<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 SEPTEMBER 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 Identification No.)
incorporation or organization)
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 X No
--- ---
The number of shares outstanding of each of Issuer's classes of common equity as
of November 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
SEPTEMBER 30, 1998
(UNAUDITED)
<TABLE>
<S> <C>
ASSETS:
REAL ESTATE, AT COST:
PROPERTY HELD FOR FUTURE DEVELOPMENT $ 5,527,100
-----------
RECEIVABLES:
DUE FROM SHAREHOLDER 1,428,600
ACCOUNTS RECEIVABLE, LESS ALLOWANCE FOR DOUBTFUL
COLLECTIONS OF $3,900
153,100
-----------
1,581,700
-----------
CASH AND CASH EQUIVALENTS 101,700
FURNITURE, EQUIPMENT, AND IMPROVEMENTS, NET 110,700
EXCESS OF COST OVER ESTIMATED FAIR VALUE OF
NET ASSETS ACQUIRED 90,700
OTHER ASSETS 46,200
-----------
349,300
-----------
TOTAL $ 7,458,100
===========
LIABILITIES:
MORTGAGES AND NOTES PAYABLE (NOTE 3) $ 912,900
ACCOUNTS PAYABLE 199,600
ACCRUED AND OTHER LIABILITIES 941,600
CONVERTIBLE NOTES (NOTE 4) 5,221,900
-----------
7,276,000
-----------
MINORITY INTEREST 1,208,700
-----------
SHAREHOLDERS' EQUITY:
COMMON STOCK, $.001 PAR; AUTHORIZED 10,000,000
SHARES; 9,954,313 SHARES ISSUED 10,000
CAPITAL IN EXCESS OF PAR 1,139,000
ACCUMULATED OTHER COMPREHENSIVE LOSS (242,700)
ACCUMULATED DEFICIT (1,917,400)
-----------
(1,011,100)
LESS SHARES OF COMMON STOCK HELD IN TREASURY,
AT COST 15,500
-----------
(1,026,600)
-----------
TOTAL $ 7,458,100
===========
</TABLE>
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 NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1998
(UNAUDITED)
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<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30
--------------------------------------------------------
1997 1998 1997 1998
--------------------------------------------------------
<S> <C> <C> <C> <C>
REVENUES:
REVENUES FROM SERVICES PROVIDED $ 179,700 $ 239,400 $ 579,000 $ 634,800
--------------------------------------------------------
OPERATING EXPENSES:
AMORTIZATION AND DEPRECIATION 13,900 15,300 41,800 43,300
DIRECT 109,100 123,300 334,000 330,300
PAYROLL AND RELATED BENEFITS 52,200 60,800 150,300 158,500
SELLING, GENERAL & ADMINISTRATIVE 39,700 74,200 113,800 177,200
-------------------------- ----------- -----------
214,900 273,600 639,900 709,300
--------------------------------------------------------
LOSS BEFORE OTHER INCOME (EXPENSE), MINORITY INTEREST &
PROVISION FOR INCOME TAXES (BENEFIT) (35,200) (34,200) (60,900) (74,500)
OTHER INCOME (EXPENSE)
INTEREST INCOME 100 100 600 300
INTEREST EXPENSE (90,500) (88,300) (277,600) (274,100)
REAL ESTATE OPERATING EXPENSES -- (25,800) -- (123,500)
GAIN (LOSSES) ON EXCHANGE RATE FLUCTUATIONS 10,800 (47,700) 1,200 (98,500)
OTHER INCOME (EXPENSES) 5,100 -- 7,300 18,400
-------------------------- --------------------------
LOSS BEFORE MINORITY INTEREST &
PROVISION FOR INCOME TAXES (BENEFIT) (109,700) 12,000 (329,400) (551,900)
MINORITY INTEREST IN INCOME (LOSS) OF SUBSIDIARIES (1,800) 36,700 15,000 96,500
--------------------------------------------------------
LOSS BEFORE PROVISION FOR INCOME TAXES (111,500) (147,200) (314,400) (455,400)
PROVISION FOR INCOME TAXES -- -- -- --
NET LOSS (111,500) (147,200) (314,400) (455,400)
--------------------------------------------------------
OTHER COMPREHENSIVE INCOME (LOSS) BEFORE TAX
FOREIGN CURRENCY TRANSLATION ADJUSTMENTS (6,300) 600 (3,500) (8,400)
INCOME TAX EXPENSE (BENEFIT) RELATED TO
COMPREHENSIVE INCOME -- -- -- --
--------------------------------------------------------
OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX (6,300) 600 (3,500) (8,400)
--------------------------------------------------------
COMPREHENSIVE LOSS $ (117,800) $ (146,600) $ (317,900) $ (463,800)
========================================================
LOSS PER COMMON SHARE $ (0.01) $ (0.02) $ (0.01) $ (0.05)
========================================================
WEIGHTED AVERAGE SHARES OF COMMON STOCK 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
NINE MONTHS ENDED SEPTEMBER 30, 1998 AND SEPTEMBER 30, 1997
(UNAUDITED)
Nine Months Ended
September 30
1998 1997
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
SOURCES OF CASH:
CLIENTS AND OTHER $ 614,900 $ 776,500
INTEREST 300 600
--------- ---------
615,200 777,100
--------- ---------
USES OF CASH:
CASH PAID TO:
DIRECT COSTS 330,900 508,600
OPERATING 137,200 113,200
PAYROLL AND RELATED BENEFITS 158,500 150,300
TAXES 600
INTEREST 11,100 1,500
--------- ---------
637,700 774,200
--------- ---------
CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES (22,500) 2,900
--------- ---------
CASH (USED IN) INVESTING ACTIVITIES:
USES OF CASH:
ACQUISITION OF EQUIPMENT (6,700) (3,000)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
SOURCES OF CASH:
DUE FROM SHAREHOLDER 45,000 100,000
USES OF CASH:
PAYMENT OF:
NOTES PAYABLE -- 61,700
SHAREHOLDER LOANS 14,600 --
--------- ---------
CASH PROVIDED BY FINANCING ACTIVITIES 30,400 38,300
--------- ---------
EFFECT OF EXCHANGE RATES ON CASH AND
CASH EQUIVALENTS (6,700) (4,600)
--------- ---------
(DECREASE) INCREASE IN CASH AND CASH
EQUIVALENTS (5,500) 33,600
CASH AND EQUIVALENTS, BEGINNING 107,200 7,600
--------- ---------
CASH AND EQUIVALENTS, ENDING $ 101,700 $ 41,200
========= =========
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)
NINE MONTHS ENDED SEPTEMBER 30, 1998 AND SEPTEMBER 30, 1997
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
RECONCILIATION OF NET LOSS TO CASH FLOWS
PROVIDED BY (USED IN) OPERATING ACTIVITIES:
NET LOSS $(455,400) $(314,400)
ADJUSTMENTS TO RECONCILE NET LOSS TO
CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES:
AMORTIZATION AND DEPRECIATION 44,200 41,800
AMORTIZATION OF NOTE PAYABLE DISCOUNT -- 23,000
MINORITY INTEREST (96,500) (15,000)
CURRENCY FLUCTUATION 97,600 (1,200)
CHANGES IN ASSETS & LIABILITIES:
ACCOUNTS RECEIVABLE (38,300) 190,200
OTHER ASSETS 59,700 (99,600)
DUE FROM SHAREHOLDER 191,300 --
ACCOUNTS PAYABLE: (30,500) (130,600)
ACCRUED LIABILITIES 14,300 126,900
ACCRUED CONVERTIBLE NOTE INTEREST 191,100 181,800
--------- ---------
TOTAL ADJUSTMENTS 432,900 317,300
--------- ---------
CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES $ (22,500) $ 2,900
========= =========
SCHEDULE OF NON-CASH OPERATING ACTIVITIES:
REDUCTION OF RECEIVABLE DUE FROM SHAREHOLDER $ 595,100 $ 182,400
CURRENCY FLUCTUATION AND EXPENSES PAID BY
SHAREHOLDER (550,100) (82,400)
========= =========
CASH RECEIVED $ 45,000 $ 100,000
========= =========
</TABLE>
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)
SEPTEMBER 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, 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 (see Footnote 4 herein). 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 a restricted share value of $0.0445 per share) at the date
of the Transaction. Since the common stock of the Company was not actively
traded as of the date of the Transaction, 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 September 30, 1998 is summarized as follows:
Mortgage Note, bank $362,800
Note Payable, bank 494,700
--------
Total Payable to banks 857,500
Note Payable, unsecured 38,000
Note Payable, related party 17,400
--------
$912,900
========
(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 September 30, 1998 is $521,000. The
following pro forma information is provided to reflect the effect of the
conversion on shareholders' equity as if it had occurred on September 30, 1998.
<TABLE>
<CAPTION>
Historical ProForma ProForma
SHAREHOLDERS' EQUITY: September 30, Adjustments September 30,
1998 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 (242,700) -- (242,600)
ACCUMULATED DEFICIT (1,917,400) -- (1,917,400)
----------- ----------- -----------
(1,011,100) 4,700,900 3,689,800
LESS SHARES OF COMMON STOCK HELD IN TREASURY,
AT COST 15,500 -- 15,500
----------- ----------- -----------
$(1,026,600) $ 4,700,900 $ 3,674,300
=========== =========== ===========
</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 nine months ended September 30, 1998, as
compared to the same periods 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 and Analysis or Plan of Operations, CONTINUED:
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.
RESULTS OF OPERATIONS:
THREE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED TO THREE MONTHS ENDED SEPTEMBER
30, 1997
REAL ESTATE CONSULTING SERVICES
Revenues increased for the three months ended September 30, 1998 totaling
$239,400 as compared to $179,700 for the same period in 1997, an increase of
approximately 25%. The Company's domestic and foreign valuation subsidiaries
Appraisal Group International, Inc. (AGII) based in Miami, Florida and Appraisal
Group International Rt.(AGI RT.) based in Budapest, Hungary accounted for the
Company's revenues. AGII had revenues of $223,200 for the period, and AGI RT.
had revenues of $16,200.
Operating expenses for the three months ended September 30, 1998 were $273,600
compared to $214,900 for the comparable period in 1997. Of the total expenses,
foreign operations accounted for 11% and domestic operations accounted for 89%.
Selling, General and Administrative expenses for the period were $74,200
compared to $39,700 for the same period in 1997, an increase of $34,500. Of such
amounts, $32,700 is attributable to legal, audit, accounting and related
expenses. Payroll and Related Benefits for the period were $52,200 in 1997
compared to $60,800 for the current period. Direct expenses including the
production of appraisal reports, fees and related expenses for the period
increased from $109,100 in 1997 to $123,300 for the current period. Such
increase follows the increase in appraisal revenue during the period.
Amortization and Depreciation expense was consistent between the periods.
Interest expense for the three months ended September 30, 1998 was $88,300
compared to $90,500 for the same period in 1997. The majority of interest
expense is attributable to the convertible note ($64,500) and debt for
properties located in Mexico ($19,200). Currency translation expense was $47,700
for the current 1998 period compared to a gain of $10,800 for the comparable
period in 1997. Such translation gain or loss is attributable to the currency
fluctuations of the Mexican peso during such periods.
7
<PAGE> 9
PART I: FINANCIAL INFORMATION, CONTINUED
ITEM 2, Management's Discussion and Analysis or Plan of Operations, 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, the Company had costs, paid directly by DSC
through the reduction of their account payable to the Company, totaling $25,800
for personnel, engineering, site plans and other related expenses.
NINE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED TO NINE MONTHS ENDED SEPTEMBER
30, 1997
REAL ESTATE CONSULTING SERVICES
Revenues for the nine months ended September 30, 1998 totaled $634,800 as
compared to $579,000 for the same period in 1997, an increase of $55,800 or 9%.
The Company's domestic and foreign valuation subsidiaries accounted for the
Company's revenues. AGII had revenues of $580,100 for the current period,
compared to $498,000 for the same period in 1997, an increase of approximately
16%. AGI RT. had revenues of $53,500, compared to $71,000 for the same period in
1997. The continued decline is attributed to the decrease in appraisal
assignments with the Hungarian government.
Operating expenses for the nine months ended September 30, 1998 were $709,300
compared to $639,900 for the comparable period in 1997, an increase of 11%. Of
the total expenses, foreign operations accounted for 11% and domestic operations
accounted for 89%.
Selling, General and Administrative expenses for the period increased from
$113,800 in 1997 to $177,200 for the current period, an increase of $63.400.
Payroll and Related Benefits for the period increased from $150,300 in 1997 to
$158,500 for the current period. Direct expenses including the production of
appraisal reports, fees and related expenses for the period decreased from
$334,000 in 1997 to $330,300 for the current period. Such decrease is in spite
of the fact revenues increased 11% during such period. Amortization and
Depreciation expense was consistent between the periods.
Interest expense for the nine months ended September 30, 1998 was $274,100
compared to $277,600 for the same period in 1997. The majority of interest
expense is attributable to the convertible note ($191,000) and for properties
located in Mexico ($64,100). There was currency translation expense of $98,500
for the current period compared to a gain of $1,200 for the comparable 1997
period. Such translation gain or expense is attributable to the currency
fluctuations of the Mexican peso during each such period.
8
<PAGE> 10
PART I: FINANCIAL INFORMATION, CONTINUED
ITEM 2, Management's Discussion and Analysis or Plan of Operations, CONTINUED
LAND DEVELOPMENT
During the current nine-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 $123,500 for personnel, engineering, site plans and other related
expenses.
For the nine months ended September 30, 1998, the Company had a net loss of
$(455,400) compared to a net loss of $(314,400) for the comparable 1997 period.
During such period, the Company's domestic consulting operations performed by
AGII had an operating profit of $103,400 for the current period, compared to
$61,600 for the comparable 1997 period. The Company's foreign consulting
operations had an operating loss of $(31,800) for the current period compared to
$(14,400) for the comparable 1997 period. Real estate operations in Mexico had
operating losses of $(123,500) for the current period.
There were no such operations during the 1997 period. The other major
influences on the Company's operating losses are attributable to accrued
interest expense of $274,100 and currency exchange expense of $98,500,
recognized during the current period.
LIQUIDITY AND CAPITAL RESOURCES:
Cash and Cash Equivalents for the nine months ended September 30, 1998
totaled $101,700 and accounts receivables of $1,581,700. Of this amount,
$1,428,600 is due from shareholder, and the balance of accounts receivable
$153,100 is from domestic operations ($102,700) and foreign operations
($50,400).
Net cash provided by (used in) operating activities, for the current
period, was $(22,500) compared to $2,900 for the comparable 1997 period. Cash
flow used in investing activities, primarily for the acquisition of equipment
for domestic consulting services, totaled $6,700. Net cash provided by (used in)
financing activities was $30,400 in the current period, compared to $38,300 in
1997. Cash and cash equivalents decreased by $5,500 for the current period,
compared to an increase of $33,600 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 nine months ended were $912,900
attributable to: (i) $857,500 mortgages to Mexican banks for property currently
held for future development, (ii) $38,000 note payable for domestic operations,
and (iii) $17,400 for foreign operations. Accounts payable totaled $199,600.
Accrued liabilities totaled $941,600, the majority of which consists of: (i)
$558,200 accrued salaries, (ii) $318,400 accrued interest and other expense for
Mexican operations, (iii) $33,600 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 $242,700 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, and recognizes any gain or loss in current operations.
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.
9
<PAGE> 11
PART I: FINANCIAL INFORMATION, CONTINUED
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS, CONTINUED
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
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 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.
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
None
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 September 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: NOVEMBER 5, 1998 BY: /s/ Richard M. Bradbury
------------------------------------
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 SEPTEMBER 30, 1998 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH 10-QSB FOR THE QUARTERLY PERIOD
ENDED SEPTEMBER 30, 1998 DATED NOVEMBER 5, 1998.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 101,700
<SECURITIES> 0
<RECEIVABLES> 1,581,700
<ALLOWANCES> 0
<INVENTORY> 5,527,100<F1>
<CURRENT-ASSETS> 0
<PP&E> 110,700
<DEPRECIATION> 0
<TOTAL-ASSETS> 7,458,100
<CURRENT-LIABILITIES> 1,141,200
<BONDS> 6,134,800
0
0
<COMMON> 10,000
<OTHER-SE> (1,016,600)
<TOTAL-LIABILITY-AND-EQUITY> 7,458,100
<SALES> 0
<TOTAL-REVENUES> 634,800
<CGS> 0
<TOTAL-COSTS> 709,300
<OTHER-EXPENSES> 203,300
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 274,100
<INCOME-PRETAX> (455,400)
<INCOME-TAX> 0
<INCOME-CONTINUING> (455,400)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (455,400)
<EPS-PRIMARY> .05
<EPS-DILUTED> 0
<FN>
<F1>INVENTORY CONSISTS OF REAL ESTATE, HELD FOR FUTURE DEVELOPMENT.
</FN>
</TABLE>
