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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14C INFORMATION
Information Statement Pursuant to Section 14(c) of the Securities Exchange Act
of 1934
CHECK THE APPROPRIATE BOX:
[X] Preliminary Information Statement
[ ] Confidential, for Use of the Commission Only (as permitted by
Rule 14c-5(d)(2))
[ ] Definitive Information Statement
INTERNATIONAL REALTY GROUP, INC.
--------------------------------
(Name of Registrant As Specified In Charter)
PAYMENT OF FILING FEE (CHECK THE APPROPRIATE BOX):
[ ] No Fee Required.
[ ] Fee computed on table below per Exchange Act Rules 14c-5(g)
and 0-11
1) Title of each class of securities to which transaction
applies:
2) Aggregate number of securities to which transaction
applies:
3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (Set forth in
the amount on which the filing fee is calculated and
state how it was determined):
4) Proposed maximum aggregate value of transaction:
5) Total fee paid:
[X] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by
Exchange Act Rule 0- 11(a)(2) and identify the filing for
which the offsetting fee was paid previously. Identify the
previous filing by registration statement number, or the Form
or Schedule and the date of its filing.
1) Amount Previously Paid:
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:
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INTERNATIONAL REALTY GROUP, INC.
111 NORTHWEST 183RD STREET
SUITE 518
MIAMI, FLORIDA 33169
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NOTICE OF STOCKHOLDER ACTION
IN LIEU OF SPECIAL MEETING
---------------------------------------
TO THE STOCKHOLDERS
OF INTERNATIONAL REALTY GROUP, INC.:
This Information Statement is furnished to the stockholders of
International Realty Group, Inc. (the "Company") in connection with the
following corporate action to be approved by the written consent of two
stockholders of the Company who own sufficient voting securities of the Company
to approve such action:
An amendment to Article IV of the Certificate of
Incorporation, as amended, of the Company to increase the
number of authorized shares of common stock, par value, $.001
per share ("Common Stock"), of the Company from 10,000,000
shares to 450,000,000 shares.
We are not asking you for a proxy and you are requested not to send us
a proxy. Your vote or consent is not requested or required to approve the above
amendment. This Information Statement is provided solely for your information.
This Information Statement also serves as the notice required by Section 228 of
the Delaware General Corporation Law for the approval of a corporate action by
less than unanimous written consent of the stockholders of the Company.
By Order of the Board of Directors
______________, 199_ Richard M. Bradbury
President
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INTERNATIONAL REALTY GROUP, INC.
111 NORTHWEST 183RD STREET
SUITE 518
MIAMI, FLORIDA 33169
---------------------------------
INFORMATION STATEMENT
---------------------------------
GENERAL INFORMATION
This Information Statement is furnished by International Realty Group,
Inc. (the "Company") in connection with the following corporate action to be
approved by stockholders of the Company who own sufficient voting securities of
the Company to approve such actions:
An amendment to Article IV of the Certificate of
Incorporation, as amended, of the Company to increase the
number of authorized shares of common stock, par value, $.001
per share ("Common Stock"), of the Company from 10,000,000
shares to 450,000,000 shares.
As more fully described in this Information Statement, the foregoing
corporate action is being taken in order to, among other things, allow the
Company to retire certain convertible promissory notes issued by the Company in
the transaction (the "Transaction") in which the Company acquired certain assets
and business from DSC, S.A. de C.V. ("DSC") and Hemisphere Developments Limited
("Hemisphere") in return for which the Company will issue up to approximately
105,638,500 shares of Common Stock. See "The Transaction". In reviewing the
Transaction, stockholders should give attention to the matters set forth under
the caption "Certain Considerations" commencing on page [10] of this Information
Statement.
WE ARE NOT ASKING YOU FOR A PROXY AND YOU ARE REQUESTED NOT
TO SEND US A PROXY.
The approximate date upon which this Information Statement will first
be sent to stockholders is ________________________, 199__.
THE ACTIONS DESCRIBED HEREIN WILL BE APPROVED BY TWO
STOCKHOLDERS OF THE COMPANY WHO OWN SUFFICIENT VOTING
SECURITIES TO APPROVE SUCH ACTIONS. YOUR VOTE OR CONSENT IS
NOT REQUESTED OR REQUIRED TO APPROVE SUCH ACTIONS. THIS
INFORMATION STATEMENT IS PROVIDED SOLELY FOR YOUR INFORMATION.
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
INFORMATION STATEMENT PAGE
<S> <C>
General Information ................................................... 1
AMENDMENT TO THE CERTIFICATE OF INCORPORATION
Proposed Amendment .................................................... 3
Reason For Adoption.................................................... 3
The Transaction - Potential Advantages and Disadvantages .............. 3
THE TRANSACTION
General ............................................................... 5
The Assets ............................................................ 6
Background of the Transaction.......................................... 7
Factors Considered by the Board of Directors .......................... 8
Certain Considerations................................................. 10
Accounting Treatment .................................................. 12
Change in Control of Company .......................................... 13
Third Party Appraisals................................................. 13
Federal Income Tax Consequences ....................................... 13
No Appraisal Rights.................................................... 14
Regulatory Requirements ............................................... 14
CERTAIN INFORMATION CONCERNING THE COMPANY
Business Operations.................................................... 14
Land Development....................................................... 16
Other Activities....................................................... 16
Employees.............................................................. 17
Description of Property................................................ 17
Environmental Regulations.............................................. 19
Real Estate Investment Policy.......................................... 19
Legal Proceedings...................................................... 20
Description of Common Stock............................................ 20
Principal Stockholders................................................. 21
Management's Discussion and Analysis................................... 21
FINANCIAL STATEMENTS
Index to Financial Statements
APPENDICES
Appendix A--Amended and Restated Agreement, dated August 19, 1996,
between the Company and DSC and Hemisphere
</TABLE>
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AMENDMENT TO THE CERTIFICATE OF INCORPORATION
PROPOSED AMENDMENT
The Board of Directors of the Company has unanimously approved the
following amendment to the Company's Certificate of Incorporation, as amended,
and directed that such amendment be submitted to the Company's stockholders for
their consent:
An amendment to Article IV of the Certificate of Incorporation, as
amended, to increased the authorized shares of Common Stock from
10,000,000 shares to 450,000,000 shares.
Jack Birnholz and Richard Bradbury, who jointly control more than a
majority of the Common Stock of the Company, have informed the Company that they
intend to execute a written stockholder consent on or about the date of this
Information Statement approving the proposed amendment to Article IV of the
Company's Certificate of Incorporation, as amended.
ACCORDINGLY, THE VOTE OR CONSENT OF THE OTHER STOCKHOLDERS OF THE
COMPANY IS NOT REQUESTED OR REQUIRED TO APPROVE SUCH AMENDMENT.
REASON FOR ADOPTION
As of the date of this Information Statement, there are 9,954,313
shares of Common Stock issued and outstanding. The Company's Certificate of
Incorporation, as amended, currently authorizes a maximum of 10,000,000 shares
of Common Stock. The purposes of this amendment to increase the authorized
shares of Common Stock from 10,000,000 shares to 450,000,000 shares are to: (i)
permit the Company to issue shares of Common Stock in connection with the
Transaction, as described immediately below; and (ii) provide sufficient
available shares of Common Stock for distribution in a private or public
offering or other acquisitions by the Company as they may be authorized pursuant
to the actions of the Board of Directors. See "The Transaction."
THE TRANSACTION - POTENTIAL ADVANTAGES AND DISADVANTAGES
Among other reasons, the amendment to the Certificate of Incorporation
is being made in connection with the August 19, 1996 share exchange transaction
(the "Transaction") between the Company, DSC, S.A. de C.V. ("DSC"), a company
organized under the laws of Mexico, and Hemisphere Developments Limited
("Hemisphere"), a company organized under the laws of Isle of Man. See "The
Transaction." In connection with its approval of the Transaction, the Company's
Board considered and reviewed various factors with respect to the financial
position of the Company, results of operations, the prospects for alternative
transactions, the possible synergistic and expansion opportunities associated
with the Transaction, and the ability of the Company to secure equity or debt
financing, either through prospective investors or strategic alliances. In
reaching its decision to approve the Transaction, the Company's Board of
Directors (the "Board") identified the following potential benefits of the
Transaction.
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The fact that the Transaction is anti-dilutive to the current
stockholders.
The Board's belief that it is unlikely that the Company would have
adequate capital and other resources to implement its business plan if
it did not complete the Transaction, based on the then existing
financial condition of the Company.
The Board's belief that the Company will be able to achieve synergistic
benefits through its association with DSC and Hemisphere, including
increased financial resources and an ability to attract additional
capital in the future.
The Board's belief that the Transaction and the assets acquired by the
Company may allow the Company to establish a broader and more
meaningful market for the Company's Common Stock.
The Board's belief that DSC and Hemisphere could offer strategic
relationships and enhance the Company's ability to market its real
estate consulting services to the Latin American market.
In the course of its deliberations, the Board also reviewed and
considered several possible risks associated with the Transaction, including the
following:
The Board recognized, upon conversion of the convertible promissory
notes issued in the Transaction, DSC and Hemisphere, acting in concert,
could determine the outcome of the election of the Directors and thereby
control the Company.
The Board recognized the Company would be assuming at the date of the
closing of the Transaction approximately $1,098,100 of debt associated
with some of the assets acquired. The ability of the Company to service
such debt could have a negative effect on its cash flow.
The Board recognized development risks exist with respect to the
ownership of real estate properties.
The Board recognized the Company could be liable for liabilities
associated with the companies acquired.
Under Delaware general corporate law, the stockholders were not entitled
to appraisal rights in connection with the Transaction.
Although not quantifiable at this time, the Board took into
consideration the potential cost for the demand and piggyback
registration rights provided to DSC and Hemisphere in the Transaction.
For additional information with respect to the foregoing factors, see
"The Transaction--Factors Considered by the Board" and "The Transaction--
Certain Considerations."
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THE TRANSACTION
GENERAL
On August 19, 1996, the Company consummated a share exchange transaction
with DSC and Hemisphere. As more fully described below, the share exchange
transactions with DSC and Hemisphere will result in the reverse acquisition of
the Company by DSC and Hemisphere and a change in the control of the Company
that is expected to occur approximately 20 days after the distribution of this
Information Statement to the stockholders of the Company.
Pursuant to the share exchange transaction with DSC and Hemisphere, the
Company acquired the following assets from DSC and Hemisphere as of August 19,
1996: (i) DSC's 100 percent interest in Centro de Promociones Guerrero S.A. de
C.V. ("Centro"); (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 $5,628,426 of Clusters Ixtapa; (iv) DSC's 30
percent interest in Nueva Tierra, S.A. de C.V. ("Nueva Tierra"); and (v)
Hemisphere's 100 percent interest in Newland Corporation, which in turn, holds a
70 percent interest in Nueva Tierra. Nueva Tierra owns a majority interest and
is the general partner of the following real estate Asociacion en Particpacion
("Participating Associations"), a form of limited partnership in Mexico; (x)
Villas del Carbon; (y) Hacienda Del Franco; and (z) Bahia de Cortes. The assets
acquired by the Company are collectively referred to herein as the "Assets".
In exchange for the Assets, the Company issued to DSC on the Closing
Date 485,930 shares of Common Stock and a Convertible Promissory Note (the "DSC
Note") in the principal amount of $4,858,828 convertible into 52,875,030 shares
of the Common Stock. The Company issued to Hemisphere on the Closing Date
514,070 shares of Common Stock and a Convertible Promissory Note ("Hemisphere
Note") in the principal amount of $4,848,558 convertible into 52,763,270 shares
of Common Stock.
The Company may force the conversion of the DSC Note and Hemisphere 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 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 an Information Statement to stockholders. In the event
that the DSC Note and Hemisphere Note are not converted prior to March 31, 1998,
the principal amount of the Notes become immediately payable together with
accrued interest at a rate of five percent per year. The DSC and Hemisphere
Notes are secured by the Assets.
The shares of Common Stock issued to DSC and Hemisphere on the Closing
Date and upon conversion of the DSC Note and 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 Agreement provides that the
shares of Common Stock issued to DSC will be afforded certain demand and
piggyback registration rights.
On the Closing Date, John Day, Geoffrey Bell and Jack Birnholz resigned
from the Company's Board of Directors and the remaining members of the Board --
Richard Bradbury and Alton Hollis -- appointed Bernardo Dominguez C. (the
President of DSC) to fill a vacancy
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on the Company's Board of Directors. Pablo Macedo was elected Secretary of the
Company on the Closing Date.
THE ASSETS
The 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 $5,625,00; (iv) DSC's
30 percent interest in Nueva Tierra, S.A. de C.V. ("Nueva Tierra"); and (v)
Hemisphere's 100 percent interest in Newland Corporation, which in turn, holds a
70 percent interest in Nueva Tierra.
Centro de Promociones Guerraro S.A. de C.V., a company formed under the
laws of Mexico on March 13, 1989, owns land located in Acapulco, Mexico, known
as Campo de Tiro. The eight-acre, partially developed property is being held for
future development and is subject to a mortgage (including accrued interest) in
the approximate amount of $659,508. See "Certain Information Concerning The
Company--Description of Property."
Clusters Ixtapa, a company formed under the laws of Mexico on July 24,
1991, owns land in Ixtapa on the pacific coast of Mexico in the state of
Guerrero. The 26-acre property is being held for future development. See
"Certain Information Concerning The Company-- Description of Property." 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 its 75% interest and a $5,625,000 debt obligation of Clusters
Ixtapa on the Closing Date.
Nueva Tierra, all of the stock of which the Company has acquired in
Transactions, has a majority interest in the following real estate projects in
Mexico.
Villas del Carbon, a Participating Association formed under the laws of
Mexico on January 19, 1996, owns a residential development located in Villa del
Carbon, State of Mexico, in which Nueva Tierra has a 79.1 percent interest. The
25-acre property, which is presently being held by the Company for future
development, is partially developed and presently has a clubhouse, roads and
utility lines to the property boundary. Preliminary development plans call for
development of 180 home sites for sale to builders or individuals who wish to
construct weekend country houses. This property is not subject to any mortgage.
For additional information regarding this property, see "Certain Information
Concerning Company--Description of Property."
Hacienda del Franco, a Participating Association formed under the laws
of Mexico on January 10, 1996, owns a residential development project located
near Silao in the State of Guanajuato, in which Nueva Tierra has a 81.1 percent
interest. The property consists of approximately 260 acres of land and includes
a traditional colonial style hacienda. The property is being held for future
development centered around the hacienda. The property is subject to a mortgage
(including accrued interest) in the amount of $511,227, as of June 30,
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1996. For additional information regarding this property, see "Certain
Information Regarding The Company--Description of Property."
Bahia de Cortez, a Participating Association formed under the laws of
Mexico on February 7, 1996, owns a future development project located in Baja
California near La Paz, in which Nueva Tierra has a 78.1 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.
For additional information regarding this property, see "Certain Information
Regarding The Company--Description of Property."
BACKGROUND OF THE TRANSACTION
The Transaction was consummated pursuant to an Amended and Restated
Agreement (the "Amended and Restated Agreement"), dated August 19, 1996, which
agreement amended and restated previous agreements between the parties with
respect to the Transaction.
With respect to DSC, the Amended and Restated Agreement superseded the
Second Amendment to Agreement between the Company and DSC, dated July 31, 1996,
which 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 First 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
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 because such companies and their assets
were the subject of debt- related legal proceedings in Mexico. The Company has
no present understanding, agreement or arrangement with respect to the future
acquisition of such companies.
With respect to Hemisphere, the Amended and Restated Agreement
superseded the Amendment to Agreement between the Company and Hemisphere, dated
July 31, 1996, which in turn 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 contemplated the acquisition of Las Arboledas, Ensenada Blanca,
Playas de Brisa Mar, and El Quelele, which Participating Associations 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.
The Amended and Restated Agreement was to conform the terms of the
Transaction with the accounting treatment of the Transaction. The parties
originally intended for the Transaction to be accounted under the purchase
method, pursuant to which the assets and liabilities transferred in the
Transaction were valued at market cost. Upon further review of the accounting
treating of the Transaction and in consultation with the Company's accountants,
the Transaction has been accounted for using the pooling of interest method
based upon the change in control that will occur in connection with the
Transaction. Accordingly, and as set forth in the financial statements included
elsewhere in this Information Statement, the assets and liabilities transferred
in the Transaction have been accounted for at historical cost. DSC has been
designated as the acquiring party in the Transaction by virtue
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of, among other things, its ability to control the Board of Directors of the
Company upon conversion of the promissory notes issued in the Transaction. See
"--Change of Control."
In addition, the Amended and Restated Agreement contains certain
amendments as a result of the Company's inability to meet its obligations under
two previously issued convertible promissory notes that became due on December
31, 1996. Pursuant to the original Transaction, the Company issued: (i) a
promissory note to DSC (the "Original DSC Note") in the principal amount of
$29,673,658, which was convertible into 37,945,854 shares of Common Stock; and
(ii) a promissory note to Hemisphere (the "Original Hemisphere Note") in the
principal amount of $32,120,440, which was convertible into 41,074,732 shares of
Common Stock. The Company had the right to force the conversion of such notes
after the Company increased its authorized capital stock to permit the issuance
of such shares of Common Stock. When the Company failed to increased its
authorized capital stock by December 31,1996, such notes became immediately
payable together with interest at a rate of five percent per year. In lieu of
foreclosing on such notes, which were secured by all of the assets acquired by
the Company in the August 1996 Transaction, the parties agreed to amend the
notes and Transaction, including the following:
1. The Original DSC Note was replaced with the DSC Note in the principal amount
of $4,858,828 which is convertible into 52,875,030 shares of Common Stock.
2. The Original Hemisphere Note was replaced with the Hemisphere Note in the
principal amount of $4,848,558 which is convertible into 52,763,270 shares of
Common Stock.
3. The Company did not acquire Barra del Tordo property since Nueva Tierra
terminated its agreement with the owner of the Barra del Tordo property. Nueva
Tierra's decision to terminate its interest in Barra del Tordo was based on the
high levels of debt associated with such property and its adverse effect on the
prospects of obtaining financing to develop such property.
FACTORS CONSIDERED BY THE BOARD OF DIRECTORS.
In connection with approval of the Transaction, the Board of Directors
(the "Board") considered the relative values of the Company, the DSC Assets and
the Hemisphere Assets, the potential benefits of the share exchange, and the
risks of the share exchange to the Company's existing stockholders. The Board
identified several potential benefits of the Transaction, including the
following:
The fact that the Transaction is anti-dilutive to the current
stockholders. Dilution is the difference between the "net tangible book
value" per share of the Company's Common Stock before the Transaction
and after the Transaction. The net tangible book value per share
represents the amount of the Company's assets less the amount
of its liabilities, divided by the number of the Company's outstanding
securities. At June 30, 1996, the Company had a net book value
of $222,400 with 8,954,250 shares issued and outstanding, or $.025 per
share. On a pro forma basis, after giving effect to the conversion of
the DSC Note and Hemisphere Note, the Company has a net book
value of $10,021,700 with 115,592,487 shares outstanding, or $.087 per
share.
The Board's belief that it is unlikely that the Company would have
adequate resources or capital to implement its business plan if it did
not complete the Transaction, based
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on the then existing financial condition of the Company. Prior to the
Transaction, the Company's strategy has been to be a boutique
international appraisal and valuation firm and to expand its operations
through acquisitions. The Company's initial strategy was to acquire a
network of appraisal firms to perform appraisal valuation activities in
their particular market areas. The Company initially was successful in
this strategy with the acquisition (through a joint venture with
Novotrade Rt.) and formation of Appraisal Group International, Rt.,
Budapest Hungary, as described elsewhere herein. However, the
illiquidity of the Common Stock has been a detriment in the Company's
ability to acquire additional appraisal firms to enhance the Company's
growth. The difficulties in identifying feasible acquisitions of
strategically-located appraisal firms as well as the Company's lack of
significant resources to effectuate acquisitions in real estate
investments has hampered the success of the Company's growth strategy.
The Board's belief that the Company will be able to achieve synergistic
benefits through its association with DSC and Hemisphere, including
increased financial resources and an ability to attract additional
capital in the future and that with the Transaction and the assets
acquired by the Company, the Company may be able to begin to establish a
broader and more meaningful market for the Company's Common Stock. The
Board believed that the capital contribution and the assets acquired in
the Transaction, the increase in the Company's capital base, and the
relationship with DSC and Hemisphere, would provide immediate working
capital for the Company's operations, improve the Company's ability to
explore potential future acquisitions, provide access to the capital
markets and thereby enhance the Company's long-term growth prospects. As
provided for in the Amended and Restated Agreement, DSC has provided
$300,000 as a capital contribution to the Company, and in addition, the
Company will acquire accounts receivable valued at approximately
$2,142,500 as of September 30, 1997. The Company used the $300,000
provided by DSC for working capital allocated to the domestic operations
of the Company and professional fees incurred in connection in the
Transaction.
The Board's belief that the Transactions and the assets acquired by the
Company may allow the Company to establish a broader and more meaningful
market for the Common Stock. Currently, the Common Stock is eligible for
trading on the OTC Bulletin Board, although there has been insignificant
trading activity in the Common Stock for the past several years. See
"--Certain Considerations." The Board believed that the Transaction may
increase the liquidity in the Common Stock by enabling the Company to
attract broker-dealers to act as market makers in the Common Stock
and/or by increasing the capital resources and asset base required for
listing on the NASDAQ SmallCap market. The Company has not, to date,
taken any action to increase the liquidity of the Common Stock and no
assurance can be given that the Company will be able to attract market
makers for the Common Stock. Furthermore, NASDAQ has recently increased
the quantitative and qualitative listing requirements and no assurance
can be given that, were the Company to seek the listing of the Common
Stock on the SmallCap market, such an application would qualify or be
approved by NASDAQ.
The Board's belief that DSC and Hemisphere could offer strategic
relationships in the Company's ability to market its real estate
consulting services to the Latin American market. The Transaction may
also provide additional intangible benefits that the Board believes will
be instrumental to the Company's success. These potential benefits
include,
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among others, increased recognition in the international real estate
market and other benefits accruing from an association with a company
whose businesses are compatible with the Company's business. These
factors, especially the anti-dilutive nature of the Transaction to the
current stockholders, were in the view of the Board, supportive of the
fairness to stockholders of the Transaction.
The Board received appraisals prepared by a third party valuation firm.
See "--Third Party Appraisal." The Board requested its valuation
subsidiary to review the appraisals to determine whether the value of
the DSC Assets and the Hemisphere Assets are at least equivalent to
their historical costs and that of the Common Stock to be issued in the
Transaction. After inspecting the properties, the property appraisals
and the information provided by DSC and Hemisphere, the Company's
valuation subsidiary concluded the overall value of all the properties
included in the Transaction exceed the historical costs and are
equivalent to or exceed the value of the Company's Common Stock being
issued.
The Board also reviewed and considered several possible risks associated
with the Transaction, including, among others, the assumption of debt and
liabilities, the change in control that will result from the Transaction and
development risks associated with the development of properties. For a
description of such possible risks, see "--Certain Considerations" immediately
below. Based on the foregoing considerations as well as those discussed
elsewhere herein, the Board of Directors determined that the transactions
contemplated by the Transaction were fair and in the best interest of the
Company and its stockholders.
CERTAIN CONSIDERATIONS
In addition to the other information contained in this Information
Statement, the Company's stockholders should be aware of the following risks
related to the Transaction and the Company.
1. LOSSES FROM OPERATIONS AND NEED FOR FINANCING. Giving effect to the
Transaction, the Company has continuously sustained losses from operations. The
Company incurred losses of $975,100 and $569,800 during the last two fiscal
years ended December 31, 1995 and 1996, respectively. The Company will require
additional financing in order to fully implement the Company's business
strategy. See "Certain Information Concerning The Company-- Management's
Discussion and Analysis." To raise additional financing, the Company may have to
seek such funds through public or private equity or debt financing. Should the
Company raise capital through such equity financing arrangement, the then
existing stockholders may experience substantial dilution in the their
investment in the Company. At the present time, there are no agreements,
understandings or arrangements with any parties with respect to additional
financing for the Company. Accordingly, there can be no assurance that an
agreement will be reached with respect to any additional financing.
2. SUBSTANTIAL INDEBTEDNESS AND ABILITY TO SERVICE DEBT. Giving effect to the
Transaction, the Company has approximately $2,308,900 of total liabilities as of
September 30, 1997. Of such amount, $1,108,300 is long-term debt payable to
Mexican financial institutions, attributable to the assets acquired in the
Transaction. The debt to Mexican financial institutions has maturity dates in
1998 and the year 2007 with no interest accruing on one Note and an
interest-accruing note at 4.5% above the Mexican inflation rate index,
approximately 20% interest on the second
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note. In addition, the Company may be required to incur additional indebtedness
in the future in order to fully implement the Company's business strategy. See
above. The level of the Company's indebtedness could have important consequences
to the stockholders of the Company, including the following: (i) the ability of
the Company to obtain any necessary debt financing in the future for working
capital, capital expenditure or other purposes may be limited; (ii) any cash
flow from operations must be dedicated to payment of principle and interest on
its indebtedness and will not be available for other purposes; (iii) the
Company's level of indebtedness could limit its flexibility in planning for or
reacting to changes in its business; (iv) the Company's high level of
indebtedness may make it more vulnerable in the event of a downturn in its
business or the economy in general; and (v) in the event that the Company is
unable to service its debt requirements, the Company may be required to sell its
assets in order to meet its debt service requirements, which sales may be
required to be made at prices below the then market value of such assets. Unless
the Company is able to generate cash flow from operations or obtain additional
financing for debt service requirements, the Company will face substantial
liquidity problems. See "Certain Information Concerning The Company --
Management's Discussion and Analysis."
3. DEVELOPMENT RISKS. The Company intends to develop the properties acquired in
the Transaction. See "Certain Information Concerning The Company--Management's
Discussion and Analysis." Although the diversity in the size, type and location
of its properties should reduce the risks attended upon the ownership of any
single property, the Company will be subject to the risks generally inherent in
the ownership of real estate properties such as a downturn in general or local
economic conditions or an increase in the real property tax rate. In the event
that in the future the Company develops such properties, the Company will be
subject to various additional risks including inability to obtain financing,
inability to obtain building permits or necessary zoning changes, construction
delays, inability to complete construction at projected costs and to fund any
excess construction costs, strikes, adverse weather conditions, and other
conditions beyond the control of the Company. No assurance can be given that the
Company will be successful in completing any development projects undertaken.
4. ASSUMED LIABILITIES. The Company could become liable for liabilities
associated with the properties acquired in the Transaction. Such liabilities may
include various contingent or undisclosed liabilities. Although the Company is
not aware of any such liabilities that would be material to the Company, the
existence of such liabilities could have a substantial adverse effect on the
Company.
5. COMPETITION. The Company's business is highly competitive. The Company's
appraisal and real estate consulting business competes with, among other
persons, "Big 6" accounting firms which have substantially greater financial and
other resources than the Company. See "Certain Information Concerning The
Company -- Business Operations." In addition, to the extent that the Company
seeks to develop its real estate properties, the Company will be required to
compete with numerous developers ranging from small local to larger regional and
national builders and developers, some of which have greater sales and financial
resources than the Company. No assurance can be given that the Company will be
able to compete with such other builders and developers. See "Certain
Information Concerning The Company -- Description of Property."
6. LACK OF PUBLIC MARKET FOR THE COMMON STOCK. The Common Stock is thinly
traded. For the years 1995 and 1996, the total trading volume of the Common
Stock was 9,500 shares.
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The Common Stock is eligible for trading on the OTC Bulletin Board under the
symbol IRGR. As compared with other markets, an investor may find it more
difficult to dispose of or obtain accurate quotations for the price of
securities traded on the OTC Bulletin Board. In addition, if the trading price
of the Common Stock is less than $5.00 per share, trading in the Common Stock
would also be subject to certain rules promulgated under the 1934 Act, which
require additional disclosure by broker-dealers in connection with any trades
involving a stock defined as a penny stock (generally, any non-NASDAQ equity
security that has a market price of less than $5.00 per share, subject to
certain exceptions). Such rules require the delivery, prior to any penny stock
transaction, of a disclosure schedule explaining the penny stock market and the
risks associated therewith, and impose various sales practice requirements on
broker-dealers who sell penny stock to persons other than established customers
and accredited investors. For these types of transactions, the broker-dealer
must make a special suitability determination for the purchaser and have
received the purchaser's written consent to the transaction prior to sale. The
additional burdens imposed upon broker-dealers by such requirements may
discourage broker-dealers from effecting transactions in the Common Stock, which
could severely limit the market liquidity of the Common Stock and the ability of
persons to sell the Common Stock.
7. NO APPRAISAL RIGHTS. Under the applicable provisions of the Delaware General
Corporations Law, the Company's stockholders are not entitled to any dissenters'
appraisal rights in connection with the Transaction or any other transaction
described in this Information Statement.
8. NO DIVIDENDS. The Company has not paid any cash dividends on this Common
Stock since its inception, does not anticipate paying any cash dividends in the
foreseeable future and intends to retain earnings, if any, to provide funds for
general corporate purposes and the expansion of the Company's business. The
payment of any future dividends by the Company will be dependent upon the
earnings of the Company, its financial requirements and other relevant factors.
9. CONTROL BY PRINCIPAL STOCKHOLDERS. Upon conversion of the DSC and Hemisphere
Notes, DSC will own approximately 32.4 percent, Hemisphere will own
approximately 46.1 percent, and NAFIN will own approximately 13.8 percent of the
then outstanding Common Stock. See "Certain Information Concerning the
Company--Principal Stockholders." 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.
ACCOUNTING TREATMENT OF TRANSACTION
The Transaction has been accounted for in a manner similar to the
pooling of interests method in accordance with Accounting Principles Board
Opinion No. 16, Accounting for Business Combinations, since it represents an
exchange of entities under common control. The parties originally intended for
the Transaction to be accounted under the purchase method, pursuant to which the
assets and liabilities transferred in the Transaction were valued at market
cost. Upon further review of the accounting treating of the Transaction and in
consultation with the Company's accountants, the Transaction has been accounted
for using the pooling of interest method based upon the change in control that
will occur in connection with the Transaction. Accordingly, and as set forth in
the financial statements included elsewhere in this Information Statement, the
assets and liabilities transferred in the Transaction have been accounted for at
historical cost. DSC has been designated as the acquiring party in
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<PAGE> 15
the Transaction by virtue of, among other things, its ability to control the
Board of Directors of the Company upon conversion of the promissory notes issued
in the Transaction. See "-- Change of Control."
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 32.4 percent,
Hemisphere will own approximately 46.1 percent, and NAFIN will own approximately
13.8 percent of the then outstanding Common Stock. See "Certain Information
Concerning The Company--Principal Stockholders." 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 approximately 20 days after the mailing of this Information
Statement to the Company's stockholders. At such time, approximately 115,592,813
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,
one of which will be proposed by the Company, one of which will be proposed by
Hemisphere and the remainder proposed by DSC. The Amended and Restated 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.
In addition, it is expected that Mr. Bradbury will continue to serve on the
Board.
THIRD PARTY APPRAISAL
Third party appraisals and valuation services have been performed by
Sergio H. Parra R., Engineer, a professional valuator (Perito Valuador) in
Mexico. Mr. Parra holds professional designations and licenses as a Topography
and Hydro Engineer, Professor of Mathematics and Valuation (Appraiser),
specializing in land tracts. Mr. Parra since 1990 has been registered with the
Mexican National Banking Committee, and has been performing valuation services
on behalf of large financial institutions including Bancomar, Banamex and Bital
with respect to their loans to residential and resort land developers. The
selection of Mr. Parra to perform the third party appraisals was based on his
extensive experience preparing similar valuations on behalf of financial
institutions. Mr. Parra is not affiliated with the Company or any of the parties
to the Transaction.
The Board received an appraisal report prepared by Mr. Parra for each of
the properties acquired in the Transactions. Mr. Parra independently determined
the value of each such property utilizing the valuation practices and procedures
used in Mexico. The methodology utilized by Mr. Parra for large parcels of
vacant land is the Grading System, a methodology also employed by some U.S.
property tax assessors. This methodology analyzes the overall parcel giving the
highest value to that portion which is most suited for its intended use and
decreasing value to the remainder portion of the parcel and establishing a value
for the entire land parcel. Mr. Parra utilized the Depreciated Replacement Cost
Method for improvements on the property, which methodology is based upon the
current replacement cost of such improvement less depreciation.
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Such reports, as reviewed by the Board, determined that the value of
each of the properties acquired in the Transaction exceeded their historical
cost which is the basis for the Common Stock issued in the Transaction.
FEDERAL INCOME TAX CONSEQUENCES
The Transaction will have no federal income tax effects on the Company
or its stockholders.
NO APPRAISAL RIGHTS
Under the applicable provisions of the Delaware General Corporations
Law, the Company's stockholders are not entitled to any dissenters' appraisal
rights in connection with the Transaction or any other transaction described in
this Information Statement.
REGULATORY REQUIREMENTS
The Company is not aware of any federal or state regulatory requirements
that must be complied with or regulatory approval that must be obtained in
connection with the agreements with DSC and Hemisphere and the transaction
contemplated thereby, other than the filing of: (i) a Certificate of Amendment
to the Company's Certificate of Incorporation pursuant to the applicable
provisions of the Delaware General Corporation Law; and (ii) this Information
Statement on Schedule 14C with the Securities and Exchange Commission.
CERTAIN INFORMATION CONCERNING THE COMPANY
International Realty Group, Inc., (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. Its principle offices are located at 111 N.W.
183 Street, Suite 518, Miami, Florida 33169. Its telephone number is (305)
944-8811.
BUSINESS OPERATIONS
The Company, together with its consolidated subsidiaries, is engaged in
real estate consulting services and land development.
REAL ESTATE CONSULTING SERVICES
The Company's real estate consulting services operate through its
domestic and foreign subsidiaries, which represented 55% and 45% respectively,
of total Company revenue in 1996. Domestic operations are performed through
Appraisal Group International, Inc. and foreign operations are performed through
Appraisal Group International, Rt.
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APPRAISAL GROUP INTERNATIONAL, INC.
Appraisal Group International, Inc., organized on July 7, 1989, and its
predecessor Appraisal Group, Inc., organized on August 21, 1974, is an appraisal
and valuation company, specializing in commercial real estate, machinery,
equipment, business and residential appraisals.
Real estate appraisals are performed on a domestic and international
level, including engagements in Mexico, China, Lithuania, Estonia, Panama, and
Hungary. An estimated 70% percent of appraisal revenue is derived from projects
in the United States and 30% percent from international projects. Properties
appraised include office buildings, shopping centers, apartment complexes,
hotels, resorts and golf courses. The Company also performs a large volume of
single family appraisals to fully serve its clients.
Commercial appraisals are generally full narrative appraisals prepared
in accordance with the Uniform Standards of Professional Appraisal Practice. The
appraisals are utilized by governmental agencies, banks, institutions, property
owners, developers and attorneys for a variety of purposes, including financing,
insurance, portfolio analysis, litigation support, estate analysis and current
market valuation. The majority of the residential appraisals are completed on
forms promulgated by the Federal National Mortgage Association (Fannie Mae) and
Federal Home Loan Mortgage Corporation (FHLMC) and are normally utilized for
financing and estate purposes. In addition, the company performs business
valuations, equipment and machinery valuations, and litigation support for its
clients.
Except for salaries of the Chief Executive Officer and administrative
staff, the staff of Appraisal Group International, Inc. consists of independent
contractors who accept assignments pursuant to negotiated fee arrangements. All
appraisers must be licensed and certified real estate appraisers, pursuant to
applicable law. In addition to the appraisers in the Miami office, the company
has contracts with other licensed and certified independent contractors on a
national basis.
Title XI of the Federal Financial Institutions Reform Recovery and
Enforcement Act of 1989 ("FIRREA") effectively has regulated the appraisal
profession. Under FIRREA, federally-insured financial institutions are required
to use state licenses and certified appraisers. In connection with this statute,
the Appraisal Foundation was formed to represent various appraisal organizations
and is the parent organization of the Appraiser Qualifications Board and the
Appraisal Standards Board.
The Appraisal Standards Board sets standards for contents and
methodology of appraisals. Appraisal Group International, Inc. appraisers
perform their assignments in compliance with relevant provisions and regulations
of both boards noted above as well as the Uniform Standards of Professional
Appraisal Practice.
APPRAISAL GROUP INTERNATIONAL, RT.
Appraisal Group International, Rt. organized on June 6, 1990 under the
laws of the country of Hungary, is 75% owned by Stragix International, Inc.
("Stragix"), which is itself a wholly-owned subsidiary of the Company. The
remaining 25% of Appraisal Group International, Rt. is owned by existing
Appraisal Group International, Rt. management. See "Certain Relationships and
Related Transactions". Appraisal Group International, Rt. is
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engaged in valuations of businesses, real estate, management, consulting,
privatization management and trade brokerage in Central and Eastern Europe.
The majority of business of Appraisal Group International, Rt. has been
the valuation of businesses and real estate, primarily for the State Property
Agency, an agency of the Hungarian government and local city municipalities. In
addition, Appraisal Group International, Rt. is an official court appointed
liquidator. As court appointed liquidator, the Company is responsible to oversee
the operational and financial integrity of the companies it is liquidating.
Currently Appraisal Group International, Rt. is liquidating approximately 130
separate companies on behalf of the court. The complete liquidation process for
an individual company takes approximately two years, after which the Company
typically earns a fee of approximately 3% of the net collected proceeds of the
liquidation.
COMPETITION
There is significant competition in the field of appraisals and real
estate consulting services. Industry sources estimate that the appraisal service
industry in the United States includes over 84,000 state licensed and certified
appraisers in the United States. The Company's competition generally comes from
three types of organizations; (i) "Big Six" accounting firms; (ii) multi-office
appraisal firms; and (iii) small appraisal firms. A majority of the large
accounting firms have appraisal departments. The name recognition of these large
accounting firms provides such firms with a competitive advantage, however, the
Company believes that their relatively high fees for services allow market
penetration by firms such as the Company. All of the major accounting firms
possess substantially greater financial and other resources that the Company.
The most prominent United States multi-office appraisal firms are American
Appraisal Company, Marshal & Stevens, Joseph Blake & Associates, Cushman &
Wakefield and Valuation Consultants International Ltd. The majority of appraisal
firms employ one to five appraisers who are primarily involved in residential
appraisals, although many small firms do perform commercial appraisals. These
firms may have lower overhead than the Company, however, they may lack the
expertise to perform complex commercial appraisals and accept assignments on an
international basis as the Company routinely does.
LAND DEVELOPMENT
Pursuant to the Company's reverse merger transaction with DSC and
Hemisphere, the Company acquired interests in five properties located in Mexico.
See "Item 12--Certain Relations and Related Transactions" and "Item
2--Description of Properties". The Company believes that each of the Company's
properties is suitable for future development as either a resort, residential or
commercial property. Since the properties located in Mexico secure the Company's
obligations under the DSC and Hemisphere Note, the Company does not plan to
undertake any development of such properties until after the DSC and Hemisphere
Notes have been converted. (While no assurances can be given, the Company
expects that the conversion of the DSC and Hemisphere Notes will occur in the
first quarter of 1998.) Any development of the Company is contingent upon the
Company obtaining necessary financing and a review of the applicable market
conditions of the time of 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
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no assurance that financing will be available to the Company on commercially
reasonable terms or at all.
OTHER ACTIVITIES
U. S. Property Investment & Auction, Inc. was organized in March 1987
and is a licensed Florida Real Estate Broker. The company provides to its
foreign and domestic clients real estate brokerage and property management
services.
IRG Financial Services, Inc. was organized in June 1992. The company
provides financial consulting and mortgage loan packaging services to its
foreign and domestic clients.
EMPLOYEES
The Company, as a whole, employs 16 full-time employees. In addition,
the Company retains 21 independent contractors to perform professional services
on a regular basis and additional independent contractors to perform
professional services on an ad hoc basis.
DESCRIPTION OF PROPERTY
The Company, or through its subsidiaries, currently is subject to two
leases for office facilities and owns eight properties currently held for
investment.
The Company leases 3,308 square feet of office space located in Miami,
Florida, which serves as the Company's corporate headquarters and its domestic
operations. In addition, it leases 2,500 square feet of office space in
Budapest, Hungary, which is utilized by its foreign operations. Both leases are
on a month-to-month basis. The Company's aggregate lease payments per month are
approximately $4,000.
Title or ownership of the Company's properties are held by two methods:
Fee simple and through Trust agreements. Property owned through Trust agreements
("Trust Rights") is a unique form of ownership in Mexico. In 1859 the Mexican
Federal Constitution forbade real estate to be sold in fee to non-Mexicans
within fifty kilometers from Mexico's shores or within one hundred kilometers
along Mexico's borders (the "restricted zone"). Under Section 346 of Mexico's
Credit Instruments and Transactions Law, non-Mexicans may own real estate
through the utilization of Trust agreements. Under a trust agreement, the
property owner, called the settlor, settles property in trust with a trustee, a
credit institution, for a determined legal purpose and for the benefit of a
beneficiary who may be settlor himself. Ownership is typically divided among
three parties: the settlor; the trustee; and the beneficiary. None of these
parties is thus considered to be a full owner in fee of the property settled in
trust. Therefore, the Trust vehicle provides to both Mexican and non-Mexican all
of the rights, use, enjoyment, ability to encumber, rent, modify, construct, and
sell the real estate placed in trust. The following properties described below
are held pursuant to Trust Rights: Campo de Tiro and Clusters Ixtapa. Allof the
other properties are held in fee simple.
The Company's real estate properties include:
(i) Clear Lake Pines - two developed vacant lots totaling one acre
located in Clear Lake Pines, La Grange, Texas, which is wholly owned by the
Company's subsidiary, Appraisal Group International, Inc. The property is
currently being held for investment purposes. Clear
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Lake Pines is a second-home recreational development. The property is not
subject to a mortgage or other encumbrances.
(ii) Caye Bokel - an 87 acre parcel of undeveloped land on the Island
of Big Caye Bokel, located in the Turneffe Islands in the country of Belize,
which is wholly owned by the Company's subsidiary, Caye Bokel Limited. The
property is currently being held for future development purposes. Although the
Company presently has no understandings or agreements with respect to the
development of Caye Bokel, management believes that the highest and best use for
the property is a 250-unit hotel/villa destination resort with marina to attract
both North and South American tourists interested in the sports fishing, scuba
and other water sports activities available on the Barrier Reef the property is
located adjacent to. The Company is aware of at least four small (10 to 25
rooms) potentially competitive resorts in the Turneffe Islands, including a 22
room resort on the island adjacent to Big Caye Bokel that caters to divers and
sport fishermen. The property is not subject to any mortgage or other
encumbrances.
(iii) Campo de Tiro - an 8-acre partially developed property, located
in the city of Acapulco, State of Guerraro, Mexico, which is wholly owned by the
Company's subsidiary Centro de Promociones Guerraro S.A. de C.V. The property is
currently being held for future development. Although the Company presently has
no understandings or agreements with respect to Campo de Tiro, the preliminary
development plan calls for construction of social housing, which is government
assisted residential housing over a period of 24 months, consisting of 124
two-story duplex townhouses, 250 units in total. The Company believes that all
necessary licenses, permits, and governmental approvals have been obtained for
the construction of residential housing on such property. The Company is aware
of one other social housing development which is proposed to be constructed
within 10 miles of the Campo de Tiro site. Accordingly, the Company believes
that in the event that the Company so develops the Campo de Tiro site, the
development will be able to effectively compete in its market. The property is
subject to a mortgage in the principal amount, as of June 30, 1996, of $334,004,
at 6% over the average bank deposit rate in Mexico. Accrued interest on this
mortgage was $325,504 as of June 30, 1996. The bank has committed to a total
construction mortgage loan of $874,861 maturing in March, 1998.
(iv) Clusters Ixtapa - a 26-acre partially developed property located
within the 208-acre planned unit development called Marina Ixtapa located in the
town of Ixtapa-Zihuatanejo on the Pacific Coast of Mexico, approximately 240
kilometers northwest of the port of Acapulco, which is majority (75%) owned by
the Company's subsidiary Clusters Inmobiliaria de Ixtapa, S.A. de C.V.. The
preliminary site work has been completed and the property is currently held for
investment. Although the Company presently has no understandings or agreements
with respect to the development of the property, the development plans call for
the construction of 144 residential and commercial condominium units in three
buildings of four- stories each, and the development of 60 single family
residential villas. Management estimates that future improvement and development
costs to complete this project are approximately $37,000,000 over a five-year
period. The project would be completed in intervals in order to allow the
Company to build the project in 20% stages through a revolving construction line
of credit. The Company is aware of at least five similar projects developed or
under development in Marina Ixtapa. Preliminary market research indicates that
the competition in the market for single family developments is intense, while
the competitive conditions for the commercial and condominium developments is
less intense. The property is subject to a mortgage in the approximate amount of
$5,625,000 at an interest rate of 5.25%. Pursuant to
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the DSC Transaction, the Company acquired from DSC the $5,625,000 debt
obligation of Clusters Ixtapa on the Closing Date. See "The Assets."
(v) Villas del Carbon Residential Complex - a 24-acre partially
developed property located in Villa del Carbon, State of Mexico, Mexico, one
hour northwest of Mexico City by highway, between the villages of Atlacomulco
and picturesque Tepozotlan, which is majority (79.1%) owned by the Company's
subsidiary Nueva Tierra. The property presently has a clubhouse, roads, and
utility lines to the property boundary. The property is currently held for
future development. Although the Company presently has no understandings or
agreements with respect to the development of the property, development plans
call for development of 180 home sites for sale to builders or individuals who
wish to construct weekend country houses. Prior to sale of the home sites, the
development plan calls for construction of electric lines, water supply,
stormwater drain pipes and street lighting to each of the individual lots. The
cost to complete this project would be approximately $1,700,000 in four stages.
The Company is not aware of any similar existing or proposed projects in the
area immediately adjacent to Villas del Carbon, although any such development
will compete with other weekend country house developments that are within a 1
to 2 hour drive of Mexico City. The first stage would require a revolving
construction line of credit in the approximate amount of $400,000. This property
is not subject to any mortgage or encumbrances.
(vi) Hacienda del Franco - a 260-acre partially developed property,
located approximately 3 kilometers from the city of Silao, in the State of
Guanajuato, Mexico, which is majority (81.13%) owned by the Company's subsidiary
Nueva Tierra At present, the property contains a traditional colonial style
hacienda (a countryside estate), roads have been graded, utilities, sewers and
water system is on the property. Preliminary plans call for the development of
multi acre single family haciendas. Preliminary market research indicates that
there are no similar type developments in the market area. This property is
currently being held for future development. The property is subject to
mortgages in the principal sum of $483,618 at interest rates of 4.5% and 5.2%,
maturing in the year 2007. Accrued interest on this mortgage was approximately
$27,609, as of June 30, 1996.
(vii) Bahia de Cortes - a 3,080-acre undeveloped property located in La
Paz, Baja California Sur, which is majority (78%) owned by the Company's
subsidiary, Nueva Tierra. The property consists of approximately 3,080 acres of
land including over five kilometers of beachfront. The property is currently
held for future development and is not subject to any mortgage or encumbrances.
To the extent that this property is developed, it will face significant
competition from other established properties in the La Paz area of Baja
California Sur.
Any development of the above properties by the Company is contingent
upon the completion of a development plan, determining the highest and best use
of the properties, the estimated cost, the market viability, a determination by
the Company that it has sufficient capital resources to meet the quantified
development cost as budgeted in the development plan.
ENVIRONMENTAL REGULATIONS
The Company has been advised by DSC that the acquired companies are not
subject to any claims for liability for cleanup of waste sites or environmental
contamination of property and that such companies do not currently anticipate
any material adverse effect on the results
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of operations, earnings or competitive position as a result of compliance with
environmental regulations. Such companies are subject to numerous environmental
laws of Mexico, its states and local governments relating to the development of
real estate. DSC believes that the existing environmental controls procedures
are adequate, and there are no current plans for substantial capital
expenditures in this area.
REAL ESTATE INVESTMENT POLICY
The Company has in the past and may in the future hold property for
investment purposes. The Company's real estate investment policy is to acquire
both existing income producing real estate properties to provide current income
and cash flow and undeveloped properties to provide capital appreciation. The
real estate policy is not subject to stockholder approval and does not restrict
the Company to a particular type, size or geographic location for any such
acquisitions or the number or amount of mortgages that may be placed on any one
piece of property. The Company seeks to acquire properties that: (i) are
significantly under-valued in relation to its market or type; (ii) where the
properties debt can be restructured to provide enhanced cash flow; (iii) where a
property is partially developed and can be acquired for a discount and the
development completed and operated at above-average returns. At this time,
management believes there are a number of such opportunities in Mexico, the
Caribbean and other South American countries. The Company may acquire its
ownership through the direct purchase of the property or through the acquisition
of the Common Stock or other equity securities of an entity whose primary
activity is the operation or development of the real estate property. Subject to
the Board of Director's fiduciary obligations to stockholders, the Company may
acquire properties for either investment or development that are owned directly
or indirectly by affiliates of the Company. The Company may acquire its real
estate acquisitions through the issuance of its Common Stock or the assumption
of existing debt.
LEGAL PROCEEDINGS
The Company is not a defendant nor a plaintiff in any legal
proceedings. Certain of its operating subsidiaries are plaintiffs in collection
matters, which the Company does not consider material, and is in the normal
course of business.
DESCRIPTION OF COMMON STOCK
The Company is authorized to issue 10,000,000 shares of Common Stock of
which 9,954,313 shares are currently outstanding. No preferred stock is
presently authorized to be issued by the Company. As noted elsewhere herein, the
Board of Directors of the Company have approved an amendment to the Company's
Certificate of Incorporation to increase the authorized shares of Common Stock
from 10,000,000 shares to 450,000,000 shares and two stockholders of the Company
have indicated that they intend to execute a written stockholder consent on or
about the date of this Information Statement approving such amendment to the
Company's Certificate of Incorporation.
Holders of the Common Stock are entitled to one vote for each share
held by them of record on the books of the Company in all matters to be voted on
by the Company's stockholders. No cumulative voting of the Common Stock is
permitted. Holders of the Common Stock do not have any conversion, preemptive or
preferential rights with respect to the Common Stock. The holders of the Common
Stock are entitled to receive ratably such
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dividends, if any, as may be declared by the Board of Directors out of funds
legally available for the payment of dividends. There are no redemptive or
sinking fund provisions applicable to the Common Stock. All outstanding Common
Stock is fully paid and are non-assessable. The Common Stock is eligible for
trading on the OTC Bulletin Board under the symbol IRGR.
PRINCIPAL STOCKHOLDERS
The following table sets forth the beneficial ownership of the Common
Stock (as of the date of this Information Statement and as adjusted to give
effect to the conversion of the DSC and Hemisphere notes) by: (i) each of the
Company's Officers and Directors, (ii) each person who is known by the Company
to beneficially own more than 5% of the outstanding Common Stock, and (iii) all
of the officers and directors as a group.
<TABLE>
<CAPTION>
Name and Address Before Conversion of DSC After Conversion of DSC
of Beneficial Owner and Hemisphere Notes(1) and Hemisphere Notes (2)
- ------------------- ----------------------- ------------------------
Percentage Percentage
Amount of Class Amount of Class
------ -------- ------ --------
<S> <C> <C> <C> <C>
Jack Birnholz(3) 4,160,000 41.8% 4,160,000 3.6%
Richard Bradbury(3) 1,253,000 12.6% 1,253,000 1.1%
Alton Hollis(3) 9,000 * 9,000 *
DSC S.A. de C.V.(4) 485,930 4.8% 37,449,960 32.4%
Bernardo Dominguez Moreno(4) 485,930 4.8% 37,449,960 32.4%
Bernardo Dominguez C. (4) 485,930 4.8% 37,449,960 32.4%
Jorge Lopez Nunez(4) 485,930 4.8% 37,449,960 32.4%
Pablo Macedo(4) 0 * 0 *
Hemisphere Developments Limited (5) 514,070 5.2% 53,277,340 46.1%
Monique Roggero-Ciana 514,070 5.2% 53,277,340 46.1%
Nacional Financiera, S.N.C. (6) 0 * 15,991,000 13.8%
All Officers and Directors as a Group (4 1,747,930 17.5% 23,702,784 26.6%
persons)
===========================================================================================================================
</TABLE>
* Represents less than one percent of class
(1) As of the date of this Information Statement, there are 9,954,313 shares
of the Company's Common Stock issued and outstanding.
(2) Reflects the beneficial ownership of the Common Stock after the conversion
of the DSC and Hemisphere Notes, which is expected to occur approximately
20 days after the distribution of this Information Statement to the
Company's stockholders and gives effect to the transfer of approximately
15,991,000 shares of Common Stock from DSC to NAFIN. See "The
Transaction." As of such date, there will be approximately 115,592,813
shares of Common Stock issued and outstanding.
(3) Such person's address is c/o International Realty Group, Inc., 111 NW 183
Street, Suite 518, Miami, Florida 33169.
(4) Such person's address is c/o DSC, Constituyentes No. 647, Col. 16 de
Septiembre, 11810, Mexico, D.F.
(5) Such person's address is c/o Hemisphere, Atlantic House, 4-8 Circular
Road, Douglas, Isle of Man.
(6) Such person's address is Insurjendes Sur No. 1971, Tower 4, Floor 9,
Mexico City, 01020, Mexico.
MANAGEMENT'S DISCUSSION AND ANALYSIS
GENERAL
The Transaction has been accounted for in a manner similar to a pooling
of interests. Accordingly, the consolidated financial statements retroactively
have been restated to include the accounts of the companies acquired by the
Company.
21
<PAGE> 24
RESULTS OF OPERATIONS
TWELVE MONTHS ENDED DECEMBER 31, 1996 COMPARED TO DECEMBER 31, 1995
Revenue which was derived from consulting services for the year 1996
decreased 46% from $1,129,400 in 1995 to $604,000 in 1996. Revenues from foreign
operations decreased 60% from $690,800 in 1995 to $272,500 in 1996. The decrease
in foreign revenue is attributed to the decrease in consulting assignments from
various Hungarian government agencies. Revenues from domestic operations
decreased 35% from $531,300 in 1995 to $331,500 in 1996.
OPERATING EXPENSES for the year 1996 decreased 26% from $1,502,700 in
1995 to $1,106,000 in 1996. Selling, General and Overhead Operating Expenses for
the year 1996 were $412,500 versus $378,400 for the comparable period in 1995.
Included in this expense category for 1996 are expenses associated with the
reverse acquisition, amounting to $186,000. Included in the $186,000 of such
expenses were $43,600 incurred in 1995 and recognized on the Closing date of the
acquisition. Direct expenses including the production of appraisal reports,
appraisers' fees, travel, reproduction, photography and all related expenses
decreased 35% from $620,800 in 1995 to $403,500 in 1996. The decrease in direct
expenses follows the overall decline in revenue for the period. Payroll and
related benefits decreased 44% with $233,400 in 1996 compared to $415,700 in
1995. Amortization and Depreciation expenses were consistent between the
periods. There were no operating expenses attributable to land development
activities during the period.
OTHER INCOME AND EXPENSES for the comparative periods were significantly
influenced by the inclusion of the results of operations of Clusters Ixtapa as a
result of the transaction with DSC and Hemisphere. Clusters Ixtapa had 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, to which the Company was not a party. Pursuant to the restructuring
plan, DSC assumed the NAFIN Debt in exchange for Clusters Ixtapa's payment of
approximately $15,341,000 and DSC's payment of the difference. DSC has advised
the Company it intends to repay such difference, as well as certain other debt
of DSC to NAFIN, through 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. Subsequently, pursuant to the DSC Transaction, the Company acquired from
DSC a $5,628,426 debt obligation of Clusters Ixtapa on the Closing Date.
The majority of interest income ($7,031,900 of the $7,125,900) for the
year 1995 (compared to $61,100 in 1996) is attributable to the funds on deposit
with NAFIN on behalf of Clusters Ixtapa. The majority of interest expense
($9,372,700 of the $9,399,700) for the year 1995 (compared to $128,000 in 1996)
is attributable to Clusters Ixtapa. Gain or (losses) for exchange rate
fluctuations $1,458,500 in 1995, compared to ($110,000) in 1996 is attributable
to Mexican operations. Appraisal Group International, Rt. recognized a gain on
sale of securities in the amount of $112,200 during 1996.
NINE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
1996
Revenues for the nine months ended September 30, 1997 totaled $579,000
as compared to $456,100 for the same period in 1996, an increase of $122,900 or
22%. The Company's domestic and foreign valuation subsidiaries accounted for the
Company's revenues. Appraisal Group International, Inc. had revenues of $498,000
for the period, compared to $243,100 for
22
<PAGE> 25
the same period in 1996, an increase of approximately 50%. Appraisal Group
International, Inc. has instituted certain marketing programs to reverse its
declining sales over the last few years, with the results beginning to show some
effect. Appraisal Group International, Rt. had revenues of $71,000, compared to
$199,500 for the same period in 1996. The continued decline is attributed to the
decrease in appraisal assignments with the Hungarian government which is at the
end of the privatization process. The Company is focusing its marketing efforts
towards expanding its presence in the field of corporate liquidations on behalf
of the Hungarian court.
Operating expenses for the nine months ended September 30, 1997 were
$639,200 compared to $866,900 for the comparable period in 1996, a decrease of
$227,700. Of the total expenses, foreign operations accounted for 9% and
domestic operations accounted for 91%. Influencing the overall decline in
expenses are the following factors: (i) the expenses associated with the merger
transaction during 1996 and (ii) an overall endeavor by the Company to reduce
its operating expenses both on a foreign and domestic basis.
Selling, General and Administrative expenses for the period decreased
from $312,500 in 1996 to $113,200 for the current period, a decrease of
$199,300. Payroll and Related Benefits for the period decreased from $201,700 in
1996 to $150,300 for the current period. Direct expenses including the
production of appraisal reports, fees and related expenses for the period
increased from $309,800 in 1996 to $334,000 for the current period, an increase
of $24,200 or 7%, in spite of the fact revenues increased 22%. Amortization and
Depreciation expense was consistent between the periods.
Interest expense for the nine months ended September 30, 1997 were
$72,800 compared to $95,400 for the same period in 1996. The majority of
interest expense is attributable to debt for properties located in Mexico. There
was a currency translation gain of $1,200 for the nine-month period ended
September 30, 1997 compared to a currency translation expense of $78,100 for the
comparable nine-month period in 1996. Such translation gain or expense is
attributable to the currency fluctuations of the Mexican peso during each such
period.
LIQUIDITY AND CAPITAL RESOURCE:
Cash Flow From Operations: The Company incurred for the nine months
ended September 30, 1997, a net loss of $109,600 compared to a net loss of
$547,300 for the comparable period in 1996. Cash flow provided by operations was
$2,900.
Working Capital: The Company's current assets, consisting of cash and
receivables of approximately $2,272,800 exceed its current liabilities
consisting of accounts payable and accrued liabilities of approximately
$1,087,300, by approximately $1,185,500. Included in current liabilities are
accrued officer's salaries amounting to approximately $522,300.
Long Term Liabilities: Mortgage and Notes Payable for the nine months
ended September 30, 1997 were $1,221,600. Such debt has maturities between
December 31, 1997 through the year 2007, with interest rates ranging from 2% to
4.5% above the Mexican inflation rate index, approximately 20% interest. Of this
amount, mortgages to Mexican banks for property currently held for future
development totaled $1,108,300. Of the remaining $113,300, $97,900 is
attributable to domestic operations ($50,000 stockholder loans and $47,500 notes
payable) and $15,600 to foreign operations.
23
<PAGE> 26
Land Development: Pursuant to the Transaction, the Company acquired
interests in five properties located in Mexico. 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 the convertible notes issued to DSC and Hemisphere in the
aggregate amount of $9,707,386. The Company does not plan to undertake any
development of such properties until after the Notes have been converted. While
no assurances can be given, the Company expects that the conversion of the Notes
(convertible into an aggregate of 105,638,300 shares of the Company's Common
Stock) will occur in the first quarter of 1998. The Company has no interest
obligations under the Notes. 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.
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 domestic consulting services performed by Appraisal Group International,
Inc. based in Miami, Florida are reported and paid in U.S. dollars. All foreign
consulting services, assets and liabilities of Appraisal Group International,
Rt. based in Hungary, are translated into U.S. dollars at period-end exchange
rates with the resulting translation adjustment recorded in accumulated
translation adjustment in stockholder's equity.
The functional currency of the Mexican companies is the U.S. dollar.
Therefore, all peso denominated transactions represent foreign currency
transactions. Foreign currency transaction gains and losses are included in
determining net income. All foreign currency transaction gains or losses in 1995
or 1996 were attributable to the Mexican operations.
The Hungarian exchange rate used for the nine months ended September
30, 1997 and 1996 were HUF 195.48 and HUF 154.7, respectively. The Mexican
exchange rate used for the nine months ended September 30, 1997 and 1996 were
MNP 7.8199 and MNP 7.5374, respectively.
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
24
<PAGE> 27
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.
25
<PAGE> 28
INDEX TO FINANCIAL STATEMENTS
-----------------------------
INTERNATIONAL REALTY GROUP, INC. AND SUBSIDIARIES:
Independent Auditors' Report
Audited Consolidated Balance Sheets at December 31, 1996 and 1995
Audited Consolidated Statements of Operations for each of the years
ended December 31, 1996 and 1995
Audited Consolidated Statements of Shareholders' Equity for each of the years
ended December 31, 1996 and 1995
Audited Consolidated Statements of Cash Flows for each of the years ended
December 31, 1996 and 1995
Notes to Audited Consolidated Financial Statements
Unaudited Consolidated Balance Sheets - September 30, 1997 and 1996
Unaudited Consolidated Statements of Operations for the three and nine months
ended September 30, 1997 and 1996
Unaudited Consolidated Statements of Cash Flows for the nine
months ended September 30, 1997
Notes to Unaudited Consolidated Financial Statements
<PAGE> 29
INDEPENDENT AUDITORS' REPORT
Board of Directors and Shareholders
International Realty Group, Inc. and Subsidiaries
North Miami Beach, Florida
We have audited the accompanying consolidated balance sheets of International
Realty Group, Inc. and Subsidiaries as of December 31, 1996 and 1995, and the
related consolidated statements of operations, shareholders' equity and cash
flows for the years then ended. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, based on our audit, the consolidated financial statements
referred to above present fairly, in all material respects, the financial
position of International Realty Group, Inc. and Subsidiaries, as of December
31, 1996 and 1995, and the results of their operations and their cash flows for
the years then ended in conformity with generally accepted accounting
principles.
/s/ Hixson, Marin, Powell & DeSanctis, P.A.
North Miami Beach, Florida
September 26, 1997
<PAGE> 30
INTERNATIONAL REALTY GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS - DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
ASSETS LIABILITIES AND SHAREHOLDERS' EQUITY
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Real estate, at cost: Liabilities:
Property held for future Mortgage and notes
development $ 10,556,100 $ 9,939,500 payable $ 1,215,400 $ 764,200
------------- ------------- ------------- -----------
Receivables: Accounts payable 344,600 261,200
Due from controlling
shareholder 2,230,200 1,658,400
Accrued and other liabilities 804,300 520,700
------------- -----------
Accounts receivable,
net of allowance for
doubtful collections
of $13,800 at
December 31, 1996. 320,500 221,500 Total current liabilities 2,364,300 1,546,100
------------- ------------- ------------- -----------
2,550,700 1,879,900
Minority interest 1,341,800 1,358,100
------------- -----------
Cash and equivalents 7,600 19,500
Shareholders' equity:
Furniture, equipment, Common stock, $.001 par; authorized
and improvements 170,100 205,900 10,000,000 shares; issued 9,954,187 shares
in 1997 and 8,954,187 shares in 1996 10,000 9,000
Excess of cost over
estimated fair value
of net assets acquired 123,200 140,800
Capital in excess of par 4,917,400 4,695,300
Other assets 26,000 589,800
Convertible notes, convertible into
105,638,300 shares of common stock 9,707,400 9,490,900
Cumulative translation adjustment (216,900) (203,500)
Accumulated deficit (4,674,800) (4,105,000)
------------- -----------
9,743,100 9,886,700
Less shares of common stock held
in treasury, at cost 15,500 15,500
------------- -----------
9,727,600 9,871,200
------------- ------------- ------------- -----------
$ 13,433,700 $ 12,775,400 $ 13,433,700 $12,775,400
============= ============= ============= ===========
</TABLE>
Read the accompanying summary of significant accounting policies and notes to
consolidated financial statements, both of which are an integral
of this consolidated financial statement.
<PAGE> 31
INTERNATIONAL REALTY GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1996 AND 1995
1996 1995
----------- -----------
Revenues:
Revenues from services provided $ 604,000 $ 1,129,400
----------- -----------
Operating expenses:
Amortization and depreciation 56,600 87,800
Direct 403,500 620,800
Payroll and related benefits 233,400 415,700
Selling, general and administrative 412,500 378,400
----------- -----------
1,106,000 1,502,700
----------- -----------
Loss before other income (expense), minority
interest and provision for
income taxes (benefit) (502,000) (373,300)
Other income (expense):
Interest income 61,100 7,126,900
Interest expense (128,000) (9,399,700)
Gain on sale of securities 112,200 --
Gains (losses) on exchange rate fluctuations (110,400) 1,458,500
Other expenses 3,200 (51,500)
----------- -----------
Loss before minority interest and provision
for income taxes (benefit) (563,900) (1,239,100)
Minority interest in loss of subsidiaries 25,000 250,700
----------- -----------
Loss before provision for income taxes (benefit) (538,900) (988,400)
Provision for income taxes (benefit) 30,900 (13,300)
----------- -----------
Net loss $ (569,800) $ (975,100)
=========== ===========
Loss per share of common share: $ (0.06) $ (0.10)
=========== ===========
Weighted average common shares outstanding 9,954,187 9,324,395
=========== ===========
Read the accompanying summary of significant accounting policies and notes to
consolidated financial statements, both of which are an integral
of this consolidated financial statement.
<PAGE> 32
INTERNATIONAL REALTY GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
Common Stock Capital in Cumulative Treasury Stock
------------------ Excess of Convertible Translation Accumulated -----------------
Total Shares Amount Par Note Adjustment Deficit Shares Amount
---------- --------- ------- ----------- ---------- --------- ----------- ------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, beginning $ 301,900 7,898,112 $ 7,900 $ 597,000 $ -- $(184,100) $ (103,400) 17,500 $(15,500)
Pooling of interests with
DSC related group 9,599,100 -- -- 12,625,600 -- -- (3,026,500) -- --
---------- --------- ------- ----------- ---------- --------- ----------- ------ --------
Balance begining, as stated 9,901,000 7,898,112 7,900 13,222,600 -- (184,100) (3,129,900) 17,500 (15,500)
Year ended December 31, 1995:
Effect of currency
fluctuations on
net assets of
foreign subsidiaries (19,400) (19,400)
Portion of contributed
assets associated
with convertible note -- (9,490,900) 9,490,900
Gain on sale of related
parties 507,200 507,200
Common stock issued
in exchange for land,
compensation and
cancellations of
long-term debt 457,500 1,056,075 1,100 456,400
Net loss (975,100) (975,100)
---------- --------- ------- ----------- ---------- --------- ----------- ------ --------
Balance, December 31, 1995 9,871,200 8,954,187 9,000 4,695,300 9,490,900 (203,500) (4,105,000) 17,500 (15,500)
Year ended December 31, 1996
Effect of currency
fluctuations on net
assets of foreign
subsidiaries (13,400) (13,400)
Common stock issued
to combining group -- 1,000,000 1,000 90,900 (91,900)
Change in net assets
associated with
convertible note -- (308,400) 308,400
Notes contributed by
controlling shareholder 123,200 123,200
Cash contributions and
cancellation of note by
controlling shareholder 237,500 237,500
Assumption of net assets
in formation of
participating
associations 46,400 46,400
Share of additional
contributions into
participating
associations by
controlling shareholder 32,500 32,500
Net loss (569,800) (569,800)
---------- --------- ------- ----------- ---------- ---------- ------------ ------ ---------
Balance, ending $9,727,600 9,954,187 $10,000 $ 4,917,400 $9,707,400 $(216,900) $(4,674,800) 17,500 $(15,500)
========== ========= ======= =========== ========== ========= =========== ====== ========
</TABLE>
Read the accompanying summary of significant accounting policies and notes to
consolidated financial statements, both of which are an integral
of this consolidated financial statement.
<PAGE> 33
INTERNATIONAL REALTY GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
------------------------- ---------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Sources of cash:
Clients and other $ 1,089,200 $ 1,230,400
Interest 72,400 $ 1,161,600 102,700 $ 1,333,100
------------ --------------
Uses of cash:
Cash paid to:
Direct costs 320,100 656,900
Operating 389,900 389,400
Payroll and related benefits 140,500 244,300
Interest 3,500 108,600
Income taxes 28,900 882,900 3,200 1,402,400
------------ ----------- -------------- -----------
Cash provided by (used-in) operating activities 278,700 (69,300)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Source of cash:
Sales of securities - 1,818,100
Controlling shareholder 279,800 6,950,600 8,768,700
--------------
Uses of cash:
Acquisition of equipment 7,700 21,500
Real estate 6,900 700
Acquisition costs - 43,900
Controlling shareholder 515,100 529,700 1,844,500 1,910,600
------------ ----------- -------------- -----------
Cash provided by (used-in) investing activities (249,900) 6,858,100
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Sources of cash:
Long-term debt 62,500
Shareholders loans 26,700 89,200
--------------
Use of cash:
Payment of:
Long-term debt 21,000 6,873,000
----------- -----------
Cash (used in) financing activities (21,000) (6,783,800)
----------- -----------
EFFECT OF EXCHANGE RATES ON CASH AND EQUIVALENTS (19,700) (19,400)
----------- -----------
DECREASE IN CASH AND EQUIVALENTS (11,900) (14,400)
CASH AND EQUIVALENTS, BEGINNING 19,500 33,900
----------- -----------
CASH AND EQUIVALENTS, ENDING $ 7,600 $ 19,500
=========== ===========
</TABLE>
Read the accompanying summary of significant accounting policies and notes to
consolidated financial statements, both of which are an integral part
of this consolidated financial statement.
<PAGE> 34
INTERNATIONAL REALTY GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
Reconciliation of net loss to cash provided
by (used-in) operating activities:
Net loss $ (569,800) $ (975,100)
------------ ------------
Adjustments to reconcile net loss to cash
provided by (used-in) operating activities:
(Gains) losses due to exchange rate fluctuations 110,400 (1,458,500)
(Gain) on sale of securities (112,200) -
Recognition of acquisition costs previously
capitalized 43,900 -
Amortization and depreciation 56,600 87,800
Minority interest in loss of subsidiaries (25,000) (250,700)
Common stock issued as compensation - 32,100
Bad debt 53,800 73,300
Changes in assets and liabilities:
Accounts receivable (6,600) 128,700
Other assets 446,800 (60,100)
Accounts payable 4,200 (113,800)
Accrued and other liabilities 276,600 2,467,000
------------ ------------
Total adjustments 848,500 905,800
------------ ------------
Cash provided by (used-in) operating activities $ 278,700 $ (69,300)
============ ============
Supplemental schedule of non-cash activities:
Operating activities:
Furniture and equipment in exchange for
accounts receivable $ - $ 15,000
============ ============
Investing activities:
Common stock issued in exchange
for real property $ - $ 401,700
Reduction of note receivable in
exchange for real property - 45,000
Net assets contributed by
participating associations 46,400 -
------------ ------------
$ 46,400 $ 446,700
============ ============
Financing activities:
Common stock issued in exchange for
cancellation of long-term debt $ - $ 23,100
Common stock and convertible note issued in
exchange for net assets received in combination 308,400 9,490,900
------------ ------------
$ 308,400 $ 9,514,000
============ ============
</TABLE>
Read the accompanying summary of significant accounting policies and
notes to consolidated financial statements, both of which are an integral part
of this consolidated financial statement.
<PAGE> 35
INTERNATIONAL REALTY GROUP, INC AND SUBSIDIARIES
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
YEARS ENDED DECEMBER 31, 1996 AND 1995
RECLASSIFICATION OF FINANCIAL STATEMENT PRESENTATION:
The Company has changed its balance sheet presentation to a non-classified
balance sheet due to the change from principally the service industry to
principally real estate holdings and made other reclassifications (see note
2). Balances for the year ended December 31, 1995 have been reclassified
where appropriate to conform to the December 31, 1996 financial statement
presentation. Accordingly, the consolidated financial statements have been
restated to include the accounts of the companies transferred by DSC and
Hemisphere at historical costs.
BASIS OF ACCOUNTING:
International Realty Group, Inc, (the Company) prepares its financial
statements in accordance with generally accepted accounting principles. This
basis of accounting involves the application of accrual accounting;
consequently, revenues and gains are recognized when earned, and expenses and
losses are recognized when incurred. Financial statement items are recorded
at historical cost and may not necessarily represent current values.
MANAGEMENT ESTIMATES:
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements,
and the reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
Those estimates that are considered significant to the accompanying
consolidated financial statements include the per share value used in the
acquisition of various investments.
PRINCIPLES OF CONSOLIDATION:
The consolidated financial statements include the accounts of International
Realty Group, Inc. and all subsidiaries. All significant inter-company
balances and transactions have been eliminated in consolidation.
REAL ESTATE HELD FOR FUTURE DEVELOPMENT:
Real estate held for future development consists of undeveloped and partially
developed land and is carried at the lower of cost or net realizable value.
Construction costs, including interest charges are capitalized while the
project is under development. No substantial construction has occurred in
1995 or 1996 and interest has not been capitalized since construction ceased.
FAIR VALUE OF FINANCIAL INSTRUMENTS:
The carrying amounts of cash and equivalents, accounts receivable, accounts
payable and accrued liabilities approximate their fair values because of the
short duration of these instruments.
IMPAIRMENT OF LONG-LIVED ASSETS:
Long-lived assets and certain identifiable intangibles held and used by the
Company are reviewed for possible impairment whenever events or circumstances
indicate the carrying amount of an asset may not be recoverable. Adoption of
this new standard did not have an impact on the Company's financial position
or results of operations.
<PAGE> 36
INTERNATIONAL REALTY GROUP, INC AND SUBSIDIARIES
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
YEARS ENDED DECEMBER 31, 1996 AND 1995
REVENUE RECOGNITION:
All operating revenues are generated from appraisal operations. 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 in other
assets. Billings in excess of costs and estimated earnings on uncompleted
contracts are reported in accrued and other liabilities. Provisions for
estimated losses are recorded when management determines that a loss on the
contract is probable. Substantially all service contracts have been short
term.
CASH AND EQUIVALENTS:
The Company considers all highly liquid debt instruments purchased with an
initial maturity of three months or less to be cash equivalents.
FOREIGN CURRENCY TRANSLATION:
All assets and liabilities of Hungarian operations are translated into United
States dollars at period-end exchange rates with the resulting translation
adjustment recorded in accumulated translation adjustment in shareholder's
equity. The functional currency of the Mexican companies is the U.S. Dollar.
Therefore, all peso denominated transactions represent foreign currency
transactions. Foreign currency transaction gains and losses are included in
determining net income. All foreign currency transaction gains or losses in
1995 and 1996 were attributable to the Mexican operations.
The Hungarian exchange rate used for the years ended December 31, 1996 and
1995 was HUF$176.25 and HUF$139.81, respectively. The Mexican exchange rate
used for the years ended December 31, 1996 and 1995 was MNP$7.87 and
MNP$7.74, respectively.
FURNITURE, EQUIPMENT, IMPROVEMENTS, DEPRECIATION AND AMORTIZATION:
Furniture, equipment and leasehold improvements are stated at cost less
accumulated depreciation and amortization. Depreciation and amortization are
computed on the straight-line method over the estimated useful lives as
follows:
Estimated Useful Lives
(in years)
-----------------------
Furniture and equipment 10 years
Leasehold improvements 10 years
Library 7 years
Repairs, maintenance and renewals are charged to operations as incurred, and
expenditures for significant betterments and renewals are capitalized.
The cost of fixed assets retired or sold, together with the related
accumulated depreciation, are removed from the appropriate asset and
depreciation accounts, and the resulting gain or loss is included in net
earnings.
<PAGE> 37
INTERNATIONAL REALTY GROUP, INC AND SUBSIDIARIES
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
YEARS ENDED DECEMBER 31, 1996 AND 1995
EXCESS OF COST OVER ESTIMATED FAIR VALUE OF NET ASSETS ACQUIRED:
The excess of cost over estimated fair value of net assets acquired is being
amortized by the straight-line method over the estimated useful life of ten
(10) years.
INCOME TAXES:
Deferred income taxes are provided for temporary differences resulting from
inclusion of income and expenses for financial reporting purposes in years
other than when recognized for income tax purposes. Accordingly, deferred
income taxes are provided for the temporary differences resulting from use of
the cash method of accounting for income tax purposes and the accrual method
of accounting for financial statement purposes.
STOCK BASED COMPENSATION:
The Financial Accounting Standards Board recently issued Statement of
Financial Accounting Standards (SFAS) No. 123, "Accounting for Stock Based
Compensation". This new standard encourages, but does not require, companies
to recognized compensation expense for grants of stock, stock options and
other equity instruments based on a fair value method of accounting.
Companies that do not choose to adopt the new expense recognition rules of
SFAS No. 123 will continue to apply the existing accounting rules contained
in Accounting Principles Board Opinion (APB) No. 25, but will be required to
provide pro forma disclosures of the compensation expense determined under
the fair value provisions of SFAS No. 123, if material. APB No. 25 requires
no recognition of compensation expense for the stock based compensation
arrangements provided by the Company.
The Company is required to adopt either the recognition or the disclosure
provisions of SFAS No. 123 by no later than January 1, 1997. The Company
expects to continue to follow the accounting provision of APB No. 25 for
stock based compensation and to furnish the pro forma disclosures required
under SFAS No. 123, if material.
<PAGE> 38
INTERNATIONAL REALTY GROUP, INC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996 AND 1995
1. ORGANIZATION AND BUSINESS:
International Realty Group, Inc. was organized and incorporated under
the laws of the State of Delaware on April 13, 1970. The Company's
operations consist of providing commercial real estate and business
valuations and appraisals in the United States and Hungary and 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 its marketing of resort hotel
lodging, timeshare interests, and other ancillary real estate
activities. The Company is in the preliminary stages of seeking
financing to commence development projects. No development of the
properties located in Mexico will occur until after the conversion of
the notes issued to DSC and Hemisphere, which notes are collateralized
by the properties located in Mexico.
The Company's subsidiaries and percentage owned are as follows:
STATE OR
PERCENTAGE COUNTRY DATE OF
COMPANY OWNED ORGANIZED ORGANIZATION
------- ----- --------- ------------
U.S. Companies:
Appraisal Group, Inc. (The) 100% Florida August 21, 1974
U.S. Property Investment and
Auction, Inc. 100% Florida March 31, 1987
Appraisal Group International, Inc. 100% Florida July 7, 1989
Stragix International, Inc. 100% Florida April 1, 1990
IRG Financial Services, Inc. 100% Florida June 15, 1992
Foreign Companies:
Centro de Promociones Guerrero,
S.A. de C.V 100% Mexico March 13, 1989
Appraisal Group International, RT 75% Hungary June 6, 1990
Clusters Inmobiliaria de Ixtapa,
S.A. de C.V 75% Mexico July 24, 1991
Caye Bokel, Limited 100% Belize January 27, 1995
Hacienda de Franco, Asociacion
en Participacion 81.13% Mexico January 10, 1996
Villa del Carbon, Asociacion en
Participacion 79.08% Mexico January 19, 1996
Bahia de Cortez, Asociacion en
Participacion 77.89% Mexico February 7, 1996
Newland Corporation 100% Marshall December 12, 1995
Islands
Nueva Tierra, S.A. de C.V 100% Mexico October 6, 1995
<PAGE> 39
INTERNATIONAL REALTY GROUP, INC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996 AND 1995
2. REVERSE ACQUISITION:
Pursuant to an Amended and Restated Agreement ("Agreement") dated
August 19, 1996, (the "Closing Date"), by and among International
Realty Group, Inc. ("IRG") and DSC, S.A. de C.V. ("DSC"), and
Hemisphere Development Limited ("Hemisphere"), IRG was acquired by DSC
through a Reverse Acquisition with DSC designated as the acquiror.
Pursuant to the terms and conditions of the Agreement, DSC transferred
its 75% interest in Clusters Inmobiliaria de Ixtapa, S.A. de C.V.
("Clusters Ixtapa"), its 100% interest in Centro de Promociones
Guerrero, S.A. de C.V. ("Centro"), its 30% interest in Nueva Tierra,
S.A. de C.V. ("Nueva Tierra"), a Promissory Note ("Cluster's Note") in
the amount of $5,628,426, and cash totaling $300,000 to IRG. Hemisphere
transferred its 100% interest in Newland Corporation ("Newland"), which
holds the remaining 70% of Nueva Tierra. Nueva Tierra has interests in
three participating associations in Mexico, which are under the
management control of DSC. DSC and Hemisphere transferred net assets
totaling $9,799,300 in exchange for an aggregate of 1,000,000 shares of
Common Stock, a note to DSC in the principal amount of $4,858,828,
which is convertible into 52,875,030 shares of Common Stock and a note
to Hemisphere in the principal amount of $4,848,558, which is
convertible into 52,763,270 shares of Common Stock.
The Reverse Acquisition has been accounted for in a manner similar to
the pooling of interests method in accordance with Accounting
Principles Board Opinion No. 16, Accounting for Business Combinations,
since it represents an exchange of entities under common control.
Accordingly, the consolidated financial statements have been restated
to include the accounts of the companies transferred by DSC and
Hemisphere at historical costs.
Net sales and net income of the separate companies for the periods
preceding the acquisitions were as follows:
<TABLE>
<CAPTION>
International DSC/Hemisphere
Realty Group Combined Combined
------------ -------- --------
<S> <C> <C> <C>
Six months ended
June 30, 1996 (unaudited):
Revenues, net $ 309,800 $ - $ 309,800
Net loss 152,800 22,100 174,900
Year ended December 31, 1995:
Revenues, net 1,129,400 - 1,129,400
Net loss 359,800 615,300 975,100
</TABLE>
No intercompany transactions existed between the companies during the
periods presented and no adjustments were necessary to conform the
accounting policies of the two companies. Costs associated with
consummating the reverse acquisition are estimated to total $186,000
incurred as of December 31, 1996 which has been charged to operations.
<PAGE> 40
INTERNATIONAL REALTY GROUP, INC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996 AND 1995
3. CONCENTRATIONS OF CREDIT RISK:
Financial instruments that potentially subject the Company to
concentrations of credit risk consist principally of cash and accounts
receivable. During the year, the Company's account balances with
financial institutions may exceed federally insured limits. Management
regularly monitors their balances and attempts to keep this potential
risk to a minimum by maintaining their accounts with financial
institutions they believe are of good quality.
A concentration of credit risk may exist with respect to accounts
receivable. The Company has a large number of customers on which it
performs ongoing credit evaluations and generally does not require
collateral from its customers. The Company maintains an allowance for
uncollectible accounts receivable based upon expected collectibility of
all accounts receivable. Credit losses have been provided for in the
consolidated financial statements. No additional credit risk is
believed inherent in the Company's receivables.
A significant portion of the Company's revenues consist of fees to
major customers on credit. Net revenues in 1996 and 1995 to major
customers are as follows:
<TABLE>
<CAPTION>
1996 1995
----- ----
Amount Percentage Amount Percentage
------ ---------- ------ ----------
<S> <C> <C> <C> <C>
Domestic:
Customer A $ 34,900 10.5% $ 106,600 19.0%
======= ===== ========= =====
Foreign:
Customer A $180,500 66.4% $ 552,600 80.0%
======== ===== ========= =====
</TABLE>
Domestic customers are primarily commercial entities. Foreign customer
is Hungarian governmental agencies.
<PAGE> 41
INTERNATIONAL REALTY GROUP, INC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996 AND 1995
4. LAND HELD FOR FUTURE DEVELOPMENT:
<TABLE>
<CAPTION>
LOCATION ACREAGE 1996 1995
-------- ------- ---- ----
<S> <C> <C> <C>
Ixtapa, Mexico 26 $ 9,054,900 $ 9,054,900
Acapulco, Mexico 8 403,600 403,600
Caye Bokel, Belize 87 456,400 449,400
Guanajuato, Mexico 236 547,200 --
Jilotepec, Mexico 24 43,100 --
La Paz, Mexico 3,451 19,300 --
La Grange, Texas 1 31,600 31,600
------------ -----------
$ 10,556,100 $ 9,939,500
============ ===========
</TABLE>
Improvements totaling $649,000 are included in the cost of land. Land
with costs totaling $950,000 is pledged as collateral on notes payable
totaling $1,098,000 as of December 31, 1996.
5. DETAILS OF FINANCIAL STATEMENT COMPONENTS:
<TABLE>
<CAPTION>
<S> <C> <C>
Furniture, equipment and improvements:
Furniture and equipment $ 164,300 $ 164,600
Leasehold improvements 14,300 12,400
Library 207,600 207,600
------------ -----------
386,200 384,600
Less accumulated deprecation
and amortization 216,100 178,700
------------ -----------
$ 170,100 $ 205,900
============ ===========
Other assets:
Acquisition costs $ -- $ 43,900
Cost and earnings in excess of billings 15,700 --
Income and VAT tax receivable -- 460,000
Deferred taxes -- 16,200
Other 10,300 69,700
------------ -----------
$ 26,000 $ 589,800
============ ===========
</TABLE>
<PAGE> 42
INTERNATIONAL REALTY GROUP, INC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996 AND 1995
5. DETAILS OF FINANCIAL STATEMENT COMPONENTS (CONTINUED):
1996 1995
---- ----
Accrued liabilities:
Payroll and payroll taxes $ 468,800 $ 375,900
Interest 125,500 1,000
Foreign taxes, other than on income 11,600 13,600
Billings in excess of costs and earnings 33,200 7,700
Shareholder loans 58,000 26,700
Other 107,200 95,800
--------- ---------
$ 804,300 $ 520,700
========= =========
6. MORTGAGE AND NOTES PAYABLE:
Note payable, unsecured,
interest at 2.0% per annum,
payable monthly, balloon
payment of $49,000 due on
December 31, 1997 $ 49,000 $ 49,000
Note payable, bank, collateralized
by land, restructured in 1996, to
non-interest bearing, due
on March 31, 1998. 632,200 625,800
Mortgage note, bank, collateralized
by land, interest at 4.5% per
annum, over the inflation rate
index of Mexico, due in 2007. 465,800 --
Note payable, related party,
unsecured, interest at 7.25%,
due on demand. 68,400 89,400
---------- ---------
$1,215,400 $ 764,200
========== =========
<PAGE> 43
INTERNATIONAL REALTY GROUP, INC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996 AND 1995
6. MORTGAGE AND NOTES PAYABLE (CONTINUED):
In 1996, the Company had a debt restructuring involving a modification of
terms. The interest rate changed from 6% over the Average Bank Deposit
Rate in Mexico to a non-interest bearing note. No gain or loss was
recognized.
Maturities of long-term debt subsequent to December 31, 1996 are as
follows:
Years ending
December 31, Amount
------------ ------
1997 $ 126,200
1998 677,900
1999 45,700
2000 45,700
2001 45,700
2002 and thereafter 274,200
----------
$1,215,400
==========
7. INCOME TAXES:
Components of the net deferred tax liability as reflected on the
Company's consolidated balance sheets are as follows:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Deferred tax assets:
Accounts payable $ 49,300 $ 45,900
Accrued liabilities 175,100 134,700
Net operating loss carryforwards 413,500 395,100
----------- ----------
637,900 575,700
Less valuation allowance (624,300) (484,200)
----------- ----------
13,600 91,500
Deferred tax liabilities:
Accounts receivable (13,600) (75,300)
----------- ----------
Deferred taxes, Net $ -- $ 16,200
=========== ==========
</TABLE>
The valuation allowance is provided when it is more likely than not
that the tax benefit may not be realized.
The components of the provision for income taxes (benefit) for the
years ended December 31, 1996 and 1995, are as follows:
Current payable (receivable):
Federal $ 14,700 $ 2,900
Foreign -- --
Deferred:
Federal -- --
Foreign 16,200 (16,200)
--------- ---------
$ 30,900 $ (13,300)
========= =========
<PAGE> 44
INTERNATIONAL REALTY GROUP, INC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996 AND 1995
7. INCOME TAXES (CONTINUED):
The income tax benefit for the years ended December 31, 1996 and 1995,
differs from that which would result from applying statutory tax rates
primarily due to certain operating expenses which are not tax
deductible. The provision for income taxes differs from the amount
obtained by applying the federal statutory income tax rate to income
before provision for income taxes as follows:
1996 1995
---- ----
Provision at statutory rate $ (183,200) $ (336,100)
Foreign taxes 16,200 (13,300)
Utilization of operating loss
carrybacks/carryforwards 92,500 --
Valuation allowance 140,100 336,100
Other differences (34,700) --
----------- ----------
$ 30,900 $ (13,300)
=========== ==========
At December 31, 1996, the Company had available federal and foreign net
operating loss carryforwards of approximately $1,216,200 which will
generally expire between 2001 and 2011.
The Company has not provided for federal income taxes on approximately
$9,200 of undistributed earnings of its foreign subsidiaries which have
been reinvested in their operations. If these earnings were
distributed, net operating loss carryforwards and foreign tax credits
available under current law would eliminate the resulting federal
income tax liability.
8. LOSS PER SHARE:
Loss per share of common stock was computed by dividing net loss by the
weighted average number of shares of common stock. Shares issued in
1996 are considered outstanding for all of 1996. 1995 weighted average
shares has been adjusted accordingly since operations include results
of combined companies. The number of shares used in the computation of
loss per share of common stock during 1996 and 1995 were 9,954,187 and
9,324,395, respectively. Had the convertible note been converted into
common stock, the net loss per share in 1996 and 1995 would be ($.01)
and (.01), respectively.
<PAGE> 45
INTERNATIONAL REALTY GROUP, INC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996 AND 1995
9. TRANSACTIONS WITH RELATED PARTY:
In 1995, the Board of Directors of Appraisal Group International, RT
(AGI RT), with the concurrence of its parent, authorized the exchange
of twenty five percent (25.0%) of AGI RT common stock with certain
directors/officers/employees of the Corporation for securities of other
Hungarian corporations. The fair values of the securities were based on
the estimated fair value of AGI RT compared to the net equity of the
companies in the exchange of securities. The securities, included in
other assets at December 31, 1995, were sold to third parties in 1996
at a gain of $112,200.
In 1995, the Company had two employment agreements with shareholders
controlling approximately sixty-three (63%) of Company common stock.
The agreements provided for employment terms through 1995 with minimum
annual compensation and bonuses if declared by the Board of Directors.
One of those agreements was extended through 1997. The Company accrued
compensation expense totaling $100,000 and $204,000 in 1996 and 1995,
respectively. No bonuses were declared in 1996 or 1995.
In 1994, the Company acquired common stock from two related parties. In
1995, these securities were sold to related parties for a gain of
$570,200. The gain was recorded as a capital contribution.
10. COMMITMENTS:
The Company leases office facilities under an operating lease expiring
October 31, 1997. Future minimum lease payments under this agreement
are $21,000 and month to month thereafter.
During 1994, the Mexican peso was permitted to float against the U.S.
Dollar and other currencies. As a result, the peso devalued from
$3.4662 pesos/dollars to approximately $3.9413 pesos/dollars. It is not
possible to determine what effect the devaluation will have upon future
pricing or costs; however, it is management's opinion that the
devaluation will not have a material adverse effect upon the Company's
future operations.
<PAGE> 46
INTERNATIONAL REALTY GROUP, INC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996 AND 1995
11. STOCK OPTIONS AND AWARDS:
In 1993, the Company entered into an employment agreement with a key
employee. The agreement called for 300,000 shares to be issued in
100,000 increments between 1993 and 1995. The agreement also granted
the employee an option to purchase 700,000 shares at the current market
value price at the grant date of $.205 per share. In 1994, the
agreement was amended to award the employee 300,000 shares and reduce
the number of options from 700,000 to 400,000 and modify the option
terms. 200,000 options became exercisable in 1995, which were
exercised, and 200,000 options in 1996 at fifty percent (50%) of the
average trading prices per share for the month of February, 1996.
The Company awarded eligible employees 32,575 shares of stock in 1995
and awarded the Board of Directors, some of whom are officers, 8,500
shares of stock. Amounts charged against current earnings was $32,100.
Stock option/award activity under the Agreement is as follows:
1996 1995
---- ----
Number of option shares:
Outstanding, beginning $ 200,000 $ 400,000
Add (deduct):
Granted/awarded -- 41,075
Exercised -- (241,075)
----------- ----------
Outstanding, ending 200,000 200,000
=========== ==========
Option price range
Granted $ -- $ .001
Exercised -- .001
----------- ----------
Outstanding, ending $ -- $ .001
=========== ==========
<PAGE> 47
INTERNATIONAL REALTY GROUP, INC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996 AND 1995
12. TRUST ASSETS:
AGI RT maintains cash (1996, $15,600; 1995, $678,900) in a fiduciary or
agency capacity (trust funds) for certain customers which is not
included in the accompanying consolidated balance sheet. The trust
funds represent funds for companies being liquidated under court
supervision.
In 1994, former employees of AGI Rt invested trust funds in securities
of an entity. The investment was outside the fiduciary scope of
responsibility of AGI RT as Trustee and was done without its knowledge
or consent. The investments were liquidated in 1995 at a loss, and the
Company has voluntarily indemnified the trust fund for such losses.
Management of the Company is instituting legal proceedings against the
former employees seeking restitution. The ability of recovery has not
been determined, and accordingly, amounts paid as indemnification
($51,500) have been charged to operations in 1995 as other deductions.
13. SUPPLEMENTAL INFORMATION:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Charged to:
Direct:
Consulting, appraisal $ 351,900 $ 526,000
Reports, film and
other 51,600 94,800
---------- ----------
$ 403,500 $ 620,800
========== ==========
Selling, general and
administrative:
Utilities $ 30,700 $ 42,500
Bad Debts 53,800 73,300
Rent 38,000 55,400
Insurance 4,500 6,500
Office 26,500 48,600
Professional 156,600 71,600
Selling 40,800 23,100
Other 61,600 57,400
---------- ----------
$ 412,500 $ 378,400
========== ==========
</TABLE>
<PAGE> 48
INTERNATIONAL REALTY GROUP, INC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996 AND 1995
14. BUSINESS SEGMENT:
Information about the Company's operations in different geographic
areas for the years ended December 31, 1996 and 1995 is as follows:
<TABLE>
<CAPTION>
Consolidated United
Total States Mexico Hungary
----- ------ ------ -------
<S> <C> <C> <C> <C>
Net revenues:
1996 $ 604,000 $ 331,500 $ -- $ 272,500
1995 1,129,400 561,400 -- 568,000
Loss from
continuing operations
before other deductions,
income taxes and
minority interest:
1996 (502,000) (467,100) -- (34,900)
1995 (373,300) (307,300) -- (66,000)
Identifiable assets:
1996 12,847,700 323,000 12,194,700 330,000
1995 12,719,700 467,200 12,053,500 199,000
Capital expenditures:
1996 14,600 14,600 -- --
1995 37,200 15,900 -- 21,300
Depreciation and amortization:
1996 56,600 52,100 -- 4,500
1995 87,800 82,900 -- 4,900
</TABLE>
Income (loss) from continuing operations is revenue less operating
expenses. In determining income (loss) from continuing operations, the
following items have not been included:
a) Other Income (Expenses)
b) Income taxes
c) Minority interest
Identifiable assets are those assets that are identified with the
operations in each geographic area.
<PAGE> 49
INTERNATIONAL REALTY GROUP, INC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996 AND 1995
15. SELECTED QUARTERLY FINANCIAL SUMMARY (UNAUDITED):
For the years ended December 31:
<TABLE>
<CAPTION>
First Second Third Fourth
----- ------ ----- ------
<S> <C> <C> <C> <C>
1996:
Revenues $ 162,200 $ 204,000 $ 89,900 $ 147,900
Operating expenses 269,700 216,600 380,700 239,000
--------- ----------- ---------- ---------
Loss before other
income (expense)
and taxes (107,500) (12,600) (290,800) (91,100)
Other income
(expense) including
minority interest (101,500) (21,500) 18,900 67,200
Provision for income
taxes (benefit) 16,200 16,200 -0- (1,500)
--------- ----------- ---------- ---------
Net loss $(225,200) $ (50,300) $ (271,900) $ (22,400)
========= =========== ========== =========
Net loss per common
share $ (.02) $ (.01) $ (.03) $ -0-
========= =========== ========== =========
1995:
Revenues $ 266,600 $ 311,600 $ 399,300 $ 151,900
Operating expenses 396,100 438,500 247,000 421,100
--------- ----------- ---------- ---------
Income (loss) before
other income (expense)
and taxes (129,500) (126,900) 152,300 (269,200)
Other income
(expense) including
minority interest 352,100 (1,159,500) (443,100) 635,400
Provision for income
taxes (benefit) 2,400 (15,700)
--------- ----------- ---------- ---------
Net income (loss) $ 222,600 $(1,286,400) $ (293,200) $ 381,900
========= =========== ========== =========
Net income (loss) per
common share $ .03 $ (.14) $ (.03) $ .04
========= =========== ========== =========
</TABLE>
<PAGE> 50
INTERNATIONAL REALTY GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1997
(UNAUDITED, NOTE 1)
<TABLE>
<S> <C> <C>
ASSETS
REAL ESTATE, AT COST:
PROPERTY HELD FOR FUTURE DEVELOPMENT $ 10,556,100
RECEIVABLES:
DUE FROM CONTROLLING SHAREHOLDER 2,142,500
ACCOUNTS RECEIVABLE, DEEMED FULLY COLLECTIBLE 130,300
------------
2,272,800
CASH AND CASH EQUIVALENTS 41,200
FURNITURE, EQUIPMENT, AND IMPROVEMENTS 144,500
EXCESS OF COST OVER ESTIMATED FAIR VALUE OF
NET ASSETS ACQUIRED 110,000
OTHER ASSETS 125,600
-------------
TOTAL $ 13,250,100
=============
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES:
MORTGAGES AND NOTES PAYABLE (NOTE 2) $ 1,221,600
ACCOUNTS PAYABLE 214,000
ACCRUED AND OTHER LIABILITIES 873,300
------------
$ 2,308,900
MINORITY INTEREST 1,326,800
SHAREHOLDERS' EQUITY:
COMMON STOCK, $.001 PAR; AUTHORIZED 10,000,000
SHARES; 9,954,313 SHARES ISSUED AT 9/30/97 10,000
CAPITAL IN EXCESS OF PAR 4,917,400
CONVERTIBLE NOTES (NOTE 3) 9,707,400
CUMULATIVE TRANSLATION ADJUSTMENT (220,400)
ACCUMULATED DEFICIT (4,784,400)
------------
9,629,900
LESS SHARES OF COMMON STOCK HELD IN TREASURY,
AT COST 15,500
------------
TOTAL SHAREHOLDERS' EQUITY 9,614,500
------------
TOTAL $ 13,250,100
============
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
<PAGE> 51
INTERNATIONAL REALTY GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
(UNAUDITED, NOTE 1)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30
---------------------------------- ------------------------------------
1997 1996 1997 1996
----------------- ---------------- ----------------- ------------------
<S> <C> <C> <C> <C>
REVENUES:
REVENUES FROM SERVICES PROVIDED $ 179,600 $ 89,900 $ 579,000 $ 456,100
----------- ----------- ----------- -----------
OPERATING EXPENSES:
AMORTIZATION AND DEPRECIATION 13,800 15,500 41,800 42,900
DIRECT 109,100 147,800 334,000 309,800
PAYROLL AND RELATED BENEFITS 52,300 54,700 150,300 201,700
SELLING, GENERAL & ADMINISTRATIVE 39,000 162,700 113,200 312,500
----------- ----------- ----------- -----------
214,200 380,700 639,200 866,900
----------- ----------- ----------- -----------
LOSS BEFORE OTHER INCOME (EXPENSE), MINORITY
INTEREST & PROVISION FOR INCOME
TAXES (BENEFIT) (34,600) (290,800) (60,300) (410,900)
OTHER INCOME (EXPENSE)
INTEREST INCOME 100 2,000 600 59,200
INTEREST EXPENSE (21,500) (30,800) (72,800) (95,400)
GAIN (LOSSES) ON EXCHANGE RATE FLUCTUATIONS 10,800 64,400 1,200 (78,100)
OTHER INCOME (EXPENSES) 5,200 -- 7,400 --
----------- ----------- ----------- -----------
LOSS BEFORE MINORITY INTEREST &
PROVISION FOR INCOME TAXES (BENEFIT) (40,000) (255,100) (123,900) (525,100)
MINORITY INTEREST IN INCOME (LOSS) OF
SUBSIDIARIES 1,800 16,800 (15,000) (10,200)
----------- ----------- ----------- -----------
LOSS BEFORE PROVISION FOR INCOME TAXES (41,700) (271,900) (108,900) (514,900)
PROVISION FOR INCOME TAXES 600 -- 600 32,400
----------- ----------- ----------- -----------
NET LOSS (42,400) $ (271,900) $ (109,600) $ (547,300)
=========== =========== =========== ===========
LOSS PER COMMON SHARE $ (0.00) $ (0.03) $ (0.01) $ (0.05)
=========== =========== =========== ===========
WEIGHTED AVERAGE SHARES OF COMMON STOCK 9,954,187 9,954,187 9,954,187 9,954,187
=========== =========== =========== ===========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
<PAGE> 52
INTERNATIONAL REALTY GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 1997
(UNAUDITED, NOTE 1)
<TABLE>
<CAPTION>
-------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
SOURCES OF CASH:
CLIENTS AND OTHER $ 776,500
INTEREST 600
---------------
777,100
---------------
USES OF CASH:
CASH PAID FOR:
DIRECT COSTS 508,600
OPERATING 113,200
PAYROLL AND RELATED BENEFITS 150,300
TAXES 600
INTEREST 1,500
---------------
774,200
---------------
CASH PROVIDED BY OPERATING ACTIVITIES $ 2,900
CASH FLOWS FROM INVESTING ACTIVITIES:
ACQUISITION OF:
EQUIPMENT (3,000)
CASH FLOWS FROM FINANCING ACTIVITIES:
SOURCES OF CASH:
DUE FROM CONTROLLING SHAREHOLDER 100,000
USES OF CASH:
PAYMENT OF NOTES PAYABLE 61,700
---------------
CASH USED IN FINANCING ACTIVITIES 38,300
EFFECT OF EXCHANGE RATES ON CASH AND (4,600)
CASH EQUIVALENTS ----------
INCREASE IN CASH AND CASH EQUIVALENTS 33,600
CASH AND EQUIVALENTS, BEGINNING 7,600
----------
CASH AND EQUIVALENTS, ENDING $ 41,200
==========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
<PAGE> 53
INTERNATIONAL REALTY GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS (CONTINUED)
NINE MONTHS ENDED SEPTEMBER 30, 1997
(UNAUDITED, NOTE 1)
- -------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
RECONCILIATION OF NET LOSS TO CASH FLOWS
PROVIDED BY OPERATING ACTIVITIES:
NET LOSS $ (109,600)
----------
ADJUSTMENTS TO RECONCILE NET LOSS TO
CASH PROVIDED BY OPERATING ACTIVITIES:
AMORTIZATION AND DEPRECIATION $ 41,800
MINORITY INTEREST (15,000)
CURRENCY FLUCTUATION (1,200)
CHANGES IN ASSETS & LIABILITIES:
ACCOUNTS RECEIVABLE 190,200
OTHER ASSETS (99,600)
ACCOUNTS PAYABLE: (130,600)
ACCRUED LIABILITIES AND OTHER 126,900
---------
TOTAL ADJUSTMENTS 112,500
---------
CASH PROVIDED BY OPERATING ACTIVITIES $ 2,900
=========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
<PAGE> 54
INTERNATIONAL REALTY GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 1997
(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 1996 Audited Financial Statements contained
in the Company's Form 10-KSB for the year ended December 31, 1996.
The Company has changed its balance sheet presentation to a non-classified
balance sheet due to the change from principally the service industry to
principally real estate holdings and made other reclassifications (See Item 2.
Management's Discussion and Analysis or Plan of Operations). Such change in
presentation had no effect on operations. Balances for the three and nine months
ended September 30, 1997 have been reclassified where appropriate to conform to
the comparable 1996 period's financial statement presentation.
(2) MORTGAGE AND NOTES PAYABLE
Mortgages and Notes Payable at September 30, 1997 is summarized as follows:
<TABLE>
<S> <C>
Mortgage Note, bank $ 468,900
Note Payable, bank 639,400
----------
Total Payable to banks $1,108,300
Note Payable, unsecured 48,000
Note Payable, related party 15,300
Shareholder Loan 50,000
----------
$1,221,600
----------
</TABLE>
(3) CONVERTIBLE NOTE
Convertible Notes issued at August 19, 1996 are summarized as follows:
<TABLE>
<S> <C> <C>
$4,858,828 convertible into 52,875,030 shares
$4,848,558 convertible into 52,763,270 shares
---------- ------------------
$9,707,386 convertible into 105,638,300 shares
</TABLE>
<PAGE> 55
AMENDED AND RESTATED AGREEMENT
This Amended and Restated Agreement (the "Agreement") is made
effective as of August 19, 1996 by and among INTERNATIONAL REALTY GROUP, INC.
("IRG"), a Delaware corporation, 111 Northwest 183 Street, Suite 518, Miami,
Florida 33169, DSC, S.A. DE C.V. ("DSC"), a Mexico corporation,
Constituyentes No. 647, Col. 16 de Septiembre, Mexico, D.F. 11810, and
HEMISPHERE DEVELOPMENTS LIMITED ("Hemisphere"), an Isle of Man corporation,
Atlantic House, 4-8 Circular Road, Douglas, Isle of Man.
RECITALS:
A. IRG has entered into a share exchange transaction with DSC, pursuant
to the terms of those certain agreements, dated October 6, 1995 (the
"Agreement"), February 7, 1996 (the "First Amendment") and July 31, 1996 (the
"Second Amendment"). Collectively, the Agreement, First Amendment and Second
Amendment are referred to herein as the "DSC Agreements."
B. IRG has also entered into a share exchange transaction with
Hemisphere, pursuant to the terms of those certain agreements, dated February 9,
1996 (the "Hemisphere Agreement"), and July 31, 1996 ("Hemisphere Amendment").
Collectively, the Hemisphere Agreement and the Hemisphere Amendment are referred
to herein as the "Hemisphere Agreements."
C. IRG, DSC and Hemisphere desire to amend and restate the DSC
Agreements and the Hemisphere Agreements in order to conform the terms of such
agreements to the accounting treatment of the share exchange transaction in
accordance with generally accepted accounting principles, and to make certain
amendments to such agreement, all in accordance with the terms and conditions of
this Agreement.
D. IRG, DSC and Hemisphere desire that this Agreement shall constitute
the entire agreement of the parties hereto with respect to the subject matter
hereof and supersedes all prior agreements and undertakings, both written and
oral, between or among the parties hereto with respect to the subject matter
hereof, including, without limitation, the DSC Agreements and the Hemisphere
Agreements.
E. IRG, DSC and Hemisphere hereby acknowledge that they are aware of
the contents and legal effects of all the agreements, contracts, arrangements,
either written or verbal, including the Limited Partnership Agreements
(literally, "asociaciones en participation"), referred to herein as well as of
any other document creating, amending or terminating in any manner any rights or
obligations of the parties hereto.
NOW THEREFORE, in consideration of the covenants and agreements
hereinafter set forth, IRG, DSC and Hemisphere agree as follows:
1. Recitals. The recitals set forth above are true and correct and are
made a part hereof.
2. Basic Transaction. IRG has consummated a share exchange transaction
with each of DSC and Hemisphere effective August 19, 1996 (the "Closing Date" or
the "Closing") pursuant to the terms and conditions of this Agreement. Such
transaction is intended to effect a reverse merger of IRG with DSC as the
acquiring party and shall be accounted for as a pooling of interest at
historical cost, according to U.S. Generally Accepted Accounting Principles.
<PAGE> 56
3. DSC Share Exchange. On the Closing Date, IRG shall have purchased from
DSC and DSC shall have sold to IRG the following assets (the "DSC Assets"): (i)
DSC's 100 percent interest in Centro de Promociones Guerrero S.A. de C.V.
("Centro"); (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 $5,628,426 of Clusters Ixtapa; (iv) DSC's 30 percent
interest in Nueva Tierra, S.A. de C.V. ("Nueva Tierra"). The table attached
hereto as Exhibit "A" summarizes the DSC Assets acquired, the interests and
historical cost basis of each. In addition, DSC shall make advances to IRG in
the aggregate amount of $300,000, which amounts shall be treated as a capital
contribution to IRG.
In exchange for the DSC Assets, IRG shall have issued to DSC, as of the
Closing Date, a Convertible Promissory Note (the "DSC Note") in the principal
amount of $4,858,828 and convertible into 52,875,030 shares of IRG's common
stock, par value $.001 per share (the "Common Stock"); and (ii) 485,930 shares
of Common Stock. The form of the DSC Note is attached hereto as Exhibit "B" to
this Agreement.
4. Hemisphere Transaction. On the Closing Date, IRG shall have purchased
from Hemisphere and Hemisphere shall have sold to IRG its 100% interest in
Newland Corporation (the "Hemisphere Asset"), which, in turn, holds a 70 percent
interest in Nueva Tierra. The table attached hereto as Exhibit "A" summarizes
the Nueva Tierra partnerships -- Villa Del Carbon, Hacienda Del Franco, and
Bahia de Cortes -- acquired, the interests and historical cost basis of each. As
of the Closing Date, Nueva Tierra's interest in the partnerships is as follows:
Bahia de Cortes 77.89%
Hacienda del Franco 81.13%
Villas Del Carbon 79.08%
In exchange for the Hemisphere Asset, IRG shall have issued to
Hemisphere, as of the Closing Date: (i) a Convertible Promissory Note (the
"Hemisphere Note") in the principal amount of $4,848,558 and convertible into
52,763,270 shares of Common Stock; and (ii) 514,070 shares of Common Stock. The
form of the Hemisphere Note is attached hereto as Exhibit "C" to this Agreement.
5. Representations and Warranties of IRG. IRG hereby represents and
warrants to each of DSC and Hemisphere:
a. IRG is authorized to issue 10,000,000 shares of Common Stock, of
which 8,954,187 shares have been issued and are outstanding as of the Closing
Date. IRG's majority shareholders agree to use their best efforts to cause an
increase in the number of authorized shares to 450,000,000. IRG owns all of the
issued and outstanding shares of stock of all of its subsidiaries: International
Realty Group (Holdings), Inc., a Florida corporation; The Appraisal Group, Inc.,
a Florida corporation; Appraisal Group International, Inc., a Florida
corporation; IRG Financial Services, Inc., a Florida corporation; U.S. Property
Investment and Auction, Inc., a Florida corporation; Caye Bokel, Ltd., a Belize
corporation, and Stragix International, Inc., a Florida corporation which in
turn owns 75% of Appraisal Group International Rt., a Hungary Corporation;
<PAGE> 57
b. IRG and its subsidiaries own no real properties except the Caye
Bokel property and two vacant lots in LaGrange, Texas, and all leases of real or
other property are valid, enforceable in accordance with their terms, and not in
default.
c. IRG and its subsidiaries have properly filed or caused to be filed
all United States federal, state, local, and foreign income and other tax
returns, reports and declarations that are required by applicable law to be
filed by them, and have paid, or made full and adequate provisions for the
payment of, all federal, state, local, and foreign income and other taxes
properly due for the periods covered by such returns, reports, and declarations,
except such taxes, if any, as are adequately reserved against in IRG's most
recent audited financial statements. Based upon due inquiry by IRG, IRG to the
best of its knowledge and belief states that Appraisal Group International Rt.
is in compliance with this paragraph.
d. There is no litigation pending or threatened, nor have any summons,
notices or warning been received from any governmental agency, department with
respect to any material fine, or material violation of any law or ordinance, or
other type of enforcement proceeding, including but not limited to environmental
matters, with respect to IRG or its subsidiaries which involve a potential
monetary recovery in excess of $25,000 in United States dollars.
e. IRG has or will have on the date of Closing good and unencumbered
title to the shares of IRG stock necessary to complete this transaction as
provided above, free and clean of all mortgages, liens and encumbrances of any
nature, and has or will have on the Closing Date the power and authority to
transfer said shares to Hemisphere and DSC free and clear of liens and
encumbrances on the Closing Date.
f. Except as specifically referenced in this Agreement, none of IRG or
its subsidiaries have or will enter into any transaction, incur any obligation
or conduct business affairs except in the normal course of business between
September 30, 1995 and the Closing Date.
g. All of the financial statements of IRG provided to either DSC or
Hemisphere and filings with the Securities and Exchange Commission shall be true
and accurate in all material respects for the periods indicated, and shall not
omit any material fact or circumstance necessary or required to prevent the
information from being misleading. Since the date of the most recent IRG audited
financial statement, IRG and its subsidiaries have no liabilities, fixed or
contingent which are not fully provided for in the IRG Audited Financial
Statements, except for trade payables incurred in the ordinary course of
business. IRG shall have provided Hemisphere and DSC a list of liabilities of
IRG and its subsidiaries as of the Closing Date which shall be certified by IRG
as true and correct, and incorporated herein by reference.
h. IRG and its subsidiaries have, and in the past have had no labor
agreements, and no employee benefit plans sponsored, maintained or contributed
to by IRG or its subsidiaries for the benefit of employees, officers or
directors.
i. To the best of IRG's knowledge and belief, IRG and its subsidiaries
are in good standing with the SEC, NASD, and each state and country where they
conduct business and have received no notification or inquiry giving reasonable
cause to believe otherwise, and IRG will provide at closing good standing
certificates or their equivalent from each such country, including Belize and
Hungary, and each such state in the United States. As a part of IRG's due
diligence response provided to Hemisphere and DSC, IRG will continue to provide
Hemisphere and DSC
<PAGE> 58
with copies of all filings made by IRG with the SEC or NASD, and copies of all
letters, notices or other documents sent by IRG to or received by IRG from the
SEC or the NASD up to and including the date of the Closing.
6. Representations and Warranties of Hemisphere. Hemisphere hereby
represents and warrants to IRG:
a. On the date of Closing, Hemisphere has or will cause good and
unencumbered title to the Hemisphere Assets to be sold and transferred to IRG.
b. There is no litigation pending or threatened, nor have any summons,
notices or warning or warning been received from any governmental agency, or
department with respect to any material fine, or material violation of any law
or ordinance,or other type of enforcement proceeding, including but not limited
to environmental matters, with respect to Newland, Nueva Tierra or the
properties which involves in the aggregate a potential monetary recovery in
excess of $500,000 in United States dollars for all such litigation, claims or
fines. Based upon due inquiry by Hemisphere, Hemisphere to the best of its
knowledge and belief states that Newland, Nueva Tierra and the properties are in
compliance with this paragraph.
c. The financial statement of Newland provided to IRG shall be true and
accurate in all material respects for the periods indicated for the statement,
and shall not omit any material fact or circumstance necessary or required to
prevent the financial information from being misleading. Since the date of the
most recent Newland financial statement and except as specifically referenced in
this Agreement, Newland shall have conducted its business only in the ordinary
and usual course.
7. Representations and Warranties of DSC. DSC hereby represents and
warrants to IRG:
a. On the date of Closing, DSC has or will cause good and unencumbered
title to the DSC Assets to be sold and transferred to IRG.
b. There is no litigation pending or threatened, nor have any summons,
notices or warning or warning been received from any governmental agency, or
department with respect to any material fine, or material violation of any law
or ordinance,or other type of enforcement proceeding, including but not limited
to environmental matters, with respect to the DSC Assets which involves in the
aggregate a potential monetary recovery in excess of $500,000 in United States
dollars for all such litigation, claims or fines. Based upon due inquiry by DSC,
DSC to the best of its knowledge and belief states that all of the DSC Assets
are in compliance with this paragraph.
c. All of the financial statement provided by DSC to IRG are true and
accurate in all material respects for the periods indicated for the statement,
and shall not omit any material fact or circumstance necessary or required to
prevent the financial information from being misleading. Since the date of the
latest period covered by such financial statements and except as specifically
referenced in this Agreement, DSC shall have conducted its business only in the
ordinary and usual course.
<PAGE> 59
8. Deliveries at Closing.
a. Prior to, or at Closing, DSC and Hemisphere shall each have received
from IRG the following:
i. Appropriate corporate resolutions authorizing the transfer of
stocks;
ii. A copy of the original request to American Stock Transfer for
the issuance of the IRG stock certificates to DSC and
Hemisphere;
iii. Documentation evidencing the authority of the signatories;
iv. Documentation evidencing the validity of the Charter and
By-Laws of IRG; and
v. Documentation evidencing the validity of the transfer of IRG's
stock to DSC and Hemisphere.
b. Prior to, or at Closing, IRG shall have received from DSC certified
English translation of the following:
i. Updated third party appraisals of the DSC Assets listed on
Exhibit A;
ii. Appropriate documentation evidencing the authority of all
signatories;
iii. Documentation evidencing the partnerships' and companies'
ownership interests in the properties listed on
iv. Exhibit A; 1 Appropriate corporate resolutions authorizing the
transfer of stock; 1 Original stock certificates duly endorsed
to IRG;
vi. An Opinion Letter from DSC's Mexican counsel opining as to (i)
the validity of the corporate status of each of the DSC
companies being acquired, (ii) the authority of the
signatories, (iii) the validity of the Charter and By-Laws of
the companies (attaching same as exhibits), (iv) the ownership
interest of the companies in the properties, (v) the validity
of the transfer of stock of those companies to IRG, (vi) IRG's
ownership interest in the companies and (vii) the fact that
the properties are not subject to any liens, loans or
encumbrances, except as provided for in their financial
statements; and
vii. A statement from DSC's Mexican accountants verifying that no
adverse, material changes in DSC's financial condition have
occurred from the date of DSC's most recent financial
statements to the date of the Closing.
c. Prior to, or at Closing, IRG shall have received from Hemisphere a
certified English translation of the following:
i. Updated third party appraisals of the Hemisphere Assets listed
on Exhibit A;
ii. Documentation evidencing the validity of the existence of the
limited partnerships listed on Exhibit A (including the Limited
Partnership Agreements);
iii. Documentation evidencing the validity of the existence of
Nueva Tierra and Newland (including Charter and By-Laws of both
companies);
iv. Documentation evidencing the companies' ownership interest in
the partnerships listed on Exhibit A;
v. Appropriate corporate resolutions evidencing the authority of
all signatories;
vi. Documentation evidencing the ownership interest of the
partnerships in the subject properties;
<PAGE> 60
vii. Original stock certificates duly endorsed to IRG;
viii. An Opinion Letter from Hemisphere's Mexican counsel opining as
to (i) the validity of the Limited Partnerships and
Corporations, (ii) the validity of the equity interest held
by the Corporations in the Limited Partnerships, (iii) the
authority of the signatories, (iv) the validity of the
Charter and By-Laws of the companies (attaching same as
exhibits), (v) the ownership interest in the subject
properties, (vi) the validity of the transfer of stock of
those companies to IRG, (vii) IRG's ownership interest in
the companies and (vii) the fact that the properties are not
subject to any liens, loans or encumbrances, except as
provided for in their financial statements; and
xi. A statement from Nueva Tierra's Mexican accountants verifying
that no adverse, material changes in Nueva Tierra's financial
condition have occurred from the date of Nueva Tierra's most
recent financial statements to the date of the Closing.
9. Issuance of Shares and Registration Rights. The IRG stock issued to DSC
and Hemisphere pursuant to this transaction may be issued to DSC and Hemisphere
in reliance on Regulation "S" of the Securities Act of 1933 (the "Securities
Act"). DSC and Hemisphere on the Closing Date shall execute a subscription
agreement which among other things shall acknowledge that it has acquired the
IRG shares for investment purposes only, and such shares shall be subject to the
restriction on transfer set forth in Rule 144 of the Securities Act and will not
be tradable in the market without registration unless subject to an exemption
from registration. IRG hereby grants to DSC and Hemisphere piggyback and demand
registration rights to the shares acquired hereunder for a period of three years
following the Closing Date.
10. Change in the Board of Directors and Officers of IRG on the Closing
Date. On the Closing Date, John Day, Geoffrey Bell and Jack Birnholz shall have
resigned from the IRG Board of Directors, and the remaining Directors Richard
Bradbury and Alton Hollis shall have elected Bernardo Dominguez C. to the Board
of Directors of IRG. Shirley Birnholz shall have resigned as Secretary of IRG on
the Closing Date and shall be replaced with Pablo Macedo. Simultaneous or prior
to the Closing Date, Richard Bradbury shall have entered into a one-year
employment contract satisfactory to Mr. Bradbury and DSC. Mr. Bradbury will
receive the same salary, without bonus or stock awards, as reflected for the
year 1994 in IRG's 10K Report for the year ending December 31, 1994. After the
authorization of the increase of capital, as called for herein, IRG shall
immediately call for a special meeting of the shareholders to increase the
number of Directors from three to five and to elect five new Directors retaining
one director designated by IRG at the time of Closing, one director designated
by Hemisphere, and three directors designated by DSC.
11. Information Statement. After Closing, IRG will 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. Jack Birnholz and
Richard Bradbury, who jointly control more than a majority of the issued and
outstanding Common Stock, will execute a written Stockholder Consent approving
such amendment to the Certificate of Incorporation. In accordance with
regulations of the SEC, IRG must file an Information Statement with the SEC.
Among other things, this Information Statement describes the amendment to the
Certificate of Incorporation to be approved by the written consent of two
stockholders as well as the transaction contemplated in this Agreement,
including a description of the properties to be acquired by IRG. Immediately
<PAGE> 61
after Closing, IRG shall diligently prepare the Information Statement for review
by the SEC. After the staff of the SEC has completed its review of the
Information Statement, IRG will mail a copy of the Information Statement,
including all exhibits, to each stockholder. Twenty-one days after the
Information Statement is presented to its shareholders, and as soon as practical
thereafter, IRG shall amend its Certificate of Incorporation increasing the
authorized shares and the DSC and Hemisphere Notes referenced in this Agreement
will be converted to Common Stock of IRG as provided for therein.
12. Governing Law. This Agreement shall be governed by the laws of the
State of Delaware, U.S.A. and the parties hereby submit to the jurisdiction
thereof.
13. Notices. Any notices sent to DSC relating to this Agreement shall be
sent by facsimile and overnight delivery addressed as follows:
Bernardo Dominguez C. Pablo Macedo
DSC S.A. de C.V. DSC S.A. de C.V.
Constituyentes No. 647, Constituyentes No. 647,
Col. 16 de Septiembre Col. 16 de Septiembre
Mexico, D.F. 11810 Mexico, D.F. 11810
Telephone: 011 52 5 277-9046 Telephone: 011 52 5 277-9046
Facsimile: 011 52 5 277-9012 Facsimile: 011 52 5 277-9012
Any notices sent to Hemisphere relating to this Agreement shall be sent
by facsimile and overnight delivery addressed as follows:
Ms. Monique Roggero-Ciana, Director
Hemisphere Developments Limited
Atlantic House, 4-8 Circular Road, Douglas, Isle of Man
Telephone: 011 41 22 300 1700
Facsimile: 011 41 22 300 1711
Any notices sent to IRG relating to this Agreement shall be sent by
facsimile and overnight delivery addressed as follows:
Mr. Richard M. Bradbury
International Realty Group, Inc.
111 N.W. 183 St., Suite 518, Miami, Florida 33169 U.S.A.
Telephone: (305) 944-8811
Facsimile: (305) 651-3394
Any notice sent to either DSC, Hemisphere or IRG relating to this
Agreement shall be sent by facsimile and overnight delivery addressed as
follows:
Mr. Lee C. Schmachtenbrg, Esq. Information copies sent to:
Schmachtenberg & Associates
1533 Sunset Drive, Suite 201 Mr. Jack Birnholz
Miami, Florida 33143 2221 N.E. 202 Street
Telephone: (305) 666-4676 North Miami Beach, FL 33180
Facsimile: (305) 666-4780
<PAGE> 62
14. Confidentiality. Each party shall keep information disclosed to it by
the other party relating to its business and financial affairs strictly
confidential, except where disclosure is required by law or the information is
public knowledge. Each party shall ensure that its obligation of confidence is
observed by its employees and professional advisors and/or representatives.
15. Headings. The headings in this Agreement are for reference purposes
only and are not intended to have any meaning or substantive effect.
16. Entire Agreement. This Agreement, including all of the Exhibits
attached hereto which are incorporated herein by this reference, constitutes the
entire agreement of the parties hereto with respect to the subject matter hereof
and thereof and supersedes all prior agreements and undertakings, both written
and oral, between or among the parties hereto with respect to the subject matter
hereof and thereof.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
DSC, S.A. de C.V. Hemisphere Developments Limited
By: /s/ Bernardo Dominguez C. By: /s/ Monique Roggero-Ciana
----------------------------------------- --------------------------
Bernardo Dominguez C. Monique Roggero-Ciana
INTERNATIONAL REALTY GROUP, INC.
By: /s/ Richard M. Bradbury By: /s/ Jack Birnholz
----------------------------------------- --------------------------
Richard M. Bradbury, President, Jack Birnholz
Chief Financial Officer, and Shareholder Shareholder
By: /s/ Richard M. Bradbury
--------------------------
Richard M. Bradbury
Shareholder
<PAGE> 63
EXHIBIT A
INTERNATIONAL REALTY GROUP, INC.
AS OF 6/30/96
ACQUISITION OF DSC / HEMISPHERE ASSETS
<TABLE>
<CAPTION>
ASSETS DSC DSC CLUSTERS CENTRO HACIENDA
CAPITAL NOTE
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Real estate held for development 9,054,885 403,591 547,186
Cash 132,525 17,756
Due from DSC 104,975 1,912,189 247,277
VAT Receivable 32,646 109
Other Assets 237
Cancellation of
Notes to Bank 5,628,426 (5,628,426) (659,508) (483,618)
Accounts Payable (69,571) (59,290)
Accrued Interest (66,984)
Accrued liabilities (119,653) (7,767)
------------------------------------------------------------------------------------------------------
Net Assets 300,000 5,628,426 5,200,063 (75,588) (3,416)
======================================================================================================
Paid-in Capital 300,000 5,628,426 6,788,276 776,744 29,174
Retained earnings (2,888,229) (852,332) (31,945)
------------------------------------------------------------------------------------------------------
300,000 5,628,426 3,900,047 (75,588) (2,771)
Minority interest 1,300,016 (645)
------------------------------------------------------------------------------------------------------
Net Assets 300,000 5,628,426 5,200,063 (75,588) (3,416)
======================================================================================================
Minority share % 0.00% 0.00% 25.00% 0.00% 18.87%
======================================================================================================
Common Shares: net equity transfer value $9,799,278 or $0.0919 per share.
DSC 53,360,960 issued at closing 485,930 $44,653
Hemisphere Note: 53,277,340 issued at closing 514,070 $47,239
----------- --------- -------
106,638,300 1,000,000 $91,892
<CAPTION>
ASSETS VILLA BAHIA TOTAL
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Real estate held for development 43,104 19,358 10,068,124
Cash 150,281
Due from DSC 2,264,441
VAT Receivable 32,755
Other Assets 237
Cancellation of
Notes to Bank (1,143,126)
Accounts Payable (128,861)
Accrued Interest (66,984)
Accrued liabilities (127,420)
-------------------------------------------------------------------
Net Assets 43,104 19,358 11,111,947
===================================================================
Paid-in Capital 34,087 15,078 13,571,784
Retained earnings (3,772,506)
-------------------------------------------------------------------
34,087 15,078 9,799,278
Minority interest 9,017 4,280 1,312,869
-------------------------------------------------------------------
Net Assets 43,104 19,358 11,111,947
===================================================================
Minority share % 20.92% 22.11%
===================================================================
Common Shares:
DSC Note: $4,858,828 convertible to 52,875,030 shares
Hemisphere Note: Note: $4,848,558 convertible to 52,763,270 shares
---------- -----------
$9,707,386 105,638,300
</TABLE>
