-------------- --------------
Trading securities $ 45,200 $ 45,200
Available for sale 2,581,325 2,581,325
Held to maturity -- --
-------------- --------------
Total $ 2,626,525 $ 2,626,525
============== ===============
AS OF MARCH 31, 1995
Trading securities $ -- $ --
Available for sale 15,682,071 15,682,071
Held to maturity -- --
-------------- --------------
Total $ 15,682,071 $ 15,682,071
============== ==============
4. CAPITAL ASSETS
Accumulated Net Carrying Amount
Cost Amortization 1996 1995
---- ------------ ---- ----
Automobile $ 21,781 $ 8,192 $ 13,589 $ 3,123
Computer hardware and software 104,024 47,944 56,080 44,573
ITM Computer software
(Notes 7 & 14) 864,554 90,104 774,450 855,432
Furniture, fixtures and equipment 118,299 32,393 85,906 30,253
Leasehold improvements 1,273 1,273 0
Research materials 20,964 2,097 18,867 --
-------------- -------------- -------------- --------------
$ 1,130,895 $ 182,003 $ 948,892 $ 933,381
============== ============== ============== ==============
Automotive and furniture, fixtures and equipment includes amounts under
capital leases with a cost of approximately $21,000. The $19,000
obligation under these capital leases is included in accounts payable.
The value of the computer software was determined in accordance with
Canadian Generally Accepted Accounting Principles, based on the fair
market value deemed paid for Bearhill Limited (Note 7).
- -------------------------------------------------------------------------------
/Continued...
F-11
INTERUNION FINANCIAL CORPORATION (NOTE 8)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1996
(EXPRESSED IN U.S. DOLLARS)
- -------------------------------------------------------------------------------
5. START-UP COSTS
Start-up cost recorded in accordance with Canadian Generally Accepted
Accounting Principles, represent the net of the expenses incurred net
of the revenues recovered in the formation and organization of the
Company's auction business during its first 7 months of activities. The
revenues and expenses are summarized as follows:
Marketing and catalogue development $ 229,300
Salaries and Benefits 305,874
Other Expenses 218,574
--------------
Total Expenses 753,748
Commissions and other revenues, net (314,945)
--------------
Net Capitalized Amount $ 438,803
==============
6. LOANS PAYABLE
These amounts are due to controlling shareholders or parties that are
directly or indirectly related to controlling shareholders. These loans
are non-interest bearing and have no specific repayment terms.
7. ACQUISITION OF SUBSIDIARIES
During 1995, the company acquired the subsidiaries described in Note
2(a). The consideration for these acquisitions was a combination of
common shares of the company and 27,828 common share purchase warrants
(Note 10).
The acquisition of the subsidiaries is summarized as follows:
Cash $ 507,456
ITM computer software (Note 14) 855,432
Non-Cash Liabilities Assumed in Excess
of Assets Acquired (40,542)
--------------
$ 1,322,346
==============
8. CHANGE OF NAME
Effective, April 17, 1994, subsequent to the controlling interest being
acquired by the company's shareholders on April 11, 1994, the name of
the company was changed to InterUnion Financial Corporation from Au 'N
Ag, Inc.
Because effective control was acquired by the shareholders of the
company in an arm's length transaction the deficit of $1,143,643 in Au
'N Ag at April 11, 1994 has been included in goodwill in the attached
consolidated balance sheet, in accordance with Canadian Generally
Accepted Accounting Principles.
- -------------------------------------------------------------------------------
/Continued...
F-12
INTERUNION FINANCIAL CORPORATION (NOTE 8)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1996
(EXPRESSED IN U.S. DOLLARS)
- -------------------------------------------------------------------------------
9. CAPITAL STOCK AND ADDITIONAL PAID-IN CAPITAL
Authorized
1,500,000 Non-cumulative, non-participating, ($0.10 par value)
Class A Preference shares entitled to 100 votes for
every one share issued
50,000,000 Non-cumulative, non-participating, non-voting Class B
preference shares with a par value to be determined at
the date of first issuance
50,000,000 Non-cumulative, non-participating, non-voting,
convertible into common shares at a conversion rate to
be determined at the date of first issuance
100,000,000 Common shares ($0.001 par value)
Issued
Additional
Number Capital Paid-in
of Shares Stock Capital Total
CLASS A PREFERENCE SHARES
March 31, 1996 and 1995 1,500,000 $ 150,000 $ -- $ 150,000
========= ============== ============== ==============
COMMON SHARES (adjusted for reverse
stock splits):
Balance, April 15, 1994 (note 8) 122,739 $ 24,546 $ 1,122,059 $ 1,146,605
Shares issued during 1995, net
of costs 246,319 49,264 2,416,905 2,466,169
--------- -------------- -------------- --------------
Common shares, March 31, 1995 369,058 73,810 3,538,964 3,612,774
Common shares issued during
1995, net of costs and other
adjustments 323,500 64,700 145,038 209,738
--------- -------------- -------------- --------------
Common shares, March 31, 1996 692,558 $ 138,510 $ 3,684,002 $ 3,822,512
========= ============== ============== ==============
During 1995, a reverse stock split of 10 (ten) to 1 (one) was approved.
Subsequent to the 1996 year-end, as explained in note 16 a reverse
stock split of 20 (twenty) to 1 (one) was approved.
- -------------------------------------------------------------------------------
/Continued...
F-13
INTERUNION FINANCIAL CORPORATION (NOTE 8)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1996
(EXPRESSED IN U.S. DOLLARS)
- -------------------------------------------------------------------------------
10. OPTIONS AND WARRANTS
Subsequent to year-end, options for 40,250 shares (adjusted for the 20
to 1 reverse stock split described in Note 9) at $40.00 and warrants
for 102,828 (adjusted for the 20 to 1 reverse stock split described in
Note 9) at $40.00 outstanding as at March 31,1995 and 1996 were
cancelled.
11. INCOME TAX MATTERS
The company has available operating and capital losses, the benefits of
which have not been recorded, of approximately $650,000 to be applied
against future income. The operating losses expire in 2003.
12. CONTRACTS AND COMMITMENTS
a) Agreement with Canada Trust Securities Inc.
The company has entered into an agreement with Canada Trust
Securities Inc. ("CT") whereby CT will perform certain
securities trading and clearing activities and record-keeping
as agent for and on behalf of the company in various
securities markets. The agreement requires CT to hold
securities and/or cash of the clients of the company in
segregation or safekeeping as the case may be, as and when
required by regulatory requirements. In summary, the services
provided by CT are merely administrative in nature and all
obligations to pay for securities purchased and to deliver
securities sold for the company's clients rests with the
company and not CT.
b) Lease Commitments
The total annual rent obligations under the operating leases
for equipment is approximately $13,000.
Minimum annual rentals, exclusive of additional operating
costs, under the leases for the company's premises in each of
the next five years are approximately:
1996 $ 100,000
1997 115,000
1998 135,000
1999 120,000
2000 120,000
13. WARRANTS HELD
The company, holds warrants for common shares in public companies
received as fees in connection with underwritings and other services
provided. No value has been recorded in respect of these warrants.
- -------------------------------------------------------------------------------
/Continued...
F-14
INTERUNION FINANCIAL CORPORATION (NOTE 8)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1996
(EXPRESSED IN U.S. DOLLARS)
- -------------------------------------------------------------------------------
14. SALES COMMITMENT
The company entered into an option agreement with a major international
financial institution whereby software ("ITM Software") owned by its
subsidiary, Bearhill Inc., may be sold for proceeds to the company of
approximately $15,000,000 CDN (March 31,1996 - $11,000,000 USD). The
company's interest in this software through its interest in Bearhill
Inc. is valued at approximately $770,000 (Note 7) and is included in
capital assets (Note 4).
15. DISCONTINUED OPERATIONS
During 1996, the company disposed, by way of an assignment in
bankruptcy of its real estate sales subsidiary, Rosedale Realty
Corporation ("Rosedale").
Accordingly, the assets and liabilities of Rosedale as at March 31,1995
and the results of operations for the year ended March 31,1995 and
until the effective date of disposition (September 26,1995) are
accounted for as discontinued operations in the attached consolidated
financial statements in accordance with Canadian Generally Accepted
Accounting Principles.
As a result of the disposition of Rosedale, the company has recorded a
gain, in accordance with Canadian Generally Accepted Accounting
Principles, to the extent that the deficit of Rosedale exceeds the
company's net investment at disposition date. There are no tax charges
required in respect of this gain.
At March 31, 1995, Rosedale's summarized financial position is as
follows:
Current assets $ 168,000
Capital assets 72,000
--------------
$ 240,000
==============
Current liabilities $ 240,000
Long-term debt 260,000
--------------
500,000
--------------
Share capital 360,000
Deficit (560,000)
--------------
(260,000)
--------------
$ 240,000
==============
Revenues of Rosedale up to September 26,1995 were approximately
$400,000 ($1,300,000 for the year ended March 31,1995).
- -------------------------------------------------------------------------------
/Continued...
F-15
INTERUNION FINANCIAL CORPORATION (NOTE 8)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1996
(EXPRESSED IN U.S. DOLLARS)
- -------------------------------------------------------------------------------
16. EARNINGS PER SHARE
Earnings (loss) per share have been calculated on a weighted average
number of common shares outstanding, which amounted to 501,335 shares
(1995 - 157,531 shares), adjusted for the reverse stock split described
in Note 9.
Fully diluted earnings per share for 1995 have not been computed as the
effect would have been antidilutive. All options and warrants that were
outstanding at the end of 1995 have been cancelled as described in Note
10.
17. INCOME TAXES
The company's approximate income tax charges (recovery) and approximate
effective rates are as follows:
1996 1995
---- ----
Amount % Amount %
------ - ------ -
Statutory income tax rate (recovery) $ 149,000 45 $ (64,000) (45)
Non-taxable gains (176,000) (53) (5,000) (3)
Other non-deductible items 13,000 4 -- --
Losses on tax affected 42,000 12 60,000 42
-------------- ----- -------------- -----
Net taxes (recovery) and effective rate 28,000 8 (9,000) (6)
============== ===== ============== =====
18. 1995 FINANCIAL STATEMENTS
1995 financial statements have been restated and classified in
accordance with Canadian Generally Accepted Accounting Principles to
reflect the change in accounting policy described in Note 1.
- -------------------------------------------------------------------------------
/Continued...
F-16
INTERUNION FINANCIAL CORPORATION (NOTE 8)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1996
(EXPRESSED IN U.S. DOLLARS)
- -------------------------------------------------------------------------------
19. RECONCILIATION TO US GAAP FROM CANADIAN GAAP
The consolidated financial statements have been prepared in accordance
with accounting principles generally accepted in Canada ("Canadian
GAAP"). In certain respects, Canadian GAAP differs from accounting
principles and practices generally accepted in the United States ("US
GAAP") and from practices prescribed by the United States Securities
and Exchange Commission. The effects on the Company's consolidated
financial statements resulting from these differences are as follows:
Fiscal Year Fiscal Year
1996 1995
Canadian U.S. Canadian U.S.
Basis Basis Basis Basis
----- ----- ----- -----
BALANCE SHEET
Current assets $ 6,896,766 $ 6,896,766 $ 37,596,329 $ 37,596,429
Total assets 10,469,700 9,564,007 41,049,319 40,404,189
Common stock 3,972,512 4,361,976 3,762,774 3,806,977
Retained earnings 167,128 (1,128,128) (134,438) (823,502)
Total shareholders' equity 4,139,640 3,233,848 3,628,336 2,983,475
Total liabilities and
shareholders' equity 10,469,700 9,564,007 41,049,319 40,404,189
STATEMENT OF OPERATIONS
Revenues $ 5,857,196 $6,169,578 $ 4,028,067 $ 4,028,067
Profit from continuing
operations 14,631 (499,437) 40,966 (189,069)
Net income (loss) before
extraordinary items 301,566 (327,669) (134,438) (178,468)
Net income (loss) for the
period 301,566 (743,177) (134,438) (364,313)
Income (Loss) per share 0.03 (0.65) 0.26 (1.14)
STATEMENT OF CASH FLOW
Operating activities
Cash provided (used) by
operations 431,774 155,457 (395,078) (864,669)
------------ ---------- ----------- ----------
Financing Activities
Cash provided by financing
activities 573,589 573,857 3,863,646 397,804
------------ ---------- ----------- -----------
Investing Activities
Cash provided by investing
activities (773,249) (297,201) (3,485,343) 450,090
------------ ---------- ----------- -----------
- -------------------------------------------------------------------------------
/Continued...
F-17
INTERUNION FINANCIAL CORPORATION (NOTE 8)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1996
(EXPRESSED IN U.S. DOLLARS)
- -------------------------------------------------------------------------------
19. RECONCILIATION TO US GAAP FROM CANADIAN GAAP (continued)
The variances are due to the different treatment of the following:
a) Start-up Costs
The Company's policy has been to capitalize the first year of
operation for the auction house, as it determined that the net
costs was part of the formation and organization of a new
business segment. Under Canadian GAAP (Emerging Issue Abstract
No. 27), these costs (net of revenues) maybe amortized over a
period commencing when the pre-opening period is over. The
Company has decided to amortized these costs over a period of
five (5) years starting in fiscal 1997. Under US GAAP, these
costs must be charged to operations immediately. Therefore,
under U.S. GAAP revenues and expenses have been increased to
reflect items that have been capitalized (Note 2(e)).
In addition, as is permissible under Canadian GAAP, it is the
Company's practice to include in revenues and expenses the
value of the goods acquired and resold in addition to the
commissions charged to the buyers and consignors. Whereas,
under U.S. GAAP only the amount of commission earned is
recorded on the face of the financial statements.
b) Reorganization Costs
As permissible under Canadian GAAP, costs incurred in
reorganization structure of the Company, have been capitalized
and are being amortized on a straight line basis commencing in
the 1996 fiscal year. Whereas, under U.S. GAAP only the amount
of commission earned is recorded on the face of the financial
statements. (Note 2(f))
c) Long-term Investments
Shares of the company held by a subsidiary that have not been
eliminated as they are being held for resale and therefore are
classified as long-term investments (Note 2(h)). Under U.S.
GAAP, these shares have been eliminated in consolidation. As
described in note 2, the sale of these shares will be treated
under Canadian GAAP as a capital transaction. Under U.S. GAAP,
the sale of these shares will not be accounted for as a
capital transaction.
d) Acquisitions
Under US GAAP, the Company's acquisitions of its subsidiaries
are required to be accounted for either as a purchase or a
pooling of interest depending on whether or not there is any
beneficial change in control. U.S. GAAP requires the value of
the assets acquired to be based on the value of the
consideration given under the purchase method. In the pooling
of interest method, the assets are consolidated using their
historical values. In the pooling of interest method where
- -------------------------------------------------------------------------------
/Continued...
F-18
INTERUNION FINANCIAL CORPORATION (NOTE 8)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1996
(EXPRESSED IN U.S. DOLLARS)
- -------------------------------------------------------------------------------
19. RECONCILIATION TO US GAAP FROM CANADIAN GAAP (continued)
d) Acquisitions (continued)
there is no effective change in beneficial ownership the
assets are consolidated using their historical values. This
difference in GAAP has caused the Company to carry the ITM
software (Note 14) at a greater value under US GAAP. After
recognizing the new value for the software and evaluating the
carrying cost in accordance with FASB 121" Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to
be disposed of", it was decided that no reduction in the
carrying value was required.
Details of subsidiaries acquired under U.S. GAAP are as
follows:
I & B Inc.
Bearhill Limited Credifinance Capital Inc.
Subsidiaries Guardian Timing Services Inc. Credifinance Capital Inc.
and Rosedale Realty Limited
Date of acquisition January 1995 March 1995
Method of accounting Purchase Pooling
-------- -------
Cash acquired $ 14,017 $ 493,439
Fair market value of non
cash assets acquired (i) 1,999,480 33,314,061
Non cash liabilities assumed 46,097 32,735,200
Excess fair market value of
assets over liabilities 1,967,400 1,072,300
Consideration paid 2,405,558 1,072,300
Goodwill 438,138 -
Method of payment Common stock and warrants Common stock
Number of common shares (ii) 27,828 76,230
Value per common share 86.44 14.07
Number of warrants (Note 9) (ii) 27,828 -
(i) Assets acquired under the pooling of interest method
are valued at historical costs.
(ii) Common stock and warrants have been adjusted for
reverse stock splits (Note 10).
I & B Inc., Credifinance Capital Inc., Credifinance Securities
Limited and Rosedale Realty Limited were acquired on a tax
free basis. In connection with these transactions the company
incurred professional fees. It is the Company's policy, in
accordance with Canadian GAAP to capitalize and to amortize
them over a period of five (5) years, on a straight-line
basis. Under US GAAP, these cost must be charged to operations
when incurred.
- -------------------------------------------------------------------------------
/Continued...
F-19
INTERUNION FINANCIAL CORPORATION (NOTE 8)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1996
(EXPRESSED IN U.S. DOLLARS)
- -------------------------------------------------------------------------------
19. RECONCILIATION TO US GAAP FROM CANADIAN GAAP (continued)
d) Acquisitions (continued)
In accounting for the purchase of subsidiaries under US GAAP,
Goodwill in the amount of $438,138 would have been recorded.
Under U.S. GAAP, this Goodwill must be charged to operations
over a period not to exceed forty (40) years. The Company's
policy had such goodwill been recorded, would have been to
amortize this amount over a period of five (5) years starting
in fiscal 1996, on a straight-line basis.
e) Shareholders Equity and Extra-Ordinary Items
The variances between Canadian GAAP and US GAAP are due to the
different methods of accounting for the disposition of
Rosedale Realty Corporation ("Rosedale")(Note 15). Under
Canadian GAAP, the acquiring cost was reversed out of the
Common Stock and the deficit eliminated by recognizing a gain
on the disposition to the extent that Rosedale's deficit
exceeded the company's investment in and advances to Rosedale.
Under US GAAP, the loss in respect of the carrying cost of the
investment in and advances to Rosedale would be charged to
income as an Extra-Ordinary Item and the removal of the
deficit that would have been recognized under the pooling of
interest method at acquisition would have been recorded as a
prior period adjustment.
f) Income Taxes
Under Canadian GAAP the deferral method is used to account for
the timing differences between accounting and taxable income.
U.S GAAP (FASB 109, "Accounting for Income Taxes"), requires
the use of the liability method to account for the differences
between the accounting basis and the income tax basis of
assets and liabilities. Under the liability method, deferred
assets and liabilities are recognized for temporary
differences between the accounting basis and the taxes basis
for the respective assets and liabilities based on currently
enacted tax rates.
Temporary differences, therefore, would arise from the
requirements under FASB 109 to provide for deferred income
taxes on the difference between book value of assets and
liabilities recorded under U.S. GAAP and their respective tax
values.
There are no significant items that would have a difference
between their carrying value based on U.S. GAAP and their
respective tax values. Canadian GAAP requires that the tax
benefit of net operating losses available to reduce future tax
liabilities only be recorded when "virtual certainty" (as
defined by section 3470 of the Handbook of the Canadian
Institute of Chartered Accountants) of their use to reduce
taxable income in the carry-forward period exists. FASB109
requires that such benefits be recorded if it is expected that
such losses will be used to reduce future income tax
liabilities in the carry forward period. Accordingly, forward
tax benefits of $200,000 in respect of the losses of Reeve,
Mackay & Associates Limited, would have been recorded under
U.S. GAAP.
- -------------------------------------------------------------------------------
/Continued...
F-20
INTERUNION FINANCIAL CORPORATION (NOTE 8)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1996
(EXPRESSED IN U.S. DOLLARS)
- -------------------------------------------------------------------------------
19. RECONCILIATION TO US GAAP FROM CANADIAN GAAP (continued)
g) Statement of Changes In Financial Position
Under U.S. GAAP a Statement of Cash Flow is presented.
Canadian GAAP presentation requires a Statement of Changes in
Financial Position which, except as described below, contains
similar information and disclosures to that required by U.S.
GAAP.
Under U.S. GAAP, investing and financing activities of an
enterprise that do not result in cash receipts or cash
payments are reported in the notes to the financial statements
and not in the statement of cash flows. Consequently, under
U.S. GAAP, the acquisitions of subsidiaries described above
and in Note 7 through the issuance of common stock would not
be presented.
h) Earnings (Loss) Per Share
Under Canadian and U.S GAAP, the earnings (loss) per share is
computed on the basis of weighted average number of common
shares outstanding. The effect of common shares equivalents
arising from stock options was not included as they are
anti-dilutive using the treasury method.
i) Segmented Information
The need to supply Segmented Information is determined by
different measurements under Canadian GAAP and US GAAP.
Therefore, to adhere to US GAAP the Company needs to disclose
information in the following manner:
The Company currently operates in two segments. Although only
one segment was identical for both of the previous fiscal
periods. In 1995, the segments in which the company operated
in were Financial Services and Real Estate. In 1996, the
Company's interest in Real Estate was disposed of (Note 15)
and a new segment, Auctioneer Services, was created.
The Real Estate segment included only the activities carried
out by Rosedale Realty Corporation. The Auctioneer Services
segment includes all of the activities carried out by Reeve,
Mackay and Associates Limited. The Financial Services segment
includes the bridge financing, dealer/brokerage, investment
management and trading activities of the Company and all other
subsidiaries.
- -------------------------------------------------------------------------------
/Continued...
F-21
INTERUNION FINANCIAL CORPORATION (NOTE 8)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1996
(EXPRESSED IN U.S. DOLLARS)
- -------------------------------------------------------------------------------
19. RECONCILIATION TO US GAAP FROM CANADIAN GAAP (continued)
i) Segmented Information (continued)
Adjustments
Auctioneer Financial Real &
Services Services Estate Elimination Consolidated
---------- --------- ------ ----------- ------------
For the year ended and as of March 31, 1996:
Revenue from
unaffilliated customers $ 294,057 $ 5,875,521 $ 463,215 $ 463,215 $ 6,169,578
Revenue from
intersegments -- -- -- -- --
Total revenue 294,057 5,875,521 463,215 (463,215) 6,169,578
============== ============== ============== ============== ==============
Operating profit (437,090) 125,976 -- -- (311,441)
============== ============== ============== ==============
General corporate
expenses 225,000
Interest expenses, net (36,677)
Loss from continuing --------------
Operations before
income taxes (499,437)
==============
Identifiable assets 216,743 9,147,264 -- -- 9,364,007
============== ============== ============== ============== ==============
For the year ended and as of March 31, 1995:
Revenue from
unaffilliated customers $ -- $ 4,028,068 $ 1,323,633 $ 1,323,633 $ 4,028,068
Revenue from
intersegments -- 42,882 -- (42,882) --
-- -------------- -------------- -------------- --------------
Total revenue -- 4,070,950 1,323,633 1,366,515 4,028,068
============== ============== ============== ============== ==============
Operating profit -- 146,762 -- -- 146,762
============== ============== ============== ==============
General corporate
expenses 330,000
Interest expenses, net 5,831
--------------
Loss from continuing
Operations before
income taxes 189,069
==============
Identifiable assets -- 40,163,496 240,693 -- 40,404,189
============== ============== ============== ============== ==============
- -------------------------------------------------------------------------------
/Continued...
F-22
INTERUNION FINANCIAL CORPORATION (NOTE 8)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1996
(EXPRESSED IN U.S. DOLLARS)
- -------------------------------------------------------------------------------
19. RECONCILIATION TO US GAAP FROM CANADIAN GAAP (continued)
Geographical segmentation
Adjustments
United &
Canada States Other Elimination Consolidated
------ ------ ----- ----------- ------------
For the year ended and as of March 31, 1996:
Revenue from
unaffilliated customers $ 5,690,948 $ 911,094 $ 30,751 $ (463,215)$ 6,169,578
Revenue from
intersegments 17,606 -- -- (17,606) --
-------------- -------------- -------------- -------------- --------------
Total revenue 5,708,554 911,094 30,751 (480,821) 6,169,578
============== ============== ============== ============== ==============
Operating profit (431,565) 92,513 27,938 -- (311,114)
============== ============== ============== ==============
General corporate
expenses 225,000
Interest expenses, net (36,677)
Loss from continuing --------------
Operations before
income taxes 499,437
==============
Identifiable assets 6,378,703 2,956,765 28,539 -- 9,364,007
============== ============== ============== ============== ==============
For the year ended and as of March 31, 1995
Revenue from
unaffilliated customers $ 5,351,431 $ 270 $ -- $ (1,323,633)$ 4,028,068
Revenue from
intersegments -- 5,000 -- 5,000 --
-------------- -------------- -------------- -------------- --------------
Total revenue 5,351,431 5,270 -- (1,328,633) 4,028,068
============== ============== ============== ============== ==============
Operating profit 200,022 (53,260) -- -- 146,762
============== ============== ============== ==============
General corporate
expenses 5,831
Interest expenses, net (36,677)
Loss from continuing --------------
Operations before
income taxes 189,069
==============
Identifiable assets 35,283,176 5,121,013 -- -- 40,404,189
============== ============== ============== ============== ==============
For both fiscal years ending March 31, 1996 and March 31, 1995 the
company did not have any customers that represented revenues in excess
of 10%.
- -------------------------------------------------------------------------------
F-23
INTERUNION FINANCIAL CORPORATION
FINANCIAL STATEMENTS
(Unaudited)
INTERIM PERIOD ENDING JUNE 30, 1996
F-24
INTERUNION FINANCIAL CORPORATION
JUNE 30, 1996
CONTENTS
PAGE
Controller's Report F-19
Financial Statements:
Consolidated Balance Sheet F-20
Consolidated Statement of Operations & Deficit F-21
Consolidated Statement of Changes in Financial Position F-22
F-25
INTERUNION FINANCIAL CORPORATION
CONSOLIDATED BALANCE SHEET
AS AT JUNE 30, 1996
(Expressed in U.S. Dollars)
Audited Audited
3 mos 12 mos 12 mos
ended ended ended
Jun-96 Mar-96 Mar-95
CURRENT ASSETS
Cash 622,757 722,795 490,681
Due from brokers and dealers 911,160 1,168,190 172,944
Client deposits 1,070,270 2,093,966 21,147,890
Marketable securities 194,117 2,625,585 15,682,071
Accounts receivable 492,324 208,727 55,262
Income tax receivable (35,402) 1,597 15,866
Sundry assets and prepaid expenses 170,149 75,906 31,615
----------- ----------- -----------
3,425,375 6,896,766 37,596,329
----------- ----------- -----------
START-UP COSTS 418,990 438,803
LONG TERM INVESTMENTS 913,834 913,834 900,361
CAPITAL ASSETS 915,586 948,892 933,380
DEFERRED CHARGES 174,367 184,944 234,574
GOODWILL AND NON-CURRENT ASSETS 1,072,165 1,086,461 1,143,982
OTHER ASSETS 0 0 240,693
----------- ----------- -----------
3,492,942 3,572,934 3,452,990
----------- ----------- -----------
----------- ----------- -----------
6,918,317 10,469,700 41,049,319
=========== =========== ===========
CURRENT LIABILITIES
Due to brokers and dealers 429,091 2,499,665 30,168,593
Due to clients 1,629,007 3,035,310 6,368,681
Accounts payable and accrued liabilities 714,382 675,623 283,459
----------- ----------- -----------
2,772,480 6,210,598 36,820,733
----------- ----------- -----------
Other liabilities 0 0 499,377
Due to related parties 171 119,462 100,873
----------- ----------- -----------
171 119,462 600,250
----------- ----------- -----------
SHAREHOLDERS EQUITY
Capital Stock and additional paid-in capital 3,972,512 3,972,512 3,762,774
Retained Earnings (Deficit) 173,154 167,128 (134,438)
----------- ----------- -----------
4,145,666 4,139,640 3,628,336
----------- ----------- -----------
----------- ----------- -----------
6,918,317 10,469,700 41,049,319
=========== =========== ===========
F-26
INTERUNION FINANCIAL CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS AND DEFICIT
FOR THE THREE MONTHS ENDED JUNE 30, 1996
(Expressed in U.S. Dollars)
Audited Audited
3 mos 12 mos 12 mos
ended ended ended
Jun-96 Mar-96 Mar-95
REVENUES
Commissions, trading & investment income 1,364,701 4,500,899 3,971,160
Sales 515,934 0 0
Fee Revenue 229,908 1,364,297 56,907
----------- ----------- -----------
2,110,543 5,865,196 4,028,067
----------- ----------- -----------
EXPENSES
Selling, Marketing & Research 1,008,674 4,207,289 2,868,886
Cost of Goods Sold 515,934 0 0
Salaries & Benefits 274,331 759,361 291,687
General & Administration 176,294 710,938 796,673
Other Expenses (639) 13,132 0
Foreign Exchange Loss (Gain) 296 (20,902) (247)
Interest & Bank Charges Expense (Income) (8,137) (37,337) 5,830
Amortization 79,992 218,084 24,272
----------- ----------- -----------
2,046,745 5,850,565 3,987,101
----------- ----------- -----------
PROFIT (LOSS) FROM CONTINUING OPERATIONS 63,798 14,631 40,966
Loss from Discontinued Operation 0 (94,252) (184,845)
Gain on Disposal of Discontinued Assets 0 409,418 0
----------- ----------- -----------
PROFIT (LOSS) FOR THE PERIOD - BEFORE INCOME TAXES 63,798 329,797 (143,879)
PROVISSION FOR INCOME TAXES (RECOVERABLE) 57,772 28,231 (9,441)
----------- ----------- -----------
NET PROFIT (LOSS) FOR THE PERIOD 6,026 301,566 (134,438)
RETAINED EARNINGS (DEFICIT) - BEGINNING OF PERIOD 167,128 (134,438) 0
----------- ----------- -----------
RETAINED EARNINGS (DEFICIT) - END OF PERIOD 173,154 167,128 (134,438)
=========== =========== ===========
FINANCIAL OVERVIEW
Common Shares Outstanding 692,572 692,572 369,058
Weighted Average Shares Outstanding 692,572 501,335 157,531
E.P.S. - From Continuing Operations 0.01 0.03 0.24
E.P.S. - After Discontinued Operations 0.01 0.60 (0.85)
F-27
INTERUNION FINANCIAL CORPORATION
CONSOLIDATED STATEMENT OF CHANGES IN FINANCIAL POSITION
FOR THE THREE MONTHS ENDED JUNE 30, 1996
(Expressed in U.S. Dollars)
Audited Audited
3 mos 12 mos 12 mos
ended ended ended
Jun-96 Mar-96 Mar-95
OPERATING ACTIVITIES
Net Income (Loss) 6,026 301,566 (134,438)
Amortization 79,992 218,084 24,272
Gain on disposition of discontinued operations 0 (409,418) 0
----------- ----------- -----------
86,018 110,232 (110,166)
Increase (decrease) in due to brokers and dealers, net (1,813,544) (28,664,174) 29,995,649
Increase (decrease) in due to clients (382,607) 15,720,553 (14,779,209)
Increase (decrease) in marketable securities 2,431,468 13,056,486 (15,682,071)
Increase (decrease) in accounts receivable & sundry assets (340,841) (183,487) (102,741)
Decrease (increase) in accounts payable and accrued 38,762 392,164 283,460
liabilities
----------- ----------- -----------
CASH PROVIDED (USED) BY OPERATING ACTIVITIES 19,256 431,774 (395,078)
----------- ----------- -----------
FINANCING ACTIVITIES
Capital stock and additional paid-in capital issued (note 8) 0 555,000 3,762,774
Increase (decrease) in due to related parties (119,291) 18,589 100,872
----------- ----------- -----------
CASH PROVIDED (USED) BY FINANCING ACTIVITIES (119,291) 573,589 3,863,646
----------- ----------- -----------
INVESTING ACTIVITIES
Start-up costs 0 (438,803) 0
Long term investments 0 (13,472) (900,361)
Purchase of capital assets 0 (132,533) (957,653)
Reorganization costs 0 (61,632) (234,574)
Goodwill 0 0 (1,143,982)
Investment in subsidiaries (note 5) 0 0 (507,457)
Discontinued operations 0 (126,809) 258,684
----------- ----------- -----------
CASH PROVIDED (USED) IN INVESTING ACTIVITIES 0 (773,249) (3,485,343)
----------- ----------- -----------
INCREASE (DECREASE) IN CASH (100,035) 232,114 (16,775)
CASH - BEGINING OF YEAR 722,795 490,681 0
CASH ACQUIRED ON ACQUISITION OF SUBSIDIARIES 0 0 507,456
----------- ----------- -----------
CASH - END OF YEAR 622,760 722,795 490,681
=========== =========== ===========
F-28