U.S. Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended MARCH 31, 1996
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE EXCHANGE
ACT
For the transition period from ______________ to ____________
Commission File Number 0-20922
INTERNATIONAL STANDARDS GROUP, LIMITED
(Exact name of small business issuer as specified in its charter)
DELAWARE 75-2274730
(State or jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
3200 NORTH MILITARY TRAIL, SUITE 210, BOCA RATON, FLORIDA 33431
(Address of principal executive offices)
(407) 997-5880
(Issuer's telephone number)
(Former name, former address and former fiscal year,
if changed since last report)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports) and (2)
has been subject to such filing requirements in the past 90 days. Yes [X] No[ ]
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports
required to be filed by Section 12, 13 or 15(d) of the Exchange Act
after the distribution of securities under a plan confirmed by a
court. Yes [ ] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date:
65,009,983 shares as of April 4, 1996.
<PAGE>
INTERNATIONAL STANDARDS GROUP, LIMITED
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
Consolidated Balance Sheets -- March 31, 1996 and
September 30, 1995
Consolidated Statements of Loss -- Three Months
Ended March 31, 1996 and 1995
Consolidated Statements of Loss -- Six Months Ended
March 31, 1996 and 1995
Consolidated Statements of Cash Flows -- Six Months
Ended March 31, 1996 and 1995
Notes to Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Item 5. Other Information
Item 6. Financial Statements, Pro Forma Financial
Information and Exhibits
2
<PAGE>
INTERNATIONAL STANDARDS GROUP, LIMITED
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
MAR. 31, 1996 SEPT. 30, 1995
------------- --------------
(Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 2,312,910 $ 672,651
Cash - in trust 718,456 458,192
Accounts receivable, net 635,135 150,726
Advances to employees
and stockholders 190,374 50,374
Prepaid expenses and
other current assets 618,817 87,090
----------- -----------
Total current assets 4,475,692 1,419,033
----------- -----------
FURNITURE AND EQUIPMENT, net of
accumulated depreciation of
$388,512 (unaudited) and
$323,988, respectively 1,208,257 976,002
----------- -----------
OTHER ASSETS:
Land and building held for
resale, net of accumulated
depreciation of $674,203
(unaudited) and $601,266,
respectively 3,534,468 3,602,405
Intangible assets, net of
accumulated amortization of
$1,186,516 (unaudited) and
$1,041,346, respectively 935,991 1,081,695
Other 45,730 41,547
----------- -----------
4,516,189 4,725,647
----------- -----------
Total assets $10,200,138 $ 7,120,682
=========== ===========
</TABLE>
See accompanying notes to financial statements.
3
<PAGE>
INTERNATIONAL STANDARDS GROUP, LIMITED
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
MAR. 31, 1996 SEPT. 30, 1995
------------- --------------
(Unaudited)
<S> <C> <C>
CURRENT LIABILITIES:
Notes payable and current
portion of long-term debt $ 1,144,460 $ 1,546,325
Accounts payable 281,687 817,864
Accrued expenses 827,787 764,615
Due to stockholders 312,301 600,940
Credit arising from equity
transaction 1,500,000 1,500,000
----------- -----------
Total current liabilities 4,066,235 5,229,744
----------- -----------
LONG-TERM DEBT 768,935 810,436
----------- -----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock, $.00001 par
value, 5,000 shares authorized,
Series F Convertible, 1,050 shares
issued and outstanding at stated value 1,050,000 1,050,000
Preferred stock, $.00001 par
value, 10,000,000 shares
authorized, 73,000 shares
issued and outstanding 1 1
Common Stock, $.00001 par value,
100,000,000 shares authorized
and 25,121,495 shares
(unaudited) and 18,273,128
shares issued, respectively 251 183
Additional paid-in capital 25,377,153 18,866,595
Accumulated deficit (20,322,437) (18,096,277)
Treasury stock at cost,
839,200 shares (740,000) (740,000)
------------ ------------
5,364,968 1,080,502
----------- -----------
Total liabilities and
stockholders' equity $10,200,138 $ 7,120,682
=========== ===========
</TABLE>
See accompanying notes to financial statements.
4
<PAGE>
INTERNATIONAL STANDARDS GROUP, LIMITED
CONSOLIDATED STATEMENTS OF LOSS
<TABLE>
<CAPTION>
For the Three Months
Ended March 31,
1996 1995
------------ --------
(Unaudited)
<S> <C> <C>
REVENUES:
Audit fees $ 252,434 $ 255,946
Real estate brokerage fees 1,085,287 580,895
----------- -----------
1,337,721 836,841
----------- -----------
COST OF SALES:
Direct audit expenses 171,604 167,841
Commissions - real estate 793,201 537,467
----------- -----------
964,805 705,308
----------- -----------
GROSS PROFIT 372,916 131,533
----------- -----------
OPERATING EXPENSES:
Selling, general and
administrative 1,132,440 720,251
Depreciation and amortization 60,612 131,194
----------- -----------
1,193,052 851,445
----------- -----------
Loss from operations (820,136) (719,912)
------------ ------------
OTHER INCOME (EXPENSE):
Rental income 81,679 61,116
Rental expenses, including
depreciation of $41,598 for
1996 and $31,255 in 1995 (139,239) (105,754)
Interest expense (63,120) (60,691)
Interest income 154 2,664
Other income (expense) (196,495) 152
------------ -----------
Total other expense (317,021) (102,513)
------------ ------------
Net loss $(1,137,157) $ (822,425)
============ ============
NET LOSS PER COMMON SHARE $ (.05) $ (.06)
============ ============
NUMBER OF SHARES USED
IN COMPUTATION 22,435,546 14,638,537
=========== ===========
</TABLE>
See accompanying notes to financial statements
5
<PAGE>
INTERNATIONAL STANDARDS GROUP, LIMITED
CONSOLIDATED STATEMENTS OF LOSS
<TABLE>
<CAPTION>
For the Six Months
Ended March 31,
1996 1995
------------ --------
(Unaudited)
<S> <C> <C>
REVENUES:
Audit fees $ 424,244 $ 435,920
Real estate brokerage fees 2,465,571 1,415,656
----------- -----------
2,889,815 1,851,576
----------- -----------
COST OF SALES:
Direct audit expenses 334,730 322,941
Commissions - real estate 2,074,980 1,195,846
----------- -----------
2,409,710 1,518,787
----------- -----------
GROSS PROFIT 480,105 332,789
----------- -----------
OPERATING EXPENSES:
Selling, general and
administrative 2,307,847 1,590,946
Depreciation and amortization 209,833 263,079
----------- -----------
2,517,680 1,854,025
----------- -----------
Loss from operations (2,037,575) (1,521,236)
------------ ------------
OTHER INCOME (EXPENSE):
Rental income 148,920 120,772
Rental expenses, including
depreciation of $72,937 for
1996 and $62,511 in 1995 (213,649) (157,286)
Interest expense (130,472) (101,490)
Interest income 247 5,254
Other income 6,369 931
----------- -----------
Total other expense (188,585) (131,819)
------------ ------------
Net loss $(2,226,160) $(1,653,055)
============ ============
NET LOSS PER COMMON SHARE $ (.11) $ (.11)
============ ============
NUMBER OF SHARES USED
IN COMPUTATION 20,724,390 14,488,391
=========== ===========
</TABLE>
See accompanying notes to financial statements
ISG/96-14089/05-15-96
6
<PAGE>
INTERNATIONAL STANDARDS GROUP, LIMITED
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Six Months
Ended March 31,
1996 1995
------------ --------
(Unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(2,226,160) $(1,653,055)
Adjustments to reconcile net loss to net
cash used in operating activities
Depreciation and amortization 282,770 325,590
Interest accrued on amounts due
stockholders 23,873 25,262
Common stock issued for consulting fees 19,097 -
(Increase) decrease in accounts
receivable (484,409) (55,308)
(Increase) decrease in advances to
employees and shareholders (140,000) (6,727)
(Increase) in prepaid expenses and
other current assets (531,727) (72,594)
(Increase) decrease in other assets (9,183) 6,333
Decrease in stock subscription receivable - 1,500,000
(Decrease) increase in accounts payable
and accrued expense (473,005) (466,193)
------------ ------------
Net cash provided by (used in)
operating activities (3,538,744) (396,692)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (301,779) (34,487)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments of amounts due to
stockholders (288,639) (106,663)
Payments of notes payable and
long-term debt (443,366) (295,342)
Preferred stock dividends paid (29,200) (29,200)
Net proceeds from issuance of
common stock 6,502,251 392,500
----------- -----------
Net cash (used in) provided
by financing activities 5,741,046 (38,705)
----------- ------------
INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 1,900,523 (469,884)
CASH AND CASH EQUIVALENTS,
beginning of period 1,130,843 935,055
----------- -----------
CASH AND CASH EQUIVALENTS,
end of period $ 3,031,366 $ 465,171
=========== ===========
SUPPLEMENTAL DISCLOSURES OF
CASH FLOW INFORMATION:
Interest paid $ 103,911 $ 223,049
=========== ===========
</TABLE>
See accompanying notes to financial statements
7
<PAGE>
INTERNATIONAL STANDARDS GROUP, LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
March 31, 1996
(1) GENERAL:
The interim March 31, 1996 and 1995 unaudited financial statements, in
the opinion of management, include all adjustments (consisting of only normal
recurring accruals) considered necessary for a fair presentation of financial
position as of such date and earnings and cash flows for the periods then ended.
Operating results for the six-month period ended March 31, 1996 are not
necessarily indicative of the results that may be expected for the year ended
September 30, 1996.
In November 1995, a subsidiary of International Standards Group,
Limited ("ISG" or the "Company") acquired U.S. Mortgage Network Services Corp.
("U.S. Mortgage"), a Largo, Florida mortgage banking operation with additional
offices in Atlanta, Georgia. As consideration for the transfer of stock, the
Company agreed to the issuance of an option to purchase up to 600,000 shares of
the Company's Common Stock at $2.00 below the closing price per share on
February 1, 1996, but no less than $1.75 per share. As a condition for the
options to be exercisable, the mortgage subsidiary must have achieved profits of
in excess of $1,050,000 at the date of exercise. The Company further agreed to
contribute additional capital of $300,000 and transfer the title of the Mount
Vernon real estate to the mortgage company. On March 14, 1996, an agreement was
entered into whereby both parties agreed to the rescission of the November 1995
stock purchase agreement. The $300,000 additional working capital advanced to
U.S. Mortgage is to be repaid no later than July 1, 1997. As part of the
agreement, the parties exchanged mutual releases.
On December 21, 1995, the Company and Global RE., LTD consummated a
stock purchase and exchange agreement, (the "Agreement") subject to certain due
diligence procedures to be completed on behalf of the Company pursuant to which
the Company acquired all the common stock of American Indemnity Company Limited
("AIC") in exchange for 233,333 shares of the Company's newly authorized Series
G Voting Convertible Preferred Stock (the "Preferred Stock") and options to
purchase a total of 10,000,000 shares of Common Stock of the Company. On April
6, 1996, the purchase and exchange agreement was closed out of escrow, and
35,000,000 restricted shares of ISG's Common Stock were issued in
8
<PAGE>
conversion of the preferred stock. However, the Company is still performing due
diligence with respect to new information received subsequent to the quarter.
Pending results of such due diligence procedures, the Company may require
substitution of or provision of additional assets by Global RE, Ltd. or will
seek to restructure or terminate its agreement with Global RE, Ltd. The
financial statements of AIC have not been included in the March 31, 1996
financial statements, and the shares held in escrow and the converted shares
have not been reflected as outstanding.
(2) FINANCIAL CONDITION:
Since inception, the Company has incurred substantial losses,
and as of March 31, 1996, has an accumulated deficit of
$20,322,437. The Company, through its wholly-owned subsidiary
Financial Standards Group, Inc. ("FSGI"), commenced revenue
producing operations in October 1991.
The foregoing matters and uncertainties raise substantial doubt about
the Company's ability to continue as a going concern. The Company is currently
negotiating with several alternative financing sources and potential strategic
partners in order to secure sufficient funding to support its contemplated
expansion. While the Company believes that it will have the opportunity to
attain additional financial support, no assurances can be provided that the
Company will be able to secure sufficient funding in order to complete its
financial program or achieve its strategic plan.
9
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
THREE AND SIX MONTHS ENDED MARCH 31, 1996 COMPARED TO THREE AND SIX
MONTHS ENDED MARCH 31, 1995
For the three months ended March 31, 1996, the Company had total
consolidated revenue of $1,337,721 in contrast to $836,841 for the three months
ended March 31, 1995, an increase of 60%. The primary reason for the increase in
revenues was due to the expansion of MRL. The Company's consolidated net loss
for the three months ended March 31, 1996 was $1,137,157 as compared to $822,425
at March 31, 1995, an increase of 38%. Included in the quarter ending March 31,
1996 were an $32,148 loss from the FSGI subsidiary and a $329,427 loss from the
RESN subsidiary, which was primarily due to the opening of four new real estate
offices and a new advertising/marketing division.
For the three months ended March 31, 1996, the Company had a gross
profit of $372,916 compared to $131,533 for the three months ended March 31,
1995. This decrease was attributable to the aforementioned expansion of the real
estate operations. For the three months ended March 31, 1996, the Company had a
loss from operations of $820,136 as compared to a loss from operations for the
three months ended March 31, 1995 of $719,912, an increase of $100,224 or 14%.
During the three months ended March 31, 1996, the Company had rental
income from its Mount Vernon Distribution Center facility of $81,679 as compared
to rental income during the same period in 1995 totalling $61,116, an increase
of $20,563, or 34%. This is due to several new tenants who have leased smaller
spaces, as well as increased space being utilized by some current tenants. For
the three months ended March 31, 1996, the Company had interest expense of
$63,120 as compared to $60,691 for the three months ended March 31, 1995, due to
some recent short-term financing.
For the six months ended March 31, 1996, the Company had total
consolidated revenue of $2,889,815 in contrast to $1,851,576 for the six months
ended March 31, 1995, an increase of 56%. The primary reason for the increase in
revenues was due to the expansion of MRL. The Company's consolidated net loss
for the six months ended March 31, 1996 was $2,226,160 as compared to $1,653,055
at March 31, 1995, an increase of 35%. Included in the six months ending March
31, 1996 were an $89,552 loss from the FSGI subsidiary and a $449,133 loss from
the RESN subsidiary, which was primarily due to the opening of four new real
estate offices and a new advertising/marketing division.
10
<PAGE>
For the six months ended March 31, 1996, the Company had a gross profit
of $480,105 compared to $332,789 for the six months ended March 31, 1995. This
increase was attributable to the aforementioned expansion of the real estate
operations. For the six months ended March 31, 1996, the Company had a loss from
operations of $2,037,575 as compared to a loss from operations for the six
months ended March 31, 1995 of $1,521,236, an increase of $516,339 or 34%.
During the six months ended March 31, 1996, the Company had rental
income from its Mount Vernon Distribution Center facility of $148,920 as
compared to rental income during the same period in 1995 totalling $120,772, an
increase of $28,148, or 24%. This is due to several new tenants who have leased
smaller spaces, as well as increased space being utilized by some current
tenants. For the six months ended March 31, 1996, the Company had interest
expense of $130,472 as compared to $101,490 for the six months ended March 31,
1995, due to some recent short-term financing.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1996, the Company had operating cash on hand of $2,312,910
as compared to operating cash on hand at March 31, 1995 of $672,651. At March
31, 1996, the Company had a working capital ratio of current assets to current
liabilities of approximately 1.1 which included $312,301 due to the Company's
president and chief executive officer. Long term debt outstanding of $768,935 at
March 31, 1996 consisted of the mortgage note payable to Bank One, Mansfield,
relating to the Mount Vernon Distribution Center, and a wrap-around mortgage
relating to the purchase of an office condominium in Boca Raton, Florida.
The Company's FSGI subsidiary began the performance of comprehensive or
internal regulatory compliance auditing services in 1991. They currently have
operations in Kentucky, Michigan, Hawaii, California, Indiana, Ohio and Florida.
Specialized services include fraud auditing and bond claims documentation, and
specialized training has been provided to staff members. For the quarter ended
March 31, 1996, most branch offices of FSGI have operated at a profit with the
major portion of its losses attributable to the overhead in the Florida office,
which has a limited amount of revenue to offset its expenses.
The Company's real estate subsidiaries had experienced significant
growth during the 1995 fiscal year. Membership Realty currently has six offices
open, five of which are in Broward County and one in Palm Beach County. They
currently serve approximately 150 real estate associates who generate in excess
of $16 million in sales volume on a monthly basis. The Company expects to open
additional offices during the next 12 months or to acquire
11
<PAGE>
companies currently located in the targeted expansion areas of Dade, western
Broward and Palm Beach Counties.
Membership Realty commenced operations in May 1992 as a full service
real estate brokerage firm that recruits established real estate agents by
passing through 100% in commissions earned by its member sales agents.
Membership Realty provides its members with various administrative support
services, facilities and products, while affording its members with complete
flexibility to establish their own marketing programs, commission structure and
the level of support services required to enhance their productivity. Membership
Realty is expanding its operations to provide such members with additional
service programs and income opportunities through establishment and development
of mortgage origination services and insurance products, as well as other real
estate related services.
Unlike traditionally structured real estate brokerage firms, MRL will
pay out 100% of all earned commissions to the more experienced initiating sales
agents. In return, these member sales agents pay a monthly membership fee based
on the extent of facilities utilized and a transaction fee as a reimbursement to
the Company for certain indirect overhead charges incurred. MRL has also
established other commission bases for the less experienced agents and provides
additional support and training.
As previously disclosed, at March 14, 1996, the Company and the
principals of U.S. Mortgage have rescinded the acquisition of that company which
had taken place in November 1995. The Company is evaluating certain liabilities
incurred by that operation in order to determine whether it has any
responsibility for any of U.S. Mortgage's obligations during the time U.S.
Mortgage was a subsidiary of the Company.
The Company continues to own and operate the Mount Vernon Distribution
Center, a commercial warehouse in Mount Vernon, Ohio which consists of 660,551
square feet of industrial manufacturing warehousing facilities on a 61-acre
site. The property is comprised of an assemblage of five main buildings, and as
of March 31, 1996, was approximately 35% leased and included various major
corporate tenants. Current leases for such facility extend between March 1996
and February 2001, most with renewable options. The current monthly rentals
aggregate approximately $25,000, which at the present time represents a negative
cash flow to the Company of approximately $2,000 per month. An aggregate of
$5,077 in monthly rentals is attributable to month-to-month agreements. The
Company is obligated on a mortgage note payable to Bank One, Mansfield bearing
interest at 10% per annum. Monthly payments of principal and interest are
$9,659, and the balance at March 31, 1996 is $510,313.
12
<PAGE>
The Mount Vernon Distribution Center has been listed for sale, and an
appraisal, which was completed in September 1993, values the property at
$5,750,000. The Company is now considering whether to continue listing the
property for sale or to actively market its leasing capabilities. Currently,
major improvements have been completed, including the demolition of some outer
structures. The addition of a paved parking area, as well as painting and
general cleanup are expected to be completed within the next few months. The
Company believes that the facility continues to represent a source of additional
financing if required for any reason.
On December 21, 1995, the Company and Global RE., LTD consummated a
stock purchase and exchange agreement, (the "Agreement") subject to certain due
diligence procedures currently being completed on behalf of the Company pursuant
to which the Company acquired all the common stock of American Indemnity Company
Limited ("AIC") in exchange for 233,333 shares of the Company's newly authorized
Series G Voting Convertible Preferred Stock (the "Preferred Stock"). On April 6,
1996, the purchase and exchange agreement was closed out of escrow, and
35,000,000 restricted shares of ISG's Common Stock were issued in conversion of
its preferred stock. In addition, the Company issued options to purchase
5,000,000 shares of the Company's Common Stock exercisable through November 1,
2000 at an exercise price of $4.00 per share and options to purchase an
additional 5,000,000 shares of the Company's Common Stock exercisable through
November 1, 2000 at $5.00 per share.
At the time of acquisition, the Company was led to believe that AIC's
primary asset consisted of certificates of deposit in Banco National De Costa
Rica totalling $40,000,000 and equity of approximately $35,000,000. The Company
had received as a condition to closing an audit report from an outside
independent auditor which listed as the primary assets of AIC certificates of
deposit of Banco National de Costa Rica in the stated amount of $40,000,000.
However, a subsequent finalized audit report disclosed that these certificates
of deposit were drawn on the Cooperativa de Ahorra y Credito Gatun, RL, and were
held for safe keeping at the Banco National de Costa Rica. The Company is still
performing due diligence with respect to new information received subsequent to
the quarter ending March 31, 1996. Pending results of such due diligence
procedures, the Company may require substitution of or provision of additional
assets by Global RE, Ltd. or will seek to restructure or terminate its agreement
with Global RE, Ltd. The financial statements of AIC have not been included in
the March 31, 1996 financial statements, and the shares held in escrow and the
converted shares have not been reflected as outstanding at that date.
On May 14, 1996, the Company agreed to a letter of understanding with
The Leader Mortgage Company ("Leader"), located in Cleveland, Ohio, to form a
joint venture to originate loans and generate subservicing rights from credit
unions and the Company's
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<PAGE>
real estate offices. The Company will contribute a total of $5 million to the
joint venture to be used for the purchase of mortgage servicing rights. Leader
will provide additional funds and provide the servicing for said purchased
mortgage servicing rights. All cash flow generated by the joint venture shall be
payable to ISG until its investment shall be repaid, and subsequent cash flows
shall be paid equally to the Company and Leader.
The Company's working capital requirements during the six months ended
March 31, 1996 were satisfied through cash on hand, and the proceeds from
separate private financings with a certain limited number of non-resident
institutional investors conducted pursuant to Regulation S under the federal
securities laws. Inasmuch as present operations of the Company's FSGI and RESN
subsidiaries are not expected to generate sufficient cash flow to support
expansion or offset operations, ISG will need to obtain additional financial
resources in order to accomplish its strategic plan. As indicated above, the
Company believes that the recent acquisition of AIC will supplement the
Company's working capital. While the Company believes that it will have the
opportunity to attain such financial support, no assurances can be provided that
the Company will be able to secure sufficient funding to satisfy the Company's
obligations over the next year in order to continue its operations.
14
<PAGE>
PART II.
ITEM 1. LEGAL PROCEEDINGS
On February 2, 1995, the Company was named as defendant in a lawsuit
brought in Supreme Court of the State of New York for the County of New York in
a case styled MORGAN STANLEY & CO. INCORPORATED V. INTERNATIONAL STANDARDS
GROUP, INC. [sic] (Index No. 102772/95). The Plaintiff, one of the largest and
most preeminent investment banking and financial services firms in the world,
was seeking to recover purported damages, or, in the alternative, was seeking
rescission relative to its purchase from the Company of certain counterfeit
bonds sold to the Plaintiff by the Company following affirmation by the
Plaintiff that such bonds had been authenticated by the Plaintiff. The Plaintiff
sought judgment against the Company for an amount in excess of $3,870,000,
together with costs, predicated on counts of breach of warranty, breach of
contract, unjust enrichment and mistake of fact.
The Company believes that the Plaintiff initiated litigation as a
preemptive or prophylactic action once it had determined that it was unprepared
to satisfy the Company's claim for damages resulting from the conduct and course
of actions undertaken by the Plaintiff. The Company had been prepared to
initiate such litigation in the absence of an amicable settlement by the
Plaintiff, and accordingly, the Company is prepared to rigorously assert its
claims for the recovery of damages sustained as a result of the actions by the
Plaintiff.
Thereafter, the Company initiated litigation against Morgan Stanley &
Co., Incorporated ("Morgan Stanley"), Virginia de Cristoforo, Robert Isbitts,
Administracion de Seguros, S.A. ("de Seguros"), Consorcio de Seguros Polaris,
S.A. and Michael E. Zapetis in the United States District Court for the Southern
District of Florida (Case No. 95-0590). The suit, which names Morgan Stanley,
certain former executives of Morgan Stanley, de Seguros and certain of its
agents claims federal and state securities law and common law fraud, negligence
and other breaches by the parties in connection with the issuance of invalid
Bearer Bank Bonds purportedly issued by the Banco Central de Venezuela in
consideration for the acquisition of a controlling interest in the Company by de
Seguros which subsequently was rescinded by the Company. As a result of the
failure by Morgan Stanley to fulfill its responsibility to the Company to verify
the authenticity of the Bearer Bank Bonds, the Company experienced substantial
damages to its interests and to those of its stockholders.
On December 4, 1995, Morgan Stanley agreed to dismiss without prejudice
its complaint against the Company previously filed in New
15
<PAGE>
York Supreme Court. The litigation pending between the parties in the United
States District Court, Southern District of Florida (INTERNATIONAL STANDARDS
GROUP, LIMITED AND JOSEPH L. LENTS VS. MORGAN STANLEY & COMPANY, INCORPORATED,
VIRGINIA DE CRISTOFORO, ROBERT ISBITTS, ADMINISTRACION DE SEGUROS, S.A.,
CONSORCIO DE SEGUROS POLARIS, S.A. AND MICHAEL E. ZAPETIS) is proceeding and
various pre-trial discovery is being undertaken. As indicated above, the Company
has consummated a Stock Purchase and Exchange Agreement with Global Re., Ltd.
which was closed out of escrow on April 6, 1996. Pursuant to the terms of such
agreement, a settlement agreement has been entered into whereby the Company and
Mr. Lents agreed to dismiss with prejudice their claims against Consorcio de
Seguros Polaris, S.A. and Mr. Zapetis and the parties exchanged general
releases.
ITEM 5. OTHER INFORMATION
On February 2, 1996, the Company amended its Certificate of
Incorporation to increase its authorized capital stock to 100,000,000 shares of
Common Stock and 10,000,000 shares of Preferred Stock. The Company obtained
approval for such increase from selected numbers of stockholders who possessed
in excess of a majority of capital stock interests of the Company. An
Information Statement relating thereto was filed with the Securities and
Exchange Commission and circulated to the remaining stockholders of the Company.
ITEM 6. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND
EXHIBITS
(a) Exhibits -- Certificate of Amendment to the Certificate
of Incorporation dated January 31, 1996
(b) Reports on Form 8-K -- The Company filed a Form 8-K report
dated March 21, 1996 (item 5 and item 7).
16
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned as a duly authorized officer and as the chief financial officer of
the Registrant.
INTERNATIONAL STANDARDS
GROUP, LIMITED
(Registrant)
Date: May 15, 1996 By: /S/ JOSEPH L. LENTS
--------------------
Joseph L. Lents, President
and Chief Executive Officer
By: /S/ LORETTA A. MURPHY
----------------------
Loretta A. Murphy
Vice President, Treasurer,
and Chief Financial and
Accounting Officer
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
INTERNATIONAL STANDARDS GROUP, LIMITED
International Standards Group, Limited (the "Corporation"), a
corporation organized and existing under and by virtue of the General
Corporation Law of the State of Delaware, DOES HEREBY CERTIFY:
FIRST: That the Board of Directors of the Corporation have
adopted a resolution proposing and declaring advisable the
following amendment to the Certificate of Incorporation of the
Corporation:
RESOLVED, that the Certificate of Incorporation of
International Standards Group, Limited be amended by changing Article
IV thereof, so that, as amended, said Article IV shall be and read as
follows:
"ARTICLE IV
SHARES OF STOCK
The total number of shares of capital stock which the
Corporation shall have authority to issue is as follows:
100,000,000 shares of Common Stock, $.00001
par value per share.
10,000,000 shares of Preferred Stock, $.00001
par value per share.
The Board of Directors is authorized, subject to limitations
prescribed by law and the provision of this Article IV, to provide for
the issuance of the shares of Preferred Stock in series, and to
establish from time to time the number of shares to be included in each
series, and to fix the designation, powers, preferences and relative,
participating, optional or other special rights of the shares of each
series and the qualifications, limitations or restrictions thereof.
<PAGE>
The authority of the Board with respect to each series of
Preferred Stock shall include, but not be limited to, determination of
the following:
The number of shares constituting the series
and the distinctive designation of the series;
The dividend rate on the shares of the series, whether
dividends shall be cumulative, and, if so, from which date or
dates, and the relative rights or priority, if any, or
payments of dividends on shares of the series;
Whether the series will have voting rights,
and, if so, the terms of the voting rights;
Whether the series will have conversion privileges, and, if
so, the terms and conditions of the conversion, including
provision for adjustment of the conversion rate in such events
as the Board of Directors determines;
Whether or not the shares of the series will be redeemable,
and, if so, the terms and conditions of redemption, including
the date or dates upon or after which they shall be
redeemable, and the amount per share payable in case of
redemption, which amount may vary under different conditions
and at different redemption dates;
Whether the series shall have a sinking fund for the
redemption or purchase of shares of the series, and, if so,
the terms and amount of the sinking fund;
The rights of the shares of the series in the event of
voluntary or involuntary liquidation, dissolution or winding
up of the Corporation, and the relative rights or priority, if
any, of payment of shares of the series; and
Any other relative terms, rights, preferences and limitations,
if any, of the series as the Board of Directors may lawfully
fix under the laws of the State of Delaware as in effect at
the time of the creation of such series."
2
<PAGE>
SECOND: That in lieu of a meeting and vote of stockholders, the holders
of outstanding shares of Common Stock having not less than the minimum number of
votes which would be necessary to authorize or take such action at a meeting at
which all shares entitled to vote thereon were present and voted have given
their written consent to said amendment in accordance with the provisions of
Section 228 of the General Corporation Law of the State of Delaware.
THIRD: That the aforesaid amendment was duly adopted in accordance with
the applicable provisions of Section 242 and Section 228 of the General
Corporation Law of the State of Delaware.
IN WITNESS WHEREOF, the Corporation has caused this certificate to be
signed by Joseph L. Lents, its President, and attested by Loretta Murphy, its
Secretary this 31st day of January, 1996.
INTERNATIONAL STANDARDS
GROUP, LIMITED
(SEAL) By:/S/ JOSEPH L. LENTS
--------------------------
Joseph L. Lents, President
ATTEST:
By:/S/ LORETTA A. MURPHY
-----------------------------
Loretta A. Murphy, Secretary
3
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