INTERUNION FINANCIAL CORPORATION
CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2003
INTERUNION FINANCIAL CORPORATION
UNAUDITED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE PERIOD ENDED SEPTEMBER 30, 2003
Three Months Ended Six Months Ended
30 Sep-03 30-Sep-02 30-Sep-03 30-Sep-02
---------- ---------- ---------- ----------
REVENUES
Investment Banking -- 91,968 -- 79,956
Interest Income -- 7,631 -- 15,100
---------- ---------- ---------- ----------
-- 99,599 -- 95,056
EXPENSES
Selling, general and administrative 43,100 1,735,865 68,171 1,761,161
Foreign exchange loss (gain) 1,529 19,696 2,245 (14,348)
Interest -- 9 -- 9
---------- ---------- ---------- ----------
44,629 1,755,570 70,416 1,746,822
---------- ---------- ---------- ----------
NET LOSS FOR THE PERIOD (44,629) (1,655,971) (70,416) (1,651,766)
========== ========== ========== ==========
LOSS PER COMMON SHARE
Weighted Average common shares outstanding 4,916,549 3,408,352 4,916,549 3,408,352
Loss per share (0.009) (0.486) (0.014) (0.485)
See Notes to Unaudited Consolidated Financial Statements
For additional Financial Statements and Notes, please see Form 10-QSB of
InterUnion Financial Corporation for the period ended September 30, 2003, iled
with the Securities and Exchange Commission on November 14, 2003.
INTERUNION FINANCIAL CORPORATION
CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2003 AND 2002
INTERUNION FINANCIAL CORPORATION
UNAUDITED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE PERIOD ENDED JUNE 30, 2003
THREE MONTHS ENDED TWELVE MONTHS ENDED
--------------------- ----------------------
30-JUN-03 30-JUN-02 31-MAR-03 31-MAR-02
--------- --------- ---------- ---------
REVENUES
Investment Banking -- -- 79,956 13,134
Interest Income -- 7,469 15,100 26,794
--------- --------- ---------- ---------
-- 7,469 95,056 39,928
EXPENSES
Selling, General and Administrative 25,071 25,296 1,836,884 166,901
Foreign exchange loss (gain) 715 (34,044) (14,384) 8,517
Trading Loss -- 12,012 -- --
Interest -- -- 9 5,350
--------- --------- ---------- ---------
25,786 3,264 1,822,509 180,768
(LOSS) PROFIT FROM CONTINUING OPERATION
BEFORE UNDERNOTED ITEMS (25,786) 4,205 (1,727,453) (140,840)
--------- --------- ---------- ---------
DISPOSAL OF EQUITY INVESTMENT
Equity in net loss of unconsolidated affiliate -- -- -- (238,342)
Gain on disposal of unconsolidated affiliate -- -- -- 756,669
--------- --------- ---------- ---------
-- -- -- 518,327
--------- --------- ---------- ---------
NET (LOSS) INCOME FOR THE YEAR (25,786) 4,205 (1,727,453) 377,487
========= ========= ========== =========
LOSS (EARNINGS) PER COMMON SHARE-Basic and Diluted
Weighted Average common shares outstanding 4,916,549 1,916,549 4,135,727 1,916,421
Basic (loss) earnings per share (0.005) 0.002 (0.418) 0.197
Diluted earning per share N/A 0.002 N/A 0.197
See Accompanying Notes to Unaudited Consolidated Financial Statements
2
INTERUNION FINANCIAL CORPORATION
UNAUDITED CONSOLIDATED BALANCE SHEET
AS AT JUNE 30, 2003
AS AT JUNE 30 AS AT MARCH 31
-------------------------- -------------------------
2003 2002 2003 2002
----------- ----------- ----------- ----------
CURRENT ASSETS:
Cash and cash equivalent 58,956 1,648,720 97,319 2,464,985
Marketable Securities -- 104,500 -- --
Receivable from Affiliates -- 41,226 -- 41,226
Refundable income taxes -- 7,502 -- 7,502
Prepaid expenses and other current assets 2,226 6,249 1,239 7,061
Notes receivable, current portion -- 702,342 -- --
----------- ----------- ----------- ----------
61,182 2,510,539 98,558 2,520,774
----------- ----------- ----------- ----------
NON-CURRENT ASSETS:
Note receivable, non-current portion -- 722,684 -- 717,598
----------- ----------- ----------- ----------
Total non-current assets -- 722,684 -- 717,598
----------- ----------- ----------- ----------
----------- ----------- ----------- ----------
Total Assets 61,182 3,233,223 98,558 3,238,372
=========== =========== =========== ==========
LIABILITIES
CURRENT LIABILITIES:
Accounts payable and accrued liabilities 21,466 36,918 33,056 46,272
----------- ----------- ----------- ----------
Total Current Liabilities 21,466 36,918 33,056 46,272
----------- ----------- ----------- ----------
SHAREHOLDERS' EQUITY:
Capital Stock and additional paid in Capital 12,316,293 10,666,293 12,316,293 10,666,293
Accumulated deficit (12,276,577) (7,469,988) (12,250,791) (7,474,193)
----------- ----------- ----------- ----------
Total shareholder's equity 39,716 3,196,305 65,502 3,192,100
----------- ----------- ----------- ----------
----------- ----------- ----------- ----------
Total Liabilities and Shareholder's Equity 61,182 3,233,223 98,558 3,238,372
=========== =========== =========== ==========
See Accompanying Notes to Unaudited Consolidated Financial Statements
3
INTERUNION FINANCIAL CORPORATION
UNAUDITED CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
AS AT JUNE 30, 2003
AS AT JUNE 30 AS AT MARCH 31
-------------------------- -------------------------
2003 2002 2003 2002
----------- ----------- ----------- ----------
CAPITAL STOCK AND ADDITIONAL PAID-IN CAPITAL
Class A Preferred Stock, $0.10 par value
Authorized - 1,500,000 shares -- -- -- --
Class B Preferred Stock, $0.10 par value
Authorized - 1,000 shares -- -- -- --
Issued and outstanding - None
Class C Preferred Stock, $0.10 par value
Authorized - 1,000 shares -- -- -- --
Issued and outstanding - None
Common Stock, $0.001 par value
Authorized - 5,000,000 shares
Issued and outstanding 4,916,549 in 2003;
1,916,549 in 2002 492 192 492 192
Additional Paid-In Capital 12,315,801 10,666,101 12,315,801 10,666,101
ACCUMULATED DEFICIT (12,276,577) (7,469,988) (12,250,791) (7,474,193)
----------- ----------- ----------- ----------
TOTAL SHAREHOLDERS' EQUITY 39,716 3,196,305 65,502 3,192,100
----------- ----------- ----------- ----------
See Accompanying Notes to Unaudited Consolidated Financial Statements
4
INTERUNION FINANCIAL CORPORATION
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE PERIOD ENDED JUNE 30, 2003
THREE MONTHS ENDED TWELVE MONTHS ENDED
---------------------- ------------------------
30-JUN-03 30-JUN-02 31-MAR-03 31-MAR-02
--------- --------- ---------- ---------
CASH FLOW FROM OPERATING ACTIVITIES
(Loss) Income (25,786) 4,205 (1,727,453) 377,487
Adjustment to reconcile net loss to net cash
provided by (used in) operating activities
Equity in net losses of unconsolidated affiliate -- -- -- 238,342
Non cash operating expenses (Income) -- -- 1,650,000 (29,282)
Gain on disposal of unconsolidated affiliate -- -- -- (756,669)
-------- --------- ---------- ---------
(25,786) 4,205 (77,453) (170,122)
Changes in non-cash operating assets and liabilities:
Decrease in marketable securities -- (104,500) -- --
(Increase) Decrease in accounts receivable and other assets (987) 812 54,551 (1,661)
(Decrease) Increase in accounts payable and
accrued liabilities (11,590) (9,354) (13,217) 7,142
-------- --------- ---------- ---------
NET CASH FLOWS USED IN OPERATING ACTIVITIES (38,363) (108,837) (36,119) (164,641)
-------- --------- ---------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Repayment of Note Payable -- -- -- (287,193)
Dividends Paid -- -- (2,549,145) --
-------- --------- ---------- ---------
NET CASH FLOWS USED IN FINANCING ACTIVITIES -- -- (2,549,145) (287,193)
-------- --------- ---------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Repayment of long term notes receivable -- -- 717,598 --
Investment in Short term notes receivable -- -- (500,000) --
Investment in notes receivable -- (707,428)
Proceeds from sale of investment -- -- -- 2,709,463
Repayment of notes receivable -- -- -- 200,000
-------- --------- ---------- ---------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES -- (707,428) 217,598 2,909,463
-------- --------- ---------- ---------
NET (DECREASE) INCREASE IN CASH (38,363) (816,265) (2,367,666) 2,457,629
CASH AND CASH EQUIVALENTS-Beginning of Year 97,319 2,464,985 2,464,985 7,356
-------- --------- ---------- ---------
CASH AND CASH EQUIVALENTS-End of period 58,956 1,648,720 97,319 2,464,985
======== ========= ========== =========
See Accompanying Notes to Unaudited Consolidated Financial Statements
5
INTERUNION FINANCIAL CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED JUNE 30, 2003
================================================================================
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, 2003,
included in its Form 10-KSB for the year ended March 31, 2003.
2. Earning (loss) per share is computed using the weighted average number
of common shares outstanding during the period.
IMPACT OF RECENT ACCOUNTING PRONOUNCEMENT:
On May 15, 2003--The Financial Accounting Standards Board (FASB) issued
Statement No. 150, Accounting for Certain Financial Instruments with
Characteristics of both Liabilities and Equity. The Statement improves the
accounting for certain financial instruments that, under previous guidance,
issuers could account for as equity.
On April 30, 2003--The Financial Accounting Standards Board (FASB) issued
Statement No. 149, Amendment of Statement 133 on Derivative Instruments and
Hedging Activities. The Statement amends and clarifies accounting for derivative
instruments, including certain derivative instruments embedded in other
contracts, and for hedging activities under Statement 133.
Management does not expect that the adoption of SFAS 149 and SFAS 150 will have
a material effect on the Company's operations or financial position.
CAPITAL STOCK AND ADDITIONAL PAID-IN-CAPITAL
During the quarter ended September 30, 2002, the Company incurred an expense of
$1,650,000 on account of a Service Agreement. The fee was paid by issuing
3,000,000 common shares in the fiscal year 2003. This increased the number of
issued and outstanding common stock of the company to 4,916,549. The information
was filed on Form S-8 dated August 26, 2002.
DIVIDENDS PAID
During the quarter ended September 30, 2002 extraordinary cash dividend of
$2,549,010 ($1.33 per common share) was paid to the shareholders of record on
August 23, 2002. Also, InterUnion has distributed as dividend 600,000 common
shares of B Twelve Inc, which it acquired in settlement of a Note Receivable of
$500,000. The shareholders received 0.3131 common shares of B Twelve Inc for
each common share of InterUnion Financial Corp they owned and cash for any
fractional shares that would have been issued.
For additional information, please refer to InterUnion Financial Corporation
10-QSB for the period ended June 30, 2003.
6
INTERUNION FINANCIAL CORPORATION
CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2003 AND 2002
================================================================================
INTERUNION FINANCIAL CORPORATION
CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2003 AND 2002
CONTENTS
Page
----
Independent Auditors' Report: F - 2
Consolidated Financial Statements:
Consolidated Balance Sheets F - 3
Consolidated Statements of Operations F - 5
Consolidated Statements of Shareholders' Equity F - 6
Consolidated Statements of Cash Flows F - 7
Notes to Consolidated Financial Statements F - 8 To F - 17
INDEPENDENT AUDITORS' REPORT
To The Directors and Shareholders of
InterUnion Financial Corporation
We have audited the accompanying consolidated balance sheets of InterUnion
Financial Corporation as of March 31, 2003 and 2002 and the related consolidated
statements of operations, shareholders' equity and cash flows for the years then
ended. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of InterUnion Financial
Corporation as of March 31, 2003 and 2002, and the results of its operations and
its cash flows for the years then ended in conformity with accounting principles
generally accepted in the United States.
Toronto, Canada /s/ Mintz & Partners LLP
-------------------------------
June 19, 2003 Chartered Accountants
F-2
INTERUNION FINANCIAL CORPORATION
CONSOLIDATED BALANCE SHEETS
AS AT MARCH 31 2003 2002
- -------------- ---- ----
A S S E T S
-----------
CURRENT ASSETS
Cash and cash equivalents $ 97,319 $2,464,985
Receivable from Affiliates 0 41,226
Prepaid expenses and other current assets 1,239 14,563
---------- ----------
Total current assets 98,558 2,520,774
---------- ----------
NON-CURRENT ASSETS
Notes receivable (Note 3) 0 717,598
---------- ----------
Total non-current assets 0 717,598
---------- ----------
Total Assets $ 98,558 $3,238,372
========== ==========
See Notes to Consolidated Financial Statements
F - 3
INTERUNION FINANCIAL CORPORATION
CONSOLIDATED BALANCE SHEETS
AS AT MARCH 31 2003 2002
------- -------
L I A B I L I T I E S
---------------------
CURRENT LIABILITIES
Accrued liabilities $33,056 $46,272
------- -------
Total liabilities 33,056 46,272
------- -------
SHAREHOLDERS' EQUITY
--------------------
CAPITAL STOCK AND ADDITIONAL PAID-IN CAPITAL
(Note 4) Class A Preferred Stock,
$0.10 par value Authorized -1,500,000 shares
Issued and outstanding - None -- --
Class B Preferred Stock, $0.10 par value
Authorized - 1,000 shares
Issued and outstanding - None -- --
Class C Preferred Stock, $0.10 par value
Authorized - 1,000 shares
Issued and outstanding - None -- --
Common Stock, $0.001 par value
Authorized -5,000,000 shares
Issued and outstanding 4,916,549
in 2003; 1,916,549 in 2002 49,165 19,165
Additional Paid-In Capital 12,267,128 10,647,128
ACCUMULATED DEFICIT (12,250,791) (7,474,193)
------------ ------------
Total shareholders' equity 65,502 3,192,100
------------ ------------
Total Liabilities and Shareholders' Equity $ 98,558 $ 3,238,372
============ ============
See Notes to Consolidated Financial Statements
F - 4
INTERUNION FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED MARCH 31 2003 2002
----------- -----------
REVENUES
Investment Banking $ 79,956 $ 13,134
Interest Income 15,100 26,794
----------- -----------
95,056 39,928
----------- -----------
EXPENSES
Selling, General and Administrative 1,836,884 166,901
Foreign Exchange (Gain)/Loss (14,384) 8,517
Interest 9 5,350
----------- -----------
1,822,509 180,768
----------- -----------
LOSS FROM CONTINUING OPERATIONS BEFORE UNDERNOTED
ITEMS (1,727,453) (140,840)
----------- -----------
DISPOSAL OF EQUITY INVESTMENT (Note 6)
Equity in net losses of unconsolidated affiliate 0 (238,342)
Gain on disposal of unconsolidated affiliate 0 756,669
----------- -----------
0 518,327
----------- -----------
NET INCOME (LOSS) FOR THE YEAR $(1,727,453) $ 377,487
=========== ===========
EARNINGS (LOSS) PER COMMON SHARE - Basic and Diluted
Weighted average common shares outstanding 4,135,727 1,916,421
Basic earnings (loss) per share (0.418) 0.197
Diluted earnings per share 0.197
See Notes to Consolidated Financial Statements
F - 5
INTERUNION FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED MARCH 31, 2003 AND 2002
Number Additional Share
of Paid-in Capital
Common Shares Amount Capital Totals
----------- ------------ ----------- -----------
Balance, March 31, 2001 1,899,974 $ 18,999 $ 10,597,294 $ 10,616,293
Issued on settlement of Director's Fee (Note 8) 16,575 166 49,834 50,000
----------- ------------ ----------- -----------
Balance March 31, 2002 1,916,549 19,165 10,647,128 10,666,293
Issued on settlement of Consulting Fee (Note 4) 3,000,000 30,000 1,620,000 1,650,000
----------- ------------ ----------- -----------
Balance March 31, 2003 4,916,549 $ 49,165 $ 12,267,128 $ 12,316,293
=== ==== =========== ============ ============ ============
Balance March 31, 2001 $ (7,851,680) --
Net income for fiscal 2002 377,487 $ 377,487
----------- -----------
Balance March 31, 2002 (7,474,193) $ 377,487
----------- ===========
Dividends Paid (3,049,145) --
Net income for fiscal 2003 (1,727,453) (1,727,453)
----------- -----------
Balance March 31, 2003 $(12,250,791) $ (1,727,453)
=========== ===========
See Notes to Consolidated Financial Statements
F - 6
INTERUNION FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED MARCH 31, 2003 2002
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES
Income (Loss) before discontinued operations $(1,727,453) $ 377,487
Adjustments to reconcile net loss to net
cash provided by (used in) operating activities
Equity in net losses of unconsolidated affiliates 0 238,342
Non cash operating expenses (income) 1,650,000 (29,282)
Gain on disposal of unconsolidated affiliate 0 (756,669)
----------- -----------
(77,453) (170,122)
Changes in non-cash operating assets and liabilities:
(Increase) decrease in receivable and other assets 54,551 (1,661)
Increase (Decrease) in accrued liabilities (13,217) 7,142
----------- -----------
NET CASH FLOWS USED IN OPERATING ACTIVITIES (36,119) (164,641)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Dividends Paid (2,549,145) 0
Repayment of Notes Payable 0 (287,193)
----------- -----------
NET CASH FLOWS USED IN FINANCING ACTIVITIES (2,549,145) (287,193)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of investment (Note 6) 0 2,709,463
Repayment of Notes Receivable 0 200,000
Repayment of long term Notes Receivable 717,598 0
Investment in Short term notes Receivable(Note 9) (500,000) 0
----------- -----------
NET CASH FLOWS PROVIDED BY INVESTING ACTIVITIES 217,598 2,909,463
----------- -----------
NET INCREASE (DECREASE) IN CASH (2,367,666) 2,457,629
CASH AND CASH EQUIVALENTS - Beginning of Year 2,464,985 7,356
----------- -----------
CASH AND CASH EQUIVALENTS - End of Year $ 97,319 $ 2,464,985
=========== ===========
For supplemental disclosure information for the Consolidated Statement of Cash
flows, see note 9.
See Notes to Consolidated Financial Statements
F - 7
INTERUNION FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2003 AND 2002
1. ORGANIZATION AND BASIS OF PRESENTATION
Description of Business: InterUnion Financial Corporation ("IUFC") and its
subsidiaries (collectively the "Company") are engaged in financial services with
activities in investment banking business, in particular, the investment
management business.
Principles of Consolidation: The consolidated financial statements include the
accounts of IUFC and all wholly owned and majority owned subsidiaries from their
respective dates of acquisition, after the elimination of all significant
inter-company transactions and balances. At March 31, 2003 (March 31, 2002 -
refer to note 6), the consolidated subsidiary of IUFC is InterUnion Merchant
Group Inc. ("IUMG"). Investments in affiliates, representing 20% to 50% of the
ownership, are accounted for under the equity method. Under the equity method,
the Company records its proportionate share of income (loss) of the affiliate
(net of the amortization of the excess of the purchase price over the net assets
acquired) to results of operations, with this amount either added to (deducted
from) the cost of the investment. Dividends received from affiliates which are
accounted for on the equity basis are deducted from the carrying value of the
investment. Equity method affiliates were InterUnion Asset Management Limited
(Note 6) and its subsidiaries; Black Investment Management Limited, Guardian
Timing Services Limited, Leon Frazer, Black & Associates Limited, The Glen
Ardith-Frazer Corporation, and P.J. Doherty & Associates Co. Ltd. Investments in
companies representing less than 20% ownership are accounted for under the cost
method.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cash and Cash Equivalents: Cash and cash equivalents include demand deposits
with banks, money market accounts, and other highly liquid short-term
investments with original maturities of 90 days or less when acquired. Balances
of cash and cash equivalents in financial institutions may at times exceed the
government-insured limits.
Use of Estimates: The preparation of financial statements in accordance with
United States generally accepted accounting principles requires management to
make estimates and assumptions. These estimates and assumptions affect the
reported amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the dates of the financial statements and reported amounts of
revenues and expenses during the reporting periods. Actual results may differ
from those estimates and assumptions.
Long-lived Assets: As prescribed by the Statement of Financial Accounting (SFAS)
No. 144, "Accounting for the Impairment or disposal of Long-lived Assets", the
Company assesses the recoverability of its long-lived assets by determining
whether the asset balance can be recovered over the remaining depreciation or
amortization period through projected undiscounted future cash flows. Any
impairment in the value of the long lived assets is provided in the year the
long lived asset is considered impaired.
Continued...
F - 8
INTERUNION FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2003 AND 2002
Fair Value of Financial Assets: The carrying value of cash and cash equivalents,
accounts receivable, accrued liabilities and notes receivable approximates the
fair value. In addition, unless described elsewhere, the carrying value of all
financial assets approximate the fair value based on terms and interest rates
currently available to the Company.
Income Recognition: Revenues are recognized once an assignment to provide
business and advisory services is completed.
Income Taxes: The Company provides for federal and state income taxes currently
payable, as well as for those deferred because of timing differences between
reporting income and expenses for financial statements purposes versus tax
purposes. Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statements
carrying amounts of existing assets and liabilities and their respective tax
basis. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect of a change in
tax rates is recognized as income or expense in the period that includes the
enactment date.
The Company and its U.S. subsidiaries file U.S. federal and state income tax
returns. Non-U.S. subsidiaries, which are consolidated for financial reporting,
file tax returns outside the U.S., and therefore separate provisions for income
taxes have been determined for these entities. Except for return of capital and
selected dividends, the Company intends to reinvest the unremitted earnings of
its non-U.S. subsidiaries and postpone their remittance indefinitely.
Accordingly, no provision for U.S. income taxes for non-U.S.
subsidiaries was required for any year presented.
Impact of Recent Accounting Pronouncement: In May 2002 the Financial Accounting
Standards Board (`FASB') issued SFAS 145 "Rescission of FASB Statements No. 4,
44, and 64. Amendment of FASB Statement No. 13 and Technical Corrections". This
pronouncement requires that gains or losses arising from early extinguishments
of debt that are part of a company's recurring operation (i.e., a risk
management strategy) would not be reported as extraordinary items. The statement
also provides that modifications to a capital lease that make it operating lease
be accounted for as a sale-leaseback.
In June 2002, the Financial Accounting Standards Board (`FASB') issued SFAS 146
"Accounting for costs associated with exit or disposal activities". This
pronouncement replaces Emerging Issues Task Force (EITF) Issue No. 94-3
"Liability Recognition for certain employee termination benefits and other costs
to exit an activity". It requires that costs associated with exit or disposal
activities be recognized when they are incurred rather than at the date of
commitment to an exit or disposal plan.
In December 2002, the Financial Accounting Standards Board ("FASB") issued SFAS
148 "Accounting for Stock-Based Compensation-Transition and Disclosure -an
amendment of FASB Statement 123"- This Statement amends SFAS 123 "Accounting for
Stock-Based Compensation", to provide alternative methods of transition for a
voluntary change to the fair value based method of accounting for stock-based
employee compensation. It also requires prominent disclosures about the method
of accounting for stock-based employee compensation and the method used on
reported results.
Management does not expect that the adoption of SFAS 145, SFAS 146 and SFAS 148
will have a material effect on the Company's operations or financial position.
Continued..
F-9
INTERUNION FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2003 AND 2002
Translation of Foreign Currencies: In accordance with SFAS No.52, "Foreign
Currency Translation", the financial statements of certain subsidiaries of the
Company are measured using local currency as the functional currency. Assets and
liabilities have been translated at current exchange rates and related revenue
and expenses have been translated at average monthly exchange rates. Gains and
losses resulting from the translation of subsidiaries' financial statements are
included as a separate component of shareholders' equity. Any gains or losses
resulting from foreign currency transactions are included in results of
operations.
Earnings per Share: Net earnings (loss) per share is reported in accordance with
SFAS No. 128, "Earnings Per Share". SFAS No. 128 requires dual presentation of
basic earnings per share ("EPS") and diluted EPS on the face of all statements
of earnings, for all entities with complex capital structures. Diluted EPS
reflects the potential dilution that could occur from common shares issuable
through the exercise or conversion of stock options, restricted stock awards,
warrants and convertible securities. In certain circumstances, the conversion of
these options, warrants and convertible securities are excluded from diluted EPS
if the effect of such inclusion is anti-dilutive. Fully diluted loss per share
is not provided, as the effect will be anti-dilutive.
Stock Based Compensation: The Company accounts for employee stock options in
accordance with Accounting Principles Board (APB) Opinion No. 25, "Accounting
for Stock Issued to Employees". Under APB No. 25, the Company applies the
intrinsic value method of accounting. SFAS No. 123, "Accounting for Stock-Based
Compensation", prescribes the recognition of compensation expense based on fair
value of options determined on the grant date. However, SFAS No. 123 allow
companies currently applying APB No. 25 to continue applying the intrinsic value
method under APB No. 25. For companies that continue in applying the intrinsic
value method, SFAS No. 123 mandates certain pro forma disclosures as if the fair
value method had been utilized. The recently promulgated accounting standard,
FIN44 "Accounting for Certain Transactions involving Stock Compensation", does
not affect the financial statements of the company.
Comprehensive Income: The Company follows Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income". This statement establishes
standards for reporting and display of comprehensive income and its components.
Comprehensive income is net income plus certain items that are recorded directly
to shareholders' equity bypassing net income. The Company has no other
comprehensive income (loss) and comprehensive income (loss) is the net profit
(loss) for the year.
Segment Information: The Company follows SFAS No. 131 "Disclosures about
Segments of an Enterprise and Related Information". SFAS No. 131 requires that
the Company disclose its operations in the business segment as viewed by
management: which is Investment Banking, which includes its merchant, banking
activities and Investment Management.
Continued...
F -10
INTERUNION FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2003 AND 2002
Other: All amounts in these financial statements are in United States dollars
unless indicated with a "C" to represent Canadian dollar presentation.
3. NOTES RECEIVABLE
2003 2002
---- ----
Notes Receivable from Credifinance Capital Corp. (CFCC) bearing
Interest @ 3% per annum with no maturity date . This note is unsecured. $ 0 $ 717,598
Less: Current Portion 0 0
------------- -------------
Non-current portion $ 0 $ 717,598
============= =============
4. CAPITAL STOCK
Currently, the number of shares that the Company is authorised to issue
under each class of stock are:
1,500,000 Class A Preferred Shares, ($0.10 par value),
entitled to 100 votes for every one share issued,
annual dividends, if declared by the directors,
at a rate of $0.01 per share, non-cumulative. In
case of liquidation or dissolution of the
company, the holder of Class A Preferred Shares
shall be entitled to be paid in full the par
value of the shares before the holder of the
common stock of Class B and C Preferred Stock.
1,000 Class B Preferred Shares, ($0.10 par value),
non-voting, annual dividends, if declared by the
directors, at a rate to be determined by the
directors at the first issuance of these shares,
non-cumulative
1,000 Class C Preferred Shares, ($0.10 par value),
non-voting, annual dividends, if declared by the
directors, at a rate to be determined by the
directors at the first issuance of these shares,
non-cumulative. These shares are convertible into
common stock at terms determined by the directors
when these shares are issued.
5,000,000 Common shares ($0.001 par value); each share has
one vote
During fiscal 2003, the Company incurred a consulting expense of $1,650,000 on
account of a Service Agreement. The fee was paid by issuing 3,000,000 common
shares in the fiscal year 2003. This increased the number of issued and
outstanding common stock of the company to 4,916,549. The information was filed
on Form S-8 dated August 26, 2002.
During the second quarter ended September 30, 2002 an extraordinary cash
dividend of $2,549,010 ($1.33 per common share) was paid to the shareholders of
record on August 23, 2002. Also, IUFC has distributed as dividend 600,000 common
shares of Kyto Pharmaceutical Inc, which it acquired in settlement of a Note
Receivable of $500,000. The shareholders received 0.3131 common shares of kYTO
for each common share of InterUnion Financial Corp they owned and cash for any
fractional shares that would have been issued.
During fiscal 2002 the company issued 16,575 common shares in settlement of a
liability to a Director ( Note 8).
Continued...
F - 11
INTERUNION FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2003 AND 2002
5. STOCK OPTIONS
The Company currently issues stock options at the direction of the
Board of Directors. To date, stock options have been granted to
selected key employees under terms and conditions determined by the
Board of Directors at the time the options are issued. Presented below
is a summary of stock option plan activity:
Wt. Avg.
Exercise Options Exercise
Number Price Exercisable Price
------------ ----------- ------------- -----------
Balance, March 31, 2001 335,000 $ 4.00 335,000 $ 4.00
Cancelled (85,000) 4.00 (85,000) 4.00
------------ ----------- ------------- -----------
Balance, March 31, 2002 250,000 4.00 250,000 4.00
Cancelled 0 4.00 0 4.00
----------- ----------- ------------ -----------
Balance, March 31, 2003 250,000 $ 4.00 250,000 $ 4.00
=========== =========== ============ ===========
Options outstanding and exercisable at March 31, 2003 are as follows:
Outstanding Exercisable
- ------------------------------------------------------------------------------- --------------------------
Wt. Avg. Wt. Avg.
Expiry Remaining Remaining Exercise
Price Number Date Life Exercise Price Number Price
----- ------ ---- ---- -------------- ------ -----
$ 4.00 50,000 Sept. 2003 <1 $ 4.00 50,000 $ 4.00
4.00 200,000 May 2005 <3 4.00 200,000 4.00
SFAS No.123 requires entities that account for awards for stock-based
compensation to employees in accordance with APB No.25 to present pro
forma disclosures of net income and earnings per share as if
compensation cost was measured at the date of grant based on fair value
of the award. The fair value for these options was estimated at the
date of grant using a Black-Scholes option-pricing model with the
following weighted-average assumptions:
2003
----
Expected life of the option 1 - 3 years
Risk free interest rate 5.0%
Expected volatility 100.0%
Expected dividend yield 0.0%
/Continued...
F - 12
INTERUNION FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2003 AND 2002
5. STOCK OPTIONS-Continued
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options, which have no vesting
restrictions and are fully transferable. In addition, option valuation
models require the input of highly subjective assumptions including the
expected stock price volatility. Because the Company's employee stock
options have characteristics significantly different from those of
traded options, and because changes in the subjective input assumptions
can materially affect the fair value estimate, in management's opinion,
the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options. As at March
31, 2003, the shares of IUFC were trading below the exercise price of
the option at $4.00 per share. As a result, the options are out of
money, have no intrinsic value, and have no impact on the earnings per
share. Therefore there is no compensation cost for the Company's stock
option plan to recognize based upon the fair value on the grant date
under the methodology prescribed by SFAS No. 123, and the Company's
income from operations and earnings per share would not have been
impacted.
6. SALE OF ASSETS AND DISCONTINUATION OF OPERATIONS:
During fiscal 2002, the Company sold its 42.8% owned subsidiary,
InterUnion Asset Management Limited (IUAM), to a non related party.
Effective December 20, 2001, the Company has no interest in IUAM. The
share of equity in net losses of IUAM for the nine months to December
20, 2001 was $238,342 which is shown separately in the consolidated
statements of operations. As a result of the disposal of IUAM as of
December 20, 2001, the Company reported a gain on disposal of $756,669.
/Continued...
F - 13
PAGE>
INTERUNION FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2003 AND 2002
7. INCOME TAXES
The Company files US Federal income tax returns for its US operations. Separate
income tax returns are filed, as locally required, for each of its foreign
subsidiaries.
There was no provision for income taxes for the years ended March 31, 2003 and
2002.
The total provision for income taxes differs from that amount which would be
computed by applying the United States federal income tax rate to income (loss)
before provision for income taxes. The reasons for these differences are as
follows:
Year Ended March 31, 2003 2002
-------------------------- --------------------------
Amount % Amount %
--------- --------- --------- ---------
Statutory income tax rate (recovery) $(389,000) (22.52) 85,000 22.52
Use of losses carried forward 389,000 22.52 (85,000) (22.52)
--------- --------- --------- ---------
Net taxes and effective rate $ 0 0 $ 0 0
========= ========= ========= =========
The Company recognizes deferred tax liabilities and assets for the expected
future tax consequences of temporary differences between the carrying amounts
and the tax basis of assets and liabilities and net operating loss
carry-forwards. Temporary differences and carry-forwards, which give rise to
deferred tax assets and liabilities are as follows:
March 31, 2003 March 31, 2002
-------------------------- ---------------------------
Component Tax Effect Component Tax Effect
----------- ----------- ----------- ------------
Net operating losses - domestic $ 1,987,000 $ 386,000 $ 270,000 $ 60,000
Less valuation allowance (1,987,000) (386,000) (270,000) (60,000)
----------- ----------- ----------- -----------
Net deferred asset $ 0 $ 0 $ 0 $ 0
=========== =========== =========== ===========
Net operating losses - foreign $ 2,336,000 $ 117,000 $ 2,326,000 $ 116,000
Less valuation allowance $(2,336,000) (117,000) (2,326,000) (116,000)
----------- ----------- ----------- -----------
Net deferred asset $ 0 $ 0 $ 0 $ 0
=========== =========== =========== ===========
At March 31, 2003, the Company had cumulative net operating loss carry-forwards
of approximately $1,987,000 and $ 2,336,000 in the United States and British
Virgin Islands respectively. These amounts will expire in various years through
2012. The related deferred tax asset have been completely offset by a valuation
allowance. The Company has no significant deferred tax liabilities.
/Continued...
F - 14
INTERUNION FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2003 AND 2002
8. RELATED PARTY TRANSACTIONS:
Directors, officers or employees of the Company may also be officers of
and serve on the board of directors of companies in which IUFC or its
subsidiaries have invested.
During the the year ended March 31, 2003, a fee of $30,000 was paid to
Credifinance Capital Corp (CFCC), a company with common ownership, to
act as the Paying Agent for IUFC's Dividends. Also, a $42,841
management fee was paid to Credifinance Securities Ltd (CFSL), a
company with common ownership.
During the year ended March 31, 2001, the Company incurred an expense
of $50,000 on account of Director's Fee. The fee was paid by issuing
16,575 common shares in the fiscal year 2002.
During the year ended March 31, 2002 the Company earned interest income
of $26,308 on the Note Receivable from CFCC (Note 3) and incurred
interest expense of $5,278 on the Note Payable to RIF Capital Inc.
During the year ended March 31, 2002 the company paid $70,000 to RIF
Capital Inc, its majority shareholder, as a fee for consulting services
rendered.
The above related party transactions were in the normal course of
business and the amount of considerations were established and agreed
to by the Company and the other party.
9. SUPPLEMENTAL CASH FLOW DISCLOSURE
The following is additional information regarding the Consolidated
Statement of Cash Flows:
Supplemental disclosure of cash flow information: 2003 2002
---------- ----------
Cash paid during the year for interest $ 9 $ 5,350
Cash paid during the year for income taxes 0 10,328
Supplemental disclosure of non-cash financing and investing:
Liabilities paid by issuing common stock 1,650,000 50,000
Shares of Kyto Pharmaceutical Inc. received
in settlement of Notes Receivable 500,000 0
Distribution of Kyto Pharmaceutical Inc. shares
to shareholders as dividend 500,000 0
/Continued...
F - 15
INTERUNION FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2003 AND 2002
10. SEGMENT INFORMATION
The following tables summaries the revenues, operating income (losses) from
continuing operations and identifiable assets by geographical area.
United Adjustments &
Canada States Other Elimination Consolidated
----------- ----------- ----------- ----------- -----------
For the year ended and as of March 31, 2003
Revenue from
unaffiliated customers $ 0 $ 95,056 $ 0 $ 0 $ 95,056
Revenue from
Inter-segments 0 0 0 0 0
----------- ----------- ----------- ----------- -----------
Total revenue 0 95,056 0 0 95,056
=========== =========== =========== =========== ===========
Depreciation
& Amortization 0 0 0 0 0
=========== =========== =========== =========== ===========
Operating profit 0 95,056 0 0 95,056
=========== =========== =========== =========== ===========
General corporate
expenses 0 (1,822,500) 0 0 (1,822,500)
Interest expenses, net 0 (9) 0 0 (9)
Net (Loss) for the period 0 (1,727,453) 0 0 (1,727,453)
=========== =========== =========== =========== ===========
Identifiable assets $ 0 $ 98,558 $ 0 $ 0 $ 98,558
=========== =========== =========== =========== ===========
For the year ended and as of March 31, 2002
Revenue from
unaffiliated customers $ 0 $ 39,928 $ 0 $ 0 $ 39,928
Revenue from
Inter-segments 0 0 0 0 0
----------- ----------- ----------- ----------- -----------
Total revenue 0 39,928 0 0 39,928
=========== =========== =========== =========== ===========
Depreciation
& Amortization 0 0 0 0 0
=========== =========== =========== =========== ===========
Operating profit 0 39,928 0 0 39,928
=========== =========== =========== =========== ===========
General corporate
expenses (1,426) (173,992) 0 (175,418)
Interest expenses, net 0 (5,350) 0 0 (5,350)
Disposal of Equity Investment 0 518,327 0 0 518,327
----------- ----------- ----------- ----------- -----------
Net income (loss) for the period (1,426) 378,913 0 0 377,487
Identifiable assets
=========== =========== =========== ----------- -----------
Identifiable assets $ 6,857 $ 3,239,798 $ 0 (8,283) $ 3,238,372
=========== =========== ----------- ----------- ===========
Continued...
F - 16
INTERUNION FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2003 AND 2002
11 CONTINGENCIES:
From time to time the Company is exposed to claims and legal actions in the
normal course of business, some of which are initiated by the Company. At March
31, 2003, management believes that any such outstanding issues will be resolved
without significantly impairing the financial condition of the Company.
F - 17