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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File No. 0-20180
INTERNATIONAL REALTY GROUP, INC.
Delaware 62-1277260
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(State of incorporation) (I.R.S. Employer Identification Number)
111 Northwest 183rd Street, Suite 350
Miami, Florida, 33169
(305) 944-8811
Securities registered under Section 12(b) of the Exchange Act: None.
Securities registered under Section 12(g) of the Exchange Act: Common Stock par
value $.001.
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. Yes No
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB [ ]
Revenues for the most recent fiscal year were $1,222,100.
The aggregate market value of shares of the registrant's voting stock held by
non-affiliates as of December 31, 1995 is significantly below $25,000,000,
although the exact amount is unavailable since there was no active market for
the registrant's common stock. The aggregate number of shares of the
registrant's voting stock held by non-affiliates as of December 31, 1995 is
approximately 3,275,687.
As of September 9, 1996, there were 9,954,250 shares of the registrant's common
stock outstanding.
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TABLE OF CONTENTS
<TABLE>
PART I PAGE
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ITEM 1. Description of Business 2
ITEM 2. Description of Property 5
ITEM 3. Legal Proceedings 6
ITEM 4. Submission of Matters to a Vote of Security Holders 6
PART II
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ITEM 5. Market for Common Equity and Related Stockholder Matters 6
ITEM 6. Management's Discussion & Analysis or Plan of Operations 6
ITEM 7. Financial Statements 13
ITEM 8. Changes in and Disagreements with Accountants on Accounting 13
and Financial Disclosure
PART III
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ITEM 9. Directors and Executive Officers, Promoters and Control Persons; 13
ITEM 10. Executive Compensation 14
ITEM 11. Security Ownership of Certain Beneficial Owners and Management 16
ITEM 12. Certain Relationships and Related Transactions 16
ITEM 13. Exhibits and Reports on Form 8-K 17
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PART I
ITEM 1: DESCRIPTION OF BUSINESS
INTERNATIONAL REALTY GROUP, INC., together with its consolidated subsidiaries
(the "Company"), currently is a provider of real estate consulting services.
The Company's operations provide appraisal, valuation and other real estate and
business consulting services on an international basis.
The Company was incorporated in Delaware on April 13, 1970 and operated under
the name Bosco Resources Corporation until June 10, 1973, when it ceased
operations after its assets were nationalized without compensation by the
Libyan Government. The Company remained inactive until December 15, 1986 when
it acquired all of the outstanding shares of APPRAISAL GROUP, INC. in exchange
for 4,150,000 shares of common stock (after a 1 for 8 reverse split) and
changed its name to APPRAISAL GROUP INTERNATIONAL INC. Subsequently, on August
10, 1989, the Company's name was changed to INTERNATIONAL REALTY GROUP, INC.
BUSINESS OPERATIONS
The Company operates through its domestic and foreign subsidiaries, which
represented 44% and 56%, respectively, of total revenue in 1995. The Company's
operating strategy is to market its professional services in the United States,
Latin America, Europe, the Pacific Rim and other emerging markets. By
emphasizing the Company as a boutique appraisal practice with the ability to
perform the more complex and unique appraisal assignments on a domestic and
international level, the Company believes it will continue to attract a
superior client base providing above market service fees and income. In
addition to its valuation practice, the Company's other activities, which
during 1995 did not provide meaningful revenue, involve real estate brokerage
and mortgage consulting services. Such other services could enhance the
Company's operating capabilities as they are developed and marketed to the
Company's client base.
APPRAISAL GROUP, INC.
Appraisal Group, Inc. is an appraisal and valuation company specializing in
commercial real estate, machinery, equipment, business and residential
appraisals. Founded by the Company's Chairman, Jack Birnholz, in 1957,
Appraisal Group, Inc. operated in New Jersey from 1957 to 1974. From 1974 to
the present, the subsidiary has been located in Miami, Florida.
Appraisals are performed on a domestic and international level, including
recent engagements in Mexico, China, Lithuania, Estonia, Panama, and Hungary.
It is estimated that 60% percent of appraisal revenue is derived from projects
in the United States and 40% percent from international projects. Commercial
properties such as office buildings, shopping centers, apartment complexes,
hotels, resorts, golf courses, townhouses, condominiums, and warehouses
constitute the bulk of Appraisal Group, Inc.'s business. Appraisal Group, Inc.
also performs single family appraisals in order to fully service its clients.
The appraisals are generally full narrative appraisals prepared in accordance
with the Uniform Standards of Professional Appraisal Practice. A typical
commercial appraisal is approximately 125 to 200 pages. The fee range for
commercial appraisals is from $2,500 to $50,000 with an average fee of $5,500.
The appraisals are utilized by governmental agencies, banks, institutions,
property owners, developers and attorneys for a variety of purposes, including
financing, insurance, portfolio analysis, litigation support, estate analysis
and current market valuation. The residential appraisals are for the most
part, completed on forms promulgated
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by the Federal National Mortgage Association (Fannie Mae) and Federal Home Loan
Mortgage Corporation (FHLMC) and are less time consuming than commercial
appraisals, with an average fee of $300.
Machinery and equipment appraisals are primarily performed at industrial and
commercial facilities. Clients are typically governmental agencies, buyers or
sellers of the facilities, persons seeking financing, trustees of estates and
lenders. The typical machinery and equipment appraisal is a detailed valuation
of either market value, replacement value or liquidation value, depending upon
the purpose of the appraisal and the client's parameters. The fee for a
typical machinery and equipment appraisal can range from $1,500 to $25,000,
with an average fee of $3,200.
Business valuations have become an increasingly important marketing area. A
business valuation analyzes the value of a company's present assets. The
evaluation of a business utilizes different methods and techniques from the
appraisal of real estate. A business valuation attempts to determine a
company's goodwill value by determining if it generates income in excess of
what is required to provide an acceptable rate of return to the owners. The
range of fees for business valuations are $3,000 to in excess of $25,000 with
an average fee of $5,000.
In connection with all facets of its valuation activities, Appraisal Group,
Inc. performs litigation support services. Such services primarily consists of
court testimony in federal and state courts, bankruptcy and estate proceedings
and commercial litigation.
Except for salaries of the Chief Executive Officer, secretary and
administrative staff, the staff of Appraisal Group, Inc. consists of
independent contractors who accept assignments pursuant to negotiated fee
arrangements. All appraisers must be licensed and certified real estate
appraisers, pursuant to applicable law. In addition to the appraisers in the
Miami office, the company contracts with other licensed and certified
independent contractors on an as-assignment basis internationally.
Title XI of the Federal Financial Institutions Reform Recovery and Enforcement
Act of 1989 ("FIRREA") effectively has regulated the appraisal profession.
Under FIRREA, federally-insured financial institutions are required to use
state licenses and certified appraisers. In connection with this statute, the
Appraisal Foundation was formed to represent various appraisal organizations
and is the parent organization of the Appraiser Qualifications Board and the
Appraisal Standards Board.
The Appraisal Standards Board sets standards for contents and methodology of
appraisals. Appraisal Group, Inc. appraisers perform their assignments in
compliance with relevant provisions and regulations of both boards noted above
as well as the Uniform Standards of Professional Appraisal Practice.
APPRAISAL GROUP INTERNATIONAL, RT.
Appraisal Group International, Rt. ("AGI Rt."), a Hungarian company is 75%
owned by Stragix International, Inc. ("Stragix"), which is itself a
wholly-owned subsidiary of the Company. The remaining 25% of AGI Rt. is owned
by existing AGI Rt. management. See "Certain Relationships and Related
Transactions". AGI Rt. is engaged in valuations of businesses, real estate,
management, consulting, privatization management and trade brokerage in Central
and Eastern Europe. AGI Rt. was originally formed on June 6, 1990 between
Stragix and Novotrade Rt., a Hungarian company. On October 12, 1992, Stragix
acquired Novotrade's 50% interest in AGI Rt. for cash, assumption of debt, and
a note payable. See
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"MANAGEMENT'S DISCUSSION AND ANALYSIS or PLAN OF OPERATION - Liquidity and
Capital Resources."
AGI Rt. employs ten full-time employees (all Hungarian) consisting of
administrative and staff consultants and in addition retains outside business
consultants and appraisers on assignments as required. Using Budapest, Hungary
as a base, AGI Rt. markets its services to other European countries. AGI Rt.
utilizes the technical know-how and methodology of Appraisal Group, Inc. to
appraise properties and business. The utilization of western appraisal
technology brings credibility to valuations, presenting an area of conformity
to investors in Central and Eastern Europe.
The majority of business of AGI Rt. has been the valuation of businesses and
real estate, primarily for the State Property Agency, an agency of the
Hungarian government and local city municipalities. In addition, AGI Rt. is an
official court appointed liquidator. As court appointed liquidator, the
Company is responsible to oversee the operational and financial integrity of
the liquidating companies. Currently AGI Rt. is liquidating 130 separate
companies on behalf of the court. As of December 31, 1995, AGI Rt. had on
deposit $678,882 in restricted cash on behalf of the companies they were
liquidating. AGI Rt. is reimbursed by the liquidating companies for its
direct expense during the liquidation process and a "success fee" of
approximately four to five percent of the net recovery upon liquidation of the
company. The complete liquidation process for an individual company takes
approximately two years.
COMPETITION
There is significant competition in the field of appraisals and real estate
consulting services. Industry sources estimate that the appraisal service
industry in the United States includes over 84,000 state licensed and certified
appraisers in the United States. The Company's competition generally comes
from three types of organizations; (i) "Big Six" accounting firms; (ii)
multi-office appraisal firms; and (iii) small appraisal firms. A majority of
the large accounting firms have appraisal departments. The name recognition of
these large accounting firms provides such firms with a competitive advantage,
however, the Company believes that their relatively high fees for services
allow market penetration by firms such as the Company. All of the major
accounting firms possess substantially greater financial and other resources
that the Company. The most prominent United States multi-office appraisal
firms are American Appraisal Company, Marshal & Stevens, Joseph Blake &
Associates, Cushman & Wakefield and Valuation Consultants International Ltd.
The majority of appraisal firms employ one to five appraisers who are primarily
involved in residential appraisals, although some small firms do perform
commercial appraisals. These firms may have lower overhead then the Company,
however, they may lack the expertise to perform complex commercial appraisals
and accept assignments on an international basis as the Company routinely does.
OTHER ACTIVITIES:
U. S. PROPERTY INVESTMENT & AUCTION, INC. ("U.S. PROPERTIES"), was organized in
March 1987 and is a licensed Florida Real Estate Broker. The company provides
to its foreign and domestic clients real estate brokerage and property
management services.
IRG FINANCIAL SERVICES, INC. ("IRG FS") was organized in June 1992. The
company provides financial consulting and mortgage loan packaging services to
its foreign and domestic clients.
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CAYE BOKEL LIMITED ("CAYE BOKEL") was organized on January 27, 1995, under the
laws of the country of Belize. The Company owns 87 acres of undeveloped land on
the Island of Caye Bokel, country of Belize, held for investment. See
"Description of Property" and "Management's Discussion and Analysis or Plan of
Operations - Liquidity and Capital Resources".
EMPLOYEES
The Company, as a whole, employs 16 full-time employees. In addition, the
Company retains 21 independent contractors to perform professional services on
a regular basis and additional independent contractors to perform professional
services on an ad hoc basis. .
ITEM 2: DESCRIPTION OF PROPERTY
The Company, or through its subsidiaries, currently is subject to two (2)
leases for office facilities and owns two (2) properties held for investment.
The Company leases 3,308 square feet of office space located in Miami,
Florida, which serves as the Company's corporate headquarters and its domestic
operations. In addition, it leases 2,500 square feet of office space in
Budapest, Hungary, which is utilized by its foreign operations. Both leases
are on a month-to-month basis. The Company's aggregate lease payments per
month are approximately $4,000 .
The Company's' real estate properties include two (2) developed vacant lots
totaling 1 acre located in Clear Lake Pines, La Grange, Texas, a second-home
recreational development. The property has no mortgage nor encumbrances and
there are no plans for development as the property is held for investment. The
Company's second real estate property is an 87 acre parcel of undeveloped land
on the Island of Caye Bokel, country of Belize. See "CAYE BOKEL, Management's
Discussion & Analysis", contained herein. The property has no mortgage or
encumbrances and is being held for investment purposes. Although the Company
presently has no understandings or agreements with respect to the development
of Caye Bokel management believes that the highest and best use for the
property is a 250 unit hotel/villa destination resort with marina to attract
both North and South American tourists interested in the sports fishing, scuba
and other water sports activities available on the Barrier Reef the property is
located adjacent to. Any development of the Caye Bokel property by the Company
is contingent upon a determination by the Company that it has sufficient
capital resources to meet the quantified development cost.
The Company's' real estate investment policy is to acquire both existing
income-producing real estate properties to provide current income and cash flow
and undeveloped properties to provide capital appreciation. The real estate
policy is not subject to shareholder approval and does not restrict the Company
to a particular type, size or geographic location for any such acquisitions or
the number or amount of mortgages that my be placed on any one piece of
property. The Company seeks to acquire properties that: (i) are significantly
under-valued in relation to its market or type; (ii) where the properties debt
can be restructured to provide enhanced cash flow; (iii) where a property is
partially developed and can be acquired for a discount and the development
completed and operated at above-average returns. At this time management
believes there are a number of such opportunities in Mexico, the Caribbean and
other South American countries. The Company may acquire its ownership through
the direct purchase of the property or through the acquisition of the Common
Stock or other equity securities of an entity whose primary activity is the
operation or development of the real estate property. The Company may acquire
its real estate acquisitions through the issuance of its Common Stock or the
assumption of existing debt. In all instances the minimization of
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mortgage debt and debt service requirements will be a prime consideration to a
particular property acquisition.
As noted elsewhere herein, the Company has consummated the acquisition of
certain businesses and partnership interests with respect to certain real estate
development projects with DSC, S.A. de C.V. and Hemisphere Developments Limited.
For a summary description of the properties acquired by the Company pursuant to
the transaction with DSC and Hemisphere (the "Transaction"), please refer to
"Subsequent Events" set forth below.
ITEM 3: LEGAL PROCEEDINGS
There are no legal proceedings pending against the Company.
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5: MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The total trading volume for the year 1995 has been 9,500 shares trading at
$.75 to $1.00 per share. The Company's Common Stock is available
over-the-counter on the NASDAQ Electronic Bulletin Board under the symbol IRGR.
The Company has not declared any cash dividends during 1995. As of December 31,
1995, there were 897 holders of record of Common Stock, with 8,954,187 shares
outstanding.
ITEM 6: MANAGEMENT'S DISCUSSION & ANALYSIS OR PLAN OF OPERATION:
This discussion should be read in conjunction with the consolidated financial
statements of the Company and the notes thereto, included elsewhere herein.
The historical financial data set forth below for the fiscal years ended
December 31, 1994 and 1995 and as of the end of each of such periods have been
derived from the audited financial statements.
RESULTS OF OPERATIONS:
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994
TOTAL REVENUE for the year 1995 decreased 8% from $1,328,200 in 1994 to
$1,222,100 in 1995. Revenues from foreign operations increased 15% from
$584,000 in 1994 to $690,800 in 1995. The increase in foreign revenue is
attributed to consulting assignments awarded in 1995 by various Hungarian
government agencies and municipalities, which had been postponed during the
1994 Hungarian national elections. Revenues from domestic operations decreased
20% from $744,200 in 1994 to $531,300 in 1995
TOTAL OPERATING EXPENSES for the year 1995 decreased 4% from $1,586,100 in
1994 to $1,526,900 in 1995. Corporate General and Overhead Operating Expenses
for the year 1995 were $246,900 versus $276,700, a decrease of $29,800 or 12%.
Bad Debt Expense decreased 46% from $136,500 in 1994 to $73,300 in 1995. Of
the 1995 Bad Debt expense, $19,000 is attributed to domestic operations and
$54,300 to foreign operations. The Company's policy is to monitor collections
on a continuing basis, and recognize such bad debt expenses in the period they
occur. Direct expenses including the production of appraisal reports,
appraisers' fees, travel, reproduction, photography and all related expenses
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increased 6% from $582,800 in 1994 to $620,800 in 1995. Included in direct
expenses is approximately $30,000 of accounting, legal and auditing expenses
incurred in the last quarter by the foreign subsidiary. These expenses are
attributable to the foreign operations' activities on behalf of the Hungarian
court, which are required in the final phase of the liquidation process.
Interest expense increased $8,794 to $27,000 in 1995, an increase of
$18,300. This increase is attributable to the foreign operations borrowing
cost for short-term working capital requirements. Payroll and related benefits
were consistent, between the periods, with $411,300 in 1994 to $415,700 in
1995. Of this amount, the Chairman and President accrued and deferred $169,400
of said 1995 payroll expense. Rent expense decreased from $79,700 in 1994 to
$55,400 in 1995, a decrease of $24,300. The foreign operations benefited from
the relocation of their offices and decreased operating cost. Amortization and
Depreciation expenses were consistent between the periods.
LIQUIDITY AND CAPITAL RESOURCES:
Growth Strategy. The Company believes that substantial shareholder value can
be created with the acquisition of real estate development and other income
producing assets. Such acquisitions will produce a broader asset and income
base for the Company. Management intends to focus on two areas of strategic
acquisitions. The first area is real estate. The acquisition of income
producing real property assets may provide current income and cash flow.
Undeveloped properties may provide capital appreciation through their
development and/or sale. See "Description of Property". The second area is
the enhancement of its real estate consulting services through alliances or the
acquisition of established geographically diverse valuation companies,
especially North and South America. Such alliances or acquisitions can provide
current income and assist the Company in identifying undervalued real estate
opportunities in their respective local markets that can be capitalized on.
The Board of Directors is not restricted as to the type or size of assets to be
acquired.
In conjunction with this growth strategy, on October 18, 1995, the Company
finalized the acquisition of 87 acres of undeveloped land on the Island of Caye
Bokel, country of Belize. The Company acquired the Caye Bokel property and a
Note Receivable in exchange for an aggregate of 515,000 shares of the Company's
Common Stock. Based upon the $.782 per share value of the Company's Common
Stock, the Caye Bokel and the Note Receivable have been valued at $449,400. In
addition, the Company has entered into agreements with DSC S.A. de C.V. and
Hemisphere Developments Limited for the acquisition of certain development real
estate assets. See "Subsequent Events" contained herein.
Cash Flow From Operations. The Company incurred for year-end December 31,
1995, a net loss of $359,800, while maintaining a positive cash flow from
operations of $57,900 compared to a net loss of $221,700 and a deficient cash
flow from operations of $84,400 in 1994.
Working Capital. The Company's current liabilities exceed its current assets
by approximately $449,700. This excess in current liabilities consists
principally of accrued officer's salaries amounting to approximately $375,900
and shareholder loans of approximately $26,700. The elimination of the related
party current liability would reduce the working capital deficiency to
approximately $47,100. The Company has limited external financing sources at
this time and has relied principally on internal financing provided by its
executive officers. External working capital has been provided to the
Company's foreign operations through bank borrowings and to domestic operations
in conjunction with the transaction with DSC. During 1995 the Company entered
into a proposed transaction with Trinity Energy Corporation, which the Company
terminated on September 30, 1995 when it determined Trinity was not in a
position to consummate the proposed transaction as called for in their
Agreement. Trinity advanced
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$62,500 of working capital to the Company to cover transaction and other
expenses of which $35,500 was charged to current operations.
Long-Term Debt. At December 31, 1995, Long-Term debt totaled $200,900 with
$151,900 due during 1996. During 1995 the Company retired $30,900, plus accrued
interest of debt in connection with the Company's 1992 acquisition of its
foreign subsidiary. In addition, the Company retired $23,100 of debt in
exchange for 50,000 shares of the Company's Common Stock, which had been
previously issued. The current portion of Long-Term Debt due during 1996
consists of $89,400 at 7.25% interest, unsecured, used for the operations of the
foreign subsidiary and DSC. DSC has loaned the Company $62,500 as of December
31, 1995 and an additional $107,500 to date, to reimburse the Company for
expenses incurred in conjunction with the Transaction and working capital. The
loans are collaterized by the Company's account receivable, are non interest
bearing and are due on demand. The remaining Long-Term Debt consists of $49,000
to a related party.
Currency Risk. The Company's operating entities are not subject to direct
currency conversion risks. The Company's primary operating entities provide
consulting services to their clients in their own geographic locations. All
consulting services performed by APPRAISAL GROUP, INC. based in Miami, Florida
are reported and paid in U.S. dollars. Services provided by APPRAISAL GROUP
INTERNATIONAL, RT. based in Hungary are reported in and paid in Hungarian
forint. For reporting purposes foreign operations are converted from Hungarian
forints (HUF) to $US at the end of each reporting period. The conversion rate
of the HUF on December 31, 1994 and 1995 were 113.62 HUF and 139.81 HUF
respectively. The Company does not employ any hedging techniques because the
the cost to employ them outweighs any potential benefits. The impact of the
currency risk has been to its capital investment not its operational revenues.
From date of formation, June 6, 1990, to December 31, 1995 and 1994, the
Company has recognized currency fluctuation losses of <$205,500> and <$184,100>
respectively, as part of shareholder equity and investment in subsidiaries.
SUBSEQUENT EVENTS
GENERAL
On August 19, 1996, the Company consummated the proposed share exchange
transaction with (i) DSC, S.A. de C.V. ("DSC"), a company organized under the
laws of Mexico; and (ii) Hemisphere Developments Limited ("Hemisphere"), a
company organized under the laws of the Isle of Man. As more fully described
below, the share exchange transactions with DSC and Hemisphere will result in a
change in the control of the Company that is expected to occur during the
fourth quarter of 1996.
DSC TRANSACTION
Pursuant to the share exchange with DSC (the "DSC Transaction"), the Company
acquired the following assets as of August 19, 1996 (the "Closing Date"): (I)
DSC's 100 percent interest in Centro de Promociones Guerrero S.A. de C.V.; (ii)
DSC's 75 percent interest in Clusters Inmobiliaria de Ixtapa, S.A. de C.V.
("Clusters Ixtapa"); (iii) a promissory note ("Clusters Note") in the
principal amount of $5,625,000 from Clusters Ixtapa; and (iv) DSC's 30 percent
interest in Nueva Tierra. Such assets acquired by the Company are collectively
referred to herein as the "DSC Assets".
In exchange for the DSC Assets, the Company issued to DSC on the Closing Date
485,930 shares of the Company's common stock, par value $.001 per share (the
"Common Stock")
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and a Convertible Promissory Note (the "DSC Note") in the principal amount of
$29,673,658. The DSC Note is convertible into 37,945,854 shares of Common
Stock.
The Company has the right to force the conversion of the DSC Note after the
Company's Certificate of Incorporation has been amended to increase the number
of authorized shares of Common Stock from 10,000,000 to 450,000,000. The
increase in the authorized Common Stock will be approved by written consent
executed by two stockholders of the Company, Jack Birnholz and Richard
Bradbury, who jointly control a majority of the Common Stock of the Company.
In accordance with the regulations of the Securities and Exchange Commission
(the "Commission"). the Company intends to distribute an Information Statement
to stockholders describing the stockholder action to increase the authorized
Common Stock. See below under the caption "Information Statement". The
Company anticipates that the authorized Common Stock will be increased and the
DSC Note converted to Common Stock during the fourth quarter of 1996. In the
event that the DSC Note is not converted prior to December 31, 1996, the DSC
Note becomes immediately payable together with interest at a rate of five
percent per year. The DSC Note is secured by the DSC Assets.
The DSC Transaction was consummated pursuant to the Second Amendment to
Agreement, between the Company and DSC, dated July 31, 1996. The Second
Amendment to Agreement modified and supplemented the First Amendment to
Agreement, dated February 7, 1996, as described in the Company's Current Report
on Form 8-K, dated February 28, 1996. The Second Amendment to Agreement
modified and supplemented the original Agreement between the parties, dated
October 6, 1995, as described in the Company's Current Report on Form 8-K,
dated October 18, 1995. The Second Amendment, the First Amendment and the
original Agreement are collectively referred to herein as the "DSC Agreement".
The original Agreement and the First Amendment contemplated the acquisition by
the Company of Tropical Club Ixtapa S.A. de C.V., Impulsora Turistica de
Occidente, S.A. de C.V., Tropical Club Isla Mujeres S.A. de C.V., Promocaribe,
S.A. de C.V., DSC Casa Blanca, S.A. de C.V., and Pez Maya, S.A. de C.V.. The
Company decided not to acquire such companies in the DSC Transaction because
such companies and their assets are presently the subject of debt-related legal
proceedings in Mexico. To the extent that in the future the Company is able to
negotiate a restructuring of such debt with the banks and other debt holders,
the Company may in the future consider acquiring such companies through a share
exchange transaction or otherwise. Neither the Company, nor DSC, however, is
presently involved in any such negotiations or has any understanding, agreement
or arrangement with any with any such banks or debt holders for the debt
restructuring or settlement of such debt.
In addition to the DSC Assets, the DSC Agreement also provides for the
acquisition by the Company of DSC's 12.3 percent interest in Malecon S.A. de
C.V. and DSC's 30 percent interest in Corporacion Inmobiliaria del Norte, S.A.
de C.V. The acquisition of such interests by the Company is subject to the
waiver of a right of first refusal by the majority stockholders of the
respective companies and the clarification of any pledges of such minority
interests to banks or other financial institutions. In the event that the
Company proceeds with the acquisition of such assets, the Company will issue to
DSC a convertible note (on terms similar to the DSC Note) in the principal
aggregate amount of $2,600,855.
Pursuant to the DSC Agreement, DSC has loaned approximately $170,000 to the
Company. Approximately $105,000 of the proceeds of such loans have been used
by the Company for costs incurred in connection with the DSC Transaction and
the balance has been used for working capital purposes. Such loans were repaid
by the Company on the Closing Date through the reduction of account receivables
due from DSC to the companies acquired. After the Closing Date, DSC has made
advances in the approximate amount of $25,000 and may
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in the future make additional advances to the Company that will likewise be
repaid through the reduction of such accounts receivables.
The shares of Common Stock issued to DSC on the Closing Date and upon
conversion of the DSC Note have and will be issued by the Company in reliance
on the exemption from registration under the Securities Act of 1933 provided by
Regulation S. The DSC Agreement provides that the shares of Common Stock
issued to DSC will be afforded certain demand and piggyback registration
rights.
Pursuant to the DSC Agreement, John Day, Geoffrey Bell and Jack Birnholz
resigned from the Company's Board of Directors on the Closing Date and the
remaining members of the Board--Richard Bradbury and Alton Hollis--appointed
Bernardo Dominguez C. (the President of DSC) to fill a vacancy on the Company's
Board of Directors.
As required by the DSC Agreement, Messrs. Bradbury and Birnholz executed a
proxy agreement on the Closing Date, pursuant to which DSC may vote the Common
Stock held by such persons in order to effectuate the transactions contemplated
by the DSC Agreement. The proxy agreement terminates upon the earlier of the
Company's authorization to increase the Common Stock or December 31, 1996.
For purposes of the DSC and Hemisphere Transactions, the Common Stock has been
valued at $.782 per share, based upon an agreed upon value of the Company and
its subsidiaries of $7,000,000, divided by the 8,954,187 issued and outstanding
shares of Common Stock. The agreed upon value of the Company is based upon the
value of the Company's present operations ($1,500,000) and the Company's land
on Caye Bokel, Belize (approximately $5,500,000, predicated on a land residual
approach, assuming a 250 unit destination resort).
DSC ASSETS
The DSC Assets consist of: (i) 100 percent equity interest in Centro de
Promociones Guerraro S.A. de C.V.; (ii) 75 percent equity interest in Clusters
Ixtapa; (iii) a note receivable in the principal amount of $5,625,000; and
(iv) DSC's 30 percent interest in Nueva Tierra. For information regarding
Nueva Tierra, see below under the caption "Hemisphere / Nueva Tierra Assets".
Centro de Promociones Guerraro S.A. de C.V. is a company formed under the laws
of Mexico which owns land located in Acapulco, Mexico. The eight-acre,
partially developed property is being held for investment or future development
and is subject to a mortgage in the approximate amount of $659,508. The
Company believes that all necessary licenses, permits, and governmental
approvals have been obtained for the construction of residential housing on
such property.
Clusters Ixtapa is a company formed under the laws of Mexico which owns land in
Ixtapa on the Pacific coast of Mexico in the state of Guerrero. The 26-acre
property is being held for investment or future development. Clusters Ixtapa
has received loans in the principal amount of $23,007,000 (the "NAFIN Debt")
from its lender, National Financiera, S.N.C. Bank ("NAFIN"). On December 29,
1995, Clusters Ixtapa, DSC and NAFIN entered into a restructuring plan with
respect to the NAFIN Debt. Pursuant to this plan, DSC has assumed the NAFIN
Debt in exchange for Clusters Ixtapa's payment of approximately $15,341,000 and
DSC's payment of the difference. Such payment by DSC, as well as the repayment
of certain other debt of DSC to NAFIN, will be made by the transfer from DSC to
NAFIN of approximately 15,991,000 shares of the Company's Common Stock upon the
conversion of the DSC Note. Pursuant to the DSC Transaction, the Company
acquired from DSC a $5,625,000 debt obligation of Clusters Ixtapa on the
Closing Date.
10
<PAGE> 12
The DSC Assets have been valued at $30,053,655 for purposes of the DSC
Transaction. Based upon the $.782 per share value of the Common Stock, the
Company will issue an aggregate 37,945,854 shares of Common Stock as
consideration for the DSC Assets
HEMISPHERE TRANSACTION
Simultaneously with the DSC Transaction, the Company consummated a share
exchange transaction ("Hemisphere Transaction") with Hemisphere, a real estate
investment business. Pursuant to the Hemisphere Transaction, the Company
acquired from Hemisphere on the Closing Date all of the common stock of Newland
Corporation ("Newland"), a Marshall Isles company, which owns 70 percent of the
common stock of Nueva Tierra. As a result of the Hemisphere Transaction and
the DSC Transaction, the Company owns 100 percent of the stock of Nueva Tierra.
As more fully described below, Nueva Tierra owns a majority interest and is
the general partner of four real estate Participating Associations, a form of
limited partnership in Mexico: (I) Villas Del Carbon; (ii) Barra del Tordo;
(iii) Hacienda del Franco; and (iv) Bahia de Cortes.
In exchange for the 70 percent interest in Nueva Tierra, the Company issued
514,070 shares of Common Stock to Hemisphere on the Closing Date and a
convertible note (the "Hemisphere Note") in the principal amount of
$32,120,440. The Hemisphere Note is identical in form to the DSC Note and is
convertible into an aggregate of 41,074,732 shares of Common Stock. The shares
of Common Stock issued to Hemisphere on the Closing Date and upon conversion of
the Hemisphere Note have and will be issued by the Company in reliance on the
exemption from registration under the Securities Act of 1933 provided by
Regulation S. The Hemisphere Agreement provides that such shares of Common
Stock will be afforded certain demand and piggyback registration rights.
The Hemisphere Transaction was consummated pursuant to the Amendment to
Agreement between the Company and Hemisphere, dated July 31, 1996. The
Amendment to Agreement modified and supplemented the original Agreement with
Hemisphere dated February 7, 1996, as described in the Company's Current Report
on Form 8-K, dated February 28, 1996. The original Agreement with Hemisphere
also contemplated the acquisition of Las Arboledas, Ensenada Blanca, Playas de
Brisa Mar, and El Quelele, which Participating Association the Company has
elected not to acquire in the Hemisphere Transaction as a result of the
completion of the Company's due diligence review of the transaction.
HEMISPHERE/NUEVA TIERRA ASSETS
Nueva Tierra, all of the stock of which the Company has acquired in the DSC and
Hemisphere Transactions, has a majority interest in four real estate projects
in Mexico, as set forth below.
Villas del Carbon is a residential development located in Villa del Carbon,
State of Mexico in which Nueva Tierra has a 79 percent interest. The 25-acre
property is partially developed and presently has a clubhouse, roads and
utility lines to the property boundary. Development plans call for development
of 180 home sites for sale to builders or individuals who wish to construct
weekend country houses. Prior to the sale of home sites, development plans
call for construction of electric lines water supply, storm water drain pipes
and street lighting to each of the individual lots. The preliminary estimate
to complete this project is approximately $1,700,000 in four stages. The first
stage would require Nueva Tierra to obtain financing of $400,000. This
property is not subject to any mortgage.
11
<PAGE> 13
Barra del Tordo is a resort development project located in Barra del Tordo in
the state of Tamaulipas, Mexico, in which Nueva Tierra has a 79 percent
interest. The property consists of approximately 670 acres of land, including
3.5 kilometers of beachfront property facing the Gulf of Mexico. At present,
construction of 24 condominiums is approximately 80 percent complete. Roads,
sewers, waterlines and utilities have been constructed for these condominiums.
Nueva Tierra had planned to complete the initial 24 condominiums at some point
in the future when market conditions are appropriate; accordingly the project
is being held for investment or future development. The property is subject to
a mortgage in the amount of $3,490,298.
Hacienda del Franco is a residential development project located near Silao in
the State of Guanajuato, in which Nueva Tierra has an 81 percent interest. The
property consists of approximately 260 acres of land and includes a traditional
colonial style hacienda. Roads on the property have been graded and there are
utilities, sewers and water pipes on the property, which is being held for
investment or possible development centered around the hacienda. The property
is subject to a mortgage in the amount of $511,227.
Bahia de Cortes is a resort development project located in Baja California near
La Paz, in which Nueva Tierra has a 78 percent interest. The property consists
of approximately 3,080 acres of land including over five kilometers of
beachfront property The property is not subject to any mortgage.
INFORMATION STATEMENT
Pursuant to the terms of the DSC and Hemisphere Agreements, the Company has
agreed to diligently prepare an Information Statement describing this
transaction and amend its Certificate of Incorporation to increase the number of
authorized shares of Common Stock from its current level of 10,000,000 shares to
450,000,000 shares. Messrs. Birnholz and Bradbury, who jointly control more
than a majority of the issued and outstanding Common Stock, have informed the
Company that they will execute a written stockholder consent approving such
amendment to the Certificate of Incorporation.
In accordance with regulations of the Commission, the Company will submit an
Information Statement containing, among other things, information describing the
DSC and Hemisphere Transactions including a description of the properties
acquired by the Company as well as the Amendment to the Certificate of
Incorporation to be approved by the written consent of two stockholders. After
the staff of the Commission has completed its review of the Information
Statement, the Company will mail a copy of the Information Statement to each
stockholder. The Company intends to amend its Certificate of Incorporation with
the State of Delaware as soon as possible after the expiration of the twenty day
period following the mailing of the Information Statement to stockholders.
CHANGE IN CONTROL OF COMPANY
A change in control of the Company will occur upon the conversion of the DSC and
Hemisphere Notes. At such time, DSC will own approximately 25 percent,
Hemisphere will own approximately 47 percent, and NAFIN will own approximately
18 percent of the then outstanding Common Stock. As a result, any two of these
companies acting in concert will be in a position to determine the outcome for
the election of directors and thereby control the Company. The change of
control is expected to occur during the fourth quarter of 1996. At such time
approximately 88,974,773 shares of Common Stock will be issued and outstanding.
The Company intends to call a special meeting of the stockholders after the
conversion of the DSC and Hemisphere Notes to elect three to five directors,
proposed by DSC. The DSC
12
<PAGE> 14
Agreement provides that Mr. Bradbury will enter into an employment agreement
with the Company on terms similar to his present employment agreement with the
Company.
ITEM 7: FINANCIAL STATEMENTS
The Consolidated Financial Statements of the Company and Notes thereto are
contained elsewhere herein.
ITEM 8: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE. None.
PART III
ITEM 9: DIRECTORS AND EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT.
Set forth below is a table, as of December 31, 1995, containing certain
information concerning each executive officer and director of the Company
followed by a brief summary of each person's business background.
<TABLE>
<CAPTION>
Name Age Position Held with the Company Served Since
- ---- --- ------------------------------ ------------
<S> <C> <C> <C>
Jack Birnholz 65 Chairman of the Board of Directors 1986
Richard Bradbury 52 Director, President & Chief Opr. Officer 1993
(*)Shirley Birnholz 64 Secretary 1986
Alton Hollis 69 Director 1986
Geoffrey Bell 53 Director 1990
John Day 62 Director 1993
</TABLE>
(*) Shirley Birnholz is the wife of Jack Birnholz
Pursuant to the DSC and Hemisphere Transaction, simultaneous with Closing on
August 19, 1996, Jack Birnholz, Geoffrey Bell, John Day and Shirley Birnholz
submitted their resignations to the Board of Directors. The Board appointed
Bernardo Dominguez C. to fill one of the vacancies and appointed Pablo Macedo to
serve as the Company's Secretary. (See "Subsequent Events" contained herein).
BUSINESS BACKGROUNDS
Jack Birnholz, has been, since December 15, 1986, Chairman and Chief
Executive Officer of the Company. From 1974 through 1986, Mr. Birnholz was the
President and the Chief Executive Officer of Appraisal Group, Inc. in Miami,
Florida, a predecessor company. Mr. Birnholz was the 1988 American Chapter
President of the International Real Estate Federation. In 1978 he was National
President of the National Society of Fee Appraisers, and in 1990 the President
of the Appraisal Section of the 52-nation International Real Estate Federation
(FIABCI) headquartered in Paris. He is a senior member of the American Society
of Appraisers, in both real estate and machinery and equipment evaluation also
and is designated by the National Association of Realtors as a Certified
International Property Specialist (CIPS). Further, Mr. Birnholz is accredited
to testify as an expert in federal and state courts. Mr. Birnholz holds a
Florida Real Estate Brokerage License, Mortgage Brokerage License, and is a
State Certified General Appraiser. Mr. Birnholz holds a Bachelor of Science
Degree from Rutgers University.
Richard M. Bradbury has been a Director, President and Chief Operating
Officer of the Company since March 1993. From 1987 to 1993, Mr. Bradbury served
as Executive Vice President of J.S. Karlton Company, New York, where he was
responsible for portfolio and
13
<PAGE> 15
financial management of the firm's office, industrial, apartment and retail real
estate holdings. From 1985 to 1987, Mr. Bradbury was vice president of real
estate for Marketplace Concepts, an off-price shopping center owner and
developer. From 1982 to 1985, Mr. Bradbury was vice president of leasing for
Commonwealth Development Corporation, a strip shopping center development
company. From 1972 to 1982, Mr. Bradbury was treasurer, and then president, of
Mid-Atlantic Builders, constructing low-cost and medium priced single family
housing and small income producing properties. From 1969 to 1972, Mr. Bradbury
held treasury function positions with Becton, Dickenson & Company and Associates
Corporation of North America. Mr. Bradbury holds a Bachelor of Science Degree
from the University of Charleston, and has served as adjunct professor of real
estate at Lynchburg College, Lynchburg, Virginia.
Shirley Birnholz, for the last eight years, has been employed by the
Company in various administrative capacities.
General Alton Hollis (USAF Retired), has been a Director of the Company
since 1986. In 1981, Brigadier General Hollis retired from the US Air Force.
General Hollis specialized in Military Intelligence including service in
Vietnam. General Hollis is a graduate of Air War College. He attended Georgia
Institute of Technology and received a Bachelor of Business Administration
degree from the University of Georgia and holds a Master Degree in International
Relations from Georgetown University. Since his retirement he has been
operating a real estate brokerage and appraisal firm in Atlanta, Georgia.
Geoffrey Bell, has been a Director of the Company since 1990. From 1980
to 1988 Mr. Bell was Managing Director of Tanglewood Valleys Pty. Ltd., an
Australian company primarily engaged in development of resort property in
Australia. In 1988, with a partner, he formed Next Century Pty., Ltd., which
purchased the Tanglewood development in December of 1988. He is also Director
and Founder of the International Golf Fund.
John Day, has been a Directory of the Company since 1993. Since October
1992, Mr. Day has been Chairman of PCI Management Ltd., an insurance and
re-insurance contact office in London, England. From February 1983 to 1992, Mr.
Day was an insurance and re-insurance consultant with Cigna Corporation. Prior
to 1983, Mr. Day held various senior management positions in the insurance and
re-insurance brokerage and consulting industry. Mr. Day has been a member of
Lloyds of London since 1976.
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
directors, executive officers and persons who own more than 10% of a registered
class of the Company's equity securities to file with the Securities and
Exchange Commission (the "SEC") initial reports of ownership and reports of
changes in ownership in the Company's common stock and other equity securities
of the Company. Executive officers, directors and persons who own more than
10% of a registered class of the Company's equity securities are required by
the SEC regulation to furnish the Company with copies of all Section 16(a)
forms they file with the SEC.
During 1995, the following persons did not file a report with respect to one
transaction: Jack Birnholz, Richard Bradbury, Shirley Birnholz, Alton Hollis
and John Day.
ITEM 10: EXECUTIVE COMPENSATION
The following table provides information concerning the compensation paid to
persons who served as the Company's chief executive officer during the 1995
fiscal year and other
14
<PAGE> 16
executive officers of the Company who received salary and bonus in excess of
$100,000 for the 1995 fiscal year
<TABLE>
<CAPTION>
NAME/POSITION YEAR SALARY BONUS OTHER RESTRICTED STOCK OPTIONS LTIP ALL OTHER
ANNUAL STOCK OPTIONS
COMP AWARDS $ PAYOUTS COMP
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Jack Birnholz/CEO 1995 104,000(1) 0 0 2,500(1) 0 0 0
& Chairman
of the Board 1994 104,000(2) 0 500,500(3) 0 0 0
1993 8,000(4) 0 0 0 0 0 0
</TABLE>
NOTES:
(1) Includes accrued and deferred salary of $86,700.
On December 31, 1995 the Company awarded to Mr. Birnholz 2,500 shares of
Common Stock in consideration for his services rendered in his capacity
as Chairman of the Board at $.782 per share.
(2) Includes accrued and deferred salary of $81,000.
(3) On December 31, 1994 the Company awarded to Mr. Birnholz 500,500 shares
of Common Stock in consideration for services rendered in his capacity as
Chairman of the Board and Chief Executive Officer. The Company is unable
to calculate the dollar value of the such shares since there was no market
for the Common Stock at the time of issuance.
(4) In 1993, Mr. Birnholz permanently waived $96,000 of salary as
per his employment contract.
DIRECTORS COMPENSATION: Members of the Board of Directors are entitled to
receive 500 Shares of Common Stock for each meeting attended. During 1995,
8,500 shares of Common Stock were issued for such service.
This section intentionally left blank.
15
<PAGE> 17
ITEM 11: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
As of December 31, 1995, there were 8,954,187 shares of the Company's Common
Stock. The following table sets forth the beneficial ownership of the Common
Stock as of December 31, 1995 by: (i) each of the Company's Officers (named in
Item 10 hereof) and Directors, (ii) each person who is known by the Company to
beneficially own more than 5% of the outstanding Common Stock, and (iii) all of
the officers and directors as a group. Please refer to the caption "Subsequent
Events" for a discussion of the securities acquired by DSC and Hemisphere after
the period covered in this report.
<TABLE>
<CAPTION>
NAME AND ADDRESS NUMBER OF SHARES OF PERCENTAGE
OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP OF CLASS
<S> <C> <C>
Jack Birnholz (1)
2221 NE 202 St., Aventura, Florida 33180 4,160,000 46.46%
Richard M. Bradbury (1)
111 NW 183 St., #350, Miami, Florida 33169 1,253,000 14.00%
Shirley Birnholz (3)
2221 NE 202 St., Aventura, Florida 33180 251,000 2.80%
Geoffrey Bell (2)
Tanglewood, Bogangar NSW 2488, Australia 1,500 (4)
Alton Hollis (2)
4646 Norwalk Rd., Dunwoody, Georgia 30338 11,500 (4)
John Day (2)
36-38 Fenchurch St., London EC3M 3DQ U.K. 1,500 (4)
ALL OFFICERS AND DIRECTORS
AS A GROUP (6 PERSONS) 5,678,500 63.42%
</TABLE>
(1) Indicates an Officer and Director of the Company
(2) Indicates a Director of the Company
(3) Indicates an Officer of the Company
(4) Represents less than one percent of class
ITEM 12: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
There were no related party transactions between any officer or director which
involved the Company or any of its subsidiaries, except, on June 30, 1995, the
Board of Directors of APPRAISAL GROUP INTERNATIONAL, RT., (AGI RT.) with the
concurrence of its parent, Stragix International, Inc. authorized the sale of
25% of AGI RT. Common Stock to certain directors, officers and employees of the
foreign subsidiary. AGI RT. authorized the sale of unissued Common Stock in
exchange for marketable securities of other Hungarian corporations. The fair
values of the marketable securities was based on the fair value of AGI RT.
compared to the net equity of the companies in the exchange of securities.
16
<PAGE> 18
<TABLE>
ITEM 13: EXHIBITS AND REPORTS ON FORM 8-K
(A) 1. INDEX TO FINANCIAL STATEMENTS PAGE
----------------------------- ----
<S> <C>
INTERNATIONAL REALTY GROUP - CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Certified Public Accountants F-1
Consolidated Balance Sheet as of December 31, 1995 F-2
Consolidated Statements of Operations for the years
ended December 31, 1995 and 1994 F-3
Consolidated Statements of Stockholders' Equity for
the years ended December 31, 1995 and 1994 F-4
Consolidated Statements of Cash Flows for
the years December 31, 1995 and 1994 F-5
Summary of Significant Accounting Policies F-7
Notes to Consolidated Financial Statements F-10 through F-23
</TABLE>
<TABLE>
2. EXHIBITS
--------
<S> <C>
3.1 Articles of Incorporation of the Company, as filed with the
Secretary of State of the State of Delaware on April 13, 1970.
Incorporated herein by reference to Exhibit (b)1. to the
Company's May 5, 1992 Form 8.
3.2 The Bylaws of the Company, as filed with the Secretary of State
of the State of Delaware on April 13, 1970. Incorporated herein
by reference to Exhibit (b)1. to the Company's May 5, 1992 Form
8.
3.3 Agreement of Merger between Silverado Mining, Inc. and Bosco
Resources, Corp., dated April 15, 1970 as filed with the
Secretary of State of the State of Delaware on April 13, 1970.
Incorporated herein by reference to Exhibit (b)3. to the
Company's May 5, 1992 Form 8.
3.4 Articles of Amendment and Restatement of the Articles of
Incorporation of the Company, as filed with the Secretary of
State of the State of Delaware on December 15, 1986.
Incorporated herein by reference to Exhibit (b)5. to the
Company's May 5, 1992 Form 8.
3.5 Articles of Amendment and Restatement of the Articles of
Incorporation of the Company, as filed with the Secretary of
State of the State of Delaware on August 10, 1989. Incorporated
herein by reference to Exhibit (b)6. to the Company's May 5,
1992 Form 8.
10.1 Agreement of Acquisition between Bosco Resources, Inc. and
Appraisal Group, Inc. Incorporated herein by reference to
Exhibit (b)4. to the May 5, 1992 Form 8.
10.2 Employment Agreement, dated January 1, 1992 between Jack
Birnholz and the Company. Incorporated herein by reference to
Exhibit (b)7. to the May 5, 1992 Form 8.*
10.3 Employment Agreement, dated January 1, 1992 between M.
Goldstein and the Company. Incorporated herein by reference to
Exhibit (b)8. to the May 5, 1992 Form 8.*
</TABLE>
17
<PAGE> 19
<TABLE>
<C> <C>
10.4 Employment Agreement, dated March 1, 1993 and modified December
31, 1994 between Richard M. Bradbury and the Company,
incorporated herein by reference to the exhibits in the 1994
Form 10-KSB, dated May 31, 1995.*
10.5 Agreement between the Company and DSC, S.A. de C.V.
incorporated herein by reference to the exhibit on the
Company's October 6, 1995 Form 8-K.
21.1 The following table sets forth, as of December 31, 1995 the
name of each subsidiary of the Company's percentage ownership
and each jurisdiction of incorporation of the subsidiary:
</TABLE>
<TABLE>
<CAPTION>
DATE OF STATE OF COUNTRY OF
NAME OF SUBSIDIARY OWNERSHIP INCORPORATION INCORPORATION
- ------------------ --------- ------------- -------------
<S> <C> <C> <C>
The Appraisal Group, Inc. 100 August 21, 1974 Florida
U.S. Properties Investment
& Auction, Inc. 100 March 31, 1987 Florida
Appraisal Group Int'l., Inc. 100 July 7, 1989 Florida
Stragix Int'l., Inc. 100 April 1, 1990 Florida
Appraisal Group Int'l., Rt. 75 June 6, 1990 Hungary
IRG Financial Services, Inc. 100 June 15, 1992 Florida
Caye Bokel Limited 100 January 27, 1995 Belize
</TABLE>
27.1 Financial Data Schedule (for SEC use only)
*Denotes a management contract or compensatory plan or arrangement.
(B) REPORTS ON FORM 8-K
The Company filed with the Securities and Exchange Commission the
following report on Form 8-K during the last quarter of the period
covered by this Report.
October 6, 1995 Agreement by and between the Company and DSC, S.A.
de C.V., acquisition of Caye Bokel property and termination of the
proposed Trinity Energy Corporation Agreement.
18
<PAGE> 20
INTERNATIONAL REALTY GROUP, INC. AND SUBSIDIARIES
INDEPENDENT AUDITORS' REPORT
AND
CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1995 AND 1994
<PAGE> 21
INTERNATIONAL REALTY GROUP, INC. AND SUBSIDIARIES
YEARS ENDED DECEMBER 31, 1995 AND 1994
CONTENTS
PAGE
<TABLE>
<S> <C>
Independent auditors' report 1
Consolidated financial statements:
Consolidated balance sheets 2
Consolidated statements of operations 3
Consolidated statements of shareholders' equity 4
Consolidated statements of cash flows 5 - 6
Summary of significant accounting policies 7 - 9
Notes to consolidated financial statements 10 - 23
</TABLE>
<PAGE> 22
HIXSON, MARIN, POWELL & DE SANCTIS, P.A. CERTIFIED ACCOUNTANTS
DAVID L. HIXSON, C.P.A. - RAYMOND F. MARIN, C.P.A. - DONALD F. POWELL, C.P.A. -
PETER V. DE SANCTIS, C.P.A.
18100 N.E. 16TH AVENUE 3300 PGA BOULEVARD
NORTH MIAMI BEACH, FL 33162 GARDENS PLAZA, SUITE 810
DADE: (305) 944-7001 PALM BEACH GARDENS, FL. 33410
BROWARD: (305) 920-1311 (407) 624-5700
FAX: (305) 944-6637 FAX: (407) 624-5702
RESPOND TO [ ] RESPOND TO [ ]
INDEPENDENT AUDITORS' REPORT
Board of Directors and Shareholders
International Realty Group, Inc. and Subsidiaries
North Miami Beach, Florida
We have audited the accompanying consolidated balance sheets of International
Realty Group, Inc. and Subsidiaries as of December 31, 1995 and 1994, and the
related consolidated statements of operations, shareholders' equity and cash
flows for the years then ended. These consolidated financial statements are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audits. We did not audit the financial statements of Appraisal Group
International, RT, a subsidiary, which statements reflected total assets of
$232,600 and $373,000 ($911,500 less $678,900 and $1,653,000 less $1,290,000 of
trust assets not deemed assets of the subsidiary) as of December 31, 1995 and
1994, respectively, and total revenues of $690,800 and $584,000, respectively,
for the years then ended. Those statements were audited by other auditors
whose report has been furnished to us, and our opinion, insofar as it relates
to the amounts included for Appraisal Group International, RT, is based solely
on the report of the other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits and the report of the other
auditors provides a reasonable basis for our opinion.
In our opinion, based on our audits and the reports of other auditors, the 1995
and 1994 consolidated financial statements referred to above present fairly, in
all material respects, the financial position of International Realty Group,
Inc. and Subsidiaries, as of December 31, 1995 and 1994, and the results of
their operations and their cash flows for the years then ended in conformity
with generally accepted accounting principles.
/s/ Hixson, Martin, Powell & De Sanctis, P.A.
North Miami Beach,
Florida
March 22, 1996
<PAGE> 23
INTERNATIONAL REALTY GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS - DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
ASSETS
1995 1994
Current assets: ---------- --------
<S> <C> <C>
Cash and equivalents $ 19,400 $ 33,300
Accounts receivable, deemed
fully collectible 221,500 420,300
Refundable income tax - 3,200
Other current assets 26,800 23,500
---------- --------
Total current assets 267,700 480,300
Note receivable - 45,000
Marketable securities available for sale 34,700 -
Land held for investment 481,000 31,600
Furniture, equipment and
improvements 205,900 209,600
Excess of cost over estimated fair
value of net assets acquired 140,800 158,500
Other assets 51,800 39,800
---------- --------
$1,181,900 $964,800
========== ========
</TABLE>
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
1995 1994
Current liabilities: ---------- ---------
<S> <C> <C>
Current portion of long-term debt $ 151,900 $ 145,000
Accounts payable 134,900 171,000
Accrued liabilities 396,200 251,400
Billings in excess of costs and estimated
earnings on uncompleted contracts 7,700 -
Shareholders loans 26,700 -
Income taxes payable - 3,500
---------- ---------
Total current liabilities 717,400 570,900
---------- ---------
Long-term debt, less current portion 49,000 92,000
---------- ---------
Liquidity and strategic planning,
restatements, concentration of credit
risk, commitments, transactions with
related parties and trust assets
(Notes 2, 3, 4, 8, 11 and 13)
Minority interest 35,300 -
---------- ---------
Shareholders' equity:
Common stock, $.001 par; authorized
10,000,000 shares; 8,954,187 and
7,898,112 common shares issued at
1995 and 1994, respectively 9,000 7,900
Capital in excess of par 1,053,400 597,000
Cummulative translation adjustment (203,500) (184,100)
Accumulated deficit (463,200) (103,400)
---------- ---------
395,700 317,400
Less shares of common stock held
in treasury, at cost 15,500 15,500
---------- ---------
380,200 301,900
---------- ---------
$1,181,900 $ 964,800
========== =========
</TABLE>
Read the accompanying summary of significant accounting policies
and notes to consolidated financial statements, both of which are an integral
part of this consolidated financial statement.
2
<PAGE> 24
INTERNATIONAL REALTY GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
1995 1994
Revenues: ---------- ----------
<S> <C> <C>
Professional fees $1,024,600 $1,284,700
Interest 95,000 29,600
Other 102,500 13,900
---------- ----------
1,222,100 1,328,200
---------- ----------
Operating expenses:
Amortization and depreciation 87,800 90,400
Bad debts 73,300 136,500
Direct 620,800 582,800
Interest 27,000 8,700
Payroll and related benefits 415,700 411,300
Rent 55,400 79,700
Selling, general and
administration 246,900 276,700
---------- ----------
1,526,900 1,586,100
---------- ----------
Loss before other deductions, provision
for income taxes and minority interest (304,800) (257,900)
Other deductions (51,500) -
---------- ----------
Loss before provision for income taxes
and minority interest (356,300) (257,900)
---------- ----------
Provision for income taxes (benefit):
Current, including foreign taxes
(1995, $2,900; 1994, $6,000) 2,900 2,800
Deferred - (24,000)
---------- ----------
2,900 (21,200)
---------- ----------
Loss before minority interest (359,200) (236,700)
Minority interest 600 -
---------- ----------
Net loss $ (359,800) $ (236,700)
========== ==========
Loss per share of common share: $ (0.04) $ (0.04)
---------- ----------
Weighted average common shares 8,324,395 6,546,934
========== ==========
</TABLE>
Read the accompanying summary of significant accounting policies
and notes to consolidated financial statements, both of which are an integral
part of this consolidated financial statement.
3
<PAGE> 25
INTERNATIONAL REALTY GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
Retained
Common stock Capital in Cummulative Earnings Treasury Stock
------------------ Excess of Translation Accumulated ------------------
Total Shares Amount Par Adjustment Deficit) Shares Amount
--------- --------- ------ ---------- ---------- --------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, beginning, as previously
reported $ 605,200 6,530,612 $6,500 $ 421,400 $(161,100) $ 353,900 17,500 $(15,500)
Cummulative effect of restatement
for amortization of intangibles
($45,000) and contribution of
accrued officers salaries to
capital in excess of par ($175,600) (45,000) - - 175,600 - (220,600) - -
--------- ---------- ------ ---------- --------- --------- -------- --------
Balance, beginning, as restated 560,200 6,530,612 6,500 597,000 (161,100) 133,300 17,500 (15,500)
Add (deduct):
Currency translation adjustment (23,000) - - - (23,000) - - -
Common stock issued 1,400 1,367,500 1,400 - - - - -
Net loss (236,700) - - - - (236,700) - -
--------- ---------- ------ ---------- --------- --------- -------- --------
Balance, December 31, 1994 301,900 7,898,112 7,900 597,000 (184,100) (103,400) 17,500 (15,500)
Add (deduct):
Currency translation adjustment (19,400) - - - (19,400) - - -
Common stock issued 457,500 1,056,075 1,100 456,400 - - - -
Net loss (359,800) - - - - (359,800) - -
--------- ---------- ------ ---------- --------- --------- -------- --------
Balance, ending $ 380,200 8,954,187 $9,000 $1,053,400 $(203,500) $(463,200) 17,500 $(15,500)
========= ========== ====== ========== ========= ========= ======== ========
</TABLE>
Read the accompanying summary of significant accounting policies
and notes to consolidated financial statements, both of which are an integral
part of this consolidated financial statement.
4
<PAGE> 26
INTERNATIONAL REALTY GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
1995 1994
Cash flows from operating activities: ---------------------------- ----------------------------
<S> <C> <C> <C> <C>
Sources of cash:
Clients and other $ 1,230,400 $ 1,035,600
Interest 102,700 $ 1,333,100 10,600 $ 1,046,200
----------- -----------
Uses of cash:
Cash paid to:
Direct costs 656,900 541,300
Operating 343,300 347,300
Payroll and related benefits 244,300 228,800
Interest 27,500 7,200
Income taxes 3,200 1,275,200 6,000 1,130,600
----------- ----------- ----------- -----------
Cash provided by (used-in) operating activities 57,900 (84,400)
----------- -----------
Cash flows from investing activities:
Uses of cash:
Acquisition of equipment 21,500 7,100
Real estate 700 1,900
Acquisition costs 43,900 -
----------- -----------
Cash (used-in) investing activities (66,100) (9,000)
----------- -----------
Cash flows from financing activities:
Sources of cash:
Long-term debt 62,500 134,000
Shareholders loans 26,700 89,200 - 134,000
----------- -----------
Uses of cash:
Payment of:
Long-term debt 75,500 107,200
Shareholders loans - 75,500 6,600 113,800
----------- ----------- ----------- -----------
Cash provided by financing activities 13,700 20,200
----------- -----------
Effect of exchange rates on cash and equivalents (19,400) (23,000)
----------- -----------
Decrease in cash and equivalents (13,900) (96,200)
Cash and equivalents, beginning 33,300 129,500
----------- -----------
Cash and equivalents, ending $ 19,400 $ 33,300
=========== ===========
</TABLE>
Read the accompanying summary of significant accounting policies
and notes to consolidated financial statements, both of which are an integral
part of this consolidated financial statement.
5
<PAGE> 27
INTERNATIONAL REALTY GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
YEARS ENDED DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
1995 1994
--------- ---------
<S> <C> <C>
Reconciliation of net loss to cash provided
by (used-in) operating activities:
Net loss $(359,800) $(236,700)
--------- ---------
Adjustments to reconcile net loss to cash
provided by (used-in) operating activities:
Amortization and depreciation 87,800 90,400
Minority interest 600 -
Common stock issued as compensation 32,100 1,400
Changes in assets and liabilities:
Accounts receivable 198,800 (131,500)
Refundable income tax 3,200 3,200
Other current assets (3,300) (9,900)
Accounts payable (36,100) 32,500
Accrued liabilities 145,400 196,600
Costs in excess of billings 7,700 -
Income taxes (3,500) -
Deferred tax liability - (24,000)
Other (15,000) (6,400)
--------- ---------
Total adjustments 417,700 152,300
--------- ---------
Cash provided by (used-in) operating activities $ 57,900 $ (84,400)
========= =========
Supplemental schedule of non-cash activities:
Operating activities:
Common stock issued as compensation $ 32,100 $ 1,400
========= =========
Furniture and equipment in exchange for
accounts receivable $ 15,000
=========
Investing activities:
Common stock issued in exchange
for real property $ 401,700
Reduction of note receivable in
exchange for real property 45,000
---------
$ 446,700
=========
Financing activities:
Common stock issued in exchange for
cancellation of long-term debt $ 23,100
=========
</TABLE>
Read the accompanying summary of significant accounting policies
and notes to consolidated financial statements, both of which are an integral
part of this consolidated financial statement.
6
<PAGE> 28
INTERNATIONAL REALTY GROUP, INC AND SUBSIDIARIES
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
YEARS ENDED DECEMBER 31, 1995 AND 1994
BASIS OF ACCOUNTING:
International Realty Group, Inc, (the Company) prepares its financial
statements in accordance with generally accepted accounting principles. This
basis of accounting involves the application of accrual accounting;
consequently, revenues and gains are recognized when earned, and expenses and
losses are recognized when incurred. Financial statement items are recorded
at historical cost and may not necessarily represent current values.
MANAGEMENT ESTIMATES:
The preparation of 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 revenues and expenses during the reporting
period. Actual results could differ from those estimates.
Those estimates that are considered significant to the accompanying
consolidated financial statements include the per share value used in the
acquisition of various investments.
FAIR VALUE OF FINANCIAL INSTRUMENTS:
Financial instruments which include cash and equivalents, accounts
receivable, accounts payable and accrued liabilities are reflected in the
financial statements at fair values. Based on the borrowing rates currently
available to the Company for bank loans with similar terms and average
maturities, debt is stated at their fair values.
PRINCIPLES OF CONSOLIDATION:
The consolidated financial statements include the accounts of International
Realty Group, Inc. and all material subsidiaries. All significant
inter-company balances and transactions have been eliminated in
consolidation.
REVENUE RECOGNITION:
Service revenues are recognized on the percentage of completion method of
accounting. Percentage of completion is determined by reference to the
extent of contract performance, future performance and costs incurred. Costs
and estimated earnings in excess of billings on uncompleted contracts are
reported as unbilled receivables. Billings in excess of costs and estimated
earnings on uncompleted contracts are reported as deferred revenues.
Contracts in process are reviewed quarterly and revenues are adjusted in
current accounting periods based on revisions. Provisions for estimated
losses on contracts are recorded when identified. Substantially all service
contracts have been short term.
7
<PAGE> 29
INTERNATIONAL REALTY GROUP, INC AND SUBSIDIARIES
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
YEARS ENDED DECEMBER 31, 1995 AND 1994
CASH AND EQUIVALENTS:
The Company considers all highly liquid debt instruments purchased with an
initial maturity of three months or less to be cash equivalents.
FOREIGN CURRENCY TRANSLATION:
Adjustments for currency exchange rate changes are excluded from net income
for those fluctuations that do not impact cash flow. All assets and
liabilities of operations outside the United States are translated into
United States dollars at period-end exchange rates. The Hungarian exchange
rate used for the years ended December 31, 1995 and 1994 was H$139.81 and
H$113.62, respectively. Temporary gains and losses resulting from
translation, if material, are reflected as currency translation adjustments
in shareholders' equity. Permanent adjustments are reflected in the
consolidated statements of operations.
INVESTMENTS:
Investments in equity securities are classified as either trading securities
or available for sale securities. The net unrealized holding gains and
losses for trading securities would be included in earnings. There were no
trading securities during the periods. Equity securities have been
categorized as available for sale and, as a result, are stated at fair value.
Any unrealized gains and losses would be reported as a separate component of
shareholders' equity. There were no unrealized gains and losses at the
balance sheet date.
FURNITURE, EQUIPMENT, IMPROVEMENTS, DEPRECIATION AND AMORTIZATION:
Furniture, equipment and leasehold improvements are stated at cost less
accumulated depreciation and amortization. Depreciation and amortization are
computed on the straight-line method over the estimated useful lives as
follows:
<TABLE>
<CAPTION>
Estimated Useful Lives
(In years)
-----------------------
<S> <C>
Furniture and equipment 10 years
Leasehold improvements 10 years
Library 7 years
</TABLE>
8
<PAGE> 30
INTERNATIONAL REALTY GROUP, INC AND SUBSIDIARIES
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
YEARS ENDED DECEMBER 31, 1995 AND 1994
FURNITURE, EQUIPMENT, IMPROVEMENTS, DEPRECIATION AND AMORTIZATION (CONTINUED):
Repairs, maintenance and renewals are charged to operations as incurred, and
expenditures for significant betterments and renewals are capitalized.
The cost of fixed assets retired or sold, together with the related
accumulated depreciation, are removed from the appropriate asset and
depreciation accounts, and the resulting gain or loss is included in net
earnings.
EXCESS OF COST OVER ESTIMATED FAIR VALUE OF NET ASSETS ACQUIRED:
The excess of cost over estimated fair value of net assets acquired is being
amortized by the straight-line method over the estimated useful life of ten
(10) years. The Company evaluates the amortization period of intangibles on
an ongoing basis in light of changes in any business conditions and events or
circumstances that may indicate the potential impairment of the intangible
asset. The Company evaluates the historical and projected operating
performance of acquired businesses, specific industry trends and general
economic conditions to assess whether the remaining estimated useful life may
warrant revision or that the remaining balance of the intangible assets may
not be recoverable. If such factors, events or circumstances indicate that
the value is impaired, the Company will provide for the decline in that
period.
OTHER ASSETS:
Other assets consist primarily of organizational costs which are stated at
cost and are being amortized over a five year period using the straight-line
method.
INCOME TAXES:
Deferred income taxes are provided for temporary differences resulting from
inclusion of income and expenses for financial reporting purposes in years
other than when recognized for income tax purposes. Accordingly, deferred
income taxes are provided for the temporary differences resulting from use of
the cash method of accounting for income tax purposes and the accrual method
of accounting for financial statement purposes.
RECLASSIFICATION:
In order to facilitate comparison of financial information, certain amounts
reported in the prior year have been reclassified to conform with the current
year presentation.
9
<PAGE> 31
INTERNATIONAL REALTY GROUP, INC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1995 AND 1994
1. ORGANIZATION AND BUSINESS:
International Realty Group, Inc. was organized and incorporated under the
laws of the State of Delaware on April 13, 1970. The Company provides
commercial real estate and business valuations and appraisals both
domestically and on an international basis.
Wholly-owned subsidiaries of the Company are as follows except Appraisal
Group International, RT which is 75% owned by Stragix International,
Inc.:
<TABLE>
<CAPTION>
State or Country Date of
Company of Incorporation Incorporation
- --------------------------------- ---------------- --------------
<S> <C> <C>
The Appraisal Group, Inc. Florida August 21, 1974
U.S. Property Investment and
Auction, Inc. Florida March 31, 1987
Appraisal Group International, Inc. Florida July 7, 1989
Stragix International, Inc. Florida April 1, 1990
Appraisal Group International, RT Hungary June 6, 1990
IRG Financial Services, Inc. Florida June 15, 1992
Caye Bokel, Limited Belize January 27, 1995
</TABLE>
2. LIQUIDITY AND STRATEGIC PLANNING:
As reflected in the accompanying consolidated balance sheets, the
Company's current liabilities exceed its current assets as of December 31,
1995 by approximately $449,700, which is an increase of $359,100 from
1994. Accrued officers salaries of approximately $375,900 and
shareholders loans of approximately $26,700 are significant amounts of the
working capital deficiency. If these related party items were not
considered, the working capital deficiency would be reduced to
approximately $47,100. For the year ended December 31, 1995, the Company
reported positive cash flows from operations while reporting a net loss of
$359,800. Subsequent to December 31, 1995, an additional $55,000 has been
loaned to the Company as additional working capital. The Company has a
significant investment in goodwill and other intangible assets, the
recoverability of which is dependent upon the success of future
operations.
The Company has filed a Form 14C, Preliminary Information Statement, with
the Securities and Exchange Commission. The purpose of the Information
Statement is to disclose formal discussions regarding the Company's
acquisition of interest owned by DSC, S.A. de C.V. and Hemisphere
Development, Ltd. (DSC). If the proposed transaction were to be
consummated, the controlling shareholder of DSC would be the controlling
shareholder of the Company. The Company is in the process of notifying
the Secretary of State of the State of Delaware of its intention to
increase the authorized shares from 10,000,000 common shares to
450,000,000 common shares.
10
<PAGE> 32
INTERNATIONAL REALTY GROUP, INC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1995 AND 1994
2. LIQUIDITY AND STRATEGIC PLANNING (CONTINUED):
Under the proposal, the Company would acquire Clusters, S.A. de C.V.
(Clusters), a wholly owned subsidiary of DSC. In addition, the Company
would acquire DSC's 30% interest in Nueva Tierra, S.A. de C.V. (Nueva
Tierra) and the remaining 70% interest of Nueva Tierra from Hemisphere
Development Ltd. (Hemisphere). All acquisitions would be in exchange for
the common stock of the Company. DSC, Clusters and Nueva Tierra are
corporations organized under the laws of Mexico while Hemisphere is a
corporation organized under the laws of the Isle of Man. The transaction
has been valued at $88,651,100 (Clusters, $34,832,000; Nueva Tierra,
$16,145,059; Hemisphere, $37,674,095), subject to adjustments at the date
of closing. The Company would issue 113,364,647 shares of common stock
valued at $.782 cents per share. Of the total shares to be issued,
65,188,055 will be issued to DSC, and 48,176,592 will be issued to
Hemisphere. 15,991,049 of the shares issued to DSC will in turn be
transferred to a financial institution to extinguish $12,505,000 of
short-term debt owed by DSC. Costs associated with this transaction will
be charged to shareholders' equity upon completion.
The per share value of $.782 has been estimated by management as follows:
<TABLE>
<S> <C> <C>
a) Caye Bokel:
Discounted forecasted cash flow
assuming a fully developed
destination resort. Discounts
of 20% to 25% were used. $5,500,000
b) Valuation:
Management's valuation of the
domestic and foreign valuation
services, including liquidation fees. 1,500,000
----------
$7,000,000
==========
Shares outstanding at valuation date 8,954,187
==========
Per share value $ .782
==========
</TABLE>
11
<PAGE> 33
INTERNATIONAL REALTY GROUP, INC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1995 AND 1994
2. LIQUIDITY AND STRATEGIC PLANNING (CONTINUED):
After completion of the proposed transaction, the Company would expand
its business operations from professional services into additional
segments which would include:
a) Lodging
b) Development of commercial and
residential properties
To assist the Company in accomplishing its strategic plans, DSC has
advanced working capital loans to the Company. As of December 31, 1995,
$62,500 was advanced. An additional $55,000 was advanced in 1996.
During 1995, in a transaction which was previously disclosed, the Company
was negotiating with Trinity Energy Corporation (Trinity). The
negotiations were terminated by the Company after it determined that
Trinity was not prepared or willing to consummate the proposed
transaction. Costs incurred with the proposed transaction amounted to
approximately $35,500 and were charged to current operations.
3. ADJUSTMENTS TO OPENING BALANCE OF SHAREHOLDERS' EQUITY:
The Company has restated retained earnings (accumulated deficit) for the
correction of errors originating prior to 1994. The corrections result
from changing the amortization of certain intangible costs from ten (10)
years to five (5) years and the reclassification of officers payroll
which had previously been accrued and subsequently contributed to
capital. The effect of the restatement on shareholders' equity was a
reduction of $45,000. Officers payroll in the amount of $175,600 was
accrued during the year ended December 31, 1993. The officers waived
payment of the accrued payroll and such amount was in turn treated as a
contribution to the Company. As a result, capital in excess of par was
increased and retained earnings were decreased by the same $175,600. The
following table summarizes the restatement impact on net loss and net
loss per share for the years 1994 and 1993:
<TABLE>
<CAPTION>
1994 1993
--------- --------
<S> <C> <C>
Net loss, as previously reported $(221,700) $(11,300)
--------- --------
Effect of restatement:
Amortization 15,000 15,000
Payroll - 175,600
--------- ---------
15,000 190,600
--------- ---------
Net loss, as restated $(236,700) $(201,900)
========= =========
</TABLE>
12
<PAGE> 34
INTERNATIONAL REALTY GROUP, INC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1995 AND 1994
3. ADJUSTMENTS TO OPENING BALANCE OF SHAREHOLDERS EQUITY (CONTINUED):
<TABLE>
<CAPTION>
1995 1994
------ ------
<S> <C> <C>
Per share amounts as previously reported $(0.03) $ 0.00
Effect of restatement (0.01) (0.03)
------ ------
Per share amounts, as restated $(0.04) $(0.03)
====== ======
</TABLE>
4. CONCENTRATION OF CREDIT RISK:
Financial instruments that potentially subject the Company to
concentrations of credit risk consist principally of cash and accounts
receivable. During the year, the Company's account balances with
financial institutions may exceed federally insured limits. Management
regularly monitors their balances and attempts to keep this potential
risk to a minimum by maintaining their accounts with financial
institutions they believe are of good quality.
A concentration of credit risk may exist with respect to accounts
receivable. The Company has a large number of customers on which it
performs ongoing credit evaluations and generally does not require
collateral from its customers. The Company maintains an allowance for
uncollectible accounts receivable based upon expected collectibility of
all accounts receivable. Credit losses have been provided for in the
consolidated financial statements.
A significant portion of the Company's revenues consist of fees to major
customers on credit. Net revenues in 1995 to major customers are as
follows:
<TABLE>
<CAPTION>
Amount Percentage
-------- ----------
<S> <C> <C>
Domestic:
Customer A $106,600 20.0%
Foreign:
Customer A $552,600 80.0%
</TABLE>
Both customers are governmental agencies. There are no other customers
which contribute revenues in excess of 5%.
13
<PAGE> 35
INTERNATIONAL REALTY GROUP, INC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1995 AND 1994
5. LAND HELD FOR INVESTMENT:
Land held for investment consists of one (1.0) acre of developed vacant
land in La Grange, Texas, and eighty seven (87) acres of undeveloped land
on the Island of Caye Bokel in the country of Belize. A summary is as
follows:
<TABLE>
1995 1994
-------- -------
<S> <C> <C>
La Grange, Texas $ 31,600 $31,600
Caye Bokel, Belize 449,400 -
-------- -------
$481,000 $31,600
======== =======
</TABLE>
Management intends to hold the property for either future sale or
development. As part of the purchase of the Caye Bokel property, the
Company exchanged 515,000 shares of common stock valued at $.782 per
share in October, 1995. An independent appraisal of the property valued
the transaction in excess of the recorded amount.
6. MARKETABLE SECURITIES:
During the current year, the Board of Directors of Appraisal Group
International, RT (AGI RT), with the concurrence of its parent,
authorized the exchange of twenty five percent (25.0%) of AGI RT common
stock with certain directors/officers/employees of the Corporation for
marketable securities of other Hungarian corporations owned by these
directors/officers/employees. The fair values of the marketable
securities were based on the fair value of AGI RT compared to the net
equity of the companies in the exchange of securities. The securities do
not represent controlling interest in other Hungarian companies.
Minority interest represents the minority shareholders' proportionate
share of the equity in Appraisal Group International, RT. At December
31, 1995, the Company owned seventy five percent (75.0%) of the capital
stock of AGI RT. Investments are stated at fair value as determined by
the Board of Directors. Because of the inherent uncertainty of such
valuations, the estimated values may differ significantly from the values
that would have been used had a ready market for the securities existed,
and the differences could be material.
14
<PAGE> 36
INTERNATIONAL REALTY GROUP, INC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1995 AND 1994
<TABLE>
7. DETAILS OF FINANCIAL STATEMENT COMPONENTS: 1995 1994
-------- --------
<S> <C> <C>
OTHER CURRENT ASSETS:
Interest receivable $ 11,300 $ 19,000
Prepaid expenses 15,500 4,500
-------- --------
$ 26,800 $ 23,500
======== ========
FURNITURE, EQUIPMENT AND IMPROVEMENTS:
Furniture and equipment $164,600 $128,300
Leasehold improvements 12,400 12,400
Library 207,600 205,100
-------- --------
384,600 345,800
Less accumulated deprecation
and amortization 178,700 136,200
-------- --------
$205,900 $209,600
======== ========
OTHER ASSETS:
Acquisition costs $ 43,900 $ -
Deposits 7,700 7,700
Organization costs 200 32,100
-------- --------
$ 51,800 $ 39,800
======== ========
ACCRUED LIABILITIES:
Payroll and payroll taxes $375,900 $212,800
Interest 1,000 1,500
Foreign taxes, other than on income 13,600 23,000
Other 5,700 14,100
-------- --------
$396,200 $251,400
======== ========
</TABLE>
15
<PAGE> 37
INTERNATIONAL REALTY GROUP, INC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
8. LONG-TERM DEBT: 1995 1994
--------- --------
<S> <C> <C>
Note payable, demand,
interest at 6.0%,
collateralized by 50,000
shares of common stock,
matured on August 27, 1992. $ - $ 23,100
Note payable, related party,
unsecured, interest at 2.0%
per annum, payable monthly,
balloon payment of $49,000
due on December 31, 1997. 49,000 49,000
Note payable, unsecured,
interest at 7.25% for 1995
and 1994. 89,400 134,000
Note payable, unsecured,
interest at 7%, payable
quarterly, matured on
December 31, 1994. - 30,900
Note payable, related party,
collateralized by accounts
receivable, non-interest
bearing, due on demand. 62,500 -
-------- ---------
200,900 237,000
Less current portion 151,900 145,000
-------- ---------
$ 49,000 $ 92,000
======== =========
</TABLE>
Maturities of long-term debt subsequent to December 31, 1995 are as
follows:
<TABLE>
<CAPTION>
Years ending
December 31, Amount
------------ --------
<S> <C>
1996 $151,900
1997 49,000
--------
$200,900
========
</TABLE>
16
<PAGE> 38
INTERNATIONAL REALTY GROUP, INC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1995 AND 1994
9. INCOME TAXES:
Components of the net deferred tax liability as reflected on the
Company's consolidated balance sheets are as follows:
<TABLE>
<CAPTION>
1995 1994
------- -------
<S> <C> <C>
Deferred tax assets:
Accounts payable $ 45,900 $ 64,300
Accrued liabilities 134,700 94,500
Net operating loss 92,500 82,600
-------- --------
273,100 241,400
Less valuation allowance (197,800) (76,300)
-------- --------
75,300 165,100
Deferred tax liabilities:
Accounts receivable (75,300) (165,100)
-------- --------
$ - $ -
======== ========
</TABLE>
The valuation allowance is provided when it is more likely than not that
the tax benefit may not be realized.
The components of the provision for income taxes (benefit) for the years
ended December 31, 1995 and 1994, are as follows:
<TABLE>
<S> <C> <C>
Current payable (receivable):
Federal $ - $ (3,200)
Foreign 2,900 6,000
Deferred:
Federal - (19,100)
State - (4,900)
------ --------
$2,900 $(21,200)
====== ========
</TABLE>
17
<PAGE> 39
INTERNATIONAL REALTY GROUP, INC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1995 AND 1994
9. INCOME TAXES (CONTINUED):
The income tax benefit for the year ended December 31, 1995, differs from
that which would result from applying statutory tax rates primarily due
to certain operating expenses which are not tax deductible. The
provision for income taxes differs from the amount obtained by applying
the federal statutory income tax rate to income before provision for
income taxes as follows:
<TABLE>
<CAPTION>
1995 1994
------ -------
<S> <C> <C>
Provision at statutory rate $ - $ -
State taxes, less federal benefit - -
Foreign taxes 2,900 6,000
Utilization of operating loss
carrybacks/carryforwards - (3,200)
Foreign sales benefit - (1,500)
Other differences - (22,500)
------ --------
$2,900 $(21,200)
====== ========
</TABLE>
At December 31, 1995, the Company had available federal net operating
loss carryforwards of approximately $304,100 which will generally expire
beginning in the year 2011.
The Company has not provided for federal income taxes on approximately
$15,500 of undistributed earnings of its foreign subsidiaries which have
been reinvested in their operations. If these earnings were distributed,
net operating loss carryforwards and foreign tax credits available under
current law would eliminate the resulting federal income tax liability.
10. LOSS PER SHARE:
Loss per share of common stock were computed by dividing net loss by the
weighted average number of shares of common stock. The number of shares
used in the computation of loss per share of common stock during 1995 and
1994 were 8,324,395; and 6,546,934, respectively.
18
<PAGE> 40
INTERNATIONAL REALTY GROUP, INC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1995 AND 1994
11. COMMITMENTS, TRANSACTIONS WITH RELATED PARTIES AND BACKLOG:
The Company leases office facilities on a month to month basis. Future
minimum lease payments under this agreement are $3,800, per month.
The Company has entered into two (2) employment agreements with
shareholders/officers of the Company. The agreements provide for
employment terms through 1996 with minimum annual compensation of
approximately $204,000 per annum, plus bonuses if declared by the Board
of Directors. No bonuses have been declared for the years ended December
31, 1995 and 1994.
During the years ended December 31, 1995 and 1994, the Company paid
compensation to shareholders/officers of $204,000 and $226,000,
respectively. These amounts have been charged to operations either as
payroll or consulting fees. The aggregate shares controlled by the
shareholders receiving the compensation was approximately sixty-three
percent (63.0%) for 1995 and seventy-five percent (75.0%) for 1994.
The Company has a back-log of engagement agreements amounting to
$115,000. The agreements signed in September, 1995 should commence about
April, 1996.
12. STOCK OPTIONS AND AWARDS:
The Company has granted stock options which are part of the employment
agreement with a key employee. One million two hundred thousand
(1,200,000) shares of the Company's common stock has been issued or
reserved for issuance under the agreement. The terms of options granted
under the agreement is determined at the time of the grant. The option
price may not be less than the fair market value per share on the date of
grant. The Company also awarded common stock to certain other employees
which were granted at par value, which was deemed to be fair value.
Stock option/award activity under the Agreement is as follows:
<TABLE>
<CAPTION>
1995 1994
------ ---------
<S> <C> <C>
Number of option shares:
Outstanding, beginning 400,000 1,000,000
Add (deduct):
Granted/awarded 200,000 767,500
Exercised 400,000 1,367,500
Cancelled - -
-------- ----------
Outstanding, ending 200,000 400,000
======== ==========
Option price range
Granted $ .001 $ .001
Exercised .001 .001
Cancelled - -
--------- ----------
Outstanding, ending $.001 $ .001
========= ==========
</TABLE>
19
<PAGE> 41
INTERNATIONAL REALTY GROUP, INC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1995 AND 1994
12. STOCK OPTIONS AND AWARDS (CONTINUED):
The 400,000 shares exercised under the option agreement were valued at
par on the exercise dates of April 1, 1995 and June 1, 1995.
Management, with the concurrence of the majority shareholders, granted
employee stock awards for 1995. All eligible employees of the Company
were granted stock awards (32,575 shares). In addition, the Company also
granted an award of 8,500 shares of common stock to all members of the
Board of Directors, some of whom are officers. Amounts charged against
current earnings for the awards was approximately $32,100. The per unit
share was based upon the fair value ($.782) of the common stock at year
end.
13. TRUST ASSETS:
AGI RT maintains cash (1995, $678,900; 1994, $1,290,000) in a fiduciary
or agency capacity (trust funds) for certain customers which is not
included in the accompanying consolidated balance sheet. The trust funds
represent funds for companies being liquidated under court supervision.
In 1994, former employees of AGI Rt invested trust funds in securities of
an entity. The investment was outside the fiduciary scope of
responsibility of AGI RT as Trustee and was done without its knowledge or
consent. The investments were liquidated in 1995 at a loss, and the
Company has voluntarily indemnified the trust fund for such losses.
Management of the Company is instituting legal proceedings against the
former employees seeking restitution. The ability of recovery has not
been determined, and accordingly, amounts paid as indemnification
($51,500) have been charged to current operations.
14. SUPPLEMENTAL INFORMATION:
<TABLE>
<CAPTION>
1995 1994
Charged to: -------- --------
<S> <C> <C>
Direct:
Consulting, appraisal $526,000 $492,000
Reports, film and
other 94,800 90,800
-------- --------
$620,800 $582,800
======== ========
Selling, general and
Administrative:
Utilities $ 42,500 $ 39,500
Insurance 6,500 5,900
Office 48,600 76,000
Professional 71,600 36,100
Selling 23,100 51,100
Other 54,600 68,100
-------- --------
$246,900 $276,700
======== ========
</TABLE>
20
<PAGE> 42
INTERNATIONAL REALTY GROUP, INC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1995 AND 1994
15. BUSINESS SEGMENT:
Information about the Company's operations in different geographic areas
for the years ended December 31, 1995 and 1994 is as follows:
<TABLE>
<CAPTION>
Consolidated United
Total States Hungary
------------ -------- ---------
<S> <C> <C> <C>
Net revenues:
1995 $1,222,100 $531,300 $690,800
1994 1,328,200 744,200 584,000
Income (loss) from
continuing operations
before other deductions,
income taxes and
minority interest:
1995 (304,800) (361,600) 56,800
1994 (257,900) (259,900) 2,000
Identifiable assets:
1995 666,200 467,200 199,000
1994 885,000 512,000 373,000
Capital expenditures:
1995 36,500 15,200 21,300
1994 7,100 7,100 -
Depreciation and amortization:
1995 87,800 82,900 4,900
1994 90,400 84,400 6,000
</TABLE>
Income (loss) form continuing operations is revenue less operating
expenses. In determining income (loss) from continuing operations, the
following items have not been included:
a) Other deductions
b) Income taxes
c) Minority interest
Identifiable assets are those assets that are identified with the
operations in each geographic area.
21
<PAGE> 43
INTERNATIONAL REALTY GROUP, INC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1995 AND 1994
16. SELECTED QUARTERLY FINANCIAL SUMMARY (UNAUDITED):
For the years ended December 31:
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
---------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
1995:
Revenues $ 290,300 $ 335,300 $305,700 $ 290,800
Operating expenses 397,700 462,000 285,000 434,300
--------- --------- -------- ---------
Income (loss) before
income taxes (107,400) (126,700) 20,700 (143,500)
Provision for income
taxes (benefit) - - 2,400 500
--------- --------- -------- ---------
Net income (loss) $(107,400) $(126,700) $ 18,300 $(144,000)
========= ========= ======== =========
Net income (loss) per
common share $ (0.01) $ (0.02) $ 0.03 $ (0.04)
========= ========= ======== =========
1994:
Revenues $ 426,900 $ 269,400 $235,500 $ 396,400
Operating expenses 468,300 337,100 274,100 506,600
---------- --------- -------- ---------
Loss before income
taxes (41,400) (67,700) (38,600) (110,200)
Provision for income
taxes (benefit) (11,400) (19,600) 2,900 6,900
--------- --------- -------- ---------
Net loss $ (30,000) $ (48,100) $(41,500) $(117,100)
========= ========= ======== =========
Net loss per common
share $ - $ (0.01) $(0.01) $ (0.02)
========= ========= ========== =========
</TABLE>
22
<PAGE> 44
INTERNATIONAL REALTY GROUP, INC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1995 AND 1994
16. SELECTED QUARTERLY FINANCIAL SUMMARY (UNAUDITED) (CONTINUED):
The 1995 and 1994 quarters have been restated for $15,000 of
amortization, which resulted from changing the estimated amortization
period from ten (10) to five (5) years. Major fluctuations between the
third and fourth quarters of 1995 and 1994 are as follows:
<TABLE>
<S> <C>
1995:
Bad Debts, foreign $ 36,800
Other deductions, foreign 51,500
1994:
Bad Debts, domestic 110,000
Payroll, domestic 28,300
</TABLE>
Circumstances were not evident that the bad debts arose prior to the
fourth quarter for both 1995 and 1994.
23
<PAGE> 45
SIGNATURES
IN ACCORDANCE WITH SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934,
THE COMPANY HAS DULY CAUSED THIS ANNUAL REPORT ON FORM 10-KSB TO BE SIGNED ON
ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED.
INTERNATIONAL REALTY GROUP, INC.
By: /s/ Richard M. Bradbury
--------------------------------
Richard M. Bradbury,
President, and
Chief Financial Officer
Date: September 10, 1996
19
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE ANNUAL
REPORT OF DECEMBER 31, 1995 DATED MARCH 22, 1996, AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 19,400
<SECURITIES> 0
<RECEIVABLES> 221,500
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 267,700
<PP&E> 384,600
<DEPRECIATION> (178,700)
<TOTAL-ASSETS> 1,181,900
<CURRENT-LIABILITIES> 717,400
<BONDS> 0
0
0
<COMMON> 9000
<OTHER-SE> 406,500
<TOTAL-LIABILITY-AND-EQUITY> 1,181,900
<SALES> 0
<TOTAL-REVENUES> 1,222,100
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,478,700
<LOSS-PROVISION> 73,300
<INTEREST-EXPENSE> 27,000
<INCOME-PRETAX> (356,300)
<INCOME-TAX> 2,900
<INCOME-CONTINUING> (359,200)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (359,800)
<EPS-PRIMARY> (.04)
<EPS-DILUTED> 0
</TABLE>
