================================================================================ U.S. SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 FORM 10-KSB PURSUANT TO SECTION 13 0R 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended: March 31, 2003 Commission File No: 000-28638 INTERUNION FINANCIAL CORPORATION ----------------------------------------------------------------- (Exact name of small business issuer as specified in its charter) Delaware 87-0520294 ------------------------------- ------------------ (State or other jurisdiction of (IRS Employer incorporation or organisation) Identification No.) 1232 N. Ocean Way, Palm Beach, Fl 33480 - ---------------------------------------- --------- (Address of principal executive offices) (Zip Code) (561) 845-2849 (561) 844-0517 --------------------------- ---------------------------- (Issuer's telephone number) (Issuer's telecopier number) Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12 (g) of the Act: Common Stock $0.001 Par Value Check whether the issuer (1) filed all reports required to be filed by section 13 or 15(d) of the Exchange Act during the past 12 months (or such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Check if there is no disclosure of delinquent filers in response to item 405 of Regulation S-B is not contained in this form, and no disclosure will be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB or any amendment to this form 10-KSB. [X] State issuer's revenues for its most recent fiscal year: $95,056 State the aggregate market value of the voting stock held by non-affiliates computed by reference to the price at which the stock was sold, or the average bid and ask prices of such stock, as of a specified date within the past 60 days. $1,473,003 as of April 30, 2003 APPLICABLE ONLY TO CORPORATE ISSUERS State the number of share outstanding of each of the issuer's classes of common equity, as of the latest practicable date: $0.001 Par Value Common Shares -- 4,916,549 as of March 31, 2003. Transitional Small Business Disclosure Format (Check One) Yes No [X] ================================================================================ Page 1 of 20 INTERUNION FINANCIAL CORPORATION FORM 10-KSB TABLE OF CONTENTS PART I.........................................................................3 Item 1 DESCRIPTION OF BUSINESS............................................3 Item 2 DESCRIPTION OF PROPERTY............................................6 Item 3 LEGAL PROCEEDINGS..................................................6 Item 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS................6 PART II........................................................................6 Item 5 MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS...........6 Item 6 MANAGEMENT'S DISCUSSION AND ANALYSIS...............................8 Item 7 FINANCIAL STATEMENTS..............................................13 Item 8 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE..........................................14 PART III......................................................................14 Item 9 DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT........14 Item 10 EXECUTIVE COMPENSATION............................................15 Item 11 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT....17 Item 12 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS....................18 Item 13 EXHIBITS AND REPORTS ON FORM 8-K..................................19 Page 2 of 20 PART I Item 1 DESCRIPTION OF BUSINESS (A) BUSINESS DEVELOPMENT INTERUNION FINANCIAL CORPORATION (the "Company"), is a Delaware corporation. The Company was incorporated on February 7, 1994. InterUnion strategy is to acquire, when possible, a majority interest in financial services business. The Company acquires for cash but preferably for Common Shares of the Company with additional incentives for vending shareholders via Common Share Purchase Warrants and Stock Options for management. In 1999, the Company restructured its interest in its Canadian based investment management activities in order to facilitate the growth strategy in that sector. InterUnion Asset Management ("IUAM") became the holding company for the Company's interest in the following investment management companies: Guardian Timing Services Inc. ("GTS"); Leon Frazer, Black & Associates Limited ("LFB"); AIL Investment Services ("AILIS") and Black Investment Limited ("BIM"). The purpose of IUAM was to pursue acquisitions on a tax effective basis as well as secure an institutional strategic alliance. Merchant banking activities focus on restructuring and/or consolidating as principal, in order to capitalize smaller or privately/family held companies and attract institutional interest. Investment banking activities focus on advisory services and raising of capital, as agent, for small and medium size corporations, public or private which are either looking for institutional financing or strategic alliances in sectors in which InterUnion Financial Corporation has recognized research and corporate finance strength. The Company's policy is not to get involved in the corporation it advises or provides financing to when acting as agent, and to limit the extent of its involvement in the corporation in which it acts as principal. On January 25, 1999, the Company, through a roll over of its interests, reorganised its investment management companies: BIM, GTS and LFB, into IUAM. The purpose of the reorganisation was to allow IUAM to implement its business plan and continue its acquisition program, on a tax effective basis, as a consolidator of Canadian investment management companies and get access to an institutional strategic alliance. That restructuring has allowed the Company to include its IUAM ownership in its merchant banking activities. On January 25, 1999, IUAM issued 310,010 convertible preferred shares to Working Venture Canadian Fund ("WVCF") for gross proceeds of C$5,000,000. (C$ is the symbol used for the Canadian currency, unless preceded by C, all dollar amounts are US dollars). Each convertible preferred share was convertible into one common share of IUAM and gave the holder one vote per share. WVCF is a Canadian institutional investor with more than $500 million in funds under administration. WVCF's only fund is a labor sponsored fund with approximately 400 shareholders. Investors in these funds receive an immediate tax credit of up to 40% of the amount invested. On March 9,1999, WVCF converted their Convertible Preferred Shares in IUAM Common Shares and acquired an additional 568,160 Common Shares for C$5,000,000. At that point, the ownership structure of IUAM became WVCF 56% and IUFC 44%. Concurrent with that last financing, IUAM incorporated a new entity, AIL INVESTMENT SERVICES LIMITED ("AILIS"). The objective of AILIS being to create a family of mutual funds in order to expand WVCF's product line. The funds raised by expanding the products sold by WVCF's sales force would be managed by the various investment managers within the IUAM group. On November 22, 1999, at the Company's Shareholders' meeting it was approved to amend the Certificate of Incorporation of the Company by allowing the Board of Directors of the Company to set the total amount of common voting stock, each share of stock having one vote, at $0.001 par value and shall be set by resolution as adopted by the Board of Directors, which such number of authorised shares may be changed from time to time, within our 10,000,000 share limitation, as adopted by resolution(s) adopted by the Board of Directors. Page 3 of 20 During December 1999, the Company at the recommendation of the Board of Directors simplified its corporate structure by reducing the number of subsidiaries through reallocation of their business to other operating entities or the merging of their activities. To achieve simplification of the corporate structure the following subsidiaries were dissolved: Credifinance Realty Corp., Toronto, Ontario, Canada Credifinance Securities Inc., Florida, USA Marbury Trading Corporation, Panama Bearhill Limited, British Virgin Islands In December 1999, the Company formed a new, wholly owned, subsidiary named InterUnion Merchant Group Inc. (IUMG), a British Virgin Islands based company. InterUnion Merchant Group took over the assets and liabilities of Marbury Trading Corporation and Bearhill Limited upon their liquidation. The Company also changed name of I & B Inc. Delaware, USA, a wholly owned subsidiary to Credifinance Capital Corp. (CFCC), Delaware, USA. In September 2000, the Company decided to separate the investment banking and investment management operations. In order to focus on its investment management operation, the Company sold its investment banking operations to RIF Capital Inc. (shareholder) for a consideration of the assumption of all the assets and liabilities of the Company, exclusive of the Company's 42.8% ownership in IUAM and its 100% ownership in IUAM. The shareholders of the Company approved the sale at the annual meeting on November 17, 2000. The investment banking operation was comprised of Credifinance Capital Corp. and its wholly owned subsidiary, Credifinance Capital Inc. and the latter's wholly owned subsidiary, Credifinance Securities Limited. Following the sale, the Company owned a 42.8% interest in IUAM and 100% interest in IUMG. In December, 2001, InterUnion Financial Corporation ("InterUnion "or the "Company"), sold its 42.8% owned subsidiary and main assets, InterUnion Asset Management Limited ("IUAM"), to AMIC Canada Limited ("AMIC"), a wholly owned subsidiary of Asset Management Investment Company, PLC, a corporation registered in England and Wales. IUAM based in Toronto, Canada, manages approximately C$1.5 billion for institutions and individuals. The company had previously sold the controlling interest of IUAM to Working Ventures Fund of Canada (Working Venture") for C$10 million in March, 1999. AMIC paid C$10,550,000 in cash to the shareholders of IUAM: the Company and Working Ventures, and assumed the C$3,500,000 Convertible Preferred Debenture owed by IUAM to one of its investee companies. The Company received 75% of the pro-rata proceeds on December 20, 2001 and received the 25% remainder on March 28, 2002, which was held in escrow, pending the issuance of a certificate under Section 116 of the Income Tax Act (Canada). The shareholders of IUAM agreed to pay a C$300,000 commission to IUAM's President, Chief Executive Officer and Director, Selwyn Kletz, and to its Chief Financial Officer, Russell Lindsay. The nominees of the Company on the Board of Directors of IUAM resigned on closing. In accordance with Regulation S-X, the Company was required to disclose the pro-forma consolidated balance sheet and the pro-forma consolidated statement of operations had this disposition been completed as at the beginning of fiscal 2001. The Form 8-K/A was filed and dated March 15, 2002. Page 4 of 20 (B) BUSINESS OF ISSUER GENERAL The Company was formed as a "business bank" which would acquire, when possible, a majority interest in financial services companies in order to expand its investment banking activities. InterUnion is both a holding and an operating company as it engages in activities which can be separate from the activities of its named subsidiaries: InterUnion derives independent revenues from its own investment banking activities. PRODUCTS AND/OR SERVICES OF ACTIVE SUBSIDIARIES In addition to the operations of InterUnion Financial Corporation as the parent, the Company owns an operating entity, InterUnion Merchant Group Inc. The Company's investment banking operations, consisting of Credifinance Capital Corp., Credifinance Capital Inc. and Credifinance Securities Limited, were sold in September 2000 to RIF Capital Inc. InterUnion Merchant Group ("IUMG"), is a B.V.I. corporation with administrative offices in Geneva Switzerland. Following the Company's sale of its investment banking operations, IUMG has had no activities. IUMG's investment in Receptagen Ltd, a Canadian based company, was assumed by the Company prior to the sale of the investment banking operation and the assumption of the assets and the liabilities of the Company in the sale to RIF Capital Inc. IUMG owns the proprietary rights to certain computer software known as ITM Software, which is a computer software program used to generate buy and sell signals with respect to any stock market monitored. 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. Due to an uncertain future of the software and its inability to produce an identifiable cash flow in the near future, the Company decided to depreciate the ITM Software fully. However, the Company will update and maintain the software and sell it when a suitable offer to purchase is received. COMPETITION Competition is a part of every business. InterUnion faces competition directly and through its subsidiaries from larger, better-capitalized financial service companies as well as smaller, also better capitalized niche companies. GROWTH STRATEGY Since inception, InterUnion's strategy has been to be a "business bank" i.e. to be able to take advantage of investing/advisory opportunities. These opportunities can include the temporary involvement of the Company in pure financial service transactions. InterUnion's business will retain the purchase and selling of companies or part of companies which will use InterUnion's investment management services as well as its ability to pay cash and/or issue its own security in order to complete corporate transactions. InterUnion's strategy is also to reduce its shareholders' risk by ensuring that its book value is spread among various interests and does not depend on only one sector of activity or only one operating company. InterUnion has been successful in managing its investors' risk as today there is a sufficient number of professionals with adequate credentials and experience in the various operations who at the same time are shareholders of InterUnion. In time, as InterUnion gets a larger and more diversified shareholder base, that strategy should help InterUnion to grow and enable it to obtain outside financing. Page 5 of 20 GOVERNMENT REGULATION The operating activities of the Company are not subject to governmental regulatory agencies. EMPLOYEES InterUnion has 1 full time employee. Item 2 DESCRIPTION OF PROPERTY The Company does not own real estate and has no leasehold interests in real estate. The Company maintains an office at 1232 North Ocean Way, Palm Beach. Item 3 LEGAL PROCEEDINGS There is no current or pending litigation. Item 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS There were no shareholders meetings during the period covered by this report. PART II Item 5 MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS (a) MARKET INFORMATION The issuer's common equity is traded on the NASD OTC Bulletin Board under the symbol: IUFN. The high and low sale prices for each quarter within the last two fiscal years are as follows.
Period Open High Low Close - ------ ---- ---- ---- ----- FY02 Qtr 1 1.44 1.95 1.40 1.90 FY02 Qtr 2 1.90 6.50 1.90 3.25 FY02 Qtr 3 3.25 3.25 2.00 2.10 FY02 Qtr 4 2.10 2.10 1.01 1.02 FY03 Qtr 1 1.07 1.35 0.75 0.75 FY03 Qtr 2 0.75 1.75 0.20 0.50 FY03 Qtr 3 0.71 0.76 0.20 0.71 FY03 Qtr 4 0.45 0.50 0.15 0.45
(b) HOLDERS The approximate number of holders of record of each class of stock is as follows:
Class of Stock Number of Holders - ------------------ ----------------- Common Share 323 Class A Preferred None issued(1) Class B Preferred None issued Class C Preferred None issued
(1) 1,500,000 Class A Preferred shares, representing 100% of the issued shares in this class were converted to 15,000,000 common shares on a 10 for 1 basis. Page 6 of 20 (c) DIVIDENDS The Company has never declared or paid dividends on its common stock or its preferred stock. There are no restrictions, other than state law that may be applicable; those limit the ability to pay out all earnings as dividends. However, during the second quarter of Fiscal 2003, an extraordinary cash dividend of $2,549,010 ($1.33 per common share) was paid to the shareholders of record on August 23, 2002. The Company also distributed 600,000 common shares of Kyto Pharmaceutical Inc (0.3131 Kyto share per common share), which it had acquired in settlement of a debt, to share holders of record as of August 23, 2002. The Board of Directors does not anticipate paying any dividends in the foreseeable future; it intends to retain the earnings, which could be distributed, if any, for the operations, expansion and development of its business. (d) RECENT SALES OF UNREGISTERED SECURITIES (i) SALES PURSUANT TO REGULATION D The Company has not made any sales 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, promulgated by the Securities and Exchange Commission. (B) SALES PURSUANT TO REGULATION S The following sales of Common Stock 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 of Price per (1)(2)(3)(4)(5) Shares Share Consideration Commission Date - --------------- --------- --------- ------------- ---------- -------------- Common(6) 229,453 5.00 1,147,265 Nil April 1997 Common(7) 60,000 3.00 180,000 Nil June 1997 Common(8) 15,000 6.00 90,000 Nil August 1997 Common(9) 213,194 4.00 852,776 Nil February 1998 Common(10) 216,640 3.64 788,569 Nil April 1998 Common(11) 17,002 4.00 68,008 Nil May 1998 Common 35,000 4.00 140,000 7,000 June 1998 Common(11) 262,142 4.00 1,048,568 Nil July 1998 Common(11) 10,000 4.00 40,000 Nil December 1998 Common(11) 180,000 3.50 630,000 63,000 February 1999 Common(12) 25,000 3.50 87,500 Nil March 1999 Common(11) 1,140 4.00 4,560 Nil March 1999 Common(13) 114,500 0.50 57,250 Nil November 1999 Common (14) 2,014,198 0.40 805,679 Nil November 1999 Common(15) 15,000,000 0.01 150,000 Nil September 2000 Common(16) 16,575 3.02 50,000 Nil April 2002 Common(17) 3,000,000 0.55 1,650,000 Nil August 2002
NOTES TO SALES PURSUANT TO REGULATION S (1) All sales were made directly by the Company as issuer. (2) 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. (3) All sales as shown above were made to non-U.S. persons. Page 7 of 20 (4) 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 harbour. 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). (5) These shares were issued on the conversion of a debenture. (6) These shares were issued with regards to the Receptagen restructuring. The consideration was determined by the price of the common stock at the time of the transaction. These shares were given to a non-related party. (7) These shares were issued upon the exercise of employee stock options, previously granted to Mr. Selwyn J. Kletz. (8) These shares were issued upon the exercise of warrants. (9) These shares were issued in the acquisition of IUAM. The consideration received was 91.55% of all of the issued and outstanding shares of IUAM. The valuation of IUAM was determined by an arms lengths transaction. These shares were given to a non-related party. (10) These shares were issued in the acquisition of BIM. The consideration received was 45% of all of the issued and outstanding shares of BIM. The valuation of BIM was determined by an arms lengths transaction. These shares were given to a non-related party. (11) These shares were issued in settlement of an equal amount due to the purchaser of the common stock. (12) These shares issued for services received from the Chairman of the Company, Mr. Robert Crosbie. (13) The shares issued in settlement of note payable. (14) The shares issued in settlement of note payable. (15) These shares were issued on the conversion of 1,500,000 shares of Class "A" Preferred at ratio of 10 to 1. (16) These shares issued for services received from a Director of the Company, Mr. Robert Crosbie. (17) These shares issued for consulting services received. Item 6 MANAGEMENT'S DISCUSSION AND ANALYSIS (a) OVERVIEW InterUnion Financial Corporation ("IUFC" or "InterUnion") was incorporated on February 7, 1994. InterUnion strategy is to acquire, when possible, a majority interest in financial services business. The Company acquires for cash but preferably for Common Shares of the Company with additional incentives for vending shareholders via Common Shares Purchase Warrants and Stock Options for management. In 1999, the Company restructured its interest in its Canadian based investment management activities in order to facilitate the growth strategy in that sector. InterUnion Asset Management became the holding Page 8 of 20 company for the Company's interest in the following investment management companies: Guardian Timing Services Inc. ("GTS"); Leon Frazer, Black & Associates Limited ("LFB"); AIL Investment Services ("AILIS") and Black Investment Limited ("BIM"). The purpose of the restructuring of IUAM was to pursue acquisitions on a tax effective basis as well as secure an institutional strategic alliance. Also in 1999, the Company simplified its corporate organisation chart: Credifinance Realty Capital Corp. (Ontario), Credifinance Securities Inc. (Florida); Marbury Trading Corp. (BVI) and Bearhill Ltd. (BVI) were dissolved. A new company, InterUnion Merchant Group Inc. ("IUMG") (BVI), took over the assets and liabilities of the dissolved companies as of January 1st, 2000. As of that date as well, the name of I&B Inc. (Delaware) was changed to Credifinance Capital Corp. (Delaware). In June 2000, the Company acquired 243,750 of its Common Shares at the rate of $0.6153 per share in settlement of a $150,000 Note Receivable from an unrelated party. During the second calendar quarter of 2000, the Company sold its investment banking subsidiary, Credifinance Capital Corp. (Delaware) "CFCC" to its majority shareholder RIF Capital Inc ("RIF"). The transaction was made effective September 30, 2000, and was approved by the shareholders of the Company at the Company's Annual and Special Shareholders meeting in November 2000. The purpose of the transaction was to make the Company a "pure play" and allow more flexibility to either raise capital or use its Common Stock as currency while pursuing acquisitions of investment management companies in Canada through IUAM or, alone, elsewhere. It also allows an opportunity for the shareholders of IUAM to roll over their interest in a tax effective manner into the Company while, offering at the same time the possibility to the minority shareholders of the IUAM investee companies, to exchange the share they hold in private companies for common stock of a public entity. In September 2000, the Company converted its Class "A" Preferred Shares into Common Shares at the rate of 1 to 10. Consequently, in lieu of 1,500,000 Class "A" Preferred Shares, the Company issued 15,000,000 Common Shares. In November 2000, in a Special Meeting of the Shareholders of the Company, it was resolved to execute a reverse split in the issued and outstanding common stock of the Company in the ratio of ten (10) to one (1). Consequently, the number of issued and outstanding common stock of the Company reduced to 1,899,974. In December, 2001, InterUnion Financial Corporation ("InterUnion" or the "Company"), sold its 42.8% owned subsidiary and main asset, InterUnion Asset Management Limited ("IUAM"), to AMIC Canada Limited ("AMIC"), a wholly owned subsidiary of Asset Management Investment Company, PLC, a corporation registered in England and Wales. IUAM, based in Toronto, Canada, manages approximately C$1.5 billion for institutions and individuals. The Company had previously sold the controlling interest of IUAM to Working Ventures Fund of Canada ("Working Ventures") for C$10 million in March 1999. AMIC paid C$10,550,000 in cash to the shareholders of IUAM: the Company and Working Ventures, and assumed the C$3,500,000 Convertible Preferred Debenture owed by IUAM to one of its investee companies. The Company received 75% of the pro-rata proceeds on December 20, 2001 and received the 25% remainder on March 28, 2002, after the issuance of a certificate under Section 116 of the Income Tax Act (Canada). The Company, since the sale of its interest into IUAM, has been reviewing a number of business opportunities. In view of its cash position, the Company has received a number of proposals: however, current markets and general economic conditions are prompting management to carefully assess those business opportunities. Page 9 of 20 Revenues Total revenues for the year ended March 31, 2003 were $95,056, an increase of 138% from $39,928 the previous year. Cost of Revenues During the year 2003, the selling, general and administrative expenses increase by $1,669,983 to $1,836,884. This increase was on account of a service agreement entered into in August of 2002. Interest Income The Company's interest income mainly consisted of interest from loans to affiliated companies and the interest on credit balances maintained with the banks. The company's interest earnings decreased by 44% to $15,100 in fiscal 2003. Gain/Loss on Issuance of Security The Company had no gain or loss on issuance of securities during FY 2003 and FY 2002. Exposure to International Operations The Company's revenues are generated in North America, however, it has a 100% owned subsidiary in British Virgin Islands. The Company, therefore, does not have a significant exposure to currency or country risk. Seasonal Neither the Company nor its subsidiaries operate in any business which could be affected by changes in season. (b) RESULTS OF OPERATIONS Financial highlights are as follows:
2003 2002 2001 ---------- --------- ---------- Revenues 95,056 39,928 333,029 Loss from Continuing Operations (1,727,453) (140,840) (740,238) Discontinued operation 0 0 (422,232) Disposal of Equity Investment 0 518,328 (1,1163,455) Net Profit (Loss) (1,727,453) 377,487 (2,325,925) Assets 98,558 3,238,372 3,144,335 Shareholders' Equity 65,502 3,192,100 2,764,613 Working Capital 65,502 2,474,502 (90,619) Common Shares Outstanding 4,916,549 1,916,549 1,899,974 Book Value per Common Share 0.01 1.67 1.46
Page 10 of 20 FISCAL YEAR 2003 COMPARED TO FISCAL YEAR 2002 (1) Overview During fiscal 2003 revenue of the Company amounted to $95,056 as compared to $39,928 in the fiscal 2002. The total expenses for the year ended March 31, 2003 was 1,822,509 as compared to $180,768 in fiscal 2002, representing an increase of $ 1,641,741. The Company's net loss for fiscal year 2003 was $1,727,453 as compared to income of $377,487 in fiscal 2002. The Company recorded a consulting expense of $1,650,000 as a result of shares issued on account of a service agreement. Loss per share for fiscal 2003 was $0.418 versus a gain of $0.197 a year earlier. The number of common shares outstanding as of March 31,2003 is 4,916,549 versus 1,916,549 as of March 31, 2002. (2) Revenues For the fiscal year 2003, the Company's revenues stood at $95,056 as compared to $39,928 for fiscal 2002, representing an increase of $55,128 or 138%. (3) COST OF REVENUES For the year ended March 31,2003, the selling, general and administrative expenses increase by $1,669,983 to $1,834,884. (4) NET LOSS Net loss for the year ended March 31, 2003 was $1,727,453 as compared to a gain of $377,487 for the fiscal year 2002, representing a decrease of $2,104,940. Basic loss per share for the year 2003 was $0.418 versus a gain of $0.197 the previous year. Weighted average common shares outstanding in Fiscal 2003 was 4,135,727 versus 1,916,421 in Fiscal 2002. Fiscal Year 2002 Compared to Fiscal Year 2001 (1) Overview During fiscal 2002 revenue of the Company amounted to $39,928 as compared to $333,029 in the fiscal 2001. The total expenses for the year ended March 31, 2002, excluding equity pick-up of IUAM was $180,768 as compared to $1,073,267 in fiscal 2001, representing a decrease of $ 892,498 or 83.15%. The Company's equity share in the loss of IUAM for the year 2002 was $238,342 in comparison to $1,163,455 in fiscal 2001. The Company recorded a net profit of $756,669 from the sale of IUAM in December 2001. The Company's net profit for the fiscal year 2002 was $377,487 as compared to a loss of $2,325,925 in fiscal 2001, representing an increase of $2,703,412 or 116.23%. The Company does not expect to record future losses through amortization or write-downs. Profit per share for fiscal 2002 was $0.197 versus a loss of $2.016 a year earlier. The number of common shares outstanding as of March 31, 2002 is 1,916,549 versus 1,899,974 as of March 31, 2001. (2) Revenues For the fiscal year 2002, the Company's revenues stood at $39,928 as compared to $333,029 for fiscal 2001, representing a decline of $293,101 or 88.01%. Page 11 of 20 (3) COST OF REVENUES Until 2nd quarter of FY2001 the principal elements comprising costs of revenues were commissions and salaries paid to non administrative personnel who were remunerated solely on the basis of their performance. However, due to disposal of the investment banking business in FY2001 the cost of revenue primarily consisted of general, selling and administrative expenses. During the year 2002, the selling, general and administrative expenses declined by $199,706 to $166,901 representing a decline of 54.7% over fiscal 2001. (4) NET PROFIT Net profit for the year ended March 31, 2002 was $377,487 as compared to a loss of $2,325,925 for the fiscal year 2001, representing an increase of $2,703,412 or 116.23%. The net profit for the fiscal 2002 was contributed mainly by the sale of 42.8% owned subsidiary of IUAM in December, 2001. Basic profit per share for the year 2002 was $0.197 versus a loss of $2.016 the previous year. Weighted average common shares outstanding in Fiscal 2002 was 1,916,421 versus 1,153,759 in Fiscal 2001. (c) LIQUIDITY AND CAPITAL RESOURCES In order to meet its growth plans and fund any operating cash requirements, the Company's policy is to issue additional capital stock, when possible. To date the Company has done this either through the issuance of Confidential Private Placement Offerings under Regulation "D" or Regulation "S". The following are details of these private placements during the previous six fiscal years:
Date # of Shares Amount Type - --------------- ----------- --------- -------------- April 1997 229,453 1,147,265 Regulation "S" June 1997 60,000 180,000 Regulation "S" August 1997 15,000 90,000 Regulation "S" February 1998 213,194 852,776 Regulation "S" April 1998 216,640 788,569 Regulation "S" May 1998 17,002 68,008 Regulation "S" June 1998 35,000 140,000 Regulation "S" July 1998 262,142 1,048,568 Regulation "S" December 1998 10,000 40,000 Regulation "S" February 1999 180,000 630,000 Regulation "S" March 1999 25,000 87,500 Regulation "S" March 1999 1,140 4,560 Regulation "S" November 1999 114,500 57,250 Regulation "S" November 1999 2,014,198 805,679 Regulation "S" September 2000 15,000,000 150,000 Regulation "S" April 2002 16,575 50,000 Regulation "S" August 2002 3,000,000 1,650,000 Regulation "S"
All of the Company's Class A Preferred Shares were converted into common shares in Fiscal 2001. CRITICAL ACCOUNTING POLICIES AND ESTIMATES The discussion and analysis of results of operations and financial conditions are based upon the financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP). The preparation of these financial statements requires management to make estimates and judgement that affect the reported amounts of assets, liabilities, revenue and expenses. Management bases its estimates on historical experience and on various other assumptions that they believe to be reasonable under the circumstances. Note 2 of the "Notes to Financial Statement" includes Summary of the significant accounting policies and methods used in preparation of the financial statements. Page 12 of 20 New Accounting Pronouncements Impact of Recent Accounting Pronouncement: In May 2002 the Financial Accounting Standard Board ('FASB') issued SFAS 145 "Rescission of FASB Statement N0. 4, 44, and 64. Amendment of FASB Statement No. 13 and Technical Corrections". This pronouncement requires that gains or losses arising from early extinguishments of debt that are part of a company's recurring operation (I.e., a risk management strategy) would not be reported as extraordinary items. The statement also provides that modifications to a capital lease that make it operating lease be accounted for as a sale-leaseback. In June 2002, the Financial Accounting Standards Board ('FASB') issued SFAS 146 "Accounting for cost associated with exit or disposal activities". This pronouncement replaces Emerging Issues Task Force (EITF) Issue No. 94-3 "Liability Recognition for certain employee termination benefits and other costs to exit an activity". It requires that cost associated with exit or disposal activities be recognized when they are incurred rather than at the date of commitment to an exit or disposal plan. In December 2002, the Financial Accounting Standards Board ('FASB') issued SFAS 148 "Accounting for Stock-Based Compensation-Transition and Disclosure-an amendment of FASB Statement 123"- This Statement amends SFAS 123 "Accounting for Stock-Based Compensation", to provide alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based compensation. It also requires prominent disclosures about the methods of accounting for stock-bases compensation and the method used on reported results. 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 have risen from the Company's continuing operations that has not been analysed or discussed above. Nor has there been any material change in any line item that is presented on the financial statements that has also not been discussed above. This Form 10-KSB contains certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. For this purpose any statements contained in this Form 10-KSB that are not statements of historical fact may be deemed to be forward-looking statements. Without limiting the foregoing, words such as "may", "will", "expect", "believe", "anticipate", "estimate" or "continue" or comparable terminology are intended to identify forward-looking statements. These statements by their nature involve substantial risks and uncertainties, and actual results may differ materially depending on a variety of factors, many of which are not within the Company's control. These factors include but are limited to economic conditions generally and in the industries in which the Company's customers & investee participate in; competition within these industries and that of the Company's, including competition from much larger competitors; technological advances which could render the Company's services less competitive or absolute; failure by the Company successfully to improve its skills or anticipate current or prospective customers' needs; price increases or other limitations by the Company for use or its services and delays, reductions or cancellations of mandates previously placed with the Company. Item 7 FINANCIAL STATEMENTS The audited consolidated financial statements for InterUnion Financial Corporation, covering fiscal years ended March 31, 2003 and 2002 are submitted in compliance with the requirements of Item 310 of Regulation S-B. Page 13 of 20 Items 8 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE During the last two fiscal years and subsequent interim period to the date hereof, there were no disagreements between InterUnion and its certifying accountants on any matters of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreements, if not resolved to satisfaction of the certifying accountants, would have caused it to make a reference to the subject matter of the disagreements in connection with its reports. None of the reportable events described in Item 304(a) (1) (ii) occurred with respect to InterUnion within the last two fiscal years and the subsequent interim period to the date of change. During the last two fiscal years and the subsequent interim period to the date of change, InterUnion did not consult Mintz & Partners regarding any matter or events set forth in Item 304(a) (2) (i) and (ii) of Regulation S-B. PART III Item 9 DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT (a) IDENTIFY DIRECTORS AND EXECUTIVE OFFICERS
Name, Municipality of Residence Age Length of Service - ------------------------- --- ---------------------------------------------- Georges Benarroch 56 Director and appointed as President and Chief Paris, France Financial Officer; March 21, 1994 T. Jack Gary, III 61 Appointed as Secretary West Palm Beach, Florida January 30, 1995 Muriel Woodtli 52 Appointed as Director Geneva, Switzerland November 22, 1999 Peter Prendergast 46 Appointed as Director Toronto, Ontario, Canada June 3, 2002
GEORGES BENARROCH is the President, Chief Executive Officer of the Company as well as a Director and Chairman of the Audit Committee. Mr. Benarroch is also a Director of Credifinance Capital Corp., the Chief Executive Officer, and Chairman of the Board of Credifinance Securities Limited, President, Chief Executive Officer, and Chairman of the Board of Credifinance Capital Inc. T. JACK GARY, III is the Secretary of the Company. He is Manager of the West Palm Beach, Florida, office of Raymond James & Associates, a national brokerage firm, having held that position since 1995 as well as a Director. Mr. Gary will devote the time required to fulfil his duties as Secretary at InterUnion. MURIEL WOODTLI served as a Director of the Company. She is a legal assistant in Geneva, Switzerland. Ms. Woodtli's duties for InterUnion will be limited to her participation at Board Meetings and as a member of the Audit Committee. Peter Prendergast is a Director of the Company. Page 14 of 20 (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 shall 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. (3) In accordance with Item 405 no director, executive officer and beneficial owner of more than ten percent (10%) of any class of equity securities of the Company failed to file on a timely basis reports required by section 16(a) of the Exchange Act during the most recent two fiscal years to the best of the Company's knowledge. (b) AUDIT COMMITTEE The Audit Committee had no meetings since approving the financial statements for the previous year. (c) IDENTIFY SIGNIFICANT EMPLOYEES The Company does not expect to receive a significant contribution from employees that are not executive officers. (d) FAMILY RELATIONSHIPS Currently, there are no directors, executive officers or persons nominated or persons chosen by the Company to become a director or executive officer of the Company who are directly related to an individual who currently holds the position of director or executive officer or is nominated to one of the said positions. (e) INVOLVEMENT IN CERTAIN LEGAL PROCEEDINGS There are no material events that have occurred in the last five years that would affect the evaluation of the ability or integrity of any director, person nominated to become a director, executive officer, promoter or control person of the Company. (f) COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT For the two fiscal years ended March 31, 2003, to the best of the Company's knowledge no director, executive officer and beneficial owner of more than ten percent (10%) of any class of equity securities of the Company failed to file on a timely basis reports required by section 16(a) of the Exchange Act. Page 15 of 20 Item 10 DIRECTOR AND OFFICER COMPENSATION (A) SUMMARY COMPENSATION TABLE
Name and Fiscal Base Other Long Term All other Total Principal Position Year Salary Bonus Compensation Compensation Compensation - ------------------ ------ ---------- ---------- ------------ ------------ ------------- Georges Benarroch 2003 None None None None None President & CEO 2002 None None None $750(1) $750 2001 None None None None None 2000 None None None $13,387(1) $13,387 1999 None None None $30,000(1) $30,000 Robert W. Crosbie 2003 None None None None None Director 2002 None None None None None 2001 None $50,000(3) None None $ 50,000 2000 None None None None $ 50,000 1999 $18,230(2) $87,500(5) None $83,044(2) $188,774 Muriel Woodtli 2003 None None None None None Director 2002 None None None $1,277(4) $1,277 2001 None None None $2,000(4) $2,000 2000 None None None $1,750(4) $1,750 1999 None None None None None T. Jack Gary 2003 None None None None None Corporate 2002 None None None None None Secretary 2001 None None None None None 2000 None None None None None 1999 None None $42,500(6) None $42,500 Martin Kovnats 2003 None None None $ 1,121(7) $ 1,121 Vice-President 2002 None None None $33,523(7) $33,523 2001 None None None $ 6,393(7) $ 6,393 2000 None None None $12,388(7) $12,388 1999 None None None None None
(1) This amount represents life, disability and medical insurance and certain expenses. (2) This was paid by Black Investment Management Limited, a subsidiary of IUAM, for services unrelated to those offered to InterUnion Financial Corporation. (3) This represents 16,575 Common Shares of the Company, issued in Fiscal 2002. (4) Director's fees. (5) This represents 25,000 Common Shares of the Company. (6) The amount represents 50,000 stock option with an expiry date of September 3, 2001 and an exercise price of $4.00 per share. (7) Mr. Martin Kovnats is a Vice President of IUFC. He represents IUFC at the Board Meetings of IUAM. The amount indicated above is paid directly to his firm, Aird & Berlis, for the time spent on IUFC business. Page 16 of 20 (B) ALL COMPENSATION COVERED The Company has no formal options, warrants, SARs, long-term incentive plans, pension or profit sharing plans, or other compensation plans, 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. 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 therefore. The Company's Board of Directors has approved payment of $1,750, $2,000 and $1,277 respectively for the services of each of its independent directors for the fiscal year ending March 31, 2000, 2001 and 2002. Item 11 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 (5%) of any class of the said issuer's voting securities.
Title of Name and Address of Amount and Nature of Percentage Class Beneficial Owner Beneficial Owner of Class - -------- -------------------------- -------------------- ---------- Common RIF Capital Inc. (1) 1,688,016 34.33% Price Waterhouse Centre PO Box 634C St. Michael, Barbados, WI Total 1,688,016 34.33%
(1) RIF Capital Inc. is wholly owned by Central Investment Trust. Safeguardian Limited is the sole protector of Central Investment Trust and is neither a beneficiary of the Trust or its subsidiaries. (b) SECURITY OWNERSHIP OF MANAGEMENT In September 2000, the Company approved the conversion of 1,500,000 shares of Class A Preferred stock, owned by RIF Capital Inc., into 15,000,000 common shares of the Company. Page 17 of 20 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 of Name and Address of Amount and Nature of Percentage Class Beneficial Owner Beneficial Owner of Class - -------- -------------------------- -------------------- ---------- Common Safeguardian Limited 1,688,016 34.33% PO Box 316 Trustee Jardine House (voting power of 1 Hesley Street Central Investment St. Helier, Jersey, UK JE4 8UD Trust Common Georges Benarroch --- 0.00% 68 rue Spontini Paris, France 75016 Common T. Jack Gary, III --- 0.00% 515 North Flagler Drive, #1500 West Palm Beach, Florida 33401 Common Muriel Woodtli --- 0.00% 10 Rue Pierre-Fatio Geneva, Switzerland Common Directors and Executive Officers 34.33% as a group (2 people)
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. (c) CHANGES IN CONTROL Currently, there is no such arrangement that may result in a change in control of the Company. Item 12 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS (a) CERTAIN RELATED TRANSACTIONS Detail of related party transactions are described in note 8 of the Consolidated Financial Statements. Page 18 of 20 Item 13 EXHIBITS AND REPORTS ON FORM 8-K (a) Listing of Exhibits
Exhibit Page Table Number Exhibit Name Number - ------------ ------------ ------ (2)(i) Unanimous Consent in Lieu of The First Meeting of the Board of Directors of AU 'N + AG, INC. (A Delaware Corporation) (2)(ii) Pre-Organisation Subscription and Letter of Non-Distributive Intent + (2)(iii) Plan and Agreement of Merger + (2)(iv) Certificate of Merger, dated February 15, 1994 + (3)(i) Certificate of Incorporation of AU 'N AG, INC. Dated February 15, 1994 + (3)(ii) Certificate of Amendment of Certificate of Incorporation of AU 'N AG, INC. Dated + April 11, 1994 (3)(iii) Certificate of Amendment of Certificate of Incorporation of AU 'N AG, INC. Dated + April 11, 1994 (3)(iv) Bylaws of InterUnion Financial Corporation + (4) Instruments Defining the Rights of Security Holders Including Indentures +
+ Incorporated by reference to the Company's Registration Statement on Form 10-KSB filed on June 20, 1997. (b) Reports on Form 8-K Subsequent to the Third Quarter
Exhibit Page Table Number Exhibit Name Number - ------------ ------------ ------ (10) Working Venture Canadian Fund's Investment in InterUnion Asset Management Limited ++ (16) Letter on change in certifying accountant +++ (2) Disposition of Asset - InterUnion Asset Management Ltd. ++++ as at December 20, 2001
++ Incorporated by reference to the Company's Registration Statement on Form 8-K filed on March 16, 1999. +++ Incorporated by reference to the Company's Registration Statement on Form 8-K filed on April 27, 1999 and May 6, 1999. ++++ Incorporated by reference to the Company's Registration Statement on Form 8-K filed on March 15, 2002. Page 19 of 20 SIGNATURES In accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorised. INTERUNION FINANCIAL CORPORATION Date: June 27, 2003 By: /s/ Georges Benarroch - ------------------- Georges Benarroch Director, President and Chief Executive Officer In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the registrant and in their capacities on the dates indicated.
Signature Title Date - ---------------------- ----------------------------------------------- ----------- s/s Georges Benarroch Director, President and Chief Executive Officer June 27, 2003 - ---------------------- Georges Benarroch s/s Muriel Woodtli Director June 27, 2003 - ---------------------- Muriel Woodtli
Page 20 of 20 ================================================================================ INTERUNION FINANCIAL CORPORATION CONSOLIDATED FINANCIAL STATEMENTS ================================================================================ MARCH 31, 2003 and 2002 ================================================================================ INTERUNION FINANCIAL CORPORATION MARCH 31, 2003 and 2002 CONTENTS Page Independent Auditors' Report: F-2 Consolidated Financial Statements: Consolidated Balance Sheets F-3 Consolidated Statements of Operations F-5 Consolidated Statements of Shareholders' Equity F-6 Consolidated Statements of Cash Flows F-7 Notes to Consolidated Financial Statements F-8 To F-17 ================================================================================ INDEPENDENT AUDITORS' REPORT ================================================================================ To The Directors and Shareholders of InterUnion Financial Corporation We have audited the accompanying consolidated balance sheets of InterUnion Financial Corporation as of March 31, 2003 and 2002 and the related consolidated statements of operations, shareholders' equity and cash flows for the years then ended. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of InterUnion Financial Corporation as of March 31, 2003 and 2002, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States. Toronto, Canada /s/ Mintz & Partners LLP June 19, 2003 Chartered Accountants F-2 INTERUNION FINANCIAL CORPORATION CONSOLIDATED BALANCE SHEETS
AS AT MARCH 31 2003 2002 - ------------------------------------------------------------------------------ A S S E T S CURRENT ASSETS Cash and cash equivalents $97,319 $2,464,985 Receivable from Affiliates 0 41,226 Prepaid expenses and other current assets 1,239 14,563 ------- ---------- Total current assets 98,558 2,520,774 ------- ---------- NON-CURRENT ASSETS Notes receivable (Note 3) 0 717,598 ------- ---------- Total non-current assets 0 717,598 ------- ---------- TOTAL ASSETS $98,558 $3,238,372 ======= ==========
- -------------------------------------------------------------------------------- See Notes to Consolidated Financial Statements F-3 INTERUNION FINANCIAL CORPORATION CONSOLIDATED BALANCE SHEETS
AS AT MARCH 31 2003 2002 - ---------------------------------------------------------------------------------------------------- L I A B I L I T I E S CURRENT LIABILITIES Accrued liabilities $ 33,056 $ 46,272 ------------ ----------- Total liabilities 33,056 46,272 ------------ ----------- SHAREHOLDERS' EQUITY CAPITAL STOCK AND ADDITIONAL PAID-IN CAPITAL (Note 4) Class A Preferred Stock, $0.10 par value Authorized -1,500,000 shares Issued and outstanding - None - - Class B Preferred Stock, $0.10 par value Authorized - 1,000 shares Issued and outstanding - None - - Class C Preferred Stock, $0.10 par value Authorized - 1,000 shares Issued and outstanding - None - - Common Stock, $0.001 par value Authorized -5,000,000 shares Issued and outstanding 4,916,549 in 2003; 1,916,549 in 2002 49,165 19,165 Additional Paid-In Capital 12,267,128 10,647,128 ACCUMULATED DEFICIT (12,250,791) (7,474,193) ------------ ----------- Total shareholders' equity 65,502 3,192,100 ------------ ----------- Total Liabilities and Shareholders' Equity $ 98,558 $ 3,238,372 ============ ===========
- -------------------------------------------------------------------------------- See Notes to Consolidated Financial Statements F-4 INTERUNION FINANCIAL CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED MARCH 31 2003 2002 - ---------------------------------------------------------------------------------------------- REVENUES Investment Banking $ 79,956 $ 13,134 Interest Income 15,100 26,794 ----------- --------- 95,056 39,928 ----------- --------- EXPENSES Selling, General and Administrative 1,836,884 166,901 Foreign Exchange (Gain)/Loss (14,384) 8,517 Interest 9 5,350 ----------- --------- 1,822,509 180,768 ----------- --------- LOSS FROM CONTINUING OPERATIONS BEFORE UNDERNOTED ITEMS (1,727,453) (140,840) ----------- --------- DISPOSAL OF EQUITY INVESTMENT (Note 6) Equity in net losses of unconsolidated affiliate 0 (238,342) Gain on disposal of unconsolidated affiliate 0 756,669 ----------- --------- 0 518,327 ----------- --------- NET INCOME (LOSS) FOR THE YEAR $(1,727,453) $ 377,487 =========== ========= EARNINGS (LOSS) PER COMMON SHARE - Basic and Diluted Weighted average common shares outstanding 4,135,727 1,916,421 Basic earnings (loss) per share (0.418) 0.197 Diluted earnings per share 0.197
- -------------------------------------------------------------------------------- See Notes to Consolidated Financial Statements F-5 INTERUNION FINANCIAL CORPORATION CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED MARCH 31, 2003 AND 2002 Number Additional Share of Paid-in Capital Common Shares Amount Capital Totals - ----------------------------------------------------------------------------------------------------------------- Balance, March 31, 2001 1,899,974 $18,999 $10,597,294 $10,616,293 Issued on settlement of Director's Fee (Note 8) 16,575 166 49,834 50,000 -------------------------------------------------------- Balance March 31, 2002 1,916,549 19,165 10,647,128 10,666,293 Issued on settlement of Consulting Fee (Note 9) 3,000,000 30,000 1,620,000 1,650,000 -------------------------------------------------------- BALANCE MARCH 31, 2003 4,916,549 $49,165 $12,267,128 $12,316,293 --------------------------------------------------------
Deficit Comprehensive Deficit Income ------------ ------------- Balance March 31, 2001 $ (7,851,680) Net income for fiscal 2002 377,487 $ 377,487 ------------ ----------- Balance March 31, 2002 (7,474,193) $ 377,487 =========== Dividends Paid (3,049,145) Net income for fiscal 2003 (1,727,453) (1,727,453) ------------ ----------- Balance March 31, 2003 $(12,250,791) $(1,727,453) ============ ===========
- -------------------------------------------------------------------------------- See Notes to Consolidated Financial Statements F-6 INTERUNION FINANCIAL CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED MARCH 31, 2003 2002 - ----------------------------------------------------------------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES Income (Loss) before discontinued operations $(1,727,453) $ 377,487 Adjustments to reconcile net loss to net cash provided by (used in) operating activities Equity in net losses of unconsolidated affiliates 0 238,342 Non cash operating expenses (income) 1,650,000 (29,282) Gain on disposal of unconsolidated affiliate 0 (756,669) ----------- ----------- (77,453) (170,122) Changes in non-cash operating assets and liabilities: (Increase) decrease in receivable and other assets 54,551 (1,661) Increase (Decrease) in accrued liabilities (13,217) 7,142 ----------- ---------- NET CASH FLOWS USED IN OPERATING ACTIVITIES (36,119) (164,641) ----------- ---------- CASH FLOWS FROM FINANCING ACTIVITIES Dividends Paid (2,549,145) 0 Repayment of Notes Payable 0 (287,193) ----------- ---------- NET CASH FLOWS USED IN FINANCING ACTIVITIES (2,549,145) (287,193) ----------- ---------- CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from sale of investment (Note 6) 0 2,709,463 Repayment of Notes Receivable 0 200,000 Repayment of long term Notes Receivable 717,598 0 Investment in Short term notes Receivable(Note 9) (500,000) 0 ----------- ---------- NET CASH FLOWS PROVIDED BY INVESTING ACTIVITIES 217,598 2,909,463 ----------- ---------- NET INCREASE (DECREASE) IN CASH (2,367,666) 2,457,629 CASH AND CASH EQUIVALENTS - Beginning of Year 2,464,985 7,356 ----------- ---------- CASH AND CASH EQUIVALENTS - End of Year $ 97,319 $2,464,985 =========== ==========
For supplemental disclosure information for the Consolidated Statement of Cash flows, see note 9. - -------------------------------------------------------------------------------- See Notes to Consolidated Financial Statements F-7 INTERUNION FINANCIAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2003 AND 2002 1. ORGANIZATION AND BASIS OF PRESENTATION Description of Business: InterUnion Financial Corporation ("IUFC") and its subsidiaries (collectively the "Company") are engaged in financial services with activities in investment banking business, in particular, the investment management business. Principles of Consolidation: The consolidated financial statements include the accounts of IUFC and all wholly owned and majority owned subsidiaries from their respective dates of acquisition, after the elimination of all significant inter-company transactions and balances. At March 31, 2003 (March 31, 2002 - refer to note 6), the consolidated subsidiary of IUFC is InterUnion Merchant Group Inc. ("IUMG"). Investments in affiliates, representing 20% to 50% of the ownership, are accounted for under the equity method. Under the equity method, the Company records its proportionate share of income (loss) of the affiliate (net of the amortization of the excess of the purchase price over the net assets acquired) to results of operations, with this amount either added to (deducted from) the cost of the investment. Dividends received from affiliates which are accounted for on the equity basis are deducted from the carrying value of the investment. Equity method affiliates were InterUnion Asset Management Limited (Note 6) and its subsidiaries; Black Investment Management Limited, Guardian Timing Services Limited, Leon Frazer, Black & Associates Limited, The Glen Ardith-Frazer Corporation, and P.J. Doherty & Associates Co. Ltd. Investments in companies representing less than 20% ownership are accounted for under the cost method. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Cash and Cash Equivalents: Cash and cash equivalents include demand deposits with banks, money market accounts, and other highly liquid short-term investments with original maturities of 90 days or less when acquired. Balances of cash and cash equivalents in financial institutions may at times exceed the government-insured limits. Use of Estimates: The preparation of financial statements in accordance with United States generally accepted accounting principles requires management to make estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements and reported amounts of revenues and expenses during the reporting periods. Actual results may differ from those estimates and assumptions. Long-lived Assets: As prescribed by the Statement of Financial Accounting (SFAS) No. 144, "Accounting for the Impairments or Disposal of Long-lived Assets", the Company assesses the recoverability of its long-lived assets by determining whether the asset balance can be recovered over the remaining depreciation or amortization period through projected undiscounted future cash flows. Any impairment in the value of the long lived assets is provided in the year the long lived asset is considered impaired. - -------------------------------------------------------------------------------- /Continued... F-8 INTERUNION FINANCIAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2003 AND 2002 Fair Value of Financial Assets: The carrying value of cash and cash equivalents, accounts receivable, accrued liabilities and notes receivable approximates the fair value. In addition, unless described elsewhere, the carrying value of all financial assets approximate the fair value based on terms and interest rates currently available to the Company. Income Recognition: Revenues are recognized once an assignment to provide business and advisory services is completed. Income Taxes: The Company provides for federal and state income taxes currently payable, as well as for those deferred because of timing differences between reporting income and expenses for financial statements purposes versus tax purposes. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statements carrying amounts of existing assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect of a change in tax rates is recognized as income or expense in the period that includes the enactment date. The Company and its U.S. subsidiaries file U.S. federal and state income tax returns. Non-U.S. subsidiaries, which are consolidated for financial reporting, file tax returns outside the U.S., and therefore separate provisions for income taxes have been determined for these entities. Except for return of capital and selected dividends, the Company intends to reinvest the unremitted earnings of its non-U.S. subsidiaries and postpone their remittance indefinitely. Accordingly, no provision for U.S. income taxes for non-U.S. subsidiaries was required for any year presented. Impact of Recent Accounting Pronouncement: In May 2002 the Financial Accounting Standards Board ('FASB') issued SFAS 145 "Rescission of FASB Statements No. 4, 44, and 64. Amendment of FASB Statement No. 13 and Technical Corrections". This pronouncement requires that gains or losses arising from early extinguishments of debt that are part of a company's recurring operation (i.e., a risk management strategy) would not be reported as extraordinary items. The statement also provides that modifications to a capital lease that make it operating lease be accounted for as a sale-leaseback. In June 2002, the Financial Accounting Standards Board ('FASB') issued SFAS 146 "Accounting for costs associated with exit or disposal activities". This pronouncement replaces Emerging Issues Task Force (EITF) Issue No. 94-3 "Liability Recognition for certain employee termination benefits and other costs to exit an activity". It requires that costs associated with exit or disposal activities be recognized when they are incurred rather than at the date of commitment to an exit or disposal plan. In December 2002, the Financial Accounting Standards Board ("FASB") issued SFAS 148 "Accounting for Stock-Based Compensation-Transition and Disclosure -an amendment of FASB Statement 123"- This Statement amends SFAS 123 "Accounting for Stock-Based Compensation", to provide alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. It also requires prominent disclosures about the method of accounting for stock-based employee compensation and the method used on reported results. Management does not expect that the adoption of SFAS 145, SFAS 146 and SFAS 148 will have a material effect on the Company's operations or financial position. - -------------------------------------------------------------------------------- Continued.. F-9 INTERUNION FINANCIAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2003 AND 2002 Translation of Foreign Currencies: In accordance with SFAS No.52, "Foreign Currency Translation", the financial statements of certain subsidiaries of the Company are measured using local currency as the functional currency. Assets and liabilities have been translated at current exchange rates and related revenue and expenses have been translated at average monthly exchange rates. Gains and losses resulting from the translation of subsidiaries' financial statements are included as a separate component of shareholders' equity. Any gains or losses resulting from foreign currency transactions are included in results of operations. Earnings per Share: Net earnings (loss) per share is reported in accordance with SFAS No. 128, "Earnings Per Share". SFAS No. 128 requires dual presentation of basic earnings per share ("EPS") and diluted EPS on the face of all statements of earnings, for all entities with complex capital structures. Diluted EPS reflects the potential dilution that could occur from common shares issuable through the exercise or conversion of stock options, restricted stock awards, warrants and convertible securities. In certain circumstances, the conversion of these options, warrants and convertible securities are excluded from diluted EPS if the effect of such inclusion is anti-dilutive. Fully diluted loss per share is not provided, as the effect will be anti-dilutive. Stock Based Compensation: The Company accounts for employee stock options in accordance with Accounting Principles Board (APB) Opinion No. 25, "Accounting for Stock Issued to Employees". Under APB No. 25, the Company applies the intrinsic value method of accounting. SFAS No. 123, "Accounting for Stock-Based Compensation", prescribes the recognition of compensation expense based on fair value of options determined on the grant date. However, SFAS No. 123 allow companies currently applying APB No. 25 to continue applying the intrinsic value method under APB No. 25. For companies that continue in applying the intrinsic value method, SFAS No. 123 mandates certain pro forma disclosures as if the fair value method had been utilized. The recently promulgated accounting standard, FIN44 "Accounting for Certain Transactions involving Stock Compensation", does not affect the financial statements of the company. Comprehensive Income: The Company follows Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income". This statement establishes standards for reporting and display of comprehensive income and its components. Comprehensive income is net income plus certain items that are recorded directly to shareholders' equity bypassing net income. The Company has no other comprehensive income (loss) and comprehensive income (loss) is the net profit (loss) for the year. Segment Information: The Company follows SFAS No. 131 "Disclosures about Segments of an Enterprise and Related Information". SFAS No. 131 requires that the Company disclose its operations in the business segment as viewed by management: which is Investment Banking, which includes its merchant, banking activities and Investment Management. - -------------------------------------------------------------------------------- Continued... F-10 INTERUNION FINANCIAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2003 AND 2002 Other: All amounts in these financial statements are in United States dollars unless indicated with a "C" to represent Canadian dollar presentation. 3. NOTES RECEIVABLE
2003 2002 ---- ---- Notes Receivable from Credifinance Capital Corp. (CFCC) bearing Interest @ 3% per annum with no maturity date. This note is unsecured. $ 0 $717,598 Less: Current Portion 0 0 ---- -------- Non-current portion $ 0 $717,598 ==== ========
4. CAPITAL STOCK Currently, the number of shares that the Company is authorised to issue under each class of stock are: 1,500,000 Class A Preferred Shares, ($0.10 par value), entitled to 100 votes for every one share issued, annual dividends, if declared by the directors, at a rate of $0.01 per share, non-cumulative. In case of liquidation or dissolution of the company, the holder of Class A Preferred Shares shall be entitled to be paid in full the par value of the shares before the holder of the common stock of Class B and C Preferred Stock. 1,000 Class B Preferred Shares, ($0.10 par value), non-voting, annual dividends, if declared by the directors, at a rate to be determined by the directors at the first issuance of these shares, non-cumulative. 1,000 Class C Preferred Shares, ($0.10 par value), non-voting, annual dividends, if declared by the directors, at a rate to be determined by the directors at the first issuance of these shares, non-cumulative. These shares are convertible into common stock at terms determined by the directors when these shares are issued. 5,000,000 Common shares ($0.001 par value); each share has one vote.
During fiscal 2003, the Company incurred a consulting expense of $1,650,000 on account of a Service Agreement. The fee was paid by issuing 3,000,000 common shares in the fiscal year 2003. This increased the number of issued and outstanding common stock of the company to 4,916,549. The information was filed on Form S-8 dated August 26, 2002. During the second quarter ended September 30, 2002 an extraordinary cash dividend of $2,549,010 ($1.33 per common share) was paid to the shareholders of record on August 23, 2002. Also, IUFC has distributed as dividend 600,000 common shares of Kyto Pharmaceutical Inc., which it acquired in settlement of a Note Receivable of $500,000. The shareholders received 0.3131 common shares of Kyto Pharmaceutical Inc. for each common share of InterUnion Financial Corp they owned and cash for any fractional shares that would have been issued. During fiscal 2002 the company issued 16,575 common shares in settlement of a liability to a Director (Note 8). - -------------------------------------------------------------------------------- /Continued... F-11 INTERUNION FINANCIAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2003 AND 2002 5. STOCK OPTIONS The Company currently issues stock options at the direction of the Board of Directors. To date, non-qualified stock options have been granted to selected key employees under terms and conditions determined by the Board of Directors at the time the options are issued. Presented below is a summary of stock option plan activity:
Wt. Avg. Wt. Avg. Exercise Options Exercise Number Price Exercisable Price ------- -------- ----------- -------- Balance, March 31, 2001 335,000 $4.00 335,000 $4.00 Cancelled (85,000) 4.00 (85,000) 4.00 ------- ----- ------- ----- Balance, March 31, 2002 250,000 4.00 250,000 4.00 Cancelled 0 4.00 0 4.00 ------- ----- ------- ----- Balance, March 31, 2003 250,000 $4.00 250,000 $4.00 ======= ===== ======= =====
Options outstanding and exercisable at March 31, 2003 are as follows:
Outstanding Exercisable - ------------------------------------------------------- --------------------- Wt. Avg. Wt. Avg. Wt. Avg. Expiry Remaining Remaining Exercise Price Number Date Life Exercise Price Number Price - ----- ------- ---------- --------- -------------- ------- -------- $4.00 50,000 Sept. 2003 <1 $4.00 50,000 $4.00 4.00 200,000 May 2005 <3 4.00 200,000 4.00
SFAS No.123 requires entities that account for awards for stock-based compensation to employees in accordance with APB No.25 to present pro forma disclosures of net income and earnings per share as if compensation cost was measured at the date of grant based on fair value of the award. The fair value for these options was estimated at the date of grant using a Black-Scholes option-pricing model with the following weighted-average assumptions:
2003 ----------- Expected life of the option 1 - 3 years Risk free interest rate 5.0% Expected volatility 100.0% Expected dividend yield 0.0%
- -------------------------------------------------------------------------------- /Continued... F-12 INTERUNION FINANCIAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2003 AND 2002 5. STOCK OPTIONS-Continued The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options, which have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions including the expected stock price volatility. Because the Company's employee stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management's opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its employee stock options. As at March 31, 2003, the shares of IUFC were trading below the exercise price of the option at $4.00 per share. As a result, the options are out of money, have no intrinsic value, and have no impact on the earnings per share. Therefore there is no compensation cost for the Company's stock option plan to recognize based upon the fair value on the grant date under the methodology prescribed by SFAS No. 123, and the Company's income from operations and earnings per share would not have been impacted. 6. SALE OF ASSETS AND DISCONTINUATION OF OPERATIONS: During fiscal 2002, the Company sold its 42.8% owned subsidiary, InterUnion Asset Management Limited (IUAM), to a non related party. Effective December 20, 2001, the Company has no interest in IUAM. The share of equity in net losses of IUAM for the nine months to December 20, 2001 was $238,342 which is shown separately in the consolidated statements of operations. As a result of the disposal of IUAM as of December 20, 2001, the Company reported a gain on disposal of $756,669. - -------------------------------------------------------------------------------- /Continued... F-13 INTERUNION FINANCIAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2003 AND 2002 7. INCOME TAXES The Company files US Federal income tax returns for its US operations. Separate income tax returns are filed, as locally required, for each of its foreign subsidiaries. There was no provision for income taxes for the years ended March 31, 2003 and 2002. The total provision for income taxes differs from that amount which would be computed by applying the United States federal income tax rate to income (loss) before provision for income taxes. The reasons for these differences are as follows:
Year Ended March 31, 2003 2002 ------------------ ----------------- Amount % Amount % ========= ====== ======== ====== Statutory income tax rate (recovery) $(389,000) (22.52) $ 85,000 22.52 Use of losses carried forward 389,000 22.52 (85,000) (22.52) --------- ------ -------- ------ Net taxes and effective rate $ 0 0 $ 0 0 ========= ====== ======== ======
The Company recognizes deferred tax liabilities and assets for the expected future tax consequences of temporary differences between the carrying amounts and the tax basis of assets and liabilities and net operating loss carry-forwards. Temporary differences and carry-forwards, which give rise to deferred tax assets and liabilities are as follows:
March 31, 2003 March 31, 2002 -------------------------- -------------------------- Component Tax Effect Component Tax Effect ----------- ---------- ----------- ---------- Net operating losses - domestic $ 1,987,000 $ 386,000 $ 270,000 $ 60,000 Less valuation allowance (1,987,000) (386,000) (270,000) (60,000) ----------- --------- ----------- --------- Net deferred asset $ 0 $ 0 $ 0 $ 0 =========== ========= =========== ========= Net operating losses - foreign $ 2,336,000 $ 117,000 $ 2,326,000 $ 116,000 Less valuation allowance $(2,336,000) (117,000) (2,326,000) (116,000) ----------- --------- ----------- --------- Net deferred asset $ 0 $ 0 $ 0 $ 0 =========== ========= =========== =========
At March 31, 2003, the Company had cumulative net operating loss carry-forwards of approximately $1,987,000 and $ 2,336,000 in the United States and British Virgin Islands respectively. These amounts will expire in various years through 2012. The related deferred tax asset have been completely offset by a valuation allowance. The Company has no significant deferred tax liabilities. - -------------------------------------------------------------------------------- /Continued... F-14 INTERUNION FINANCIAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2003 AND 2002 8. RELATED PARTY TRANSACTIONS: Directors, officers or employees of the Company may also be officers of and serve on the board of directors of companies in which IUFC or its subsidiaries have invested. During the year ended March 31, 2003, a fee of $30,000 was paid to Credifinance Capital Corp (CFCC), a company with common ownership, to act as the Paying Agent for IUFC's Dividends. Also, a $42,841 management fee was paid to Credifinance Securities Ltd (CFSL), a company with common ownership. During the year ended March 31, 2001, the Company incurred an expense of $50,000 on account of Director's Fee. The fee was paid by issuing 16,575 common shares in the fiscal year 2002. During the year ended March 31, 2002 the Company earned interest income of $26,308 on the Note Receivable from CFCC (Note 3) and incurred interest expense of $5,278 on the Note Payable to RIF Capital Inc. During the year ended March 31, 2002 the company paid $70,000 to RIF Capital Inc, its majority shareholder, as a fee for consulting services rendered. The above related party transaction were in the normal course of business and the amounts of consideration were established and agreed to by the company and the other party. 9. SUPPLEMENTAL CASH FLOW DISCLOSURE The following is additional information regarding the Consolidated Statement of Cash Flows:
2003 2002 ---------- ------- Supplemental disclosure of cash flow information: Cash paid during the year for interest $ 9 $ 5,350 Cash paid during the year for income taxes 0 10,328 Supplemental disclosure of non-cash financing and investing: Liabilities paid by issuing common stock 1,650,000 50,000 Shares of Kyto Pharmaceutical Inc. received in settlement of Notes Receivable 500,000 0 Distribution of Kyto Pharmaceutical Inc. shares to shareholders as dividend 500,000 0
- -------------------------------------------------------------------------------- /Continued... F-15 INTERUNION FINANCIAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2003 AND 2002 10. SEGMENT INFORMATION The following tables summaries the revenues, operating income (losses) from continuing operations and identifiable assets by geographical area.
United Adjustments & Canada States Other Elimination Consolidated ------- ----------- ------ ------------- ------------- For the year ended and as of March 31, 2003 Revenue from unaffiliated customers $ 0 $ 95,056 $ 0 $ 0 $ 95,056 Revenue from Inter-segments 0 0 0 0 0 ------- ----------- ------ ------- ----------- Total revenue 0 95,056 0 0 95,056 ======= =========== ===== ======= =========== Depreciation & Amortization 0 0 0 0 0 ======= =========== ===== ======= =========== Operating profit 0 95,056 0 0 95,056 ======= =========== ===== ======= =========== General corporate expenses 0 (1,822,500) 0 0 (1,822,500) Interest expenses, net 0 (9) 0 0 (9) Net (Loss) for the period 0 (1,727,453) 0 0 (1,727,453) ======= =========== ===== ======= =========== Identifiable assets $ 0 $ 98,558 $ 0 $ 0 $ 98,558 ======= =========== ===== ======= =========== For the year ended and as of March 31, 2002 Revenue from unaffiliated customers $ 0 $ 39,928 $ 0 $ 0 $ 39,928 Revenue from Inter-segments 0 0 0 0 0 ------- ----------- ------ ------- ----------- Total revenue 0 39,928 0 0 39,928 ======= =========== ===== ======= =========== Depreciation & Amortization 0 0 0 0 0 ======= =========== ===== ======= =========== Operating profit 0 39,928 0 0 39,928 ======= =========== ===== ======= =========== General corporate expenses (1,426) (173,992) 0 0 (175,418) Interest expenses, net 0 (5,350) 0 0 (5,350) Disposal of Equity Investment 0 518,327 0 0 518,327 ------- ----------- ----- ------- ----------- Net income (loss) for the period (1,426) 378,913 0 0 377,487 ======= =========== ===== ======= =========== Identifiable assets $ 6,857 $ 3,239,798 $ 0 $(8,283) $ 3,238,372 ======= =========== ===== ======= ===========
- ------------------------------------------------------------------------------- Continued... F-16 INTERUNION FINANCIAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2003 AND 2002 11. CONTINGENCIES: From time to time the Company is exposed to claims and legal actions in the normal course of business, some of which are initiated by the Company. At March 31, 2003, management believes that any such outstanding issues will be resolved without significantly impairing the financial condition of the Company. - -------------------------------------------------------------------------------- F-17