UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 20-F
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 for the fiscal year ended July 31, 2001.
COMMISSION FILE NUMBER: _______________
INTERNATIONAL FINANCIAL GROUP INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
CAYMAN ISLANDS, BRITISH WEST INDIES
(JURISDICTION OF INCORPORATION OR ORGANIZATION)
P.O. BOX 10098 APO
GEORGE TOWN, GRAND CAYMAN, BRITISH WEST INDIES, AND SUITE NO. 4 AND 5,
TEMPLE BUILDING, MAIN AND PRINCE WILLIAM STREET, CHARLESTOWN, NEVIS, WEST INDIES
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
Securities registered or to be registered pursuant to Section 12(b) of the Act:
None
Securities registered or to be registered pursuant to Section 12(g) of the Act:
None
Securities for which there is a reporting obligation pursuant to section 15(d)
of the Act:
Ordinary Shares having a par value of $0.001 per share.
The number of outstanding shares of each of the issuer's classes of capital or
common stock as of January 25, 2002 was 25,250,000 Ordinary Shares.
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for 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.
[X] Yes [ ] No
Indicate by check mark which financial statement item the registrant has elected
to follow.
[ ] Item 17 [X] Item 18
TABLE OF CONTENTS
PART I........................................................................1
INTRODUCTION...............................................................1
Accounting Periods and Principles....................................1
Cautionary Statement Regarding Forward-Looking Information...........1
ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS............2
ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE..........................2
ITEM 3. KEY INFORMATION..................................................2
INTERNATIONAL FINANCIAL GROUP'S SELECTED FINANCIAL DATA..............2
RISK FACTORS.........................................................3
ITEM 4. INFORMATION ON THE COMPANY......................................11
History and Background.................................................11
The Company.........................................................11
Business Overview...................................................12
The Subsidiaries.......................................................13
IFG Trust Services..................................................13
IFG Investments Services............................................14
IFG Corporate Services..............................................15
IFG Management Services.............................................15
IFG Systems.........................................................16
The Proposed Subsidiaries..............................................17
IFG Bank............................................................17
IFG Insurance.......................................................17
Industry Background....................................................18
Growth of the Internet and Online Commerce..........................19
Market Opportunity..................................................19
Marketing Strategy..................................................20
Revenues............................................................22
Business Strategy......................................................22
Main Objectives.....................................................22
GOVERNMENT REGULATION.....................................................25
The Company.........................................................25
Organizational Structure...............................................27
CORPORATE CHART.................................................27
Property, Plant and Equipment.......................................28
ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS....................28
Forward Looking Statements..........................................28
Introduction........................................................28
Financial Condition.................................................29
Results of Operations...............................................29
Changes in Financial Condition......................................31
Liquidity and Capital Resources.....................................31
Trend Information...................................................32
ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES......................33
Directors and Senior Management.....................................33
ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS...............35
Related Party Transactions..........................................36
January 25, 2002 Annual Report Page i
TABLE OF CONTENTS
ITEM 8. FINANCIAL INFORMATION...........................................37
ITEM 9. THE OFFER AND LISTING...........................................37
ITEM 10. ADDITIONAL INFORMATION..........................................37
Memorandum and Articles of Association.................................37
Material Contracts.....................................................40
Exchange Controls......................................................40
Taxation...............................................................41
Cayman Islands......................................................41
United States of America............................................41
United State Federal Income Tax Considerations......................42
Personal Holding Companies.............................................42
Foreign Personal Holding Companies.....................................43
Passive Foreign Investment Companies...................................43
Controlled Foreign Corporation.........................................44
Documents On Display...................................................44
ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK.......44
ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES..........44
PART II......................................................................44
ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES.................44
ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS
AND USE OF PROCEEDS.......................................................45
PART III.....................................................................45
ITEM 17. FINANCIAL STATEMENTS............................................45
ITEM 18. FINANCIAL STATEMENTS............................................45
ITEM 19. EXHIBITS........................................................45
INDEX TO CONSOLIDATED FINANICAL STATEMENTS................................47
Independent Accountants' Report.................................48
Consolidated Balance Sheets.....................................49
Consolidated Statements of Operations...........................50
Consolidated Statement of Shareholders' Equity..................51
Consolidated Statement of Cash Flows............................52
Notes to the Consolidated Financial Statements..................53
January 25, 2002 Annual Report Page ii
International Financial Group
PART I
Introduction
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This annual report on Form 20-F relates to the ordinary shares of International
Financial Group Inc. a corporation registered to carry on business in the Cayman
Islands.
In this annual report, except as otherwise indicated or as the context otherwise
requires, the "Company", "IFG", "we", "us" and "our" refers to International
Financial Group Inc. and its subsidiaries.
Accounting Periods and Principles
- ---------------------------------
We have prepared our audited annual consolidated financial statements as of July
31, 2001 and for the previous two years in U.S. dollars in accordance with
United States generally accepted accounting principles (U.S. GAAP).
Percentages and some amounts in this annual report have been rounded for ease of
presentation. Any discrepancies between totals and the sums of the amounts
listed are due to rounding.
Cautionary Statement Regarding Forward-Looking Information
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We make forward-looking statements in this annual report that are subject to
risks and uncertainties. These statements are based on the beliefs and
assumptions of our management, and on information currently available to us.
Forward-looking statements include statements regarding the intent, belief or
current expectations of our company or its directors or executive officers with
respect to:
o the declaration or payment of dividends;
o the direction of future operations;
o the implementation of principal operating strategies;
o the implementation of our financing strategy and capital expenditure
plans;
o the factors or trends affecting our financial condition, liquidity or
results of operations.
Forward-looking statements also include the information concerning possible or
assumed future results of operations of our company set forth under "Item
4--Information on the Company Business Overview" and "Item 8--Financial
Information" and statements preceded by, followed by, or that include, the words
"believes", "may", "will", "continues", "expects", "anticipates", "intends",
"plans", "estimates" or similar expressions.
Forward-looking statements are not guarantees of performance. They involve
risks, uncertainties and assumptions because they relate to future events and
therefore depend on circumstances that may or may not occur in the future. The
future results and shareholder values of our company may differ materially from
those expressed in or suggested by these forward-looking statements. Many of the
factors that will determine these results and values are beyond our ability to
control or predict. Investors are cautioned not to put undue reliance on any
forward-looking statements.
Investors should understand that the following important factors, in addition to
those discussed in this annual report, could affect the future results of our
company and could cause results to differ materially from those expressed in
such forward-looking statements:
o general economic conditions, such as the rates of economic growth in
the principal geographic markets of our company;
o industry conditions, such as the intensity of competition, pricing
pressures, the introduction of new products by our company, the
introduction of new products and services by competitors,
o changes in technology
o operating factors, such as the retention of staff and the consequent
achievement of efficiencies and the continued success of product and
service development.
January 25, 2002 Annual Report Page 1
International Financial Group
o Political and economic instability
o Market globalization and deregulation
o The internationalization of business
o The lifting of trade barriers
o Trends towards steady global economic growth
o A global relaxation of foreign exchange controls
o High tax regimes
o More effective tax recovery
o A global relaxation of foreign exchange controls
Item 1. Identity of Directors, Senior Management and Advisers
- -------------------------------------------------------------
Not Applicable.
Item 2. Offer Statistics and Expected Timetable
- -----------------------------------------------
Not Applicable.
Item 3. Key Information
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INTERNATIONAL FINANCIAL GROUP'S SELECTED FINANCIAL DATA
- -------------------------------------------------------
The following financial information of our company is only a summary and should
be read in conjunction with, and is qualified in its entirety by reference to,
the audited annual consolidated financial statements of our company and the
related notes which are included in this annual report.
We selected historical financial data set forth below as of and for each of the
years ended July 31, 2001, 2000 have been derived from our consolidated
financial statements, which have been audited by Miller & McCollom, Certified
Public Accountants, Lakewood Colorado, USA, independent accountants. We only
represent these particular years because the Company was not in operation for
the years 1997 to 1999 even though it was incorporated and in good standing for
those years. Our financial statements have been prepared in U.S. dollars in
accordance with U.S. GAAP.
Our U.S. GAAP audited annual consolidated financial statements as of July 31,
2001 and 2000 are included in this annual report.
2001 2000
---- ----
Income $ 48,365 -
Cost of Sales 7,633 -
Gross Profit 40,732 -
Net Loss From Operations 1,278,661 251,570
Net Loss 1,286,968 251,570
Net (loss) per common share (.06) (.09)
Total Assets 825,192 1,480,463
Total Shareholders Equity 623,962 1,408,430
Common Stock 20,250 20,000
Contributed Surplus 2,142,250 2,140,000
Subscription Receivable - (500,000)
No. of Shares 20,250,000 20,000,000
Dividend Declared per Share - -
Net Income (Loss) per Share (.06) (.09)
January 25, 2002 Annual Report Page 2
International Financial Group
RISK FACTORS
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Investors, holders and prospective purchasers of our shares or units of our
company should, in addition to paying due regard to the Cautionary Statement
Regarding Forward-Looking Information noted above, also carefully consider all
of the information set forth in this annual report. In general, investing in the
securities of issuers in development stage of its business involves a higher
degree of risk than investing in established companies with historical earnings
and financial data to compare and analyze.
For purposes of this section, when we state that a risk, uncertainty or problem
may, could or would have an "adverse effect" on our company, we mean that the
risk, uncertainty or problem may, could or would have an adverse effect on the
business, financial condition, liquidity, results of operations or prospects of
our company, except as otherwise indicated or as the context may otherwise
require. You should view similar expressions in this section as having a similar
meaning.
BECAUSE WE ARE A DEVELOPMENT STAGE COMPANY, WE CANNOT GUARANTEE OUR
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PROFITABILITY.
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IFG has a limited operating history. From the date of our incorporation on July
14th, 1997, until February 1st, 2001, we were a development-stage company that
had no revenues. Our operating activities during this period consisted primarily
of conducting research and developing our products and services to be provided
to clients desiring offshore financial products and services. Effective February
1, 2001, IFG Trust Services, Inc. and IFG Investments Services, Inc. commenced
business and have derived revenue from the businesses; however, we remain a
development-stage company. Our prospects are subject to the risks and expenses
encountered by development stage companies, companies entering the traditional
financial products and services market, and companies planning to move into the
Internet financial products and services market. Our limited operating history
and the uncertain nature of the markets addressed by us make it difficult or
impossible to predict future results of our operations. We cannot assure our
investors that we will establish a clientele that will make us profitable, which
might result in the loss of some or all of your investment in IFG.
BECAUSE IFG AND ITS OFFICERS AND DIRECTORS ARE LOCATED IN NON-U.S.
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JURISDICTIONS, INVESTORS MAY HAVE NO EFFECTIVE RECOURSE AGAINST IFG OR ITS
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MANAGEMENT FOR MISCONDUCT AND YOU MAY NOT BE ABLE TO ENFORCE JUDGMENTS AND CIVIL
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LIABILITIES AGAINST IFG AND ITS OFFICERS, DIRECTORS, EXPERTS AND AGENTS.
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International Financial Group Inc. has been incorporated under the laws of the
Cayman Islands, and our executive offices are located in the Federation of St.
Kitts and Nevis. Many of our directors, controlling persons and officers, and
representatives of the experts named in this prospectus, are residents of the
Federation of St. Kitts and Nevis, Cayman Islands, Canada, , Bermuda and
Barbados, and a substantial portion of their assets and all of our assets are
located outside the United States. As a result, it may be difficult for
investors to effect service of process within the United States upon the
directors, controlling persons, officers and representatives of experts who are
not residents of the United States or to enforce against them judgments of
courts of the United States based upon civil liability under the federal
securities laws of the United States. There is doubt as to the enforceability in
Cayman Islands against us or against any of our directors, controlling persons,
officers or experts who are not residents of the United States, in original
actions or in actions for enforcement of judgments of United States courts and
of liabilities based solely upon the federal securities laws of the United
States.
BECAUSE THE REGULATORY AND TECHNOLOGICAL ENVIRONMENT AFFECTING INTERNET OFFSHORE
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FINANCIAL SERVICES IS RAPIDLY CHANGING, IF WE CANNOT COMPLY WITH CHANGING
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INDUSTRY REGULATIONS, OR ADOPT ADVANCES IN TECHNOLOGY, WE MAY BE UNABLE TO
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COMPETE EFFECTIVELY.
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The offshore financial services industry is characterized by rapid technological
change, changes in customer requirements, new service and product introductions
and enhancements, evolving industry standards and regulation from state, federal
and foreign governments. At present the G7 countries, the United Nations and the
Organization for Economic Cooperation and Development are lobbying for new
January 25, 2002 Annual Report Page 3
International Financial Group
legislation and regulations that would require the disclosure of information
regarding participants in the offshore finance industry, with an eye toward
preventing tax evasion and money laundering. In this regard, the Cayman Islands,
has recently introduced legislation to criminalize failure to disclose to the
Cayman authorities knowledge or suspicion of money laundering..
If the Cayman Islands or the Federation of St. Kitts and Nevis discontinued
their policy of providing privacy in financial dealings, and our customers lost
confidence in our ability to protect their confidential financial information,
we might lose much of our business, and investors might lose some or all of
their investment in IFG.
Changing government regulations go hand-in-hand with changing technology,
including encryption technology that is routinely used on the Internet to
protect confidential financial information and transactions. Because encryption
and related technology is constantly advancing, we will be required to spend
considerable assets keeping current with evolving industry standards. If we are
unable to do so, we will probably lose our customers to competitors who keep
current with technological advances, which might result in the loss of some or
all of your investment in IFG.
IF WE ARE NOT ABLE TO OBTAIN FUTURE FINANCING WHEN REQUIRED, WE MIGHT BE FORCED
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TO DISCONTINUE OUR BUSINESS.
- ----------------------------
We will need to raise additional funds in order to complete our proposed
infrastructure, develop new or enhanced services and products, respond to
competitive pressures, acquire complementary businesses or technologies or
respond to unanticipated requirements. There can be no assurance that additional
financing will be available when needed on terms favorable to us. There is no
assurance that we will not incur debt in the future, that we will have
sufficient funds to repay our indebtedness or that we will not default on our
debt, jeopardizing our business viability. Furthermore, we may not be able to
borrow or raise additional capital in the future to meet our needs or to
otherwise provide the capital necessary to conduct business, which might result
in the loss of some or all of your investment in IFG.
BECAUSE A SUBSTANTIAL PORTION OF OUR REVENUES IS EXPECTED TO BE DERIVED FROM OUR
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SECURITIES BUSINESS, WE ARE PARTICULARLY VULNERABLE TO CHANGES IN MARKET
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CONDITIONS BEYOND OUR CONTROL.
- ------------------------------
A substantial portion of our revenues is expected to be derived from execution
of securities brokerage transactions through our securities subsidiary. The
securities brokerage business is subject to fluctuations and is directly
affected by global economic conditions, broad trends in business and finance and
fluctuations in volume and price levels of securities transactions, all of which
are beyond our control. Reduced trading volume generally results in reduced
transaction revenues and decreased profitability. Severe market fluctuations in
the future could have a material adverse affect on our business, financial
condition and operating results. The securities business is also subject to
various other risks, including customer default and employee misconduct, errors
and omissions. We may be responsible for any such losses that may occur as a
result of these risks. The securities industry has undergone many fundamental
changes during the last two decades, including regulation and deregulation in
many countries, as well as consolidation. There can be no assurance that future
changes will not have a material adverse affect on our business, financial
condition and operating results. In addition, commissions charged to customers
for brokerage services have steadily decreased, and we expect such decreases to
continue. There can be no assurance that such decreases will not have a material
adverse affect on our business, financial condition and operating results and,
therefore, the prospect of a return of capital invested in IFG.
BECAUSE A SUBSTANTIAL PORTION OF OUR REVENUES IS TO BE DERIVED FROM OUR PROPOSED
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BANKING BUSINESS, WE MAY NOT BE PROFITABLE DUE TO CHANGES IN INTEREST RATES AND
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OTHER GLOBAL ECONOMIC FACTORS BEYOND OUR CONTROL.
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The banking business is directly affected by global economic conditions, broad
trends in business and finance and government regulation, all of which are
beyond our control. Government regulation in the future and initiatives by the
G7 nations, the Organization for Economic Cooperation and Development and the
United Nations regarding offshore banking could materially affect our proposed
banking operations. The banking business is also subject to various other risks,
including customer default on loans, monetary control by the offshore banking
jurisdictions central banks, employee misconduct, errors and omissions. We may
January 25, 2002 Annual Report Page 4
International Financial Group
be responsible for any such losses that may occur as a result of these risks.
There can be no assurance that we will be able to establish and maintain
correspondent relationships with other banks, and this may have an adverse
affect on our ability to conduct our proposed business affairs. There can be no
assurance that these risks, if materialized, will not have a material adverse
affect on our business, financial condition and operating results and,
therefore, the prospect of a return of capital invested in IFG.
THE POTENTIAL EFFECTS OF CHANGES IN INTEREST RATES WILL AFFECT THE ABILITY OF
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OUR PROPOSED BANKING BUSINESS TO EARN SUBSTANTIAL PROFIT.
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The operations of IFG and in particular its proposed banking subsidiary may be
substantially dependent on its net interest income, which is the difference
between the interest income earned on its interest-earning assets and the
interest expense paid on its interest-bearing liabilities. Like most depository
institutions, our earnings may be affected by changes in interest rates and
other economic factors beyond our control. If an institution's interest-earning
assets have longer effective maturities than its interest-bearing liabilities,
the yield on the institution's interest-earning assets generally will adjust
more slowly than the cost of its interest-bearing liabilities and, as a result,
the institution's net interest income generally would be adversely affected by
material and prolonged increases in interest rates and positively affected by
comparable declines in interest rates. In recent years, the assets of many
financial institutions have been negatively "gapped" - which means that the
dollar amount of interest-bearing liabilities which re-price within specific
time periods, either through maturity or rate adjustment, exceeds the dollar
amount of interest-earning assets which re-price within such time periods. As a
result, the net interest income of these institutions, including our Company,
would be expected to be negatively impacted by an increase in interest rates.
In addition to affecting interest income and expense, changes in interest rates
also can affect the value of our interest-earning assets, which may be comprised
of fixed and adjustable-rate instruments, and the ability to realize gains from
the sale of such assets. Generally, the value of fixed-rate instruments
fluctuates inversely with changes in interest rates.
OUR PROPOSED INSURANCE BUSINESS MAY NOT BE PROFITABLE DUE TO FACTORS BEYOND OUR
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CONTROL, WHICH MIGHT CAUSE INVESTORS TO LOSE THEIR INVESTMENTS.
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The insurance business is directly affected by global economic conditions, broad
trends in business and finance and government regulation, all of which are
beyond our control. In addition, we may not be able to control the risk that our
portfolio of life insurance policies will not satisfy the life expectancy tables
established for individuals we have issued policies to. We will also be subject
to the risk that our investments from monies received pursuant to insurance
premiums and insurance products will not be profitable and, therefore, not
capable of re-paying insurance benefits or returns on our insurance policies and
products. There can be no assurance that these risks, if materialized, will not
have a material adverse affect on our business, financial condition and
operating results and, therefore, the prospect of a return of capital invested
in IFG.
BECAUSE OUR BUSINESS DEPENDS ON NEW AND EVOLVING MARKETS AND PRODUCTS, AN
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INVESTMENT IN OUR COMPANY IS HIGHLY SPECULATIVE.
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It is anticipated that, in the years that follow completion of our full-service
website, a large portion of our future business may be conducted over the
Internet. The market for electronic financial products and services offered over
the Internet is at an early stage of development and is continually evolving. As
is typical for new and rapidly evolving industries, demand and market acceptance
for recently introduced services and products are subject to a high level of
uncertainty. Our current and proposed products and services to be offered
through the Internet involve an alternative approach and, as a result, some
limited marketing and sales efforts may be necessary to educate prospective
users regarding the uses and benefits of our products and services. Consumers,
who already obtain their financial services from more traditional providers such
as banks, brokerage firms, lawyers, trust companies, insurance brokers etc., may
be reluctant or slow to change to utilizing our current and proposed products
and services over the Internet.
The future of our success will depend, in part, on our ability to attract
offshore financial services clients, to develop and use leading technologies,
respond to technological advances, enhance our existing products and services
January 25, 2002 Annual Report Page 5
International Financial Group
and develop new products and services on a timely and cost-effective basis.
There can be no assurance that the market for our offshore financial services
will develop or, if it does develop, will continue to grow, or that we will be
successful in effectively developing or using new technologies, responding to
technological advances or developing, introducing or marketing new products and
services to establish, maintain or enhance our client base.
Acceptance of our products and services will depend upon the broader adoption of
the Internet by consumers as a medium for commerce and communication. Use of the
Internet depends on the continued development of the necessary infrastructure
and complementary services and products, such as high-speed modems and
high-speed communication lines. As the number of users and amount of traffic on
the Internet continues to increase, there can be no assurance that the Internet
infrastructure will continue to be able to support the demands placed on it. In
addition, delays in the development or adoption of new standards and protocols
to handle increased levels of Internet activity or increased governmental
restrictions could impede further use of the Internet. Moreover, consumer
concerns about the Internet (including security, reliability, cost, ease of use,
accessibility and quality of service) remain unresolved and may negatively
affect the growth of Internet use. As a result, there can be no assurance that
the number of future transactions generated through us will be enough to
maintain IFG.
BECAUSE WE FACE INTENSE COMPETITION, AN INVESTMENT IN OUR COMPANY IS HIGHLY
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SPECULATIVE.
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We will compete with other financial service providers in the offshore industry.
Those competitors currently include brokerage firms, trust companies, corporate
and management service providers and in the future are intended to include
banks, insurance companies, and other business entities that provide offshore
financial products and services. We expect such competition to continue and
intensify in the future. Further, other financial service providers may be
established in offshore jurisdictions with the same business strategy as us and
may attempt to compete directly with us for the same customers. We expect many
of our competitors to have significantly greater financial, technical, marketing
and other resources than us. Our current competitors include, but are not
limited to, Merrill Lynch, First Nevisian, SEGOES, Freedom Trade, Trident Trust,
Royal Bank of Scotland, Fiduciary Trust, HWR Services, Caribbean Management, the
Sovereign Group, and OCRA.
Competitors of IFG's proposed business operations include, but are not limited
to, Barclays, UBS, Cayman National Bank, www.fsharpbank.com,
www.bayshorebank.com, Prudential Insurance, London Life, and Lloyds of London.
- --------------------
These potential competitors may be able to respond more quickly to new or
changing opportunities, technologies and customer requirements than IFG and may
be able to undertake more extensive promotional activities, offer more
attractive terms to customers and adopt more aggressive pricing policies than
IFG. Moreover, current and potential competitors have established or may
establish cooperative relationships among themselves or with third parties to
enhance their services and products. We cannot guarantee that new competitors or
alliances among competitors will not emerge, and these competitors may acquire a
significant market share of the offshore financial industry.
There can be no assurance that we will be able to compete effectively with
current or future competitors or that the competitive pressures faced by us will
not have a material adverse affect on our business, financial condition and
operating results and, therefore, the prospect of an investor return of capital
invested in IFG.
BECAUSE WE DEPEND ON OUR COMPUTER SYSTEMS FOR ALL OF OUR OPERATIONS, ANY SYSTEM
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FAILURE WOULD DAMAGE OUR BUSINESS AND PROLONGED FAILURE COULD FORCE US OUT OF
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BUSINESS.
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Our success is dependent on the integrity and reliability of our computer
systems (hardware and software) and electronic systems supporting our
operations, websites and Internet applications. Extraordinary volumes of
activity could cause our computer systems and Internet applications to operate
at an unacceptably low speed or even fail. Any significant degradation or
failure of the computer systems or any other systems (including third party
providers integrated with our computer and Internet system) could cause users of
our system to suffer delays in carrying out their business activities. Such
delays could cause substantial losses for users of our system and could subject
us to claims from users for losses, including litigation claiming fraud or
negligence. There can be no assurance that our computer systems and Internet
applications will not fail for a variety of reasons, including, but not limited
January 25, 2002 Annual Report Page 6
International Financial Group
to, an act of God, natural disaster, fire, power or telecommunications failure,
war, political instability or failure by a third-party software or hardware
provider. Any computer systems failure that causes interruptions in our
operations and delivery of service could have a material adverse affect on our
business, financial condition and operating results and, therefore, the prospect
of an investor's return of capital invested in IFG.
IF OUR SECURITY SYSTEMS ARE BREACHED, OR OUR SYSTEMS ARE SABOTAGED, WE WOULD
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LOSE BUSINESS AND INVESTORS COULD LOSE THEIR INVESTMENT.
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We rely on encryption and other online security technology, necessary to effect
secure transmission of confidential information over the Internet by users of
our computer systems and Internet systems. There can be no assurance that
advances in computer capabilities; new discoveries in the field of cryptography
or other events or developments will not result in a compromise or breach of our
security technologies. Any such compromise of the security available through our
system could have a material adverse affect on our business, financial condition
and operating results and, therefore, the prospect of an investor's return of
capital invested in IFG. We cannot assess the risk that our own Internet-based
applications will not be sabotaged by computer hackers.
BECAUSE WE DEPEND ON A SMALL GROUP OF QUALIFIED PEOPLE, IF WE CANNOT HIRE AND
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RETAIN QUALIFIED PERSONNEL, WE MIGHT BE FORCED TO DISCONTINUE OUR OPERATIONS.
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Our business is dependent upon a small number of directors, executive officers
and key personnel. We do not maintain any life insurance policies on any of our
directors, executives, or key personnel for the benefit of IFG. The loss of the
services of any of the aforementioned directors, executive officers or key
personnel, or the inability to identify, hire, train and retain other qualified
directors, executive officers or personnel in the future could have a material
adverse affect on our business, financial condition and operating results and,
therefore, the prospect of an investor's return of capital invested in IFG.
BECAUSE ANOTHER COMPANY CONTROLS A MAJORITY OF OUR COMMON STOCK, INVESTORS WILL
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HAVE LITTLE OR NO CONTROL OVER IFG OR ITS MANAGEMENT.
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Upon completion of the Offering, we will remain controlled by IFG World Holdings
Inc., the major controlling shareholder to IFG. As a result, IFG World Holdings
Inc. will have the ability to control matters affecting IFG, including the
election of our directors, the acquisition or disposition of our assets, and the
future issuance of IFG's shares. Because Mr. Kevin Mellor currently owns over
99% of IFG's shares and will continue to own 79% of IFG shares if our F-1
offering is successful, investors will not be able to replace our management if
they disagree with the way IFG's business is being run. Because control by
"insiders" could result in management making decisions that are in the best
interest of those insiders and not in the best interest of the investors, you
may lose some or all of the value of your investment in IFG.
IF WE CANNOT ESTABLISH INTERNATIONAL ALLIANCES AND BUSINESS RELATIONSHIPS, WE
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MAY NOT BE ABLE TO OPERATE OUR VARIOUS BUSINESSES EFFECTIVELY, AND INVESTORS
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COULD LOSE THEIR INVESTMENT IN IFG.
- -----------------------------------
We intend to accomplish our goals by establishing strategic alliances with other
corporations, partnerships, and individuals, including banks, securities
dealers, insurance companies, trust and corporate service providers, online
service providers, and domestic and offshore professionals around the world.
Such strategic alliances entail numerous risks, including difficulties in
assessing the integrity, professional ability and/or efficiency and reliability
of the corporations, partnerships, professionals and individuals around the
world. There can be no assurance that any such relationships will be maintained,
that if such relationships are maintained, that they will be successful or
profitable or that we will be successful in developing any new strategic
alliances.
BECAUSE WE RELY ON THE HONESTY OF OUR CLIENTS, WE MAY BREACH MONEY-LAUNDERING
- -----------------------------------------------------------------------------
LAWS IF OUR CLIENTS LIE TO US, WHICH MIGHT PUT US OUT OF BUSINESS.
- ------------------------------------------------------------------
Although most offshore regulatory regimes contemporarily require the production
of extensive due diligence representation (in order to comply with the "know
your client" rule) from new parties involved in offshore financial structures
(e.g., directors, beneficiaries and beneficial owners, settlors, bank account
January 25, 2002 Annual Report Page 7
International Financial Group
signatories, etc.), we cannot guarantee that required information and due
diligence provided by each new client will not be mistaken, misrepresented, the
product of forgery and/or fraud or otherwise inaccurate for reasons beyond our
control or the client.
Such inaccuracies may put us in breach of local laws and regulations which could
result in censure, fine, incarceration, revocation of work permits, the issuance
of cease-and-desist orders or the suspension or expulsion of our officers or
employees from certain countries. Such errors, omissions or inaccuracies may
also damage our international reputation as an offshore financial provider.
Either scenario could have a material adverse affect on our ability to carry on
business, which would, in turn, have a material adverse affect on our financial
condition and operating results and, therefore, the prospect of an investor's
return of capital invested in IFG.
BECAUSE WE RELY ON THIRD PARTY SERVICE PROVIDERS, THEIR ERRORS OR OMISSIONS
- ---------------------------------------------------------------------------
COULD HAVE A MATERIAL ADVERSE AFFECT ON OUR BUSINESS AND CAUSE A LOSS OF YOUR
- -----------------------------------------------------------------------------
INVESTMENT.
- -----------
We intend to rely on third party providers in all aspects of our business.
Errors and omissions in the various services performed by these third party
providers, although not the fault of ours, may expose us to criminal or civil
liability, and/or directly affect the quality and efficiency of goods and
services delivered by IFG. Such errors or admissions may have a material adverse
affect on our business, financial condition and operating results and,
therefore, the prospect of an investor's return of capital invested in IFG.
BECAUSE OUR MANAGEMENT HAS BROAD DISCRETION OVER THE USE OF PROCEEDS FROM THIS
- ------------------------------------------------------------------------------
OFFERING, YOU COULD LOSE YOUR INVESTMENT IF THE PROCEEDS ARE NOT SPENT
- ----------------------------------------------------------------------
PRUDENTLY.
- ----------
The net proceeds of this Offering are to be utilized for:
o payment of costs associated with this offering;
o paying salaries and benefits to employees;
o expanding corporate offices in Nevis; and
o research, evaluation, testing, development, operation and maintenance
of software, for the various subsidiaries of IFG, and the
establishment, operation, enhancement and maintenance of various
websites required by IFG to provide its services or other contingent
expenditures deemed necessary by IFG.
However, the Board of Directors and the management of IFG may not spend funds
pursuant to the uses indicated above due to events both within and beyond
management's control such as mismanagement of funds, inaccuracies of estimates,
and government changes in net capital requirements, etc. However, inaccuracies
in estimations for funds required in each area, mismanagement of funds in any
area and/or events beyond our control may result in the allocation of funds in a
manner not represented in this Memorandum. Unallocated net proceeds will be
spent at the discretion of our Board of Directors and management. If management
does not use the proceeds from this offering effectively, we may go out of
business, and investors would lose their entire investment in IFG.
IF GOVERNMENT REGULATIONS CHANGE TO IMPEDE OR ELIMINATE OUR ABILITY TO FUNCTION
- -------------------------------------------------------------------------------
AS AN OFFSHORE FINANCIAL SERVICE PROVIDER, WE COULD BE FORCED TO CEASE OUR
- --------------------------------------------------------------------------
OPERATIONS.
- -----------
In conducting various aspects of our business, we are subject to various laws
and regulations within the jurisdictions, which it operates in relating to
international commercial transactions. Given the expansion of the electronic
commerce market, it is possible that any of the foregoing agencies could revise
existing regulations or adopt new regulations governing or affecting our plan
and ability to conduct our business through traditional channels and through the
Internet. If enacted, such laws, rules and regulations could have a material
adverse effect on our business, operating results and financial condition.
January 25, 2002 Annual Report Page 8
International Financial Group
We intend to be engaged in marketing financial products and services in up to 40
jurisdictions. As a result, it will be required to uphold all local laws,
including those laws related to the business of selling financial products and
services and all local money laundering laws. There can be no guarantee that we,
or our subsidiaries will obtain and retain licenses to conduct our business in
the various jurisdictions in which we are proposing to operate. Failure to
comply with any of these laws, rules or regulations could result in censure,
fine, incarceration, revocation of work permits, the issuance of
cease-and-desist orders or the suspension or expulsion of our officers or
employees from certain countries, any of which could have a material adverse
affect on the ability for us to carry on business, which would, in turn, have a
material adverse affect on the our financial condition and operating results
and, therefore, the prospect of an investor's return of capital invested in IFG.
It is our intent to expand our business to a number of offshore financial
centers. In order to expand our services globally, we must comply with
regulatory controls of each specific country in which it conducts business,
which may include finding qualified professionals and business people capable of
providing correspondent services. The varying compliance requirements of these
different regulatory jurisdictions may also limit our ability to expand
internationally.
We intend to conduct a significant portion of our business through the Internet
and other electronic media and intend to expand our use of such media. To date,
the use of the Internet to conduct financial transactions has been relatively
free from regulatory restraints. However, a number of governments, including the
United States, are beginning to address the regulatory issues that may arise in
connection with use of the Internet. Accordingly, there can be no assurance that
these authorities will not adopt new regulations (or interpret their existing
regulations) in a manner that constrains our ability to transact business
through the Internet or other electronic media. Any additional regulation of our
use of electronic media could render our business or operations more costly,
less efficient or even impossible, any of which could have a material adverse
affect on the our business, financial condition and operating results.
In addition to the above risks, our cannot assess the effect that the
Organization for Economic Cooperation and Development, the United Nations and
the G7 countries initiatives will have upon the offshore financial industry and,
in particular, the jurisdictions that we will carry on business in and our
proposed clients.
BECAUSE WE ARE SUBJECT TO NET CAPITAL AND INSURANCE REQUIREMENTS, WE WILL HAVE
- ------------------------------------------------------------------------------
TO MAINTAIN SIGNIFICANT CASH RESERVES, WHICH MAY LEAVE US WITH LESS WORKING
- ---------------------------------------------------------------------------
CAPITAL AND MIGHT RESULT IN LIQUIDATION OF IFG.
- -----------------------------------------------
IFG and or its subsidiaries will be subject to certain net capital and insurance
requirements to carry on their current brokerage, trust, corporate and
management and proposed banking and insurance activities. Failure to satisfy or
maintain the required net capital and insurance may prevent us from obtaining
the required licenses to carry on business in each offshore jurisdiction we
carry on business in and may subject the us or our subsidiaries to fines,
suspension or revocation of license's and registration's granted by certain
governmental bodies, which could require liquidation of IFG and/or its
subsidiaries. In addition, a change in the net capitalization or insurance laws
that we or our subsidiaries are subject to, the imposition of new rules or any
unusually large charge against net capital or insurance requirement could limit
our operations and/or those of our subsidiaries that require the intensive use
of capital, such as the financing of infrastructure completion, expansion and
maintaining and improving technology which would require funding from our
operating income, thereby reducing our funds available for dividends, which in
turn, could limit our ability to pay dividends. A significant operating loss or
any unusually large charge against net capital could adversely affect the our
ability to expand or even develop the level of business currently planned, which
could have a material adverse affect on our business, financial condition and
operating results and, therefore, the prospect of an investor's return of
capital invested in IFG.
BECAUSE WE DO NOT INTEND TO PAY ANY DIVIDENDS ON OUR ORDINARY SHARES, INVESTORS
- -------------------------------------------------------------------------------
SEEKING DIVIDEND INCOME OR LIQUIDITY SHOULD NOT PURCHASE UNITS IN THIS OFFERING.
- --------------------------------------------------------------------------------
We do not currently anticipate declaring and paying dividends to our
shareholders in the near future. It is our current intention to apply net
earnings, if any, in the foreseeable future to increasing our capital base and
marketing. Prospective investors seeking or needing dividend income or liquidity
January 25, 2002 Annual Report Page 9
International Financial Group
should, therefore, not purchase the Units. There can be no assurance that we
will ever have sufficient earnings to declare and pay dividends to the holders
of IFG's shares, and in any event, a decision to declare and pay dividends is at
the sole discretion of our Board of Directors. The subsequent sale of the shares
purchased pursuant to this offering will be subject to market conditions for the
sale of the shares and any sanctions imposed by regulatory authorities upon the
shares such as an order to halt trading, cease trade orders and registration
requirements. The warrants exercised pursuant to this offering will be subject
to the registration requirements of the SEC and other regulatory bodies that
regulate securities trading before they will be allowed to be resold.
BECAUSE WE DO NOT HAVE ANY TRADEMARK PROTECTION, OUR COMPETITION COULD
- ----------------------------------------------------------------------
APPROPRIATE OUR PRODUCTS AND SERVICES, RESULTING IN DECREASED REVENUES AND
- --------------------------------------------------------------------------
INCREASING THE POSSIBILITY THAT YOU WOULD LOSE YOUR INVESTMENT.
- ---------------------------------------------------------------
We have not been issued any registered trademarks for our legal or Internet
trade name. We intend to file trademark and trade name applications with the
United States Office of Patents and Trademarks for our proposed trade names and
trademarks in the future. No assurance can be given that we will be successful
in obtaining any trademarks, or that the trademarks, if obtained, will afford us
any protection or competitive advantages.
We may not own the property or intellectual property rights to the software that
we may use to conduct our business. Copyright, trade secret and trademark laws
will primarily be relied upon by the intended software providers to protect the
technology employed by IFG. We currently have no patents. In addition, effective
trademark protection may not be available for trademarks we may utilize or
develop. Notwithstanding the intended precautions to be taken by us, a third
party may copy or otherwise obtain and use software or other proprietary
information without authorization or may develop similar software independently.
Policing unauthorized use of technology is difficult, particularly because the
global nature of the Internet makes it difficult to control the ultimate
destination or security of software or other data transmitted. The laws of other
countries may afford little or no effective protection of intellectual property.
The steps we will take may not prevent misappropriation of our technology or the
agreements entered into for that purpose might not be enforceable. In addition,
litigation may be necessary in the future to enforce intellectual property
rights, to protect trade secrets, to determine the validity and scope of the
proprietary rights of others or to defend against claims of infringement or
invalidity respecting our products or services. Such litigation could result in
substantial costs and diversions of resources, either of which could have a
material adverse affect on our business, financial condition and operating
results. Our financial resources may not be sufficient to successfully prevail
in litigation even when the merits are clearly on the side of IFG.
BECAUSE WE DO NOT HAVE SUFFICIENT INSURANCE TO COVER OUR BUSINESS LOSSES, WE
- ----------------------------------------------------------------------------
MIGHT HAVE UNINSURED LOSSES, INCREASING THE POSSIBILITY THAT YOU WOULD LOSE YOUR
- --------------------------------------------------------------------------------
INVESTMENT.
- -----------
There is no assurance that we will not incur uninsured liabilities and losses as
a result of the conduct of our business. We intend to maintain comprehensive
liability and property insurance at customary levels but it is not assured that
we will receive insurance coverage to satisfy potential claims or that we will
receive insurance coverage at all. We will also evaluate the availability and
cost of business interruption insurance but cannot guarantee that we will
receive coverage to satisfy our potential business loss or that we will receive
business interruption insurance coverage at all. Should uninsured losses occur,
the shareholders could lose their invested capital.
IF WE DO NOT SELL ENOUGH UNITS IN OUR F-1 OFFERING, WE MAY NOT HAVE SUFFICIENT
- ------------------------------------------------------------------------------
CAPITAL TO CONDUCT OUR BUSINESS, AND YOU MIGHT LOSE YOUR ENTIRE INVESTMENT IN
- -----------------------------------------------------------------------------
IFG.
- ----
There is no assurance that all or a significant number of Units will be sold in
our F-1 Offering. Investors' subscription funds will be used by us as soon as
they are received, and no refunds will be given if an inadequate amount of money
is raised from this Offering to enable us to conduct our business. If only a
small portion of the Units are placed, then we may not have sufficient capital
to operate. There is no assurance that we could obtain additional financing or
capital from any source, or that such financing or capital would be available to
us on terms acceptable to us. Under such circumstances, investors in the Units
would likely lose their entire investment in IFG.
January 25, 2002 Annual Report Page 10
International Financial Group
BECAUSE WE DETERMINED THE OFFERING PRICE OF THE UNITS ARBITRARILY, THE VALUE OF
- -------------------------------------------------------------------------------
YOUR INVESTMENT IN IFG IS HIGHLY SPECULATIVE.
- ---------------------------------------------
The offering price of the Units and exercise price of warrants were arbitrarily
determined by Management and do not bear any relationship to the assets, results
of operations or book value of IFG, or to any other historically-based criteria
of value. Therefore, the value of an investor's investment in IFG is highly
speculative. Because there is no objective basis for the monetary value of the
Units or their constituent securities, investors may be paying more for the
Units than the Units are worth, and might not be able to recover all or even a
portion of their investment if they were forced to sell the Units or their
constituent securities.
BECAUSE WE CAN ISSUE ADDITIONAL ORDINARY SHARES, INVESTORS WILL INCUR IMMEDIATE
- -------------------------------------------------------------------------------
DILUTION AND MAY EXPERIENCE FURTHER DILUTION.
- ---------------------------------------------
We are authorized to issue up to 50,000,000 shares. The Board of Directors has
the authority to cause IFG to issue more of its shares, and to determine the
rights, preferences and privileges of such shares, without the consent of any of
our shareholders. Consequently, the shareholders may experience more dilution in
their ownership of IFG in the future. Purchasers of Units and the constituent
shares in this Offering will experience immediate and substantial dilution in
the net tangible book value per share of their investments in the shares.
Item 4. Information on the Company
- ---------------------------------
History and Background
- ----------------------
The Company
- -----------
International Financial Group Inc., domiciled in the Cayman Islands, is an
exempt company incorporated in the Cayman Islands on July 14, 1997 pursuant to
the Companies Law (1998 Revision). Our company's registered address in the
Cayman Islands is P.O. Box 10098 APO, Georgetown, Grand Cayman, British West
Indies and our executive offices are located at suites no. 4 and 5 Temple
Building, Main and Prince William Streets, Charlestown, Nevis, West Indies. Our
telephone number in the Cayman Islands is 345-946-4170 and our telephone numbers
in Nevis are 869-469-7040, 869-469-7041 and 869-469-7439.
Through our subsidiaries, we provide offshore financial services to the
business-to-consumer and business-to-business markets. We utilize traditional
delivery channels including in-person consultation, telephone and facsimile, as
well as the Internet to deliver our products and services. We commenced full
service offshore investment, trust and corporate services activities in February
2001, and during the same month, also launched the websites www.ifg.com,
-----------
www.apiip.com and www.ifgtrust.com to provide Internet-based discount offshore
- ------------- ----------------
investment, trust and incorporation services. It is our objective to provide to
our clients an efficient, professional and confidential environment in which to
conduct their financial affairs, with a focus on asset protection.
It is our goal to be an offshore bank and insurance company in addition to the
services detailed above. These goals will depend upon the ability of the company
to raise financing pursuant to its F-1 registration statement.and profits earned
by the company and its subsidiaries.
During December 2001 we decided to streamline our operations due to our analysis
that indicated it was unnecessary to have subsidiaries in all offshore
jurisdictions to properly service our clients. We found that the utilization of
third party offshore providers and entering into revenue sharing arrangements
with these providers as the need arises was sufficient to satisfy our clients
needs and was cost beneficial. We will save approximately $60,000-$70,000 per
year by relying on third party offshore providers to satisfy our clients needs
when they arise.
In August 2001 IFG Trust Services Inc. entered into a revenue sharing
arrangement with Mobius Trust Company of the Federation of St. Kitts and Nevis
to service its clients on a revenue sharing basis. We anticipate earning
approximately $100,000 to $150,000 per year from this arrangement.
January 25, 2002 Annual Report Page 11
International Financial Group
Our principal capital expenditures for each of fiscal 2001and 2000 have been for
computer equipment and office furniture, for which we spent approximately
$133,570 and $25,428 in each respective year. We sold approximately $25,396 in
computer equipment and furniture in 2001 regarding the sublease of our office in
the Cayman Islands.
Business Overview
- -----------------
Through our subsidiaries, we provide offshore financial services to the
business-to-consumer and business-to-business markets. We utilize traditional
delivery channels including in-person consultation, telephone and facsimile, as
well as the Internet to deliver our products and services. We commenced full
service offshore investment, trust and corporate services activities in February
2001, and during the same month, also launched the websites www.ifg.com,
-----------
www.apiip.com and www.ifgtrust.com to provide Internet-based discount offshore
- ------------- ----------------
investment, trust and incorporation services. It is our objective to provide to
our clients an efficient, professional and confidential environment in which to
conduct their financial affairs, with a focus on asset protection.
Recent global increases in the use, by individuals and corporations, of
international financial planning strategies have led management to believe there
will continue to be a substantial and growing market for full service offshore
financial service providers. We believe that individuals and corporations around
the world have demonstrated an increasing desire to use financial strategies
that allow them to control their own financial affairs in a convenient,
confidential and efficient manner, while protecting their assets, preserving
their wealth, and providing flexibility in wealth transfer. Furthermore, in the
third quarter of 2000, The Standard (February - March 2001) quotes, Salomon
Smith Barney, that 30.5% of all NYSE and NASDAQ trades were performed online.
These transactions were facilitated by discount brokerages such as E-Trade,
Ameritrade and National Discount Brokers via the Internet. While use of the
Internet has continued to grow at an exponential rate, Internet consumers have
become increasingly confident in the security, reliability and confidentiality
of e-commerce transactions. We have developed our business plan and corporate
structure to accommodate these emerging consumer trends and demands.
To accomplish these goals, we are establishing ourselves as a comprehensive
provider of full service discount offshore financial products and services with
wholly owned subsidiaries or third party arrangements to satisfy the customer's
needs. Customer convenience and operating efficiency, along with offering
"bundled" financial services, are two key components of our strategy. The
products and services we currently provide include full service and discount
offshore investment, trust and corporate services. During 2002, we intend to
expand our products and services offerings to include full service and discount
offshore banking and insurance. By offering these services from multiple
jurisdictions, our clients are able to develop a financial plan utilizing
multiple layers of confidentiality and secrecy, while also offering the client
the ability to utilize the best available jurisdiction for each distinctive part
of their offshore financial strategy. As we expand our products and services
offered and our third party relationships, we will continue to utilize both full
service traditional and discount Internet based delivery channels.
We have not renewed the registration of many of our non-operating subsidiaries
around the world as we have found that we can service our client needs in these
jurisdictions from our executive offices in Nevis. This action will save us
substantial incorporation and renewal fees charged by the various countries to
conduct business in their jurisdiction.
We have maintained our trust services subsidiary IFG Trust Services, Inc.'s,
head office in St. Kitts and Nevis, West Indies and have maintained our license
to conduct trust activities in this jurisdiction. IFG Trust Services, Inc. owns
IFG Investments Services, Inc., a Nevis subsidiary that conducts brokerage and
investment banking services for our clients.
In February 2001, we made applications for offshore bank licenses to be held by,
IFG Bank, Inc., in Belize and St. Vincent and the Grenadines. Due to the effects
of September 11, 2001 terrorist attacks on the United States have had on
offshore banking, we will leave these applications pending until the fourth
quarter of 2002 to determine the fallout the terrorists attacks will have on the
banking industry. By the fourth quarter 2002, we intend to establish insurance
services subsidiaries, IFG Insurance, Inc., in Bermuda and/or the Cayman
Islands. We intend to apply to conduct insurance activities in these countries
in the 4th quarter of 2002.
January 25, 2002 Annual Report Page 12
International Financial Group
We selected these offshore jurisdictions because we believe they are credible
jurisdictions within which to conduct business as they embrace asset protection,
wealth enhancement, wealth preservation and freedom of succession. The basis of
our belief is that the aforementioned countries have stable political systems,
have modern telecommunications systems, government infrastructure such as
financial services departments formed to facilitate businesses such as ours and
have enacted legislation to support trusts and corporations and secrecy of
client disclosure.
On June 13, 2000 we distributed an offering memorandum pursuant to Regulation
"S", for the issuance of 4,000,000 units that were comprised of one (1) share of
our ordinary stock and one (1) warrant. The price per unit was $0.50 USD. We
realized gross offering proceeds of $2,000,000. The warrants allow the holders
to purchase one (1) ordinary share at an exercise price of $2.00 USD, to be
exercised not later than December 31, 2002, after which date the warrant will
become null and void. This offering was distributed to persons that were not
residents of the Cayman Islands or the United States of America. On January 31,
2001, IFG World Holdings Inc. purchased all of the 4,000,000 units from the
minority shareholders that held the units by issuing a promissory note to each
minority shareholder to pay $0.50 USD per unit, together with interest payable
on December 31, 2002.
On October 31, 2001 our F-1 registration statement was declared effective by the
SEC. The said registration statement registered 20,000,000 shares and 4,000,000
warrants (one warrant for one share with an exercise price of $2.00 per warrant
to be exercised by December 31, 2002) for sale by IFG World Holdings Inc and
5,000,000 units to the public at an offering price of $0.10 USD per unit. Each
unit consists of one (1) ordinary share, and one (1) share purchase warrant. The
share purchase warrant allows the holder of each warrant to purchase one (1)
ordinary share at an exercise price of $2.00 USD, to be exercised not later than
December 31, 2002, after which date the warrant will expire. We are also
registering 5,000,000 ordinary shares underlying the share purchase warrants. To
date no proceeds have been realized from the sale of the units. Please refer to
the latest F-1 registration statement before purchasing any units.
The following websites have been registered by IFG. The websites marked "active"
are functional and the websites that are marked "not active" are not functional
at the date of this filing.
International Financial Group, Inc. www.ifg.com Active
-----------
IFG Investment Services, Inc. www.ifginvestments.com Active
----------------------
IFG Trust Services, Inc. www.ifgtrust.com Active
----------------
APIIP www.apiip.com Not Active
-------------
IFG Corporate Services Inc. www.ifgcorporate.com Not Active
--------------------
IFG Management Services. Inc. www.ifgmanagement.com Not Active
---------------------
IFG Bank www.ifgbank.com Not Active
---------------
IFG Insurance www.ifginsurance.com Not Active
--------------------
IFG Systems www.ifgsystems.com Not Active
------------------
The Subsidiaries
- ----------------
IFG Trust Services
- ------------------
On July 13, 2000, IFG Trust's application for authorization to conduct trust
activities was approved by the Government of Nevis, West Indies. We have
established a physical office in Nevis to function as our head office for
worldwide trust service activities. Our Trust services include, but are not
limited to, the establishment of trusts, the provision of professional trustees,
the provision of professional trust protectors, the drafting of trust documents
(trust deeds, letters of wishes, etc.) and the filing of all necessary
government documentation. It is anticipated that many clients will use a trust
in an offshore jurisdiction for the purpose of asset protection. This typically
serves to add an additional layer of confidentiality, control and versatility to
overall financial strategy.
IFG Trust commenced full-service offshore trust activities in late January 2001.
Our full service division provides trust services through traditional means
including in-person consultation, telephone, facsimile, mail and courier. We
maintain a website at www.ifgtrust.com that serves as the online brochure
----------------
detailing our products and services. Due to this subsidiary commencing operation
in late January it has not earned significant revenue.
January 25, 2002 Annual Report Page 13
International Financial Group
IFG Trust has commenced the provision of online discount trust services from our
websites located at www.ifg.com in March 2001. Through the use of proprietary
-----------
technology and a three-step process, clients are able to establish a customized
offshore structure in a secure environment 24 hours a day, seven days a week,
365 days a year. One of the major barriers in attracting the middle-income
market segment to the offshore financial sector, has been the high cost
traditionally associated with the establishment and maintenance of offshore
legal structures. By utilizing our technology and business model, IFG Trust has
been able to reduce the cost of providing and utilizing sophisticated offshore
structures, thereby reducing the barrier to making these services available to a
whole new segment of the market Our technology, developed in-house, also allows
us to automate the process of establishing corporations and trusts which reduces
our corporate labor costs and corporate overhead such as offices, equipment and
fixtures.
The Company has changed its focus of establishing trust subsidiaries around the
world as it has found it can service its clients need through the use of third
party providers therefore allowing the company to save costs on incorporation,
annual business fees, registration fees and director and secretary fees. IFG
Trust Services Inc accounts for almost all the revenue earned by the company to
date.
IFG Trust Services Inc. has also entered into a revenue sharing arrangement with
Mobius Trust Company to service its clients on a revenue sharing basis. We
anticipate to earn approximately $100,000 to $150,000 per year from this
arrangement.
IFG Investments Services
- ------------------------
IFG Investments Services, Inc., was incorporated in St. Kitts and Nevis in
December 2000 and commenced operations in Nevis in February 2001, offering
services via traditional offshore service delivery channels including in-person
consultation, telephone and facsimile. In May 2001, we completed our online
investment services website which will be located at www.ifg.com and
-----------
www.ifginvestments.com and are presently testing and debugging our online
- ----------------------
trading system for implementation by the first quarter of 2003. This subsidiary
to date has earned revenue from its investment banking operations.
When contacting IFG Investments Services Inc. in the future and upon our online
trading system being tested and debugged it is our intention that our clients
will be able to place orders, conduct order tracking, request market
information, and conduct other investment business in an offshore environment.
IFG Investments' office also provides in-person consultations. Clients may
contact us via telephone and fax as long as the customer pre-approves this type
of order communication and provides an account number and password. All of these
service channels are currently available during North American stock market
hours.
We believe advancements in telecommunications and information technology have
fundamentally altered the way individuals conduct investment business. Just as
the microprocessor dramatically changed the way individuals used computers, the
emergence of the Internet as a tool for communications and commerce, is bringing
about a revolution in the world of financial transactions and information
services. The Internet provides individual investors with direct access to
information and transaction processing capabilities once available only through
full-commission securities brokerage firms. As a result, consumers are
increasingly taking direct control over their personal investment transactions,
not simply because they are able to, but because they find it more convenient
and cost-effective than relying on full-commission or even traditional discount
brokers.
To meet this demand in May 2001 IFG Investments, utilizing proprietary
technology developed by IFG, completed its online trading platform that was
inserted onto its website located at www.ifg.com. The system functioned
-----------
adequately and requires further testing and debugging before it is put into
commercial use. The services to be provided on the website will allow clients to
place orders, conduct order tracking, request market information, and conduct
other investment business in an offshore environment 24 hours a day, seven days
a week, 365 days a year in respect of certain American markets. It is our
intention to expand into other markets so that our customers can perform trading
activities 24 hours a day.
We have developed this Internet platform capable of providing our users with
comprehensive selection of financial products and services available. It is our
intent to establish correspondent and clearing relationships with major
January 25, 2002 Annual Report Page 14
International Financial Group
financial institutions in Europe and Asia, to allow our clients to access the
major investment markets within these areas.
We have decided to not carry on the investment business activity through our
subsidiary IFG Investment Services Inc. in the Cayman Islands at this time as
first thought due to the cost of operating a brokerage in the Cayman Islands.
Due to this decision the company has not registered the subsidiary to conduct
business this year as all our clients needs can be satisfied from the IFG
Investments Services Inc. office in Nevis. Due to this decision the subsidiary
will leave its application to become a Qualified Intermediary pending.
IFG Corporate Services
- ----------------------
Our subsidiary, IFG Trust Services Inc. (Nevis), established IFG Corporate Inc.
in the Federation of St. Kitts and Nevis on January 29, 2001. We have
established our office in Nevis to function as the worldwide head office for
corporate services activities supplied to IFG clients and we share these office
facilities with IFG Trust. The corporate services we provide include, but are
not limited to, incorporation services, the provision of registered offices,
professional directorships, corporate drafting services, and corporate
secretarial services. It is anticipated that many of our clients will use a
corporation in an offshore jurisdiction for the purpose of asset protection as
well as investment management. This typically serves to add an additional layer
of confidentiality, control and versatility to overall financial strategy.
Offshore corporate services are currently available through traditional service
channels including in-person consultation, telephone, facsimile, mail, courier
and the Internet.
The main purpose of this subsidiary is to provide ancillary services to IFG
Trusts clients as determined and directed by our clients.
IFG Corporate Inc. commenced full-service offshore corporate services activities
in February 2001. Our full service division provides corporate services through
traditional means including in-person consultation, telephone, facsimile, mail
and courier. We intend to maintain a website at www.ifgcorporate.com that will
--------------------
serve as an online brochure detailing our products and services offered. This
subsidiary to date has not earned significant revenue, however, we expect to
commence earning revenue from it in 2002.
IFG Management Services
- -----------------------
Our subsidiary, IFG Trust Services Inc. (Nevis), established IFG Management Inc.
in the Federation of St. Kitts and Nevis on January 29, 2001. We have
established our office in Nevis to function as the worldwide head office for
management services activities supplied to our IFG clients and share these
office facilities with IFG Trust and IFG Corporate. The management services we
provide include, but are not limited to, office management, secretarial,
bookkeeping, mail forwarding, and general administration. We have not renewed
our corporate registration for our management subsidiaries in over 20
jurisdictions worldwide as the company has determined that it can satisfy all
our client needs from the Nevis head office therefore saving incorporation fees,
registration fees, directors and secretary fees . This subsidiary to date has
not earned any revenue, however, we expect to commence earning revenue from it
in 2002.
IFG Management Inc. commenced full-service offshore management service
activities in February 2001. Our full service division provides management
services through traditional means including in-person consultation, telephone,
facsimile, mail and courier.
Through the International Financial Group subsidiaries and third party
relationships, we offer clients unprecedented flexibility and convenience in
constructing and managing an offshore financial strategy using full-service and
discount Internet-based delivery channels. Each client has very specific
structural needs based on their own specific circumstances and goals. Our
infrastructure allows clients to utilize a wide variety of products and
services, available separately and in bundled formats, and to utilize specific
offshore jurisdictions that particularly strive to meet these goals. There is no
guarantee we will be effective in penetrating the offshore financial services
market in a timely manner, or at all.
January 25, 2002 Annual Report Page 15
International Financial Group
IFG Systems
- -----------
International Financial Group Inc. has taken over the activities of IFG Systems
Inc. as it determined that it was unnecessary to incur the cost of having a
separate subsidiary perform this function. International Financial Group Inc.
has taken over all responsibility for developing, licensing, owning and
operating all of our Internet technologies, computer software and systems. We
have developed proprietary software and systems and have licensed software from
various providers, which software enables us to provide clients with
confidential and secure online financial transaction processing. We store
account records and communication archives in secure computer files and systems
in The Federation of St. Kitts and Nevis and is in the process of establishing a
redundant server in another offshore jurisdiction.
We have all financial services related communications conducted through
encryption to provide confidentiality and security. There is no guarantee this
technology will not be breached. Confidentiality is typically a principal
motivation behind many decisions to initiate an offshore financial plan. Thus,
we have developed a technical infrastructure that allows our clients a degree of
autonomy when establishing, modifying and controlling their offshore financial
plans. Application and maintenance systems have been designed to simplify human
interaction, while clients will have the opportunity to contact our
representatives directly should they choose to do so. We currently make it
possible for clients to establish offshore corporations and trusts, and trade
securities; and in the future we intend to enable clients to establish bank
accounts, credit cards, and purchase insurance, all directly from any computer
terminal in the world connected to the Internet, 24 hours a day. Provided
transactions do not violate anti-money laundering legislation, it is anticipated
that they can be performed through automation.
It is our intention to utilize Internet-based technology that uses the latest in
security measures, including, but not limited to, the following:
o We hope to employ a password entry system to attempt to prevent
unauthorized users from accessing our system. Clients select a "user
name" and "password," which must be correctly entered each time they
attempt to access systems.
o A strong encryption. Users of our system are required to utilize a
Secure Socket Layer (SSL) capable browser, which allows the user to
select and approve their own certifying authority and to use strong
encryption.
o Stand-alone web server located at a secured site and backed up with
redundant servers located in other offshore jurisdictions. The web
server hosting our system utilizes a closed operating system.
o We intend to employ a firewall and IP filter to prevent "active
attacks".
We have contracts with third-party organizations that offer server-collocation
services. We hope to acquire and maintain the additional premises necessary for
hosting our servers internally.
We intend to continue to evaluate software from third-party providers and
developers that can be customized, developed and integrated into our systems.
Where necessary to meet the diverse needs for integrated data of our different
operating units, custom database and web page software may be contracted out to
third-party software developers retained by the company. The latest hardware and
software environments and development tools are intended to continue to be
utilized.
To ensure the integrity and privacy of client data and correspondence over the
Internet, we utilize the latest technologies for user authentication and data
encryption. We incorporated Secure Socket Layer technology into our websites,
which includes the use of digital certificates and public key encryption
techniques. Our web servers utilize industry standard SSL encryption
capabilities of Microsoft Windows 2000 Web Server to protect communications
between our client's web browser and our web server. SSL will ensure information
passed between our client's computer and our server is private and confidential.
To enable SSL protection, we have purchased digital certificates (a small
computer text file that contains encryption key information) from Thawte.com.
Thawte.com verified and confirmed our company's identity, and then the digital
certificates were issued to us for enabling SSL encryption between our client's
web browser and our web server. The phrase "public key encryption techniques"
January 25, 2002 Annual Report Page 16
International Financial Group
refers to the underlying technology that SSL compliant web servers deploy to
protect information. This is an industry standard feature for most Internet
websites today. We monitor new developments to ensure that it continues to offer
the highest level of data integrity and privacy. Beyond using the best security
technologies, we monitor our systems for any possible weaknesses in our security
policies and practices, and for any external threats to our security system.
The Proposed Subsidiaries
- -------------------------
IFG Bank
- --------
Our objective is to offer a broad range of offshore banking and financial
service products through traditional service delivery channels and over the
Internet. In February 2001, we made applications for offshore bank licenses in
Belize and St. Vincent and the Grenadines. The Bank Charters applied for are
commonly referred to as "unrestricted offshore banking charters", which would
authorize us to conduct a wide range of Banking activities with an unlimited
number of customers and companies so long as annual reporting requirements are
met, a minimum capital requirement is maintained, and no business is conducted
with residents of the jurisdiction granting the license.
Due to the effects of September 11, 2001 terrorist attacks on the United States
have had on offshore banking, we will leave these applications pending until the
fourth quarter of 2002 to determine the fallout the terrorists attacks will have
on the banking industry
We believe customer convenience, operating efficiency and reliable access to an
offshore environment will be the key components of the proposed bank's
operational strategies. It is anticipated that customers will access banking
services by in-person consultation (visiting the bank itself during business
hours, or by pre-arranging a consultation in advance), telephone or facsimile.
It is also anticipated that banking services will be accessible via the Internet
on a 24-hour a day basis at the websites www.ifg.com and www.ifgbank.com. Our
----------- ---------------
proposed banking services will not incur the cost of supporting an extensive
branch system, which management believes will benefit customers through the IFG
Bank's ability to offer attractive deposit rates. Management believes IFG Bank's
anticipated lower overhead, customer convenience and ability to provide a broad
choice of offshore financial services cost-effectively through efficient
delivery systems will give IFG Bank a competitive advantage over other offshore
banks and offshore financial service providers and onshore banks, both
traditional and Internet based. The activities of IFG Bank are intended to
include, but will not necessarily be limited to: deposit taking; asset backed
loans; portfolio management; and issuance of credit cards, debit cards, bonds,
debentures, bank guarantees, letters of credit and numbered accounts.
The launching of these subsidiaries will be contingent upon the success of IFG's
offering to fund the necessary research and development to finance the
development of the systems to operate a full and online banking service. Upon
the research and development being completed, IFG estimates that it will require
approximately 400,000 to 500,000 to operate one banking subsidiary. This will
include costs to staff the banking subsidiary, hardware to operate the banking
system and overhead to operate the banking facility. IFG would finance this
expansion through profits it has earned from its operations at the time of the
expansion or it would proceed with the raising of funds through traditional
means such as a further public offering .
There is no guarantee that we, or our subsidiaries will be approved for any Bank
License.
IFG Insurance
- -------------
We intend to establish during 2002, IFG Insurance, Inc., subsidiaries in both
Bermuda and/or the Cayman Islands with the intent of offering insurance services
via traditional offshore service delivery channels including in-person
consultation, telephone and facsimile. In 2003, we also intend to commence
online insurance services activities from our websites located at www.ifg.com
-----------
and www.ifginsurance.com. Specifically, life insurance and life insurance
--------------------
products including annuities will be offered to our customers as part of our
comprehensive offshore financial service plan.
January 25, 2002 Annual Report Page 17
International Financial Group
We intend to provide full service offshore insurance services via traditional
delivery channels including in-person consultation, telephone and facsimile.
Through contacting IFG Insurance, clients will be able to find information about
and purchase life insurance policies and annuities in an offshore environment.
IFG Insurance offices are intended to provide in-person consultations when
customers prefer to conduct their insurance business face-to-face. The website
is intended to provide convenient, cost-effective and secure discount insurance
services to the growing number of consumers using the Internet for commercial
and financial services. It is intended that customers will be able to access the
IFG Insurance web-site on a 24 hours a day, 7 days a week basis from any PC,
wherever located, by means of a secure Web browser.
Our objective is to offer a limited range of life insurance products. We do not
intend to incur the cost of supporting an extensive physical branch system or a
network of sales representatives, which management believes will benefit
customers through our ability to offer attractive rates. The interactive
Internet website, when completed, is intended to effectively reduce the number
of personnel traditionally required to establish an insurance contract or
policy. It is anticipated that clients will be able to select a life insurance
product, and then fill out all necessary information on-line to receive the
product. Overall, it is expected that the efficiencies created through this
system will allow us to offer very competitive rates. The insurance products and
services that we intend to offer include, but are not limited to, term
insurance, permanent insurance, Whole Life and Universal Life, and variable
other life insurance products.
We intend to establish subsidiaries in both Bermuda and the Cayman Islands,
which are globally recognized jurisdictions for offshore insurance products that
also have very strong professional and telecommunications infrastructures.
Outside London and New York, Hamilton, Bermuda offers the third largest
insurance and reinsurance market in the world. Bermuda and the Cayman Islands
also have a wide selection of insurance management companies that can assist us
in the delivery of our insurance products and services.
We have retained the services of Marsh Management Services (Bermuda) Ltd., a
large and internationally recognized insurance management company, to assist it
in establishing and managing our insurance business. This is intended to
minimize start up costs associated with our insurance subsidiary, while allowing
us time to assess the insurance market and establish our own insurance
infrastructure. Reliance on the insurance management company is expected to
slowly recede over the first few years of business.
We initially intend to rely heavily on reinsurance. This will assist us in
honoring all of our outstanding policy claims and provide timely service to our
clients while simultaneously allowing us to allocate capital to other areas.
Again, Bermuda and the Cayman Islands offer some of the strongest and most
competitive reinsurance markets in the world, so obtaining reasonable
reinsurance is not anticipated to be a problem, but is not guaranteed.
The launching of these subsidiaries will be contingent upon the success of the
F-1 offering and profit from operations to fund the necessary research and
development to finance the development of the systems to operate a full and
online insurance service. Upon the research and development being completed, IFG
estimates that it will require approximately 400,000 to 500,000 to operate one
insurance subsidiary. This will include costs to staff the insurance
subsidiary., hardware to operate the insurance system and overhead to operate
the insurance subsidiary, if it is determined not to use Marsh Management
Services (Bermuda) Ltd. as discussed above. IFG would finance this expansion
through profits it has earned from its operations at the time of the expansion
or it would proceed with the raising of funds through traditional means such as
a further public offering .
There is no guarantee that we, or our subsidiary will be approved for any
insurance license in Bermuda or the Cayman Islands.
Industry Background
- -------------------
The "offshore industry" is comprised of those jurisdictions and institutions
outside a person's home jurisdiction that can be used to create an advantage,
financial or otherwise, for an individual or a business. Some of the more
popular offshore jurisdictions are the British Virgin Islands, Barbados,
Bermuda, Cayman Islands, the Federation of St. Kitts and Nevis, Isle of Man,
Channel Islands, and Switzerland. The differing legislative environment of
different jurisdictions can yield numerous advantages to any person that has the
January 25, 2002 Annual Report Page 18
International Financial Group
flexibility to relocate themselves or a portion of their assets. Thus, "going
offshore" means nothing more than utilizing a jurisdiction other than ones own
to hold ones assets and/or conduct business and financial affairs to some
financial or legal advantage.
There are a number of reasons people and companies elect to engage an offshore
financial strategy. For the most part, they go offshore to protect assets,
increase flexibility in corporate management, minimize taxation, get access to
global investments, and gain testamentary freedom.
While the costs associated with creating and managing an offshore investment
plan has decreased significantly, telecommunications and particularly the
Internet have made access to these services faster, easier and more reliable.
Thus, while reduced costs make going offshore justifiable to a growing portion
of the market, an increasing portion of that market also has access to
everything they need to find out about and use these services via the Internet.
Growth of the Internet and Online Commerce
- ------------------------------------------
Internet usage and online commerce continue to grow worldwide. Offshore
Financial USA estimates that there will be 510 million people estimated to be
online by the summer of 2001 and they also predict on-line revenue collected by
Canadian and American companies by the end of 1999 to be $36.6 billion. The
Internet financial magazine, The Standard, quoting Jupiter Research, estimates
"By 2005, more than half of US households online - 44 million homes - will bank
on the Internet, and 34 million households will trade stocks... As a result
online financial institutions will have at their disposal more than $5 trillion
in investable assets in 2005..." In addition, The Standard states, "neither
traditional banks nor brokerages will claim the largest share of those assets.
The bulk of the business will go to firms that provide multiple offerings. In
fact, online financial institutions that provide only a single service may soon
go the way of the Susan B. Anthony coin. Consumers already favour financial
institutions that provide more than one service." Offshore Finance Yearbook
states European private banking assets at $5 trillion with worldwide private
assets estimated to be at $16.6 trillion USD. It is our believe that this growth
can be attributed to many factors, including: a large and growing installed base
of personal computers and other Internet-connected devices in the workplace and
home; advances in performance and speed of personal computers and modems;
improvements in network security, infrastructure and bandwidth; easier and
cheaper access to the Internet; and the rapidly expanding availability of online
content and commerce sites.
Market Opportunity
- ------------------
Arnold Goldstein, author of Offshore Havens, states, non-resident bank deposits
in the Caribbean are currently in excess of one trillion dollars USD, up from
just two billion in 1980. The value of offshore trust accounts established by
Americans in the Caribbean is in excess of $450 billion according to Offshore
Finance Canada.
This tremendous growth comes from an increasing number of individuals and
corporations that look to the international offshore marketplace for asset
protection, testamentary freedom, greater investment returns, tax and succession
planning and increased confidentiality in business dealings. For example, it is
estimated by Offshore Financial USA that the number of lawsuits filed in the USA
in 1999 were 18 million and the estimated cost of litigation was $300 billion.
Worldwide Internet users demand for online services is growing according to IDC.
According to Global Research in March 2001, there were estimated to be 453.4
million Internet users worldwide. The Standard, quoting American Express,
states, one-quarter of online consumers around the world are banking and trading
online - or plan to start soon. That number could jump sharply if financial
institutions can ease the fears of the nearly 80 percent of online consumers who
worry about privacy and security on the net. The Standard also quoted that
Western Europe will supply the most new customers to Net banks and brokerages,
and by 2004 it will lead both sectors. The U.S. is also expecting strong growth
in online banking and trading. By 2004, The Standard estimates that online
brokerage customers worldwide will reach 63.6 million people. Data provided by
Salomon Smith Barney shows online trading accounted for 30.5% of all trades on
the NYSE and NASDAQ in the third quarter of 2000. We believe that the offshore
and online financial services industries will continue to grow. This belief is
supported by six recent trends.
January 25, 2002 Annual Report Page 19
International Financial Group
First, global demographic statistics suggest that individuals will be investing,
holding and acquiring unprecedented wealth during the next decade. Large numbers
of "baby boomers" are beginning to invest for their children's education and for
their own retirement. Additionally, it is estimated that these individuals, many
of whom have greater education, technical capabilities and investment choices
than their parents, as well as greater access to information, will inherit
significant wealth from the previous generation during the next decade. This
represents the largest transfer of wealth in history, a fact that we believe
will result in - new consideration being given to the development of effective
estate plans and asset protection strategies, including the utilization of
offshore financial strategies.
Second, we believe there is an increased need by individuals and corporations to
protect themselves and their assets in today's increasingly litigious
environment. Higher levels of asset protection can be achieved through the
utilization of financial structures and institutions in confidentiality and
secrecy bound offshore jurisdictions. Through the use of offshore financial
structures, individuals and corporations are better able to protect themselves
from claims that may arise from frivolous lawsuits, creditors and disputes
arising from marital difficulties.
Third, investors are becoming more self-reliant in the pursuit of their
financial goals in general. They are increasingly willing to acquire information
about, and an understanding of, investments, trusts, corporations and other
offshore products and services and have become increasingly sophisticated and
knowledgeable about these products and services. Access to a broad range of
financial information and advice has decreased the necessity for hands-on
banking advice, brokerage advice, trust expertise, insurance expertise and other
professional financial assistance.
Fourth, consumers have expanded their access to powerful, yet inexpensive,
computer technology and are becoming more comfortable with and proficient in the
use of this technology. The Internet delivers information that facilitates
inexpensive communication of data and, therefore, independent "E-commerce"
transactions have been growing at an accelerating rate. In short, we believe the
Internet is producing thousands of new cyber-investors every day. Investors are
increasingly making their own decisions about their financial future and tend to
seek flexibility and efficiency in execution of these independent transactions.
Fifth, the Internet and advanced telecommunication systems have allowed banking,
brokerage, insurance and offshore corporate and trust products and services to
be offered from any place in the world to customers located any place in the
world. Thus, in most cases, dealing with an offshore financial account has
become as convenient as dealing with the bank down the street. Customers may
access their financial empire merely by dialing up a local telephone number and
logging on by computer through a user name and password. From the access screen,
they can ascertain information regarding their deposits, stock quotes, view
their positions, execute orders, change orders, purchase products and deposit
and withdraw funds. Orders are routed electronically either to members of a
particular market or off-market facilities that match orders submitted directly
from brokerages.
Finally, we believe that the technology for on-line transactions has developed
to a stage where customers can be virtually assured complete security and
confidentiality. New and sophisticated cryptographic systems have been developed
that assures all information transmitted between a given client and offshore
service is completely protected. Further, we hope this new technology will give
new consumers confidence that their deposits will be protected from
technological espionage.
Management believes these trends will assure continued growth in the use of
offshore financial strategies, and particularly offshore financial strategies
that are accessible via the Internet.
Marketing Strategy
- ------------------
Our marketing strategy focuses on creating value for their clients through the
utilization of offshore asset protection and investment strategies. We market
our full-service division primarily through the use of a
telemarketing/fax/email-based Professional Referral Program, and we intend to
place advertisements in offshore trade publications. We market our discount
Internet-based services primarily through the registration of our websites in
popular Internet search engines and directories. We have focused our marketing
January 25, 2002 Annual Report Page 20
International Financial Group
campaign on asset protection opportunities for potential clients, cost-effective
full line of offshore financial services, available in both bundled and separate
formats. IFG Trust is registered with the following search engines:
o AOL.Search
o AltaVista
o DirectHit
o Google
o HotBot
o Lycos
o MSN
o Netscape
o OpenDirectory
We market our full service offshore financial products and services primarily
through a telemarketing/fax/email-based Professional Referral Program directed
at lawyers, accountants and investment advisors. The Professional Referral
Program has been developed to introduce IFG and our products and services to
those professional advisors who may have clients that would benefit through the
utilization of offshore strategies. We then work with the client and the
professional advisor to develop and implement an individualized offshore
financial strategy. We also intend to promote our full service divisions through
the placement of advertisements, aimed at professional advisors, in popular
offshore industry trade publications.
We market our discount Internet-based offshore financial products and services
exclusively through the Internet. We maintain numerous websites from which we
provide a wide variety of offshore financial products and services. We have
registered these websites with Internet search engines and directories.
Forrester Research estimates that over 50% of consumers who use e-commerce
websites find these sites through the utilization of Internet search engines and
directories.
We market our offshore financial products and services to the following target
markets:
o Professionals and entrepreneurs who are subject to a high degree of
potential legal liability in the course of their profession such as
lawyers, doctors and business owners;
o Individuals looking for asset protection and additional freedom in
estate and succession planning;
o Businesses that market and sell products internationally; and
o High and middle-income market individuals and business entities with
liquid assets in excess of $100,000.00 or assets that lend themselves
to offshore strategies.
Our marketing campaign focuses on the asset protection opportunities for
potential clients to utilize the cost effective full line of offshore financial
services that are available in both bundled and separate formats. The campaign
addresses new opportunities for potential clients to protect their assets in
multiple offshore jurisdictions. Through the utilization of advanced proprietary
technology, we have been able to substantially reduce the costs associated with
establishing and managing an offshore financial plan, and as such, we highlight
this cost saving opportunity. Our marketing campaign also focuses on our ability
to deliver a full range of both bundled and separate offshore financial products
and services including investments, trust and corporate services.
It is our objective to gain a leading position as a provider of offshore and
Internet-based financial products and services by combining confidentiality,
technology, innovation, convenience, service and value. Our marketing strategies
to accomplish this goal will include:
o Continuing to broaden our products and services line of financial
services to include offshore banking and insurance;
o Continuing to increase the number of offshore jurisdictions from which
we offers services;
o Continuing to apply advanced and Internet-based technologies in the
delivery of cost-effective offshore financial products and services;
and,
o Continuing to employ offshore financial professionals with expertise
in law, banking, insurance and investments.
January 25, 2002 Annual Report Page 21
International Financial Group
Revenues
- --------
We currently are able to generate revenues from the following sources:
o Establishment of trusts and corporations, trustee services and related
fees;
o Investment services and related fees;
o Consulting fees relating to capital acquisition activities for
clients; and,
o Incorporation, administration, management and related fees.
The revenues earned by the company to date has been derived from IFG Trust
Services Inc. These net revenues total $40,732 from the date of inception of
these corporations to July 31, 2001.
We intend to generate fees from the following sources, once our bank and
insurance subsidiaries are established:
o Banking and associated fees; and
o Insurance premiums and related fees.
Business Strategy
- -----------------
Main Objectives
- ---------------
Our business strategy has been developed by management to achieve the following
corporate objectives:
o To create shareholder value by being a leading provider of
comprehensive offshore financial services;
o To attain the highest market share penetration possible, by delivering
both bundled and separate offshore financial services through
full-service traditional delivery channels and discount Internet-based
channels;
o To provide a confidential and secure environment for our clients to
conduct their offshore financial affairs with a focus on asset
protection;
o To utilize the latest Internet-based technologies to ensure cost
effective and convenient provision of our offshore financial products
and services on a global basis;
o To provide prompt, reliable, efficient and professional service;
o To provide reliability in offshore financial planning by establishing
redundancy; and,
o To maintain an exceptional reputation in the international offshore
financial industry by satisfying all local anti-money laundering
regulatory requirements.
Full and Discount Products and Services
- ---------------------------------------
We currently provide full service offshore investment, trust, corporate and
management services, and in the future will incorporate banking and insurance
services, through traditional delivery channels including in-person
consultation, telephone, facsimile, courier and mail. Through contacting IFG and
its subsidiaries, clients are able to interact with our offshore experts on a
one-to-one basis in a confidential environment. Our office in St. Kitts and
Nevis provide facilities to conduct in-person consultations when customers
prefer to conduct their business face-to-face. Clients may also contact us via
telephone, facsimile, mail and courier, provided the customer pre-approves this
type of order communication and provides an account number and password. All of
these service channels are currently available during North American market
hours.
In May 2001, we implemented proprietary technologies, to commence providing
online discount offshore financial services from our website located at
www.ifg.com and www.ifgtrust.com. The services currently provided via the
- ----------- ----------------
January 25, 2002 Annual Report Page 22
International Financial Group
Internet include: investments, trust, corporate and management services
activities, available in separate and bundled formats. Through our websites,
clients are able to establish and manage offshore trust and corporate
structures. We also intend to offer discount offshore banking and insurance
services via the Internet, once corporate and technical infrastructure are in
place. These Internet-based services are provided in a confidential and secure
offshore environment 24 hours a day, seven days a week, 365 days a year. Today's
investor demands confidentiality, asset protection, investment alternatives and
ease of access to assets.
We offer our offshore financial products and services both separately and in
bundled formats. By offering clients the convenience of a "one-stop"
comprehensive offshore financial service option, we create a number of internal
efficiencies in the delivery of our products and services.
Confidential and Secure Environment
- -----------------------------------
There is no denying that confidentiality is a principal motivation behind many
decisions to initiate an offshore financial plan. Thus, we have developed an
infrastructure which is intended to allow clients autonomy in establishing,
modifying and managing their offshore financial plan, while hopefully minimizing
the number of individuals required to receive and process client requests. We
have developed a comprehensive internal confidentiality policy, which guides
each employee in respect of confidentiality. Moreover, each Company employee is
specifically trained and informed in their respective jurisdiction's privacy
legislation, and any violations are intended to be prosecuted to the fullest
extent of the law. Most offshore jurisdictions make it an offense, and in some
jurisdictions a criminal offense, for any offshore provider or employee to
divulge any information regarding a client to anyone unless ordered to by a
court of competent jurisdiction.
The global corporate infrastructure of IFG allows clients to establish and
manage their offshore financial plan to include the use of multiple offshore
jurisdictions in an efficient and timely manner. This allows for multiple layers
of confidentiality protection in each individual financial plan, while also
providing portfolio diversification, and a maximization of international
regulatory benefits. For example, a client is able to establish an offshore
trust in the Nevis, which owns an offshore company in Barbados, which in turn
has funds invested in the Cayman Islands or on deposit in St. Vincent and the
Grenadines.
Our Internet-based systems have been designed to maximize client ease of use,
while at the same time clients allowing the opportunity to contact our
representatives directly should they choose to do so. It is our intention for
clients to establish corporations and trusts, and manage their investment
portfolio in a secure and confidential on-line offshore environment. In the near
future, we intend to incorporate on-line offshore banking and insurance services
into our existing secure Internet-based technology infrastructure, and thereby
making it possible to establish and manage bank accounts, and purchase insurance
from any computer terminal in the world connected to the Internet. Provided
transactions do not violate anti-money laundering legislation, it is anticipated
that they can be performed through automation.
It is our intention to utilize Internet-based technologies that use the latest
in security measures, including, but not limited to, those described below:
o Our systems will employ a password entry system to attempt to assure
that no unauthorized users are allowed access to our system. Clients
select a "user name" and "password," which must be correctly entered
each time they attempt to access our systems.
o To support strong encryption, users of our system are required to
utilize a SSL capable browser, which allows the user to select and
approve their own certifying authority and to use strong encryption.
o Stand-alone web server located at a secured site and backed up with
redundant servers located in other offshore jurisdictions. The web
server hosting our system utilizes a closed operating system.
o We intend to employ a firewall and IP filter to prevent "active
attacks".
January 25, 2002 Annual Report Page 23
International Financial Group
Cost Effective and Convenient Service
- -------------------------------------
Through the use of the latest advanced and Internet-based technologies we are
attempting to provide cost effective and convenient services of our offshore
financial products on a global basis. Through our unique advanced and
Internet-based technologies and by the cost efficiencies gained through
providing a comprehensive bundled package of offshore financial products and
services, we are able to offer our clients a more cost-effective method for
moving their affairs offshore. We believe the use of the Internet by clients
makes access to offshore strategies more affordable, efficient and accessible
than ever before. On-line operating efficiencies such as a minimal physical
branch system and automatic record keeping and transaction processing reduce our
day-to-day operating costs. These savings, in turn, allow us to offer more cost
competitive offshore products and services.
We offer clients the convenience of managing their offshore financial affairs in
either a full-service or discount Internet-based environment. Our full-service
offerings enable clients the convenience of dealing with their professional
advisors on an individual basis. Our discount Internet-based offerings allow
clients the convenience of managing their offshore financial plan, via the
Internet, 24 hours of each day from virtually any Internet-enabled computer
system in the world
Prompt, Reliable, Efficient and Professional Service
- ----------------------------------------------------
We intend to continue to attract and retain leading offshore financial services
professionals. Our management team and staff are comprised of individuals with
extensive education and experience in law, taxation, banking, investments,
insurance, trusts, and corporate services. Due to the highly complex and
demanding nature of our business activities, and the sophisticated needs of our
clients, it will be essential for us to continue to maintain this high level of
professionalism.
Reliability Through Redundancy
- ------------------------------
We have established redundancy in two areas. First, we have established
relationships with third party providers or have our own subsidiaries that
allows us to conduct bank, investment, insurance, trust, and CSP activities in
more than one jurisdiction. This redundancy hopefully allows us to react to
changing international and domestic legislation, and provide our clients with an
alternative offshore jurisdiction where required.
Second, our discount Internet-based offshore services intend to use a primary
and secondary network system. Thus, if the primary server experiences technical
problems with our telecommunications infrastructure, the secondary server will
automatically assume responsibility for maintaining our websites and databases.
We feel this is an essential element in the provision of offshore financial
services, since it is absolutely critical that each customer have 100% reliable
access to all their offshore financial affairs.
Reputation
- ----------
We are committed to upholding anti-money laundering laws in the jurisdictions in
which we operate and, therefore, have initiated stringent due diligence
standards to ensure relevant legislation is not offended and that client due
diligence requirements are satisfied. We recognize the importance of such
legislation in the prevention of crime and joins with all other offshore
providers in sharing this responsibility.
Competition
- -----------
We compete with numerous established offshore service providers in the offshore
financial industry. These competitors currently include banks, offshore
investment firms, trust companies, and corporate and management service
providers. As we expand our products and services offered it is assumed we will
also compete with offshore banks, insurance companies, and other business
entities that provide offshore financial products and services. We expect such
competition to continue and intensify in the future. We expect many of our
competitors will have significantly greater financial, technical, marketing and
other resources than IFG.
There exists a number of well established, and in some cases much better
capitalized, competitors in both traditional and online securities and
investment services in the offshore venue. These include many companies and
January 25, 2002 Annual Report Page 24
International Financial Group
financial services endeavors with single offices. We will be entering an arena
with well practiced, and in many instances well financed, competitors. While we
believe that we will eventually establish a position within this market, there
is no guarantee that our efforts will be successful.
Current competitors of our offshore investment services subsidiaries include,
but are not limited to, Merrill Lynch, Morgan Stanley, First Nevisian, Cayman
National Securities, Smith Barney, SEGOES, www.offshoretrading.com, Freedom
-----------------------
Trade, E-Trade, www.schwab.com, Insinger Trust, Trident Trust, Royal Bank of
--------------
Scotland, Atlas Private Trust and Fiduciary Trust, www.globaltrusts.com,
--------------------
www.guardiantrustees.com, www.henley-partner.com, pishon-trust-management.com,
- ------------------------ ---------------------- ---------------------------
www.corporate-premier.com, HWR Services and Caribbean Management, Codan
- -------------------------
Management, Morningstar, Insad, Sovereign Group, OCRA, Worldwide, Offshore
Corporate Services, www.corporate.com, www.123ezcorp.com, Barclays Bank, UBS,
----------------- -----------------
Royal Bank of Canada, ING Bank and Cayman National Bank, www.fsharpbank.com,
------------------
www.bayshorebank.com, www.providentbelize.com, www.paritatebank.com and
- -------------------- ----------------------- --------------------
www.hsbc.com Prudential Insurance, London Life, Lloyds of London, The Guardian
- ------------
and Northern Life Insurance, I-Quote, www.budgetlife.com, www.quotesmith.com,
------------------ ------------------
www.cheap-life-insurance.com and www.interlinx.com.
- ---------------------------- -----------------
All these current and potential competitors may be able to respond more quickly
to new or changing opportunities, technologies and customer requirements than we
and may be able to undertake more extensive promotional activities, offer more
attractive terms to customers and adopt more aggressive pricing policies than
IFG. Moreover, current and potential competitors have established or may
establish cooperative relationships among themselves or with third parties to
enhance their services and products. We cannot guarantee that new competitors or
alliances among competitors will not emerge, and these competitors may acquire a
significant market share of the offshore financial industry. There can be no
assurance that we will be able to compete effectively with current or future
competitors or that the competitive pressures faced by us will not have a
material adverse affect on our business, financial condition and operating
results.
GOVERNMENT REGULATION
- ---------------------
The Company
- -----------
In conducting various aspects of our business, we will be subject to various
laws and regulations within each jurisdiction in which we operate.
We will be engaged in marketing financial products and services from up to 30
jurisdictions. As a result, we are bound to uphold all local laws including
those laws related to the business of selling financial products and services
and all local money laundering laws. Failure to comply with any of these laws,
rules or regulations could result in censure, fine, incarceration, revocation of
work permits, the issuance of cease-and-desist orders or the suspension or
expulsion of the our officers or employees from certain countries, any of which
could have a material adverse affect on our ability to carry on business, which
would, in turn, have a material adverse affect on our financial condition and
operating results and, therefore, the prospect of an investor's return of
capital invested our company.
It is our intent to expand our business to a number of offshore financial
centers. In order to expand our services globally, we must comply with
regulatory rules and regulation of each specific country in which we conducts
business, which may include finding qualified professionals and business people
capable of providing correspondent services. The varying compliance requirements
of these different regulatory jurisdictions may also limit our ability to expand
internationally.
We eventually intend to conduct a significant portion of our business through
the Internet and other electronic media and intend to expand our use of such
media. To date, the use of the Internet to conduct financial transactions has
been relatively free from regulatory restraints. However, a number of
governments, including the United States, are beginning to address the
regulatory issues that may arise in connection with use of the Internet.
Accordingly, there can be no assurance that these authorities will not adopt new
regulations (or interpret their existing regulations) in a manner that
constrains our ability to transact business through the Internet or other
electronic media. Any additional regulation of our use of electronic media could
render our business or operations more costly, less efficient or even
impossible, any of which could have a material adverse affect our business,
financial condition and operating results.
January 25, 2002 Annual Report Page 25
International Financial Group
In addition to the above risks, we cannot assess the effect that the
Organization for Economic Cooperation and Development, the United Nations and
the G7 countries initiatives will have upon the offshore financial industry and,
in particular, the jurisdictions that we will carry on business in and our
proposed clients.
IFG Bank
- --------
With respect to obtaining bank licenses to carry on the business of offshore
banking, a typical requirement of offshore jurisdictions is to demand from the
applicant that they capitalize the bank with a statutory amount of capital as
stipulated by that jurisdictions government. These capital requirements can take
the form of unencumbered and encumbered capital. The latter would need to be
placed by the applicant into a deposit account with the government. The bank
would not be permitted to use such funds while in operation.
We have applied for a Class I bank license from the Government of St. Vincent
and will be subject to the following net capital requirements:
o Maintain a fully paid-up capital of not less than $500,000 USD, or its
equivalent in another currency, or such greater sum as the local
authority may reasonably determine appropriate; and,
o Deposit or invest the sum of $100,000 USD or its equivalent in another
currency, in such a manner as the local authority may reasonable
prescribe.
We have applied for a Class A bank license from the Government of Belize and
will be subject to the following net capital requirement:
o Maintains a fully paid-up capital of not less than $500,000 USD, or
its equivalent in another currency, or such greater sum as the local
authority may reasonably determine appropriate.
Each of these jurisdictions will allow the bank to carry on banking activities
with non-residents only. Carrying on banking activities with residents of the
jurisdiction is strictly prohibited.
The proposed banks will also be subject to various other regulatory requirements
including but note limited to: competency of Directors and Officers; obtaining
errors and omission insurance; obtaining Directors and Officers insurance; and,
Know Your Client Rules. Know Your Client Rules are defined by us to mean rules
that are designed to identify the client and their source of funds to satisfy
anti-money laundering legislation enacted by the countries we operate within.
Generally, these rules are satisfied by obtaining the following from the client:
certified copy of his/her passport; professional references; bank reference;
utility statement; and, written representation as to the source of the funds
transferred by the client.
IFG Insurance
- -------------
Our proposed insurance subsidiary, IFG Insurance, Inc., will be subject to
capital requirements to ensure that we can sustain a certain degree of losses
and that we are properly capitalized. We intend to provide life insurance
products that typically demand (at the ultimate discretion of the responsible
authority) that we have $250,000 USD in minimum capital and surplus
requirements. In addition, some jurisdictions will demand that we maintain
adequate levels of Error and Omission and Directors and Officers Liability
insurance as well as adhere to Know Your Client Rules.
IFG Trust Services
- ------------------
In each jurisdiction where management determines it is practicable to obtain a
trust license, our trust subsidiaries may be subject to various capital
requirements from each respective jurisdiction to ensure that it is properly
capitalized. We estimate that the typical paid in capital requirement will not
exceed $250,000 USD per jurisdiction. In addition, some jurisdictions will
demand that we maintain adequate levels of Error and Omission and Directors and
Officers Liability insurance and adhere to Know Your Client Rules.
January 25, 2002 Annual Report Page 26
International Financial Group
Organizational Structure
- ------------------------
CORPORATE CHART
International Financial Group, Inc. Corporate Structure Flowchart
Mr Kevin Mellor is the
sole beneficial owner of <----- IFG WORLD HOLDINGS
International Financial TRUST
Group, Inc. (BARBADOS)
|
|
100% |
v
To be IFG WORLD HOLDINGS, INC. (BARBADOS)
formed
|
|
100% |
v
International Financial Group, Inc.
(CAYMAN CORP.)
| | | |
-------------------------------------------- | | |
| | | |
| ------------------------- | |
| | 100% | |
| | --------------- |
| | | |
v v v v
IFG IFG Insurance, IFG Trust IFG Bank, Inc.
Administration, Inc. Inc. Services Inc.-- TBF
And IFG (Bermuda) TBF (Nevis) |
Corporate Services |
Inc. (Cayman) |
| |
| IFG Investments |
| Services Inc. <--
| |
100% | | 100%
| |
| IFG Corporate, Inc. |
| and IFG <--
| Management Inc.
|
v
ifgcorporate.com (Marshall Islands) Inc. ifgcorporate.com(Labaun) Inc.
ifgcorporate.com (Belize) Inc. ifgmanagement.com (Turks & Caicos)
Limited
ifgmanagement.com (Anguilla) Inc. ifgmanagement.com (Niue) Inc.
ifgmanagement.com (Belize) Inc. iommanagement.com (Isle of Man)
Limited
ifgmanagement.com (Antigua) ifgmanagement.com (Barbados) Inc.
ifgcorporate.com (Cook Islands) Inc. ifgcoporate (Isle of Man) Limited
ifgcorporate.com (Antigua)
ifgcorporate.com (Belize) Inc.
ifgmanagement.com (Labaun) Inc.
ifgholdings.com (Bahamas) Inc.
ifgcorporate.com (Vanuatu) Inc.
January 25, 2002 Annual Report Page 27
International Financial Group
Property, Plant and Equipment
- -----------------------------
Offices
- -------
We operate our head office in The Federation of St Kitts & Nevis, West Indies.
This space is utilized as IFG Trust Services, IFG Investments Services (Nevis),
IFG Corporate and IFG Management headquarters in Nevis, West Indies. We have
doubled our lease space in St. Kitts & Nevis to centralize our operation and to
accommodate the infrastructure required to facilitate our businesses.
The head office for IFG Bank, Inc. is anticipated to be located in St. Vincent.
We intend to lease office space in St. Vincent or Belize for the two proposed
operating subsidiaries of IFG Bank, Inc. Our estimates are that the leased space
in either jurisdiction will not exceed $48,000 per year.
Computer Hardware
- -----------------
We have installed all necessary computer hardware and systems required to
operate our Internet based offshore financial services system with third-party
organizations that offer web-hosting services. We may eventually acquire and
maintain all the additional premises necessary for hosting our servers
internally. To ensure sufficient capacity and uninterrupted service, we intend
to provide redundant facilities that are located at our different operating
sites.
Computer Software
- -----------------
We have either developed or licensed all the necessary proprietary computer
software required to operate our Internet-based offshore financial services
systems. For purposes of future computer software development, we intend to
evaluate software from third-party providers that can be customized and
integrated into our system. Where necessary to meet the diverse needs for
integrated data of the different Company's operating units, customer database
and web page software will be contracted to software developers hired by IFG.
The latest hardware and software environments and development tools will be
utilized.
Item 5. Operating and Financial Review and Prospects
- ----------------------------------------------------
Forward Looking Statements
- --------------------------
Some of the information in this section contains forward-looking statements that
involve substantial risks and uncertainties. You can identify these statements
by forward looking words such as "expect", "anticipate", "believe", "seek",
"estimate" and similar words. Statements that we make in this section that are
not statements of historical fact also may be forward looking statements.
Forward looking statements are not guarantees of our future performance, and
involve risks, uncertainties and assumptions that may cause our actual results
to differ materially from the expectations we describe in our forward looking
statements. There may be events in the future that we are not accurately able to
predict, or over which we have no control. You should not place undue reliance
on forward looking-statements. We do not promise to notify you if we learn that
our assumptions or projections are wrong for any reason. We disclaim any
obligation to update our forward-looking statements. See "Risk Factors" for more
information.
Introduction
- ------------
The following analysis addresses International Financial Group Inc.'s financial
condition, changes in financial condition and results of operations for July 31,
2001 compared to July 31, 2000. From the date of our incorporation on July 14th,
1997 to March 14, 2000 the company was not active. From March 14, 2000 until
late January 2001, we were a development-stage company that had no revenues. Our
operating activities during this period consisted primarily of conducting
research and developing our products and services to be provided to clients
desiring offshore financial products and services. The company effectively
commenced revenue earning operations in late January 2001 with the opening of
January 25, 2002 Annual Report Page 28
International Financial Group
IFG Trust Services Inc. and its subsidiaries IFG Corporate Inc and IFG
Management Inc. and IFG Investments Services Inc in the Federation of St. Kitts
and Nevis. Prior to this time period the focus of the company was to establish
its infrastructure and design its Internet and traditional operating systems.
Our financial statements are prepared in accordance with U.S. generally accepted
accounting principles. We have expensed all development expenses related to the
establishment of our subsidiary corporations and the corresponding professional
fees incurred to establish these corporations around the world.
Financial Condition
- -------------------
International Financial Group Inc. raised $2,180,000 during 2000 and 2001 for
the purpose of raising the necessary capital to establish the infrastructure
that would facilitate the establishment of offshore structures and strategies
for clients. The capital was used to lease office space in the Federation of St.
Kitts and Nevis and the Cayman Islands, to hire the necessary personnel skilled
in offshore structures and strategies and to design the intellectual property
necessary to facilitate the implementation of offshore strategies over the
Internet. This task is ongoing and will require further capital investment to
complete the company's goal of being an offshore bank and insurance company. The
achievement of the banking and insurance goals will not be undertaken until the
necessary capital is raised through internal profits or receipt of funds through
the company's F-1 registration statement. The present infrastructure supports
the company's activities in IFG Trust and its subsidiaries including the
delivery of products and services pursuant to the Internet.
During 2000 the company was adequately financed to achieve its goals referred to
above and did establish the infrastructure and personnel necessary to execute
offshore strategies required by clients from around the world from both
traditional and Internet based delivery methods.
During 2001 the company has not been able to date to raise the financing that it
requires to complete the goals of an offshore bank and insurance company and to
maintain its infrastructure around the world to facilitate the execution of
clients offshore strategies. Therefore in December the company embarked upon
streamlining its infrastructure as it determined that relationships with third
party offshore providers could satisfy our clients needs saving us the time and
expense of having our own operating subsidiaries in these foreign jurisdictions.
If it is necessary to retain a third party in a foreign jurisdiction that our
company does not serve we will enter into an arrangement with that third party
to complete our clients' offshore strategy. These arrangements will generally be
revenue sharing arrangements.
The company has excellent operating facilities and computer equipment and
support to execute all client strategies in our traditional and Internet based
platforms. Given this new focus the company has the necessary funds to operate
for the fiscal year 2001-2002 from its present cash resources and expected
profits during the year.
Results of Operations
- ---------------------
Our analysis will evaluate the periods of time from March 14, 2000 to July 31,
2000 and from August 1, 2000 to July 31, 2000.
Our operating expenses are classified into four categories:
o Legal and professional fees;
o Salaries;
o Depreciation; and
o Other administrative expenses.
Legal and professional fees consist primarily of accounting, legal and
professional fees incurred by us in establishing our infrastructure.
January 25, 2002 Annual Report Page 29
International Financial Group
Salary and consulting fees consists primarily of wages and salary paid to our
employees and independent contractors, social security and withholding payments
made to various government authorities, work permits, and directors fees for
International Financial Group, Inc.
Depreciation consists of depreciation and amortization of our assets.
Other administrative expenses consist primarily of employee medical expenses and
health insurance, director fees, advertising and promotion, courier, postage,
credit card charges, currency exchanges and rounding, insurance, interest and
bank charges, office supplies, printing and design, office equipment lease
expense, conference expense, computer development expense, rent, rent
residential, vehicle rental, living allowance, telephone travel and
entertainment, brokerage fees, incorporation fees, security and parking.
In our development of new products and services, the technical feasibility of
the software is not established until substantially all product development is
complete. Historically, our software development costs eligible for
capitalization have been insignificant and all costs related to internal product
development have been expensed as incurred.
We believe that period-to-period comparisons of our historical operating results
are not necessarily meaningful and should not be relied upon as a good
indication of our future performance. Our prospects must be considered in light
of the risks, expenses and difficulties frequently experienced by companies in
early stages of development, particularly companies in new and rapidly evolving
markets like ours. As stated above our company from the date of inception on
July 14, 1997 to March 14, 2000 was inactive. From March 14, 2000 to
approximately late January 2001 we developed our infrastructure and earned no
revenue. Our income earning operations commenced in late January 2001 with the
opening of IFG Trust Services Inc. The relevant time period for analysis is
therefore the periods ended July 31, 2000 to July 31 2001.
August 1, 2000 to July 31, 2001 compared to March 14, 2000 to July 31, 2000
- ---------------------------------------------------------------------------
Legal and professional fees increased from $149,712 for the five month period
ended July 31, 2000 compared to $229,595 for the 12 month period ended July 31,
2001. This increase was attributable primarily to expenses being reported over a
12 month period versus a five month comparison period. However on a normalized
yearly analysis legal fees have decreased ($149,712 x 12/5=$359,308). This
decrease is attributable to the fact that a lot of our infrastructure was
established during the time period ending July 31, 2000. We anticipate that
legal and professional fees will decrease in the future because the
infrastructure has been streamlined and no new subsidiaries need to be
established.
Salaries and consulting fees increased from $78,468 for the five month period
ended July 31, 2000, compared to $518,379 for the 12 month period ended January
31, 2001. This increase was attributable in part to expenses being reported over
a 12 month period versus a five month comparison period. However this increase
is due primarily to an increase in the number of employees working during the
period from August 1, 2000 to July 31, 2001 as compared to the previous five
month period. Employees increased from four in the period ending July 31, 2000
as compared to 14 employees who worked for the company during the period ended
on July 31, 2001. Therefore the addition of eight employees added to increased
social security fees and the payment of work permits and living allowances, and
the travel and entertainment undertaken by those in IFG responsible for
establishing our infrastructure worldwide.
Depreciation has increased from nil for the five month period ended July 31,
2000 compared to $25,468 for the 12 month period ended July 31, 2001. This
increase is attributable to taking depreciation on our assets for the first
time.
Other administrative expenses increased from $23,390 for the five month period
ended July 31, 2000, compared to $545,951 for the 12 month period ended July 31,
2001. This increase was attributable primarily to expenses being reported over a
12 month period versus a five month comparison period. However it is also
attributable to increased courier and postage charges, bank charges, computer
development expenses, printing, rents, living allowances, vehicle rentals,
telephone charges and travel and entertainment expenses to establish our
infrastructure.
January 25, 2002 Annual Report Page 30
International Financial Group
Due to the foregoing factors, our operating results are difficult to forecast.
We believe that period-to-period comparisons of our operating results are not
meaningful and you should not rely on them as indicative of our future
performance. You should also evaluate our prospects in light of the risk,
expenses and difficulties commonly encountered by comparable development-stage
companies in new and rapidly evolving markets. We cannot assure you that we will
successfully address such risks and challenges. In addition, even though we have
successfully launched our IFG Investments Services, IFG Trust Services and IFG
Corporate Services subsidiaries and carry on investment, trust and corporate
services activities, we cannot assure you that our revenues will increase or
that we will become profitable in the future.
Changes in Financial Condition
- ------------------------------
The change in the company's financial position for the year ended July 31, 2001
is expected for a development stage company that is completing its
infrastructure and commenced its revenue earning activities in February 2001.
Net cash used by operating activities increased from $452,737 for the five month
period ended July 31, 2000 compared to $1,168,072 for the 12 month period ended
July 31, 2001. This increase was attributable primarily to expenses being
reported over a 12 month period versus a five month comparison period. On a
normalized 12 month period ($452,737 x 12/5=$1,086,569) the increase is not
material and reflects the minor increase in costs of having 12 employees versus
four employees in the previous year and the incidental costs of operating with a
larger staff.
Net cash used by investing activities increased from $$30,428 for the five month
period ended July 31, 2000 compared to $245,874 for the 12 month period ended
July 31, 2001. This increase was attributable primarily to the Company
purchasing property and equipment for the Cayman Islands office and servers for
its internet operations and a receivable from its parent company, IFG World
Holdings Inc., for payments made on its behalf in repayment of loans by the
parent company to Mr. Kevin Mellor.
Net cash provided by financing activities decreased from $1,197,200 for the five
month period ended July 31, 2000 compared to $1,082,795 for the 12 month period
ended July 31, 2001. This decrease was attributable primarily to the company
raising $160,000 more in capital in 2000 versus 2001 and the company repaying a
debt owed and then making a small loan to Mr. Kevin Mellor it President and
Chairman.
Liquidity and Capital Resources
- -------------------------------
Since the date of our incorporation, we have raised an aggregate of $2,160,000
through private placements of our ordinary shares.
Our capital requirements depend on a number of factors. We expect to devote
resources to continue our research and development of new products and services
and support and increase our marketing efforts. Our expenditures have increased
substantially since the date of incorporation but we do not anticipate that
capital expenditures will continue to increase in the foreseeable future.
At July 31, 2001, we had cash and cash equivalents of $382,884. We believe that
our cash and cash equivalents together with our revenues from operations are
sufficient to fund our operations for the next fiscal year.
The material commitments that IFG endeavors to undertake in the next year in the
following order of priority are:
o Research and Development of IFG Bank Inc.'s systems;
o Research and Development of IFG Insurance Inc.'s systems.
The research and development will entail a needs assessment of each system,
evaluation of competitors' systems, the preparation of a specification paper and
thereafter a request for proposal, an evaluation of system programmers in Asia
Europe, India and the Unites States, testing of prototypes in real time
January 25, 2002 Annual Report Page 31
International Financial Group
situations and modifications to proposed systems with the view to tailoring the
systems software created by third party programmers to our hardware
specifications and client needs.
We estimate over the next the year that the research and development of IFG Bank
Inc.'s systems will cost approximately $150,000.
We estimate over the next year that the research and development of IFG
Insurance Inc.'s systems will cost approximately the same as the bank at
$150,000.
Depending on how successful IFG is regarding the sale of our offering will
dictate how we approach each of these projects. If we do not raise money
pursuant to the offering we will not be able to finance these projects and we
will continue to function as a trust, corporate and investment services
provider. If we are fully subscribed it is our intention to finance each of the
projects simultaneously so that our bank and insurance subsidiaries can complete
their research and development. If however we only raise net proceeds of
approximately $250,000 to $300,000 we would concentrate on IFG Bank Inc. as we
feel the bank has the greatest potential to earn revenues and to be profitable
because a bank is an integral component of an offshore asset protection
strategy.
The launching of the bank and insurance subsidiaries will be contingent upon the
success of our offering to fund the necessary research and development to
finance the development of the systems to operate a full and online banking
service. Upon the research and development being completed, IFG estimates that
it will require approximately $400,000 to $500,000 to operate each subsidiary.
This will include costs to staff the subsidiaries, hardware to operate the
systems and overhead to operate the facilities. IFG would finance this expansion
through profits it has earned from its operations at the time of the expansion
or it would proceed with the raising of funds through traditional means such as
a further public offering
We believe that profits from operation, together with our cash and cash
equivalents, will be sufficient to fund our operations for the year. Upon the
completion of the research and development of systems for IFG Bank and/or IFG
Insurance, we will need to raise additional funds through a public offering to
establish the bank and insurance subsidiaries and to increase personnel and
office facilities to accommodate these subsidiaries, to launch these new
products or enhance existing products and services, to respond to competitive
pressures, or to acquire or invest in complementary businesses, technologies,
services, or products.
In addition, if cash generated from operations is insufficient to meet our
long-term liquidity needs, we may need to raise additional funds or seek other
financing arrangements. Additional funding may not be available on favorable
terms or at all. In addition, although there are no present understandings,
commitments, or agreements with respect to any acquisition of other businesses,
products or technologies, we may, from time to time, evaluate potential
acquisitions of other businesses, products and technologies to enhance our
offshore presence. In order to consummate potential acquisitions, we may issue
additional securities or need additional equity or debt financing and any such
financing may be dilutive to existing investors.
Trend Information
- -----------------
The company entered into a revenue sharing arrangement with Mobius Trust Company
to service its clients. This arrangement will earn our company approximately
$100,000-$150,000 in the next year from renewal fees of trusts and corporations,
management fees and secretarial fees. We have also commenced advertising in
Offshore Canada and Offshore USA which is circulated in North America and other
countries. These are trade magazines geared specifically to our proposed
customer base. We will monitor the success of this media in generating positive
cash flow. In addition the success of our F-1 offering will determine whether we
have the capital to complete our research and development of our proposed bank
and insurance subsidiaries and their internet platforms. If our offering is
successful these projects will be completed and would lead to future revenue in
the fiscal years ending July 31, 2003 and 2004.
January 25, 2002 Annual Report Page 32
International Financial Group
Item 6. Directors, Senior Management and Employees
- --------------------------------------------------
Directors and Senior Management
- -------------------------------
The daily affairs of IFG are under the direction of its senior management: Mr.
Kevin Mellor, President, Mr. Daniel MacMullin, Sr. Vice President of Trust
Services, and Mr. Anthony Chan, Sr. Vice President Technology.
The directors, officers and senior management of International Financial Group
Inc. are as follows:
Name Age Position Residency Term as Director
- ---- --- -------- --------- ----------------
Mr. Kevin Mellor 41 President and Chair of the Board Director* Basseterre, St. Kitts 22 months
Mr. Harold Carter 56 Director* St. George, Barbados 19 months
Mr. Drew Parker 43 Director* Vancouver, Canada 10 months
Mr. John Rayner 58 Director* Hamilton, Bermuda 15 months
Mr. Vernon Veira 46 Director* Basseterre, St. Kitts 19 months
Mr. Anthony Chan 27 Sr. Vice President, Technology Vancouver, Canada
Mr. Daniel MacMullin 41 Sr. Vice President, Trust Services Nevis, BWI
Ms Catherine Rublack 40 Sr. Vice President, Administration Basseterre, St. Kitts
*Directors of International Financial Group, Inc.
Key Personnel Qualifications
- ----------------------------
Mr. Kevin Mellor received his Bachelor of Administration from the University of
Regina, Canada in 1983 and his Bachelor of Laws from the University of
Saskatchewan, Canada in 1990. Mr. Mellor received his Chartered Accountant
(Canada) designation in 1986 and became a Barrister & Solicitor (Canada) in
1991. Mr. Mellor has extensive litigation experience in the Tax Court of Canada
and the Federal Court of Appeal (Canada). Mr. Mellor practiced as a
corporate/commercial lawyer with his preferred area of practice in taxation. Mr.
Mellor's professional experience includes being an auditor for the Government of
Saskatchewan and a member of the National Hockey League Players Association in
his capacity as a players' agent. Mr. Mellor has for the past five (5) years
been a partner in the law firm Mellor & Anderson. Mr. Mellor has not previously
been a director of a reporting company.
Mr. Harold Carter received his Bachelor of Arts (Hons) degree, Certified General
Accountant (CGA) designation and Associate of the Chartered Institute of Bankers
(ACIB) from the University of West Indies. Between 1968 and 1988, Mr. Carter
managed a number of retail branches of Barclay's Bank, eventually going on to
act as Manager and Secretary for the Barclay's Financial Corporation of Barbados
Ltd. in 1988 and 1989. Mr. Carter acted as the Managing Director of the
Barclay's Financial Corporation of Barbados Ltd. from 1989 to 1998. Mr. Carter
has also acted as a member of the Barbados Police Services Commission. Mr.
Carter has not previously been a director of a reporting company.
Dr. Drew Parker is an Associate Professor of Information Technology in the
Faculty of Business Administration at Simon Fraser University in British
Columbia. He has taught, delivered presentations and consulted extensively in
the Information Systems and Telecommunications area. He has worked with Internet
business issues for over a decade. Dr. Parker received his Bachelor of Commerce
and Masters in Business Administration from the University of Calgary in Alberta
and his Ph.D. from the Ivey School of Business Administration at the University
of Western Ontario. Mr. Parker was appointed to the position of Director in
March 2001. Dr. Parker was a director of a reporting company, Denmans.com. Dr.
Parker resigned as Director January 2001 from Denmans.com.
Mr. John Rayner worked at a number of insurance companies and institutions
including Prudential Assurance Company (UK), American International Group
(Bermuda), and Argus Conning (Bermuda) between 1966 and 1984. Mr. Rayner's past
insurance industry experience includes feasibility studies, profit testing,
reinsurance, statutory and CAAP valuations, underwriting and many other aspects
of life and health insurance. In 1984, he established an actuarial consulting
firm, Abbott Associates, where Mr. Rayner is currently the sole proprietor. Mr.
Rayner is a member of the American Academy of Actuaries and of the International
Actuarial Association and is an associate of the Society of Actuaries (USA). Mr.
Rayner has also attained the designation of Fellow with the Institute of
January 25, 2002 Annual Report Page 33
International Financial Group
Actuaries (UK). Mr. Rayner has not been a public direct of a reporting company
in the North America or Europe. However, Mr. Rayner has been a director of
public Caribbean companies.
Mr. Vernon Veira received his Bachelor of Laws from La Salle Extension
University (Canada) in 1980 and received his LEC from Norman Manley Law School
in Kingston, Jamaica. During 1983 Mr. Veira established his own law firm and
acted as Crown Counsel for the Government of St Kitts-Nevis. Mr. Veira, has
maintained his law practice and now practices, as the senior partner in the law
firm of Veira, Grant & Associates as a corporate/commercial lawyer with his
preferred area of practice in offshore corporate/commercial law. Mr. Veira is a
member of the St. Kitts-Nevis Bar Association and the International Bar
Association and is a former Member of Parliament in St. Kitts. Mr. Veira is a
director of a public company named DotCom 2000.
Mr. Anthony Chan received his Bachelor of Business Administration and Master of
Business Administration from Simon Fraser University, Canada in 1997 and 1999.
His professional experience includes providing technical expertise in launching
a post-graduate online education program at Simon Fraser University. Mr. Chan
has been teaching in the faculty of business administration and school of
computing science at Simon Fraser University since 1999. Mr. Chan has not
previously been a director of a reporting company.
Mr. Daniel MacMullin received his Bachelor of Arts degree from the University of
Saskatchewan, Canada in 1989 and his Bachelor of Laws Degree from the University
of Saskatchewan, Canada in 1992. Mr. MacMullin became a Barrister & Solicitor
(Canada) in 1993 with his preferred area of practice being criminal law. Mr.
MacMullin has also served with the Canadian Armed Forces as a commissioned
officer from 1978 to 1981 and in the Royal Canadian Mounted Police (RCMP) from
1982 to 1988. Mr. MacMullin is also a member of the Saskatchewan Criminal
Defense Bar. For the past five years, Mr. MacMullin has been a partner in the
law firm Hawkins & MacMullin. Mr. MacMullin has not previously been a director
of a reporting company.
Ms. Catherine Rublack was employed with the Canadian Venture Exchange (formerly
Vancouver Stock Exchange) for over twelve years prior to joining IFG. Ms.
Rublack held several management and administrative positions within the Exchange
with the two most recent positions being Manager, President's Action Line and
Manager, Administration. Ms. Rublack has completed and passed her Canadian
Securities Course and the Conduct and Practices Handbook examination for
Registered Representatives. Ms. Rublack has also successfully completed other
Canadian securities related courses and University-level classes.
Compensation
- ------------
Our directors receive $10,000 annually paid in quarterly installments of $2,500.
Mr. Mellor, Chairman of the Board has not taken any directors fees to date and
nominal compensation. We reimburse all of our directors for their reasonable
expenses incurred in connection with attending meetings of the board of
directors. As of the date of this annual report no employee or executive stock
option plans have been designed or approved by us.
A total of 13 persons who served either as directors of International Financial
Group or members of its administrative, supervisory or management bodies during
fiscal 2001 received remuneration from International Financial Group Inc. The
aggregate remuneration paid by us to such persons was approximately $574,365 but
does not include amounts expended by us for travel or other fringe benefits
Included in this amount is remuneration for two former executive officers and to
one former member of our board of directors.
Board Practices
- ---------------
All directors hold office until their respective successors are duly elected and
qualified or their positions are earlier vacated by resignation or otherwise.
Executive officers of the International Financial Group Inc. and its
subsidiaries serve in their positions until their respective successors have
been duly elected or qualified or their positions are earlier vacated by
resignation or otherwise.
January 25, 2002 Annual Report Page 34
International Financial Group
There are no service contracts between our company and any of our directors
providing for benefits upon termination of their employment.
Committees
- ----------
Our audit committee is comprised of Mr. Drew Parker, Mr. Harold Carter and Mr.
Kevin Mellor.
Employees
- ---------
As of July 31, 2001, we employed on a full-time basis approximately fourteen
persons with seven located in Caribbean and seven in North America.
As of July 31, 2000, we employed on a full-time basis approximately four persons
with two located in the Caribbean and two in North America.
As of July 31, 1999, the company had not employed any persons as it was not
active.
Our principal operating subsidiaries are not party to any collective bargaining
agreements.
Share Ownership
- ---------------
SECURITY OWNERSHIP OF DIRECTORS AND SENIOR MANAGEMENT AND CERTAIN KEY EMPLOYEES
- -------------------------------------------------------------------------------
As of the date of this annual return, the aggregate number of our voting
ordinary shares beneficially owned by our director, senior managers and certain
key employees was 20,250,000 shares. This number includes 20,000,000 voting
ordinary shares (99% of the ordinary shares) and 4,000,000 warrants (one warrant
exchangeable for one voting ordinary share) having an exercise price of $2.00
that expire on December 31, 2002, held by IFG World Holdings Inc, which is owned
by IFG World Holding Trust to which Mr. Kevin Mellor is the sole beneficiary.
Mr. Mellor is a Director and President of International Financial Group. In
addition Sound Refuge Trust holds 250,000 voting ordinary shares, a trust
established for a former Director and executive officer of the company and his
family.
Beneficial ownership by a person assumes the exercise of all options and
warrants held by such person that are currently exercisable or are exercisable
within 60 days of such date.
International Financial Group Inc. has no stock option plan as of the date of
this annual return.
Item 7. Major Shareholders and Related Party Transactions
- ---------------------------------------------------------
Our voting ordinary shares are owned 98.76% by IFG World Holdings Inc. with the
remaining 1.24% by Sound Refuge Trust.
As a result of the concentration of ownership of our voting ordinary shares, IFG
World Holdings Inc. will be able to exercise control over matters requiring
shareholder approval, including the election of directors and approval of
significant corporate transactions.
The following table sets forth-specified information with respect to the
beneficial ownership as of January 25, 2002 of the person known by us to be the
beneficial owner of our outstanding voting ordinary shares.
This control may have the effect of delaying or preventing a change in control
of International Financial Group Inc.
January 25, 2002 Annual Report Page 35
International Financial Group
Number of shares Percentage of shares
Beneficially owned Beneficially owned (2)
Shareholder Outstanding Shares Right to Acquire Total Number Before Offering
- ----------- ------------------ ---------------- ------------ ---------------
IFG World Holdings Inc. (1) 20,000,000 4,000,000 24,000,000 98.76
Sound Refuge Trust (3) 250,000 nil 250,000 1.24
(1) IFG World Holdings Inc. is owned by IFG World Holdings Trust of which Mr.
Kevin Mellor, President and Director of International Financial Group Inc.,
is the sole beneficiary.
(2) These percentages do not include the 4,000,000 ordinary shares that can be
issued to IFG World Holdings Inc. pursuant to the outstanding warrants it
owns. These percentages are calculated by dividing the present issued and
outstanding shares owned by the parties by 25,250,000.
(3) The beneficial owners of Sound Refuge Trust are Dr. James Stephenson, his
wife and two sons.
Related Party Transactions
- --------------------------
Loans Payable by IFG
- --------------------
The loan payable to related parties of $20,200 as of July 31, 2001 is due to IFG
World Holdings, Inc. and is unsecured, non-interest bearing and payable upon
demand. The said loan was made for the purpose of having International Financial
Group Inc. purchase the Uniform Resource Locator (URL) www.ifg.com for its sole
-----------
use in May 2000. A URL specifies the location of a resource residing on the
Internet.
The loan payable to related parties of $37,200 as of July 31, 2000 is made up of
two amounts. The amount of $20,200 is due to IFG World Holdings, Inc and is
unsecured, non-interest bearing and payable upon demand. The said loan was made
for the purpose of having International Financial Group Inc. purchase the
Uniform Resource Locator (URL) www.ifg.com for its sole use in May 2000. A URL
-----------
specifies the location of a resource residing on the Internet. The remaining
amount of $17,000 is due to Mr. Kevin Mellor and is unsecured, non-interest
bearing and payable upon demand. The said loan was provide by Mr. Mellor to
International Financial Group Inc. to finance the early stages of the company.
Loans Receivable by IFG
- -----------------------
The loan receivable to related parties of $145,200 at July 31, 2001 is due from
IFG World Holdings Inc., for $145,200 and is unsecured, non-interest bearing and
payable on demand. A loan of $10,000 of the total resulted from transactions
involving a former key employee/director whereby the Company issued 250,000
shares of its common stock, and included an adjustment for amounts the former
key employee/director had paid to IFG World Holdings Inc. In addition, there
were payments made by the Company on behalf of IFG World Holdings, Inc. totaling
$135,200.
The loan receivable to related parties of $5,000 at July 31, 2000 is due from
IFG World Holdings Inc., and was unsecured, non-interest bearing and payable on
demand. The receivable resulted from transactions involving a former key
employee/director whereby the Company sent IFG World Holdings Inc. $5,000 to
allow a former key employee/director to purchase 500,000 shares of its common
stock. The loan was never utilized by the former key employee/director.
The company was not active in years prior to July 31, 2000 and therefore there
is no information regarding related party transactions prior to July 31, 2000.
January 25, 2002 Annual Report Page 36
International Financial Group
Item 8. Financial Information
- -----------------------------
Financial Statements
- --------------------
See "Financial Statements" for our audited Consolidated Financial Statements and
Financial Statement Schedule filed as part of this report.
Legal Proceedings
- -----------------
We are not involved in any material legal proceedings.
Dividend Policy
- ---------------
We have not declared dividends from our inception and do not foresee declaring
any dividends in the foreseeable future. The payment of any future dividends
will be paid by us based on conditions then existing, including our earnings,
financial condition and capital requirements as well as other conditions we deem
relevant.
Item 9. The Offer and Listing
- -----------------------------
Our ordinary shares have never been quoted on any exchange or quotation service.
Item 10. Additional Information
- -------------------------------
Memorandum and Articles of Association
- --------------------------------------
1. The Company is registered at the Companies Registry with the Registrar of
Companies in the Cayman Islands, and has been assigned company number CR-75001,
registered office situated at P.O. Box 10098APO, Georgetown, Cayman Islands,
British West Indies. The telephone number at that location is 345-946-4170.
The objects for which the Company is established are unrestricted and the
Company shall have full power and authority to carry out any object not
prohibited by any law as provided by Section 7(4) of The Companies Law (2000
Revision) as referred to in paragraph two of the Memorandum of Association.
2. Article 97 of the Amended and Restated Articles of Association of the Company
(the "Articles of Association") provides that a Director who is in any way,
whether directly or indirectly, interested in a contract or proposed contract
with the Company shall declare the nature of his interest at a meeting of the
Directors. A general notice given to the Directors by any Director to the effect
that he is a member of any specified company or firm and is to be regarded as
interested in any contract which may thereafter be made with that company or
firm shall be deemed a sufficient declaration of interest in regard to any
contract so made. A Director may vote in respect of any contract or proposed
contract or arrangement notwithstanding that he may be interested therein and if
he does so his vote shall be counted and he may be counted in the quorum at any
meeting of the Directors at which any such contract or proposed contract or
arrangement shall come before the meeting for consideration.
Article 75 of the Articles of Association provides that the remuneration of the
Directors shall from time to time be determined by the Company by ordinary
resolution.
Article 89 of the Articles of Association provides the Directors may exercise
all the powers of the company to borrow money and to mortgage or charge its
undertaking, property and uncalled capital or any part thereof, to issue
debentures, debenture stock and other securities whenever money is borrowed or
as security for any debt, liability or obligation of the Company or of any third
party. Such borrowing powers can only be altered through an amendment to the
Articles of Association.
January 25, 2002 Annual Report Page 37
International Financial Group
Directors of the company do not have to retire under an age limit requirement
and are not required to own shares of the company in order to serve as
directors.
3. The share capital of the Company is $50,000USD divided into 50,000,000
ordinary shares with a par value of $0.001USD. The rights, preferences and
restrictions attaching to the ordinary shares are as follows:
Dividend Rights (Articles 108-116)
The Directors may from time to time declare dividends (including interim
dividends) by ordinary resolution and other distributions on shares in issue and
authorise payment of the same out of the funds of the Company lawfully available
therefore. Any dividend may be paid by cheque or warrant sent through the post
to the registered address of the Member or person entitled thereto, or in the
case of joint holders, to any one of such joint holders at his registered
address or to such person and such address as the Member or person entitled, or
such joint holders as the case may be, may direct. Every such cheque or warrant
shall be made payable to the order of the person to whom it is sent or to the
order of such other person as the Member or person entitled, or such joint
holders as the case may be, may direct. The Directors when paying dividends to
the Members may make such payment either in cash or in specie. Subject to the
rights of persons, if any, entitled to shares with special rights as to
dividends, all dividends shall be declared and paid according to the amounts
paid on the shares, but if and so long as nothing is paid up on any of the
shares in the Company dividends may be declared and paid according to the
amounts of the shares. No amount paid on a share in advance of calls shall,
while carrying interest, be treated for the purposes of this Article as paid on
the share. No dividend shall bear interest against the Company.
Voting Rights (Articles 61-69)
The holders of our ordinary shares are entitled to vote on all matters to be
voted on by the members.
Profits (Article 110)
No dividend shall be paid otherwise than out of profits or, subject to the
restrictions of the Companies Law, the share premium account.
Liquidation (Article 113)
If we shall be wound up the liquidator may, with the sanction of an Ordinary
Resolution of the Company divide amongst the Members in specie or kind the whole
or any part of the assets of the Company (whether they shall consist of property
of the same kind or not) and may, for such purpose set such value as he deems
fair upon any property to be divided as aforesaid and may determine how such
division shall be carried out as between the Members or different classes of
Members. The liquidator may, with the like sanction, vest the whole or any part
of such assets in trustees upon such trusts for the benefit of the
contributories as the liquidator, with the like sanction shall think fit, but so
that no Member shall be compelled to accept any shares or other securities
whereon there is any liability.
Redemption (Articles 39-42)
Subject to the provisions of the Companies Law, the Company may:
(a) issue shares on terms that they are to be redeemed or are liable to be
redeemed at the option of the Company or the Member on such terms and
in such manner as the Directors may, before the issue of such shares,
determine;
(b) purchase its own shares (including any redeemable shares) on such
terms and in such manner as the Directors may determine and agree with
the Member; and
(c) make a payment in respect of the redemption or purchase of its own
shares otherwise than out of profits or the proceeds of a fresh issue
of shares.
January 25, 2002 Annual Report Page 38
International Financial Group
Any share in respect of which notice of redemption has been given shall not be
entitled to participate in the profits of the Company in respect of the period
after the date specified as the date of redemption in the notice of redemption.
The redemption or purchase of any share shall not be deemed to give rise to the
redemption or purchase of any other share.
The Directors may when making payments in respect of redemption or purchase of
shares, if authorized by the terms of issue of the shares being redeemed or
purchased or with the agreement of the holder of such shares, make such payment
either in cash or in specie.
Sinking Fund (Article 110)
The Directors may, before recommending or declaring any dividend, set aside out
of the funds legally available for distribution such sums as they think proper
as a reserve or reserves which shall, at the discretion of the Directors be
applicable for meeting contingencies, or for equalising dividends or for any
other purpose to which those funds be properly applied and pending such
application may, at the like discretion, either be employed in the business of
the Company or be invested in such investments (other than shares of the
Company) as the Directors may from time to time think fit.
Capital Calls (Article 17-22)
The Directors may from time to time make calls upon the Members in respect of
any moneys unpaid on their shares, and each Member shall (subject to receiving
at least 14 days notice specifying the time or times of payment) pay to the
Company at the time or times so specified the amount called on his shares. The
joint holders of a share shall be jointly and severally liable to pay calls in
respect thereof. If a sum called in respect of a share is not paid before or on
the day appointed for payment thereof, the person from whom the sum is due shall
pay interest upon the sum at the rate of eight per centum per annum from the day
appointed for the payment thereof to the time of the actual payment, but the
Directors shall be at liberty to waive payment of that interest wholly or in
part. The provisions of these Articles as to the liability of joint holders and
as to payment of interest shall apply in the case of non-payment of any sum
which, by the terms of issue of a share, becomes payable at a fixed time,
whether on account of the amount of the share, or by way of premium, as if the
same had become payable by virtue of a call duly made and notified. The
Directors may make arrangements on the issue of shares for a difference between
the Members, or the particular shares, in the amount of calls to be paid and in
the times of payment. The Directors may, if they think fit, receive from any
member willing to advance the same all or any part of the moneys uncalled and
unpaid upon any shares held by him, and upon all or any of the moneys so
advanced may (until the same would, but for such advance, become presently
payable) pay interest at such rate (not exceeding without the sanction of an
Ordinary Resolution, eight per cent. per annum) as may be agreed upon between
the Member paying the sum in advance and the Directors.
Discrimination Against Shareholders
There are no provisions in the company's articles that would discriminate
against an existing or prospective shareholder as a result of such shareholder
holding a substantial number of shares.
4. Due to the fact that there is only one class of shares the rights of the
ordinary shares cannot be changed. Upon the company having more than one class
of shares in the future the action that is necessary to change the rights of
holders of stock the rights attaching to any class (unless otherwise provided by
the terms of issue of the shares of that class) may be varied or abrogated
pursuant to Article 8 and 9, with the consent in writing of the holders of
two-thirds of the issued shares of that class, or with the sanction of a
resolution passed by at least a two-thirds majority of the holders of shares of
the class present in person or by proxy at a separate general meeting of the
holders of the shares of the class. The rights conferred upon the holders of the
shares of any class issued with preferred or other rights shall not, unless
otherwise expressly provided by the terms of issue of the shares of that class,
be deemed to be varied or abrogated by the creation or issue of further shares
ranking pari passu therewith or the redemption or purchase of shares of any
class by the Company.
January 25, 2002 Annual Report Page 39
International Financial Group
5. Pursuant to Articles 46-60 the conditions governing the manner in which
annual general meetings of shareholders are convoked are:
(a) The Directors may, whenever they think fit, convene a general meeting of the
Company.
(b) General meetings shall also be convened on the written requisition of any
Member or Members entitled to attend and vote at general meetings of the Company
who hold not less than 10 per cent of the paid up voting share capital of the
Company deposited at the registered office of the Company specifying the objects
of the meeting for a date no later than 21 days from the date of deposit of the
requisition signed by the requisitionists, and if the Directors do not convene
such meeting for a date not later than 45 days after the date of such deposit,
the requisitionists themselves may convene the general meeting in the same
manner, as nearly as possible, as that in which meetings may be convened by the
Directors, and all reasonable expenses incurred by the requisitionists as a
result of the failure of the Directors shall be reimbursed to them by the
Company.
(c) If at any time there are no Directors of the Company, any two Members (or if
there is only one Member then that Member) entitled to vote at general meetings
of the Company may convene a general meeting in the same manner as nearly as
possible as that in which meetings may be convened by the Directors.
(d) At least seven days notice counting from the date service is deemed to take
place as provided in these Articles specifying the place, the day and the hour
of the meeting and, in case of special business, the general nature of that
business, shall be given in a manner hereinafter provided or in such other
manner (if any) as may be prescribed by the Company by Ordinary Resolution to
such persons as are, under these Articles, entitled to receive such notices from
the Company, but with the consent of all the Members entitled to receive notice
of some particular meeting and attend and vote thereat, that meeting may be
convened by such shorter notice or without notice and in such manner as those
Members may think fit.
(e) The accidental omission to give notice of a meeting to or the non-receipt of
a notice of a meeting by any Member shall not invalidate the proceedings at any
meeting.
There are no conditions of admission to a general meeting and there is no
provision for an extraordinary general meeting.
6. There are no limitations on the rights to own the ordinary shares or to hold
or exercise voting rights on the ordinary shares by non-resident or foreign
shareholders.
7. There is no provision in the company's Articles and Memorandum of Association
that would have an effect of delaying, deferring or preventing a change in
control of the company and that would operate only with respect to a merger,
acquisition or corporate restructuring involving the company (or any of its
subsidiaries).
The provisions in relation to the alteration of the Company's capital are in
accordance with but no more onerous than the Companies Law.
Material Contracts
- ------------------
In the past two years we have not entered into any material contracts other than
contracts entered into in the ordinary course of our business.
Exchange Controls
- -----------------
Not applicable.
January 25, 2002 Annual Report Page 40
International Financial Group
Taxation
- --------
Cayman Islands
- --------------
At the present time there are no taxes imposed in the Cayman Islands, the
jurisdiction in which we were formed and from which we currently conduct our
business, on income, profits, capital gains or appreciation of the holders of
the shares or warrants. There are also currently no taxes imposed by the Cayman
Islands on the holders of shares or warrants in the nature of estate, duty,
inheritance or capital transfer tax. Therefore, under the existing laws of the
Cayman Islands, no income tax or withholding tax will be applicable in the
Cayman Islands to holders of the shares or warrants offered hereby.
We are an exempted company under Cayman Islands law and we have made application
to the Governor-in-Council of the Cayman Islands for, and expects to receive, an
undertaking as to tax concessions pursuant to Section 6 of the Tax Concessions
Law (1999 Revision) which will provide that, for a period of 20 years from the
date of issue of the undertaking, no law hereafter enacted in the Cayman Islands
imposing any taxes or duty to be levied on profits, income gains or
appreciations or which is in the nature of estate duty or inheritance tax will
apply to our company or in respect of shares, debentures or other obligations of
our company.
United States of America
- ------------------------
In this section we summarize the material anticipated United States income tax
considerations relevant to a purchase of ordinary shares in this offering by
individuals and corporations which:
o For purposes of the United States Internal Revenue Code are resident
in the United States, or are otherwise subject to United States
federal income taxation without regard to source;
o Hold the common shares as capital assets for purposes of the Internal
Revenue Code;
o Deal at arm's length with International Financial Group Inc.;
o Do not use or hold the ordinary shares in carrying on a business in
the Cayman Islands, through a permanent establishment or in connection
with a fixed base in the Cayman Islands or otherwise, and are not an
insurer which carries on business in the Cayman Islands and elsewhere;
and
o In the case of individual holders, are also U.S. citizens.
We will refer to persons who satisfy the above conditions as "Unconnected U.S.
Shareholders."
We will assume, for purposes of this discussion, that you are an Unconnected
U.S. Shareholder. The tax consequences of a purchase of ordinary shares (i.e.
common shares) by persons who are not Unconnected U.S. Shareholders may differ
substantially from the tax consequences discussed in this section.
This discussion is based upon:
o the current provisions of the Internal Revenue Code and regulations
under the Internal Revenue Code;
o the administrative policies published by the U.S. Internal Revenue
Service; and
o judicial decisions,
all of which are subject to change either prospectively or retroactively. We do
not discuss the potential effects of any recently proposed legislation in the
United States and do not take into account the tax laws of the various state and
local jurisdictions of the United States or foreign jurisdictions.
January 25, 2002 Annual Report Page 41
International Financial Group
IFG intends this discussion to be a general description of the U.S. Federal
Income Tax considerations material to a purchase of ordinary (common) shares.
This discussion does not deal with all possible tax consequences relating to an
investment in IFG's ordinary shares. IFG has not taken into account your
particular circumstances and does not address consequences peculiar to you under
provisions of U.S. tax law or any other taxing jurisdiction. Therefore, you
should consult your own tax advisor regarding the particular consequences to you
of purchasing ordinary shares in this offering.
United State Federal Income Tax Considerations
- ----------------------------------------------
As an Unconnected U.S. Shareholder, you generally will include in income
dividend distributions paid by IFG to the extent of our current or accumulated
earnings and profits. You must include in income an amount equal to the U.S.
dollar value of such dividends on the date of receipt based on the exchange rate
on such date, without reduction for any withholding tax. To the extent dividend
distributions paid by IFG exceed our current or accumulated earnings and
profits, they will be treated first as a return of capital up to your adjusted
tax basis in the shares, and then as a gain from the sale or exchange of the
shares.
Dividends paid by IFG on the shares will not generally be eligible for the
"dividends received" deductions. An Unconnected U.S. Shareholder, which is a
corporation, may, under some circumstances, be entitled to a 70% deduction of
the U.S. source portion of dividends received from IFG if such Unconnected U.S.
Shareholder owns shares representing at least 10% of our voting power and value.
If you sell the shares, you generally will recognize gain or loss in an amount
equal to the difference, if any between the amount realized on the sale and your
adjusted tax basis in the shares. Any gain or loss you recognize upon the sale
of shares held as capital assets will be long-term or short-term capital gain or
loss, depending on whether the shares have been held by you for more than one
year.
Under current U.S. tax regulations, dividends paid by us on the shares generally
will not be subject to U.S. information reporting or the 31% backup withholding
tax unless they are paid in the United States through a U.S. or U.S. related
paying agent, including a broker. If you furnish the paying agent with a duly
completed and signed Form W8-BEN or W-9 or such other form as is appropriate to
the situation such dividends will not be subject to the backup withholding tax.
We recommend that you see a tax advisor to determine the appropriate form to
complete and file with your agent so that you are not subject to withholding tax
unnecessarily. You will be allowed a refund or a credit equal to any amounts
withheld under the U.S. backup withholding tax rules against your U.S. federal
income tax liability, provided you furnish the required information to the
Internal Revenue Service.
Personal Holding Companies
- --------------------------
We could be classified as a personal holding company for U.S. federal income tax
purposes if both of the following tests are satisfied:
o if at any time during the last half of our taxable year, five or fewer
individuals own or are deemed to own more than 50% of the total value
of our shares; and
o we receive 60% or more of our U.S. related gross income from specified
passive sources, such as royalty payments.
A personal holding company is taxed on a portion of its undistributed U.S.
source income, including specific types of foreign source income, which are
connected with the conduct of a U.S. trade or business, to the extent this
income is not distributed to shareholders. We do not believe it is a personal
holding company presently, and we do not expect to become one. However, we
cannot assure you that we will not qualify as a personal holding company in the
future.
January 25, 2002 Annual Report Page 42
International Financial Group
Foreign Personal Holding Companies
- ----------------------------------
We could be classified as a foreign personal holding company if in any taxable
year both of the following tests are satisfied:
o five or fewer individuals who are United States citizens or residents
own or are deemed to own more than 50% of the total voting power of
all classes of our shares entitled to vote or the total value of our
shares; and
o at least 60%, 50% in some cases, of our gross income consists of
"foreign personal holding company income," which generally includes
passive income such as dividends, interests, gains from the sale or
exchange of shares or securities, rent and royalties.
If we are classified as a foreign personal holding company and if you hold
shares on the last day of our taxable year, you must include in your gross
income as a dividend your pro rata portion of our undistributed foreign personal
holding company income. If you dispose of your shares prior to such date, you
will not be subject to tax under these rules. We do not believe we are a foreign
personal holding company presently, and we do not expect to become one. However,
we cannot assure you that we will not qualify as a foreign personal holding
company in the future.
Passive Foreign Investment Companies
- ------------------------------------
The rules governing "passive foreign investment companies" can have significant
tax effects on Unconnected U.S. Shareholders. We could be classified as a
passive foreign investment company if, for any taxable year, either:
o 75% or more of its gross income is "passive income," which includes
interest, dividends and some types of rents and royalties, or
o the average percentage, by fair market value, or, in some cases, by
adjusted tax basis, of our assets that produce or are held for the
production of "passive income" is 50% or more.
Distributions which constitute "excess distributions," as defined in Section
1291 of the Internal Revenue Code, from a passive foreign investment company and
dispositions of shares of a passive foreign investment company are subject to
the highest rate of tax on ordinary income in effect and to an interest charge
based on the value of the tax deferred during the period during which the shares
are owned. However, if an Unconnected U.S. Shareholder makes a timely election
to treat IFG as a qualified electing fund under section 1295, the
above-described rules generally will not apply. Instead, the Unconnected U.S.
Shareholder would include annually in his gross income his pro rata share of our
ordinary earnings and net capital gain, regardless of whether such income or
gain was actually distributed. Tax on this income, however, may be deferred.
In addition, subject to specific limitations, Unconnected U.S. Shareholders
owning actually or constructively marketable shares in a passive foreign
investment company may make an election to mark that stock to market annually,
rather than being subject to the above-described rules. Amounts included in or
deducted from income under this mark to market election and actual gains and
losses realized upon disposition, subject to specific limitations, will be
treated as ordinary gains or losses.
In addition, special rules apply if we qualify as both a passive foreign
investment company and a "controlled foreign corporation," as defined below, and
an Unconnected U.S. Shareholder owns, actually or constructively, 10% or more of
the total combined voting power of all classes of our shares entitled to vote.
We believe that we will not be a passive foreign investment company for the
current fiscal year and we do not expect to become a passive foreign investment
company in future years. You should be aware, however, that if we are or become
a passive foreign investment company we may not be able to satisfy
record-keeping requirements that would permit you to make a qualified electing
fund election. You should consult your tax advisor with respect to how the
January 25, 2002 Annual Report Page 43
International Financial Group
passive foreign investment company rules affect your tax situation, including
the advisability of making an election to treat us as a qualified electing fund
or making a mark to market election.
Controlled Foreign Corporation
- ------------------------------
If more than 50% of the voting power of all classes of our shares or the total
value of our shares is owned, directly or indirectly, by citizens of the United
States, U.S. domestic partnerships and corporations or estates or trusts other
than foreign estates or trusts, each of which owns 10% or more of the total
combined voting power of all classes of our shares, we could be treated as a
"controlled foreign corporation" under Subpart F of the Internal Revenue Code.
This classification would effect many complex results, including requiring such
shareholders to include in income their pro rata shares of our "Subpart F
Income," as defined by the Internal Revenue Code. In addition, gain from the
sale or exchange of shares by an Unconnected U.S. Shareholder who is or was a
10% or greater shareholder at any time during the five-year period ending with
the sale or exchange will be ordinary dividend income to the extent of our
earnings and profits attributable to the shares sold or exchanged.
We do not believe that we are a controlled foreign corporation and we do not
anticipate that we will become a controlled foreign corporation as a result of
the offering. However, we cannot assure you that we will not qualify as a
controlled foreign corporation in the future.
Documents On Display
- --------------------
Documents which are referred to in this annual return and that are not
confidential to our company, all of which are or will be in effect may be
obtained and/or reviewed at our offices by contacting Ms. Catherine Rublack at
investorservices@ifg.com or 345-946-4170 or 869-469-7040. We may require a
- ------------------------
prospective investor's prior execution of confidentiality and nondisclosure
agreements before accessing certain of our documents.
Item 11. Quantitative and Qualitative Disclosure about Market Risk
- ------------------------------------------------------------------
(a) Quantitative and Qualitative information about market risk.
We are not subject to market risk as referred to in this item because we use the
United States of America dollar in all transactions we conduct and operate in
jurisdictions that utilize the American dollar as the unit of measure. Other
than being a foreign issuer our company would satisfy the definition of a Small
Business Issuer under the Securities Exchange Act of 1934.
Item 12. Description of Securities other than Equity Securities
- ---------------------------------------------------------------
Not applicable.
PART II
Item 13. Defaults, Dividend Arrearages and Delinquencies
- --------------------------------------------------------
Not applicable.
January 25, 2002 Annual Report Page 44
International Financial Group
Item 14. Material Modifications to the Rights of Security Holders and Use of
- ----------------------------------------------------------------------------
Proceeds
- --------
Not applicable.
PART III
Item 17. Financial Statements
- -----------------------------
Not applicable.
Item 18. Financial Statements
- -----------------------------
FINANCIAL STATEMENTS AND SCHEDULE
- ---------------------------------
The following Consolidated Financial Statements and Financial Statement
Schedule are included at the end of this report:
FINANCIAL STATEMENTS
--------------------
o Report of Independent Auditors
o Consolidated Balance Sheets as of July 31, 2001 and 2000
o Consolidated Statements of Operations for the years ended July 31,
2001 and July 31, 2000
o Consolidated Statements of Changes in Shareholders' Equity (Deficit)
for the years ended July 31, 2001 and July 31, 2000.
o Consolidated Statements of Cash Flows for the years ended July 31,
2001and July 31, 2000.
o Notes to Consolidated Financial Statements
Item 19. Exhibits
- -----------------
1. Articles and Memorandum of Association, restated March 14, 2001 (Exhibit 3.1
F-1 Registration statement dated October 31, 2001.)*
2. 23.1 Consent of Miller & McCollom dated January 28, 2002.
* Previously filed.
SIGNATURES
The registrant hereby certifies that it meets all of the requirements for
filing on Form 20-F and that it has duly caused and authorized the undersigned
to sign this annual report on its behalf.
INTERNATIONAL FINANCIAL GROUP INC.
/s/ Kevin C. Mellor
-------------------
Kevin C. Mellor - President and Director
Authorized U.S. Representative
Date: January 25, 2002
January 25, 2002 Annual Report Page 45
INTERNATIONAL FINANCIAL GROUP, INC.
CONSOLIDATED FINANCIAL STATEMENTS
July 31, 2001
January 25, 2002 Annual Report Page 46
INTERNATIONAL FINANCIAL GROUP, INC.
INDEX TO CONSOLIDATED FINANICAL STATEMENTS
With
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Page
Audit Report of Independent Certified Public Accountants F-2
Consolidated Financial Statements:
Balance Sheets F-3
Statements of Operations F-4
Statements of Shareholders' Equity F-5
Statements of Cash Flows F-6
Notes to Financial Statements F-7 to F12
January 25, 2002 Annual Report Page 47
Independent Accountants' Report
Board of Directors
International Financial Group, Inc.
We have audited the accompanying balance sheets of International Financial
Group, Inc. (a Development Stage Company) as of July 31, 2001, and July 31,
2000, and the related statements of operations, stockholders' equity, and cash
flows for the years ended July 31, 2001 and 2000, and for the period from July
14, 1997 (date of incorporation) through July 31, 2001. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards in the United States of America. 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 presentations. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of International Financial
Group, Inc. (a Development Stage Company) as of July 31, 2001, and July 31,
2000, and the results of its operations, its stockholders' equity, and its cash
flows for the years then ended and for the period from July 14, 1997 (date of
incorporation) to July 31, 2001, in conformity with generally accepted
accounting principles in the United States of America.
/s/ Miller and McCollom
MILLER AND MCCOLLOM
Certified Public Accountants
4350 Wadsworth Boulevard, Suite 300
Wheat Ridge, Colorado 80033
October 30, 2001
F-2
January 25, 2002 Annual Report Page 48
INTERNATIONAL FINANCIAL GROUP, INC.
(a Development Stage Company)
Consolidated Balance Sheets
July 31, 2001 July 31, 2000
-------------------- -------------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 382,884 $ 714,035
Restricted cash (Note 10) 99,795 200,000
Accounts receivable 43,484 26,000
Subscription receivable -- 500,000
Prepayment and deposits 45,695 10,000
Loan receivable from related parties (Note 4) 145,200 5,000
-------------------- -------------------
Total current assets 717,058 1,455,035
PROPERTY AND EQUIPMENT:
Office furniture and equipment 33,997 --
Computer equipment and software 75,181 5,428
-------------------- -------------------
Total property and equipment 109,178 5,428
Less accumulated depreciation (21,044) --
-------------------- -------------------
Net property and equipment 88,134 5,428
OTHER ASSETS:
Intangible asset (Note 8) 20,000 20,000
-------------------- -------------------
Total assets $ 825,192 $ 1,480,463
==================== ===================
LIABILITIES AND SHARHOLDERS' EQUITY
CURRENT LIABILTIES:
Loans payable to related parties (Note 4) $ 20,200 $ 37,200
Accounts payable and accrued expenses 81,235 34,833
Customer Trust funds 99,795 --
-------------------- -------------------
Total current liabilities 201,230 72,033
COMMITMENTS AND CONTIGENCIES
(Notes 12 and 14) -- --
SHAREHOLDERS' EQUITY:
Common stock 50,000,000 shares of $0.001
issued and outstanding at July 31, 2001 and 2000
par value authorized; 20,250,000 and 20,000,000 20,250 20,000
Contributed surplus 2,142,250 2,140,000
Subscription receivable (Note 5) -- (500,000)
Deficit accumulated during the development stage (1,538,538) (251,570)
-------------------- -------------------
Total shareholders' equity 623,962 1,408,430
-------------------- -------------------
Total liabilities and shareholders' equity $ 825,192 $ 1,480,463
==================== ===================
The accompanying notes to financial statements are an
integral part of this statement.
F-3
January 25, 2002 Annual Report Page 49
INTERNATIONAL FINANCIAL GROUP, INC.
(a Development Stage Company)
Consolidated Statements of Operations
July 14, 1997 (Date of
Years Ended July 31, Incorporation) through
2001 2000 July 31, 2001
------------------ ---------------- -------------------------
INCOME $ 48,365 $ -- $ 48,365
COST OF SALES 7,633 -- 7,633
------------------ ---------------- -------------------------
Gross profit 40,732 -- 40,732
EXPENSES:
Legal and professional fees 229,595 149,712 379,307
Salaries and consulting fees 518,379 78,468 596,847
Depreciation 25,468 -- 25,468
Other administrative expenses 545,951 23,390 569,341
------------------ ---------------- -------------------------
Total expenses 1,319,393 251,570 1,570,963
------------------ ---------------- -------------------------
NET LOSS FROM OPERATIONS (1,278,661) (251,570) (1,530,231)
OTHER INCOME (EXPENSE):
Loss on sale of assets (8,307) -- (8,307)
------------------ ---------------- -------------------------
NET LOSS $ (1,286,968) $ (251,570) $ (1,538,538)
================== ================ =========================
Net (loss) per common share $ (.06) $ (.09) $ (.09)
================== ================ =========================
Weighted average
shares outstanding 20,100,000 2,918,650 17,645,521
The accompanying notes to financial statements are an
integral part of this statement.
F-4
January 25, 2002 Annual Report Page 50
INTERNATIONAL FINANCIAL GROUP, INC.
(a Development Stage Company)
Consolidated Statement of Shareholders' Equity
Common Common Stock Contributed Subscription Shareholders'
Shares Surplus Receivable Deficit Equity
------------ -------------- ------------- -------------- ------------ -------------
Stock issued June, 2000
to IFG World Holdings,
Inc. (Notes 1 and 5) 16,000,000 16,000 144,000 -- -- 160,000
Stock issued under
private placement 4,000,000 4,000 1,996,000 (500,000) 1,500,000
Net loss for the year
ended July 31, 2000 -- -- -- -- (251,570) (251,570)
------------ -------------- ------------- -------------- ------------ -------------
Balance July 31, 2000 20,000,000 20,000 2,140,000 (500,000) (251,570) 1,408,430
Payment received for
private placement -- -- -- 500,000 -- 500,000
Stock issued under
private placement 250,000 250 2,250 -- 2,500
Net loss for the year
ended July 31, 2001 -- -- -- -- (1,286,968) (1,286,968)
------------ -------------- ------------- -------------- ------------ -------------
Balance July 31, 2001 20,250,000 $ 20,250 $ 2,142,250 $ -- $(1,538,538) $ 623,962
============ ============== ============= ============== ============ =============
The accompanying notes to financial statements are an
integral part of this statement.
F-5
January 25, 2002 Annual Report Page 51
INTERNATIONAL FINANCIAL GROUP, INC.
(a Development Stage Company)
Consolidated Statement of Cash Flows
July 14, 1997 (Date of
Year Ended Year Ended Incorporation) through
July 31, 2001 July 31, 2000 July 31, 2001
------------------- ------------------- -------------------------
Cash Flows from Operating Activities:
Net loss $ (1,286,968) $ (251,570) $ (1,538,538)
Adjustments to reconcile net loss to
net cash used in operating activities
Depreciation 25,468 -- 25,468
Net change in operating assets and
liabilities -
Restricted cash 100,205 (200,000) (99,795)
Accounts receivable (17,484) (26,000) (43,484)
Prepaid expense (35,695) (10,000) (45,695)
Accounts payable and accrued
expense 46,402 34,833 81,235
------------------- ------------------- -------------------------
Net cash (used) by operating activities (1,168,072) (452,737) (1,620,809)
Cash flows from investing activities:
Loan receivable from related parties (137,700) (5,000) (142,700)
Purchase of intangible asset -- (20,000) (20,000)
Purchase of property and equipment (133,570) (5,428) (138,998)
Sale of property and equipment 25,396 -- 25,396
------------------- ------------------- -------------------------
Net cash (used) by investing activities (245,874) (30,428) (276,302)
Cash flows from financing activities:
Proceeds from issuance of common
stock 1,000,000 1,160,000 2,160,000
Loan payable to related party (17,000) 37,200 20,000
Customer trust deposit 99,795 -- 99,795
------------------- ------------------- -------------------------
Net cash provided by financing activities 1,082,795 1,197,200 2,279,995
------------------- ------------------- -------------------------
Net increase (decrease) in cash (331,151) 714,035 382,884
Cash, beginning of period 714,035 -- --
------------------- ------------------- -------------------------
Cash, end of period $ 382,884 $ 714,035 $ 382,884
=================== =================== =========================
Supplemental cash flow information:
Interest paid $ -- -- --
Income taxes paid $ -- -- --
The accompanying notes to financial statements are an
integral part of this statement.
F-6
January 25, 2002 Annual Report Page 52
INTERNATIONAL FINANCIAL GROUP, INC.
(a Development Stage Company)
Notes to the Consolidated Financial Statements
July 14, 1997 (date of incorporation) through July 31, 2001
Note 1 - Incorporation and Background Information
- -------------------------------------------------
International Financial Group, Inc. (the "Company"), was registered as an exempt
company in the Cayman Islands on July 14, 1997, under the name The Caledonian
500 Index Fund. On March 13, 2000, the Company changed its name to INTERNET
FINANCIAL GROUP, INC. On May 29, 2000, the Company changed its name to ifg.com,
Inc. On March 7, 2001, the Company changed its name to International Financial
Group, Inc. As of July 31, 2001, the Company was in the Development Stage. The
Company is 98.8% owned by IFG World Holdings Inc., which is wholly owned by IFG
World Holdings Trust. The Company holds a trade and business license to conduct
offshore business in the Cayman Islands. The Company was established to act as a
holding corporation for its operating subsidiaries carrying on business in the
Cayman Islands, Nevis and other offshore jurisdictions.
The Company intends to carry on the business of supplying offshore financial
products and services via traditional delivery channels and the Internet. The
Company plans to establish itself as a comprehensive provider of banking,
securities, insurance, trust, corporate and management products and services.
As of July 31, 2001, IFG Trust Services, Inc., and IFG Investment Services,
Inc., in Nevis have commenced operations.
The Company has commenced limited business operations, as referred to above and
is continuing its' efforts to raise capital. The Company is subject to risks
common to startup companies and companies in new and rapidly evolving markets,
including a limited operating history, dependence on key personnel, the need to
raise capital, rapid technological change, political uncertainty, competition,
and the need for successful development and marketing of products and services.
The Company may have risks associated with the impact of the terrorists'
activities on September 11, 2001 and incur immediate and potential long-term
effect upon its operations and ability to raise capital.
Note 2 - Significant Accounting Policies
- ----------------------------------------
These financial statements have been prepared in accordance with accounting
principles generally accepted in the United States of America and are stated in
United States dollars. The financial reporting year-end is July 31. The
financial statements reflect the following significant accounting policies:
F-7
January 25, 2002 Annual Report Page 53
INTERNATIONAL FINANCIAL GROUP, INC.
(a Development Stage Company)
Notes to the Consolidated Financial Statements
July 14, 1997 (date of incorporation) through July 31, 2001
Note 2 - Significant Accounting Policies (continued)
- ----------------------------------------------------
Principles of Consolidation
---------------------------
The accompanying consolidated financial statements include the
financial statements of the Company and its wholly owned subsidiaries.
All inter-company accounts have been eliminated.
Use of Estimates
----------------
The preparation of the financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of
income and expenses during the period. Actual results could differ
from these estimates.
Revenue Recognition
-------------------
Revenue reflected in the financial statements consists of sales of
international business corporations and from the sale of trusts.
International business corporation revenue is recognized when a
contract has been executed with the client and certificates of
incorporation issued. Trust revenue is recognized when a contract has
been executed with the client and a trust certificate issued.
Cost of Revenue includes all expenditures incurred in connection with
the establishment of international business corporations and trusts,
including all direct charges and associated bank charges.
Fixed Assets
------------
Fixed assets are recorded at cost, net of accumulated depreciation,
and are depreciated on a straight-line basis over their estimated
useful lives. Management has estimated the useful life of computer
equipment to be three years and the life of office furniture and
equipment to be seven years.
Intangibles
-----------
Intangibles are recorded at cost and will be amortized on a
straight-line basis over their estimated useful life.
F-8
January 25, 2002 Annual Report Page 54
INTERNATIONAL FINANCIAL GROUP, INC.
(a Development Stage Company)
Notes to the Consolidated Financial Statements
July 14, 1997 (date of incorporation) through July 31, 2001
Note 2 - Significant Accounting Policies (continued)
- ----------------------------------------------------
Common Stock
------------
Common stock in the accompanying financial statements are represented
by Certificates often referred to as Ordinary Shares.
Earnings (loss) per share
-------------------------
Basic earnings (loss) per share is computed by dividing net earnings
(loss) by the weighted average number of common shares outstanding for
the period.
Note 3 - Prepaid Expenses
- -------------------------
The Company has paid fees in advance to law firms and other third parties in
jurisdictions around the world for the purpose of receiving legal advice on
securities matters and offshore finance. The prepaid fees are recognized as
expenses when the services are rendered.
Note 4 - Related Party Transactions
- -----------------------------------
The Company's loan payable of $20,200 is due to IFG World Holdings, Inc., the
Company's parent, and is unsecured, non-interest bearing and payable upon
demand.
The Company has loans receivable from IFG World Holdings Inc., totaling $145,200
and are unsecured, non-interest bearing and payable on demand. A loan of $10,000
of the total resulted from transactions involving a former key employee/director
whereby the Company issued 250,000 shares of its common stock as described in
Note 5, and included an adjustment for amounts the former key employee/director
had paid to IFG World Holdings Inc. In addition, there were payments made by the
Company on behalf of IFG World Holdings, Inc. totaling $135,200.
Note 5 - Common Stock
- ---------------------
As of July 31, 2000, the Company had recorded $500,000 as a subscription
receivable representing unremitted subscription proceeds pursuant to an offering
memorandum dated June 13, 2000. This amount was paid subsequent to July 31,
2000.
On March 7, 2001, the Company issued 250,000 shares of its common stock to a
trust that a former key employee/director was the beneficiary of for $2,500.
F-9
January 25, 2002 Annual Report Page 55
INTERNATIONAL FINANCIAL GROUP, INC.
(a Development Stage Company)
Notes to the Consolidated Financial Statements
July 14, 1997 (date of incorporation) through July 31, 2001
Note 6 - Private Placement of Common Stock
- ------------------------------------------
The Company raised $2,000,000 pursuant to an offering memorandum dated June 13,
2000, by offering 4,000,000 units that are comprised of one (1) share and one
(1) warrant having an exercise price of $5.00 per warrant that becomes null and
void on December 31, 2002. The warrant allows the purchaser to purchase one (1)
share of common stock. The units issued under this offering memorandum were
later acquired by IFG World Holdings Inc., the Company's sole owner. See Note
(15). On July 17, 2001 the Company lowered the exercise price to $2.00 from
$5.00 on the 4,000,000 warrants held by IFG World Holdings, Inc.
Note 7 - Financial Instruments
- ------------------------------
The carrying value of cash, accounts receivable, amounts due from related
parties, deposits and loans payable to related parties, accounts payable, and
accrued expenses reflected in the financial statements approximate fair value
due to their short term nature.
Note 8 - Intangibles
- --------------------
The Company purchased the Uniform Resource Locator (URL) www.ifg.com for its
-----------
sole use in May 2000. A URL specifies the location of a resource residing on the
Internet. No amortization has been recorded on the URL as it is still under
construction and has not been put into use.
Note 9 - Fixed Assets
- ---------------------
The Company has purchased computer and other ancillary equipment and certain
furniture and fixtures. Depreciation is recorded in accordance with the policy
described in Note 2.
Note 10 - Restricted Cash
- -------------------------
The Company had placed $200,000 in trust with its solicitors during the year
ended July 31, 2000, as a condition for receiving its trust license in Nevis for
its subsidiary IFG Trust Services, Inc. These funds were to remain in trust for
a period of time and then returned to the Company. The funds were returned to
the Company on July 13, 2001.
At July 31, 2001, the Company's subsidiary, IFG Trust Services Inc., had on
deposit in trust $99,795 for one of its customers.
F-10
January 25, 2002 Annual Report Page 56
INTERNATIONAL FINANCIAL GROUP, INC.
(a Development Stage Company)
Notes to the Consolidated Financial Statements
July 14, 1997 (date of incorporation) through July 31, 2001
Note 11 - Recent Accounting Pronouncements
- ------------------------------------------
The Financial Accounting Standards Board (FASB) issued a Statement of Financial
Accounting Standards No. 131 "Disclosures about Segments of an Enterprise and
Related Information." Because of the prospective nature of the Company's
business, the Company anticipates having more than one segment of business
operations.
The FASB issued a Statement of Financial Standards No. 130, "Reporting
Comprehensive Income." Because of the prospective nature of the Company's
business, the Company expects to have Comprehensive Income other than net
income.
In June of 1998, the FASB issued Statement of Accounting Standards No. 133
("SFAS133"), "Accounting for Derivative Instruments and Hedging Activities."
SFAS 133 establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts, and for hedging activities. It requires that an entity recognize all
derivatives as either assets or liabilities on the balance sheet at their value.
This statement, as amended by SFAS 137, is effective for financial statements
for all fiscal quarters to all fiscal years beginning after June 15, 2000.
Because of the prospective nature of the Company's business, the Company may
engage in derivative or hedging activities.
In December 1999, The Securities and Exchange Commission ("SEC") issued Staff
Accounting Bulletin No. 101 ("SAB 101"), "Revenue Recognition in Financial
Statements." SAB 101 summarized certain of the SEC's views regarding the
application of generally accepted accounting principles to revenue recognition
in financial statements. In June 2000, the SEC amended SAB 101 to require
companies with fiscal years beginning after December 15, 1999, to implement the
provisions of SAB 101 no later than the fourth fiscal quarter. The Company has
adopted the provisions of SAB 101 in the first quarter that it has revenue.
Note 12 - Risks and Uncertainties
- ---------------------------------
Because of the nature of the Company's prospective businesses, there are
considerable risks and uncertainties inherent in the planned operations. Further
risks and uncertainties are dependent upon the Company's ability to provide the
necessary capital for its operations. The Company will be subject to
considerable government regulations and restrictions which would be associated
with the multiple governmental organizations that it proposes to operate under.
F-11
January 25, 2002 Annual Report Page 57
INTERNATIONAL FINANCIAL GROUP, INC.
(a Development Stage Company)
Notes to the Consolidated Financial Statements
July 14, 1997 (date of incorporation) through July 31, 2001
Note 13 - Income Taxes
- ----------------------
At the present time, no income, profit, capital or capital gains taxes are
levied in the Cayman Islands. Accordingly, no provision for such taxes has been
recorded in the accompanying financial statements. In the event that such taxes
are levied, the Company has received an undertaking from the Cayman Islands
government exempting it from all such taxes until April, 2020. Except under
certain circumstances, the Company does not expect to be liable for United
States income taxes.
Note 14 - Commitments
- ---------------------
The Company and its subsidiaries have entered into two office leases. One of the
leases has been sublet to the date of its expiration. Future base rent
commitments for the year ending July 31, 2002 is $26,200. The lease provides a
renewal provision of one year with a condition limiting the monthly rental
increase to 10%.
Note 15 - Subsequent Event
- --------------------------
Subsequent to July 31, 2001, the Company's subsidiary, IFG Trust Services Inc.,
entered into a revenue sharing agreement with another trust company whereby IFG
Trust Services Inc. will service the former trust company's client base.
The Company has registered with the Securities and Exchange Commission an
offering for the Company to sell 5,000,000 units with each unit consisting of
one (1) ordinary share and one (1) share purchase warrant that allows the holder
of each warrant to purchase one (1) ordinary share at an exercise price of
$2.00, to be exercised not later than December 31, 2002.
F-12
January 25, 2002 Annual Report Page 58