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FORM 10-QSB
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number 0-20180
INTERNATIONAL REALTY GROUP, INC.
(Exact name of registrant as specified in its charter)
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Delaware 62-1277260
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(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
111 Northwest 183rd Street, Suite 350, Miami, Florida 33169
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(Address of principal executive office) (Zip Code)
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305-944-8811
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(Registrant's telephone number, including area code)
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 X
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The number of shares outstanding of each of Issuer's classes of common equity
as of September 9, 1996.
CLASS NUMBER OF SHARES OUTSTANDING
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Common Stock, par value $.001 9,954,250
Transitional Small Business Disclosure Format yes no X
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TABLE OF CONTENTS
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PAGE
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PART I: FINANCIAL INFORMATION
ITEM 1. FINANCIAL INFORMATION
CONSOLIDATED FINANCIAL STATEMENTS - (UNAUDITED)
1. BALANCE SHEET AS OF MARCH 31, 1995 AND MARCH 31, 1996 3
2. STATEMENT OF OPERATIONS FOR THE THREE MONTHS ENDED
MARCH 31, 1995 AND MARCH 31, 1996 4
3. STATEMENT OF CASH FLOWS FOR THE THREE MONTHS ENDED
MARCH 31, 1995 AND MARCH 31, 1996 5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 7
ITEM 2. MANAGEMENT DISCUSSION AND ANALYSIS OR
PLAN OF OPERATIONS 9
PART II: OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 15
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PART I: FINANCIAL INFORMATION
ITEM 1. FINANCIAL INFORMATION
CONSOLIDATED FINANCIAL STATEMENTS
INTERNATIONAL REALTY GROUP, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
ASSETS
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MARCH 31, 1996 MARCH 31, 1995
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CURRENT ASSETS:
CASH AND EQUIVALENTS 4,700 59,300
ACCOUNTS RECEIVABLE, DEEMED COLLECTIBLE 192,700 295,300
INCOME TAX RECEIVABLE 0 3,200
OTHER CURRENT ASSETS 74,100 35,800
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TOTAL CURRENT ASSETS 271,400 393,600
LAND HELD FOR INVESTMENT 484,800 33,500
MARKETABLE SECURITIES AVAILABLE FOR SALE 34,700 0
FURNITURE, EQUIPMENT AND IMPROVEMENTS NET 197,900 200,900
NOTE RECEIVABLE 0 45,000
EXCESS OF COST OVER FAIR VALUE OF 136,400 154,100
NET ASSETS ACQUIRED
OTHER ASSETS 2,900 26,100
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$1,133,100 $ 853,200
========== =========
LIABILITIES AND SHAREHOLDER'S EQUITY
CURRENT LIABILITIES:
NOTES PAYABLE $ 146,600 $ 163,700
CURRENT PORTION OF LONG-TERM DEBT 6,000 23,100
ACCOUNTS PAYABLE 160,400 158,000
ACCRUED LIABILITIES 418,600 278,400
BILLINGS IN EXCESS OF COSTS AND ESTIMATE 2,500 0
SHAREHOLDERS LOANS 40,800 0
INCOME TAXES PAYABLE 0 1,000
TOTAL CURRENT LIABILITIES 774,900 624,200
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LONG TERM DEBT, LESS CURRENT PORTION: 42,500 49,000
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MINORITY INTEREST 33,100 0
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SHAREHOLDERS' EQUITY
COMMON STOCK, $.001 PAR; AUTHORIZED 10,000,000
SHARES; 8,954,187 COMMON SHARES ISSUE 9,000 7,900
CAPITAL IN EXCESS OF PAR 1,053,400 597,000
CUMULATIVE TRANSLATION ADJUSTMENT (206,500) (189,000)
DEFICIT (557,800) (220,400)
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298,100 199,500
LESS SHARES OF COMMON STOCK HELD
IN TREASURY, AT COST 15,500 15,500
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282,600 180,000
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$1,133,100 $ 853,200
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READ NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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INTERNATIONAL REALTY GROUP, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
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FOR THE THREE MONTHS ENDED
MARCH 31, MARCH 31,
1996 1995
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REVENUES $ 162,200 290,300
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OPERATING EXPENSES
AMORTIZATION AND DEPRECIATION 14,400 $ 26,000
BAD DEBTS 24,200 46,400
DIRECT 112,100 145,100
INTEREST 3,400 1,600
PAYROLL AND RELATED BENEFITS 67,600 90,600
RENT 11,500 14,800
SELLING, GENERAL AND ADMINISTRATIVE 25,700 73,200
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258,900 397,700
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LOSS BEFORE MINORITY INTEREST (96,800) (107,400)
MINORITY INTEREST (2,200) 0
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NET LOSS $ (94,600) $ (107,400)
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NET LOSS PER SHARE OF COMMON STOCK $ (.01) $ (.01)
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WEIGHTED AVERAGE SHARES OF COMMON STOCK $8,954,187 $8,098,112
========== ==========
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READ NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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INTERNATIONAL REALTY GROUP, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
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FOR THE THREE MONTHS ENDED
MARCH 31, MARCH 31,
1995 1996
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CASH FLOWS FROM OPERATING ACTIVITIES:
SOURCES OF CASH:
CLIENTS AND OTHER $368,800 $161,400
INTEREST 100 200
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$368,900 $161,600
USES OF CASH:
CASH PAID FOR:
DIRECT COSTS 145,100 86,600
OPERATING 120,000 46,400
PAYROLL AND RELATED 59,400 39,400
INTEREST 1,600 3,500
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326,100 175,900
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CASH USED IN OPERATING ACTIVITIES $ 42,800 $(14,300)
CASH FLOWS FROM INVESTING ACTIVITIES:
ACQUISITION OF FURNITURE & EQUIPMNT 1,100 2,000
INVESTMENT IN REAL ESTATE -------- 3,700
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CASH USED IN INVESTING ACTIVITIES (1,100) (5,700)
CASH FLOWS FROM FINANCING ACTIVITIES:
SOURCE OF CASH:
SHAREHOLDERS LOANS 14,100
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USES OF CASH:
PAYMENT OF:
LONG TERM DEBT 1,200 500
NOTE PAYABLE 5,300
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1,200 5,800
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CASH PROVIDED BY FINANCING ACTIVITIES (1,200) 8,300
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EFFECT OF EXCHANGE RATES ON CASH AND
EQUIVALENTS (14,500) (3,000)
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INCREASE (DECREASE) IN CASH AND EQUIVALENTS 26,000 (14,700)
CASH AND EQUIVALENTS, BEGINNING 33,300 19,400
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CASH AND EQUIVALENTS, ENDING $ 59,300 $ 4,700
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READ NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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INTERNATIONAL REALTY GROUP, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS (CONTINUED)
(UNAUDITED)
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FOR THE THREE MONTHS ENDED
MARCH 31, MARCH 31,
1995 1996
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RECONCILIATION OF NET LOSS TO CASH USED IN
OPERATING ACTIVITIES:
NET LOSS $(103,700) $(94,600)
ADJUSTMENTS TO RECONCILE NET LOSS TO
CASH USED IN OPERATING ACTIVITIES:
AMORTIZATION AND DEPRECIATION $ 22,300 $ 14,400
MINORITY INTEREST (2,200)
ALLOWANCE FOR DOUBTFUL ACCOUNTS 46,400 0
CHANGES IN ASSETS & LIABILITIES:
ACCOUNTS RECEIVABLE 78,600 28,800
OTHER CURRENT ASSETS (12,300) (3,400)
ACCOUNTS PAYABLE: (13,000) 25,500
ACCRUED LIABILITIES 27,000 22,400
INCOME TAXES PAYABLE (2,500) 0
BILLINGS IN EXCESS OF COSTS 0 (5,200)
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NET ADJUSTMENTS 146,500 80,300
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CASH (USED IN) PROVIDED BY OPERATING
ACTIVITIES $ 42,800 $(14,300)
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READ NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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INTERNATIONAL REALTY GROUP, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 1996
(UNAUDITED)
The consolidated financial statements of the Company included herein have been
prepared, without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission. Although certain information normally
included in financial statements prepared in accordance with generally accepted
accounting principles has been condensed or omitted, the Company believes that
the disclosures are adequate to make the information presented herein not
misleading. It is suggested that these consolidated financial statements be
read in conjunction with the financial statements and the notes thereto
included in the Annual Report on Form 10-KSB of the Company for its fiscal year
ended December 31, 1995.
The foregoing financial information reflects all adjustments which are, in the
opinion of management, of a normal recurring nature and necessary for a fair
presentation. The interim results are not necessarily indicative of the
results which may be expected for a full year.
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF ACCOUNTING:
International Realty Group, Inc. 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 often involve the utilization of estimates.
Consequently, financial statement items do not necessarily represent
current values.
PRINCIPLES OF CONSOLIDATION:
The consolidated financial statements include the accounts of
International Realty Group, Inc. and all material subsidiaries (the
Company). All significant intercompany 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.
Substantially all service contracts have been short term.
EXCESS OF COST OVER FAIR VALUE OF NET ASSETS ACQUIRED:
The cost of an acquired business in excess of the market value of
tangible assets and liabilities 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 factors, events or
circumstances indicate that the value is impaired, the Company will
provide for the decline in that period.
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2. ORGANIZATION AND 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.
Subsidiaries of the Company are as follows:
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STATE OF COUNTRY OF
NAME OF SUBSIDIARY OWNERSHIP DATE OF INCORPORATION INCORPORATION
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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
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3. LIQUIDITY AND STRATEGIC PLANNING
Refer to Item 2, Management's Discussion & Analysis or Plan of Operations
- Liquidity and Capital Resources, contained herein.
4. TRUST ASSETS
The foreign subsidiary maintains cash held in a fiduciary or agency
capacity for certain of its customers and is not included in the
accompanying consolidated balance sheet. The trust funds represent funds
for companies being liquidated under court supervision. As of March 31,
1996, the Company had on deposit $648,319 of such funds.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS.
RESULTS OF OPERATIONS:
THREE MONTHS ENDED MARCH 31, 1996
Total revenues declined for the three months ended March 31, 1996 to $162,200
compared to $290,300 for the same period in 1995, a decline of approximately
$128,000. The Company's domestic and foreign valuation subsidiaries Appraisal
Group, Inc. (AGI) and Appraisal Group International Rt.(AGI RT.) accounted for
the Company's revenues. AGI had sales of $75,000 for the period, versus
$166,000 for the same period in 1995. AGI RT. had sales of $86,800, versus
$124,300 for the same period in 1995.
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Total operating expenses for the three months ended March 31, 1996 were
$258,900 versus $394,000 for 1995, a decrease of $135,100. Of the total
operating expenses, foreign operations accounted for 36% and domestic
operations accounted for 64%.
Corporate General and Overhead Operating Expenses for the three months ended
March 31, 1996 were $25,700 versus $73,200 for the same period in 1995. Bad
debt expense previously included in this category is now segregated. Bad debt
expense for domestic operations for this period amounted to $24,200 versus
$46,400 for the comparable period in 1995.
Amortization and Depreciation, Interest and Rent expenses were reasonably
consistent between March 31, 1996 versus the same period in 1995.
Direct expenses for the three months ended March 31, 1996 including the
production of appraisal reports, appraisers' fees, travel, reproduction,
photography and all related expenses decreased from $145,100 in 1995 to
$112,103 in 1996, a decrease of $33,000. Of the total direct expenses, foreign
operations accounted for 60% and domestic operations accounted for 40%.
Payroll and related benefits expense for the three month period ended March 31,
1996 were $67,600, versus $90,600 for the same period in 1995, a decrease of
$23,000. In addition to this decrease, in order to enhance the Company's cash
flow, the President during this three month period accrued and deferred $17,000
of the $67,600 of the payroll and related benefits expense. Of the payroll
expenses, 25% are attributable to foreign operations, and 75% to domestic
operations.
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. In conjunction with this growth strategy, the Company
has entered into agreements with DSC S.A. de C.V. and Hemisphere Developments
Limited for the acquisition of certain income producing and development real
estate assets. See "Subsequent Events" contained herein.
Cash Flow From Operations. The Company incurred for the three months ended
March 31, 1996, a net loss of $96,800 compared to a net loss of $103,700 for
the comparable period in 1995. Cash flow from operations were a negative
$14,300 compared to a positive cash flow from operations of $42,800 for the
comparable period in 1995. The negative cash flow is a direct result of the
decrease in sales between the comparable periods.
Working Capital. The Company's current liabilities exceed its current assets
by approximately $497,500. This excess in current liabilities consists
principally of related party liabilities. These liabilities consist of accrued
officer's salaries amounting to approximately $401,200, shareholder loans of
$40,800 and advances from DSC in conjunction with the DSC Transaction amounting
to $77,500. The elimination of the related party current liabilities totaling
$519,500 would eliminate the working capital deficiency and current assets
would exceed current liabilities by approximately $22,000. The Company has
limited external financing sources at this time and has relied principally on
internal financing provided by the Company's president and DSC. External
working capital has been provided to the Company's foreign operations through
bank borrowings.
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Current and Long Term Liabilities: Accounts Payable for the three months ended
March 31, 1996 were $160,400. Of this amount, domestic operations accounted
for $95,400 and foreign operations $65,000. The $146,600 Current Portion of
Long-Term debt consists of $69,100 from foreign operations and $77,500 of
advances by DSC in conjunction with the DSC Transaction. The DSC loans are
collateralized by the Company's account receivable, are non interest bearing
and are due at Closing. The remaining Long-Term Debt consists of $48,500 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 March 31, 1995 was 120.40 HUF and March 31, 1996 was 146.72 HUF
to the U.S. Dollar. The Company does not employ any hedging techniques due to
the fact the cost to employ them outweighs any potential benefits.. As of
March 31, 1995 and March 31, 1996, the Company has incurred $14,500 and $3,000
for the 3-month period ended respectively, and has reduced its investment in
its foreign subsidiary and as part of shareholder equity recognized currency
fluctuation losses of <$189,000> and <$206,500> respectively.
SUBSEQUENT EVENTS
GENERAL
On August 19, 1996, the Company consummated the proposed share exchange
transaction ("the 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") 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
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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 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.
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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.
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
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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.
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
13
<PAGE> 14
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 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.
14
<PAGE> 15
PART II
OTHER INFORMATION
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
A. Exhibits
10.1 Agreement, dated February 7, 1996, between the Company and DSC
S.A. de C.V. is incorporated by reference to Exhibit A to the
Company's Form 8-K, dated February 7, 1996.
10.2 Agreement, dated February 9, 1996, between the Company and
Hemisphere Developments Limited is incorporated by reference to
Exhibit B to the Company's Form 8-K, dated February 7, 1996.
27.1 Financial Data Schedule (For SEC purposes only)
B. Reports on Form 8-K
On February 27, 1996, the Company filed a Current Report on Form 8-K
with the SEC, dated as of February 7, 1996.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Company has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
INTERNATIONAL REALTY GROUP, INC.
(REGISTRANT)
DATE: SEPTEMBER 12, 1996 /S/ RICHARD M. BRADBURY
--------------------------------
RICHARD M. BRADBURY,
PRESIDENT, AND
CHIEF FINANCIAL OFFICER
15
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
INTERNATIONAL REALTY GROUP INC. INTERIM REPORT DATED MARCH 31, 1996 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH 10-QSB FOR THE QUARTERLY PERIOD
ENDED MARCH 31, 1996 DATED SEPTEMBER 11, 1996.
</LEGEND>
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<EXCHANGE-RATE> 1
<CASH> 4,700
<SECURITIES> 34,700
<RECEIVABLES> 192,700
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 271,400
<PP&E> 386,300
<DEPRECIATION> (188,400)
<TOTAL-ASSETS> 1,133,100
<CURRENT-LIABILITIES> 744,900
<BONDS> 42,500
0
0
<COMMON> 9,000
<OTHER-SE> 306,700
<TOTAL-LIABILITY-AND-EQUITY> 1,133,100
<SALES> 0
<TOTAL-REVENUES> 162,200
<CGS> 0
<TOTAL-COSTS> 258,900
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 24,200
<INTEREST-EXPENSE> 3,400
<INCOME-PRETAX> (96,800)
<INCOME-TAX> 0
<INCOME-CONTINUING> (94,600)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (94,600)
<EPS-PRIMARY> (.01)
<EPS-DILUTED> 0
</TABLE>
