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
2
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, each
of which is wholly-owned, 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
6
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 Nova Scotia ("BNS") and Guardian Timing Services, Inc., InterUnion
Financial Corporation, Havensight Holdings Corp. And Bearhill Limited, Inc. This
Letter of Understanding was issued as a condition precedent to the execution of
an Investment Management Agreement pursuant to which BNS will retain the
services of Guardian Timing Services, Inc. with regard to the management of an
investment portfolio with a minimum size of $10,000,000 (Canadian).
The material terms of the Letter of Understanding may be outlined as
follows:
a. As a consideration of BNS entering into the Investment Management
Agreement, Bearhill (the owner of the ITM software) grants to the BNS an
irrevocable option to acquire the ITM. If the BNS elects to exercise its option,
BNS shall acquire 100% of the Class B shares of Bearhill (the Class B shares
shall represent 30% of the equity of Bearhill) for $750,000 and shall enter into
an agreement to acquire the ITM for $30 million. This acquisition price of $30
million shall be financed by $10 million in cash and a $20 million 15-year
non-recourse promissory note, with principal payable at the end of the term. The
option is renewable for a 3-year indefinite term at the discretion of BNS,
subject to the payment of an option fee annually (in advance) commencing on
January 1, 1996. The option fee for calendar 1996 is $25,000; the fee for
calendar 1997 is $50,000 and the option fee for calendar 1998 is $75,000.
b. Even if the option is exercised, Guardian Timing Services, Inc.
(GTS) is to retain the right (if J.P. Fruchet is in its employment) to be
provided with the market signals generated by the ITM at no cost, provided that
no more than $20 million of assets (or a larger amount as may be managed when
notice to exercise the option is given) are managed using the ITM signals.
c. If the option is exercised, Bearhill is to use the $750,000 obtained
for the Class B shares as working capital. The $10 million paid in cash shall be
divided with $1.6 million going to a trust account and $8.4 million invested in
Class 1 shares of the Nirvana Fund. All principal payments under the note are to
be invested in Class 1 shares.
d. Bearhill is to pay BNS for use of the timing signals generated by
the ITM (exercise of the option) 155 of its gross revenue as a fee. If this fee
is not sufficient to satisfy BNS's interest obligations under the note, any
deficiency shall be satisfied by Bearhill.
e. The only shares of Bearhill outstanding as of the date of this
Letter of Understanding are Class A shares, now representing 100% of the equity
of Bearhill,
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held currently by InterUnion.
NOTE: The Letter of Understanding at Page E-55
incorrectly states that the Class A shares are
held equally by InterUnion and Havensight.
Actually, this equal ownership will occur such
time as the ITM software owned by Bearhill is to
be sold to any party. This Letter of Understanding
contemplates that such a sale is to occur. For a
further explanation, see the Agreement starting at
page E-76.
f. If the Class B shares are issued upon the exercise of the option by
BNS, the Class B shares shall receive 80% of all dividends paid by Bearhill
until BNS has received $20 million, after which time the Class A and Class B
shareholders are too share equally.
g. Havensight and InterUnion each grant to BNS an immediate option to
acquire their respective Class A shares at a price equal to 90% of the book
value, upon the occurrence of one or more of the following events:
I. the Note is satisfied in full prior to its maturity,
ii. the Class B shareholders have received an aggregate of
$25,000,000 in dividends from Bearhill,
iii. Bearhill defaults on any of its obligations to BNS, becomes
insolvent or commits an act of bankruptcy, or
iv. the Nirvana Fund under performs (meaning that the Fund's
return averages less than 10% per annum compounded annually
over any 36-month period).
The Letter of Understanding, including Schedule A, is included herein
as Exhibit 10(ii), commencing at page E-53.
Subsequent to the execution of the above-referenced Letter of
Understanding, on December 20, 1995 an Investment Management Agreement was
issued between Guardian and BNS.
This Agreement formally appoints Guardian as the investment manager of
an investment portfolio with an initial value of $10 million (Canadian).
Guardian is to use the market timing signals generated by the software developed
by Bearhill known as the "ITM Software" in handling the investment decision of
the investment decisions of the investment portfolio. The Agreement is to
continue until either party gives at least 30 days written notice of
termination.
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Under the provisions of Schedule A, Guardian is to receive a management
fee of 1/2 of one percent per month of the net asset value of the Portfolio
determined at the end of each month and payable quarterly. There may be a bonus
payable to Guardian annually determined under the more restrictive of two
calculations, as specifically provided in Paragraph 4 of Schedule A of the said
Agreement. Schedule A provides that the minimum fee and bonus to be paid
Guardian under the Agreement is $50,000 (Canadian).
The Investment Management Agreement, including Schedule A and a
statement of the investment objectives and guidelines under the Guardian Timing
Services portfolio, is included herein as Exhibit 10(iii) commencing at page
E-58.
Subsequent to the acquisition of Bearhill by InterUnion (as the result
of the purchase of all outstanding stock of Bearhill which was owned by
Havensight Holdings, Ltd.), on January 19, 1995 an Agreement was executed
between Havensight and InterUnion providing that if InterUnion should have an
agreement for the sale of the ITM software owned by Bearhill, Havensight will
have the right to buy one-half of the Bearhill stock for a nominal consideration
($1.00). This Agreement is included herein as Exhibit 10(iv) starting at Page
E-76.
(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.
11
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 OPERATIONS
(a) OVERVIEW
InterUnion Financial Corporation (the "Company") was incorporated on
February 7, 1994. The underlying operational strategy of the Company is to
acquire at least an 80% interest in operating companies primarily of a financial
nature on the basis of an exchange of stock, with certain additional incentives
(such as stock warrants) depending upon the particular company to be acquired,
and to actively participate in the management of these companies. Accordingly,
the Company has acquired the following operating subsidiary corporations as
outlined below:
Corporation Acquired Nature of the Company Date Acquired
-------------------- --------------------- -------------
Bearhill Limited Investment Management 1-18-95
Guardian Timing Services, Inc. Investment Management 1-18-95
Credifinance Capital Inc. Investment Company 3-20-95
Credifinance Securities Limited Investment Bank 3-20-95
Rosedale Realty Corporation Real Estate Sales 3-20-95
Reeve, Mackay & Associates Ltd. Auction Sales 5-15-95
Note: All of the above-listed subsidiaries are active, with the
exception of Rosedale Realty Corporation which was disposed of
by the Company pursuant to an assignment in bankruptcy in
1996.
Because of the nature of the Company as a holding company, it was to be
expected that no revenues would be initially realized after the date the Company
commenced business operations. All funding to the Company from its inception to
the date of its first subsidiary acquisition was derived from a series of
private (non-registered) sales of stock under Regulation D as promulgated by the
United States Securities and Exchange Commission.
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The Company commenced its revenues stream with its first acquisitions
on January 18, 1995. The following table shows the gross revenue from its
subsidiaries for the completed years of 1995 and 1996 and a projection of income
for fiscal 1997. The table also includes gross revenues generated by InterUnion,
itself. The table does not include revenue from Rosedale Realty Corporation due
to its termination in 1996.
Company FY 1995 FY 1996 FY 1997
------- ------- ------- -------
Bearhill -0- 30,751 45,000
Guardian Timing 63,240 355,904 380,000
Reeve, Mackay -0- 1,636,637 3,200,000
Credifinance Capital -0- 66,020 75,000
Credifinance Securities 3,959,558 4,493,426 3,500,000
InterUnion 5,270 911,094 500,000
The projection for fiscal 1997 is based on actual results for the first
three quarters of that fiscal year, commencing on April 1, 1996 and ending
December 31, 1996, and projected results for the last quarter of fiscal 1997
based primarily on work in progress of the various listed companies at the
commencement of the last quarter on January 1, 1997 and carried to a projected
result at the end of the quarter on March 31, 1997. In addition, the fiscal 1997
projection is based upon the factors pertaining to the various companies as
discussed below.
NOTE: The projection for fiscal 1997 (covering the last quarter of
that fiscal year only, as noted above) is based upon the
opinion of management which assumes certain results. While
presented with numerical specificity the assumptions leading
to the projection may not be realized and are subject to
significant business and economic uncertainties which are
beyond the control of the Company. Consequently, the
projection for fiscal 1997 should not be regarded as a
representation by the Company that the projected results will,
in fact, be achieved.
Bearhill, Limited is an investment management firm whose primary
account is the Rexmore Fund. Although management revenue from Bearhill is not
anticipated to show material increases in the future, a steady increase in
revenues is expected based upon management's performance. However, the primary
asset of Bearhill remains its ownership of a computer software program, ITM
Software. If the Bank of Nova Scotia exercises an option to purchase the ITM
Software (see Exhibit 10(ii) at page E-55) this could produce major revenue for
the Company. If the option is not exercised Bearhill will not be adversely
affected nor will the Company.
Guardian Timing Services, Inc. is an investment management firm. The
reason for increase in revenues from $63,240 in fiscal 1995 to $355,904 in
fiscal 1996 is due primarily to the fact that income from Guardian is included
in fiscal 1995 for only 3 months. In addition, assets under management for
Guardian have risen from CDN$20 million in fiscal 1995 to CDN$80 million in
fiscal 1996. Management expects a continued steady increase in management
revenue.
Reeve, Mackay & Associates, Ltd. is an auction house that came into
existence in fiscal 1996. The anticipated increase in revenues to $3,200,000 for
fiscal year 1997 from $1,636,637 in fiscal 1996 is due to the fact that Reeve,
Mackay only operated for 7 months in fiscal 1996. For fiscal year 1997 this
company will be fully operational in staff and management feels that the
projected result should be achieved.
Credifinance Capital Inc. primarily invests its own capital resources.
There is no reason to expect any consequential change in attained and projected
revenues.
Credifinance Securities, Ltd. is an investment bank. The projected
revenues for fiscal year 1997 are approximately 22% lower than attained revenues
in fiscal 1996. This loss is attributed directly to a major disruption in
personnel resulting in the resignation of the President and a loss of several
sales representatives on the institutional desk. It has taken Credifinance
several months to replace its losses with experienced representatives.
Management expects revenues to return to the $4 million level by the end of
fiscal 1998.
InterUnion Financial Corporation shows a projected decrease in revenues
from $911,904 in fiscal to $500,000 for fiscal 1997, a decrease of approximately
45%. InterUnion derives its own revenues from primarily from bridge financing
and the projected decrease is based on a decline in providing this financing.
Although the Company did secure certain bridge financing in the first
half of fiscal 1997, in the latter portion of the fiscal year it became heavily
involved in financial negotiations with two corporations:
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1. New Researches corporation is a Geneva based company whose primary asset
is ownership of approximately 3.2 million shares and 200,000 warrants of
Genesis Microchip, Inc., a Canadian corporation.
In early 1990, a decision was made to re-structure Genesis as a "fabless"
semiconductor company emphasizing engineering intensive and video/image
DSP oriented integrated circuits (ICs). At the same time, the ASIC design
business continued to grow. Genesis began investing heavily in research
and development in order to bring to market a number of Ics aimed at
providing new capabilities to the emerging multimedia / video networking
/ video editing / projection system / high end display markets as well as
the existing video/image markets in the medical, industrial, broadcast,
compression and commercial image processing fields.
Genesis is positioned to become an important supplier of leading edge
video/ image resizing, de-interlacing and related video DSP Ics. With the
introduction of its GENESIS SCALING and GENESIS VIDEO LINE DOUBLING
series of Ics, board-level reference design and software solutions,
Genesis has entered the next state of its corporate development as a
volume IC supplier, with almost all of its revenues coming from the sale
of IC product.
Audited financial statements of Genesis, dated May 31, 1996, show that
Genesis had revenue in FY 1995 of Cdn $388,000 and revenue in FY 1996
of Cdn $1,892,000.
Genesis anticipates that it will file a public registration within the
next 12 months.
After extensive negotiation, InterUnion entered into a Letter of
Understanding with New Researches corporation et al. as of September 26,
1996 which granted to InterUnion an irrevocable option to acquire
3,216,667 common shares and 200,000 common share purchase warrants of
Genesis Microchip, Inc. The terms of this option may be summarized as
follows:
a. InterUnion paid $80,000 (US) to the Vendors for the option rights.
b. The option has an expiration date of December 15, 1997.
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c. If the option is exercised, InterUnion shall pay to the Vendors the
sum of $2 million (US) and upon sales of the Genesis stock,
InterUnion is to pay to the Vendors 80% of the proceeds of such
sales in excess of Cdn $1.00 per share.
d. If the Vendors receive a bona fide offer from a third party to
purchase the New Researches shares, InterUnion shall then have the
right to counter the offer or exercise its option. The Letter of
Understanding is included herein as Exhibit 10(v) at page E-78.
2. Receptagen, Ltd. Is a Canadian public corporation involved in
biotechnology (drug discovery and development) and the sales of its
products. InterUnion has entered into an agreement (subject to the
approval by creditors of Receptagen) to provide a secured bridge loan to
that company exchangeable into a convertible debenture. Also, the Company
will trade creditors of that company its common stock in exchange for
their debt and then plan to convert the debt into shares of Receptagen.
An agreement between InterUnion and Receptagen was executed as a Letter
Agreement on January 14, 1997 and may be summarized as follows:
a. The recapitalization of Receptagen will be done in three stages.
b. In stage one the trade creditors will exchange their debt of
approximately Cdn $7 million for shares of stock of InterUnion. The
creditors will received Cdn $0.10 per Cdn $1.00 in InterUnion
shares, amounting to approximately 105,000 shares. InterUnion will
then receive units of Receptagen at Cdn $0.07 per unit, the amount
of which depends upon the settlement amount with the creditors.
Each unit consists of one common share and one non-transferable
common share purchase warrant.
c. The second stage involves a bridge loan from InterUnion of Cdn
$300,000 to maintain the Company's operations until the proceeds
from the proposed Special Warrants Offering are released to the
Company. Cdn $100,000 is available to the Company as of February
7, 1997. The bridge loan is secured by a security agreement,
granting security in patents and patent rights, and is convertible
into units at Cdn $0.105 per unit for a period of five years. Each
unit consists of common shares and common share purchase warrants
of Receptagen Ltd. Pursuant to a secured convertible debenture.
d. The third stage involves an agreement between Receptagen ltd. and
Credifinance Securities Limited, a Canadian investment dealer
based in Toronto with seats on both the Montreal and Toronto Stock
Exchanges,
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and a wholly-owned subsidiary of Credifinance Capital Inc., for a
$2,500,000 Special Warrants Offering priced at Cdn $0.116 per
Special Warrant. The expected closing date for this Offering is on
or about May
23, 1997.
The letter Agreement is included herein, as Exhibit 10(vi),
starting at page E-81.
In the event that InterUnion should decide to exercise its option to
purchase the stock of New Researches Corporation, it will obtain the necessary
cash by a private placement offering of its stock under Rule 506. However, if
Central Investment Trust, acting for RIF Capital, is agreeable, this acquisition
may be achieved by the issuance of a promissory note to the vendor and the
issuance of InterUnion stock.
In the event that InterUnion proceeds with the recapitalization of
Receptagen as contemplated, the funding will be achieved as set forth in the
Letter Agreement, i.e., the payment of cash for bridge financing as is available
internally, and the issuance of stock to the creditors.
There is no assurance that the Company will find acceptable companies
for bridge financing in the future and there is no method of forecasting this
probability except on a historical basis.
Cost of Revenues
The principal elements comprising costs of revenues are: Commissions
paid out, Salaries paid to research analysis and auction specialists and
Salaries paid to auction floor personnel. In general, non administrative
personnel within InterUnion are remunerated solely on performance, as this
permits the Company to keep overhead to a minimum and to have a high correlation
between its revenues and its labor costs, as InterUnion and its subsidiaries are
extremely labor extensive. The only exception to this remuneration policy is
Reeve, Mackay, were the salaries are fixed but the marketing and research
expense can fluctuate with the size of the auction. Therefore, commissions paid
out and marketing expenses are the most important expense and generally rises
and falls along with revenues of the related auction.
Across all of the companies subsidiaries, the contribution margin is
36.1% in 1996 versus 33.4% in 1995. The increase in margin is primarily
explained by the increase in new financing that Credifinance Securities has
completed as the margins are healthier in this type of agency activity versus
the traditional commissions earned when trading via an exchange. The Company can
expect to maintain these margins due to the growth in revenue that is mentioned
above and because it does not expect any change in commission payouts.
Interest Income Net of Expenses
The Company's only debt that causes a revenue or an expense arises from
its broker/dealer operation and from funds borrowed on a short term for its
trading activity. This amount is not expected to be significant with respect to
revenues on a yearly basis nor on a quarterly basis.
Discontinued Operations
The Company acquired Rosedale Realty Corporation in March 1995.
Rosedale recorded operating losses of $94,253 and $184,845 in 1996 and 1995
respectively. As a result of these losses and further analysis, Management felt
that the prospect of future profit was not sufficient for Rosedale to be
retained as a subsidiary. Therefore, fiscal 1996 will be the last year in which
the income statement will carry any item regarding Rosedale, as the Company
disposed of it by way of an assignment in bankruptcy.
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Exposure to International Operations
Although all of the Company's revenues are generated from North
America, less then 15% is derived from the United States; the balance is
primarily earned in Canada. Therefore, a small foreign exchange risk does exist.
Do to the size of the risk and that each company within the InterUnion Group
operates independily of each other, the Company does not purchase any derivative
products to offset this risk. In addition, the Company considers North America
as its domestic market.
Seasonalty
The Company's only activity which is seasonal is the auction business.
Reeve, Mackay's high season is from October to April, with the two extremities
being themselves the highs. The period from June to September is the period that
the auction industry generally collects its inventory of consignments that are
to be offered to the public during the next season.
(b) RESULTS OF OPERATIONS
Third Quarter of Fiscal Year 1997 Compared to Third Quarter of Fiscal
Year 1996
(1) Overview
During the third quarter of fiscal 1997, InterUnion reported
consolidated revenue of US $2.55 million versus $1.46 million a year earlier.
Commission and fee revenues were $1.29 million versus $1.46 million a year
earlier, or a decrease of just over 11.6%. Sales from Reeve, Mackay, the Company
auction subsidiary, represented the balance in 1996. They are no comparative
figures from Reeve, Mackay for the nine months of fiscal 1996 as it was created
midway through that fiscal year and revenues and expenses for the first fiscal
year were capitalized and are being charged to earnings over five years.
Revenues for the nine months to December 1996 were $5,875,969 versus
$4,073,449, an increase of 44.3%.
InterUnion's revenue growth and financial overview (figures in 000's
except per share data):
3 mo ended 3 mo ended 9 mo ended 9 mo ended
Dec-96 Dec-95 Dec-96 Dec-95
Commission Income 1,144 763 3,444 2,920
Sales 1,256 1,966
Fee Revenue 149 697 466 1,153
Total Revenues 2,549 1,460 5,876 4,073
Cost of Goods Sold 1,256 1,966
Net Revenues (i) 1,293 1,460 3,910 4,073
Net Profit (Loss) (278) (100) (347) 172
EPS - Operations (0.34) (0.21) 0.43 (0.26)
EPS (0.34) (0.21) 0.43 0.35
Common Share, # 969,714 566,572 969,714 566,572
Working Capital 1,023 419 1,023 419
Cash Flow (194) (72) (100) (74)
Shareholders Equity 4,496 3,782 4,140 3,782
Book Value Per Share 4.64 6.68 4.64 6.68
(i) This amount is equal to Total Revenues under U.S. GAAP. In
fiscal year 1996, Total Revenues, under U.S. GAAP would have
been $6,169,578.
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(2) Net Revenues
During the third quarter of fiscal 1997, InterUnion reported
consolidated revenue of US $2.55 million versus $1.46 million a year earlier.
Commission and fee revenues were $1.29 million versus $1.46 million a year
earlier, or a decrease of just over 11.6%. Revenues for the nine months to
December 1996 were $5,875,969 versus $4,073,449, an increase of 44.3%. However,
on the basis of commission and fee revenues alone, the Company's revenues
(according to US GAAP) would been reduced to a decrease of 4% to $3.9 million.
The decrease is due to the fact that income derived from Credifinance
Securities, the Company's Broker/Dealer, was adversely affected when its
president and a number of sales people on the institutional desk left to create
their own firm. The Company has subsequently replaced these individuals and has
successfully completed a number of new financings.
Third quarter revenues increased from $1.21 million in the second
quarter to $1.29 million, for a 26.3% growth rate. This increase is due to the
seasonal high that the auction business is exposed to. This season begins in
October, otherwise revenue would have been unchanged, as Reeve, Mackay is the
Company's only subsidiary that has seasonal swings in revenues.
(3) Cost of Revenues
Costs of revenues for the quarter decreased 3.8% to $1.28 million from
$1.33 million for the same quarter a year earlier. The decrease in dollars is
attributable to the decrease in revenues (according to US GAAP) of 4%, since
these costs tend to fluctuate in the same direction as revenues.
As a percentage of net revenues, costs did increase to 98.7% from
91.3%. The reason for this increase was due to the fact that the goods consigned
to the auction house for sales that were held in the third quarter were at a
lower commission rate then the published rate. This lower rate was given to
attract goods from prominent individuals. Reeve, Mackay's marketing plan is to
go after these types of consignors at first in order to receive additional
coverage in both the local and national presses, then once it has established a
presence, Reeve, Mackay will diminish its aggressiveness concerning this source
of goods.
(4) Net Earnings
Net loss from operations for the nine months ending December 31,1996
was $346,681 or $0.43 per share versus a loss of $143,533 or $0.26 per share a
year earlier. Net loss for the three months ending December 1996 is $278,025 or
$0.34 per share versus a loss of $100,197 or $0.21 in 1995. These figures do not
include an extra ordinary gain of $409,418 in 1995 on the disposal of Rosedale
Realty, nor does it include the operating loss of this unit's discontinued
operation of $94,252. The increase in the loss is due to the start-up of a new
auction business, Reeve, Mackay. When Reeve, Mackay was launched, management did
not anticipate to reach break-even until the third year of operations, fiscal
1998.
The average number of common shares outstanding for the nine months
ending December 31, 1996 is 807,984 versus 490,866 a year earlier. The Company
issued additional shares in the form of Regulation "D" during the year in order
to finance the cash flow requirements of its subsidiaries.
Second Quarter of Fiscal Year 1997 Compared to Second Quarter of Fiscal
Year 1996
(1) Overview
During the second quarter of fiscal 1997 (three months ending September
30, 1996), InterUnion reported consolidated revenues of $1.2 million versus $1.3
million a year earlier.
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Selected financial data from InterUnion's financial statements is
(figures in 000's except per share data):
3 mo ended 3 mo ended 6 mo ended 6 mo ended
Sept-96 Sept-95 Sept-96 Sept-95
Commission Income 936 1,121 2,300 2,157
Sales 194 710
Fee Revenue 87 222 317 456
Total Revenues 1,217 1,343 3,327 2,613
Cost of Goods Sold 194
Net Revenues (i) 1,023 1,343 3,910 4,073
Net Profit (Loss) (127) (94) (347) 172
EPS - Operations (0.10) (0.20) 0.43 (0.26)
EPS (0.10) 0.61 0.43 0.35
Common Share, # 969,714 531,588 969,714 566,572
Working Capital 1,143 534,210 1,023 419
Cash Flow 8 (27) 94 (74)
Shareholders Equity 4,773 3,826 4,773 3,826
Book Value Per Share 4.92 7.20 4.92 7.20
(i) This amount is equal to Total Revenues under U.S. GAAP. In
fiscal year 1996, Total Revenues, under U.S. GAAP would have
been $6,169,578.
(2) Net Revenues
During the second quarter of fiscal 1997, InterUnion reported
consolidated revenues of $1.2 million versus $1.3 million a year earlier.
Commissions and fee revenues were $1.02 million versus $1.35 million a year
earlier, for a decrease of 24.4%. Revenues for the six months to September 1996
were $3,327,390 versus $2,613,080, for an increase of 27.3%. If we exclude the
sales revenues of Reeve, Mackay revenues, commissions and fees would have been
substantially level, showing an increase of just over $4,500.
The reduction in the revenues for the second quarter is due to the
following factors:
- Credifinance Securities Limited: a number of sales people left
the firm to join another.
- Reeve, Mackay & Associates Limited: there are two high seasons
in the auction business: fall (October, November & December)
and late spring (May, June). Reeve, Mackay incurred a great
portion of the expenses related to important sales in the off
season months: moving and storage of goods, marketing of
consignments and cataloging.
(3) Cost of Revenues
Costs of revenues for the quarter decreased by $310,059, to $929,395
from $1,239,454 for the same period a year earlier. This translates into a 25%
reduction. This reduction is in line with the reduction for Commissions and fee
revenues discussed above of 24.4%.
(4) Net Income
Net loss from operations for the six months ending September 30, 1996
was $70,078 or $0.09 per share versus a loss of $41,009 or $0.07 per share a
year earlier. Net loss for the three months ending September 30, 1996 is
$127,343 or $0.10 per share versus a loss of $20,098 or $0.03 in 1995. These
figures do not include an extra ordinary gain of $409,418 in 1995 on the
disposal of Rosedale Realty, nor does it include the operating loss of this
unit's discontinued operation of $94,252. The increase in the loss is due to the
start-up of a new auction business, Reeve, Mackay. When Reeve, Mackay was
launched, management did not anticipate to reach break-even until the third year
of operations, fiscal 1998.
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The average number of common shares outstanding for the six months
ending September 30, 1996 is 738,129 versus 482,140 a year earlier. The Company
issued additional shares in the form of Regulation "D" during the year in order
to finance the cash flow requirements of its subsidiaries.
First Quarter of Fiscal Year 1997 Compared to First Quarter of Fiscal
Year 1996
(1) Overview
During the first quarter of fiscal 1997 (three months ending June
30, 1996), InterUnion reported consolidated revenues of $2.11 million versus
$1,26 a year earlier.
Selected financial data from InterUnion's financial statements is
(figures in 000's except per share data):
3 mo ended 3 mo ended
Jun-96 Jun-95
Commission Income 1,365 1,036
Sales 516
Fee Revenue 230 223
Total Revenues 2,111 1,259
Cost of Goods Sold 516
Net Revenues (i) 1,595 1,259
Net Profit (Loss) 64 (90)
EPS - Operations 0.01 (0.05)
EPS 0.01 (0.23)
Common Share, # 692,572 431,558
Working Capital 653 1,209
Cash Flow 94 (49)
Shareholders' Equity 4,146 3,659
Book Value Per Share 5.99 8.48
(i) This amount is equal to Total Revenues under U.S. GAAP. In
fiscal year 1996, Total Revenues, under U.S. GAAP would have
been $6,169,578.
(2) Net Revenues
During the first quarter of fiscal 1997, InterUnion reported
consolidated revenues of $2.1 million versus $1.256 million a year earlier.
Sales by the auction house produced $515,000 in fiscal 1997 with no such income
the year earlier. Commissions and fee revenues were $1.59 million versus $1.26 a
year earlier for an increase of $335,563 or 26.7%. The opening of the auction
house helped generate $128,000 of this variance, while the balance was due to
revenues from Credifinance Securities. This increase did not continue into the
second quarter, as Credifinance Securities had to replace a number of its sales
personnel from its institutional desk when they left mid way through the second
half of the first quarter, in order to join their previous president who started
a new company.
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(3) Cost of Revenues
Costs of revenues for the quarter increased by $233,304 or 21.9% to
$1,283,005 from $1,052,701. This increase is in line with the increase for
Commissions and fee revenues discussed above of 26.7%.
(4) Net Income
Net profits from operations for the three months ending June 30, 1996
was $63,798 or $0.01 per share versus a loss of $90,002 or $0.05 per share a
year earlier. These figures do not include the operating loss of Rosedale's
discontinued operation of $75,000. The profit attained in the first quarter is
due to the fact that Credifinance Securities was able to generate a higher level
of commission and fee revenue then a year earlier.
The average number of common shares outstanding for the six months ending
June 30, 1996 is 692,572 versus 419,400 a year earlier. The Company issued
additional shares in the form of Regulation "D" during the year in order to
finance the cash flow requirements of its subsidiaries.
Fiscal Year 1996 Compared to Fiscal Year 1995
(1) Overview
In fiscal 1996 revenues increased by over $1.8 million(or 45.4%) over
fiscal year 1995. For the year, costs of revenues as a percentage of sales
decreased to 63.9% from 66.6%. However, fixed overhead and non cash expenses
increased to the point where profits from operations actually dropped 64.3% to
$14,631 from $40,966. The Company overall reported a Net Income of $301,566 in
1996 versus a loss of $134,438 due to the gain on disposition of Rosedale
Realty. Excluding this extra-ordinary gain, the Company's earnings per share
from continuing operations was $0.03 versus $0.26 a year earlier.
(2) Revenues
Revenues increased by over $1.8 million (or 45.4%) over fiscal year
1995 (from $4,028,067 to $5,857,196). The majority of the increase came from the
activities of InterUnion itself, as it had almost $1 million in revenues on its
own in 1996 versus only interest income of $5,270 a year earlier. In addition,
Guardian Timing's contribution to the Company increased to $355,904 from
$63,240. Without these two revenue sources, InterUnion's growth in revenue would
have been just 13.2%.
(3) Cost of Revenues
Costs of revenues for the year increased by $1,806,077 or 57.1% to
$5,857,196 from $4,028,068. This increase is greater then the increase for
Commissions and fee revenues discussed above of 45.4%. The cause for the
increase is due to an increase in salaries paid out in our administrative
personnel. The Company hired additional staff in anticipation of the increasing
business that the bull market was providing. The hiring was done in advance of
the business in order to be prepared for the higher volume.
(4) Net Income
Net profits from operations for the year was $14,631 or $0.03 per share
versus $40,966 or $0.26 per share a year earlier. The average number of common
shares outstanding for the year ending March 31, 1996 is 501,335 versus 157,531
a year earlier. These figures do not include an extra ordinary gain of $409,418
in 1995 on the disposal of Rosedale Realty, nor does it include the operating
loss of this discontinued operation of $94,252.
21
(c) LIQUIDITY AND CAPITAL RESOURCES
The Company does not have any long term debt. In order to meet its
growth plans and any operating cash requirement the Company's current policy is
to issue additional capital stock. To date the Company has done this either
through the issuance of Confidential Private Placement Offerings under
Regulation "D" or Regulation "S". The following are details of these private
placements:
Date # of Shares Amount Type
April 1994 2,500 10,000 Regulation "D"
May 1994 5,000 20,000 Regulation "D"
July 1994 11,250 35,000 Regulation "D"
August 1994 43,511 87,022 Regulation "D"
October 1994 5,000 50,000 Regulation "D"
March 1995 75,000 300,000 Regulation "D"
June 1995 62,500 125,000 Regulation "D"
October 1995 100,000 200,000 Regulation "D" & "S"
March 1996 160,000 320,000 Regulation "D"
September 1996 277,142 759,710 Regulation "D"
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 $750,000,
of which $438,000 was during the first year of operation. For the nine months
ending December 31, 1997, Reeve Mackay lost over $300,000 versus an anticipated
loss of approximately $145,000. During that period, Reeve, Mackay has broken
even in just three separate months.
Reeve, Mackay's sales have been according to schedule, however, their
expenses have exceeded pro-forma budgets. Reeve, Mackay 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 of selling the goods on behalf of the consignor. The success of the
auctions that presented these collections to the public was instrumental to the
Company's objective to gain industry 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 autumn 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 $325,000. The Company has managed to
date to finance this deficit by 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 continues 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 $372,980 under Canadian GAAP. Under U.S. GAAP this amount has
already been eliminated from the balance sheet, as it was charged to earnings
when incurred.
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.
22
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
23
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.
24
(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.
25
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
26
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.
27
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.
28
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.
29
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
30
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.
31
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:
32
================================================================================
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:
33
===============================================================================
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.
34
(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.
35
(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
36
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.
37
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
(10)(iii) Investment Management Agreement E-58
(10)(iv) Agreements (Havensight/InterUnion) E-76
(10)(v) Letter of Understanding (New Researches
Corporation) E-78
(10)(vi) Letter Agreement (Receptagen, Ltd.) E-81
(21) Subsidiaries of InterUnion E-87
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: April 15, 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 April 15, 1997
- -------------------------------- Officer, Chairman, Board of --------------
Georges Benarroch Directors
/s/ Georges Benarroch Chief Financial Officer April 15, 1997
- -------------------------------- --------------
Georges Benarroch
/s/ Jacques Meyer de Stadelhofen Director April 15, 1997
- -------------------------------- --------------
Jacques Meyer de Stadelhofen
/s/ Ann Glover Director April 15, 1997
- -------------------------------- --------------
Ann Glover
39
INTERUNION FINANCIAL CORPORATION
CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1996 AND 1995
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 statement 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.
Toronto, Ontario. /s/ Mintz & Partners
May 10, 1996. CHARTERED ACCOUNTANTS
(except as to Notes 2(b), 3, 5,
9, 14 and 19 which are as of
March 17, 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 15) 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 16)
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 7) -- (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 and 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
Original Carrying Market
AS OF MARCH 31, 1996 Cost Value Value
------------- -------------- -----------
Trading securities $ 45,200 $ 45,200 $ 45,200
Available for sale
Equity Investments 81,720 81,720 81,720
U.S. Treasury Bills (Maturing within 1 year) 2,499,665 2,499,665 2,499,665
Held to maturity -- -- --
----------- ----------- -----------
Total $ 2,626,585 $ 2,626,585 $ 2,626,585
=========== =========== ===========
AS OF MARCH 31, 1995
Trading securities $ -- $ -- $ --
Available for sale
Equity Investments 27,797 27,797 27,797
U.S. Treasury Bills (Maturing within 1 year) 15,654,274 15,654,274 15,654,274
Held to maturity -- -- --
----------- ----------- -----------
Total $15,682,071 $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 and 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 -- --
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 (Notes 7 and 14) at the
time of aquisition.
- -------------------------------------------------------------------------------
/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
(Note9 and 10).
The acquisition of the subsidiaries is summarized as follows:
Cash $ 507,456
ITM computer software (Notes 4 and 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.
- -------------------------------------------------------------------------------
/Continued...
F-12
INTERUNION FINANCIAL CORPORATION (NOTE 8)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1996
(EXPRESSED IN U.S. DOLLARS)
- --------------------------------------------------------------------------------
8. CHANGE OF NAME - Continued
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.
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.
In addition, 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)
- -------------------------------------------------------------------------------
9. CAPITAL STOCK AND ADDITIONAL PAID-IN CAPITAL (continued)
The common shares were issued is as follows:
For Cash For Acquisitions
--------------------- ------------------------
Shares Amount Shares Amount
------ ------ ------ ------
April 1994 2,500 $ 10,000
May 1994 5,000 20,000
July 1994 6,250 25,000
July 1994 5,000 10,000
August 1994 18,511 37,022
August 1994 25,000 50,000
October 1994 5,000 50,000
January 18,1995, for Guardian
Timing Services Inc. 5,566 173,160
January 18,1995, for Bearhill Limited 22,262 725,229
March 20,1995, for I & B Inc. 75,000 1,108,316
March 20,1995, for 5% of Rosedale
Realty Corporation 1,230 106,782
March 1995 75,000 300,000
-------- --------- -------- -----------
Total 142,261 $ 502,022 104,058 $ 2,113,487
======== ========= ======== ===========
June 1995 62,500 $ 125,000
October 1995 100,000 200,000
March 1996 160,000 320,000
-------- ---------
Total 322,500 $ 645,000
======== =========
In January 1996, 1,000 shares were issued for services valued at $20,000.
Issuing costs of $110,000 in 1996 and $149,340 in 1995 were incurred and charged
to common stock.
The changes to capital stock and additional paid-in capital are summarized as
follows:
Year Ending March 31, 1996 Year Ending March 31, 1995
-------------------------- --------------------------
Shares Amounts Shares Amounts
------ ------- ------ -------
For cash, as above 322,500 $ 645,000 142,261 $ 502,022
For acquisitions, as above 104,058 2,113,487
For services 1,000 20,000
Issuing costs (110,000) (149,340)
Write down of Rosedale Realty
Corporation (Note 19(b)) (345,262)
-------------- -------------- -------------- --------------
Total 323,500 $ 209,738 246,319 $ 2,466,169
============== ============== ============== ==============
- -------------------------------------------------------------------------------
/Continued...
F-14
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-15
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 Limited ("Bearhill") 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 is valued at $774,454 (Note 7) and is included in
capital assets (Note 4).
During the life of the non-transferable option, Bearhill will receive
an option premium from the option holder annually in order to maintain
the option. The option premium is CDN$25,000, CDN$50,000 and
CDN$75,000, starting in fiscal 1996. The decision to exercise this
option is at the full and unlimited discretion of the option holder.
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 300,000
Deficit (560,000)
---------
(260,000)
---------
$ 240,000
=========
- --------------------------------------------------------------------------------
/Continued...
F-16
INTERUNION FINANCIAL CORPORATION (NOTE 8)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1996
(EXPRESSED IN U.S. DOLLARS)
- --------------------------------------------------------------------------------
15. DISCONTINUED OPERATIONS - Continued
Revenues of Rosedale up to September 26, 1995 were approximately
$400,000 ($1,300,000 for the year ended March 31,1995).
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-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
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 9,364,007 41,049,319 40,404,189
Common stock 3,972,512 4,361,976 3,762,774 3,806,977
Retained earnings 167,128 (1,328,128) (134,438) (823,502)
Total shareholders' equity 4,139,640 3,033,848 3,628,336 2,983,475
Total liabilities and
shareholders' equity 10,469,700 9,364,007 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 (527,669) (134,438) (178,468)
Net income (loss) for the
period 301,566 (504,626) (134,438) (364,313)
Income (Loss) per share 0.03 (1.05) 0.26 (1.14)
STATEMENT OF CASH FLOW
Operating activities
Cash provided (used) by
operations 431,774 (68,661) (395,078) (716,063)
----------- ----------- ----------- -----------
Financing Activities
Cash provided by financing
activities 573,589 573,859 3,863,646 602,894
----------- ----------- ----------- -----------
Investing Activities
Cash provided by investing
activities (773,249) (272,814) (3,485,343) 96,394
----------- ----------- ----------- -----------
- --------------------------------------------------------------------------------
/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
The variances are due to the different treatment of the following:
The following is a reconciliation of Net Income under Canadian GAAP to
U.S. GAAP for the years ending March 31.
1996 1995
---- ----
Net Income (loss), in accordance with Canadian GAAP $ 301,566 $ (134,438)
Start-up Costs (Note 19(b)) (438,803) --
Reorganization Costs (Note 19(c)) 49,630 (229,875)
Acquisitions (Note 19(e)) (417,019) --
--------------- --------------
Net Income (loss), in accordance with U.S. GAAP (504,626) (364,313)
Retained Earnings - Beginning (823,502) (459,189)
-------------- ---------------
Retained Earnings - Ending $ (1,328,128) $ (823,502)
=============== ===============
The following is a reconciliation of Shareholders' Equity under
Canadian GAAP to U.S. GAAP as at March 31.
1996 1995
---- ----
Shareholders' Equity, in accordance with Canadian GAAP $ 4,139,640 $ 3,628,336
Start-up Costs (Note 19(b)) (438,803) --
Reorganization Costs (Note 19(c)) (180,245) (229,875)
Long-term Investments (Note 19(d)) (773,834) (773,834)
Acquisitions (Note 19(e)) 287,090 358,848
-------------- --------------
Shareholders' Equity, in accordance with US GAAP $ 3,033,848 $ 2,983,475
============== ==============
- --------------------------------------------------------------------------------
/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
The variances are due to the different treatment of the following:
a) Marketable Securities
In addition to note 3, US GAAP requires that the following
information be disclosed as required by SFAS 115.
For the year ending 1996 1995
---- ----
Proceeds from Securities classified as Available for sale 5,000,000 16,032,500
Gross Realized Gains (losses) from securities
classified as Available for sale 335 67,585
Gross Realized Gains (losses) due to change
in classification to Trading from Available for sale -- --
Net Unrealized Gains (losses) -- --
Change in Net Unrealized Gains (losses) -- --
Change in Net Realized Gains (Losses) on Trading Securities -- --
b) Start-up Costs
The Company's policy has been to capitalize the result of 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, $438,803 (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 (Notes 2(e) and 5).
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.
- --------------------------------------------------------------------------------
/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
c) Reorganization Costs
Costs totalling $307,701 at the end of 1996 and $242,804 at the
end of 1995 were incurred in reorganization of the Company. As
permissible under Canadian GAAP, these amounts have been
capitalized and are being amortized on a straight line basis
commencing in the 1996 fiscal year (Note 2(f)). Whereas, under
U.S. GAAP costs incurred in reorganization have been expensed in
the period in which they were incurred.
1996 1995
---- ----
Reorganization Costs incurred $ 307,701 $ 242,804
Charged to current earning under Canadian GAAP 127,456 12,929
-------------- --------------
Cumulative amount to be charged
to Earnings under US GAAP $ 180,245 $ 229,875
============== ==============
Change in Net Income for the year $ 49,630 $ (229,875)
============== ==============
d) 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)) at a value of
$773,834. Under U.S. GAAP, these shares have been eliminated in
consolidation. As described in Note 2(h), 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.
e) 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. Whereas, under Canadian GAAP, assets
acquired are valued on the basis of the fair market value of the
assets at the date acquired. In the pooling of interest method
where there is no effective change in beneficial ownership the
assets are consolidated using their historical values and
retained earnings are carried forward with no adjustments.
- --------------------------------------------------------------------------------
/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
e) Acquisitions - Continued
Details of subsidiaries acquired under U.S. GAAP are as follows:
Guardian
Subsidiaries Bearhill Timing Rosedale Realty
Acquired Limited Services Inc. I & B Inc., Corporation (iii)
Date of Acquisition January 1995 January 1995 March 1995 March 1995
Method of accounting Purchase Purchase Pooling Pooling
Cash acquired $ -- $ 14,017 $ 493,429 $ 10
Fair market value of non
cash assets acquired 1,924,443 75,037 33,302,071 11,990
Non cash liabilities
assumed -- 46,097 32,685,200 50,000
Excess fair market value of
assets over liabilities 1,924,443 42,957 1,110,300 --
Consideration paid 1,924,443 481,115 1,110,300 --
Goodwill -- 438,138 -- --
Method of payment Common stock Common stock Common Stock(i) Common stock(i)
and Warrants(i) and warrants (i)
Number of common
shares (ii) 22,262 5,566 75,000 1,230
Value per common shares 86.44 86.44 14.80 --
Number of Warrants
(ii) (Note 9) 22,222 5,586 -- --
(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).
(iii) This transaction represents the 5% of Rosedale that the
Company acquire from the minority shareholders, as I & B was
already the beneficial owner of 95%.
This difference in GAAP in the application of the purchase
method described above would have caused the Company to carry
the ITM software (Note 4, 7 and 14) at a greater value under
US GAAP. The original carrying value under Canadian GAAP is
$864,554, while under US GAAP that amount is $1,924,443, for
an increase of $1,059,889. The value of the software was
determined at acquisition on the basis that Bearhill Limited
("Bearhill") had no liabilities and no other asset except the
ITM Software that was created in-house. Therefore, since the
transaction was done at arms length, the fair market value of
the ITM Software was determined to be the value of the
transaction. Under both Canadian and US GAAP, this amount is
being charged to earnings on a straight line basis.
- --------------------------------------------------------------------------------
/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
e) Acquisitions - Continued
After recognizing the new value for the software and evaluating the
carrying cost in accordance with SFAS 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. The cash flow stream that justifies the Company to
maintain the current carrying value is the revenues that Guardian
Timing Services receive on a continuous basis by utilizing the ITM
Software. The Company did not consider the Option Agreement (Note 14)
that was entered into in its cash flow stream.
In accounting for the purchase of Guardian Timing Services Inc.
("Guardian") under US GAAP, Goodwill in the amount of $438,138 would
have been recorded as a result in the difference in the purchase
accounting described above. Under U.S. GAAP, this Goodwill must be
charged to operations over a period not to exceed forty (40) years. The
Company's policy is to amortize this amount over a period of twenty
(20) years starting in fiscal 1996, on a straight-line basis under U.S.
GAAP as it is under Canadian GAAP (Note 2(g)). No Goodwill for Guardian
was recognized under Canadian GAAP as the Guardian and Bearhill
purchase was treated as a single acquisition due to their common
beneficial controlling shareholder. Therefore, in accordance with
Canadian GAAP, all value in excess of the carrying amounts was
attributed to the ITM Software.
I & B Inc. and its subsidiaries, Credifinance Capital Inc.,
Credifinance Securities Limited and 95% of Rosedale Realty Corporation
("Rosedale") were acquired on a tax free basis. In connection with
these transactions the company incurred costs ("reorganization costs")
(Note 2(f)). 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 costs must be
charged to operations when incurred.
Under Canadian GAAP, Goodwill in the amount of $1,143,982 was recorded
as described in Note 8. This amount represented the Au 'N Ag deficit at
the time of the change in control. Under US GAAP, this amount is
recorded as a reduction in Additional Paid-In Capital.
The table below summarizes the cumulative effect discussed above:
Net Income Shareholders Equity
1996 1995 1996 1995
---- ---- ---- ----
Fair value of ITM software $ 1,059,889 $ 1,059,889
Amortization of fair value $ (111,700) (111,700)
Goodwill arising from purchase
of Guardian Timing Services Inc. 438,138 438,138
Amortization (21,908) (21,908)
Au N'Ag deficit (1,143,643) (1,143,643)
Amortization 57,182 57,182
Rosedale disposition (Note 15) (345,262)
Other 4,669 9,132 4,464
-------------- -------------- -------------- --------------
Total $ (417,019) $ -- $ 287,090 $ 358,848
=============== ============== ============== ==============
Other represents foreign exchange translation and differences that
occur due to different historical cost basis under Canadian GAAP and
U.S. GAAP.
- --------------------------------------------------------------------------------
/Continued...
F-23
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
f) 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 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. The
reduction to common stock was $345,262 (Note 9) and the
resulting gain was $409,418. 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 extraordinary
item. In addition, the company would have recognized a gain
due to the forgiveness of the debt. The net resulting gain
under US GAAP from the company's divesture of Rosedale was
$117,296.
g) Income Taxes
Under Canadian GAAP the deferral method is used to account for
the timing differences between accounting and taxable income.
U.S GAAP (SFAS 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 SFAS 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.
In addition, 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. FSAS 109
requires that such benefits be recorded if it is more likely
than not that such losses will be used to reduce future income
tax liabilities in the carry forward period.
There are no significant items that would have a difference
between their carrying value based on U.S. GAAP and their
respective tax values.
h) Statement of Changes In Financial Position
Canadian GAAP presentation requires a Statement of Changes in
Financial Position. U.S. GAAP requires a Statement of Changes
in Cash Flows. The Canadian GAAP presentation contains similar
information and disclosures except as described below 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 supplemental information to the
Statement of Cash Flows and not in the Statement of Cash
Flows. Consequently, under U.S. GAAP, the acquisitions of
subsidiaries described above and in Notes 7 and 9 through the
issuance of common stock would be presented as supplemental
information.
- --------------------------------------------------------------------------------
/Continued...
F-24
INTERUNION FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1996
(EXPRESSED IN U.S. DOLLARS)
- -------------------------------------------------------------------------------
19. RECONCILIATION TO US GAAP FROM CANADIAN GAAP - Continued
h) Statement of Changes in Cash Flows (continued)
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) $ (504,626) $ (364,313)
Items not affecting cash
Amortization 255,638 24,272
Gain on disposition of subsidiary (Note 19(f)) (117,296) --
-------------- --------------
(366,284) (340,041)
(Decrease) increase in due to brokers and dealers, net (28,663,907) 16,812,293
Decrease (increase) in client deposits 15,720,553 (5,041,127)
Increase (decrease) in marketable securities 13,056,486 (11,971,854)
Increase in accounts receivable and sundry assets (207,773) (12,394)
Increase in accounts payable and accrued liabilities 392,264 (162,940)
-------------- --------------
CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES (68,661) (716,063)
--------------- ---------------
FINANCING ACTIVITIES
Proceeds on issuance of capital stock and additional paid-in capital (Note 9) 555,000 502,022
Increase in loans payable 18,589 100,872
-------------- --------------
CASH PROVIDED BY FINANCING ACTIVITIES 573,589 602,894
-------------- --------------
INVESTING ACTIVITIES
Long-term investments (13,472) (126,527)
Purchase of capital assets (132,533) (35,763)
Discontinued operations (126,809) 258,684
-------------- --------------
CASH USED IN INVESTING ACTIVITIES (272,814) 96,394
--------------- --------------
INCREASE (DECREASE) IN CASH 232,114 (16,775)
CASH - Beginning of Year 490,681 493,439
CASH ACQUIRED ON ACQUISITION OF SUBSIDIARIES -- 14,017
-------------- --------------
CASH - End of Year $ 722,795 $ 490,681
============== ==============
- --------------------------------------------------------------------------------
/Continued...
F-25
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
h) Statement of Changes In Financial Position As per US GAAP
(continued)
Supplemental information to be included as required by US GAAP
are the non cash transactions discussed in Note 7 -
Acquisitions and Note 19(e) - Acquisitions. Note 7 and Note
19(e) discuss the 104,058 shares issued for all of the
outstanding shares of Guardian Timing Services Inc., Bearhill
Limited, I & B Inc. and Rosedale Realty Corporation (that
portion not owned by I & B Inc.) In 1995.
In addition, as discussed in Note 9 - Capital Stock and
Additional Paid-in Capital, 1,000 shares were issued for
services valued at $20,000 in 1996.
i) 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.
j) 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-26
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
For the year ended and as of March 31, 1996:
Adjustments
Auctioneer Financial Real &
Services Services Estate Elimination Consolidated
---------- --------- ------ ----------- ------------
Revenue from unaffiliated
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)
--------------
Losses 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:
Adjustments
Auctioneer Financial Real &
Services Services Estate Elimination Consolidated
---------- --------- ------ ----------- ------------
Revenue from unaffiliated
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 -- 146,672 -- -- 146,762
============== ============== ============== ==============
General corporate
expenses 330,000
Interest expenses, net 5,831
--------------
Losses from continuing
operations before
income taxes (189,069)
==============
Identifiable assets -- 40,163,496 240,693 -- 40,404,189
============== ============== ============== ============== ==============
- --------------------------------------------------------------------------------
/Continued...
F-27
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
unaffiliated 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
unaffiliated 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-28