UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended JUNE 30, 2001
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from _____________ to ____________
Commission file number _____________________________________
INTERUNION FINANCIAL CORPORATION
--------------------------------
(Exact name of small business issuer as specified in its charter)
Delaware 87-0520294
- -------- ----------
(State or other jurisdiction of (IRS Employer Identification No.)
Incorporation or organization)
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)
- ------------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Check whether the issuer (1) filed all reports required to be filed by section
13 or 15(d) of the Exchange Act during the past 12 months (or such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes [X] No [ ]
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required to be
filed by Section 12, 13 or 15 (d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court. Yes [ ] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: $0.001 Par Value Common Shares -
1,899,974 as of June 30, 2001.
Transitional Small Business Disclosure Format (Check One) Yes [ ] No [X]
PART I - FINANCIAL STATEMENTS
ITEM 1 - FINANCIAL STATEMENTS
INTERUNION FINANCIAL CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE PERIODS ENDED JUNE 30, 2001
Three Months Ended Twelve Months Ended
------------------------- -------------------------
30-Jun-01 30-Jun-00 31-Mar-01 31-Mar-00
--------- --------- --------- -------
REVENUE
Investment Banking 0 587,523 272,957 620,289
Interest Income 486 9,272 60,072 38,312
--------- --------- --------- -------
486 596,795 333,029 658,601
--------- --------- --------- -------
EXPENSES
Selling, General & Administration 15,383 472,849 366,607 615,023
Writedown of Notes Receivable 0 0 633,286 0
Amortization & Depreciation 0 2,533 5,588 1,155,358
Foreign Exchange Loss (Gain) 0 (5,537) 16,808 (16,098)
Writedown in Investment 0 0 27,379 1,251,334
Interest Expense 0 1,608 23,599 98,106
--------- --------- --------- -------
15,383 471,453 1,073,267 3,103,723
--------- --------- --------- -------
LOSS FROM CONTINUING OPERATIONS BEFORE INCOME TAX (14,897) 125,342 (740,238) (2,445,122)
EQUITY IN NET LOSSES OF UNCONSOLIDATED AFFILIATES (455,596) (177,197) (1,163,455) (1,021,500)
--------- --------- --------- -------
LOSS FROM CONTINUOUS OPERATIONS (470,493) (51,855) (1,903,693) (3,466,622)
FOREIGN EXCHANGE TRANSLATION EFFECT 0 (13,365) 0 0
Income (loss) from operations of discontinued subsidiary,
net of income taxes 0 0 358,169 (132,822)
Loss of disposal of subsidiary, net of tax 0 0 (780,401) 0
--------- --------- --------- -------
LOSS ON DISPOSSESSION / DISCONTINUATION 0 0 (422,232) (132,822)
NET PROFIT (LOSS) FOR THE PERIOD (470,493) (65,220) (2,325,925) (3,599,444)
========= ========= ========= =======
EARNINGS (LOSS) PER COMMON SHARE - Basic and Diluted
Weighted Average Common Shares Outstanding 1,948,687 4,232,290 1,153,759 298,076
Weighted Average Preferred Shares Outstanding 0 1,500,000 0 1,500,000
EPS - Net Profit (Loss) (0.241) (0.012) (2.016) (12.076)
EPS - From Continuing Operations (Basic) (0.241) (0.012) (1.650) (11.630)
EPS - From Dispossession / Discontinuation 0.000 0.000 (0.366) (0.446)
See Accompanying Notes to Unaudited Consolidated Financial Statements
Page 2 of 10
PART I - FINANCIAL STATEMENTS
ITEM 1 - FINANCIAL STATEMENTS
INTERUNION FINANCIAL CORPORATION
CONSOLIDATED BALANCE SHEET
AS AT JUNE 30, 2001
As at June 30 As at March 31
------------------------- ------------------------
2001 2000 2001 2000
---------- ---------- ---------- ----------
CURRENT ASSETS:
Cash and cash equivalent 9,046 (4,529,937) 7,356 71,627
Marketable Securities 0 5,002,609
Receivables 0 145,810 0 68,239
Due from Brokers and dealers 0 39,277
Due from clients 0 5,330,404
Receivable from Affiliates 54,791 35,783 54,792 27,555
Refundable Income Taxes 835 7,110 7,502 6,709
Prepaid expenses and other current assets 5,400 29,602 5,400 7,434
Notes receivable 0 1,161,667 0 1,001,414
Loan Receivable 0 58,466
Assets from Discontinued Operations 0 0 0 3,996,413
---------- ---------- ---------- ----------
Total Current Assets 70,072 7,280,791 75,050 5,179,391
NON-CURRENT ASSETS:
Property & equipment, net 0 42,215 0 3,518
Notes receivable, non-current portion 878,150 633,285 878,150 633,286
Investment in unconsolidated affiliates 1,735,539 3,462,483 2,191,135 3,639,680
Other longterm assets 0 77,493 0 0
Assets from Discontinued Operations 0 0 0 266,654
---------- ---------- ---------- ----------
Total non-current assets 2,613,689 4,215,476 3,069,285 4,543,138
---------- ---------- ---------- ----------
TOTAL ASSETS 2,683,761 11,496,267 3,144,335 9,722,529
========== ========== ========== ==========
LIABILITIES
CURRENT LIABILITIES:
Due to broker and dealers 0 2,297,027 0 0
Due to client 0 3,044,416 0 0
Accounts payable and accrued liabilities 74,050 483,232 89,130 370,980
Due to affiliates 3,399 12,990 3,399 0
Note Payable, current portion 85,000 0 60,000 0
Liabilities from Discontinued Operations 0 0 0 3,477,724
---------- ---------- ---------- ----------
Total Current liabilities 162,449 5,837,665 152,529 3,848,704
NON-CURRENT LIABILITIES:
OTHER LIABILITIES
NOTES PAYABLE, Longterm Portion 227,193 633,286 227,193 633,287
Total Liabilities 389,642 6,470,951 379,722 4,481,991
SHAREHOLDER'S EQUITY:
Capital Stock and additional paid-in capital 10,616,293 10,616,293 10,616,293 10,766,293
Accumulated translation adjustment 0 24,072 0 37,439
Retained Earnings (Deficit) (8,322,174) (5,615,049) (7,851,680) (5,563,194)
Total Shareholder's Equity 2,294,119 5,025,316 2,764,613 5,240,538
---------- ---------- ---------- ----------
Total Liabilities and Shareholder's Equity 2,683,761 11,496,267 3,144,335 9,722,529
========== ========== ========== ==========
See Accompanying Notes to Unaudited Consolidated Financial Statements
Page 3 of 10
PART I -- FINANCIAL STATEMENTS
Item 1 -- Financial Statements
INTERUNION FINANCIAL CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS
AS AT JUNE 30, 2001
As at June 30 As at March 31
------------------------- -------------------------
2001 2000 2001 2000
---------- ---------- ---------- ----------
CAPITAL STOCK AND ADDITIONAL PAID -IN CAPITAL
Class A Preferred Stock, $0.10 par value
Authorized -- 1,500,000 shares
Issued and outstanding -- 1,500,000 0 150,000 0 150,000
Class B Preferred Stock, $0.10 par value
Authorized -- 1,000 shares
Issued and outstanding -- None 0 0 0 0
Class C Preferred Stock, $0.10 par value
Authorized -- 1,000 shares
Issued and outstanding -- None 0 0 0 0
Common Stock, $0.001 par value
Authorized -- 5,000,000 in 2001 & 2000
Issued and outstanding -- 1,899,974 in 01;
4,243,123 in 00 18,999 3,999 18,999 4,243
Additional Paid-in Capital 10,597,294 10,462,294 10,597,294 10,612,050
CUMULATIVE TRANSLATION ADJUSTMENT 0 24,072 0 37,439
ACCUMULATED DEFICIT (8,322,174) (5,615,049) (7,851,680) (5,563,194)
---------- ---------- ---------- ----------
Total Shareholders' Equity 2,294,119 5,025,316 2,764,613 5,240,538
---------- ---------- ---------- ----------
TOTAL LIABILITIES & SHAREHOLDERS'S EQUITY 2,683,761 11,496,267 3,144,335 9,722,529
========== ========== ========== ==========
See Accompanying Notes to Unaudited Consolidated Financial Statements
Page 4 of 10
PART I - FINANCIAL STATEMENTS
ITEM 1 - FINANCIAL STATEMENTS
INTERUNION FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE PERIODS ENDED JUNE 30, 2001
Three Months Ended Twelve Months Ended
----------------------- --------------------------
30-Jun-01 30-Jun-00 31-Mar-01 31-Mar-00
--------- ---------- ---------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss from Continuing Operations (470,493) (51,855) (1,903,693) (3,466,622)
Net loss from Dispossession/Discontinuing Operations 0 0 (422,232) (132,822)
--------- ---------- ---------- ----------
Total: (470,493) (51,855) (2,325,925) (3,599,444)
Adjustment to reconcile net profit (loss) to net
cash provided by (used in) operating activities
Depreciation and amortization 0 2,533 5,588 1,165,392
Equity and net loss on investment 455,596 177,197 1,163,455 1,021,500
Non cash expenses (income) 0 (39,292) 212,510 387,633
Net loss from discontinued operations 0 0 422,232 0
Writedown of Notes Receivable 0 0 633,286 0
Loss (gain) in marketable securities 0 25,917 27,379 1,255,987
--------- ---------- ---------- ----------
(14,897) 114,500 138,525 231,068
Changes in operating assets and liabilities net of effects from
the purchase/divestiture of IUAM Limited
Increase (decrease) in due to/from brokers and dealers, net 0 5,495,265 0 (22,136,587)
Decrease (increase) in due to/from client, net 0 (5,352,301) 0 2,179,710
Decrease (increase) in marketable securities 0 (4,970,089) 0 19,852,782
Increase in accounts receivable and other assets 6,667 (153,877) 69,054 463,545
Increase (decrease) in accounts payable and accrued liabilities
discontinued operations 9,920 (105,319) (331,850) (428,150)
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 1,690 (4,971,821) (124,271) 162,368
CASH FLOWS FROM FINANCING ACTIVITIES
Net proceeds on issuance (acquisition) of capital stock 0 (150,000) 0 0
Proceeds (repayment) of notes payable 0 0 60,000 0
--------- ---------- ---------- ----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 0 (150,000) 60,000 0
CASH FLOW FROM INVESTING ACTIVITIES
Purchase of property and equipment, net 0 0 0 (6,190)
Investment in notes receivable 0 150,000 0 0
--------- ---------- ---------- ----------
NET CASH USED IN INVESTING ACTIVITIES 0 150,000 0 (6,190)
NET INCREASE (DECREASE) IN CASH 1,690 (4,971,821) (64,271) 156,178
CASH AND CASH EQUIVALENTS - Beginning of Year 7,356 441,884 71,627 285,706
CASH AND CASH EQUIVALENTS - End of Year 9,046 (4,529,937) 7,356 441,884
========= ========== ========== ==========
See Accompanying Notes to Unaudited Consolidated Financial Statements
Page 5 of 10
INTERUNION FINANCIAL CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED JUNE 30, 2001
================================================================================
1. Interim information is un-audited; however, in the opinion of management,
all adjustments necessary for a fair statement of interim results have been
included in accordance with Generally Accepted Accounting Principles. All
adjustments are of a normal recurring nature unless specified in a separate note
included in these Notes to Un-audited Consolidated Financial Statements. The
results for interim periods are not necessarily indicative of results to be
expected for the entire fiscal year. These financial statements and notes should
be read in conjunction with the Company's annual consolidated financial
statements and the notes thereto for the fiscal year ended March 31, 2001,
included in its Form 10-KSB for the year ended March 31,2001.
2. Earning (loss) per share is computed using the weighted average number of
common shares outstanding during the period.
CAPITAL STOCK AND ADDITIONAL PAID-IN-CAPITAL
In June 2000, the Company acquired its 243,750 Common Share at the rate of
$0.6153 per share in settlement of $150,000 note receivable from an unrelated
party.
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 from the
treasury under regulation "S".
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
1,899,937 in the 3rd quarter of fiscal 2001, ended December 31, 2000.
SALE OF ASSETS AND DISCONTINUATION OF OPERATIONS
During the second quarter of fiscal 2001 ending September 30, 2000, the Company
sold its investment banking subsidiary, Credifinance Capital Corp. (CFCC).
Effective September 30, 2000, Credifinance Capital Corp. is no longer part of
the Company. As a result of the disposal of the operations of Credifinance
Capital Corp. as of September 30, 2000, the Company reported a profit of
$358,169 from discontinuation of the operations.
However, as a result of disposal of discontinued assets of Credifinance Capital
Corp., the Company incurred a loss of $1,413,686. Effective September 30, 2000,
the only investment asset on which InterUnion is reporting is its minority
interest in InterUnion Asset Management Limited (IUAM).
The un-audited financial statements of IUAM for the 1st quarter of fiscal 2002
ending June 30, 01, are attached in their entirety as an attachment.
Page 6 of 10
INTERUNION FINANCIAL CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED JUNE 30, 2001
================================================================================
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS
(1) OVERVIEW
During the 1st quarter of fiscal 2002 ending June 30, 2001, InterUnion had nil
revenue from investment banking as a result of its sale of assets.
Selected financial data from InterUnion's financial statements is (figures in
000's except per share data):
3 mos. ended 3 mos. ended 3 mos. ended
June 30- 01 June 30- 00 June 30- 99
------------ ------------ ------------
Working Capital (92) 1,443 1,164
Cash Flow 2 115 332
Total Assets 2,684 11,496 12,502
Shareholders' Equity 2,294 5,025 8,179
Common Share, # 1,900 3,999 2,114
Book Value Per Share 1.21 1.26 3.87
(2) NET REVENUES
For the first 3 months of fiscal 2001, InterUnion reported consolidated revenues
of $486 versus $596,795 a year earlier, a decrease of $596,309, resulting from
the sale of its CFCC operations as of September 30, 2000.
(3) EXPENSES
Selling, general and administration expenses for the three months of fiscal 2002
amounted to $15,383 as compared to $472,849 a year earlier, a decrease of
457,466, resulting from the sale of its CFCC operations as of September 30,
2000.
(4) NET INCOME FOR 3 MONTHS UNTIL JUNE 30, 2001
Net loss from operations for the 3 months ending June 30, 2001 was a loss of
$470,493 or $0.241 per share, based on a weighted average number of shares of
1,948,687 versus a loss of $51,855 or $0.012per share, based on a weighted
average number of shares of 4,232,290 a year earlier.
The weighted average number of common shares outstanding for the nine months
ending June 30, 2001, is 1,948,687 versus 4,232,290 a year earlier.
Page 7 of 10
INTERUNION FINANCIAL CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIOD ENDED JUNE 30, 01
================================================================================
(5) LIQUIDITY AND CAPITAL RESOURCES
Date Number of Shares Amount Type
- ---- ---------------- --------- --------------
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"
(6) CONCLUDING REMARKS
There are no other known trends, events or uncertainties that may have, or are
reasonably likely to have, a material impact on the Company's short-term or
long-term liquidity that have not been discussed above.
In addition, there is no significant income or loss that has risen from the
Company's continuing operations that has not been analyzed or discussed above.
In addition, there has not been any material change in any line item that is
presented on the financial statements that has not been discussed above.
(7) CERTAIN RISK FACTORS WHICH MAY IMPACT FUTURE OPERATIONS
The Company and its subsidiaries operate in a rapidly changing environment that
involves a number of factors, some of which are beyond management's control,
such as financial market trends and investors' appetite for new financings. It
should also be emphasized that, should the Company not be successful in
completing its own financing (either by debt or by the issuance of securities
from treasury), its strategy to grow by acquisition will be affected.
In the opinion of management the financial statements for the periods ending
June 30, 2001 accurately reflect the operations of the Company and its
subsidiaries. The Company has taken every reasonable step to ensure itself that
its quarterly financial statements do not represent a distorted picture to
anyone having a business reason to review such statements and who has also
reviewed its previous audited annual financial statements for the year ended
March 31, 2001.
Forward-looking statements included in Management's Analysis and Discussion
reflects management's best judgment based on known factors, and involves risks
and uncertainties. Actual results could differ materially from those anticipated
in these forward-looking statements. Forward-looking information is provided by
InterUnion pursuant to the safe harbor established by recent securities
legislation and should be evaluated in the context of these factors.
Page 8 of 10
INTERUNION FINANCIAL CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIOD ENDED JUNE 30, 01
================================================================================
PART II -- OTHER INFORMATION
ITEM 1 -- LEGAL PROCEEDINGS
Credifinance Securities Limited, an ultimate wholly owned subsidiary of the
Company until disposal on September 30,2000, had filed a claim against a client
in 1997 for which it had raised a C$15,000,000 convertible debenture, on the
Superior Court of Montreal (Quebec). The claim was originally not contested.
However, the Company faced a claim from two employees of Credifinance Securities
Limited for commissions, termination allowance and damages. In compliance with a
court order, the total amount of the commission, C373, 920 (US$249,663) was
placed in an escrow with Montreal Trust. On May 29, 2000, the Superior Court of
Montreal (Quebec) rendered a judgment ordering Credifinance Securities Limited
to pay C$579,617 (US$387,005) plus accrued interest to the cross claimants. The
above amount has been fully provided by Credifinance Capital Corp (CFCC), the
holding company of Credifinance Securities Limited in the consolidated financial
statement of the CFCC for the quarter ended December 31, 2000.
Upon advice from its counsel who had advised that the May 29, 2000 judgment has
a strong chance of reversal, Credifinance Securities filed an appeal in the
Supreme Court in Quebec on June 29, 2000.
Effective September 30, 2000, as a result of disposition of Credifinance Capital
Corp., the Company has no potential obligation to this lawsuit.
ITEM 2 -- CHANGES IN SECURITIES
In the 1st quarter ending June 30, 2000 the Company acquired its 243,750 Common
Shares at the rate of $0.6153 per share for $150,000 in settlement of the note
receivable of $150,000 from an unrelated party. The above shares are held in
treasury. Consequently, the number of outstanding Common Shares declined to
3,999,373 from 4,232,290 as of March 31, 2000.
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 from the
treasury under regulation "S".
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
1,899,937 in the 3rd quarter of fiscal 2001.
ITEM 3 -- DEFAULTS UPON SENIOR SECURITIES
There have been no defaults in the payment of principal or interest with respect
to any senior indebtedness of InterUnion Financial Corporation.
ITEM 4 -- SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5 -- OTHER INFORMATION
None.
Page 9 of 10
INTERUNION FINANCIAL CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIOD ENDED JUNE 30, 01
================================================================================
ITEM 6 -- EXHIBITS AND REPORTS ON FORM 8-K
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
InterUnion Financial Corporation
----------------------------------------
(Registrant)
Date August 14, 2001 /s/ Georges Benarroch, Director
----------------------------------------
(Signature)*
* Print the name and title of each signing officer under his signature.
Page 10 of 10
Appendix
INTERUNION ASSET MANAGEMENT LIMITED
CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
FOR THE PERIODS ENDED JUNE 30, 2001 AND JUNE 30, 2000
CONTENTS
- --------------------------------------------------------------------------------
COMPLIANCE CERTIFICATE 2
CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS 3
CONSOLIDATED STATEMENTS OF OPERATIONS AND DEFICIT 4
CONSOLIDATED STATEMENTS OF CASH FLOWS 5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 6-14
QUARTERLY COMPLIANCE CERTIFICATE
- --------------------------------------------------------------------------------
To: Working Ventures Canadian Fund Inc. ("WV")
InterUnion Financial Corporation ("IUFC")
Date: July 22, 2001
I, Russell Lindsay, of InterUnion Asset Management Limited (the
"CORPORATION"), hereby certify for and on behalf of the Corporation, intending
that the same may be relied upon by you without further enquiry, that since
April 1, 2001:
(a) the attached financial statements delivered pursuant to the
Agreement have been prepared in accordance with generally
accepted accounting principles in effect on the date of such
financial statements and the information contained therein is
true and correct in all material aspects, subject only to
year-end audit adjustments, and presents fairly and
consistently the results of operations and changes in the
financial position of the Corporation as of and to June 30,
2001;
(b) the Corporation is in compliance with all taxes and other
withholding obligations and has accrued unpaid vacation pay in
its financial statements;
(b) the Corporation has (i) made all deductions for taxes or other
obligations required to be deducted and has paid the same to
the proper tax or other receiving officers; (ii) remitted to
the appropriate tax authority, on a timely basis, all amounts
collected on account of goods and services taxes and
provincial sales taxes; and (iii) remitted to the appropriate
receiving officer, on a timely basis, all amounts required to
be paid by it in connection with workman's compensation
legislation;
(c) the Corporation is not aware of any breach or potential breach
by the Corporation of any Environmental Laws (as such term is
defined in the Share Purchase Agreement entered into between
the parties as of January 21, 1999 (the "SHARE PURCHASE
Agreement")) and to the best of its knowledge is in compliance
with all applicable Environmental Laws; and
(d) the Corporation is not aware of any year 2000 issues of the
Corporation or its major customers or suppliers that would
have a material adverse effect on the Corporation or its
Business and the Corporation is in compliance with its year
2000 policy.
All capitalized terms not defined herein have the meaning specified
thereto in the Share Purchase Agreement.
Witness my hand and the corporate seal of the Corporation this 22nd
day of July, 2001.
By: /s/ Russell Lindsay
-----------------------------------
Name: Russell Lindsay
Title: Senior Vice-President
& Chief Financial Officer
2
INTERUNION ASSET MANAGEMENT LIMITED
Consolidated Balance Sheets (unaudited)
(amounts expressed in Canadian dollars unless otherwise stated)
(as at June 30 and March 31
- --------------------------------------------------------------------------------
2001 2001
------------ ------------
Assets
Current:
Cash $ 351,426 $ 661,238
Marketable securities, at market 1,650,271 1,535,670
Accounts receivable and accrued revenue 319,322 576,068
Prepaid expenses 64,600 76,989
Income taxes recoverable 45,264 --
Future income tax asset 43,817 26,108
------------ ------------
2,474,700 2,876,073
Management contracts, net (note 5) 1,547,619 1,619,048
Capital assets, net (note 6) 339,628 338,945
Investments, at cost 13,915 13,915
Goodwill (note 7) 8,996,410 9,152,976
------------ ------------
Total assets $ 13,372,272 $ 14,000,957
============ ============
Liabilities
Current:
Bank indebtedness $ -- $ 16,041
Accounts payable and accrued liabilities (note 9) 390,728 644,082
Current portion of long term debt 18,000 18,000
Income taxes payable -- 48,494
Deferred revenue 93,335 83,942
------------ ------------
502,063 810,559
Deferred inducements (note 8) 45,304 44,514
Long term debt (note 10) 35,000 39,500
Other liabilities (note 9) 153,125 131,250
Preference shares (note 11) 3,500,000 3,500,000
------------ ------------
4,235,492 4,525,823
------------ ------------
Non-controlling interest 102,422 135,119
------------ ------------
Shareholders' Equity
Shareholders' equity:
Share capital (note 12) 16,358,559 16,358,559
Deficit (7,324,201) (7,018,544)
------------ ------------
Total shareholders' equity 9,034,358 9,340,015
------------ ------------
Total liabilities and shareholders' equity $ 13,372,272 $ 14,000,957
============ ============
- --------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements
3
INTERUNION ASSET MANAGEMENT LIMITED
Consolidated Statements of Operations and Deficit (unaudited)
(amounts expressed in Canadian dollars unless otherwise stated)
(for the three months ended June 30)
- --------------------------------------------------------------------------------
2001 2000
----------- -----------
Revenue
Management fees $ 1,425,160 $ 1,544,200
Other income (loss) 16,179 (13,524)
----------- -----------
1,441,339 1,530,676
----------- -----------
Operating expense
Commission and incentives 168,921 187,824
Salaries and benefits 983,282 893,635
Marketing and advertising 49,253 55,324
Office and general 239,500 341,349
Professional fees 74,637 108,813
Amortization of management contracts 71,429 96,429
Amortization of capital assets 26,293 36,495
----------- -----------
1,613,315 1,719,869
----------- -----------
Operating loss before undernoted (171,976) (189,193)
----------- -----------
Interest expense
Current -- 28,303
Long term 45,723 47,672
----------- -----------
45,723 75,975
----------- -----------
Loss before amortization of goodwill,
non-controlling interest and income taxes (217,699) (265,168)
----------- -----------
Income taxes (note 13)
Current income taxes (recovery) (43,203) --
Future income taxes (benefit) (17,709) 118,252
----------- -----------
(60,912) 118,252
----------- -----------
Loss before amortization of goodwill
and non-controlling interest (156,787) (383,420)
Amortization of goodwill 156,566 198,970
----------- -----------
156,566 198,970
Loss before non-controlling interest (313,353) (582,390)
Non-controlling interest (7,696) (3,800)
Net loss, for the period (305,657) (578,590)
Deficit, beginning of period (7,018,544) (2,658,767)
----------- -----------
Deficit, end of period $(7,324,201) $(3,237,357)
=========== ===========
- --------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements
4
INTERUNION ASSET MANAGEMENT LIMITED
Consolidated Statements of Cash Flows (unaudited)
(amounts expressed in Canadian dollars unless otherwise stated)
(for the three months ended June 30)
- --------------------------------------------------------------------------------
2001 2000
--------- ---------
Cash flows from operating activities
Net loss $(305,657) $(578,590)
Adjustments for:
Amortization of goodwill 156,566 198,970
Amortization of management contracts 71,429 96,429
Amortization of capital assets 26,293 36,495
Deferred rent inducements 790 (790)
Unrealized loss on investment -- 2,380
Provision for doubtful receivable 2,350 --
Future income taxes (benefit) (17,709) --
Non-controlling interest (7,696) (3,800)
Changes in non-cash working capital
Decrease in accounts receivable 254,396 53,841
Decrease in accounts payable (253,354) (86,395)
Increase in income taxes recoverable (45,264) --
Decrease in income taxes payable (48,494) (79,067)
Other items, net 34,263 44,249
--------- ---------
(132,087) (316,278)
--------- ---------
Cash flows from investing activities
Acquisition of capital assets, net of disposals (26,976) (4,165)
Sale (purchase) of marketable securities (114,601) 308,477
--------- ---------
(141,577) 304,312
--------- ---------
Cash flows from financing activities
Decrease in bank indebtedness (16,041) (36,853)
Increase in deferred revenue and inducements 9,393 12,332
Repayments of long term borrowings (4,500) (21,684)
Dividend paid to non-controlling interest (25,000) (25,000)
--------- ---------
(36,148) (71,205)
--------- ---------
Net increase (decrease) in cash (309,812) (83,171)
Cash at beginning of period 661,238 525,621
--------- ---------
Cash at end of period $ 351,426 $ 442,450
========= =========
Supplemental Cash Flows Information
Interest paid $ 24,298 $ 32,225
Income taxes paid 57,995 223,734
- --------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements
5
INTERUNION ASSET MANAGEMENT LIMITED
Notes to Consolidated Financial Statements
June 30, 2001 and June 30, 2000
(amounts expressed in Canadian dollars unless otherwise stated)
- --------------------------------------------------------------------------------
1. NATURE OF BUSINESS
InterUnion Asset Management Limited, formerly Cluster Asset Management
Limited, was incorporated on August 13, 1997 under the laws of Ontario. The
principal business activities of InterUnion Asset Management Limited and
its subsidiaries are discretionary and advisory portfolio management
services for its clients and the acquisition of investment management
firms.
- --------------------------------------------------------------------------------
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a) Principles of Consolidation These consolidated financial statements
include the accounts of InterUnion Asset Management Limited and its
subsidiaries. The principal operating subsidiaries are Black
Investment Management Ltd., Glen Ardith-Frazer Corporation, Guardian
Timing Services Inc., Leon Frazer & Associates Inc., P.J. Doherty &
Associates Co. Ltd. and A.I.L. Investment Services Inc. (see note
3). Unless the context implies otherwise, the term "Company"
collectively refers to InterUnion Asset Management Limited and all
of its subsidiaries.
b) Marketable Securities
Marketable securities are valued at market and unrealized gains and
losses are reflected in income.
c) Management Contracts
Management contracts are recorded at cost less accumulated
amortization and are amortized on a straight-line basis over a
period of 7 years. The Company assesses the value of its management
contracts by considering the future economic benefit associated with
the revenue capacity of the related contracted items.
d) Capital Assets
Capital assets are recorded at cost less accumulated amortization.
Amortization is provided on the following basis:
Computer equipment 30% declining balance
Furniture and fixtures 20% declining balance
Leasehold improvements over the term of lease on a
straight line basis
e) Goodwill
Goodwill being the excess of cost over assigned values of net assets
acquired, is stated at cost less amortization. Amortization is
provided on a straight-line basis over periods from 15 to 20 years.
The value of goodwill is evaluated regularly by reviewing, among
other items, the undiscounted cash flows relating to the returns of
the related business, and by taking into account the risk associated
with the investment. Any impairment in the value of the goodwill is
written off against operations.
f) Revenue Recognition
Revenue is recognized by the Company on an earned basis. For its
services, the Company is entitled to an annual fee payable monthly
or quarterly, depending on its agreement with the client. Fees are
calculated based on the fair market value of the portfolio on each
valuation date. Fees billed in advance are recorded as deferred
revenue and taken into income evenly over the term of the stated
billing.
g) Financial Instruments
The Company's financial instruments consist of cash, bank
indebtedness, marketable securities, accounts receivable,
investments, accounts payable and accrued liabilities, other
liabilities, preference shares and long term debt. It is
management's opinion that the Company is not exposed to significant
interest risks arising from these financial instruments. Unless
otherwise noted, the fair value of these financial instruments
approximates their carrying values.
6
INTERUNION ASSET MANAGEMENT LIMITED
Notes to Consolidated Financial Statements
June 30, 2001 and June 30, 2000
(amounts expressed in Canadian dollars unless otherwise stated)
- --------------------------------------------------------------------------------
The Company is exposed to credit risk on the accounts receivable
from its customers. Management has adopted credit policies in an
effort to minimize those risks. The Company does not have a
significant exposure to any individual customer or counter-party.
h) Income Taxes
As recommended by The Canadian Institute of Chartered Accountants,
effective April 1, 1999, the Corporation adopted the liability
method of accounting for income taxes. Under this method, future tax
assets and liabilities are recognized for temporary differences
between the financial reporting and tax bases of assets and
liabilities as well as for the benefit of losses available to be
carried forward to future years for tax purposes that are likely to
be realized.
i) Stock-Based Compensation Plan
The Company's stock-based compensation arrangements are described in
Note 13. No compensation expense is recognized for these
arrangements when stock options are issued to employees. Any
consideration paid by employees on exercise of stock options is
credited to share capital. If stock options are repurchased from
employees, the excess of the consideration paid over the carrying
amount of the stock option cancelled is charged to retained
earnings.
j) Use of Estimates
The preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements, and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from management's best estimates
as additional information becomes available in the future.
- --------------------------------------------------------------------------------
3. ACQUISITIONS AND DISPOSITIONS
The following are acquisitions made during the periods. These acquisitions
were accounted for by the purchase method and consolidated from the
respective effective date of acquisition, except where noted.
Fiscal 2001 Acquisitions:
o On March 31, 2001 the Company purchased an additional 3,201 shares
in Leon Frazer & Associates Inc. from Black Investment Management
Limited, thereby increasing the Company's direct ownership in Leon
Frazer & Associates Inc. to 76.5%.
Fiscal 2001 Dispositions:
o On September 29, 2000, the Company sold its share ownership in
A.I.L. Investment Services Inc. (AILISI), a wholly owned subsidiary,
for net cash proceeds of $611,000. AILISI provided all management
and administrative services for one mutual fund corporation. The
primary asset of AILISI was a management contract with a net book
value of $350,000 on the date of sale (June 30, 2000 - $375,000).
Included in `Other income' at March 31, 2001 is a net gain of
$197,000 resulting from this transaction
- --------------------------------------------------------------------------------
4. MARKETABLE SECURITIES
Marketable securities are recorded at market values and comprise the
following:
June 30, 2001 March 31, 2001
------------- --------------
Bankers Acceptance $1,395,442 $1,094,850
Money Market Mutual Funds 254,829 409,047
Other Mutual Funds -- 31,773
---------- ----------
$1,650,271 $1,535,670
========== ==========
The Bankers Acceptance outstanding at June 30, 2001 matures on July 27,
2001. The annualized yield on this security is 4.4%.
7
INTERUNION ASSET MANAGEMENT LIMITED
Notes to Consolidated Financial Statements
June 30, 2001 and June 30, 2000
(amounts expressed in Canadian dollars unless otherwise stated)
- --------------------------------------------------------------------------------
5. MANAGEMENT CONTRACTS
Management contracts comprise the following:
June 30, 2001 March 31, 2001
------------------------------------------ --------------
Accumulated Net Book Net Book
Cost Amortization Value Value
---------- ------------ ---------- ----------
Non-competition agreement $2,000,000 $ 452,381 $1,547,619 $1,619,048
========== ========== ========== ==========
- --------------------------------------------------------------------------------
6. CAPITAL ASSETS
Capital assets comprise the following:
June 30, 2001 March 31, 2001
------------------------------------------ --------------
Accumulated Net Book Net Book
Cost Amortization Value Value
---------- ------------ ---------- ----------
Computer equipment $ 657,760 $ 514,806 $ 142,954 $ 131,090
Furniture and fixtures 443,532 335,778 107,754 113,435
Leasehold improvements 162,410 73,490 88,920 94,420
---------- ---------- ---------- ----------
$1,263,702 $ 924,074 $ 339,628 $ 338,945
========== ========== ========== ==========
- --------------------------------------------------------------------------------
7. GOODWILL
June 30, 2001 March 31, 2001
------------- --------------
Cost $13,610,691 $13,610,691
Impairment of goodwill 2,565,000 2,565,000
Accumulated amortization 2,049,281 1,892,715
----------- -----------
$ 8,996,410 $ 9,152,976
=========== ===========
In the prior year, the Company recorded goodwill impairment charges of
$2,565,000 on its investments in Black Investment Management Ltd. and
Guardian Timing Services Inc. Impairment resulted from significant client
departures and the disposition of several product offerings. In the case of
Black Investment Management Ltd., the amount of impairment was based on the
estimated net realizable cash value while for Guardian Timing Services
Inc., the amount of impairment was based on estimated undiscounted future
cash flows.
- --------------------------------------------------------------------------------
8. DEFERRED INDUCEMENTS
Deferred inducements comprise the following:
June 30, 2001 March 31, 2001
------------- --------------
Deferred lease inducement $45,304 $44,514
A controlled company's lease at its Toronto premises provides for rent-free
periods and periods of significantly reduced rent. In order to properly
reflect these rental inducements over the term of the lease, the total
lease payments have been aggregated and allocated over the term of the
lease on a straight-line basis. This treatment of rental inducements has
given rise to deferred rent inducements which will be applied to income
over the term of the lease.
8
INTERUNION ASSET MANAGEMENT LIMITED
Notes to Consolidated Financial Statements
June 30, 2001 and June 30, 2000
(amounts expressed in Canadian dollars unless otherwise stated)
- --------------------------------------------------------------------------------
The controlled company has sub-let certain of its leased premises for the
term of the lease. Included in deferred inducements are expenses associated
with the sub-lease arrangement which have been deferred and will be
amortized over the remaining life of the sub-lease.
- --------------------------------------------------------------------------------
9. RELATED PARTY TRANSACTIONS
Transactions with shareholders, officers and directors of the Company
influenced by the aforementioned parties are considered related party
transactions.
Summary of the related party transactions affecting the accounts are as
follows:
3 months ended 3 months ended
June 30, 2001 June 30, 2000
-------------- --------------
Revenue
Management fees $ -- $20,200
Expenses
Commissions and incentives 28,950 23,150
Interest expense 43,750 43,750
Office and general -- 6,300
Professional fees 1,200 57,000
These transactions are in the normal course of operations and are
measured at the exchange values (the amount of consideration established
and agreed to by the related parties), which approximate the arm's length
equivalent values.
Related party balances in the accounts are as follows:
June 30, 2001 March 31, 2001
------------- --------------
Accounts payable $ 35,270 $ 21,875
Other liabilities 153,125 131,250
These balances are interest-free, unsecured, payable on demand and have
arisen from the transactions referred to above (except for Other
liabilities which is due on November 19, 2002 and has arisen on issuance of
preferred shares).
- --------------------------------------------------------------------------------
10. LONG-TERM DEBT
June 30, 2001 March 31, 2001
------------- --------------
Demand bank loan, interest at prime +1/2%, monthly principal
Payments of $1,500 commencing January 2000 $53,000 $57,500
Less: current portion 18,000 18,000
------- -------
$35,000 $39,500
======= =======
The demand bank loan is guaranteed by two of a subsidiary company's
shareholders.
9
INTERUNION ASSET MANAGEMENT LIMITED
Notes to Consolidated Financial Statements
June 30, 2001 and June 30, 2000
(amounts expressed in Canadian dollars unless otherwise stated)
- --------------------------------------------------------------------------------
11. PREFERENCE SHARES
3,500 Cumulative Redeemable Convertible Class A Preference Shares (with a
value equal to $1,000 per share) were issued on November 19, 1999 as
consideration for the acquisition of P.J. Doherty & Associates Co. Ltd.
These Class A Preference Shares are redeemable at the option of either the
holders (commencing November 19, 2002, subject to certain provisions for
early redemption arising from non-payment of dividends and an Initial
Public Offering of the Common Shares of the Company prior to November 19,
2002) or the Company (commencing November 19, 2001) at $1,000 per share. In
the instance that the Class A Preference Shares are redeemed by the
Company, the holders are entitled to a cash premium of 2.5% per annum,
calculated from the original issue date together with all dividends
accruing thereon whether or not declared. At any time after issuance, each
Class A Preference Share is convertible to 80.61 Common Shares (see note
13) at a conversion price of $12.7538 per Common Share (subject to certain
provisions with respect to the issuance of additional Common Shares).
Holders of these Class A Preference Shares are entitled to quarterly
cumulative cash dividends of: i.) 2.50% per annum until the third
anniversary of the original issue date; and ii.) 5.00% per annum,
thereafter. Holders of these Class A Preference Shares are also entitled to
an additional dividend of 2.50% per annum accruing until and payable on the
earlier of: i.) the third anniversary of the original issue date; ii.) the
date on which Common Shares are delivered to the holder pursuant to a
conversion of Class A Preference Shares; and iii.) the redemption of such
Class A Preference Shares. As these Class A Preference Shares are
redeemable at the option of the holders, the value of these shares have
been classified as long-term debt on the balance sheet. These Class A
Preference Shares are collateralized by a pledge by the Company of
4,000,000 common shares in the capital of P.J. Doherty & Associates Co.
Ltd. valued at $4,000,000.
- --------------------------------------------------------------------------------
12. SHARE CAPITAL
The authorized share capital of the Company consists of an unlimited number
of Common Shares and an unlimited number of Class A and Class B Preference
Shares, issuable in series (note 12).
Details of issued share capital are as follows:
Common
--------------------------------
Shares Amount
----------- -----------
March 31, 2000 1,568,161 $16,358,558
Issued on conversion of warrants 44,000 1
----------- -----------
March 31, 2001 and June 30, 2001 1,612,161 $16,358,559
----------- -----------
The demand bank loan is guaranteed by two of a subsidiary company's
shareholders.
During a prior fiscal period, the Board of Directors of the Company
approved the granting of options to employees to purchase up to 136,300
common shares of the Company which may be granted from time to time.
Various vesting requirements are associated with each employee grant.
Subsequently, as a result of the issuance of common shares relating to the
warrant referred to above, in the prior fiscal year, additional stock
options were issued and the preferred share conversion ratio was adjusted
to maintain the proportionate holdings of the option holders and preferred
shareholders as required under the terms of the financial instruments.
10
INTERUNION ASSET MANAGEMENT LIMITED
Notes to Consolidated Financial Statements
June 30, 2001 and June 30, 2000
(amounts expressed in Canadian dollars unless otherwise stated)
- --------------------------------------------------------------------------------
Vested Options
-------------------Number of Options------------------
Fiscal year Vested expiry Exercise Outstanding, Issued/ Outstanding,
granted date price March 31, 2001 Vested Exercised June 30, 2001
----------- ------------- --------- -------------- -------- --------- -------------
1999 Jan 21, 2009 $ 16.13 37,319 -- -- 37,319
1999 Jan 21, 2009 $ 0.001 22,617 -- -- 22,617
2000 May 10, 2009 $ 13.00 20,733 2,827 -- 23,560
Unvested Options
------------------------Number of Options-------------------------
Fiscal year Vested expiry Exercise Outstanding, Forfeited/ Outstanding,
granted date price March 31, 2001 Issued Vested Expired June 30, 2001
---------- ------------- --------- -------------- ------ ------ ---------- -------------
2000 May 10, 2009 $ 13.00 13,193 926 2,827 -- 10,366
Unvested options vest evenly over a three-year term.
- --------------------------------------------------------------------------------
13. INCOME TAXES
The Company's effective income tax rate used in determining the provision
for income taxes is as follows:
3 months ended 3 months ended
June 30, 2001 June 30, 2000
-------------- ---------------
Combined statutory tax rate (recovery) (42.1)% (44.6)%
Deduct:
Non-deductible expenses 9.0 4.9
Temporary differences 11.5 12.9
Unrecognized losses carried forward -- 70.5
Future tax asset (6.2) --
Other, net (.2) .9
----- ----
Effective income tax rate (28.0)% 44.6%
===== ====
As at June 30, 2001, the consolidated group had approximately $1,976,000 of
non-capital losses (March 31, 2001 - $2,079,000) and $401,000 (March 31,
2001 - $391,000) of capital losses which may be carried forward and
utilized to reduce future years' taxable income and capital gains,
respectively. In addition, the consolidated group also had $280,000 in
restricted capital losses arising from a related party transaction. Capital
losses can be carried forward indefinitely. The right to claim the
non-capital losses expires as follows:
Expiry
------
2005 $ 18,000
2006 220,000
2007 804,000
2008 934,000
11
INTERUNION ASSET MANAGEMENT LIMITED
Notes to Consolidated Financial Statements
June 30, 2001 and June 30, 2000
(amounts expressed in Canadian dollars unless otherwise stated)
- --------------------------------------------------------------------------------
During the period, the Company's future income tax asset decreased by
$58,000 and totaled $1,124,000 (March 31, 2001 - $1,182,000) after applying
the statutory tax rate to the temporary differences and non-capital and
capital losses described above.
Subsequently, the net change to the valuation allowance during the period,
and the total valuation allowance as at June 30, 2001 provided by the
Company, decreased by $76,000 and totaled $1,080,000 (March 31, 2001 -
$1,156,000) to reduce the future income tax asset, reflecting the
uncertainty of full realization of the future income tax asset.
- --------------------------------------------------------------------------------
14. LOSS PER SHARE
Basic loss per share has been calculated on a weighted average basis of
common shares outstanding during the period.
3 months ended 3 months ended
June 30, 2001 June 30, 2000
-------------- --------------
Weighted average common shares
- basic calculation 1,612,161 1,612,161
The calculations of fully diluted earnings per share is based upon the
common shares outstanding during the period as above and not adjusted by
the unexercised convertible Class A Preference shares and vested options in
computing diluted loss per share because their effects were antidilutive.
3 months ended 3 months ended
June 30, 2001 June 30, 2000
-------------- ---------------
Basic loss per share $ (0.19) $(0.36)
In accordance with revised recommendations of The Canadian Institute of
Chartered Accountants, the company adopted on a retroactive basis the
accounting standards for calculating Earnings Per Share. Accordingly, prior
period basic earnings per share has been restated to account for the effect
of the outstanding warrants issued which were contingent upon certain
conditions which had been satisfied at March 8, 1999. The basic loss per
share reported in the prior year has been decreased by $0.01 per share.
- --------------------------------------------------------------------------------
15. COMMITMENTS
The Company has basic lease payments exclusive of operating costs for the
premises and office equipment for the next four years as follows:
12 months ended
June 30
----------------
2002 $217,000
2003 145,000
2004 74,000
2005 1,000
The Company has employment contracts and obligations with five of its
employees at the following annual base salaries amount:
12 months ended
June 30
---------------
2002 $917,000
2003 553,000
2004 490,000
2005 205,000
12
INTERUNION ASSET MANAGEMENT LIMITED
Notes to Consolidated Financial Statements
June 30, 2001 and June 30, 2000
(amounts expressed in Canadian dollars unless otherwise stated)
- --------------------------------------------------------------------------------
16. RECONCILIATION OF CANADIAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES
The consolidated financial statements of the Company are prepared in
accordance with accounting principles generally accepted in Canada
("Canadian GAAP"). Material differences at June 30 between Canadian GAAP
and accounting principles generally accepted in the United States ("U.S.
GAAP") are described below:
a) Statements of Operations:
The application of U.S. GAAP would have the following effect on net loss
for the quarter and loss per common share as reported:
3 months ended 3 months ended
June 30, 2001 June 30, 2000
-------------- --------------
Net loss for the period, Canadian GAAP $(305,657) $(578,590)
Stock based compensation (i) -- (17,235)
--------- ---------
Net loss for the period, U.S. GAAP $(305,657) $(595,825)
========= =========
Loss per common share under U.S. GAAP $ (0.19) $ (0.37)
(i) Stock-Based Compensation Expense
The Company does not recognize compensation expense for stock
options granted. Under U.S. GAAP, Accounting Principles Board
("APB") Opinion No. 25 requires that stock based compensation cost
be recorded using the intrinsic-value method. FASB Statement of
Financial Accounting Standard ("SFAS") No. 123 encourages the
Company to record compensation expense using the fair-value
method. In reconciling Canadian GAAP with U.S. GAAP, the Company
has chosen to measure compensation costs related to stock options
in accordance with APB 25.
Under APB 25 the intrinsic-value of vested options would have been
$0 (2000 - $0). The intrinsic-value of unvested options is
estimated to be $0 (2000 - $177,000 with a vesting period of two
years). Therefore, total compensation cost for the period under
APB 25 would have been $(0) (2000 - $17,235). Had the Company
booked compensation expense in accordance with APB 25, basic loss
per share would have been increased by $0.00 (2000 - $0.01).
b) Other Disclosures:
i) Comprehensive Income
FASB SFAS No. 130 introduced the concept of Comprehensive Income.
Under this pronouncement, U.S. GAAP requires companies to report
Comprehensive Income as a measure of overall performance.
Comprehensive Income includes net income and all other changes in
equity, exclusive of shareholders' contributions or any
distributions to shareholders. The application of FASB SFAS N0.
130 would not have a material effect on net loss for the period
and loss per common share as reported under U.S. GAAP.
13
INTERUNION ASSET MANAGEMENT LIMITED
Notes to Consolidated Financial Statements
June 30, 2001 and June 30, 2000
(amounts expressed in Canadian dollars unless otherwise stated)
- --------------------------------------------------------------------------------
17. SUBSEQUENT EVENT
As at July 20, 2001 the Company sold all of its 53.2% share ownership
interest in Black Investment Management Limited for cash proceeds of
$146,250. Subject to certain terms regarding revenue levels of Black
Investment Management over the next three years, the Company may receive
additional proceeds. As these proceeds are contingent upon the outcome of
future events, no amount will be recorded in the current year financial
statements. The Company will record a consolidated gain of $22,000.
- --------------------------------------------------------------------------------
18. COMPARATIVE CONSOLIDATED FINANCIAL STATEMENTS
Certain comparative figures have been restated to conform with the current
period's presentation.
14