<PAGE> 1
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
--------------------------------------
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
105,638,300 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>
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PAGE
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<S> <C>
INFORMATION STATEMENT
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
Change in Control of Company ...................................................................... 12
Federal Income Tax Consequences ................................................................... 12
No Appraisal Rights................................................................................ 12
Regulatory Requirements ........................................................................... 13
CERTAIN INFORMATION CONCERNING THE COMPANY
Business Operations................................................................................ 13
Land Development................................................................................... 15
Other Activities................................................................................... 15
Employees.......................................................................................... 15
Description of Property............................................................................ 16
Environmental Regulations.......................................................................... 18
Real Estate Investment Policy...................................................................... 18
Legal Proceedings.................................................................................. 19
Description of Common Stock........................................................................ 19
Principal Stockholders............................................................................. 20
Management's Discussion and Analysis............................................................... 20
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 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. As more fully
described below under the caption "The Transaction," the Company acquired land
and other assets and assumed liabilities of DSC and Hemisphere in exchange for
the issuance of an aggregate of 1,000,000 shares of Common Stock and promissory
notes convertible into an aggregate of 105,638,300 shares of Common Stock. In
connection with its approval of the Transaction, the Company's Board has
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
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Transaction, the Company's Board of Directors (the "Board") has identified the
following potential benefits of the Transaction.
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 $12,681,700 (including the
Notes) 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 the Transaction with DSC
and Hemisphere. As more fully described below, the Transaction will result in 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 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/joint venture 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 (the "Notes") 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 December 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 on the Company's Board of Directors. Pablo
Macedo was elected Secretary of the Company on the Closing Date.
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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 as of June 30, 1996 ($587,100 as of March 31,
1998). 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 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, 1996
($549,700 as of March 31, 1998). For additional information regarding this
property, see "Certain Information Regarding The Company--Description of
Property."
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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.
In the Amended and Restated Agreement, the principal amount of the DSC
Note and the Hemisphere Note were reduced to correspond to the fair value of the
assets and liabilities that the Company acquired in the Transaction as set forth
in the Company's financial statements, as revised. 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
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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") has considered the relative values of the Company, the DSC Assets
and the Hemisphere Assets, the potential benefits of the Transaction, and the
risks of the Transaction to the Company's existing stockholders. The Board has
identified several potential benefits of the Transaction, including the
following:
1. The Board's determination that the amounts paid by the Company to
acquire the Assets (less liabilities assumed) are fair, from a financial point
of view, to the Company's stockholders. The arms-length negotiation with DSC and
Hemisphere resulted in the Company's acquisition of Assets (less liabilities
assumed) having a recorded book value of $9,799,300 or $.092 per shares after
giving effect to the conversion of the Notes. See note 2 to the financial
statements of the Company included elsewhere herein. The .092 per share amount
represents a premium of approximately $.067 per share over the $.025 per share
book value of the 8,954,250 shares of Common Stock issued and outstanding prior
to the Transaction. Such premium, which total approximately $600,000 for all
shares outstanding prior to the Transaction, is attributable to: (i) the control
nature of the Transaction; (ii) the value of the Company as a going concern; and
(iii) the value of the Company as a reporting company under the Securities
Exchange Act of 1934. After giving consideration to the Company's business and
operations prior to the Transaction and the limited market for the Common Stock,
the Board has determined that such premium arrived at through arms-length
negotiations, is fair, from a financial point of view, to the stockholders of
the Company.
2. 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 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
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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.
3. 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 acquired
accounts receivable valued at approximately $2,110,500 as of August 19, 1996
($1,839,500 as of March 31, 1998). 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.
4. 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.
5. 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, 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 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
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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 $713,500 and $610,500 during the last two fiscal
years ended December 31, 1997 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 $12,771,500 of total liabilities
as of March 31, 1998, including the Notes in the face amount of $9,707,400 (and
$782,700 of accrued interest as of March 31, 1998). Of such amount, $1,017,600
(and $229,200 of accrued interest as of March 31, 1998) is long-term debt
payable to Mexican financial institutions, attributable to the assets acquired
in the Transaction. The debt to Mexican financial institutions consists of one
note non-interest bearing with imputed interest at five percent per year and
maturing in March 31, 1999 and a second note accruing interest at a rate of 4.5%
above the Mexican inflation rate index (approximately 20%) and maturing in 2007.
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
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<PAGE> 13
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, 1996 and 1997 the total trading volume of the Common
Stock was 4,500 shares, 88,700 shares and 10,900 shares, respectively, with an
average trading price of $0.806 per share, $0.014 per share and $0.238 per share
for each of such years. 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.
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<PAGE> 14
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.
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 115,592,613 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.
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.
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<PAGE> 15
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 89% and 11% respectively,
of total Company revenue in 1997. Domestic operations are performed through
Appraisal Group International, Inc. and foreign operations are performed through
Appraisal Group International, Rt.
Appraisal Group International, Inc.
Appraisal Group International, Inc., a Florida corporation, 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
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<PAGE> 16
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 state 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 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. 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
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<PAGE> 17
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 commercial appraisals
and accept assignments on an international basis as the Company does.
LAND DEVELOPMENT
Pursuant to the 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 second 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 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 18 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.
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<PAGE> 18
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 2,500 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 2,000 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. All of the
other properties are held in fee simple.
The Company's real estate properties include:
(i) 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 development of 14 commercial lots and 124 residential lots in two years with
an additional investment in infrastructure of $3,800,000. 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 developed lot will
be marketed to local builder/developers for construction of townhomes, villas or
commercial use for sale to the general public. The property is subject to a
non-interest-bearing mortgage held by the Company in the approximate amount of
$5,625,000. Pursuant to the DSC Transaction, the Company acquired from DSC the
$5,625,000 debt obligation of Clusters Ixtapa on the Closing Date. See "The
Assets."
(ii) 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
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<PAGE> 19
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 due March 31, 1999,
witih a balance, as of March 31, 1998, of $587,100, including accrued interest.
(iii) 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.
(iv) 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 $430,500 at interest rates of 4.5% and 5.2%,
maturing in the year 2007. Accrued interest on this mortgage was approximately
$229,200, as of March 31, 1998.
(v) 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.
(vi) 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
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<PAGE> 20
Group International, Inc. The property is currently being held for investment
purposes. Clear Lake Pines is a second-home recreational development. The
property is not subject to a mortgage or other encumbrances.
(vii) 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 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.
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 Assets are not
subject to any claims for liability for cleanup of waste sites or environmental
contamination of property and that the companies that hold the Assets do not
currently anticipate any material adverse effect on the results 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 and/or future development. 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
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<PAGE> 21
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 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.
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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 following discussion and analysis covers any material changes in financial
condition since December 31, 1996 and any material changes in the results of
operations for the 12 months ended December 31, 1997, as compared to the same
period in 1996, and the three-month period ended March 31, 1998, as compared to
the same period in 1997. This discussion and analysis should be read in
conjunction with the financial statements contained elsewhere herein.
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Results of Operations
Three months ended March 31, 1998 compared to Three Months ended March 31, 1997
Real Estate Consulting Services
Revenues increased for the three months ended March 31, 1998 totaling
$191,600 as compared to $177,100 for the same period in 1997. Revenues from
domestic operations performed by Appraisal Group International, Inc. ("AGII")
were $156,600, as compared to $158,200 for the same period in 1997. Revenues
from foreign operations performed by Appraisal Group International, Rt.
(AGI Rt.) increased for the current period to $35,000 compared to $20,300 for
the same period in 1997.
Operating expenses for the three months ended March 31, 1998 were $217,700
compared to $198,100 for the comparable period in 1997. Of the total expenses,
domestic operations accounted for 85% and foreign operations accounted for 15%.
Selling, General and Administrative expenses for the period increased from
$33,400 in 1997 to $62,200 in 1998. Payroll and Related Benefits for the period
increased from $48,100 in 1997 to $51,800 for the current period. Amortization
and Depreciation expense was consistent between the periods.
Other income (expense), during the current period consisted of interest
expense, which was $169,900 compared to $161,800 for the comparable period in
1997. The majority of interest expense is attributable to the Convertible Note
($127,500) and debt for properties located in Mexico. Currency translation
expense was $29,800 for the current period compared to $8,200 for the comparable
period in 1997. Such translation expense is attributable to the currency
fluctuations of Mexican pesos denominated accounts receivable and mortgages,
notes and other liabilities during each such period.
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 Notes issued to DSC and Hemisphere, 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 third quarter of 1998. Any development of the
properties thereafter is contingent upon the Company obtaining necessary
financing. Potential sources of financing include mortgage financing from
financial institutions located in the United States or Mexico, or the issuance
of equity securities of the Company. The Company has no present understanding,
agreement or commitment for financing any such property and there can be no
assurance that financing will be available to the Company on commercially
reasonable terms or at all.
During the current period, in concurrence with DSC and Hemisphere, the
Company began preliminary activity in its land development operations. The
Company had costs, paid directly by DSC through the reduction of their account
payable, totaling $74,100 for
21
<PAGE> 24
personnel, engineering, site plans and other related expenses. As a result,
property held for future development increased $24,900 in connection with the
capitalization of certain of these costs, and the balance of $49,200 was charged
to real estate operating expenses during the current period.
Twelve Months ended December 31, 1997 compared to Twelve Months ended December
31, 1996
Real Estate Consulting Services
Revenue derived from consulting services for the year 1997 increased 24% to
$792,800 in 1997 from $604,000 in 1996. Revenues from domestic operations
performed by AGII increased 47% to $706,500 in 1997 from $331,500 in 1996. AGII
had instituted certain marketing programs to reverse its declining revenues,
including expanding its residential appraisal operations. In 1997, it performed
over 2,100 single family appraisals, compares to 521 for the comparable 1996
period, in addition to its commercial appraisal assignments.
Revenues from foreign operations performed by AGI decreased to $86,300 in
1997 from $272,500 in 1996. The decrease in foreign revenue is attributed to the
decrease in consulting assignments from various Hungarian government agencies.
Operating expenses for the year 1997 decreased 15% from $1,089,000 in 1996
to $922,700 in 1997. Of these operating expenses, domestic operations accounted
for 82% and foreign operations accounted for 18%. Selling, general and overhead
operating expenses for the year 1996 were $395,500 versus $214,900 for the
comparable period in 1997. Included in this expense category for 1996 are
expenses related to the Transaction of $186,000. Included in the $186,000 of
such expenses were $43,600 incurred in 1995 and recognized on the Closing Date
of the Transaction. Direct expenses including the production of appraisal
reports, appraisers' fees, travel, reproduction, photography and all related
expenses increased from $403,500 in 1996 to $447,700 in 1997. The increase in
direct expenses follows the increase in domestic revenue for the period. Payroll
and related benefits decreased from $233,400 in 1996 compared to $203,100 in
1997. Amortization and depreciation expenses were consistent between the
periods.
Other income (expenses). The majority of interest expense ($496,000 of the
$628,900) for the year 1997 (compared to $161,800 of $255,000 in 1996) is
attributable to the Notes issued in conjunction with the Transaction. The
balance of interest expense is attributable to mortgage debt of the properties
acquired in the Transaction. Gain or (losses) for exchange rate fluctuations
$32,100 in 1996, compared to ($19,600) in 1997 is attributable to Mexican Pesos
denominated accounts receivables and mortgage notes and other liabilities during
such period. AGI Rt. recognized a gain on sale of securities in the amount of
$112,200 during 1996.
As a result of the foregoing factors, the Company had a consolidated loss
of $713,500 in 1997 compared to $610,500 for the comparable 1996 period. The
majority of such loss during the current period is attributable to interest
expense of $628,900. Domestic operations performed by AGII had an operating
profit during the current period of $93,500 compared to an operating loss of
$37,300 for the comparable period in 1996. Foreign operations had a net
operating loss of $23,100 during the current period compared to $54,400 loss in
the comparable 1996 period.
22
<PAGE> 25
Land Development
There were no income or expenses directly attributable to land development
activities during the year ended December 31, 1997.
Liquidity and Capital Resources:
Cash and Cash Equivalents for the three months ended March 31, 1998 totaled
$118,200. Accounts receivables totaled $1,974,000. Of this amount, $1,839,500 is
due from shareholder DSC. During the period, DSC reduced this receivable by
$79,199 through the payment of certain land development costs in Mexico and
capital contributions to the Company. The balance of accounts receivable
($134,900) is from domestic operations ($100,000) and foreign operations
($34,900).
Net cash provided by operating activities totaled $16,800 for the current
three month period, compared to $52,400 in 1997. Cash flow used in investing
activities, primarily for the acquisition of equipment for consulting services,
totaled $4,400 compared to $700 for the comparable 1997 period. Cash provided by
(used in) financing activities was $3,700 in the 1998 period compared to
($43,700) for the comparable 1997 period.
Mortgage and notes payable for the three months ended March 31, 1998 were
$10,779,000. Of this amount, $9,707,000 is attributable to the Notes, $1,017,600
for mortgages to Mexican banks for property currently held for future
development and the remainder of approximately $54,000 is attributable to
domestic operations.
The Company is subject to risk in changes of foreign exchange rates for its
subsidiaries that use a foreign currency as their functional currency, or for
assets or liabilities which are foreign currency denominated and are translated
to U.S. dollars. The company has historically had translation exposure to the
Hungarian forint (HUF). The Company has made quarterly foreign currency
translation adjustments (totaling $237,800 over an eight year period) related to
the Company's investment in its Hungarian operations. The Company has not deemed
it necessary to engage in the purchase of forward contracts, or other hedging
techniques, to manage such foreign exchange risk to protect against earnings and
cash flow volatility resulting from changes in foreign exchange rates.
The Statement of Financial Accounting Standards Board (SFAS) No. 130,
"Reporting Comprehensive Income," was issued by the Financial Accounting
Standards Board (FASB) in June 1997. This Statement establishes standards for
the reporting and display of comprehensive income and its components.
Comprehensive income includes net income and all changes in an enterprise's
other comprehensive income including, among other things, foreign currency
translation adjustments, and unrealized gains and losses on certain investments
in debt and equity securities. Also in June 1997, the FASB issued SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information." This
Statement establishes standards for reporting information about operating
segments in annual financial statements, and requires that an enterprise report
selected information about operating segments in interim reports issued to
shareholders. Both of these Statements are effective for fiscal periods
beginning after December 15, 1997. The Company does not expect the adoption of
these statements to have a material impact on its financial condition or results
of operations.
23
<PAGE> 26
Cautionary Note Regarding Forward-Looking Statements
In connection with the safe harbor provisions of the Private Securities
Litigation Reform Act of 1995 (the "Reform Act"), the Company is hereby
providing cautionary statements identifying important factors that could cause
the Company's actual results to differ materially from those projected in
forward-looking statements (as such term is defined in the Reform Act) made by
or on behalf of the Company herein or orally, whether in presentations, in
response to questions or otherwise. Any statements that express, or involve
discussions as to expectations, beliefs, plans, objectives, assumptions or
future events or performance (often, but not always, through the use of words or
phrases such as "will result", "are expected to", "will continue", "is
anticipated", "estimated", "projection" and "outlook") are not historical facts
and may be forward-looking and, accordingly, such statements involve estimates,
assumptions, and uncertainties which could cause actual results to differ
materially from those expressed in the forward-looking statements. Such
uncertainties include, among other, the following: (i) the Company's ability to
obtain additional financing to implement its business strategy; (ii) real estate
investment risks, including the potential for increases in real property taxes;
(iii) real estate development risks, including obtaining building permits or
necessary zoning changes, construction delays strikes, adverse weather
conditions and other conditions beyond the control of the Company; (iv)
illiquidity of real estate investments; (v) the financial condition of the
Company's clients; (vi) imposition of new regulatory requirements affecting the
Company; (vii) a downturn in general or local economic conditions where the
Company owns real property; (viii) the delay or failure to properly manage
growth and successfully integrate acquired companies and operations; (ix) lack
of geographic diversification; (x) effect of uninsured loss and (ix) other
factors which are described under the caption "Certain Transactions."
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.
24
<PAGE> 27
INDEX TO FINANCIAL STATEMENTS
INTERNATIONAL REALTY GROUP, INC. AND SUBSIDIARIES:
Independent Auditors' Report
Audited Consolidated Balance Sheets at December 31, 1997 and 1996
Audited Consolidated Statements of Operations for each of the years
ended December 31, 1997 and 1996
Audited Consolidated Statements of Shareholders' Equity for each of the years
ended December 31, 1997 and 1996
Audited Consolidated Statements of Cash Flows for each of the years ended
December 31, 1997 and 1996
Notes to Audited Consolidated Financial Statements
Unaudited Consolidated Balance Sheets - March 31, 1998 and 1997
Unaudited Consolidated Statements of Operations for the three
months ended March 31, 1998 and 1997
Unaudited Consolidated Statements of Cash Flows for the three
months ended March 31, 1998
Notes to Unaudited Consolidated Financial Statements
<PAGE> 28
INTERNATIONAL REALTY GROUP, INC. AND SUBSIDIARIES
INDEPENDENT AUDITORS' REPORT
AND
CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997 AND 1996
<PAGE> 29
INTERNATIONAL REALTY GROUP, INC. AND SUBSIDIARIES
YEARS ENDED DECEMBER 31, 1997 AND 1996
CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Independent auditors' report 1
Consolidated financial statements:
Consolidated balance sheets 2
Consolidated statements of operations 3
Consolidated statements of shareholders' deficiency 4
Consolidated statements of cash flows 5 - 6
Summary of significant accounting policies 7 - 9
Notes to consolidated financial statements 10 - 17
</TABLE>
<PAGE> 30
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, 1997 and 1996, and the
related consolidated statements of operations, shareholders' deficiency 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, 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, 1997 and 1996, 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 and DeSanctis, P.A.
April 24, 1998
North Miami Beach, Florida
<PAGE> 31
INTERNATIONAL REALTY GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS - DECEMBER 31, 1997 AND 1996
ASSETS
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Real estate, at cost:
Property held for future development $10,556,100 $10,556,100
----------- -----------
Receivables:
Due from shareholder 2,023,700 2,181,200
Accounts receivable, less allowance
for doubtful collections (1997, $14,000;
1996, $13,800) 114,800 320,500
----------- -----------
2,138,500 2,501,700
Cash and equivalents 107,200 7,600
Furniture, equipment, and improvements 134,100 170,100
Excess of cost over estimated fair value
of net assets acquired 105,600 123,200
Other assets 105,900 26,000
----------- -----------
$13,147,400 $13,384,700
----------- -----------
</TABLE>
LIABILITIES AND SHAREHOLDERS' DEFICIENCY
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
Liabilities:
Mortgage and notes payable $ 1,123,500 $ 1,176,600
Accounts payable 230,100 344,600
Accrued and other liabilities 1,620,700 966,100
Convertible notes 9,707,400 9,707,400
------------ ------------
Total liabilities 12,681,700 12,194,700
------------ ------------
Minority interest 1,306,300 1,341,800
------------ ------------
Shareholders' deficiency:
Common stock, $.001 par; authorized
10,000,000 shares; issued 1997 9,954,314;
1996 9,954,187 shares 10,000 10,000
Capital in excess of par 1,186,400 1,144,300
Cummulative translation adjustment (234,300) (216,900)
Accumulated deficit (1,787,200) (1,073,700)
------------ ------------
(825,100) (136,300)
Less shares of common stock held
in treasury, at cost 15,500 15,500
------------ ------------
(840,600) (151,800)
------------ ------------
$ 13,147,400 $ 13,384,700
============ ============
</TABLE>
Read the accompanying summary of significant accounting policies and
notes to consolidated financial statements, both of which are an
integral part of this consolidated financial statement.
2
<PAGE> 32
INTERNATIONAL REALTY GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Revenues:
Revenues from services provided $ 792,800 $ 604,000
----------- -----------
Operating expenses:
Amortization and depreciation 57,000 56,600
Direct 447,700 403,500
Payroll and related benefits 203,100 233,400
Selling, general and administrative 214,900 395,500
----------- -----------
922,700 1,089,000
----------- -----------
Loss before other income (expense), minority
interest and provision for income taxes (129,900) (485,000)
Other income (expense):
Interest income 900 3,900
Interest expense (628,900) (255,000)
Gain on sale of securities -- 112,200
Gains (losses) on exchange rate fluctuations (19,600) 32,100
Other income 17,900 3,200
----------- -----------
Loss before minority interest and provision
for income taxes (759,600) (588,600)
Minority interest in loss (income) of subsidiaries 44,500 (7,200)
----------- -----------
Loss before provision for income taxes (715,100) (595,800)
Provision for income taxes (benefit) (1,600) 14,700
----------- -----------
Net loss $( 713,500) $( 610,500)
=========== ===========
Loss per share of common stock: $( 0.07) $( 0.07)
=========== ===========
Weighted average common shares outstanding 9,954,313 9,204,188
=========== ===========
</TABLE>
3
<PAGE> 33
INTERNATIONAL REALTY GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' DEFICIENCY
YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
Common Stock Capital in Cummulative
----------------------- Excess of Translation Accumulated
Total Shares Amount Par Adjustment Deficit
--------- --------- ------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance, beginning $ 380,200 8,954,187 $ 9,000 $1,053,400 $(203,500) $( 463,200)
Year ended December 31, 1996:
Effect of currency fluctuations on
net assets of foreign subsidiary (13,400) (13,400)
Common shares issued as part of
acquisition (principally land) 91,900 1,000,000 1,000 90,900
Net loss (610,500) (610,500)
--------- --------- ------- ---------- --------- -----------
Balance, December 31, 1996 (151,800) 9,954,187 10,000 1,144,300 (216,900) (1,073,700)
Year ended December 31, 1997:
Common stock issued 126
Effect of currency fluctuations on
net assets of foreign subsidiary (6,900) (6,900)
Net loss (681,900) (713,500)
--------- --------- ------- ---------- --------- -----------
Balance, ending $(840,600) 9,954,313 $10,000 $1,144,300 $(223,800) $(1,787,200)
========= ========= ======= ========== ========= ===========
</TABLE>
<TABLE>
<CAPTION>
Treasury Stock
---------------------
Shares Amount
<S> <C> <C>
Balance, beginning 17,500 $(15,500)
------ --------
Year ended December 31, 1996:
Effect of currency fluctuations on
net assets of foreign subsidiary
Common shares issued as part of
acquisition (principally land)
Net loss
------ --------
Balance, December 31, 1996 17,500 (15,500)
Year ended December 31, 1997:
Common stock issued
Effect of currency fluctuations on
net assets of foreign subsidiary
Net loss
------ --------
Balance, ending 17,500 $(15,500)
====== ========
</TABLE>
Read the accompanying summary of significant accounting policies
and notes to consolidated financial statements, both of which are an integral
part of this consolidated financial statement.
4
<PAGE> 34
INTERNATIONAL REALTY GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
------------------------ ------------------------------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Sources of cash:
Clients and other $887,900 $645,000
Interest 900 $ 888,800 15,200 $ 660,200
-------- --------
Uses of cash:
Cash paid to:
Direct costs 599,400 322,700
Operating 221,900 321,800
Payroll and related benefits 128,300 140,500
Interest 60,300 3,500
Income taxes -- 1,009,900 11,800 800,300
-------- ---------- -------- ---------
Cash used-in operating activities (121,100) (140,100)
---------- ---------
Cash flows from investing activities:
Source of cash:
Collection of proceeds from prior year
sale of securities 163,400 --
Uses of cash:
Acquisition of equipment 6,300 7,700
Real estate -- 6,300 7,000 14,700
-------- ---------- -------- ---------
Cash provided by (used-in) investing activities 157,100 (14,700)
---------- ---------
Cash flows from financing activities:
Sources of cash:
Proceeds from:
Common stock and convertible note -- 150,400
Capital contribution 42,100 --
Shareholder 100,000 142,100 31,200 181,600
-------- --------
Use of cash:
Payment of:
Shareholder loans 9,700 --
Long-term debt 56,600 66,300 21,000 21,000
-------- ---------- -------- ---------
Cash provided by financing activities 75,800 160,600
---------- ---------
Effect of exchange rates on cash and equivalents (12,200) (17,600)
---------- ---------
Increase (decrease) in cash and equivalents 99,600 (11,800)
Cash and equivalents, beginning 7,600 19,400
---------- ---------
Cash and equivalents, ending $ 107,200 $ 7,600
========== =========
</TABLE>
Read the accompanying summary of significant accounting policies
and notes to consolidated financial statements, both of which are an integral
part of this consolidated financial statement.
5
<PAGE> 35
INTERNATIONAL REALTY GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
----------- ---------
<S> <C> <C>
Reconciliation of net loss to cash
(used-in) operating activities:
Net loss $( 713,500) $(610,500)
----------- ---------
Adjustments to reconcile net loss to cash
(used-in) operating activities:
Gains due to exchange rate fluctuations (19,600) (32,100)
Gain on sale of securities -- (112,200)
Loss on disposal of equipment 1,100 --
Amortization of note payable discount 31,000 10,200
Recognition of acquisition costs previously capitalized -- 43,900
Amortization and depreciation 57,000 56,600
Minority interest in income of subsidiaries (44,500) 7,200
Bad debt 25,400 53,800
Changes in assets and liabilities:
Accounts receivable 76,100 10,600
Other assets (35,300) 41,700
Accounts payable (114,500) 80,800
Accrued and other liabilities 615,700 309,900
----------- ----------
Total adjustments 592,400 470,400
----------- ----------
Cash used-in operating activities $( 121,100) $ (140,100)
=========== ==========
Supplemental schedule of non-cash activities:
Financing activities:
Convertible note and common stock issued in exchange
for real property and other assets and liabilities assumed $9,799,300
Less cash received 150,400
----------
$9,648,900
==========
</TABLE>
Read the accompanying summary of significant accounting policies
and notes to consolidated financial statements, both of which are an integral
part of this consolidated financial statement.
6
<PAGE> 36
INTERNATIONAL REALTY GROUP, INC AND SUBSIDIARIES
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
YEARS ENDED DECEMBER 31, 1997 AND 1996
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. Certain amounts included in
the financial statements are estimated based on currently available
information and management's judgment as to the outcome of future
conditions and circumstances. Changes in the status of certain facts or
circumstances could result in material changes to the estimates used in
the preparation of the financial statements and actual results could
differ from the estimates and assumptions. Every effort is made to
ensure the integrity of such estimates.
Those estimates that are considered significant to the accompanying
consolidated financial statements include the per share value used in
the acquisition of land and other assets less liabilities assumed.
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.
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. This policy did not have an impact on the Company's
financial position or results of operations.
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.
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 construction
occurred in 1997 or 1996; therefore, no interest has been capitalized
in 1997 or 1996.
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.
<PAGE> 37
INTERNATIONAL REALTY GROUP, INC AND SUBSIDIARIES
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
YEARS ENDED DECEMBER 31, 1997 AND 1996
FOREIGN CURRENCY TRANSLATION:
Adjustments resulting from translating foreign functional currency financial
statements into U.S. Dollars are included in the currency translation
adjustments, in shareholders' equity (deficiency). The financial statements
of foreign subsidiaries where the U.S. dollar is the functional currency and
which have certain transactions denominated in a local currency are
remeasured into the U.S. dollar. The remeasurement of local currency into
U.S. dollars creates translation adjustments which are included in
operations.
FURNITURE, EQUIPMENT, IMPROVEMENTS, DEPRECIATION AND AMORTIZATION:
Furniture, equipment and leasehold improvements are stated at cost less
accumulated depreciation and amortization. Depreciation and amortization are
computed on the straight-line method over the estimated useful lives as
follows:
<TABLE>
<CAPTION>
Estimated Useful Lives
(in years)
----------
<S> <C>
Furniture and equipment 10 years
Leasehold improvements 10 years
Library 3 years
</TABLE>
Repairs and maintenance are charged to operations as incurred, and
expenditures for significant betterments and renewals are capitalized.
The cost of fixed assets retired or sold, together with the related
accumulated depreciation, are removed from the appropriate asset and
depreciation accounts, and the resulting gain or loss is included in net
earnings.
EXCESS OF COST OVER ESTIMATED FAIR VALUE OF NET ASSETS ACQUIRED:
The excess of cost over estimated fair value of net assets acquired is being
amortized by the straight-line method over the estimated useful life of ten
(10) years.
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 Company applies the intrinsic value method for accounting for stock based
compensation described by Accounting Principles Bound Opinion No. 25,
"Accounting for Stock Issued to Employees." Had the Company applied the fair
value method described by the Statement of Financial Accounting Standards
Board (SFAS) No. 123, "Accounting for Stock-Based Compensation," it would
report the effect of compensation expense for stock based compensation as
pro-forma effects on income and earnings per share, if material.
<PAGE> 38
INTERNATIONAL REALTY GROUP, INC AND SUBSIDIARIES
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
YEARS ENDED DECEMBER 31, 1997 AND 1996
RECENT ACCOUNTING PRONOUNCEMENTS:
The Statement of Financial Accounting Standards Board (SFAS) No. 130,
"Reporting Comprehensive Income," was issued by the Financial Accounting
Standards Board (FASB) in June 1997. This Statement establishes standards for
the reporting and display of comprehensive income and its components.
Comprehensive income includes net income and all changes in an enterprise's
other comprehensive income including, among other things, foreign currency
translation adjustments, and unrealized gains and losses on certain
investments in debt and equity securities. Also in June 1997, the FASB issued
SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information." This Statement establishes standards for reporting information
about operating segments in annual financial statements, and requires that an
enterprise report selected information about operating segments in interim
reports issued to shareholders. Both of these Statements are effective for
fiscal periods beginning after December 15, 1997. The Company does not expect
the adoption of these statements to have a material impact on its financial
condition or results of operations.
<PAGE> 39
INTERNATIONAL REALTY GROUP, INC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997 AND 1996
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 held
for development primarily in Mexico. The Company will be developing its
Mexican properties into various resort and commercial developments. Once
developed, they will engage in the marketing of resort hotel lodging,
timeshare interests, and other ancillary real estate activities. No
development of the properties located in Mexico will occur until after
the conversion of the convertible notes issued to DSC and Hemisphere,
which are collateralized by the properties located in Mexico.
The Company intends to amend its Certificate of Incorporation with the
State of Delaware to increase the number of authorized shares from
10,000,000 to 450,000,000 common shares at $ .001 par.
2. TRANSACTION WITH DSC AND HEMISPHERE:
Pursuant to an Amended and Restated Agreement dated August 19, 1996, the
Company consummated a transaction ("Transaction") with DSC, S.A. de C.V.
("DSC") and Hemisphere Development Limited ("Hemisphere").
In the transaction, the Company acquired land and other assets and
assumed liabilities of DSC and Hemisphere in exchange for 1,000,000
shares of common stock and convertible notes ("Notes") with a face value
of $9,707,400 as follows:
<TABLE>
<S> <C>
Assets acquired:
Land $10,068,100
Receivable due from DSC 2,110,500
Cash 317,800
Other assets 33,000
-----------
12,529,400
-----------
Liabilities assumed, including minority interest:
Mortgages 1,094,100
Accounts payable and accrued liabilities 323,300
Minority interest in net assets 1,312,700
-----------
2,730,100
-----------
Total assets acquired less liabilities assumed $ 9,799,300
===========
</TABLE>
The assets and liabilities have been recorded at a net asset value of
$9,799,300, which is the estimated fair value of the Notes and common
stock issued at the date of the Transaction. Receivable due from DSC,
cash and other assets were recorded at their stated amounts. Liabilities
were recorded at their present value. Minority interest represents the
portion of undivided net assets not acquired.
<PAGE> 40
INTERNATIONAL REALTY GROUP, INC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1997 AND 1996
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 and to date have been within
management's expectation.
A significant portion of the Company's revenues consists of fees to
major customers on credit. Net revenues in 1997 and 1996 to major
customers are as follows:
<TABLE>
<CAPTION>
1997 1996
----- ----
Amount Percentage Amount Percentage
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Domestic:
Customer A $ 196,000 28.0% $ 34,900 10.5%
========= ========= ========= =========
Foreign:
Customer A $ 73,400 85.0% $ 180,500 66.4%
========= ========= ========= =========
</TABLE>
Domestic customers are primarily commercial entities. Foreign customer
is Hungarian governmental agencies.
4. LAND HELD FOR FUTURE DEVELOPMENT:
<TABLE>
<CAPTION>
Location Acreage 1997 1996
-------- ------- ---- ----
<S> <C> <C> <C>
Ixtapa, Mexico 26 $ 9,054,900 $ 9,054,900
Acapulco, Mexico 8 403,600 403,600
Caye Bokel, Belize 87 456,400 456,400
Guanajuato, Mexico 236 547,200 547,200
Jilotepec, Mexico 24 43,100 43,100
La Paz, Mexico 3,451 19,300 19,300
La Grange, Texas 1 31,600 31,600
----------- -----------
$10,556,100 $10,556,100
=========== ===========
</TABLE>
Improvements amounting to $649,000 are included in the cost of land.
Land with a cost of $950,000 is collateralized to notes payable of $
1,064,300 as of December 31, 1997. All land in Mexico is collateralized
to the convertible notes.
<PAGE> 41
INTERNATIONAL REALTY GROUP, INC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
5. DETAILS OF FINANCIAL STATEMENT COMPONENTS: 1997 1996
---- ----
<S> <C> <C>
FURNITURE, EQUIPMENT AND IMPROVEMENTS:
Furniture and equipment $ 86,800 $164,300
Leasehold improvements 1,900 14,300
Library 207,800 207,600
---------- --------
296,500 386,200
Less accumulated deprecation
and amortization 162,400 216,100
---------- --------
$ 134,100 $170,100
========== ========
ACCRUED LIABILITIES:
Payroll and payroll taxes $ 537,000 $468,800
Interest 866,000 287,300
Foreign taxes, other than on income 10,700 11,600
Billings in excess of costs and earnings 7,600 33,200
Shareholder loans 48,300 58,000
Other 151,100 107,200
---------- --------
$1,620,700 $966,100
========== ========
</TABLE>
6. DUE FROM SHAREHOLDER:
Amounts due from shareholder (DSC) were acquired through the transaction
described in Note 2 and are due on demand. Amounts due from DSC are
pledged as collateral on the convertible notes and collection is
expected to occur subsequent to the conversion of the convertible notes.
<TABLE>
<S> <C> <C>
7. 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
Note payable, unsecured,
interest at 7.0% per annum,
payable monthly through
February 2001. 48,500 -
Note payable, face amount of $618,600,
bank, collateralized by land,
non-interest bearing, due March 31, 1999
(less unamortized discount based on
an imputed rate of 5% of $7,900 and $38,800
as of December 31, 1997 and 1996,
respectively.) 610,700 593,400
Mortgage note, bank, collateralized
by land, interest at 4.5% per
annum, over the inflation rate
index of Mexico, due in 2007. 453,600 465,800
</TABLE>
<PAGE> 42
INTERNATIONAL REALTY GROUP, INC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
7. MORTGAGE AND NOTES PAYABLE (CONTINUED): 1997 1996
---- ----
<S> <C> <C>
Note payable, related party,
unsecured, interest at 7.25%,
due on demand 10,700 68,400
---------- ----------
$1,123,500 $1,176,600
========== ==========
</TABLE>
Maturities of long-term debt subsequent to December 31, 1997 are as
follows:
<TABLE>
<CAPTION>
Years ending
December 31, Amount
------------ ------
<S> <C>
1998 $ 634,900
1999 15,900
2000 17,200
2001 1,900
2002 -
2003 and thereafter 453,600
-----------
$ 1,123,500
===========
</TABLE>
8. CONVERTIBLE NOTES:
Convertible notes ("Notes") with a face value of $9,707,400 accrue
interest at 5% per year, mature on December 31, 1998, and are
collateralized by the assets acquired less liabilities assumed in the
transaction described in Note 2. Accrued interest of $ 655,300 and $
161,800 has been included as accrued liabilities as of December 31, 1997
and 1996, respectively.
The Notes and accrued interest are convertible into 105,638,300 shares
of common stock. Conversion will occur when the Company has a sufficient
number of authorized shares to issue to the Note holders. If conversion
does not occur by the maturity date, the net assets would revert back to
the Note holders. The Company believes the Notes will be converted into
the stated number of shares of common stock before the maturity date or
it will be able to obtain extensions from the Note holders.
The following pro form information is provided to show the effect of
conversion if it had occurred on December 31, 1997:
<TABLE>
<CAPTION>
1997
----
<S> <C>
Shareholders' equity:
Common stock $ 115,600
Capital in excess of par 11,443,500
Cumulative translation adjustment (234,300)
Accumulated deficit (1,787,200)
------------
9,537,600
Less treasury stock, at cost 15,500
------------
$ 9,522,100
============
</TABLE>
<PAGE> 43
INTERNATIONAL REALTY GROUP, INC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1997 AND 1996
9. INCOME TAXES:
Components of the net deferred tax liability as reflected on the
Company's consolidated balance sheets are as follows:
<TABLE>
<CAPTION>
Deferred tax assets: 1997 1996
---- ----
<S> <C> <C>
Accounts payable $ 33,000 $ 50,800
Accrued liabilities 190,600 180,200
Net operating loss carryforwards 119,100 95,700
--------- ---------
342,700 326,700
Less valuation allowance (295,900) (298,800)
--------- ---------
46,800 27,900
--------- ---------
Deferred tax liabilities:
Accounts receivable (27,100) (14,000)
Prepaid expense (5,100) (5,400)
Depreciation (14,600) (8,500)
--------- ---------
(46,800) (27,900)
--------- ---------
Deferred taxes, Net $ - $ -
========= =========
</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, 1997 and 1996, consist of current Federal taxes
payable (receivable) of ($1,600) and $14,700, respectively.
The income tax benefit for the years ended December 31, 1997 and 1996,
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
(loss) before provision for income taxes as follows:
<TABLE>
<S> <C> <C>
Provision at statutory rate $(249,700) $(208,500)
Effective state income tax (benefit) (25,500) (21,300)
Non-deductible:
Interest on convertible note 202,300 66,300
Other non-deductible items 72,600 (15,300)
Utilization of operating loss
carrybacks/carryforwards 1,600 92,500
Valuation allowance (2,900) 101,000
--------- ---------
$ (1,600) $ 14,700
========= =========
</TABLE>
At December 31, 1997, the Company had available federal net operating
loss carryforwards of approximately $ 340,300, which will generally
expire between 2001 and 2012.
The Company has not provided for federal income taxes on 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.
<PAGE> 44
INTERNATIONAL REALTY GROUP, INC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1997 AND 1996
10. 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. The number of shares
used in the computation of loss per share of common stock during 1997
and 1996 were 9,954,313 and 9,204,188, respectively.
11. 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 a
Hungarian corporation. The fair value of the securities was $34,700 at
the date of exchange. The securities, included in other assets at
December 31, 1995, were sold to an unrelated third party in 1996 at a
gain of $112,200, which has been included in gain on sale of securities.
Proceeds from the sale were received in 1997.
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 1998. The Company charged
operations $100,000 in each year in accordance with the employment
agreements. No bonuses were declared in 1997 or 1996.
12. 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 and were exercised. The remaining
200,000 options became exercisable in 1996 at fifty percent (50%) of the
average trading prices per share for the month of February, 1996. To
date the options have not been exercised.
Stock option/award activity under the Agreement is as follows:
<TABLE>
<CAPTION>
Number of option shares: 1997 1996
---- ----
<S> <C> <C>
Outstanding, beginning 200,000 200,000
Add (deduct):
Granted/awarded - -
Exercised - -
-------- ------------
Outstanding, ending 200,000 200,000
======== ============
Option price range:
Granted $ - $ .001
Exercised - .001
-------- ------------
Outstanding, ending $ - $ .001
======== ============
</TABLE>
13. TRUST ASSETS:
AGI RT maintains cash (1996, $15,600) 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. There were no
trust funds in 1997.
<PAGE> 45
INTERNATIONAL REALTY GROUP, INC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
14. SUPPLEMENTAL INFORMATION:
Charged to: 1997 1996
-------- --------
Direct:
<S> <C> <C>
Consulting, appraisal $378,100 $351,900
Reports, film and other 69,600 51,600
-------- --------
$447,700 $403,500
======== ========
Selling, general and administrative:
Utilities $ 19,100 $ 30,700
Bad Debts 25,400 53,800
Rent 26,300 38,000
Insurance 4,900 4,500
Office 28,700 26,500
Professional 66,800 156,600
Selling 10,400 40,800
Other 33,300 44,600
-------- --------
$214,900 $395,500
======== ========
</TABLE>
15. BUSINESS SEGMENT:
Information about the Company's operations in different geographic areas
for the years ended December 31, 1997 and 1996 is as follows:
<TABLE>
<CAPTION>
Consolidated United
Total States Mexico Hungary
------------ --------- ---------- ---------
<S> <C> <C> <C> <C>
Net revenues:
1997 $ 792,800 $ 706,500 $ - $ 86,300
1996 604,000 331,500 - 272,500
Loss from
continuing operations
before other deductions,
income taxes and
minority interest:
1997 (129,900) (79,800) - (50,100)
1996 (485,000) (450,100) - (34,900)
Identifiable assets:
1997 13,147,400 734,200 12,131,000 282,200
1996 12,847,700 323,000 12,194,700 330,000
Capital expenditures:
1997 6,300 3,900 - 2,400
1996 14,600 14,600 - -
Depreciation and amortization:
1997 57,000 51,300 - 5,700
1996 56,600 52,100 - 4,500
</TABLE>
<PAGE> 46
INTERNATIONAL REALTY GROUP, INC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1997 AND 1996
15. BUSINESS SEGMENT (CONTINUED):
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.
16. SELECTED QUARTERLY FINANCIAL SUMMARY (UNAUDITED): For the years ended
December 31:
<TABLE>
<CAPTION>
First Second Third Fourth
--------- --------- --------- ---------
1997:
<S> <C> <C> <C> <C>
Revenues $ 177,100 $ 222,200 $ 179,700 $ 213,800
Operating expenses 198,100 226,900 214,900 282,800
--------- --------- --------- ---------
Loss before
other income (expense)
and taxes (21,000) (4,700) (35,200) (69,000)
Other income
(expense) including
minority interest (156,900) (142,600) (138,300) (147,400)
Provision for income
taxes - - - (1,600)
--------- --------- --------- ---------
Net loss $(177,900) $(147,300) $(173,500) $(214,800)
========= ========= ========= =========
Net loss per
common share $ (.02) $ (.01) $ (.02) $ (.02)
========= ========= ========= =========
1996:
Revenues $ 162,200 $ 204,000 $ 89,900 $ 147,900
Operating expenses 255,500 213,800 380,700 239,000
--------- --------- --------- ---------
Loss before other
income (expense)
and taxes (93,300) (9,800) (290,800) (91,100)
Other income
(expense)including
minority interest (1,300) (8,300) (31,700) (69,500)
Provision for income
taxes (benefit) - 16,200 - (1,500)
--------- --------- --------- ---------
Net loss $ (94,600) $ (34,300) $(322,500) $(159,100)
========= ========= ========= =========
Net loss per common share $ (.01) $ - $ (.04) $ (.02)
========= ========= ========= =========
</TABLE>
<PAGE> 47
International Realty Group, Inc. and Subsidiaries
Consolidated Balance Sheets - March 31, 1998 and December 31, 1997
<TABLE>
<CAPTION>
March 31, 1998
(Unaudited) December 31, 1997
--------------- ------------------
<S> <C> <C>
Assets:
Real estate, at cost
Property held for future development $10,581,000 $10,556,100
----------- -----------
Receivables
Due from shareholder 1,839,500 2,023,700
Accounts receivable, less allowance for
doubtful collections ( 1998, $11,100; 1997, $14,000) 134,900 114,800
----------- -----------
1,974,400 2,138,500
----------- -----------
Cash and cash equivalents 118,200 107,200
Furntiure, equipment and improvements, net 128,600 134,100
Excess of cost over estimated fair valued of net
assets acquired 101,200 105,600
Other assets 57,400 105,900
----------- -----------
405,400 452,800
----------- -----------
$12,960,800 $13,147,400
=========== ===========
Liabilities:
Mortgages and notes payable $ 1,071,600 $ 1,123,500
Accounts payable 229,900 230,100
Accrued and other liabilities 1,762,600 1,620,700
Convertible notes 9,707,400 9,707,400
----------- -----------
12,771,500 12,681,700
----------- -----------
Minority Interest 1,275,200 1,306,300
----------- -----------
Shareholders' Equity:
Common stock, $.001 par; authorized 10,000,000
shares; 9,954,314 shares issued 10,000 10,000
Capital in excess of par 1,186,400 1,186,400
Accumulated other comprehensive loss (237,800) (234,300)
Accumulated deficit (2,029,000) (1,787,200)
----------- -----------
(1,070,400) (825,100)
Less shares of common stock held in treasury, at cost 15,500 15,500
----------- -----------
(1,085,900) (840,600)
----------- -----------
$12,960,800 $13,147,400
=========== ===========
</TABLE>
Read notes to consolidated financial statements.
<PAGE> 48
International Realty Group, Inc. and Subsidiaries
Consolidated Statement of Operations and Comprehensive Income
Three Months Ended March 31, 1998 and 1997
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
1998 1997
--------- --------
<S> <C> <C>
Revenues:
Revenues from services provided $ 191,600 $ 177,100
---------- ----------
Operating expenses
Amortization and depreciation 14,700 14,000
Direct 89,000 102,600
Payroll and related benefits 51,800 48,100
Selling, general and administrative 62,200 33,400
---------- ----------
217,700 198,100
---------- ----------
Loss before other income (expense), minority
interest and provision for income taxes (benefit) (26,100) (21,000)
Other income (expense):
Interest income 200 --
Interest expense (169,900) (161,800)
Real-estate operating expenses (49,200) --
Gain (losses) on exchange rate fluctuations (29,800) (8,200)
Other income(expenses) 3,000 1,300
---------- ----------
Loss before minority interest and provision
for income taxes (benefit) (271,800) (189,700)
Minority interest in loss (income) of subsidiaries 30,000 11,800
---------- ----------
Loss before provision for income taxes (241,800) (177,900)
Provision for income taxes (benefit) (1,200) 3,900
---------- ----------
Net loss (240,600) (181,800)
---------- ----------
Other comprehensive income (loss), before tax:
Foreign currency translation adjustments (3,500) 11,600
Income tax expense(benefit) related to other comprehensive income (1,200) (3,900)
---------- ----------
Other comprehensive income (loss), net of tax (4,700) 7,700
---------- ----------
Comprehensive loss $ (245,300) $ (174,100)
========== =========
Loss per common share, based on net loss $ (0.02) $ (0.02)
========== ==========
Weighted average number of shares 9,954,313 9,954,187
========== ==========
</TABLE>
Read notes to consolidated financial statements.
<PAGE> 49
International Realty Group, Inc. and Subsidiaries
Statement of Cash Flows
Three Months Ended March 31, 1998 and 1997
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
1998 1997
--------------------- ----------------
<S> <C> <C>
Cash flows from operating activities:
Sources of cash:
Clients and other $ 174,300 $ 344,900
Interest 200 --
--------- ---------
174,500 344,900
--------- ---------
Uses of cash:
Cash paid for:
Direct costs 64,900 209,500
Operating 57,500 34,500
Payroll and related benefits 30,300 46,800
Interest 5,000 1,700
--------- ---------
157,700 292,500
--------- ---------
Cash provided by operating activities $ 16,800 $52,400
Cash flow used in investing activities:
Use of cash:
Acquisition of equipment (4,400) (700)
Cash flows from financing activities:
Source of cash:
Due from shareholder 5,000 --
Use of cash:
Shareholder loan repayments 1,300
Payment of notes payable -- 43,700
--------- ---------
Cash provided by (used in) financing activities 3,700 (43,700)
Effect of exchange rates on cash and cash equivalents (5,100) 15,600
--------- --------
Increase in cash and cash equivalents 11,000 23,600
Cash and cash equivalents, beginning 107,200 7,600
--------- --------
Cash and cash equivalents, ending $ 118,200 $ 31,200
========= ========
</TABLE>
Read notes to consolidated financial statements.
<PAGE> 50
International Realty Group, Inc. and Subsidiaries
Statement of Cash Flows (Continued)
Three Months Ended March 31, 1998 and 1997
(Unaudited)
<TABLE>
<CAPTION>
Three months ended
1998 1997
--------- ---------
<S> <C> <C>
Reconciliation of net loss to cash
provided by operating activities:
Net loss $(240,600) $(177,900)
--------- ---------
Adjustments to reconcile net loss to
cash provided by operating activities:
Amortization and depreciation $ 14,700 $ 14,000
Amortization of note payable discount 7,900 7,600
Minority interest (30,000) (11,800)
Currency fluctuation 29,800 8,200
Deferred tax benefit (1,200) --
Changes in assets and liabilities:
Accounts receivable (20,100) 166,500
Other assets 48,500 (106,200)
Due from controlling shareholder 49,200 --
Accounts payable (200) (49,100)
Accrued liabilities and other 158,800 201,100
--------- ---------
Total adjustments 257,400 230,300
--------- ---------
Cash provided by operating activities $ 16,800 $ 52,400
========= =========
</TABLE>
Schedule of non-cash financing activities:
During the first quarter ending March 31, 1998, due from controlling
shareholder decreased by $74,100 as a result of expenses paid directly by
the controlling shareholder, relating to the development of property held
for future development. Property held for future development increased as
a direct result of capitalizing $24,900 of the above costs. The balance,
$49,200, was charged to real-estate operating expenses during the current
period.
Read notes to consolidated financial statements.
<PAGE> 51
INTERNATIONAL REALTY GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
MARCH 31, 1998
1. PRINCIPLES OF STATEMENTS PRESENTATION:
The unaudited consolidated financial statements include all adjustments
which are necessary, in the opinion of management, to fairly reflect the
Company's financial position and results of operations. All such
adjustments are of a normal recurring nature. The statements have been
prepared using the accounting policies described in the Company's 1997
Audited Financial Statements contained in the Company's Form 10-KSB for
the year ended December , 31, 1997.
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
months ended March 31, 1998 have been reclassified where appropriate to
conform to the comparable March 31, 1997 period's financial statement
presentation.
2. DETAILS OF FINANCIAL STATEMENT COMPONENTS: Mortgage and notes payable:
<TABLE>
<S> <C>
Mortgage and notes payable:
Mortgage note, bank $ 430,500
Note payable, bank 587,100
Note payable, unsecured 8,500
Note payable, related party 45,500
----------
$1,071,600
==========
Accrued and other liabilities:
Payroll and payroll taxes $ 557,200
Interest 1,011,800
Foreign taxes, other than income 6,700
Billings in excess of costs and earnings 10,000
Shareholder loans 46,900
Other 130,000
----------
$1,762,600
==========
</TABLE>
3. CONVERTIBLE NOTE:
Convertible notes issued at August 19, 1996 are summarized as follows:
<TABLE>
<CAPTION>
Amount Convertible into (shares):
----------- --------------------------
<S> <C>
$ 4,858,828 52,875,030
$ 4,848,558 52,763,270
----------- -----------
$ 9,707,386 105,638,300
=========== ===========
</TABLE>
<PAGE> 52
INTERNATIONAL REALTY GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
MARCH 31, 1998
4. COMPREHENSIVE INCOME:
The Company has adopted Statements of Financial Accounting Standards
("SFAS") No. 130, "Reporting Comprehensive Income," as of the first
quarter of 1998. This standard requires that the total change in equity
resulting from revenue, expenses, and gains and losses, including those
which do not affect retained earnings be reported. These amounts consist
of net earnings, foreign currency translation adjustments and unrealized
gains and losses on marketable securities. For the periods ending March
31, 1998 and 1997, the standard has no impact on the Company's net income
or stockholders' equity. Accumulated other comprehensive loss presented on
the accompanying consolidated balance sheet consists entirely of foreign
currency translation adjustments.
<PAGE> 53
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> 54
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> 55
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> 56
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> 57
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> 58
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> 59
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> 60
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> 61
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>
