UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-QSB/A (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, 1996 ------------------------ [ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT For the transition period from _____________ to ____________ Commission file number _______________________________ INTERUNION FINANCIAL CORPORATION -------------------------------- (Exact name of small business issuer as specified in its charter) Delaware 87-0520294 - -------- ---------- (State or other jurisdiction of (IRS Employer Identification No.) incorporation or organization) 249 Royal Palm Way, Suite 301 H, Palm Beach, Fl 33480 - ----------------------------------------------- ----- (Address of principal executive offices) (Zip Code) (561) 820-0084 - -------------- (Issuer's telephone 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 [ ] No [X] APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPCY PROCEEDINGS DURING THE PRECEEDING 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 share outstanding of each of the issuer's classes of common equity, as of the latest practicable date: $0.001 Par Value Common Shares - 692,572 as of June 30, 1996. Transitional Small Business Disclosure Format (Check One) Yes [ ] No [X] Page 1 of 10 PART I - FINANCIAL INFORMATION ITEM 1 - FINANCIAL STATEMENTS INTERUNION FINANCIAL CORPORATION CONSOLIDATED STATEMENT OF OPERATIONS AND DEFICIT FOR THE THREE MONTHS ENDED JUNE 30, 1996 (Expressed in U.S. Dollars)
3 mos ended 3 mos ended 12 mos ended 12 mos ended Jun-96 Jun-95 Mar-96 Mar-95 ----------- ----------- ------------ ------------ REVENUES Commissions, trading & investment income 1,364,701 1,035,687 4,500,899 3,971,160 Sales 515,934 Fee Revenue 229,908 223,359 1,356,297 56,907 ---------- ---------- ---------- ---------- 2,110,543 1,259,046 5,857,196 4,028,067 ---------- ---------- ---------- ---------- EXPENSES Cost of Goods Sold 515,934 Selling, Marketing & Research 1,008,674 884,350 4,207,289 2,868,886 Salaries & Benefits 274,331 168,351 759,361 291,687 General & Administration 176,294 185,132 702,938 796,673 Other Expenses (639) -- 13,132 Foreign Exchange Loss (Gain) 296 (4,514) (20,902) (247) Interest & Bank Charges Expense (Income) (8,137) (4,486) (37,337) 5,830 Amortization & Depreciation 79,992 45,215 218,084 24,272 ---------- ---------- ---------- ---------- 2,046,745 1,274,048 5,842,565 3,987,101 ---------- ---------- ---------- ---------- PROFIT (LOSS) FROM CONTINUING OPERATIONS 63,798 (15,002) 14,631 40,966 Loss from Discontinued Operation (75,000) (94,252) (184,845) Gain on Disposal of Discontinued Assets 409,418 ---------- ---------- ---------- ---------- PROFIT (LOSS) FOR THE PERIOD - BEFORE INCOME TAXES 63,798 (90,002) 329,797 (143,879) PROVISION FOR INCOME TAXES (RECOVERABLE) 57,772 4,500 28,231 9,441 ---------- ---------- ---------- ---------- NET PROFIT (LOSS) FOR THE PERIOD 6,026 (94,502) 301,566 (134,438) RETAINED EARNINGS (DEFICIT) - BEGINNING OF PERIOD 167,128 (134,438) (134,438) 0 ---------- ---------- ---------- ---------- RETAINED EARNINGS (DEFICIT) - END OF PERIOD 173,154 (228,940) 167,128 (134,438) ========== ========== ========== ========== FINANCIAL OVERVIEW Common Shares Outstanding 692,572 431,558 692,572 369,058 Weighted Average Shares Outstanding 692,572 419,400 501,335 157,531 EPS - From Continuing Operations 0.01 (0.05) 0.03 0.26 EPS - After Discontinued Operations 0.01 (0.23) 0.60 (0.85)
Page 2 of 10 See Accompanying Notes INTERUNION FINANCIAL CORPORATION CONSOLIDATED BALANCE SHEET AS AT JUNE 30, 1996 (Expressed in U.S. Dollars)
3 mos ended 3 mos ended 12 mos ended 12 mos ended Jun-96 Jun-95 Mar-96 Mar-95 ----------- ----------- ------------ ------------ CURRENT ASSETS Cash 622,757 584,697 722,795 490,681 Due from brokers and dealers 911,160 500,545 1,168,190 172,944 Client deposits 1,070,270 2,954,620 2,093,966 21,147,890 Marketable securities 194,117 249,530 2,625,585 15,682,071 Accounts receivable 492,324 167,828 208,727 55,262 Income tax receivable (35,402) 18,587 1,597 15,866 Sundry assets and prepaid expenses 170,149 42,465 75,906 31,615 ----------- ----------- ----------- ----------- 3,425,375 4,518,272 6,896,766 37,596,329 ----------- ----------- ----------- ----------- CAPITAL ASSETS 913,586 975,149 948,892 933,380 START-UP COSTS 418,990 94,538 438,803 LONG TERM INVESTMENTS 913,834 900,361 913,834 900,361 DEFERRED CHARGES 174,367 223,574 184,944 234,574 GOODWILL AND NON-CURRENT ASSETS 1,072,165 1,129,687 1,086,461 1,143,982 DISCONTINUED ASSETS 222,933 240,693 ----------- ----------- ----------- ----------- 3,492,942 3,546,242 3,572,934 3,452,990 ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- 6,918,317 8,064,514 10,469,700 41,049,319 =========== =========== =========== =========== CURRENT LIABILITIES Due to brokers and dealers 429,091 495,628 2,499,665 30,168,593 Due to clients 1,629,007 2,950,486 3,035,310 6,368,681 Accounts payable and accrued liabilities 714,382 315,425 675,623 283,459 ----------- ----------- ----------- ----------- 2,772,480 3,761,539 6,210,598 36,820,733 ----------- ----------- ----------- ----------- DUE TO RELATED PARTIES 171 100,873 119,462 100,873 DISCONTINUED LIABILITIES 543,268 499,377 ----------- ----------- ----------- ----------- 171 644,141 119,462 600,250 ----------- ----------- ----------- ----------- SHAREHOLDERS EQUITY Capital Stock and additional paid-in capital 3,972,512 3,887,774 3,972,512 3,762,774 Retained Earnings (Deficit) 173,154 (228,940) 167,128 (134,438) ----------- ----------- ----------- ----------- 4,145,666 3,658,834 4,139,640 3,628,336 ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- 6,918,317 8,064,514 10,469,700 41,049,319 =========== =========== =========== ===========
See Accompanying Notes Page 3 of 10 INTERUNION FINANCIAL CORPORATION CONSOLIDATED STATEMENT OF CHANGES IN FINANCIAL POSITION FOR THE THREE MONTHS ENDED JUNE 30, 1996 (Expressed in U.S. Dollars)
3 mos ended 3 mos ended 12 mos ended 12 mos ended Jun-96 Jun-95 Mar-96 Mar-95 ----------- ----------- ------------ ------------ OPERATING ACTIVITIES Net Income (Loss) 6,026 (94,502) 301,566 (134,438) Amortization 79,992 45,215 218,084 24,272 Gain on disposition of discontinued operations (409,418) ----------- ----------- ----------- ----------- 86,018 (49,287) 110,232 (110,166) Increase (decrease) in due to brokers and dealers, net (1,813,544) (30,000,566) (28,664,174) 29,995,649 Increase (decrease) in due to clients (382,607) 14,783,359 15,720,553 (14,779,209) Increase (decrease) in marketable securities 2,431,468 15,432,541 13,056,486 (15,682,071) Increase (decrease) in accounts receivable & sundry assets (340,841) (126,137) (183,487) (102,741) Decrease (increase) in accounts payable and accrued liabilities 38,759 31,966 392,164 283,460 ----------- ----------- ----------- ----------- CASH PROVIDED (USED) BY OPERATING ACTIVITIES 19,253 71,876 431,774 (395,078) ----------- ----------- ----------- ----------- FINANCING ACTIVITIES Capital stock and additional paid-in capital issued -- 125,000 555,000 3,762,774 Increase (decrease) in due to related parties (119,291) -- 18,589 100,872 ----------- ----------- ----------- ----------- CASH PROVIDED (USED) BY FINANCING ACTIVITIES (119,291) 125,000 573,589 3,863,646 ----------- ----------- ----------- ----------- INVESTING ACTIVITIES Capital assets (44,369) (132,533) (957,653) Start-up costs (94,538) (438,803) Long term investments -- (13,472) (900,361) Deferred & Reorganization Costs 25,604 (61,632) (234,574) Goodwill (1,143,982) Investment in subsidiaries (507,456) Acquisition Costs Discontinued operations 61,651 (126,809) 258,684 ----------- ----------- ----------- ----------- CASH PROVIDED (USED) IN INVESTING ACTIVITIES -- (102,860) (773,249) (3,485,343) ----------- ----------- ----------- ----------- INCREASE (DECREASE) IN CASH (100,038) 9,016 232,114 (16,775) CASH - BEGINNING OF YEAR 722,795 490,681 490,681 CASH ACQUIRED ON ACQUISITION OF SUBSIDIARIES 507,456 ----------- ----------- ----------- ----------- CASH - END OF YEAR 622,757 584,697 722,795 490,681 =========== =========== =========== ===========
See Accompanying Notes Page 4 of 10 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 1. Interim information is unaudited; however, in the opinion of the Company's management, all adjustments necessary for a fair statement of interim results have been included in accordance with Generally Accepted Accounting Principles in Canada. All adjustments are of a normal recurring nature unless specified in a separate note included in these Notes to Consolidated Financial Statements. The results for interim periods are not necessarily indicative of results to be expected for the entire 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, 1996, included in its Form 10-SB/A for the year ended March 31, 1996 (the "1996 Form 10-SB/A"). As of March 31, 1997, the Company will report solely under US GAAP. 2. Earnings per share is computed using the weighted average number of common shares outstanding during the period. Loss per share is computed using the weighted average number of common shares outstanding during the period. 3. Reconciling Canadian GAAP to U.S. GAAP: The following is a reconciliation of Net Income under Canadian GAAP to U.S. GAAP for the 3 months ending June 30.
1996 1995 ---- ---- Net Income (Loss), in accordance with Canadian GAAP 6,026 (94,502) Start-up Costs 21,941 (94,537) Reorganization Costs 13,026 (29,345) Acquisitions (18,857) (18,857) ---------- ---------- Net Income (Loss), in accordance with U.S. GAAP 22,136 (237,241) Retained Earning, Opening (1,328,128) (823,502) ---------- ---------- Retained Earning, Ending (1,305,992) (1,060,743) ========== ==========
The following is a reconciliation of Shareholders' Equity under Canadian GAAP to U.S. GAAP as at June 30.
1996 1995 ---- ---- Shareholders' Equity, in accordance with Canadian GAAP 4,145,666 3,658,834 Start-up Costs (416,863) (94,537) Reorganization Costs (167,219) (259,220) Long-term Investments (773,834) (773,834) Acquisitions 268,234 339,991 ---------- ---------- Shareholders' Equity, in accordance with U.S. GAAP 3,055,984 2,871,234 ========== ==========
Below is a summary of the reconciliation note that can be obtained in the Company's Consolidated Financial Statements. In addition, any new information has been added. a) Start-up Costs: The Company's policy as permissible under Canadian GAAP has been to capitalize the result of the first year of operation for the auction house. Under U.S. GAAP, these amounts are charged to earnings as incurred. b) Reorganization Costs: The Company's policy as permissible under Canadian GAAP has been to capitalize Reorganization Costs. Under U.S. GAAP, these amounts are charged to earnings as incurred. c) Long-term Investments: Shares of the Company held by a subsidiary have not been eliminated under Canadian GAAP as they are held for resale. Under U.S. GAAP, these shares would be eliminated in consolidation. In addition, under Canadian GAAP the sale of these shares would be treated as a capital transaction. Under U.S. GAAP, the sale of these shares will not be treated as a capital transaction. d) Acquisitions: Under US GAAP, the Company's acquisitions of its subsidiaries are required to be accounted for either as a purchase or a pooling of interest depending on whether or not there is any beneficial change in control. U.S. Page 5 of 10 GAAP requires the value of the assets acquired to be based on the value of the consideration given under the purchase method. Whereas, under Canadian GAAP, assets acquired are valued on the basis of the fair market value of the assets at the date acquired. In the pooling of interest method where there is no effective change in beneficial ownership the assets are consolidated using their historical values and retained earnings are carried forward with no adjustments. This difference in GAAP in the application of the purchase method described above would have caused the Company to carry the ITM software at a greater value under US GAAP. The original carrying value under Canadian GAAP is $864,554, while under US GAAP that amount is $1,924,443, for an increase of $1,059,889. The value of the software was determined at acquisition on the basis that Bearhill Limited ("Bearhill") had no liabilities and no other asset except the ITM Software that was created in-house. Therefore, since the transaction was done at arms length, the fair market value of the ITM Software was determined to be the value of the transaction. Under both Canadian and US GAAP, this amount is being charged to earnings on a straight line basis. After recognizing the new value for the software and evaluating the carrying cost in accordance with SFAS 121 "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be disposed of", it was decided that no reduction in the carrying value was required. The cash flow stream that justifies the Company to maintain the current carrying value is the revenues that Guardian Timing Services receive on a continuous basis by utilizing the ITM Software. The Company did not consider the Option Agreement that was entered into in its cash flow stream. In accounting for the purchase of Guardian Timing Services Inc. ("Guardian") under US GAAP, Goodwill in the amount of $438,138 would have been recorded as a result in the difference in the purchase accounting described above. Under U.S. GAAP, this Goodwill must be charged to operations over a period not to exceed forty (40) years. The Company's policy is to amortize this amount over a period of twenty (20) years starting in fiscal 1996, on a straight-line basis under U.S. GAAP as it is under Canadian GAAP. No Goodwill for Guardian was recognized under Canadian GAAP as the Guardian and Bearhill purchase was treated as a single acquisition due to their common beneficial controlling shareholder. Therefore, in accordance with Canadian GAAP, all value in excess of the carrying amounts was attributed to the ITM Software. I & B Inc. and its subsidiaries, Credifinance Capital Inc., Credifinance Securities Limited and 95% of Rosedale Realty Limited were acquired on a tax free basis. In connection with these transactions the company incurred professional fees. It is the Company's policy, in accordance with Canadian GAAP to capitalize and to amortize them over a period of five (5) years, on a straight-line basis. Under US GAAP, these cost must be charged to operations when incurred. Under Canadian GAAP, Goodwill in the amount of $1,143,982 was recorded. This amount represented the Au `N Ag deficit at the time of the change in control. Under US GAAP, this amount is recorded as a reduction in Additional Paid-In Capital. e) Shareholders Equity and Additional Paid-In Capital: The variances between Canadian GAAP and US GAAP are due to the different methods of accounting for the disposition of Rosedale Realty Corporation. f) Income Taxes: Under Canadian GAAP the deferral method is used to account for the timing differences between accounting and taxable income. U.S GAAP (SFAS 109, "Accounting for Income Taxes"), requires the use of the liability method to account for the differences between the accounting basis and the income tax basis of assets and liabilities. Under the liability method, deferred assets and liabilities are recognized for temporary differences between the accounting basis and the taxes basis for the respective assets and liabilities based on currently enacted tax rates. Temporary differences, therefore, would arise from the requirements under SFAS 109 to provide for deferred income taxes on the difference between book value of assets and liabilities recorded under U.S. GAAP and their respective tax values. In addition, Canadian GAAP requires that the tax benefit of net operating losses available to reduce future tax liabilities only be recorded when "virtual certainty" (as defined by section 3470 of the Handbook of the Canadian Institute of Chartered Accountants) of their use to reduce taxable income in the carry-forward period exists. FSAS 109 requires that such benefits be recorded if it is more likely than not that such losses will be used to reduce future income tax liabilities in the carry forward period. There are no significant items that would have a difference between their carrying value based on U.S. GAAP and their respective tax values. Page 6 of 10 g) Statement of Changes In Financial Position: Canadian GAAP presentation requires a Statement of Changes in Financial Position. U.S. GAAP requires a Statement of Changes in Cash Flows. The Canadian GAAP presentation contains similar information and disclosures except as described below to that required by U.S. GAAP. Under U.S. GAAP, investing and financing activities of an enterprise that do not result in cash receipts or cash payments are reported in supplemental information to the Statement of Cash Flows and not in the Statement of Cash Flows. h) Earnings (Loss) Per Share: Under Canadian and U.S GAAP, the earnings (loss) per share is computed on the basis of weighted average number of common shares outstanding. The effect of common shares equivalents arising from stock options was not included as they are anti-dilutive using the treasury method. Page 7 of 10 ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS (1) OVERVIEW During the first quarter of fiscal 1997 (three months ending June 30, 1996), InterUnion reported consolidated revenues of $2.11 million versus $1.26 million a year earlier. Selected financial data from InterUnion's financial statements is (figures in 000's except per share data):
3 mo ended 3 mo ended Jun-96 Jun-95 ----------- ---------- Commission Income 1,365 1,036 Sales 516 Fee Revenue 230 223 Total Revenues 2,111 1,259 Cost of Goods Sold 516 Net Revenues (i) 1,595 1,259 Net Profit (Loss) 64 (90) EPS - Operations 0.01 (0.05) EPS 0.01 (0.23) Common Share, # 692,572 431,558 Working Capital 653 757 Cash Flow 86 (49) Shareholders' Equity 4,146 3,659 Book Value Per Share 5.99 8.48
(i) This amount is equal to Total Revenues under U.S. GAAP. In fiscal year 1996, Total Revenues, under U.S. GAAP would have been $6,169,578. (2) NET REVENUES During the first quarter of fiscal 1997, InterUnion reported consolidated revenues of $2.1 million versus $1.3 million a year earlier. Sales by the auction house produced $516,000 in fiscal 1997 with no such income the year earlier. Commissions and fee revenues were $1.59 million versus $1.26 a year earlier for an increase of $335,563 or 26.7%. The opening of the auction house helped generate $128,000 of this variance, while the balance was due to revenues from Credifinance Securities. This increase did not continue into the second quarter, as Credifinance Securities had to replace a number of its sales personnel from its institutional desk when they left mid way through the second half of the first quarter, in order to join their previous president who started a new company. (3) COST OF REVENUES Costs of revenues for the quarter increased by $230,304 or 21.9% to $1,283,005 from $1,052,701. This increase is in line with the increase for Commissions and fee revenues discussed above of 26.7%. This increase is also not expected to continue as this expenditure is a function of revenues, and therefore will decrease for same reason as the revenues will as discussed above. (4) NET INCOME Net profits from operations for the three months ending June 30, 1996 was $63,798 or $0.01 per share versus a loss of $90,002 or $0.05 per share a year earlier. These figures do not include the operating loss of Rosedale's discontinued operation of $75,000. The profit attained in the first quarter is due to the fact that Credifinance Securities was able to generate a higher level of commission and fee revenue then a year earlier. The average number of common shares outstanding for the six months ending June 30, 1996 is 692,572 versus 419,400 a year earlier. The Company issued additional shares in the form of Regulation "D" during the year in order to finance the cash flow requirements of its subsidiaries. Page 8 of 10 (5) LIQUIDITY AND CAPITAL RESOURCES The Company does not have any long term debt. In order to meet its growth plans and any operating cash requirement the Company's current policy is to issue additional capital stock. To date the Company has done this through the issuance of Confidential Private Placement Offerings under Regulation "D" or Regulation "S". The following are details of these private placements: Date # of Shares Amount Type ---- ----------- ------ ---- April 1994 2,500 10,000 Regulation "D" May 1994 5,000 20,000 Regulation "D" July 1994 11,250 35,000 Regulation "D" August 1994 43,511 87,022 Regulation "D" October 1994 5,000 50,000 Regulation "D" March 1995 75,000 300,000 Regulation "D" June 1995 62,500 125,000 Regulation "D" October 1995 100,000 200,000 Regulation "D" & "S" March 1996 160,000 320,000 Regulation "D"
(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. In addition, there is no significant income or losses that has risen from the Company's continuing operations that has not been analyzed or discussed above. Nor has there been any material change in any line item that is presented on the financial statements which has also not been discussed above. Page 9 of 10 PART II - OTHER INFORMATION ITEM 1 - LEGAL PROCEEDINGS. The Company is not a party to any pending legal proceeding, nor is its property the subject of a pending legal proceeding for which the claims, exclusive of interest and costs, exceed 10% of the current assets of the Company on a consolidated basis. ITEM 2 - CHANGES IN SECURITIES None. 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 At a special meeting of the shareholders held May 17, 1996 the following events took place: 1. The following nominees to the Board of Directors to serve until the next shareholders meeting have been elected: Georges Benarroch, Chairman, Jacques Meyer de Stadelhofen, Karen Lynn Bolens, and Ann Glover, Directors 2. A twenty (20) for one (1) common stock consolidation was voted on and approved. 3. The Board of Directors was given the authority to act within its discretion in regards to the outstanding stock options and warrants. 4. The Board of Directors was granted the authority to act within its discretion in making application for admission to the NASDAQ Market and registering the Corporation with the US Securities & Exchange Commission pursuant to the appropriate section of the Securities & Exchange Act of 1934, as amended. ITEM 5 - OTHER INFORMATION None. ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K None. 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 dully authorized. InterUnion Financial Corporation ------------------------------------ (Registrant) Date March 31, 1997 /s/ Georges Benarroch, Director --------------------- ------------------------------------ (Signature)* Date March 31, 1997 /s/ Ann Glover, Director --------------------- ------------------------------------ (Signature)* *Print the name and title of each signing officer under his signature. Page 10 of 10