<PAGE> 1
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 JUNE 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________________ to _______________________
Commission File Number 0-20180
INTERNATIONAL REALTY GROUP, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Delaware 62-1277260
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
111 Northwest 183Rd Street, Suite 518, Miami, Florida 33169
- --------------------------------------------------------------------------------
(Address of principal executive office) (Zip Code)
305-944-8811
(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
---- ----
The number of shares outstanding of each of Issuer's classes of common equity as
of September 1, 1998.
Common Stock, par value $.001 9,954,313
---------------------------- --------------------------
Title of Class Number of Shares
Transitional Small Business Disclosure Format yes no X
----- -----
<PAGE> 2
PART I: FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
INTERNATIONAL REALTY GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
JUNE 30, 1998
(UNAUDITED)
ASSETS:
REAL ESTATE AT COST:
PROPERTY HELD FOR FUTURE DEVELOPMENT $ 5,527,100
-----------
RECEIVABLES:
DUE FROM SHAREHOLDER 1,676,700
ACCOUNTS RECEIVABLE, LESS ALLOWANCE FOR
DOUBTFUL ACCOUNTS OF $13,000 153,500
-----------
1,830,200
-----------
CASH AND EQUIVALENTS 115,700
FURNITURE, EQUIPMENT AND IMPROVEMENTS, NET 119,400
EXCESS OF COST OVER ESTIMATED FAIR VALUE OF
NET ASSETS ACQUIRED 95,100
OTHER ASSETS 61,300
391,500
-----------
$ 7,748,800
===========
LIABILITIES:
MORTGAGES AND NOTES PAYABLE (NOTE 3) $ 1,000,500
ACCOUNTS PAYABLE 221,200
ACCRUED AND OTHER LIABILITIES 1,003,600
CONVERTIBLE NOTES (NOTE 4) 5,157,500
-----------
7,382,800
-----------
MINORITY INTEREST 1,245,300
-----------
SHAREHOLDERS' EQUITY:
COMMON STOCK, $.001 PAR; AUTHORIZED 10,000,000
SHARES; 9,954,313 COMMON SHARES ISSUED 10,000
CAPITAL IN EXCESS OF PAR 1,139,000
ACCUMULATED OTHER COMPREHENSIVE LOSS (242,600)
ACCUMULATED DEFICIT (1,770,200)
-----------
(863,800
LESS SHARES OF COMMON STOCK HELD IN TREASURY,
AT COST 15,500
-----------
(879,300)
-----------
TOTAL $ 7,748,800
===========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
1
<PAGE> 3
PART I: FINANCIAL INFORMATION, CONTINUED
ITEM 1. FINANCIAL STATEMENTS, CONTINUED:
INTERNATIONAL REALTY GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
THREE AND SIX MONTHS ENDED JUNE 30, 1997 AND 1998
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30
-------------------------- --------------------------
1997 1998 1997 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
REVENUES:
REVENUES FROM SERVICES PROVIDED $ 222,200 $ 203,800 $ 399,300 $ 395,400
----------- ----------- ----------- -----------
OPERATING EXPENSES:
AMORTIZATION AND DEPRECIATION 13,900 13,300 27,900 28,000
DIRECT 122,200 118,000 224,900 207,000
PAYROLL AND RELATED BENEFITS 50,000 45,900 98,100 97,700
SELLING, GENERAL & ADMINISTRATIVE 40,700 40,800 74,100 103,000
----------- ----------- ----------- -----------
226,900 218,000 425,000 435,700
----------- ----------- ----------- -----------
LOSS BEFORE OTHER INCOME (EXPENSE), MINORITY INTEREST &
PROVISION FOR INCOME TAXES (BENEFIT) (4,700) (14,200) (25,700) (40,300)
OTHER INCOME (EXPENSE)
INTEREST INCOME 500 -- 500 200
INTEREST EXPENSE (86,800) (80,400) (137,100 (185,800)
REAL ESTATE OPERATING EXPENSES -- (48,500) -- (97,700)
GAIN (LOSSES) ON EXCHANGE RATE FLUCTUATIONS (1,400) (21,000) (9,600) (50,800)
OTHER INCOME (EXPENSES) 900 3,400 2,200 6,400
----------- ----------- ----------- -----------
LOSS BEFORE MINORITY INTEREST &
PROVISION FOR INCOME TAXES (BENEFIT) (91,500) (160,700) (219,700) (368,000)
MINORITY INTEREST IN INCOME (LOSS) OF SUBSIDIARIES 5,000 29,800 16,800 59,800
----------- ----------- ----------- -----------
LOSS BEFORE PROVISION FOR INCOME TAXES (86,500) (130,900) (202,900) (308,200)
PROVISION FOR INCOME TAXES -- -- -- --
----------- ----------- ----------- -----------
NET LOSS $ (86,500) $ (130,900) $ (202,900) $ (308,200)
----------- ----------- ----------- -----------
OTHER COMPREHENSIVE INCOME (LOSS) BEFORE TAX:
FOREIGN CURRENCY TRANSLATION ADJUSTMENTS (8,800) (5,500) 2,800 (9,000)
INCOME TAX EXPENSE (BENEFIT) RELATED TO OTHER
COMPREHENSIVE INCOME -- -- -- --
----------- ----------- ----------- -----------
OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX (8,800) (5,500) 2,800 (9,000)
----------- ----------- ----------- -----------
COMPREHENSIVE LOSS $ (95,300) $ (136,400) $ (200,100) $ (317,200)
=========== =========== =========== ===========
LOSS PER COMMON SHARE $ (0.01) $(0.01 ) $ (0.02) $ (0.03)
=========== =========== =========== ===========
WEIGHTED AVERAGE NUMBER OF COMMON SHARES 9,954,187 9,954,313 9,954,187 9,954,313
=========== =========== =========== ===========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
2
<PAGE> 4
PART I: FINANCIAL INFORMATION, CONTINUED
ITEM 1. FINANCIAL STATEMENTS, CONTINUED:
INTERNATIONAL REALTY GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 1998 AND JUNE 30, 1997
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS ENDED
1998 1997
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
SOURCES OF CASH:
CLIENTS AND OTHER $ 363,100 $ 589,000
INTEREST 200 400
--------- ---------
363,300 589,400
--------- ---------
USES OF CASH:
CASH PAID TO:
DIRECT COSTS 193,600 418,400
OPERATING 53,500 35,000
PAYROLL AND RELATED BENEFITS 97,700 98,000
INTEREST 6,300 400
--------- ---------
351,100 551,800
--------- ---------
CASH PROVIDED BY OPERATING ACTIVITIES 12,200 37,600
--------- ---------
CASH FLOWS USED IN INVESTING ACTIVITIES:
USES OF CASH:
ACQUISITION OF EQUIPMENT (4,400) (1,100)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
SOURCE OF CASH:
DUE FROM SHAREHOLDER 15,000 100,000
USES OF CASH
PAYMENT OF
SHAREHOLDER LOAN 7,600
NOTES PAYABLE 58,700
--------- ---------
CASH PROVIDED BY FINANCING ACTIVITIES 7,400 41,300
--------- ---------
EFFECT OF EXCHANGE RATES ON CASH AND CASH EQUIVALENTS (6,700) 6,300
--------- ---------
INCREASE IN CASH AND CASH EQUIVALENTS 8,500 84,100
CASH AND CASH EQUIVALENTS, BEGINNING 107,200 7,600
CASH AND CASH EQUIVALENTS, ENDING $ 115,700 $ 91,700
========= =========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
3
<PAGE> 5
PART I: FINANCIAL INFORMATION, CONTINUED
ITEM 1. FINANCIAL STATEMENTS, CONTINUED:
INTERNATIONAL REALTY GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS (CONTINUED)
SIX MONTHS ENDED JUNE 30, 1998
(UNAUDITED)
SIX MONTHS ENDED
1998 1997
RECONCILIATION OF NET LOSS TO CASH
PROVIDED BY OPERATING ACTIVITIES:
NET LOSS $(308,200) $(202,900)
ADJUSTMENTS TO RECONCILE NET LOSS TO
CASH PROVIDED BY OPERATING ACTIVITIES:
AMORTIZATION AND DEPRECIATION $ 28,800 $ 28,000
AMORTIZATION OF NOTE PAYABLE DISCOUNT -- 15,300
MINORITY INTEREST (61,000) (16,800)
CURRENCY FLUCTUATION 51,200 9,600
CHANGES IN ASSETS & LIABILITIES:
ACCOUNTS RECEIVABLE (38,700) 187,400
OTHER ASSETS 44,600 (91,800)
DUE FROM SHAREHOLDER 196,100 --
ACCOUNTS PAYABLE (8,900) (101,700)
ACCRUED LIABILITIES (18,400) 90,100
CONVERTIBLE NOTES 126,700 120,400
--------- ---------
TOTAL ADJUSTMENTS 320,400 240,500
--------- ---------
CASH PROVIDED BY OPERATING ACTIVITIES $ 12,200 $ 37,600
========= =========
SCHEDULE OF NON-CASH OPERATING ACTIVITIES:
REDUCTION OF RECEIVABLE DUE FROM SHAREHOLDER $ 347,000 $ (35,100)
CURRENCY FLUCTUATION AND EXPENSES PAID BY
SHAREHOLDER (332,000) 35,100
--------- ---------
CASH RECEIVED $ 15,000 --
--------- ---------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
4
<PAGE> 6
PART I: FINANCIAL INFORMATION, CONTINUED
ITEM 1. FINANCIAL STATEMENTS, CONTINUED:
INTERNATIONAL REALTY GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 1998
(1) PRINCIPLES OF STATEMENT PRESENTATION
The unaudited consolidated financial statements include all adjustments which
are necessary, in the opinion of management, to fairly reflect the Company's
financial position and results of operations. All such adjustments are of a
normal recurring nature. The statements have been prepared using the accounting
policies described in the Company's 1997 Audited Financial Statements contained
in the Company's Form 10-KSB for the year ended December 31, 1997.
(2) TRANSACTION WITH DSC AND HEMISPHERE
Pursuant to an Amended and Restated Agreement dated August 19, 1996, the Company
consummated a transaction ("Transaction") on such date with DSC, S.A. de C.V.
("DSC") and Hemisphere Development Limited ("Hemisphere"). In the Transaction,
the Company acquired the majority interest in five (5) parcels of land amounting
to approximately 3,745 acres in Mexico (see Footnote 4 herein), other assets and
assumed liabilities of DSC and Hemisphere in exchange for 1,000,000 shares of
common stock with a fair value of $.0445 per share and convertible notes
("Notes") with a face value of $4,700,900. The estimated fair value of the
assets acquired and liabilities assumed is as follows:
Assets acquired:
Land $5,014,200
Receivable due from DSC 2,110,500
Cash 317,800
Other Assets 33,000
----------
$7,475,500
Liabilities assumed, including minority interest:
Mortgages $1,094,100
Accounts payable and accrued liabilities 323,300
Minority interest in net assets 1,312,700
----------
$2,730,100
Total assets acquired less liabilities assumed $4,745,400
==========
The assets and liabilities have been recorded at a net asset value of $4,745,400
which is the estimated fair value of the Notes and common stock issued at the
date of the Transaction. Receivable due from DSC, cash and other assets were
recorded at their stated amounts. LIabilities were recorded at their present
value. Minority interest represents the portion of undivided net assets not
acquired.
The acquisition price of the land and other assets less the liabilities assumed
in the Transaction was determined based upon the estimated fair value of the
common stock (using the restricted share value of $0.0445 per share) at the date
of the Transaction. Since the common stock of the Company is not actively
traded, the Company had a valuation performed by an independent firm. The
valuation firm specializes in business and financial valuation. The firm
determined a fair market value on a minority interest basis. The valuation
concluded that the fair market values per share of the common equity of
International Realty Group on a minority interest basis as of August 19, 1996,
immediately before the Transaction were as follows:
5
<PAGE> 7
PART I: FINANCIAL INFORMATION, CONTINUED
ITEM 1. FINANCIAL STATEMENTS, CONTINUED
Unrestricted shares $0.0607
Restricted shares $0.0445
After the Transaction, the fair market values were
Unrestricted shares $0.0617
Restricted shares $0.0480
The Post Transaction fair market values include the assets and liabilities
assumed, which for valuation purposes are based on the amounts recorded in the
accompanying consolidated financial statements. The valuation report does not
take into consideration any effect on value resulting from future development or
future operating contributions of the assets acquired in the Transaction.
(3) MORTGAGE AND NOTES PAYABLE
Mortgages and Notes Payable at June 30, 1998 is summarized as follows:
Mortgage Note, bank $405,600
Note Payable, bank 553,100
----------
Total Payable to banks $958,700
Note Payable, unsecured 41,800
----------
$1,000,500
----------
(4) CONVERTIBLE NOTE
Convertible notes ("Notes") with a face value of $4,700,900 convertible into
105,638,300 of Common Stock, accrue interest at 5% per year and mature on
February 1, 1999. Accrued interest as of June 30, 1998 is $456,600. The
following pro forma information is provided to reflect the effect of the
conversion on shareholders' equity as if it had occurred on June 30, 1998.
<TABLE>
<CAPTION>
June 30, ProForma ProForma
SHAREHOLDERS' EQUITY: 1998 Adjustments June 30,
1998
<S> <C> <C> <C>
COMMON STOCK, $.001 PAR; AUTHORIZED 10,000,000
SHARES; 9,954,313 SHARES ISSUED $ 10,000 $ 105,600 $ 115,600
CAPITAL IN EXCESS OF PAR 1,139,000 4,595,300 5,734,300
ACCUMULATED OTHER COMPREHENSIVE LOSS (242,600) -- (242,600)
ACCUMULATED DEFICIT (1,770,200) (1,770,200)
----------- ----------- -----------
(863,800) 4,700,900 3,837,100
LESS SHARES OF COMMON STOCK HELD IN TREASURY, 15,500 -- 15,500
----------- ----------- -----------
AT COST
$ (879,300) $ 4,700,900 $ 3,852,600
=========== =========== ===========
</TABLE>
Item 2. Management's Discussion and Analysis or Plan of Operations.
The following discussion and analysis covers any material changes in financial
condition since December 31, 1997 and any material changes in the results of
operations for the three and six months ended June 30, 1998, as compared to the
same period in 1997. This discussion and analysis should be read in conjunction
with "Management's Discussion and Analysis and Results of Operations" included
in the Company's Form 10-KSB for the year ended December 31, 1997.
6
<PAGE> 8
PART I: FINANCIAL INFORMATION, CONTINUED
ITEM 2. MANAGEMENT'S DISCUSSION
GENERAL
ORGANIZATION AND BUSINESS
INTERNATIONAL REALTY GROUP, INC., ("the Company") was incorporated in the State
of Delaware on April 13, 1970. Its principle offices are located at 111 NW 183
Street, Suite 518, Miami, Florida 33169. Its telephone number is (305) 944-8811
Fax (305) 651-3394.
The Company, together with its consolidated subsidiaries, currently operates in
two business segments: (i) Real Estate Consulting Services, as a provider of
commercial and residential real estate, machinery and equipment valuations and
appraisals in the United States and Hungary and (ii) Land Development, primarily
in Mexico. The Company will be developing its Mexican properties into various
resort and commercial developments. Once developed they will engage in the
marketing and operation of its properties and other ancillary real estate
activities. No development of the properties located in Mexico will occur until
after the conversion of the notes issued in the transaction described in "Land
Development", which notes are collateralized by the properties located in
Mexico.
THREE MONTHS ENDED JUNE 30, 1998 COMPARED TO THREE MONTHS ENDED JUNE 30, 1997
REAL ESTATE CONSULTING SERVICES
Revenues decreased for the three months ended June 30, 1998 totaling
$203,800 as compared to $222,200 for the same period in 1997. Revenues from
domestic operations performed by Appraisal Group International, Inc. ("AGII")
were $207,700, as compared to $186,300 for the same period in 1997. Revenues
from foreign operations performed by Appraisal Group International, Rt. ("AGI
Rt.") decreased from the comparable period in 1997.
Operating expenses for the three months ended June 30, 1998 were $218,000
compared to $226,900 for the comparable period in 1997. Of the total expenses,
domestic operations accounted for 90% and foreign operations accounted for 10%.
Selling, General and Administrative expenses for the period were
consistent with $40,700 in 1997 and $40,800 in 1998. Payroll and Related
Benefits for the period decreased from $50,000 in 1997 to $45,900 for the
current period. Direct expenses, including the production of appraisal reports
and appraiser's fees, travel, photography and other related expenses, decreased
from $122,200 in 1997 to $118,000 for the current period. Amortization and
Depreciation expense was consistent between the periods at $13,900 and $13,300
respectively.
Other income (expense), during the current period, consisted of interest
expense, which was $80,400 in the 1998 period compared to $86,800 for the
comparable period in 1997. The majority of interest expense is attributable to
the Convertible Note ($63,700) and debt for properties located in Mexico.
Currency translation expense was $21,000 for the current period compared to
$1,400 for the comparable period in 1997. Such translation expense is
attributable to the currency fluctuations of Mexican pesos denominated accounts
receivable and mortgages, notes and other liabilities during each such period.
7
<PAGE> 9
PART I: FINANCIAL INFORMATION, CONTINUED
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS, CONTINUED
LAND DEVELOPMENT
The Company has acquired interests in five properties located in Mexico,
pursuant to a transaction (the "Transaction") with DSC, S.A. de C.V. ("DSC") and
Hemisphere Developments Limited ("Hemisphere"), dated as of August 19, 1996. The
Company believes that each of the Mexican properties is suitable for future
development as either a resort, residential or commercial property. Since the
properties secure the Company's obligations under certain notes issued to DSC
and Hemisphere, the Company does not plan to undertake any development of such
properties until after such notes have been converted. While no assurances can
be given, the Company expects that the conversion of these notes (convertible
into an aggregate of 105,638,300 shares of the Company's Common Stock) will
occur in the fourth quarter of 1998. Any development of the properties
thereafter is contingent upon the Company obtaining necessary financing.
Potential sources of financing include mortgage financing from financial
institutions located in the United States or Mexico, or the issuance of equity
securities of the Company. The Company has no present understanding, agreement
or commitment for financing any such property and there can be no assurance that
financing will be available to the Company on commercially reasonable terms or
at all.
During the current period, in concurrence with DSC and Hemisphere, the
Company began preliminary activity in its land development operations. The
Company had costs, paid directly by DSC through the reduction of their account
payable to the Company, totaling $48,500 for personnel, engineering, site plans
and other related expenses.
SIX MONTHS ENDED JUNE 30, 1998 COMPARED TO SIX MONTHS ENDED JUNE 30, 1997
REAL ESTATE CONSULTING SERVICES
REVENUES were consistent for the six months ended June 30, 1998 totaling
$395,400 as compared to $399,300 for the same period in 1997. Revenues from
domestic operations performed by AGII increased to $364,800, as compared to
$344,500 for the same period in 1997. Revenues from foreign operations performed
by AGI RT. decreased for the six month period to $37,200 compared to $57,500 for
the same period in 1997.
OPERATING EXPENSES for the six months ended June 30, 1998 were $437,700
compared to $425,000 for the comparable period in 1997. Of the total expenses,
domestic operations accounted for 90% and foreign operations accounted for 10%.
Selling, General and Administrative expenses for the period were $103,000
in 1998 compared to $74,100 in 1997. The increase in such expenses is attributed
to audit, legal and other corporate overhead expenses. Payroll and Related
Benefits were consistent with $98,100 in 1997 and $97,700 for the current
period. Direct expenses, including the production of appraisal reports and
appraiser's fees, travel, photography and other related expenses, decreased from
$224,900 in 1997 to $207,000 for the current period. Amortization and
Depreciation expense was consistent between the periods.
OTHER INCOME (EXPENSE), during the current period, consisted of interest
expense, which was $185,800 compared to $187,100 for the comparable period in
1997. The majority of interest expense is attributable to the Convertible Note
($127,200) and debt for properties located in Mexico. Currency translation
expense was $50,800 for the current period compared to $9,600 for the comparable
period in 1997. Such translation expense is attributable to the currency
fluctuations of Mexican pesos denominated accounts receivable and mortgages,
notes and other liabilities during each such period.
8
<PAGE> 10
PART I: FINANCIAL INFORMATION, CONTINUED
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS, CONTINUED
LAND DEVELOPMENT
During the current six-month period, the Company began preliminary
activity in its land development operations. The Company had costs, paid
directly by DSC through the reduction of their account payable to the Company,
totaling $97,700 for personnel, engineering, site plans and other related
expenses.
LIQUIDITY AND CAPITAL RESOURCES:
Cash and Cash Equivalents for the six months ended June 30, 1998 totaled
$115,700 and accounts receivables of $1,830,200. Of this amount, $1,676,700 is
due from shareholder, and the balance of accounts receivable $153,500 is from
domestic operations ($125,600) and foreign operations ($27,900).
Net cash provided by operating activities, for the current period, was
$12,200 compared to $37,600 for the comparable 1997 period. Cash flow used in
investing activities, primarily for the acquisition of equipment for domestic
consulting services, totaled $4,400. Net cash provided by (used in) financing
activities was $7,400 in the current period. Cash and cash equivalents increased
by $8,500 for the current period, compared to $84,100 for the 1997 period. Such
difference is attributable to the receipt of $100,000 in capital contributions
from shareholder DSC during the 1997 period.
Mortgage and notes payable for the six months ended June 30, 1998 were
$1,000,500 attributable to: (i) $958,600 mortgages to Mexican banks for property
currently held for future development, and (ii) $41,800 note payable for
domestic operations. Accounts payable totaled $221,200. Accrued liabilities
totaling $1,003,600 consisted of: (i) $567,900 accrued salaries, (ii) $330,900
accrued interest and other expense for Mexican operations, (iii) $40,600
shareholder loans and the balance attributable to other short-term debt.
CURRENCY RISK. The Company is subject to risk in changes of foreign exchange
rates for its subsidiaries that use a foreign currency as their functional
currency, or for assets or liabilities which are foreign currency denominated
and are translated to U.S. dollars at each reporting period. The Company has
made quarterly currency translation adjustments (totaling $242,600 over an
eight-year period) for its foreign operations, recognized as a component of
shareholder's equity. When a foreign entity operates in a highly inflationary
economy, the Company uses the U.S. dollar as the functional currency, rather
than the local currency. Effective September 30, 1996 the Company considered
Mexico to operate in a highly inflationary economy. The Company has not engaged
in the purchase of forward contracts, or other hedging techniques, to manage
such foreign exchange risk to protect against earnings and cash flow volatility
resulting from changes in foreign exchange rates.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
In connection with the safe harbor provisions of the Private Securities
Litigation Reform Act of 1995 (the "Reform Act"), the Company is hereby
providing cautionary statements identifying important factors that could cause
the Company's actual results to differ materially from those projected in
forward-looking statements (as such term is defined in the Reform Act) made by
or on behalf of the Company herein or orally, whether in presentations, in
response to questions or otherwise. Any statements that express, or involve
discussions as to expectations, beliefs, plans, objectives, assumptions or
future events or performance (often, but not always, through the use of words or
phrases such as "will result", "are expected to", "will continue", "is
anticipated", "estimated", "projection" and "outlook") are not historical facts
and may be
9
<PAGE> 11
PART I: FINANCIAL INFORMATION, CONTINUED
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS, CONTINUED
forward-looking and, accordingly, such statements involve estimates,
assumptions, and uncertainties which could cause actual results to differ
materially from those expressed in the forward-looking statements. Such
uncertainties include, among other, the following: (i) the Company's ability to
obtain additional financing to implement its business strategy; (ii) real estate
investment risks, including the potential for increases in real property taxes;
(iii) real estate development risks, including obtaining building permits or
necessary zoning changes, construction delays strikes, adverse weather
conditions and other conditions beyond the control of the Company; (iv)
illiquidity of real estate investments; (v) the financial condition of the
Company's clients; (vi) imposition of new regulatory requirements affecting the
Company; (vii) a downturn in general or local economic conditions where the
Company owns real property; (viii) the delay or failure to properly manage
growth and successfully integrate acquired companies and operations; (ix) lack
of geographic diversification; (x) effect of uninsured loss and (ix) other
factors which are described in further detail in the Company's filings with the
Securities and Exchange Commission.
The Company cautions that actual results or outcomes could differ materially
from those expressed in any forward-looking statements made by or on behalf of
the Company. Any forward-looking statement speaks only as of the date on which
such statement is made, and the Company undertakes no obligation to update any
forward-looking statement or statements to reflect events or circumstances after
the date on which such statement is made or to reflect the occurrence of
unanticipated events. New factors emerge from time to time, and it is not
possible for management to predict all of such factors. Further, management
cannot assess the impact of each such factor on the business or the extent to
which any factor, or combination of factors, may cause actual results to differ
materially from those contained in any forward-looking statements.
YEAR 2000 COMPLIANCE:
The Year 2000 issue is the result of computer programs being written using two
(2) digits rather than the four (4) digits to define the year. Any of the
Company's computer programs that have date-sensitive software may recognize a
date using "00" as the year 1900 rather than 2000. This problem could force
computers to either shut down or provide incorrect data or information. The
Company utilizes generic software programs developed, maintained and upgraded by
independent computer software providers. In response to the Year 2000 issue,
management is of the opinion that the providers of these software programs will
resolve the date sensitive issue so that all critical systems will be in
compliance prior to the Year 2000. The Company does not anticipate any material
adverse impact on its business.
10
<PAGE> 12
PART II: OTHER INFORMATION
ITEM 1: LEGAL PROCEEDINGS
None
ITEM 2: CHANGES IN SECURITIES
None
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5: OTHER INFORMATION
The Company filed a preliminary Information Statement on Form 14C on
June 30, 1998.
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
A. Exhibits
27.1 Financial Data Schedule (For SEC purposes only)
B. Reports on Form 8-K
None for the quarterly period ended June 30, 1998.
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.
DATE: OCTOBER 22, 1998 BY: /s/ RICHARD M. BRADBUR
-------------------------------------------
Richard M. Bradbury
President
(Principal Executive and Financial Officer)
11
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
INTERNATIONAL REALTY GROUP, INC. INTERIM REPORT DATED JUNE 30, 1998 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH 10-QSB FOR THE QUARTERLY PERIOD
ENDED JUNE 30, 1998 DATED OCTOBER 22, 1998.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 115,700
<SECURITIES> 0
<RECEIVABLES> 1,830,200
<ALLOWANCES> 0
<INVENTORY> 5,527,100<F1>
<CURRENT-ASSETS> 0
<PP&E> 119,400
<DEPRECIATION> 0
<TOTAL-ASSETS> 7,748,800
<CURRENT-LIABILITIES> 1,224,800
<BONDS> 6,158,000
0
0
<COMMON> 10,000
<OTHER-SE> (869,300)
<TOTAL-LIABILITY-AND-EQUITY> 7,748,800
<SALES> 0
<TOTAL-REVENUES> 395,400
<CGS> 0
<TOTAL-COSTS> 435,700
<OTHER-EXPENSES> 141,900
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 185,800
<INCOME-PRETAX> (308,200)
<INCOME-TAX> 0
<INCOME-CONTINUING> (308,200)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (317,200)
<EPS-PRIMARY> (.03)
<EPS-DILUTED> 0
<FN>
<F1>INVENTORY CONSISTS OF REAL ESTATE, HELD FOR FUTURE DEVELOPMENT.
</FN>
</TABLE>
