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 December 31, 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 December 31, 2001.
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
UNAUDITED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE PERIOD ENDED DECEMBER 31, 01
Three Months Ended Nine Months Ended
-------------------------- --------------------------
31-Dec-01 31-Dec-00 31-Dec-01 31-Dec-00
---------- ---------- ---------- ----------
REVENUES
Investment banking 0 3,749 0 272,948
Interest income 6,586 1 20,208 46,899
---------- ---------- ---------- ----------
6,586 3,750 20,208 319,847
---------- ---------- ---------- ----------
EXPENSES
Selling, general and administration 95,854 41,657 119,424 319,944
Amortization and depreciation 0 354 0 861
Foreign exchange loss (gain) 0 (3,805) 0 41,737
Writedown in investment 0 (90) 0 30,002
Interest 1,941 20,192 3,970 20,192
---------- ---------- ---------- ----------
97,795 58,308 123,394 412,736
---------- ---------- ---------- ----------
LOSS FROM CONTINUING OPERATIONS (91,209) (54,558) (103,186) (92,889)
---------- ---------- ---------- ----------
DISCONTINUED OPERATIONS
Income (loss) from operations of discontinued subsidiary, net of tax 0 0 0 358,169
Equity in net losses of unconsolidated affiliate, discontinued (78,438) (150,064) (238,342) (415,807)
Gain (loss) on disposal of affiliate / subsidiary 756,669 0 756,669 (1,413,686)
---------- ---------- ---------- ----------
GAIN (LOSS) FROM DISCONTINUED OPERATIONS 678,231 (150,064) 518,327 (1,471,324)
---------- ---------- ---------- ----------
NET PROFIT (LOSS) FOR THE PERIOD 587,022 (204,622) 415,141 (1,564,213)
========== ========== ========== ==========
EARNINGS (LOSS) PER COMMON SHARE
Common shares outstanding 1,899,974 1,899,937 1,899,974 1,899,937
Weighted average common shares outstanding 1,899,974 909,555 1,899,974 909,555
EPS - From Continuing Operations (Basic) (0.048) (0.060) (0.054) (0.102)
EPS - From Discontinuation 0.357 (0.165) 0.273 (1.618)
EPS - Net Profit (Loss) 0.309 (0.225) 0.218 (1.720)
See Accompanying Notes to Unaudited Consolidated Financial Statements
Page 2 of 10
INTERUNION FINANCIAL CORPORATION
UNAUDITED CONSOLIDATED BALANCE SHEET
AS AT DECEMBER 31, 2001
As at December 31 As at March 31
---------------------------- ----------------------------
2001 2000 2001 2000
----------- ----------- ----------- -----------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents 2,042,945 33,079 7,356 71,627
Receivables 679,012 7,886 0 68,239
Receivable from affiliates 74,513 0 54,792 27,555
Refundable income taxes 835 7,502 7,502 6,709
Prepaid expenses and other current assets 5,400 6,082 5,400 7,434
Notes receivable 0 0 0 1,001,414
Assets of discontinued operations 0 0 0 3,996,413
----------- ----------- ----------- -----------
Total Current Assets 2,802,705 54,549 75,050 5,179,391
----------- ----------- ----------- -----------
NON-CURRENT ASSETS:
Property and equipment, net 0 4,727 0 3,518
Notes receivable, non-current portion 878,150 1,483,607 878,150 633,286
Investment in unconsolidated affiliates 0 2,938,783 2,191,135 3,639,680
Other long term assets 62,574
Assets of discontinued operations 0 0 0 266,654
----------- ----------- ----------- -----------
Total Non-Current Assets 878,150 4,489,691 3,069,285 4,543,138
----------- ----------- ----------- -----------
TOTAL ASSETS 3,680,855 4,544,240 3,144,335 9,722,529
=========== =========== =========== ===========
LIABILITIES
CURRENT LIABILITIES:
Accounts payable and accrued liabilities 156,610 79,115 89,130 370,980
Due to affiliates 3,399 78,320 3,399 0
Note Payable, current portion 113,899 0 60,000 0
Liabilities of discontinued operations 0 0 0 3,477,724
----------- ----------- ----------- -----------
Total Current liabilities 273,908 157,435 152,529 3,848,704
NON-CURRENT LIABILITIES:
NOTES PAYABLE, longterm portion 227,193 860,479 227,193 633,287
----------- ----------- ----------- -----------
Total Liabilities 501,101 1,017,914 379,722 4,481,991
----------- ----------- ----------- -----------
SHAREHOLDERS' EQUITY:
Capital stock and additional paid-in capital 10,616,293 10,616,293 10,616,293 10,766,293
Cumulative translation adjustment 0 0 0 37,439
Accumulated deficit (7,436,539) (7,089,967) (7,851,680) (5,563,194)
----------- ----------- ----------- -----------
Total shareholders' equity 3,179,754 3,526,326 2,764,613 5,240,538
----------- ----------- ----------- -----------
Total Liabilities and Shareholder's Equity 3,680,855 4,544,240 3,144,335 9,722,529
=========== =========== =========== ===========
See Accompanying Notes to Unaudited Consolidated Financial Statements
Page 3 of 10
INTERUNION FINANCIAL CORPORATION
UNAUDITED CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
AS AT DECEMBER 31, 2001
As at December 31 As at March 31
---------------------------- ----------------------------
2001 2000 2001 2000
----------- ----------- ----------- -----------
CAPITAL STOCK AND ADDITIONAL PAID-IN CAPITAL
Class A Preferred Stock, $0.10 par value Authorized - None
in 2001, 1,500,000 shares in 2000
Issued and outstanding - 1,500,000 shares in 2000 0 0 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 and 2000
Issued and outstanding - 1,899,974 in 2001; 4,243,123 in 2000 18,999 18,999 18,999 4,243
Additional Paid-in Capital 10,597,294 10,597,294 10,597,294 10,612,050
CUMULATIVE TRANSLATION ADJUSTMENT 0 0 0 37,439
ACCUMULATED DEFICIT (7,436,539) (7,089,967) (7,851,680) (5,563,194)
----------- ----------- ----------- -----------
Total Shareholders' Equity 3,179,754 3,526,326 2,764,613 5,240,538
----------- ----------- ----------- -----------
TOTAL LIABILITIES & SHAREHOLDERS'S EQUITY 3,680,855 4,544,240 3,144,335 9,722,529
=========== =========== =========== ===========
See Accompanying Notes to Unaudited Consolidated Financial Statements
Page 4 of 10
INTERUNION FINANCIAL CORPORATION
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE PERIOD ENDED DECEMBER 31, 2001
Nine Months Ended Twelve Months Ended
---------------------------- ----------------------------
31-Dec-01 31-Dec-00 31-Mar-01 31-Mar-00
----------- ----------- ----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss from continuing operations (103,186) (92,889) (1,903,693) (3,466,622)
Net gain (loss) from discontinued operations 518,327 (1,471,324) (422,232) (132,822)
----------- ----------- ----------- -----------
Total: 415,141 (1,564,213) (2,325,925) (3,599,444)
Adjustment to reconcile net profit (loss) to net
cash provided by (used in) operating activities
Depreciation and amortization 0 861 5,588 1,165,392
Equity in net losses of unconsolidated affiliate 238,342 415,807 1,163,455 1,021,500
Non cash expenses 0 132,998 212,510 387,633
Net (income) loss from discontinued operations 0 (358,169) 422,232 0
Writedown of notes receivable 0 0 633,286 0
(Gain) loss on disposal of affiliate / subsidiary (756,669) 1,413,686
Loss in marketable securities 0 0 27,379 1,255,987
----------- ----------- ----------- -----------
(103,186) 40,970 138,525 231,068
Changes in operating assets and liabilities:
Increase (decrease) in due to/from brokers and dealers, net 0 3,237,515 0 (22,136,587)
Decrease (increase) in due to/from client, net 0 (3,066,311) 0 2,179,710
Decrease in marketable securities 0 32,520 0 19,852,782
(Increase) decrease in accounts receivable and other assets (13,054) 263,733 69,054 463,545
Increase (decrease) in accounts payable and accrued liabilities 67,480 (444,104) (331,850) (428,150)
----------- ----------- ----------- -----------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES (48,760) 64,323 (124,271) 162,368
----------- ----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds of notes payable 53,899 0 60,000 0
----------- ----------- ----------- -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 53,899 0 60,000 0
----------- ----------- ----------- -----------
CASH FLOW FROM INVESTING ACTIVITIES
Net proceeds received on disposal of affiliate 2,030,450
Purchase of property and equipment, net 0 0 0 (6,190)
Investment in notes receivable 0 (473,128) 0 0
----------- ----------- ----------- -----------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 2,030,450 (473,128) 0 (6,190)
----------- ----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH 2,035,589 (408,805) (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 2,042,945 33,079 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 DECEMBER 31, 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 the discontinued operations.
However, as a result of disposal of the discontinued assets of Credifinance
Capital Corp., the Company incurred a loss of $1,413,686.
From September 30, 2000 to December 20, 2001, the only investment asset on which
InterUnion was reporting is its minority interest in InterUnion Asset Management
Limited (IUAM). The unaudited financial statements of IUAM for the 3rd quarter
of fiscal 2002 ending December 31, 2001, are attached in their entirety as an
attachment. IUFC owned 42.8% of IUAM until December 20, 2001.
During the third quarter of fiscal 2002 ending December 31, 2001, the Company
sold its 42.8% owned subsidiary and remaining operating asset, InterUnion Asset
Management Limited (IUAM). Effective December 20, 2001, the Company has no
interest in IUAM. As a result of the disposal of IUAM as of December 20, 2001,
the Company reported a gain on disposal of $756,669.
Page 6 of 10
INTERUNION FINANCIAL CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED DECEMBER 31, 2001
================================================================================
The pro-forma consolidated results of operation for the current interim period
and the corresponding interim period of the preceding fiscal year had the
transaction occurred at the beginning of these periods are as follows:
INTERUNION FINANCIAL CORPORATION
CONSOLIDATED PRO-FORMA STATEMENT OF OPERATIONS
FOR THE PERIODS ENDED DECEMBER 31, 2001
Three Months Ended Nine Months Ended
-------------------------- --------------------------
31-Dec-01 31-Dec-00 31-Dec-01 31-Dec-00
---------- ---------- ---------- ----------
REVENUE
Investment banking 0 3,749 0 272,948
Interest income 6,586 1 20,208 46,899
---------- ---------- ---------- ----------
6,586 3,750 20,208 319,847
---------- ---------- ---------- ----------
EXPENSES
Selling, general and administration 95,854 41,657 119,424 319,944
Amortization and depreciation 0 354 0 861
Foreign exchange loss (gain) 0 (3,805) 0 41,737
Writedown in investment 0 (90) 0 30,002
Interest 1,941 20,192 3,970 20,192
---------- ---------- ---------- ----------
97,795 58,308 123,394 412,736
---------- ---------- ---------- ----------
NET LOSS (91,209) (54,558) (103,186) (92,889)
========== ========== ========== ==========
LOSS PER COMMON SHARE
Common shares outstanding 1,899,974 1,899,937 1,899,974 1,899,937
Weighted average common shares outstanding 1,899,974 909,555 1,899,974 909,555
Pro forma earnings per share (0.048) (0.060) (0.054) (0.102)
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS
(1) OVERVIEW
During the 3rd quarter of fiscal 2002 ending December 31, 2001, InterUnion had
nil revenue from investment banking as a result of sale of its CFCC operations
as of September 30, 2000. The Company's net loss for the quarter ending December
31, 01 from continuing operations, was $91,209 ($0.048 per share); and the net
loss for 9 months of fiscal 2002 ending December 31, 01 from continuing
operations, was $103,186 or $0.054 per share. The Company also reported a gain
of $678,231 from discontinued operations for the quarter ending December 31, 01.
Page 7 of 10
INTERUNION FINANCIAL CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED DECEMBER 31, 2001
================================================================================
Selected financial data from InterUnion's financial statements is (figures in
000's except per share data):
9 mos. ended 9 mos. Ended 9 mos. ended
Dec 31- 01 Dec 31- 00 Dec 31- 99
------------ ------------ ------------
Working Capital 2,529 -103 793
Cash Flow 2,036 409 70
Total Assets 3,680 4,544 11,995
Shareholders' Equity 3,180 3,526 9,369
Common Share, # 1,899,974 1,899,937 4,243,123
Book Value Per Share 1.67 1.86 2.21
(2) NET REVENUES
For the first 9 months of fiscal 2002, InterUnion reported consolidated revenues
of $20,208 versus $319,847 a year earlier, a decrease of $299,639 resulting
mainly from the sale of its CFCC operations as of September 30, 2000.
(3) EXPENSES
Selling, general and administration expenses for 9 months of fiscal 2002 until
December 31, 2001, amounted to $123,394 as compared to $412,736 a year earlier,
a decrease of $289,342 resulting mainly from the sale of its CFCC operations as
of September 30, 2000.
(4) NET INCOME FOR 9 MONTHS UNTIL DECEMBER 31, 2001
Net profit for the 9 months ending December 31, 2001 was $415,141 (including a
gain from discontinued operations of $518,327) or $0.218 per share based on a
weighted average number of shares of 1,899,974 versus a loss of $1,564,213
(including a loss from discontinued operations of $1,471,324) or $1.72 per share
based on a weighted average number of shares of 909,555 a year earlier.
The weighted average number of common shares outstanding for the nine months
ending December 31, 2001, is 1,899,974 versus 909,555 a year earlier.
(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"
Page 8 of 10
INTERUNION FINANCIAL CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED DECEMBER 31, 2001
================================================================================
(6) CONCLUDING REMARKS
While waiting for the Company to receive the balance of the proceeds from the
sale of its interest in IUAM, held in escrow pending clearance from Canada
Customs and Revenue Agency, management is reviewing a number of options to
maximize the use of the Company's cash.
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 subsidiary 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 period ending
December 31, 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 information 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 information. 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 9 of 10
INTERUNION FINANCIAL CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED DECEMBER 31, 2001
================================================================================
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
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 4,243,123 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
1,899,974 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.
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 duly
authorized.
InterUnion Financial Corporation
--------------------------------
(Registrant)
Date February 15, 2002 /s/ Georges Benarroch, Director
----------------- ----------------------------------
(Signature)
Page 10 of 10
INTERUNION ASSET MANAGEMENT LIMITED
CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
FOR THE 3 AND 9 MONTHS ENDED DECEMBER 31, 2001 AND DECEMBER 31, 2000
CONTENTS
--------
QUARTERLY 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: InterUnion Financial Corporation ("IUFC")
Date: February 1, 2002
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 December 31, 2001;
(b) the Corporation is in compliance with all taxes and other withholding
obligations and has accrued unpaid vacation pay in its financial
statements;
(c) 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;
(d) 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
(e) 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 1st day of
February 2002.
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 December 31 and March 31)
- --------------------------------------------------------------------------------
December 31, March 31,
2001 2001
------------ ------------
Assets
Current:
Cash $ 495,787 $ 661,238
Marketable securities, at market (note 4) 1,631,126 1,535,670
Accounts receivable and accrued revenue 371,419 576,068
Prepaid expenses 97,820 76,989
Income taxes recoverable 15,464 -
Future income tax asset - 26,108
------------ ------------
2,611,616 2,876,073
Management contracts, net (note 5) 1,404,762 1,619,048
Capital assets, net (note 6) 309,262 338,945
Investments, at cost 13,914 13,915
Goodwill (note 7) 8,554,541 9,152,976
------------ ------------
Total assets $ 12,894,095 $ 14,000,957
============ ============
Liabilities
Current:
Bank indebtedness $ - $ 16,041
Accounts payable and accrued liabilities (note 9) 403,844 644,082
Current portion of long term debt 18,000 18,000
Income taxes payable - 48,494
Deferred revenue 101,892 83,942
Other liabilities (note 9) 197,055 -
Preference shares (note 11) 3,500,000 -
------------ ------------
4,220,791 810,559
Deferred inducements (note 8) 85,322 44,514
Long term debt (note 10) 26,000 39,500
Other liabilities (note 9) - 131,250
Preference shares (note 11) - 3,500,000
------------ ------------
4,332,113 4,525,823
============ ============
Non-controlling interest 129,781 135,119
Shareholder's Equity
Shareholder's equity:
Share capital (note 12) 16,358,581 16,358,559
Deficit (7,926,380) (7,018,544)
Total shareholder's equity 8,432,201 9,340,015
------------ ------------
Total liabilities and shareholder's equity $ 12,894,095 $ 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 periods ended December 31)
- --------------------------------------------------------------------------------
3 months ended 3 months ended 9 months ended 9 months ended
December 31, December 31, December 31, December 31,
2001 2000 2001 2000
-------------- ---------------- ---------------- ---------------
Revenue:
Management fees...... 1,283,695 $ 1,491,594 $ 4,092,648 4,536,573
Other income (loss) (note 3 and 8) 15,450 (34,046) 90,113 178,909
------------ ------------ ------------ -----------
1,299,145 1,457,548 4,182,761 4,715,482
Operating expense
Commission and incentives 155,400 216,639 521,064 626,067
Salaries and benefits 793,776 846,827 2,638,467 2,551,939
Marketing and advertising 52,579 61,977 132,201 155,390
Office and general 205,768 270,635 650,342 930,198
Professional fees 61,698 75,797 169,118 337,730
Amortization of management contracts 71,429 71,429 214,286 264,286
Amortization of capital assets 25,006 31,141 79,289 99,423
------------ ------------ ------------ -----------
1,365,656 1,574,445 4,404,767 4,965,033
Operating income (loss) before undernoted (66,511) (116,897) (222,006) (249,551)
Interest expense
Current - 842 - 31,065
Long term 44,271 47,433 135,097 142,171
------------ ------------ ------------ -----------
44,271 48,275 135,097 173,236
Loss before amortization of goodwill,
non-controlling interest and income taxes (110,782) (165,172) (357,103) (422,787)
Income taxes (note 13)
Current income taxes 27,834 164,133 39,225 374,044
Future income taxes 26,108 - 26,108 -
------------ ------------ ------------ -----------
53,942 164,133 65,333 374,044
Loss before amortization of goodwill
and non-controlling interest (164,724) (329,305) (422,436) (796,831)
Amortization of goodwill 154,586 197,666 465,738 595,606
Loss before non-controlling interest (319,310) (526,971) (888,174) (1,392,437)
Non-controlling interest 9,573 (32,795) 19,662 (37,539)
Net loss, for the period (328,883) (494,176) (907,836) (1,354,898)
Deficit, beginning of period (7,597,497) (3,519,489) (7,018,544) (2,658,767)
Deficit, end of period $ (7,926,380) $ (4,013,665) $ (7,926,380) $(4,013,665)
============ ============ ============ ===========
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 periods ended December 31)
- --------------------------------------------------------------------------------
3 months ended 3 months ended 9 months ended 9 months ended
December 31, December 31, December 31, December 31,
2001 2000 2001 2000
-------------- ---------------- ---------------- ---------------
Cash flows from operating activities
Net loss $ (328,883) $ (494,176) $ (907,836) $ (1,354,898)
Adjustments for:
Amortization of goodwill 154,586 197,666 465,738 595,606
Amortization of management contracts 71,429 71,429 214,286 264,286
Amortization of capital assets 25,006 31,141 79,289 99,423
Deferred rent inducements (739) 790 (195) 2,370
Gain on termination of sublease - - (35,142) -
Unrealized loss on investment - 44,476 - 51,240
Net loss (gain) on sale of
capital assets & investments (285) 21,437 6,913 (226,590)
Permanent writedown of capital assets 674 - 7,676 -
Provision for doubtful receivable 1,500 20,330 8,750 20,330
Future income taxes 26,108 - 26,108 -
Non-controlling interest 9,573 (32,795) 19,662 (37,539)
Increase (decrease) in deferred inducements - 424 - (3,737)
Proceeds on termination of sub-lease - - 76,145 -
Changes in non-cash working capital
Decrease (increase) in accounts receivable (76,698) (14,634) 195,899 77,224
Increase (decrease) in accounts payable 33,649 763 (240,238) 15,979
Decrease (increase) in income taxes recoverable (65) - (15,464) -
Increase (decrease) in income taxes payable - (55,505) (48,494) (121,939)
Other items, net (9,410) (23,674) 128,441 (31,727)
------------ ------------ ------------ -----------
(93,555) (232,328) (18,462) (649,972)
Cash flows from investing activities
Acquisition of capital assets, net of disposals (29,608) (8,320) (64,242) (22,151)
Dispositions (acquisitions),
net of cash acquired (disposed) - - 67,228 762,798
Sale (purchase) of marketable securities 154,293 (116,864) (95,456) 82,745
------------ ------------ ------------ -----------
124,685 (125,184) (92,470) 823,392
Cash flows from financing activities
Increase (decrease) in bank indebtedness - (41,662) (16,041) (36,853)
Repayments of long term borrowings (4,500) (4,500) (13,500) (158,563)
Proceeds from share issuance 22 - 22 -
Dividend paid to non-controlling interest - (25,000) (25,000) (75,000)
------------ ------------ ------------ -----------
(4,478) (71,162) (54,519) (270,416)
Net increase (decrease) in cash 26,652 (428,674) (165,451) (96,996)
Cash at beginning of period 469,135 857,299 661,238 525,621
------------ ------------ ------------ -----------
Cash at end of period $ 495,787 $ 428,625 $ 495,787 $ 428,625
============ ============ ============ ===========
Supplemental Cash Flows Information
Interest paid $ 27,268 $ 25,826 $ 74,351 $ 85,752
Income taxes paid 30,566 218,231 106,883 515,609
See accompanying notes to consolidated financial statements
5
INTERUNION ASSET MANAGEMENT LIMITED
Notes to Consolidated Financial Statements
December 31, 2001 and December 31, 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 Guardian Timing Services Inc.,
Leon Frazer & Associates Inc. (formed on the merger of The Glen
Ardith-Frazer Corporation and Leon Frazer & Associates Inc., on
September 1, 2001), P.J. Doherty & Associates Co. Ltd., Black
Investment Management Ltd. (see note 3), 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) Investments
Investments are carried at the lower of cost and fair value.
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.
6
INTERUNION ASSET MANAGEMENT LIMITED
Notes to Consolidated Financial Statements
December 31, 2001 and December 31, 2000
(amounts expressed in Canadian dollars unless otherwise stated)
- --------------------------------------------------------------------------------
g) Financial Instruments
The Company's financial instruments consist of cash, bank
indebtedness, marketable securities, accounts receivable, investments,
accounts payable and accrued liabilities, long term debt, other
liabilities and preference shares. 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.
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 12. 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.
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%.
The following are dispositions made during the periods.
Fiscal 2002 Dispositions:
o On July 20, 2001, the Company sold all of its 53.2% share ownership in
Black Investment Management Limited for cash proceeds of $146,250 and
a consolidated gain of $47. Subject to the achievement of certain
threshold levels of revenues of Black Investment Management Limited
over the next three years, the Company may receive additional
proceeds. As these proceeds are contingent upon future events, no
amount is recorded in the current period financial statements.
7
INTERUNION ASSET MANAGEMENT LIMITED
Notes to Consolidated Financial Statements
December 31, 2001 and December 31, 2000
(amounts expressed in Canadian dollars unless otherwise stated)
- --------------------------------------------------------------------------------
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. Included in `Other income' at September
30, 2000 is a net gain of $218,000 resulting from this transaction.
- --------------------------------------------------------------------------------
4. MARKETABLE SECURITIES
Marketable securities are recorded at market values and comprise the
following:
December 31, 2001 March 31, 2001
----------------- --------------
Bankers Acceptance $ 1,278,690 $ 1,094,850
Money Market Mutual Funds 352,436 409,047
Other Mutual Funds - 31,773
----------- -----------
$ 1,631,126 $ 1,535,670
=========== ===========
The Bankers Acceptances outstanding at December 31, 2001 have maturities
between March 13, 2002 and April 3, 2002. The annualized yield on these
securities is 2.75%.
- --------------------------------------------------------------------------------
5. MANAGEMENT CONTRACTS
Management contracts comprise the following:
December 31, 2001 March 31, 2001
------------------------------------------- --------------
Accumulated Net Book Net Book
Cost Amortization Value Value
----------- ------------ ----------- -----------
Non-competition agreement $ 2,000,000 $ 595,238 $ 1,404,762 $ 1,619,048
=========== ========= =========== ===========
- --------------------------------------------------------------------------------
6. CAPITAL ASSETS
Capital assets comprise the following:
December 31, 2001 March 31, 2001
------------------------------------------- --------------
Accumulated Net Book Net Book
Cost Amortization Value Value
----------- ------------ ----------- -----------
Computer equipment $ 645,334 $ 500,440 $ 144,894 $ 131,090
Furniture and fixtures 356,208 265,098 91,110 113,435
Leasehold improvements 162,411 89,153 73,258 94,420
----------- --------- ----------- -----------
$ 1,163,953 $ 854,691 $ 309,262 $ 338,945
=========== ========= =========== ===========
- --------------------------------------------------------------------------------
7. GOODWILL
December 31, 2001 March 31, 2001
----------------- --------------
Cost $ 13,610,691 $ 13,610,691
Impairment of goodwill 2,565,000 2,565,000
Accumulated amortization 2,358,453 1,892,715
Sale of investment in subsidiary (note 3) 132,697 -
------------ ------------
$ 8,554,541 $ 9,152,976
============ ============
8
INTERUNION ASSET MANAGEMENT LIMITED
Notes to Consolidated Financial Statements
December 31, 2001 and December 31, 2000
(amounts expressed in Canadian dollars unless otherwise stated)
- --------------------------------------------------------------------------------
In the prior year, the Company recorded goodwill impairment charges of
$2,565,000 on its investment 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 a controlled company's lease at its Toronto
premises which provides for rent-free periods and periods of 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 lease inducements which will be
applied to income over the term of the lease.
The controlled company has sub-leased 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. Effective September
1, 2001 the sub-lease arrangement was terminated and a new sub-lease
arrangement was entered into with a related party. Termination of the
sub-lease arrangement resulted in a net gain of $35,142 in the current
period. The related party sub-lease arrangement will have no impact on the
consolidated results.
- --------------------------------------------------------------------------------
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:
9 months ended 9 months ended
December 31, December 31,
2001 2000
--------------- ---------------
Expenses
Commissions and incentives $ 85,000 $ 72,000
Interest expense 131,600 131,250
Professional fees 3,600 -
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:
December 31, 2001 March 31, 2001
----------------- --------------
Accounts payable $ 32,700 $ 21,875
Other liabilities 197,055 131,250
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
preference shares).
9
INTERUNION ASSET MANAGEMENT LIMITED
Notes to Consolidated Financial Statements
December 31, 2001 and December 31, 2000
(amounts expressed in Canadian dollars unless otherwise stated)
- --------------------------------------------------------------------------------
10. LONG-TERM DEBT
December 31,2001 March 31, 2001
---------------- --------------
Demand bank loan, interest at prime +1/2%, monthly principal
payments of $1,500 $ 44,000 $ 57,500
Less: current portion 18,000 18,000
-------- --------
$ 26,000 $ 39,500
======== ========
The demand bank loan is guaranteed by two of a subsidiary company's
shareholders.
- --------------------------------------------------------------------------------
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 78.408 Common Shares (see note
12) 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 11).
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 1,612,161 $ 16,358,559
Exercise of stock options 22,000 22
--------- ------------
December 31, 2001 1,634,161 $ 16,358,581
========= ============
10
INTERUNION ASSET MANAGEMENT LIMITED
Notes to Consolidated Financial Statements
December 31, 2001 and December 31, 2000
(amounts expressed in Canadian dollars unless otherwise stated)
- --------------------------------------------------------------------------------
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.
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. In the current
fiscal year, it was subsequently determined that the aforementioned
adjustment should not have encompassed any adjustments to issued stock
options and preference shares. As such, the comparative figures for stock
options have been restated to reflect a correction in the stock options
reported as issued in the prior fiscal year. On December 20, 2001, the
Company and the stock option holders agreed to cancel the vested and
unvested stock options outstanding.
Vested Options
Number of Options
-----------------------------------------------------------------
Outstanding Outstanding
Fiscal year Vested expiry Exercise March 31, Issued/ December 31,
granted date price 2001 Vested Exercised Cancelled 2001
----------- ------------- -------- ----------- ------ --------- --------- ------------
1999 Jan 21, 2009 $16.13 36,300 - - 36,000 -
1999 Jan 21, 2009 $0.001 22,000 - 22,000 - -
2000 May 10, 2009 $13.00 20,167 7,925 - 28,092 -
Unvested Options
Number of Options
-----------------------------------------------------------------
Outstanding Outstanding
Fiscal year Vested expiry Exercise March 31, Issued/ December 31,
granted date price 2001 Vested Cancelled 2001
----------- ------------- -------- ----------- ------ --------- ------------
2000 May 10, 2009 $13.00 12,833 7,925 4,908 -
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:
9 months ended 9 months ended
December 31, December 31,
2001 2000
-------------- --------------
Combined statutory tax rate (recovery) (42.1)% (43.5)%
Deduct:
Non-deductible expenses 24.9 11.9
Temporary differences 20.3 18.9
Unrecognized losses carried forward 15.6 123.6
Non-taxable gains (0.3) (26.0)
Other, net (0.1) 3.6
----- -----
Effective income tax rate 18.3% 88.5%
===== =====
11
INTERUNION ASSET MANAGEMENT LIMITED
Notes to Consolidated Financial Statements
December 31, 2001 and December 31, 2000
(amounts expressed in Canadian dollars unless otherwise stated)
- --------------------------------------------------------------------------------
As at December 31, 2001, the consolidated group had approximately
$1,755,000 of non-capital losses (March 31, 2001 - $2,079,000) which may be
carried forward and utilized to reduce future years' taxable income. These
figures reflect the reduction at December 31, 2001 of $292,000 in
non-capital losses arising from the sale of Black Investment Management
Ltd. and the reduction at March 31, 2001 of $507,000 in non-capital losses
arising from the sale of A.I.L. Investment Services Inc. The right to claim
the non-capital losses expires as follows:
Expiry
------
2004 $ 146,000
2005 43,000
2006 626,000
2007 824,000
2008 116,000
As at December 31, 2001, the consolidated group had approximately $0 (March
31, 2001 - $391,000) of capital losses which may be carried forward and
utilized to reduce future years' capital gains except that, as a result of
an acquisition of control on December 20, 2001, all capital losses existing
at this date have expired.
During the period, the Company's future income tax asset decreased by
$214,000 and totaled $968,000 (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 December 31, 2001 provided by the
Company, decreased by $188,000 and totalled $968,000 (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.
9 months ended 9 months ended
December 31, 2001 December 31, 2000
----------------- -----------------
Weighted average common shares
- basic calculation 1,613,041 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.
9 months ended 9 months ended
December 31, 2001 December 31, 2000
----------------- -----------------
Basic loss per share $ (0.56) $ (0.84)
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 $0.02 per share.
12
INTERUNION ASSET MANAGEMENT LIMITED
Notes to Consolidated Financial Statements
December 31, 2001 and December 31, 2000
(amounts expressed in Canadian dollars unless otherwise stated)
- --------------------------------------------------------------------------------
15. COMMITMENTS
The Company has basic lease payments exclusive of operating costs for the
premises and office equipment for the next five years and thereafter as
follows:
12 months ended
December 31
---------------
2002 $ 155,000
2003 151,000
2004 94,000
2005 62,000
2006 63,000
Thereafter 58,000
The Company has employment contracts and obligations with three of its
employees at the following annual base salaries amount:
12 months ended
December 31
---------------
2002 $ 628,000
2003 490,000
2004 449,000
- --------------------------------------------------------------------------------
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 December 31 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:
9 months ended 9 months ended
December 31, 2001 December 31, 2000
----------------- ------------------
Net loss for the period, Canadian GAAP $ (907,836) $ (1,354,898)
Stock based compensation (i) - (51,704)
---------- ------------
Net loss for the period, U.S. GAAP $ (907,836) $ (1,406,602)
========== ============
Loss per common share under U.S. GAAP $ (0.56) $ (0.87)
(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
13
INTERUNION ASSET MANAGEMENT LIMITED
Notes to Consolidated Financial Statements
December 31, 2001 and December 31, 2000
(amounts expressed in Canadian dollars unless otherwise stated)
- --------------------------------------------------------------------------------
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 - $51,704). Had the Company
booked compensation expense in accordance with APB 25, basic loss
per share would have been increased by $0.00 (2000 - $0.03).
b) Other Disclosures:
i) Stock-Based Compensation Expense
For options granted in fiscal year 2000, the estimated fair value
of the underlying equity at date of grant was $13.00. As such,
compensation costs under SFAS 123 would have totaled $227,700
over a vesting period of three years.
The fair value estimates were determined using the Black-Scholes
option-pricing model. Valuation was based on a risk-free interest
rate of 5.46%, an expected term of 10 years, an expected
volatility of 30% and no expected dividends. On December 20, 2001
all outstanding vested and unvested stock options were cancelled.
Had the Company booked compensation expense relating to the stock
options, loss per common share would have been decreased by $0.12
(2000 - increased by $0.04).
ii) 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.
- --------------------------------------------------------------------------------
17. COMPARATIVE CONSOLIDATED FINANCIAL STATEMENTS
Certain comparative figures have been restated to conform with
the current period's presentation.
14