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