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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14C INFORMATION
Informatin Statement Pursuant to Section 14(c) of the
Securities Exchange Act of 1934
CHECK THE APPROPRIATE BOX:
[ ] Preliminary Information Statement
[ ] Confidential, for Use of the Commission Only (as permitted by
Rule 14c-5(d)(2))
[X] Definitive Information Statement
INTERNATIONAL REALTY GROUP, INC.
-------------------------------------------
(Name of Registrant As Specified In Charter)
PAYMENT OF FILING FEE (CHECK THE APPROPRIATE BOX):
[ ] No Fee Required.
[ ] Fee computed on table below per Exchange Act Rules 14c-5(g)
and 0-11
1) Title of each class of securities to which
transaction applies:
2) Aggregate number of securities to which transaction
applies:
3) Per unit price or other underlying value of
transaction computed pursuant to Exchange Act Rule
0-11 (Set forth in the amount on which the filing fee
is calculated and state how it was determined):
4) Proposed maximum aggregate value of transaction:
5) Total fee paid:
[X] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by
Exchange Act Rule 0-11(a)(2) and identify the filing for which
the offsetting fee was paid previously. Identify the previous
filing by registration statement number, or the Form or
Schedule and the date of its filing.
1) Amount Previously Paid:
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:
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INTERNATIONAL REALTY GROUP, INC.
111 NORTHWEST 183RD STREET
SUITE 518
MIAMI, FLORIDA 33169
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NOTICE OF STOCKHOLDER ACTION
IN LIEU OF SPECIAL MEETING
---------------------------------------
TO THE STOCKHOLDERS
OF INTERNATIONAL REALTY GROUP, INC.:
This Information Statement is furnished to the stockholders of
International Realty Group, Inc. (the "Company") in connection with the
following corporate action to be approved by the written consent of two
stockholders of the Company who own sufficient voting securities of the Company
to approve such action:
An amendment to Article IV of the Certificate of
Incorporation, as amended, of the Company to increase the
number of authorized shares of common stock, par value, $.001
per share ("Common Stock"), of the Company from 10,000,000
shares to 450,000,000 shares.
We are not asking you for a proxy and you are requested not to send us
a proxy. Your vote or consent is not requested or required to approve the above
amendment. This Information Statement is provided solely for your information.
This Information Statement also serves as the notice required by Section 228 of
the Delaware General Corporation Law for the approval of a corporate action by
less than unanimous written consent of the stockholders of the Company.
By Order of the Board of Directors
/s/ Richard M. Bradbury
December 17, 1998 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 December 17, 1998.
THE ACTIONS DESCRIBED HEREIN WILL BE APPROVED BY TWO
STOCKHOLDERS OF THE COMPANY WHO OWN SUFFICIENT VOTING
SECURITIES TO APPROVE SUCH ACTIONS. YOUR VOTE OR CONSENT IS
NOT REQUESTED OR REQUIRED TO APPROVE SUCH ACTIONS. THIS
INFORMATION STATEMENT IS PROVIDED SOLELY FOR YOUR INFORMATION.
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<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 12
CERTAIN INFORMATION CONCERNING THE COMPANY
Business Operations 13
Land Development 14
Other Activities 15
Employees 15
Description of Property 15
Environmental Regulations 17
Real Estate Investment Policy 17
Legal Proceedings 17
Description of Common Stock 17
Principal Stockholders 18
Management's Discussion and Analysis 19
FINANCIAL STATEMENTS
Index to Financial Statements............................................ F-1
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 Transaction, the Company's Board of
Directors (the "Board") has identified the following potential benefits of the
Transaction:
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The Board's determination that the Transaction is fair, from a
financial point of view, to the Company's shareholders.
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 $6,118,300 (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 ("Closing Date") 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 at the Closing Date: (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". For additional information regarding the assets, see "The Assets" and
"Certain Information Concerning the Company--Description of Property".
The Assets acquired and liabilities assumed by the Company in the
Transaction have been recorded at a net asset value of $4,745,400, which is the
estimated fair value of the 1,000,000 shares of Common Stock and Notes (as
described below) issued by the Company in the Transaction. See Footnote 2 to the
consolidated Financial Statements of the Company for the years ended December
31, 1997 and 1996, contained herein. The Common Stock was not actively traded as
of the date of the Transaction. See "Certain Considerations--Lack of Public
Market for the Common Stock." Accordingly, in order to determine the fair value
of the Common Stock, the Company had a valuation performed by an independent
third party valuation firm specializing in business and financial valuation.
Such valuation firm concluded the fair market value of the Common Stock as of
August 19, 1996 was $.0445 per share for restricted shares and $.0607 per share
for unrestricted shares. As a result of the restricted nature of the shares
issued in the Transaction (including the shares underlying the Notes), the
Company has utilized the $.0445 per share value for purposes of the Transaction.
Shareholders should note, however, that such valuation is as of August 19, 1996
and does not give any effect to developments occurring after such date or future
operating contributions of the Assets acquired in the Transaction.
In exchange for the Assets, the Company issued to DSC on the Closing
Date 485,930 shares of the Company's Common Stock (valued at $0.0445 per share
or $21,600) and a Convertible Promissory Note (the "DSC Note") in the principal
amount of $2,352,900 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
(valued at $0.0445 per share or $22,900) and a Convertible Promissory Note in
the principal amount of $2,348,000 convertible into 52,763,270 shares of Common
Stock. As a result of the $.0445 established fair value of the Common Stock as
of the Closing Date, the principal amounts of DSC Note and Hemisphere Note
(collectively, the "Notes") have, by mutual agreement of the parties, been
reduced from previously stated principal amounts of $4,858,828 and $4,848,558
respectively. See "Background of the Transaction." The Notes bear interest at a
rate of 5% per year.
The Company may force the conversion of 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
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Note are not converted prior to February 1, 1999, the principal amount of the
Notes become immediately payable together with accrued interest. 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" or Section 4(2). 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.
THE ASSETS
The Assets consist of: (i) 100 percent equity interest in Centro de
Promociones Guerrero 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 Guerrero 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 ($494,700 as of September
30, 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 79.08 percent interest. The
24-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
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which Nueva Tierra has an 81.13 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 ($607,200 as of September 30, 1998).
For additional information regarding this property, see "Certain Information
Regarding the Company--Description of Property."
Bahia de Cortez, a Participating Association formed under the laws of
Mexico on February 7, 1996, owns a future development project located in Baja
California near La Paz, in which Nueva Tierra has a 78.1 percent interest. The
property consists of approximately 3,451 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"), as of 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.
By mutual agreement of the parties, the principal amount of the DSC
Note and the Hemisphere Note have been 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. See Footnote 2 to
the consolidated Financial Statements of the Company for the years ended
December 31, 1997 and 1996, contained herein. 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.
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The Company had the right to force the conversion of such notes after the
Company increased its authorized capital stock to permit the issuance of such
shares of Common Stock. When the Company failed to increased its authorized
capital stock by December 31,1996, such notes became immediately payable
together with interest at a rate of five percent per year. In lieu of
foreclosing on such notes, which were secured by all of the assets acquired by
the Company in the August 1996 Transaction, the parties agreed to amend the
notes and Transaction, including the following:
1. The Original DSC Note was replaced with the DSC Note, which is convertible
into 52,875,030 shares of Common Stock. The principle amount of the DSC Note has
been reduced to $2,352,900.
2. The Original Hemisphere Note was replaced with the Hemisphere Note, which is
convertible into 52,763,270 shares of Common Stock. The principle amount of the
Hemisphere Note has been reduced to $2,348,000.
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 amount 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 an historical cost on the books of DSC and Hemisphere of $9,799,300 or
$.0918 per share after giving effect to the conversion of the Notes. Such
historical cost of the Asset significantly exceeded the $.025 per share book
value of the Company prior to the Transaction. The Board's determination that
the Transaction is fair, from a financial point of view, to the Company's
stockholders has been subsequently confirmed by the report of an independent
third party business and valuation firm that the Company obtained for purposes
of accounting for the Transaction, which report concluded, among other things,
that the fair market value of the Company, on an enterprise basis, was
approximately $604,000, or $.0675 per share. Based on the foregoing, and 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 the Transaction is fair, from a financial point of view, to the
stockholders of the Company.
2. The Board's belief that the Company will be able to achieve synergistic
benefits through its association with DSC and Hemisphere. DSC has prior and
current experience in land development and resort hotel development and
operations.
The Long-Term Strategy of the Company will be to focus toward land
development and related real estate activities, utilizing DSC's resort hotel and
land development experience and the Company's real estate valuation expertise.
The Company, as provided for in its Real Estate Investment policy, see
"Real Estate Investment policy", intends to enhance shareholder value through
the acquisition of strategically-located, undervalued real estate assets and
undeveloped land in Latin America, the southeastern and western United States,
and the Caribbean basin.
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The Company's subsidiary, located in Mexico, will act as a master
developer for the undeveloped properties it acquires. It will identify the
following: (i) the highest and best use for the properties, (ii) zoning,
environmental and other regulatory requirements, (iii) preparation of site and
development plans, (iv) development of the infrastructure (including roads and
utilities), and (v) sales and marketing to individuals and local builders.
In addition to the development process, to enhance the Company's cash
flow, the Company will consider acquiring and/or developing resort hotel and
other commercial properties to be net-leased to hotel management companies and
corporate clients.
3. The Board believes that the Company will be able to achieve benefits through
its association with DSC and Hemisphere. Included in such benefits are (i)
increased financial resources, (ii) an ability to attract additional capital in
the future, and (iii) the ability to establish a broader and more meaningful
market for the Company's Common Stock. The Board believes 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, will
improve the Company's ability to explore potential future acquisitions, 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 ($1,428,600
as of September 30, 1998). The Company utilized the $300,000 of capital for the
operations of the Company and professional fees incurred in connection in the
Transaction.
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 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.
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
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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
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 $463,900 and $534,900 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 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: Given the effect to the
Transaction, the Company has approximately $7,276,000 of total liabilities as of
September 30, 1998, including the Notes in the face amount of $4,700,900 (and
$521,000 of accrued interest as of September 30, 1998). Of such amount, $857,500
(and $224,400 of accrued interest as of September 30, 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 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. These consequences include the following: (i) the
Company's inability to obtain necessary debt financing in the future, for
working capital, capital expenditure or other purposes; (ii) cash flow from
operations dedicated to payment of principle and interest on its indebtedness
may 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."
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<PAGE> 13
3. DEVELOPMENT RISKS. The Company intends to develop the properties acquired in
the Transaction. See "Certain Information Concerning the Company--Management's
Discussion and Analysis." Although the diversity in the size, type and location
of its properties should reduce the risk of ownership of any single property,
the Company will be subject to risks generally inherent in the ownership of real
estate properties. Such risks are a downturn in general or local economic
conditions or an increase in the real property tax rate. In the event the
Company develops such properties in the future, 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 Company's Common Stock is
quoted on the OTC Bulletin Board under the symbol "IRGR". For the past several
years, there has been an extremely limited market for the Common Stock. For the
two-year period ended December 31, 1997, there were fewer than ten sales
reported by the OTC Bulletin Board at prices ranging from a low of $.01 to a
high of $.24. The total volume of such sales was approximately 168,373 shares.
Since January 1, 1996, the low and high bid of the Common Stock has been $.03125
and the low and high ask has been $1.00. 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. Such Act
requires additional disclosure by broker-dealers in connection with any trades
involving a stock defined as a penny stock (generally, any non-NASDAQ equity
security that has a market price of less than $5.00 per share, subject to
certain exceptions). Such rules require the delivery, prior to any penny stock
transaction, of a disclosure schedule explaining the penny stock market and the
risks associated therewith, and impose various sales practice requirements on
broker-dealers who sell penny stock to persons other than established customers
and accredited investors. For these types of transactions, the broker-dealer
must make a special suitability determination for the purchaser and have
received the purchaser's written consent to the transaction prior to sale. The
additional burdens imposed upon broker-dealers by such requirements may
discourage broker-dealers from effecting transactions in the Common Stock, which
could severely limit the market liquidity of the Common Stock and the ability of
persons to sell the Common Stock.
7. NO APPRAISAL RIGHTS. Under the applicable provisions of the Delaware General
Corporations Law, the Company's stockholders are not entitled to any dissenters'
appraisal rights in connection with the Transaction or any other transaction
described in this Information Statement.
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<PAGE> 14
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 115,592,813 shares of Common Stock will be issued and outstanding.
The Company intends to call a special meeting of the stockholders after
the conversion of the DSC and Hemisphere Notes to elect 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.
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. At such time, it acquired all of the
outstanding shares of Appraisal Group, Inc. in exchange for 4,150,000 shares of
common stock (after
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<PAGE> 15
a 1 for 8 reverse split). The Company changed its name to Appraisal Group
International Inc.. Subsequently, on August 10, 1989, the Company changed its
name to International Realty Group, Inc. Its principle offices are located at
111 NW 183 Street, Suite 518, Miami, Florida 33169. Its telephone number is
(305) 944-8811. Fax (305) 651-3394.
BUSINESS OPERATIONS
The Company, together with its consolidated subsidiaries, currently
operates in two business segments: (i) Real Estate Consulting Services and (ii)
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., ("AGII") 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 75% percent of appraisal revenue is derived from projects
in the United States and 25% 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 and review appraisals to fully serve its clients. During 1997,
AGII performed over 2,100 single family and review appraisals in 16 states for
over 150 local and national clients.
Commercial appraisals are generally full narrative appraisals prepared
in accordance with the Uniform Standards of Professional Appraisal Practice. The
appraisals are utilized by governmental agencies, banks, institutions, property
owners, developers and attorneys for a variety of purposes, including financing,
insurance, portfolio analysis, litigation support, estate analysis and current
market valuation. The majority of residential appraisals is completed on forms
promulgated by the Federal National Mortgage Association (Fannie Mae) and
Federal Home Loan Mortgage Corporation (FHLMC) and is 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
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<PAGE> 16
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. ("AGI 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 AGI Rt. is owned by existing AGI Rt.
management. See "Certain Relationships and Related Transactions". AGI 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 AGI 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, AGI Rt.
is an official court appointed liquidator. As court appointed liquidator, the
Company is responsible to oversee the operational and financial integrity of the
companies it is liquidating. Currently AGI Rt. is liquidating approximately 60
separate companies on behalf of the court. The complete liquidation process for
an individual company takes approximately two years, after which the Company may
be awarded a fee of approximately 3% of the net collected proceeds.
COMPETITION
There is significant competition in the field of appraisals and real
estate consulting services. Industry sources estimate that the appraisal service
industry in the United States includes over 84,000 state licensed and certified
appraisers in the United States. The Company's competition generally comes from
three types of organizations; (i) "Big Six" accounting firms; (ii) multi-office
appraisal firms; and (iii) small appraisal firms. A majority of the large
accounting firms have appraisal departments. The name recognition of these large
accounting firms provides such firms with a competitive advantage, however, the
Company believes that their relatively high fees for services allow market
penetration by firms such as the Company. All of the major accounting firms
possess substantially greater financial and other resources that the Company.
The most prominent United States multi-office appraisal firms are American
Appraisal Company, Marshal & Stevens, Joseph Blake & Associates, Cushman &
Wakefield and Valuation Consultants International Ltd. The majority of appraisal
firms employ one to five appraisers who are primarily involved in residential
appraisals, although many small firms do perform commercial appraisals. These
firms may have lower overhead than the Company, however, they may lack the
expertise to perform 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 FOURTH 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, EUROPE 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.
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<PAGE> 17
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 4 administrative and 12 staff
appraisers in its domestic operations, and 6 administrative and staff appraisers
in its foreign operations. In addition, the Company retains 68 independent
licensed appraisers to perform professional services in their local market
regularly and on an ad hoc basis.
DESCRIPTION OF PROPERTY
The Company, or through its subsidiaries, currently is subject to two
leases for office facilities and owns eight properties currently held for
investment.
The Company leases 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."
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(ii) Campo de Tiro - an 8-acre partially developed property, located in
the city of Acapulco, State of Guerrero, Mexico, which is wholly owned by the
Company's subsidiary Centro de Promociones Guerrero S.A. de C.V. The property is
currently being held for future development. Although the Company presently has
no understandings or agreements with respect to Campo de Tiro, the preliminary
development plan calls for construction of social housing, which is government
assisted residential housing over a period of 24 months, consisting of 124
two-story duplex townhouses, 250 units in total. The Company believes that all
necessary licenses, permits, and governmental approvals have been obtained for
the construction of residential housing on such property. The Company is aware
of one other social housing development which is proposed to be constructed
within 10 miles of the Campo de Tiro site. Accordingly, the Company believes
that in the event that the Company so develops the Campo de Tiro site, the
development will be able to effectively compete in its market. The property is
subject to a mortgage due March 31, 1999, with a balance, as of September 30,
1998, of $494,700, 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 $362,800 at interest rates of 4.5% and 5.2%,
maturing in the year 2007. Accrued interest on this mortgage was approximately
$224,400, as of September 30, 1998.
(v) Bahia de Cortes - a 3,451-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 3,451 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 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.
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(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 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 neither 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. At present, the Company has
not authorized the issuance of
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preferred stock. The Board of Directors of the Company has 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. 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 non-assessable. The
Common Stock is eligible for trading on the OTC Bulletin Board under the symbol
IRGR.
PRINCIPAL STOCKHOLDERS
The following table sets forth the beneficial ownership of the Common
Stock (as of the date of this Information Statement and as adjusted to give
effect to the conversion of the DSC and Hemisphere notes) by: (i) each of the
Company's Officers and Directors, (ii) each person who is known by the Company
to beneficially own more than 5% of the outstanding Common Stock, and (iii) all
of the officers and directors as a group.
<TABLE>
<CAPTION>
NAME AND ADDRESS BEFORE CONVERSION OF DSC AFTER CONVERSION OF DSC
OF BENEFICIAL OWNER AND HEMISPHERE NOTES(1) AND HEMISPHERE NOTES(2)
- ------------------- ------------------------- ------------------------
PERCENTAGE PERCENTAGE
AMOUNT OF CLASS AMOUNT OF CLASS
--------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Jack Birnholz(3) 4,160,000 41.8% 4,160,000 3.6%
Richard Bradbury(3) 1,253,000 12.6% 1,253,000 1.1%
Alton Hollis(3) 9,000 * 9,000 *
DSC S.A. de C.V.(4) 485,930 4.8% 37,449,960 32.4%
Bernardo Dominguez Moreno(4) 485,930 4.8% 37,449,960 32.4%
Bernardo Dominguez C.(4) 485,930 4.8% 37,449,960 32.4%
Jorge Lopez Nunez(4) 485,930 4.8% 37,449,960 32.4%
Pablo Macedo(4) 0 * 0 *
Hemisphere Developments Limited (5) 514,070 5.2% 53,277,340 46.1%
Monique Roggero-Ciana 514,070 5.2% 53,277,340 46.1%
Nacional Financiera, S.N.C.(6) 0 * 15,991,000 13.8%
All Officers and Directors as a Group (4 persons) 1,747,930 17.5% 23,702,784 26.6%
=========================================================================================================================
</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.
18
<PAGE> 21
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 nine-month period ended September 30, 1998, as
compared to the same period in 1997. This discussion and analysis should be read
in conjunction with the audited financial statements contained elsewhere herein.
RESULTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED TO NINE MONTHS ENDED
SEPTEMBER 30, 1997
Real Estate Consulting Services
Revenues for the nine months ended September 30, 1998 totaled $634,800 as
compared to $579,000 for the same period in 1997, an increase of $55,800 or 9%.
The Company's domestic and foreign valuation subsidiaries, Appraisal Group
International, Inc. ("AGII") and Appraisal Group International, Rt. ("AGI RT.")
accounted for the Company's revenues. AGII had revenues of $580,100 for the
current period, compared to $498,000 for the same period in 1997, an increase of
approximately 16%. AGI RT. had revenues of $53,500, compared to $71,000 for the
same period in 1997. The continued decline is attributed to the decrease in
appraisal assignments with the Hungarian government.
Operating expenses for the nine months ended September 30, 1998 were $709,300
compared to $639,200 for the comparable period in 1997, an increase of 11%. Of
the total expenses, foreign operations accounted for 11% and domestic operations
accounted for 89%.
Selling, General and Administrative expenses for the period increased from
$113,800 in 1997 to $177,200 for the current period, an increase of $63.400.
Payroll and Related Benefits for the period increased from $150,300 in 1997 to
$158,500 for the current period. Direct expenses including the production of
appraisal reports, fees and related expenses for the period decreased from
$334,000 in 1997 to $330,300 for the current period. Such decrease is in spite
of the fact revenues increased 11% during such period. Amortization and
Depreciation expense was consistent between the periods. Interest expense for
the nine months ended September 30, 1998 were $274,100 compared to $277,600 for
the same period in 1997. The majority of interest expense is attributable to the
convertible note $191,000 and for properties located in Mexico $64,100. There
was currency translation expense of $98,500 for the current period compared to a
gain of $1,200 for the comparable 1997 period. Such translation gain or expense
is attributable to the currency fluctuations of the Mexican peso during each
such period.
LAND DEVELOPMENT
During the current nine-month period, the Company began preliminary activity in
its land development operations. The Company had costs, paid directly by DSC
through the reduction of their account payable to the Company, totaling $123,500
for personnel, engineering, site plans and other related expenses.
For the nine months ended, the Company had a net loss of $455,500 compared to a
net loss of $314,400 for the comparable 1997 period. During such period, the
Company's domestic consulting operations performed by AGII had an operating
profit of $103,400 for the current period, compared to $61,600 for the
comparable 1997 period. The Company's foreign consulting operations had an
operating loss of $31,800 for the current period compared to a $14,400 loss
for the comparable
19
<PAGE> 22
1997 period. Real estate operations in Mexico had operating losses of $123,500
for the current period. There were no such operations during the 1997 period.
The other major influences on the Company's operating losses are attributable to
accrued interest expense of $274,100 and currency exchange expense of $98,500,
recognized during the current period.
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 31% to
$792,800 in 1997 from $604,000 in 1996. Revenue from foreign operations
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. Revenues from domestic operations increased 113%
to $706,500 in 1997 from $331,500 in 1996.
OPERATING EXPENSES for the year 1997 decreased 15% from $1,089,000 in 1996 to
$922,700 in 1997. 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 Transaction expenses associated with the
acquisition, amounting to $186,000. Included in the $186,000 of such expenses
were $43,600 incurred in 1995 and recognized on the Closing date of the
acquisition. DIRECT expenses including the production of appraisal reports,
appraisers' fees, travel, reproduction, photography and all related expenses
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 AND EXPENSES: The majority of interest expense ($243,900 of the
$379,300) for the year 1997 (compared to $86,100 of $179,400 in 1996) is
attributable to the Convertible Notes issued in conjunction with the Transaction
at closing. Of the balance, $135,400 in 1997 and $93,300 in 1996 is attributable
to mortgage interest expense for the Company's properties in Mexico ($123,000 in
1997 and $91,100 in 1996) and domestic and foreign operations. Gain or (losses)
for exchange rate fluctuations $32,100 in 1996, compared to ($19,600) in 1997 is
attributable to Mexican operations. Appraisal Group International, Rt.
recognized a gain on sale of securities in the amount of $112,200 during 1996.
LAND DEVELOPMENT: The Company has acquired interests in five properties located
in Mexico, pursuant to the Transaction with DSC and Hemisphere dated as of
August 19, 1996. The Company believes that each of the Mexican properties is
suitable for future development as either a resort, residential or commercial
property. Since the properties secure the Company's obligations under certain
notes issued to DSC and Hemisphere, the Company does not plan to undertake any
development of such properties until after such notes have been converted. While
no assurances can be given, the Company expects that the conversion of these
notes (convertible into an aggregate of 105,638,300 shares of the Company's
Common Stock) will occur in the fourth quarter of 1998. Any development of the
properties thereafter is contingent upon the Company obtaining necessary
financing. Potential sources of financing include mortgage financing from
financial institutions located in the United States, Europe 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.
There was no income or expense directly attributable to land development
operations during the year ended December 31, 1997.
As a result of the above, the Company had a consolidated loss of $463,900 in
1997 compared to a loss of $534,900 for the comparable 1996 period. The majority
of such loss during the current period is attributable to accrued interest
expense of $379,300. Domestic operations performed by AGII had
20
<PAGE> 23
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 a
loss of $54,400 in the comparable 1996 period.
LIQUIDITY AND CAPITAL RESOURCES:
Cash and Cash Equivalents for the nine months ended September 30, 1998 totaled
$101,700 and accounts receivables of $1,581,700. Of this amount, $1,428,600 is
due from shareholder, and the balance of accounts receivable $153,100 is from
domestic operations ($102,700) and foreign operations ($50,400).
Net cash provided by (used in) operating activities, for the current period,
was $(22,500) compared to $2,900 for the comparable 1997 period. Cash flow used
in investing activities, primarily for the acquisition of equipment for domestic
consulting services, totaled $6,700. Net cash provided by (used in) financing
activities was $30,400 in the current period, compared to $38,300 in 1997. Cash
and cash equivalents decreased by $5,500 for the current period, compared to an
increase of $33,600 for the 1997 period. Such difference is attributable to the
receipt of $100,000 in capital contributions from shareholder DSC during the
1997 period.
Mortgage and notes payable for the nine months ended were $912,900 attributable
to (i) $857,500 mortgages to Mexican banks for property currently held for
future development, (ii) $38,000 note payable for domestic operations, and (iii)
$17,400 for foreign operations. Accounts payable totaled $199,600. Accrued
liabilities totaled $941,600, the majority of which consists of: (i) $558,200
accrued salaries, (ii) $318,400 accrued interest and other expense for Mexican
operations, (iii) $33,600 shareholder loans and the balance attributable to
other short-term debt.
CURRENCY RISK. The Company is subject to risk in changes of foreign exchange
rates for its subsidiaries that use a foreign currency as their functional
currency, or for assets or liabilities which are foreign currency denominated
and are translated to U.S. dollars at each reporting period. The Company has
made quarterly currency translation adjustments (totaling $242,600 over an
eight-year period) for its foreign operations, recognized as a component of
shareholder's equity. When a foreign entity operates in a highly inflationary
economy, the Company uses the U.S. dollar as the functional currency, rather
than the local currency, and recognizes any gain or loss in current operations.
Effective September 30, 1996 the Company considers Mexico to operate in a highly
inflationary economy. The Company has not engaged in the purchase of forward
contracts, or other hedging techniques, to manage such foreign exchange risk to
protect against earnings and cash flow volatility resulting from changes in
foreign exchange rates.
YEAR 2000 COMPLIANCE:
The Year 2000 issue is the result of computer programs being written using two
(2) digits rather than the four (4) digits to define the year. Any of the
Company's computer programs that have date-sensitive software may recognize a
date using "00" as the year 1900 rather than 2000. This problem could force
computers to either shut down or provide incorrect data or information. The
Company utilizes generic software programs developed, maintained and upgraded by
independent computer software providers. In response to the Year 2000 issue,
management is of the opinion that the providers of these software programs will
resolve the date sensitive issue so that all critical systems will be in
compliance prior to the Year 2000. The Company does not anticipate any material
adverse impact on its business.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
In connection with the safe harbor provisions of the Private Securities
Litigation Reform Act of 1995 (the "Reform Act"), the Company is hereby
providing cautionary statements identifying important factors that could cause
the Company's actual results to differ materially from those projected in
forward-looking statements (as such term is defined in the Reform Act) made by
or on behalf of the Company herein or orally, whether in presentations, in
response to questions or otherwise. Any statements that express, or involve
discussions as to expectations, beliefs, plans, objectives,
21
<PAGE> 24
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.
22
<PAGE> 25
INDEX TO FINANCIAL STATEMENTS
INTERNATIONAL REALTY GROUP, INC. AND SUBSIDIARIES:
CONTENTS
YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
Page
<S> <C>
Independent Auditors' Report F-2
Consolidated Financial Statements:
Consolidated balance sheets F-3
Consolidate statements of operations F-4
Consolidated statements of shareholders' deficiency F-5
Consolidated statements of cash flows F-6 - F-7
Summary of significant accounting policies F-8 - F-11
Notes to consolidated financial statements F-12 - F-22
NINE MONTHS ENDED SEPTEMBER 30, 1998
(UNAUDITED)
Consolidated Financial Statements:
Consolidated balance sheet F-23
Consolidate statements of operations F-24
Consolidated statements of cash flows F-25 - F-26
Notes to consolidated financial statements F-27 - F-28
</TABLE>
F-1
<PAGE> 26
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, except for Notes 2 and 8, as to
which the date is September 15, 1998.
North Miami Beach, Florida
F-2
<PAGE> 27
INTERNATIONAL REALTY GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS - DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
ASSETS LIABILITIES AND SHAREHOLDERS' DEFICIENCY
1997 1996 1997 1996
------------ ------------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Real estate, at cost: Liabilities:
Property held for future development $5,502,200 $5,502,200 Mortgage and
----------- ------------
notes payable $1,123,500 $1,176,600
Receivables: Accounts payable 230,100 344,600
Due from shareholder 2,023,700 2,181,200
Accrued and other
liabilities 965,600 804,400
Accounts receivable, less allowance
for doubtful collections (1997, $14,000; Convertible notes,
1996, $13,800) with accrued interest 5,030,800 4,787,000
---------- ----------
114,800 320,500 Total liabilities 7,350,000 7,112,600
------------ ------------- ---------- ----------
2,138,500 2,501,700 Minority interest 1,306,300 1,341,800
---------- ----------
Cash and equivalents 107,200 7,600 Shareholders' deficiency:
Common stock, $.001 par;
authorized 10,000,000
Furniture, equipment, and improvements 134,100 170,100 shares; issued 9,954,315
in 1997 and 9,954,187
shares in 1996. 10,000 10,000
Excess of cost over estimated fair value
of net assets acquired 105,600 123,200 Capital in excess of par 1,139,000 1,096,900
Other assets 105,900 26,000 Cummulative translation
adjustment (234,300) (216,900)
Accumulated deficit (1,462,000) (998,100)
---------- ----------
(547,300) (108,100)
Less shares of common stock
held in treasury, at cost 15,500 15,500
---------- ----------
(562,800) (123,600)
----------- ------------ ---------- ----------
$8,093,500 $8,330,800 $8,093,500 $8,330,800
=========== ============ ========== ==========
</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.
F-3
<PAGE> 28
INTERNATIONAL REALTY GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1997 AND 1996
1997 1996
----------- -----------
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 (379,300) (179,400)
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 (510,000) (513,000)
Minority interest in loss (income) of subsidiaries 44,500 (7,200)
----------- -----------
Loss before provision for income taxes (465,500) (520,200)
Provision for income taxes (benefit) (1,600) 14,700
----------- -----------
Net loss $ (463,900) $ (534,900)
=========== ===========
Loss per share of common stock: $ (0.05) $ (0.06)
=========== ===========
Weighted average common shares outstanding 9,954,313 9,204,188
=========== ===========
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.
F-4
<PAGE> 29
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 TREASURY STOCK
-------------------- EXCESS OF TRANSLATION ACCUMULATED -----------------
TOTAL SHARES AMOUNT PAR ADJUSTMENT DEFICIT SHARES AMOUNT
---------- --------- -------- ----------- ----------- ------------ ------ ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, BEGINNING $ 380,200 8,954,187 $ 9,000 $ 1,053,400 $ (203,500) $ (463,200) 17,500 $ (15,500)
ADD (DEDUCT):
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) 44,500 1,000,000 1,000 43,500
Net loss (534,900) (534,900)
---------- --------- -------- ----------- ---------- ------------ ------ ---------
BALANCE, DECEMBER 31, 1996 (123,600) 9,954,187 10,000 1,096,900 (216,900) (998,100) 17,500 (15,500)
ADD (DEDUCT):
YEAR ENDED DECEMBER 31, 1997:
Common stock issued 126
Additional capital
contributions in
foreign subsidiary 42,100 42,100
Effect of currency
fluctuations on net
assets of foreign
subsidiary (17,400) (17,400)
Net loss (463,900) (463,900)
---------- --------- -------- ----------- ---------- ------------ ------ ---------
BALANCE, ENDING $ (562,800) 9,954,313 $ 10,000 $ 1,139,000 $ (234,300) $ (1,462,000) 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.
F-5
<PAGE> 30
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.
F-6
<PAGE> 31
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 $ (463,900) $ (534,900)
----------- -----------
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 366,100 234,300
----------- -----------
Total adjustments 342,800 394,800
----------- -----------
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 $ 4,745,700
Less cash received 150,400
-----------
$ 4,595,300
===========
</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.
F-7
<PAGE> 32
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.
F-8
<PAGE> 33
INTERNATIONAL REALTY GROUP, INC AND SUBSIDIARIES
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
YEARS ENDED DECEMBER 31, 1997 AND 1996
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.
FOREIGN CURRENCY TRANSLATION:
Local currency is the functional currencies for the Company's foreign
subsidiaries. Assets and liabilities are translated using the exchange rates
in effect at the balance sheet date. Income and expenses are translated at
the average exchange rates during the year. Translation adjustments are
reported as a separate component of shareholders' deficiency.
When a foreign entity operates in a highly inflationary economy, the Company
uses the U.S. dollar as the functional currency rather than the local
currency. Effective September 30, 1996, the Company considers its Mexico
operations to operate in a highly inflationary economy, therefore, the
Company translates nonmonetary assets and liabilities and related expenses
into U.S. dollars at historical exchange rates. The Company translates all
other income statement amounts using average exchange rates for the period.
Monetary assets and liabilities are translated as end-of-period exchange
rates, and any gains or losses are reported in income.
F-9
<PAGE> 34
INTERNATIONAL REALTY GROUP, INC AND SUBSIDIARIES
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
YEARS ENDED DECEMBER 31, 1997 AND 1996
FURNITURE, EQUIPMENT, IMPROVEMENTS, DEPRECIATION AND AMORTIZATION:
Furniture, equipment and leasehold improvements are stated at cost less
accumulated depreciation and amortization. Depreciation and amortization are
computed on the straight-line method over the estimated useful lives as
follows:
Estimated Useful Lives
(in years)
Furniture and equipment 10 years
Leasehold improvements 10 years
Library 3 years
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.
F-10
<PAGE> 35
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.
F-11
<PAGE> 36
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 and residential real estate,
machinery and equipment 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 principally acquired five (5) parcels of land
amounting to approximately 3,745 acres , other assets and assumed
liabilities of DSC and Hemisphere in exchange for 1,000,000 shares of
common stock with a fair value $.0445 per share and convertible notes
(Notes) with a face value of $4,700,900. The estimated fair value of the
assets acquired and liabilities assumed is as follows:
Assets acquired:
Land $5,014,200
Receivable due from DSC 2,110,500
Cash 317,800
Other assets 33,000
----------
7,475,500
----------
Liabilities assumed, including minority interest:
Mortgages 1,094,100
Accounts payable and accrued liabilities 323,300
Minority interest in net assets 1,312,700
----------
2,730,100
----------
Total assets acquired less liabilities assumed $4,745,400
==========
The assets and liabilities have been recorded at a net asset value of
$4,745,400, which is the estimated fair value of the Notes and common
stock issued at the date of the Transaction. Receivable due from DSC,
cash and other assets were recorded at their stated amounts.
F-12
<PAGE> 37
INTERNATIONAL REALTY GROUP, INC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1997 AND 1996
2. TRANSACTION WITH DSC AND HEMISPHERE (CONTINUED):
Liabilities were recorded at their present value. Minority interest
represents the portion of undivided net assets not acquired.
The acquisition price of the land and other assets less the liabilities
assumed in the Transaction was determined based upon the estimated fair
value of the common stock (using the restricted share value of $ 0.0445
per share) at the date of the Transaction. Since the common stock of the
Company is not actively traded, the Company had a valuation performed by
an independent firm. The valuation firm specializes in business and
financial valuations. The firm determined a fair market value on a
minority interest basis. The valuation concluded that the fair market
values per share of the common equity of International Realty Group on a
minority interest basis as of August 19, 1996, immediately before the
Transaction were as follows:
Unrestricted shares $ 0.0607
Restricted shares 0.0445
After the Transaction, the fair market values were:
Unrestricted shares $ 0.0617
Restricted shares 0.0480
The Post-Transaction fair market values include the assets and
liabilities assumed, which for valuation purposes are based on the
amounts recorded in the accompanying consolidated financial statements.
The valuation report does not take into consideration any effect on value
resulting from future development or future operating contributions of
the assets acquired in the Transaction.
3. 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.
F-13
<PAGE> 38
INTERNATIONAL REALTY GROUP, INC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1997 AND 1996
3. CONCENTRATIONS OF CREDIT RISK (CONTINUED):
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:
1997 1996
----- ----
AMOUNT PERCENTAGE AMOUNT PERCENTAGE
------ ---------- ------ ----------
Domestic:
Customer A $ 196,000 28.0% $ 34,900 10.5%
=========== ====== =========== ======
Foreign:
Customer A $ 73,400 85.0% $ 180,500 66.4%
=========== ====== =========== ======
Domestic customers are primarily commercial entities. Foreign customer
is Hungarian governmental agencies.
4. LAND HELD FOR FUTURE DEVELOPMENT:
LOCATION ACREAGE 1997 1996
-------- ------- ---- ----
Ixtapa, Mexico 26 $4,509,600 $4,509,600
Acapulco, Mexico 8 201,000 201,000
Caye Bokel, Belize 87 456,400 456,400
Guanajuato, Mexico 236 272,500 272,500
Jilotepec, Mexico 24 21,500 21,500
La Paz, Mexico 3,451 9,600 9,600
La Grange, Texas 1 31,600 31,600
---------- ----------
$5,502,200 $5,502,200
========== ==========
Improvements amounting to $649,000 are included in the cost of land. All
land in Mexico is collateralized to the convertible notes and to the
note and mortgage payable amounting to $ 1,064,300.
F-14
<PAGE> 39
INTERNATIONAL REALTY GROUP, INC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1997 AND 1996
5. DETAILS OF FINANCIAL STATEMENT COMPONENTS:
FURNITURE, EQUIPMENT AND IMPROVEMENTS: 1997 1996
---- ----
Furniture and equipment $ 86,800 $ 164,300
Leasehold improvements 1,900 14,300
Library 207,800 207,600
------------- ------------
296,500 386,200
Less accumulated depreciation
and amortization 162,400 216,100
------------- ------------
$ 134,100 $ 170,100
============= ============
ACCRUED AND OTHER LIABILITIES:
Payroll and payroll taxes $ 537,000 $ 468,800
Interest 210,900 125,600
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
------------ ------------
$ 965,600 $ 804,400
============ ===========
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.
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 -
F-15
<PAGE> 40
INTERNATIONAL REALTY GROUP, INC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1997 AND 1996
7. MORTGAGE AND NOTES PAYABLE (CONTINUED): 1997 1996
---- ----
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
Note payable, related party,
unsecured, interest at 7.25%,
due on demand. 10,700 68,400
---------- ----------
$1,123,500 $1,176,600
========== ==========
Maturities of long-term debt subsequent to December 31, 1997 are as
follows:
Years ending
December 31, Amount
------------ ------
1998 $ 634,900
1999 15,900
2000 17,200
2001 1,900
2002 --
2003 and thereafter 453,600
-----------
$1,123,500
==========
8. CONVERTIBLE NOTES:
Convertible notes (Notes) with a face value of $4,700,900 accrue
interest at 5% per year, mature on February 1, 1999 and are
collateralized by the assets acquired less liabilities assumed in the
transaction described in Note 2. Accrued interest of $ 329,900 and $
86,100 has been combined with the principal balance of the convertible
note as of December 31, 1997 and 1996, respectively.
The Notes are convertible into 105,638,300 shares of common stock (using
the restricted share value of $ 0.0445 per share). 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.
F-16
<PAGE> 41
INTERNATIONAL REALTY GROUP, INC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1997 AND 1996
8. CONVERTIBLE NOTES (CONTINUED):
The following pro forma information is provided to reflect the effect of
the conversion on shareholders' equity as if it had occurred on December
31, 1997:
<TABLE>
<CAPTION>
Pro-Forma
As originally Pro-Forma December 31,
Reported Adjustment 1997
------------- ----------- -----------
<S> <C> <C> <C>
Shareholders' equity (Deficiency):
Common stock $ 10,000 $ 105,600 $ 115,600
Capital in excess of par 1,139,000 4,595,300 5,734,300
Cumulative translation adjustment (234,300) -- (234,300)
Accumulated deficit (1,462,000) -- (1,462,000)
----------- ----------- -----------
(547,300) 4,700,900 4,153,600
Less treasury stock, at cost 15,500 -- 15,500
----------- ----------- -----------
$ (562,800) $ 4,700,900 $ 4,138,100
=========== =========== ===========
</TABLE>
9. INCOME TAXES:
Components of the net deferred tax liability as reflected on the
Company's consolidated balance sheets are as follows:
1997 1996
--------- ---------
Deferred tax assets:
Accounts payable $ 33,000 $ 50,800
Accrued liabilities 190,600 180,200
Net operating loss
carryforward 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 $ -- $
========= =========
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.
F-17
<PAGE> 42
INTERNATIONAL REALTY GROUP, INC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1997 AND 1996
9. INCOME TAXES (CONTINUED):
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:
Provision at statutory rate (benefit) $(162,400) $(187,200)
Effective state income tax (benefit) (16,600) (19,100)
Non-deductible:
Interest on convertible note 76,900 37,200
Other non-deductible items 101,800 (9,700)
Utilization of operating loss
carrybacks/carryforwards 1,600 92,500
Valuation allowance (benefit) (2,900) 101,000
--------- ---------
$ (1,600) $ 14,700
========= =========
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.
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.
F-18
<PAGE> 43
INTERNATIONAL REALTY GROUP, INC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1997 AND 1996
11. TRANSACTIONS WITH RELATED PARTY (CONTINUED):
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. Due to
the lack of authorized shares, the options have not been exercised. It
is anticipated that when the authorized shares are increased the options
would then be exercised.
Stock option/award activity under the Agreement is as follows:
1997 1996
------------ ------------
Number of option shares:
Outstanding, beginning 200,000 200,000
Add (deduct):
Granted/awarded -- --
Exercised -- --
------------ ------------
Outstanding, ending 200,000 200,000
============ ============
Option price range:
Outstanding, beginning $ .015 $ .015
Granted -- --
Exercised -- --
------------ ------------
Outstanding, ending $ .015 $ .015
============ ============
F-19
<PAGE> 44
INTERNATIONAL REALTY GROUP, INC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1997 AND 1996
13. YEAR 2000 COMPLIANCE:
The Year 2000 issue is the result of computer programs being written
using two (2) digits rather than the four (4) digits to define the year.
Any of the Company's computer programs that have date-sensitive software
may recognize a date using "00" as the year 1900 rather than 2000. This
problem could force computers to either shut down or provide incorrect
data or information. The Company utilizes generic software programs
developed, maintained and upgraded by independent computer software
providers. In response to the Year 2000 issue, management is of the
opinion that the providers of these software programs will resolve the
date sensitive issue so that all critical systems will be in compliance
prior to the Year 2000. The Company does not anticipate any material
adverse impact on its business.
14. 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.
15. SUPPLEMENTAL INFORMATION:
1997 1996
---- ----
Charged to:
Direct:
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
======== ========
F-20
<PAGE> 45
INTERNATIONAL REALTY GROUP, INC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1997 AND 1996
16. 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 8,093,500 734,200 7,077,100 282,200
1996 8,330,800 323,000 7,677,800 330,000
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>
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.
F-21
<PAGE> 46
INTERNATIONAL REALTY GROUP, INC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1997 AND 1996
17. SELECTED QUARTERLY FINANCIAL SUMMARY (UNAUDITED): For the years ended
December 31:
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
------ ------ ----- ------
<S> <C> <C> <C> <C>
1997:
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 (95,400) (81,800) (76,300) (82,100)
Provision for income
taxes (benefit) -- -- -- (1,600)
--------- --------- --------- ---------
Net loss $(116,400) $ (86,500) $(111,500) $(149,500)
========= ========= ========= =========
Net loss per
common share $ (.01) $ (.01) $ (.01) $ (.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) (18,300) (7,300)
Provision for income
taxes (benefit) -- 16,200 -- (1,500)
--------- --------- --------- ---------
Net loss $ (94,600) (34,300) $(309,100) $ (96,900)
========= ========= ========= =========
Net loss per
common share $ (.01) $ -- $ (.04) $ (.01)
========= ========= ========= =========
</TABLE>
F-22
<PAGE> 47
INTERNATIONAL REALTY GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
<S> <C>
ASSETS:
REAL ESTATE, AT COST:
PROPERTY HELD FOR FUTURE DEVELOPMENT $5,527,100
---------------
RECEIVABLES:
DUE FROM SHAREHOLDER 1,428,600
ACCOUNTS RECEIVABLE, LESS ALLOWANCE FOR DOUBTFUL COLLECTIONS OF $3,900
153,100
---------------
1,581,700
---------------
CASH AND CASH EQUIVALENTS 101,700
FURNITURE, EQUIPMENT, AND IMPROVEMENTS, NET 110,700
EXCESS OF COST OVER ESTIMATED FAIR VALUE OF
NET ASSETS ACQUIRED 90,700
OTHER ASSETS 46,200
---------------
349,300
---------------
TOTAL $7,458,100
===============
LIABILITIES:
MORTGAGES AND NOTES PAYABLE (NOTE 3) $ 912,900
ACCOUNTS PAYABLE 199,600
ACCRUED AND OTHER LIABILITIES 941,600
CONVERTIBLE NOTES (NOTE 4) 5,221,900
-----------------
7,276,000
-----------------
MINORITY INTEREST 1,208,700
-----------------
SHAREHOLDERS' EQUITY:
COMMON STOCK, $.001 PAR; AUTHORIZED 10,000,000
SHARES; 9,954,313 SHARES ISSUED 10,000
CAPITAL IN EXCESS OF PAR 1,139,000
ACCUMULATED OTHER COMPREHENSIVE LOSS (242,700)
ACCUMULATED DEFICIT (1,917,400)
-----------------
(1,011,100)
LESS SHARES OF COMMON STOCK HELD IN TREASURY,
AT COST 15,500
-----------------
(1,026,600)
TOTAL $ 7,458,100
=================
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
F-23
<PAGE> 48
INTERNATIONAL REALTY GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1998
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30
------------------------------ -----------------------------
1997 1998 1997 1998
-------------- --------------- -------------- --------------
<S> <C> <C> <C> <C>
REVENUES:
REVENUES FROM SERVICES PROVIDED $ 179,700 $239,400 $579,000 $634,800
-------------- --------------- -------------- --------------
OPERATING EXPENSES:
AMORTIZATION AND DEPRECIATION 13,900 15,300 41,800 43,300
DIRECT 109,100 123,300 334,000 330,300
PAYROLL AND RELATED BENEFITS 52,200 60,800 150,300 158,500
SELLING, GENERAL & ADMINISTRATIVE 39,700 74,200 113,800 177,200
-------------- --------------- -------------- --------------
214,900 273,600 639,900 709,300
-------------- --------------- -------------- --------------
LOSS BEFORE OTHER INCOME (EXPENSE),
MINORITY INTEREST & PROVISION FOR INCOME TAXES
(BENEFIT) (35,200) (34,200) (60,900) (74,500)
OTHER INCOME (EXPENSE)
INTEREST INCOME 100 100 600 300
INTEREST EXPENSE (90,500) (88,300) (277,600) (274,100)
REAL ESTATE OPERATING EXPENSES -- (25,800) -- (123,500)
GAIN (LOSSES) ON EXCHANGE RATE FLUCTUATIONS 10,800 (47,700) 1,200 (98,500)
OTHER INCOME (EXPENSES) 5,100 -- 7,300 18,400
-------------- --------------- -------------- --------------
LOSS BEFORE MINORITY INTEREST &
PROVISION FOR INCOME TAXES (BENEFIT) (109,700) 12,000 (329,400) (551,900)
MINORITY INTEREST IN INCOME (LOSS) OF SUBSIDIARIES (1,800) 36,700 15,000 96,500
-------------- --------------- -------------- --------------
LOSS BEFORE PROVISION FOR INCOME TAXES (111,500) (147,200) (314,400) (455,400)
PROVISION FOR INCOME TAXES -- -- -- --
NET LOSS (111,500) (147,200) (314,400) (455,400)
-------------- --------------- -------------- --------------
OTHER COMPREHENSIVE INCOME (LOSS) BEFORE TAX
FOREIGN CURRENCY TRANSLATION ADJUSTMENTS (6,300) 600 (3,500) (8,400)
INCOME TAX EXPENSE (BENEFIT) RELATED TO OTHER -- -- -- --
COMPREHENSIVE INCOME
-------------- --------------- -------------- --------------
OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX (6,300) 600 (3,500) (8,400)
-------------- --------------- -------------- --------------
COMPREHENSIVE LOSS $(117,800) $ (146,600) $ (317,900) $(463,800)
============== =============== ============== ==============
LOSS PER COMMON SHARE $ (0.01) $ (0.02) $ (0.01) $ (0.05)
============== =============== ============== ==============
WEIGHTED AVERAGE SHARES OF COMMON STOCK 9,954,187 9,954,313 9,954,187 9,954,313
============== =============== ============== ==============
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
F-24
<PAGE> 49
INTERNATIONAL REALTY GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 1998 AND SEPTEMBER 30, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended
September 30
------------------------------------
1998 1997
--------------- ----------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
SOURCES OF CASH:
CLIENTS AND OTHER $ 614,900 $ 776,500
INTEREST 300 600
---------------- ----------------
615,200 777,100
---------------- ----------------
USES OF CASH:
CASH PAID TO:
DIRECT COSTS 330,900 508,600
OPERATING 137,200 113,200
PAYROLL AND RELATED BENEFITS 158,500 150,300
TAXES 600
INTEREST 11,100 1,500
---------------- ----------------
637,700 774,200
---------------- ----------------
CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES (22,500) 2,900
---------------- ----------------
CASH (USED IN) INVESTING ACTIVITIES:
USES OF CASH:
ACQUISITION OF EQUIPMENT (6,700) (3,000)
---------------- ----------------
CASH FLOWS FROM FINANCING ACTIVITIES:
SOURCES OF CASH:
DUE FROM SHAREHOLDER 45,000 100,000
USES OF CASH:
PAYMENT OF:
NOTES PAYABLE -- 61,700
SHAREHOLDER LOANS 14,600 --
---------------- ----------------
CASH PROVIDED BY FINANCING ACTIVITIES 30,400 38,300
---------------- ----------------
EFFECT OF EXCHANGE RATES ON CASH AND
CASH EQUIVALENTS (6,700) (4,600)
---------------- ----------------
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (5,500) 33,600
CASH AND EQUIVALENTS, BEGINNING 107,200 7,600
---------------- ----------------
CASH AND EQUIVALENTS, ENDING $ 101,700 $ 41,200
================ ================
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
F-25
<PAGE> 50
INTERNATIONAL REALTY GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS (CONTINUED)
NINE MONTHS ENDED SEPTEMBER 30, 1998 AND SEPTEMBER 30, 1997
(UNAUDITED)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
RECONCILIATION OF NET LOSS TO CASH FLOWS
PROVIDED BY (USED IN) OPERATING ACTIVITIES:
NET LOSS $ (455,400) $ (314,400)
ADJUSTMENTS TO RECONCILE NET LOSS TO
CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES:
AMORTIZATION AND DEPRECIATION 44,200 41,800
AMORTIZATION OF NOTE PAYABLE DISCOUNT -- 23,000
MINORITY INTEREST (96,500) (15,000)
CURRENCY FLUCTUATION 97,600 (1,200)
CHANGES IN ASSETS & LIABILITIES:
ACCOUNTS RECEIVABLE (38,300) 190,200
OTHER ASSETS 59,700 (99,600)
DUE FROM SHAREHOLDER 191,300 --
ACCOUNTS PAYABLE: (30,500) (130,600)
ACCRUED LIABILITIES 14,300 126,900
ACCRUED CONVERTIBLE NOTE INTEREST 191,100 181,800
-------------- --------------
TOTAL ADJUSTMENTS 432,900 317,300
-------------- --------------
CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES $ (22,500) $ 2,900
============== ==============
SCHEDULE OF NON-CASH OPERATING ACTIVITIES:
REDUCTION OF RECEIVABLE DUE FROM SHAREHOLDER $595,100 $ 182,400
CURRENCY FLUCTUATION AND EXPENSES PAID BY SHAREHOLDER (550,100) (82,400)
============== ==============
CASH RECEIVED $ 45,000 $ 100,000
============== ==============
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
F-26
<PAGE> 51
INTERNATIONAL REALTY GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998
(UNAUDITED)
(1) PRINCIPLES OF STATEMENT PRESENTATION
The unaudited consolidated financial statements include all adjustments which
are necessary, in the opinion of management, to fairly reflect the Company's
financial position and results of operations. All such adjustments are of a
normal recurring nature. The statements have been prepared using the accounting
policies described in the Company's 1997 Audited Financial Statements contained
in the Company's Form 10-KSB for the year ended December 31, 1997.
(2) TRANSACTION WITH DSC AND HEMISPHERE
Pursuant to an Amended and Restated Agreement dated August 19, 1996, the Company
consummated a transaction ("Transaction") on such date with DSC, S.A. de C.V.
("DSC") and Hemisphere Development Limited ("Hemisphere"). In the Transaction,
the Company acquired the majority interest in five (5) parcels of land amounting
to approximately 3,745 acres in Mexico, other assets and assumed liabilities of
DSC and Hemisphere in exchange for 1,000,000 shares of common stock with a fair
value of $.0445 per share and convertible notes ("Notes") with a face value of
$4,700,900 (see Footnote 4 herein). The estimated fair value of the assets
acquired and liabilities assumed is as follows:
<TABLE>
<CAPTION>
<S> <C>
Assets acquired:
Land $5,014,200
Receivable due from DSC 2,110,500
Cash 317,800
Other Assets 33,000
----------
7,475,500
----------
Liabilities assumed, including minority interest:
Mortgages 1,094,100
Accounts payable and accrued liabilities 323,300
Minority interest in net assets 1,312,700
-----------
2,730,100
----------
Total assets acquired less liabilities assumed $4,745,400
==========
</TABLE>
The assets and liabilities have been recorded at a net asset value of $4,745,400
which is the estimated fair value of the Notes and common stock issued at the
date of the Transaction. Receivable due from DSC, cash and other assets were
recorded at their stated amounts. LIabilities were recorded at their present
value. Minority interest represents the portion of undivided net assets not
acquired.
The acquisition price of the land and other assets less the liabilities assumed
in the Transaction was determined based upon the estimated fair value of the
common stock (using a restricted share value of $0.0445 per share) at the date
of the Transaction. Since the common stock of the Company was not actively
traded as of the date of the Transaction, the Company had a valuation performed
by an independent firm. The valuation firm specializes in business and financial
valuation. The firm determined a fair market value on a minority interest basis.
The valuation concluded that the fair market values per share of the common
equity of International Realty Group on a minority interest basis as of August
19, 1996, immediately before the Transaction were as follows:
F-27
<PAGE> 52
INTERNATIONAL REALTY GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1998
(UNAUDITED)
Unrestricted shares $0.0607
Restricted shares $0.0445
After the Transaction, the fair market values were
Unrestricted shares $0.0617
Restricted shares $0.0480
The Post Transaction fair market values include the assets and liabilities
assumed, which for valuation purposes are based on the amounts recorded in the
accompanying consolidated financial statements. The valuation report does not
take into consideration any effect on value resulting from future development or
future operating contributions of the assets acquired in the Transaction.
(3) MORTGAGE AND NOTES PAYABLE
Mortgages and Notes Payable at September 30, 1998 is summarized as follows:
Mortgage Note, bank $362,800
Note Payable, bank 494,700
--------
Total Payable to banks 857,500
Note Payable, unsecured 38,000
Note Payable, related party 17,400
--------
$912,900
========
(4) CONVERTIBLE NOTE
Convertible notes ("Notes") with a face value of $4,700,900 convertible into
105,638,300 of Common Stock, accrue interest at 5% per year and mature on
February 1, 1999. Accrued interest as of September 30, 1998 is $521,000. The
following pro forma information is provided to reflect the effect of the
conversion on shareholders' equity as if it had occurred on September 30, 1998.
<TABLE>
<CAPTION>
Historical Pro Forma
SHAREHOLDERS' EQUITY: September 30, Pro Forma September 30,
1998 Adjustment 1998
------------- ------------ ------------
<S> <C> <C> <C>
COMMON STOCK, $.001 PAR; AUTHORIZED
10,000,000 SHARES; 9,954,313 SHARES ISSUED $ 10,000 $ 105,600 $ 115,600
CAPITAL IN EXCESS OF PAR 1,139,000 4,595,300 5,734,300
ACCUMULATED OTHER COMPREHENSIVE LOSS (242,700) -- (242,600)
ACCUMULATED DEFICIT (1,917,400) -- (1,917,400)
----------- ---------- -----------
(1,011,100) 4,700,900 3,689,800
LESS SHARES OF COMMON STOCK HELD IN
TREASURY, AT COST 15,500 -- 15,500
----------- ---------- -----------
$(1,026,600) $ 4,700,900 $ 3,674,300
============ =========== ===========
</TABLE>
F-28
<PAGE> 53
APPENDIX A
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.
A-1
<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;
A-2
<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
A-3
<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.
A-4
<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;
A-5
<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
A-6
<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
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<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
A-8
<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>
