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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File No. 0-20180
INTERNATIONAL REALTY GROUP, INC.
Delaware 62-1277260
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(State of incorporation) (I.R.S. Employer Identification Number)
111 Northwest 183rd Street, Suite 518
Miami, Florida, 33169
(305) 944-8811
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Securities registered under Section 12(b) of the Exchange Act: None.
Securities registered under Section 12(g) of the Exchange Act: Common Stock par value $.001.
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Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB [X].
Revenues for the most recent fiscal year were $ 794,240.
The aggregate market value of shares of the registrant's voting stock held by
non-affiliates as of December 31, 1998 is significantly below $25,000,000,
although the exact amount is unavailable since there was no active market for
the registrant's common stock. The aggregate number of shares of the
registrant's voting stock held by non-affiliates as of December 31, 1998 is
approximately 1,750,430.
As of March 1, 1999, there were 115,592,613 shares of the registrant's common
stock outstanding.
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TABLE OF CONTENTS
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PART I PAGE
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ITEM 1. Description of Business 2
ITEM 2. Description of Property 4
ITEM 3. Legal Proceedings 6
ITEM 4. Submission of Matters to a Vote of Security Holders 6
PART II
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ITEM 5. Market for Common Equity and Related Stockholder Matters 6
ITEM 6. Management's Discussion & Analysis 7
ITEM 7. Financial Statements 10
ITEM 8. Changes in and Disagreements with Accountants on Accounting 10
and Financial Disclosure
PART III
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ITEM 9. Directors and Executive Officers, Promoters and Control Persons; 10
ITEM 10. Executive Compensation 11
ITEM 11. Security Ownership of Certain Beneficial Owners and Management 11
ITEM 12. Certain Relationships and Related Transactions 12
ITEM 13. Exhibits and Reports on Form 8-K 14
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PART I:
ITEM 1: DESCRIPTION OF BUSINESS
International Realty Group, Inc. (the "Company") was incorporated in the State
of Delaware on April 13, 1970. Its principle offices are located at 111 NW 183
Street, Suite 518, Miami, Florida 33169. Its telephone number is (305) 944-8811.
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 92% and 8% respectively, of total
Company revenue in 1998. 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"), 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 and residential real estate,
machinery and equipment valuation services.
Appraisal and valuation services are performed by the Company on a domestic and
international level. 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.
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 are normally utilized for
financing and estate purposes. In addition, the company performs business
valuations, equipment and machinery valuations, and litigation support for its
clients.
Except for salaries of the Chief Executive Officer and administrative staff, the
staff of Appraisal Group International, Inc. consists of independent contractors
who accept assignments pursuant to negotiated fee arrangements. All appraisers
must be licensed and certified real estate appraisers, pursuant to applicable
law. In addition to the appraisers in the Miami office, the Company has
contracts with other licensed and certified independent contractors on a
national basis.
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PART I: CONTINUED.
ITEM 1: DESCRIPTION OF BUSINESS, CONTINUED.
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
licensed 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. AGII appraisers perform their
assignments in compliance with relevant provisions and regulations of both
boards noted above as well as the Uniform Standards of Professional Appraisal
Practice.
APPRAISAL GROUP INTERNATIONAL, RT.
Appraisal Group International, Rt. ("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. 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 Five" accounting firms; (ii) multi-office
appraisal firms; and (iii) small appraisal firms. A majority of the large
accounting firms have appraisal departments. The name recognition of these large
accounting firms provides such firms with a competitive advantage, however, the
Company believes that their relatively high fees for services allow market
penetration by firms such as the Company. All of the major accounting firms
possess substantially greater financial and other resources that the Company.
The most prominent United States multi-office appraisal firms are American
Appraisal Company, Marshal & Stevens, Joseph Blake & Associates, Cushman &
Wakefield and Valuation Consultants International Ltd. The majority of appraisal
firms employ one to five appraisers who are primarily involved in residential
appraisals, although many small firms do perform commercial appraisals. These
firms may have lower overhead than the Company, however, they may lack the
expertise to perform complex commercial appraisals and accept assignments on an
international basis as the Company does.
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PART I: CONTINUED.
ITEM 1: DESCRIPTION OF BUSINESS, CONTINUED.
EMPLOYEES
The Company currently employs four (4) administrative and 12 staff appraisers in
its domestic real estate consulting operations, and six (6) administrative and
staff appraisers in its foreign operations. In addition the domestic operation
retains 68 independent licensed appraisers to perform professional services in
their local market regularly and on an ad-hoc basis.
LAND DEVELOPMENT
Pursuant to the Company's transaction with DSC and Hemisphere (the
"Transaction"), the Company acquired interests in five parcels of vacant or
partially developed land, totaling 3,745 acres, located in Mexico. See "Item
12--Certain Relationships 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. The Company undertook preliminary steps to develop these properties
during the current year. Any significant additional development of these
properties is contingent upon the Company obtaining necessary financing and a
review of the applicable market conditions of the time of financing. Potential
sources of financing include mortgage financing from financial institutions
located in the United States or Mexico, or the issuance of equity securities of
the Company. The Company has no present understanding, agreement or commitment
for financing any such property and there can be no assurance that financing
will be available to the Company on commercially reasonable terms or at all.
EMPLOYEES
The Company currently employs one (1) executive, an administrative assistant,
secretary, and retains a financial consultant and engineering consultant for the
Company's land development activities in Mexico.
ITEM 2: DESCRIPTION OF PROPERTY
The Company, and its subsidiaries, currently are subject to one (1) lease for
office facilities and owns seven (7) properties.
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. The lease expires in November 1999 with monthly lease payments of
approximately $2,400 per month.
The Company's' real estate properties include:
Clusters Inmobiliaria de Ixtapa, S.A. de C.V. ("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, Mexico. The Company has a 75%
interest in Clusters Ixtapa. The 26-acre partially developed property is 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. The preliminary site work has been
completed and the property is being held for future development. Although the
Company presently has no understandings or agreements with respect to the
development of the
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PART I: CONTINUED.
ITEM 2: DESCRIPTION OF PROPERTY, CONTINUED.
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.
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 in the approximately amount of
$507,000 as of December 31, 1998.
Caye Bokel, Limited ("Caye Bokel"), a wholly-owned subsidiary of the Company,
formed under the laws of Belize, on January 27, 1995, owns an 87-acre property
on the Island of Caye Bokel, country of Belize, which is being held for future
development and is not subject to a mortgage.
Nueva Tierra, a wholly-owned indirect subsidiary of the Company, formed under
the laws of Mexico on October 6, 1995, is the General Partner of the following
Participating Associations, a form of limited partnership/joint venture in
Mexico.
Hacienda del Franco, a Participating Association formed under the laws of Mexico
on January 10, 1996, owns a residential development project located near Silao
in the State of Guanajuato, in which Nueva Tierra has an 81.13 percent interest.
The property consists of approximately 236 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 not subject to a
mortgage,
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 presently being held by the Company for future development,
is partially developed and presently has a clubhouse, roads and utility lines to
the property boundary. Preliminary development plans call for development of 180
home sites for sale to builders or individuals who wish to construct weekend
country houses. This property is not subject to a mortgage.
Bahia de Cortes, a Participating Association formed under the laws of Mexico on
February 7, 1996, owns a resort development project located in Baja California
near La Paz, in which Nueva Tierra has a 77.89 percent interest. The property,
which is being held for future development, consists of approximately 3,451
acres of land including over five kilometers of beachfront property. The
property is not subject to a mortgage.
Two (2) developed vacant lots totaling 1 acre located in Clear Lake Pines, La
Grange, Texas, a second-home recreational development. The property has no
mortgage or encumbrances.
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PART I: CONTINUED.
ITEM 2: DESCRIPTION OF PROPERTY, CONTINUED.
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 the United
States, 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.
ITEM 3: 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.
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company distributed an information statement to its shareholders during the
fourth quarter of 1998 in connection with the approval by shareholder written
consent of an amendment to the Company's Certificate of Incorporation to
increase the authorized shares of Common Stock from 10,000,000 to 450,000,000.
Shareholders representing 5,413,000 shares of Common Stock (54% of the
outstanding Common Stock) approved the foregoing amendment by written consent on
or about December 17, 1998. For additional information regarding this action,
see "Item 12--Certain Relationships and Related Transactions."
PART II
ITEM 5: MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
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, 1998, there was
one sale, for 125 shares at $.001 per share, reported by the OTC Bulletin Board.
Since January 1, 1997, the low and high bid of the Common Stock has been $.03125
and the low and high ask has been $1.00.
The Company has not declared any cash dividends during 1998. As of December 31,
1998, there were 894 holders of record of Common Stock, with 9,954,313 shares
issued and outstanding. Such number of shares of Common Stock does not include
105,638,300 shares which were issued, upon conversion of the DSC and Hemisphere
Notes, after the Company increased its authorized shares of Common Stock on
January 7, 1999. See Item 12 "Certain Relationships and Related Transactions".
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PART II: CONTINUED.
ITEM 5: MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS: CONTINUED
ITEM 6: MANAGEMENT'S DISCUSSION & ANALYSIS
The following discussion and analysis covers any material changes in
financial condition since December 31, 1997 and any material changes in the
results of operations for the 12 months ended December 31 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:
Real Estate Consulting Services: Revenue derived from consulting services in
1998 increased slightly to $794,200 from $792,800 in 1997. Revenue from foreign
operations decreased to $62,800 in 1998 from $86,300 in 1997. Revenues from
domestic operations increased to $731,400 in 1998 from $706,500 in 1997.
Domestic revenues, derived primarily from appraisal services, are benefiting
from continued low interest rates for residential and commercial financing. AGII
performed in 1998 over 2,600 single-family and review appraisals compared to
2,100 in 1997 for over 150 local and national clients. During the same period,
AGII performed over 130 commercial assignments, compared to 106 in 1997.
Operating expenses for consulting services in 1998 decreased from $750,300 in
1997 to $728,800 in 1998. Of such operating expenses, selling, general and
overhead expenses for the year 1998 were $307,700 versus $214,900 for 1997.
Direct expenses including the production of appraisal reports, appraisers' fees,
travel, reproduction, photography and all related expense decreased from
$535,400 in 1997 to $421,100 in 1998.
General and Administrative Corporate Expenses, including salaries, audit, legal
and related expenses increased to $158,900 in 1998 from $115,400 in 1997. The
increase in such expenses is attributed to professional fees and expenses
related to the Transaction.
OTHER INCOME AND EXPENSES: The majority of interest expense ($256,300 of the
$338,800 for the year 1998 and $243,900 of the $379,300 in 1997) is attributable
to the Convertible Notes issued in conjunction with the Transaction at closing.
The balance, $135,400 in 1997 and $82,500 in 1998, is attributable to mortgage
and other short-term interest expense for the Company's properties in Mexico and
domestic and foreign operations. Losses for exchange rate fluctuations of
$64,900 in 1998, and $19,600 in 1997, are attributable to Mexican operations.
As a result of the above, the Company had a consolidated net loss of $604,800 in
1998 compared to a loss of $465,500 for the comparable 1997 period. The majority
of such loss during the current and comparable period is attributable to accrued
interest expense of $256,300. in 1998 and $243,900 in 1997. Domestic operations
performed by AGII had an operating profit during 1998 of $92,000 compared to an
operating profit of $82,000 for the comparable period in 1997. Foreign
operations performed by AGI RT had a net operating loss of $39,500 during 1997
and $26,600 in 1998.
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PART II: CONTINUED.
ITEM 6: MANAGEMENT'S DISCUSSION AND ANALYSIS, CONTINUED.
LIQUIDITY AND CAPITAL RESOURCES:
Cash Flow from Operations. The Company incurred for year-end December 31, 1998 a
net loss of $604,800 with a positive cash flow from operating activities of
$58,900 compared to a net loss of $463,900 with a deficit cash flow from
operating activities of $121,100 in 1997. Cash flows from investing activities,
including sale of securities, provided $157,100 in 1997 compared to cash (used
in) investing activities of ($29,500) in 1998. Cash flow provided by financing
activities, including capital contributions and receipt of shareholder
receivables, provided $75,800 in 1997 compared to cash (used in) financing
activities, including payments of long-term debt and shareholders loans, of
($72,300) in 1998. The net effect of exchange rate fluctuation was $34,400 in
1998 compared to ($12,200) in 1997.
Liabilities and Long-term Debt. At December 31, 1998, the Company's liabilities
totaled $6,820,500. Of this amount, the convertible note and accrued interest
totaled $5,287,200. Such amount was converted to common stock as of January 8,
1999. A mortgage on one of the Mexican properties in the amount of $587,200 was
paid during the current period, through a capital contribution by a shareholder.
Of mortgages and Notes Payable $506,800 is due to Mexican financial
institutions, and $35,500 is attributable to domestic operations. The Company,
at period end, has a balance of $1,463,000 in accounts receivable from
shareholder. The Company is utilizing such receivables for operating expenses
and future capital requirements. See "Land Development" and "Note 5" of the
Financial Statements, contained herein.
Land Development. The Company acquired control of five properties located in
Mexico in the Transaction with DSC and Hemisphere. See "Item 12--Certain
Relationships and Related Transactions." The Company believes that each of the
Mexican properties is suitable for future development as either a resort,
residential or commercial property. These properties secured the Company's
obligations under the Notes issued to DSC and Hemisphere in the Transaction. As
a result of this lien on the property, only preliminary engineering and site
planning and related development stage activities were taken with respect to
these properties prior to the conversion and cancellation of the Notes on
January 9, 1999. Such activities were primarily funded through DSC and the
reduction of its note payable to the Company. See Note 5 to the Company's
Consolidated Financial Statements contained elsewhere herein. The Company is
currently formulating its plans with respect to these properties, and has
preliminarily identified the properties in Ixtapa and La Paz as the first
candidates for development. No comprehensive or definitive plan has been
determined at this time. Any development of these or the other Mexican
properties 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
debt or equity securities of the Company. The Company has no present
understanding, agreement or commitment for financing any such properties and
there can be no assurance that financing will be available to the Company on
commercially reasonable terms or at all. If the Company is unable to obtain
financing necessary to develop these properties, the Company may be required to
sell one or more of these properties. Regardless of the availability of
financing, the Company may sell one or more of these properties if the terms are
favorable to the Company.
Expenses for land development activity during 1998, funded through the Company's
accounts receivable from shareholders in Mexico, were $150,700 for salaries,
engineering, and financial consulting services for the Company's five
properties.
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PART II: CONTINUED.
ITEM 6: MANAGEMENT'S DISCUSSION AND ANALYSIS, CONTINUED.
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 $264,739 over an
eight-year period) for its foreign operations, recognized as a component of
shareholder's 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. During 1998, the Company considered
Mexico to operate in a highly inflationary economy. The Company has not engaged
in the purchase of forward contracts, or other hedging techniques, to manage
such foreign exchange risk to protect against earnings and cash flow volatility
resulting from changes in foreign exchange rates.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
In connection with the safe harbor provisions of the Private Securities
Litigation Reform Act of 1995 (the "Reform Act"), the Company is hereby
providing cautionary statements identifying important factors that could cause
the Company's actual results to differ materially from those projected in
forward-looking statements (as such term is defined in the Reform Act) made by
or on behalf of the Company herein or orally, whether in presentations, in
response to questions or otherwise. Any statements that express, or involve
discussions as to expectations, beliefs, plans, objectives, assumptions or
future events or performance (often, but not always, through the use of words or
phrases such as "will result", "are expected to", "will continue", "is
anticipated", "estimated", "projection" and "outlook") are not historical facts
and may be forward-looking and, accordingly, such statements involve estimates,
assumptions, and uncertainties which could cause actual results to differ
materially from those expressed in the forward-looking statements. Such
uncertainties include, among other, the following: (i) the Company's ability to
obtain additional financing to implement its business strategy; (ii) real estate
investment risks, including the potential for increases in real property taxes;
(iii) real estate development risks, including obtaining building permits or
necessary zoning changes, construction delays strikes, adverse weather
conditions and other conditions beyond the control of the Company; (iv)
illiquidity of real estate investments; (v) the financial condition of the
Company's clients; (vi) imposition of new regulatory requirements affecting the
Company; (vii) a downturn in general or local economic conditions where the
Company owns real property; (viii) the delay or failure to properly manage
growth and successfully integrate acquired companies and operations; (ix) lack
of geographic diversification; (x) effect of uninsured loss and (ix) other
factors which are described in further detail in the Company's filings with the
Securities and Exchange Commission, including the Company's definitive
Information Statement dated December 17, 1998.
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.
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PART II: CONTINUED.
ITEM 6: CONTINUED
Year 2000 Compliance:
The Year 2000 issue is the result of computer programs being written using two
(2) digits rather than the four (4) digits to define the year. Any of the
Company's computer programs that have date-sensitive software may recognize a
date using "00" as the year 1900 rather than 2000. This problem could force
computers to either shut down or provide incorrect data or information. The
Company utilizes generic software programs developed, maintained and upgraded by
independent computer software providers. In response to the Year 2000 issue,
management is of the opinion that the providers of these software programs will
resolve the date sensitive issue so that all critical systems will be in
compliance prior to the Year 2000. The Company does not anticipate any material
adverse impact on its business.
ITEM 7: FINANCIAL STATEMENTS
The Consolidated Financial Statements of the Company and Notes thereto are
contained elsewhere herein.
ITEM 8: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE. As previously reported by the Company in its Form 8-K
filed with the Commission on March 22, 1999, the Company changed accountants
from Hixson, Marin, Powell & DeSanctis, P.A. to Tubbs & Bartnick, P. A.
effective March 15, 1999. Hixson, Marin, Powell & DeSanctis, P.A. declined to
stand for re-election as the Company" accountants. The financial statements were
not subject to an adverse, qualified or disclaimer of opinion during the past
two fiscal years or any interim period through March 15, 1999. The decision to
change accountants was approved by the Company" board of directors. There were
no disagreements related to accounting principles or practices, financial
statement disclosure, or audit scope or procedure during the past two fiscal
years or any interim period through March 15, 1999. On March 15, 1999, the
Company engaged Tubbs & Bartnick, P.A. as their independent accountants. The
Company did not consult with its new independent accountant regarding any
matters prior to their engagement. On April 15, 1999, the Company received from
the former accountant a letter addressed to the Commission stating their
agreement with the foregoing.
PART III.
ITEM 9: DIRECTORS AND EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT.
Executive Officers of the Company
The executive officers of the Company are:
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Name Age Position Held with the Company Date of Service
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Bernardo Dominguez 38 Chairman of the Board of Directors 1996
Richard Bradbury 55 Director, President & Chief Financial Officer 1993
Pablo Macedo 68 Secretary 1996
Alton Hollis 72 Director 1986
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There are no family relationships among any of the executive officers of the
Company. There have been no events under bankruptcy or insolvency laws, no
criminal proceedings and no judgments or injunctions material to the evaluation
of the ability and integrity of any executive officer during the past five
years.
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PART III. CONTINUED
ITEM 9: CONTINUED
The following information is provided for Messrs. Dominguez, Bradbury, Hollis
and Macedo
Bernardo Dominguez, Chairman of the Board of the Company, has been with
the Company since August 1996, when the Company completed the Transaction with
DSC, a company with interests in resort hotels, travel agencies real estate
development, and construction-related activities in Mexico, the Caribbean and
South America. Mr. Dominguez has been President and Chief Executive Officer of
DSC since 1986 to present. See "Certain Relationships and Related Transactions".
Richard M. Bradbury has been a Director, President and Chief Financial
Officer of the Company since March 1993. Since August 1996, Mr. Bradbury assumed
the responsibility as Chief Executive Officer. From 1987 to 1993, Mr. Bradbury
served as Executive Vice President of J.S. Karlton Company, New York, where he
was responsible for portfolio and financial management of the firm's office,
industrial, apartment and retail real estate holdings.
General Alton Hollis (USAF Retired), has been a Director of the Company
since 1986. Since his retirement from Military Service in 1981, General Hollis
has served as President of Hollis Appraisal Services, a real estate brokerage
and appraisal firm in Atlanta, Georgia.
Pablo Macedo, Secretary of the Company, has been with the Company since
August 1996, when the Company completed the Transaction with DSC. Mr. Macedo has
been Corporate Vice Chairman of DSC from 1992 to present. From 1984 to 1992, he
was Chief Executive Officer of Promociones Turisticas Banamex, S.A. de C.V.
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
directors, executive officers and persons who own more than 10% of a registered
class of the Company's equity securities to file with the Securities and
Exchange Commission (the "SEC") initial reports of ownership and reports of
changes in ownership in the Company's common stock and other equity securities
of the Company. Executive officers, directors and persons who own more than 10%
of a registered class of the Company's equity securities are required by the SEC
regulation to furnish the Company with copies of all Section 16(a) forms they
file with the SEC.
To the Company's knowledge, based solely on a review of the copies of such
reports furnished to the Company and representations that no other reports were
required, all executive officers, directors and persons who own more than 10% of
the Company's Common Stock complied with the 16(a) filing requirements in 1998.
ITEM 10: EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table provides information concerning the compensation paid to
persons who served as the Company's chief executive officer during the 1998
fiscal year and other executive officers of the Company who received salary and
bonus in excess of $100,000 for the 1997 fiscal year.
11
<PAGE> 13
PART III. CONTINUED
ITEM 10: CONTINUED
<TABLE>
<CAPTION>
NAME/POSITION YEAR SALARY BONUS OTHER RESTRICTED STOCK OPTIONS LTIP ALL
ANNUAL STOCK OTHER
COMP AWARDS PAYOUTS COMP
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Richard Bradbury 1998 100,000(1) 0 0 0 2,000,000 0 0
-----------------------------------------------------------------------------------------------
1997 100,000(2) 0 0 0 0 0 0
-----------------------------------------------------------------------------------------------
1996 100,000(3) 0 0 2,500 0 0 0
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
NOTES:
(1) Includes accrued and deferred salary of $44,750.
(2) Includes accrued and deferred salary of $75,500.
(3) Includes accrued and deferred salary of $93,250.
Option/SAR Grants in Last Fiscal Year
Individual Grants
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
Name Number of Securities % of total Options/SARs Exercise or Base Expiration
Underlying Options/SARs Granted to Employees in Price ($/Sh) Date
Granted (1) Fiscal Year
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Richard M. Bradbury 2,000,000 100% $ .135 12/31/02
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
DIRECTOR COMPENSATION: Members of the Board of Directors are entitled to receive
500 Shares of Common Stock for each meeting attended. During 1998, no shares of
Common Stock were issued for such service.
EMPLOYMENT AGREEMENTS: In December 1998, the Company entered into a 3-year
employment agreement with its president. The agreement calls for a base salary
of $102,000 per year. In addition, the agreement grants this employee an option
to purchase 2,000,000 shares of the Company's common stock at an exercise price
of $.135 per share. The option may be exercised at any time during the term of
the employment agreement.
ITEM 11: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the beneficial ownership of the Common Stock (as
of December 31, 1998 and March 31, 1999 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 of Beneficial Owner December 31, 1998 March 31, 1999
- ---------------------------------------------------------------------------------------------------------------------
Percentage Percentage
---------- ----------
Amount Of Class Amount Of Class
------ -------- ------ --------
<S> <C> <C> <C> <C>
Jack Birnholz (2) 4,160,000 41.8% 4,160,000 3.6%
Richard M. Bradbury (2) 1,253,000 12.6% 1,253,000 1.1%
Alton Hollis (2) 11,500 * 11,500 *
DSC S.A. de C.V. (3) 485,930 4.8% 53,036,148 45.9%
Bernardo Dominguez Moreno (3) 485,930 4.8% 53,036,148 45.9%
Bernardo Dominguez Cereceres (3) 485,930 4.8% 53,036,148 45.9%
Jorge Lopez Nunez (3) 485,930 4.8% 53,036,148 45.9%
Pablo Macedo (3) 0 0
Hemisphere Developments Limited (4) 514,070 5.2% 53,277,340 46.1%
Monique Roggero-Ciana (4) 514,070 5.2% 53,277,340 46.1%
All Officers and Directors as a Group (3 persons) 1,750,430 17.5% 54,300,648 47.0%
</TABLE>
* Represents less than one percent of class
(1) As of the date of this Form 10KSB, there are 115,592,613 shares of the
Company's Common Stock issued and outstanding. On December 31, 1998, there were
9,954,318 shares of Common stock issued and outstanding.
(2) Such person's address is c/o
International Realty Group, Inc., 111 NW 183 Street, Suite 518, Miami, Florida
33169
(3) Such person's address is c/o DSC, Constituyentes No.647, Col.16 de
Septiembre, Mexico D.F.11810
(4) Such person's address is c/o Hemisphere,
Atlantic House, 4-8 Circular Road, Douglas, Isle of Man
12
<PAGE> 14
PART III: CONTINUED
ITEM 12: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
There were no related party transactions between any officer or director which
involved the Company or any of its subsidiaries during 1998 and 1997, except the
following:
The Company consummated a transaction ("Transaction") with DSC, S.A. de C.V.
("DSC") and Hemisphere Developments Limited ("Hemisphere") on August 19, 1996
(the "Closing Date"). Pursuant to the terms of the Amended and Restated
Agreement between the parties as of August 19, 1996, the Company acquired
$300,000 in working capital, and the following assets from DSC and Hemisphere as
of 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
Participacion ("Participating Associations"), a form of limited partnership in
Mexico: (x) Villas Del Carbon; (y) Hacienda del Franco; and (z) Bahia de Cortes.
The assets acquired by the Company are collectively referred to herein as the
"Assets". For additional information regarding the Assets, see "Item
2--Description of Properties".
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
Financial Statements contained herein. The Common Stock is not actively traded.
See "Item 5, Market for Common Equity and Related Stockholder Matters."
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. 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, at $0.0445 per share or $21,600
and a 5% 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, at
$0.0445 per share or $22,900, and a 5% 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") were, by mutual agreement of the parties, reduced
from previously stated principal amounts of $4,858,828 and $4,848,558
respectively.
On January 8, 1999, the Notes were converted into an aggregate of 105,638,300
shares of Common Stock in accordance with the terms of the Notes. Such shares of
Common Stock are entitled to certain demand and piggyback registration rights
13
<PAGE> 15
PART III. CONTINUED
ITEM 12: CONTINUED.
In connection with the conversion of the Notes, the Company, on December 16,
1998, sent to all shareholders, an Information Statement, advising of the
Board's approval and the vote of a majority of the shareholders to amend the
Company's Certificate of Incorporation and increase the number of Common Stock
from 10,000,000 to 450,000,000. After the required 20-day notification period to
shareholders, the Company, on January 7, 1999, amended its Certificate of
Incorporation with the State of Delaware, and, promptly thereafter, converted
the Notes.
A change in control of the Company occurred through the conversion of the DSC
and Hemisphere Notes. DSC owns approximately 53,036,148 shares of Common Stock
or 45.9 percent of the outstanding shares of Common Stock, and Hemisphere owns
approximately 53,277,340 shares of Common Stock or 46.1 percent of the
outstanding Common Stock. As a result, DSC and Hemisphere are in a position to
determine the outcome for the election of directors and thereby control the
Company.
In connection with the Transaction, the Company intends to increase the size of
its board from three to five directors, by either a meeting of the shareholders,
or written consent action. One of the five directors will be designated by
Hemisphere, one will be designated by the Company and the remainder will be
designated by DSC.
ITEM 13: EXHIBITS AND REPORTS ON FORM 8-K
<TABLE>
<CAPTION>
(A) 1. INDEX TO FINANCIAL STATEMENTS PAGE
----------------------------- ----
<S> <C> <C>
INTERNATIONAL REALTY GROUP - CONSOLIDATED FINANCIAL STATEMENTS
Independent auditors' report F-1
Consolidated balance sheet F-2
Consolidated statements of operations F-3
Consolidated statements of shareholders' equity F-4
Consolidated statements of cash flows F-5
Notes to consolidated financial statements F-7
</TABLE>
2. EXHIBITS
3.1 Articles of Incorporation of the Company, as filed with the
Secretary of State of the State of Delaware on April 13, 1970.
Incorporated herein by reference to Exhibit (b)1. to the
Company's May 5, 1992 Form 8.
3.2 The Bylaws of the Company, as filed with the Secretary of
State of the State of Delaware on April 13, 1970. Incorporated
herein by reference to Exhibit (b)1. to the Company's May 5,
1992 Form 8.
3.3 Agreement of Merger between Silverado Mining, Inc. and Bosco
Resources, Corp., dated April 15, 1970 as filed with the
Secretary of State of the State of Delaware on April 13, 1970.
Incorporated herein by reference to Exhibit (b)3. to the
Company's May 5, 1992 Form 8.
3.4 Articles of Amendment and Restatement of the Articles of
Incorporation of the Company, as filed with the Secretary of
State of the State of Delaware on December 15, 1986.
Incorporated herein by reference to Exhibit (b)5. to the
Company's May 5, 1992 Form 8.
14
<PAGE> 16
PART III. CONTINUED
ITEM 13: CONTINUED.
3.5 Articles of Amendment and Restatement of the Articles of
Incorporation of the Company, as filed with the Secretary of
State of the State of Delaware on August 10, 1989.
Incorporated herein by reference to Exhibit (b)6. to the
Company's May 5, 1992 Form 8.
10.1 Agreement of Acquisition between Bosco Resources, Inc. and
Appraisal Group, Inc. Incorporated herein by reference to
Exhibit (b)4. to the May 5, 1992 Form 8.
10.2 Employment Agreement, dated January 1, 1992 between Jack
Birnholz and the Company. Incorporated herein by reference to
Exhibit (b)7. to the May 5, 1992 Form 8.L
10.3 Employment Agreement, dated January 1, 1992 between M.
Goldstein and the Company. Incorporated herein by reference to
Exhibit (b)8. to the May 5, 1992 Form 8.L
10.4 Employment Agreement, dated March 1, 1993 and modified
December 31, 1994 between Richard M. Bradbury and the Company,
incorporated herein by reference to the exhibits in the 1994
Form 10-KSB, dated May 31, 1995.L
10.5 Employment Agreement, dated December 18, 1998 between Richard
M. Bradbury and the Company, incorporated herein by reference
to the exhibits in the 1998 Form 10-KSB, dated April 12,
1998.L
10.6 Amended and Restated Agreement, dated as of August 19, 1996,
between the Company, DSC S.A. de C.V. and Hemisphere
Developments, Limited, incorporated herein by reference to the
exhibit in the Company's Amendment No. 2 Current Report on
Form 8-K, as filed with the Commission on November 26, 1997.
10.7 Convertible Note, dated as of August 19, 1996, in favor of
DSC, S.A. de C.V., incorporated herein by reference to the
exhibit in the Company's Amendment No. 2 Current Report on
Form 8-K, as filed with the Commission on November 26, 1997.
10.8 Convertible Note, dated as of August 19, 1996, in favor of
Hemisphere Developments, Limited, incorporated herein by
reference to the exhibit in the Company's Amendment No. 2
Current Report on Form 8-K, as filed with the Commission on
November 26, 1997.
16.1 Letter, received by the Company on April 15, 1999, from
Hixson, Marin, Powell & DeSanctis, P.A. regarding change of
certifying accountant.
21.1 The following table sets forth, as of December 31, 1995 the
name of each subsidiary of the Company's percentage ownership
and each jurisdiction of incorporation of the subsidiary:
15
<PAGE> 17
PART III. CONTINUED
ITEM 13: CONTINUED.
<TABLE>
<CAPTION>
STATE OR COUNTRY
NAME OF SUBSIDIARY OWNERSHIP DATE OF INCORPORATION OF INCORPORATION
- ------------------ --------- --------------------- ----------------
<S> <C> <C> <C>
U.S. Companies:
- ---------------
The Appraisal Group, Inc. 100 August 21, 1974 Florida
U.S. Properties Investment & Auction, Inc. 100 March 31, 1987 Florida
Appraisal Group Int'l., Inc. 100 July 7, 1989 Florida
Stragix Int'l., Inc. 100 April 1, 1990 Florida
IRG Financial Services, Inc. 100 June 15, 1992 Florida
Foreign Companies
- -----------------
Centro de Promociones Guerrero S.A. de C.V. 100 March 13, 1989 Mexico
Appraisal Group Int'l., Rt. 75 June 6, 1990 Hungary
Cluster Inmobiliaria de Ixtapa, S.A. de C.V. 75 July 24, 1991 Mexico
Caye Bokel Limited 100 January 27, 1995 Belize
Newland Corp. 100 December 12, 1995 Marshall Islands
Nueva Tierra, S.A. de C.V. 30 October 6, 1995 Mexico
Hacienda del Franco, A.P. 81.13 January 10, 1996 Mexico
Villas del Carbon A.P. 79.08 January 19, 1996 Mexico
Bahia de Cortes A.P. 77.89 February 7, 1996 Mexico
</TABLE>
27.1 Financial Data Schedule (for SEC purposes only).
L denotes a management contract or compensatory plan or arrangement.
(B) REPORTS ON FORM 8-K
No reports on Form 8-K were filed during the last quarter of 1998.
<PAGE> 18
TUBBS & BARTNICK, P.A.
CERTIFIED PUBLIC ACCOUNTANTS
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Shareholders:
International Realty Group, Inc. and Subsidiaries
We have audited the consolidated balance sheet of International Realty Group,
Inc. and Subsidiaries as of December 31, 1998 and the related consolidated
statements of operations, stockholders' equity and cash flows for the year then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit 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 audit provides 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, 1998 , and the results of its
operations and its cash flows for the year then ended, in conformity with
generally accepted accounting principles.
/s/ Tubbs & Bartnick, P.A.
TUBBS & BARTNICK, P.A.
Certified Public Accountants
Boca Raton, Florida
April 12, 1999
2300 GLADES ROAD, SUITE 415E, BOCA RATON, FL 33431, TEL (561) 361-0330, FAX
(561) 368-7720 (MEMBER - AICPA DIVISION FOR CPA FIRMS)
<PAGE> 19
INDEPENDENT AUDITORS' REPORT
Board of Directors and Shareholders
International Realty Group, Inc. and Subsidiaries
North Miami Beach, Florida
We have audited the consolidated balance sheet of International Realty Group,
Inc. and Subsidiaries as of December 31, 1997, and the related consolidated
statements of operations, shareholders' deficiency and cash flows for the year
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 audit.
We conducted our audit 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 audit provides 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 the results of its
operations and its cash flows for the year 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
<PAGE> 20
INTERNATIONAL REALTY GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
AS OF DECEMBER 31, 1998
ASSETS
<TABLE>
<S> <C>
REAL ESTATE, AT COST
Property held for development or sale $ 5,527,113
-----------
ACCOUNTS RECEIVABLE
Due from shareholder 1,463,046
Accounts receivable 87,700
----------
Total accounts receivable 1,550,746
----------
CASH AND CASH EQUIVALENTS 98,737
----------
PROPERTY AND EQUIPMENT - NET 101,529
-----------
EXCESS OF COST OVER ESTIMATED FAIR VALUE
OF NET ASSETS ACQUIRED - NET 87,993
-----------
OTHER ASSETS 74,792
-----------
TOTAL ASSETS $ 7,440,910
===========
LIABILITIES AND STOCKHOLDERS' (DEFICIT)
LIABILITIES
Mortgage and note payable $ 542,317
Accounts payable and accrued expenses 396,160
Due to shareholders 594,771
Convertible notes with accrued interest 5,287,230
-----------
Total liabilities 6,820,478
-----------
MINORITY INTEREST 1,318,057
-----------
STOCKHOLDERS' EQUITY (DEFICIT)
Common stock, $.001 par value,
10,000,000 shares authorized, 9,954,313 shares
issued and outstanding 9,954
Additional paid in capital 1,639,468
Accumulated deficit (2,066,836)
Accumulated other comprehensive income:
Currency translation adjustment (264,739)
------------
(682,153)
Treasury stock, at cost (15,472)
------------
Total Stockholders' (Deficit) (697,625)
------------
TOTAL LIABILITIES AND STOCKHOLDERS' (DEFICIT) $ 7,440,910
===========
</TABLE>
Read the accompanying notes to the financial statements
F-2
<PAGE> 21
INTERNATIONAL REALTY GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
REVENUE
Revenue from services provided $ 794,240 $ 792,800
----------- -----------
OPERATING COSTS AND expenses
Operating expenses - services 728,777 750,300
Operating expenses - development 150,741 --
General and administrative expenses 158,972 115,400
Interest expense 338,833 379,300
Depreciation and amortization 54,734 57,000
----------- -----------
Total Operating Expenses 1,432,057 1,302,000
----------- -----------
(LOSS) FROM OPERATIONS (637,817) (509,200)
----------- -----------
OTHER INCOME (EXPENSE)
Exchange rate fluctuations (64,874) (19,600)
Other income -- 18,800
----------- -----------
Total other (expense) - net (64,874) (800)
----------- -----------
(LOSS) BEFORE MINORITY INTEREST AND
PROVISION FOR INCOME TAXES (702,691) (510,000)
MINORITY INTEREST 97,902 44,500
----------- -----------
(LOSS) BEFORE PROVISION FOR INCOME TAXES (604,789) (465,500)
PROVISION FOR INCOME TAXES (BENEFIT) -- (1,600)
----------- -----------
NET (LOSS) (604,789) (463,900)
OTHER COMPREHENSIVE INCOME:
FOREIGN CURRENCY TRANSLATION ADJUSTMENT (30,439) (17,400)
----------- -----------
COMPREHENSIVE (LOSS) $ (635,228) $ (481,300)
=========== ===========
PER SHARE INFORMATION
Weighted average common shares outstanding 9,954,313 9,954,313
=========== ===========
Basic loss per share $ (.06) $ (.05)
=========== ===========
</TABLE>
Read the accompanying notes to the financial statements
F-3
<PAGE> 22
INTERNATIONAL REALTY GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' (DEFICIT)
FOR THE TWO YEARS ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
Common Stock Currency Treasury Stock
----------------- Paid in Translation Accumulated ----------------
Shares Amount Capital Adjustment Deficit Shares Amount
------ ------ ------- ----------- ----------- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance - December 31, 1996 9,954,187 $9,954 $1,096,885 $(216,900) $ (998,147) 17,500 $(15,472)
Common shares issued 126
Capital contributions in foreign subsidiary 42,100
Effect of currency fluctuations on net
Assets of foreign subsidiary (17,400)
Net (loss) for the year (463,900)
---------- ------ ---------- --------- ----------- ------ --------
Balance - December 31, 1997 9,954,313 9,954 1,138,985 (234,300) (1,462,047) 17,500 (15,472)
Effect of currency fluctuations on net
Assets of foreign subsidiary (30,439)
Contribution to capital 500,483
Net (loss) for the year (604,789)
---------- ------ ---------- --------- ----------- ------ --------
BALANCE - DECEMBER 31, 1998 9,954,313 $9,954 $1,639,468 $(264,739) $(2,066,836) 17,500 $(15,472)
========== ====== ========== ========= =========== ====== ========
</TABLE>
Read the accompanying notes to the financial statements.
F-4
<PAGE> 23
INTERNATIONAL REALTY GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss) $(604,789) $(463,900)
Adjustments to reconcile net (loss)
to net cash provided by (used in)
operating activities:
Depreciation and amortization 54,734 57,000
Exchange rate fluctuations (64,874) (19,600)
Loss on disposal of equipment -- 1,100
Amortization of note discount 7,900 31,000
Minority interest in subsidiaries 11,757 (44,500)
Bad debt -- 25,400
Changes in assets and liabilities:
(Increase) decrease in:
Accounts receivable - shareholder 560,654 --
Accounts receivable 27,100 76,100
Other assets 31,108 (35,300)
Increase (decrease) in:
Accounts payable - shareholders 45,000 --
Accounts payable and accrued expenses (9,728) 251,600
--------- ---------
Net Cash Provided By (Used In) Operating Activities 58,862 (121,100)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from securities sale -- 163,400
Improvements to real estate (24,913) --
Purchases of property and equipment (4,556) (6,300)
--------- ---------
Net Cash Provided By (Used In) Investing Activities (29,469) 157,100
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Increase in shareholder loans 16,309 100,000
Capital contribution -- 42,100
Repayment of shareholder loans -- (9,700)
Principal payments on mortgage and note payable (88,600) (56,600)
--------- ---------
Net Cash Provided by (Used In) Financing Activities (72,291) 75,800
--------- ---------
EFFECT OF EXCHANGE RATES ON CASH 34,435 (12,200)
--------- ---------
NET (DECREASE) INCREASE IN CASH (8,463) 99,600
CASH - BEGINNING OF YEAR 107,200 7,600
--------- ---------
CASH - END OF YEAR $ 98,737 $ 107,200
========= =========
</TABLE>
Read the accompanying notes to the financial statements.
F-5
<PAGE> 24
INTERNATIONAL REALTY GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
(CONTINUED)
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
<TABLE>
<S> <C> <C>
Cash paid for:
Interest $ 18,400 $ 128,300
Income taxes $ -- $ --
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
Contribution to capital resulting from the retirement of
Debt by shareholders $ 500,483 $ --
</TABLE>
Read the accompanying notes to the financial statements
F-6
<PAGE> 25
INTERNATIONAL REALTY GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1998
NOTE 1 - ACCOUNTING POLICIES
A. Organization
International Realty Group, Inc. was 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 consulting services. This segment of the
Company's business operations currently accounts for substantially all of the
Company's revenue.
In addition, the Company holds land for development, primarily in Mexico. The
Company intends to develop the Mexican properties into various resort and
commercial developments and to market the developed properties. No development
of the Mexican properties will occur until after the conversion of the
convertible notes described in Note 7 occurs.
B. Consolidation policy
The accompanying consolidated financial statements include the accounts of the
Company and its subsidiaries. Intercompany transactions and balances have been
eliminated in consolidation.
C. Property and equipment
Property and equipment are stated at cost, less accumulated depreciation.
Depreciation is calculated using the straight line method over the expected
useful lives of the assets as follows:
<TABLE>
<S> <C>
Furniture and equipment 10 years
Library 3 years
Leasehold improvements Lesser of the useful life
of the asset or lease term
including renewal options
</TABLE>
D. Cash and cash equivalents
For purposes of the statement of cash flows, the Company considers all highly
liquid debt instruments purchased with a maturity of 3 months or less to be cash
equivalents.
E. Revenue recognition
Substantially all operating revenues are generated from real estate consulting
services. Service revenues are recognized when the services are performed.
F. Use of Estimates
The preparation of the Company's financial statements requires management to
make estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from these
estimates.
G. Fair value of financial instruments
Fair value estimates discussed herein are based upon certain market assumptions
and pertinent
F-7
<PAGE> 26
INTERNATIONAL REALTY GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1998
information available to management as of December 31, 1998. The respective
carrying value of certain on-balance-sheet financial instruments approximated
their fair values. These financial instruments include cash, accounts
receivable, accounts payable and accrued expenses. Fair values were assumed to
approximate carrying values for these financial instruments because they are
short term in nature and their carrying amounts approximate fair values or they
are receivable or payable on demand. The fair value of the Company's long-term
debt is estimated based upon the quoted market prices for the same or similar
issues or on the current rates available to the Company for debt of the same
remaining maturities.
H. 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 using the straight line method over the estimated useful life of 10
years. The balance is stated net of accumulated amortization of $87,993.
Amortization charged to operations was $17,607 in 1998 and 1997.
I. 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 or is impaired.
J. Real estate held for development or sale
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 are capitalized while the project is
under development. Improvements to the properties aggregated $24,913 in 1998.
K. Foreign currency translation
Local currency is the functional currency for the Company's foreign
subsidiaries. Assets and liabilities are translated using the exchange rates in
effect on the balance sheet date. Income and expenses are translated at the
average exchange rates for the year. Translation adjustments are reported as a
separate component of stockholders' deficit.
When a foreign entity operates in a highly inflationary economy, the Company
uses the US dollar as the functional currency rather than the local currency.
The Company translates non monetary assets and liabilities and related expenses
into US dollars at historical exchange rates. The Company translates all other
income statement amounts using average exchange rates for the year. Monetary
assets and liabilities are translated at end of period exchange rates and any
gains or losses are reported in the results of operations. Mexico is considered
a highly inflationary economy for the periods presented.
L. Loss per share
Basic loss per common share was computed using the weighted average number of
common shares outstanding for the periods presented. Diluted information is not
presented as the effect of common stock equivalents would be anti-dilutive. The
conversion of the notes described in Note 7
F-8
<PAGE> 27
INTERNATIONAL REALTY GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1998
into 105,638,300 shares of common stock in January, 1999 will have a substantial
impact on earnings per share calculations in future periods.
M. Recent pronouncement
In June, 1997, the Financial Accounting Standards Board issued SFAS No. 130,
"Reporting Comprehensive Income," SFAS 130 establishes standards for reporting
and displaying comprehensive income, its components and accumulated balances.
SFAS 130 is effective for periods beginning after December 15, 1997. The Company
adopted SFAS 130 in 1998.
In June, 1998 the Financial Accounting Standards Board issued SFAS 133,
"Accounting for Derivatives and Hedging Activities", which establishes
accounting and reporting standards for derivitive instruments and hedging
activities. SFAS is effective for all fiscal quarters of fiscal years beginning
after June 15, 1999. The Company does not expect that SFAS 133 will have a
material impact on its financial statements or disclosures.
N. Reclassifications
Certain prior year amounts have been reclassified to conform to the current
year's presentation.
NOTE 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 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 of $.0445 per share and
convertible notes (Notes) with a face value of $4,700,900. The estimated fair
value of the assets acquired and liabilities assumed is as follows:
<TABLE>
<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:
Mortgages 1,094,100
Accounts payable and accrued expenses 323,300
Minority interest in net assets 1,312,700
-----------
2,730,100
-----------
$ 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 the undivided net
assets not acquired.
F-9
<PAGE> 28
INTERNATIONAL REALTY GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1998
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 value of $.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 specializing 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 Company's common stock immediately before the Transaction were as
follows:
<TABLE>
<S> <C> <C>
Unrestricted shares $.0607
Restricted shares $.0445
After the Transaction, the fair market values were:
Unrestricted shares $.0617
Restricted shares $.0480
</TABLE>
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 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.
NOTE 3 - PROPERTY AND EQUIPMENT - NET
Property and equipment consists of the following at December 31, 1998:
<TABLE>
<S> <C>
Furniture and fixtures $ 32,618
Library 207,629
Equipment 29,861
Leasehold improvements 1,917
Automotive equipment 11,608
------------
283,633
Less: accumulated depreciation 182,104
------------
PROPERTY AND EQUIPMENT - NET $ 101,529
============
</TABLE>
Depreciation expense was $37,127 and $39,393 for the years ended December 31,
1998 and 1997.
NOTE 4 - LAND HELD FOR FUTURE DEVELOPMENT
<TABLE>
<CAPTION>
Location Acreage Amount
-------- ------- ------
<S> <C> <C>
Ixtapa, Mexico 26 $ 4,534,513
Acapulco, Mexico 8 201,000
Caye Bokel, Belize 87 456,400
Guanajuato, Mexico 236 272,500
Jilotepec, Mexico 24 21,500
La Paz, Mexico 3,451 9,600
La Grange, Texas 1 31,600
-----------
$ 5,527,113
===========
</TABLE>
F-10
<PAGE> 29
INTERNATIONAL REALTY GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1998
Improvements amounting to $673,913 are included in the cost of land. All land in
Mexico collateralized the convertible notes aggregating $5,287,230 and $506,842
of the mortgage and note payable.
NOTE 5 - DUE FROM SHAREHOLDER
Amounts due from shareholder (DSC) were acquired through the Transaction
described in Note 2. 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. The balance at December 31, 1998 is
$1,463,046.
NOTE 6 - MORTGAGE AND NOTE PAYABLE
Mortgages and notes payable consists of the following at December 31, 1998:
<TABLE>
<S> <C>
Note payable, due in monthly installments including
interest at 7%per annum, due February, 2001, unsecured $ 35,475
Note payable - bank, non-interest bearing, due March 31, 1998, secured by land
(The bank has extended the due date while the loan is being renegotiated. The
note is due on demand with
interest accrued at 5%) 506,842
----------
TOTAL MORTGAGE AND NOTE PAYABLE $ 542,317
==========
</TABLE>
Maturity of long-term debt is as follows:
1999: $ 523,814 2000: 18,503
NOTE 7 - CONVERTIBLE NOTES
Convertible notes (Notes) with a face value of $4,700,900 accrue interest at 5%
per annum, 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 $586,330 has been combined with the principal balance at
December 31, 1998. The Notes are convertible into 105,638,300 shares of the
Company's common stock at such time as the Company has a sufficient number of
authorized shares to issue to the Note holders.
During January, 1999 these notes were converted into common stock (see Note 13).
The following pro forma information is provided to reflect the effect of the
conversion on stockholders' equity and basic loss per share as if the conversion
had occurred on December 31, 1998.
F-11
<PAGE> 30
INTERNATIONAL REALTY GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1998
<TABLE>
<CAPTION>
As originally Pro-Forma
Reported adjustment Pro-Forma
------------- ------------ -------------
<S> <C> <C> <C>
Stockholders' equity (deficit):
Common stock $ 9,954 $ 105,638 $ 115,592
Paid in capital 1,639,468 5,181,592 6,821,060
Currency translation adjustment (264,739) -- (264,739)
Accumulated deficit (2,066,836) -- (2,066,836)
----------- ------------- -------------
(682,153) 5,287,230 4,605,077
Treasury stock (15,472) -- (15,472)
----------- ------------- -------------
$ (697,625) $ 5,287,230 $ 4,589,605
=========== ============= =============
Per share information:
Weighted average common
Shares outstanding 9,954,313 105,638,300 115,592,613
=========== ============= =============
Basic loss per share $ (.06) $ (.01)
=========== =============
</TABLE>
NOTE 8 - INCOME TAXES
The Company accounts for income taxes under Statement of Financial Accounting
Standards No. 109 (FAS 109), "Accounting for Income Taxes", which requires use
of the liability method. FAS 109 provides that deferred tax assets and
liabilities are recorded based on the differences between the tax bases of
assets and liabilities and their carrying amounts for financial reporting
purposes, referred to as temporary differences. Deferred tax assets and
liabilities at the end of each period are determined using the currently enacted
tax rates applied to taxable income in the periods in which the deferred tax
assets and liabilities are expected to be settled or realized.
Components of the net deferred tax liability as reflected on the Company's
consolidated balance sheet are as follows:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Deferred tax Assets 384,000 342,700
Deferred tax liabilities (81,000) (46,800)
Less: valuation allowance (303,000) (295,900)
----------- -----------
Deferred taxes - net $ -- $ --
=========== ===========
</TABLE>
The components of the provision for income taxes (benefit) for the years ended
December 31, 1998 and 1997 consist of Federal taxes payable (receivable) of $0
and ($1,600) respectively.
The Company's deferred tax asset of approximately $240,000 resulting from net
operating loss carryforwards is fully offset by a valuation allowance at
December 31, 1998. The Company has recorded a valuation allowance to state its
deferred tax assets at estimated net realizable value due to the uncertainty
related to realization of these assets through future taxable income.
The income tax provision (benefit) for the years ended December 31, 1998 and
1997, differs from that which would result from applying the statutory tax rates
primarily due to certain operating expenses which are not deductible for income
tax purposes. The provision (benefit) for income taxes differs from the amount
obtained by applying the statutory rate as follows:
F-12
<PAGE> 31
INTERNATIONAL REALTY GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1998
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Provision (benefit) at statutory rate $(212,000) $(162,400)
State income tax (benefit) (30,000) (16,600)
Non-deductible items:
Interest on convertible note -- 76,900
Other 90,000 101,800
Utilization of operating losses -- 1,600
Valuation allowance (benefit) 152,000 (2,900)
--------- ---------
$ -- $ (1,600)
========= =========
</TABLE>
The Company has net operating loss carry forwards aggregating approximately
$687,000 which expire between 2001 and 2013.
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.
NOTE 9 - RELATED PARTY TRANSACTIONS
During December, 1998 the Company entered into a 3 year employment agreement
with its president. The agreement calls for a base salary of $102,000 per year.
In addition, the agreement grants this employee an option to purchase 2,000,000
shares of the Company's common stock at an exercise price of $.135 per share.
The option may be exercised at any time during the term of the employment
agreement.
During 1998 the Company's president made working capital advances to the Company
aggregating $16,309. In addition, this officer is owed $385,217 and a former
officer and shareholder is owed $193,245 for unpaid salary.
NOTE 10 - COMMITMENTS AND CONTINGENCIES
Operating Leases
The Company leases its office facilities pursuant to a lease expiring on
November 1, 1999. Total monthly lease payments aggregate approximately $2,363.
Total rent expense was $25,696 in 1998 and $25,164 in 1997.
Future minimum rentals are as follows:
1999: $23,630
F-13
<PAGE> 32
INTERNATIONAL REALTY GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1998
NOTE 11 - STOCKHOLDERS' EQUITY
Options and warrants
Pursuant to an employment agreement entered into in 1993 a total of 200,000
options became exercisable in 1996 at 50% of the average trading prices for the
month of February, 1996 ($.015 per share). 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 will be exercised.
During December, 1998 the Company granted 2,000,000 options to its president
exercisable at $.135 per share for a period of 3 years (see Note 9).The price of
the options was less than the fair market value of the Company's common stock on
the date of the grant.
Stock option activity is as follows:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Number of option shares:
Outstanding January 1 200,000 200,000
Options granted 2,000,000 --
Options exercised -- --
----------- --------
Outstanding December 31 2,200,000 200,000
=========== ========
Option price range:
Outstanding January 1 $ .015 $ .015
Granted $ .135 $ --
Exercised $ -- $ --
Outstanding December 31 $.015-$.135 $ .015
</TABLE>
The Company applies APB Opinion 25 in accounting for its stock options.
Accordingly, no compensation cost has been recognized related to the grants of
options. Had the Company recognized compensation based on the fair value of the
options in accordance with FASB 123 there would be no material impact on its
results of operations.
Contribution to capital
During 1998 the shareholders of one of the Company's subsidiaries located in
Mexico contributed $500,483 to the Company's capital by retiring a mortgage
obligation of that subsidiary.
NOTE 12 - BUSINESS SEGMENTS
The Company has adopted SFAS 131, "Disclosures About Segments of an Enterprise
and Related Information" that requires disclosure of financial and descriptive
information about the Company's reportable operating segments. The operating
segments presented are the segments for which management evaluates operating
performance and determines the allocation of the Company's resources.
The operations of the segments located in the United States and Hungary consist
of providing commercial and residential real estate consulting services. This
segment of the Company's business operations currently accounts for
substantially all of the Company's revenue. In addition, the segment located in
the United States holds some land for future development.
F-14
<PAGE> 33
INTERNATIONAL REALTY GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1998
The segment located in Mexico holds land for development. The Company intends to
develop the Mexican properties into various resort and commercial developments
and to market the developed properties. No significant development of the
Mexican properties will occur until after the conversion of the convertible
notes described in Note 7 occurs.
Information about the Company's operations by geographic area for the years
ended December 31, 1998 and 1997 is as follows:
<TABLE>
<CAPTION>
Consolidated United States Mexico Hungary
------------ ------------- ------ -------
<S> <C> <C> <C> <C>
Net revenues from
unaffiliated customers:
1998 $ 794,240 $ 731,458 $ -- $ 62,782
1997 $ 792,800 $ 706,500 $ -- $ 86,300
Net operating income (loss):
1998 $ (85,278) $ 92,050 $ (150,741) $ (26,587)
1997 $ 42,500 $ 82,000 $ -- $ (39,500)
Identifiable assets:
1998 $ 7,440,910 $ 752,252 $ 6,552,043 $ 136,615
1997 $ 8,093,500 $ 734,200 $ 7,077,100 $ 282,200
Capital expenditures:
1998 $ 4,556 $ 4,556 $ -- $ --
1997 $ 6,300 $ 3,900 $ -- $ 2,400
Depreciation and
amortization:
1998 $ 54,734 $ 50,349 $ -- $ 4,385
1997 $ 57,000 $ 52,100 $ -- $ 4,900
</TABLE>
Net operating income (loss) reconciles to (loss) before income taxes as shown in
the consolidated statements of operations as follows:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Net operating income (loss) $ (85,278) $ 42,500
General and administrative expenses (158,972) (115,400)
Depreciation and amortization (54,734) (57,000)
Interest expense (338,833) (379,300)
---------- ----------
(Loss) from operations (637,817) (509,200)
Other income (expense) (64,874) (800)
Minority interest 97,902 44,500
---------- ----------
Net (loss) $ (604,789) $ (465,500)
========== ==========
</TABLE>
Concentrations
A portion of the Company's revenues consists of fees to major customers on
credit. Net revenues to major customers in 1998 and 1997 are as follows:
F-15
<PAGE> 34
INTERNATIONAL REALTY GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1998
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C> <C> <C>
Domestic: Customer A $ 98,375 13% $ 196,000 28%
Foreign: Customer B $ 50,225 80% $ 73,400 85%
</TABLE>
NOTE 13 - SUBSEQUENT EVENT
On January 8, 1999 the Company increased the number of authorized $.001 par
value common shares from 10,000,000 to 450,000,000. At this time the Company
issued 105,638,300 shares of common stock upon conversion of the Notes described
in Note 7.
F-16
<PAGE> 35
SIGNATURES
IN ACCORDANCE WITH SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934,
THE COMPANY HAS DULY CAUSED THIS ANNUAL REPORT ON FORM 10-KSB TO BE SIGNED ON
ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED.
INTERNATIONAL REALTY GROUP, INC.
By: /s/ Richard M. Bradbury
-----------------------------------
Richard M. Bradbury
President
(Principal Executive and Financial
Officer)
Date: April 12, 1999
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Company and in
the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Bernardo Dominguez C. Chairman of the Board of Directors April 12, 1999
- ---------------------------------------
Bernardo Dominguez C.
/s/ Richard M. Bradbury Director and President April 12, 1999
- --------------------------------------- (Principal Executive and Financial
Richard M. Bradbury Officer)
/s/ Alton B. Hollis Director April 12, 1999
- --------------------------------------
Alton B. Hollis
</TABLE>
<PAGE> 1
Exhibit 10.5
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("THE AGREEMENT") IS BY AND BETWEEN RICHARD M.
BRADBURY ("EMPLOYEE") 339 POINCIANA ISLAND DRIVE, SUNNY ISLES, FLORIDA 33160 AND
INTERNATIONAL REALTY GROUP, INC., A DELAWARE CORPORATION (THE "EMPLOYER") 111 NW
183 STREET, SUITE 518, MIAMI, FLORIDA 33169 (COLLECTIVELY THE "PARTIES").
STATEMENT OF FACTS
1. Employee has been employed by Employer and currently holds the position
of President of Employer. Employer believes that Employee's continued
involvement in its business will contribute to the future success of
Employer.
2. Employee wishes to continue his employment with Employer, and Employer
also wishes to have such employment continue, on the basis set forth in
this Agreement.
NOW, THEREFORE, in consideration of the foregoing, and the mutual agreements,
covenants and provisions herein contained, the Parties agree as follows:
ARTICLE 1
SECTION 1.1 - DEFINITIONS
"Base Salary" is defined in Section 3.1 hereof.
"Cause" is defined in Section 4.1 hereof.
"Disability" and "Disabled" are defined in Section 5.1 hereof.
"Duties" shall mean those duties of Employee described
in Section 2.4 hereof.
"Effective Date" is defined in Section 2.2 hereof.
ARTICLE II
SECTION 2.1 - EMPLOYMENT: Employer hereby employs the Employee and the Employee
hereby accepts such employment under the terms and conditions set forth in this
Agreement.
<PAGE> 2
SECTION 2.2 - TERMS: This Agreement shall be deemed to be effective, and the
term of Employee's employment ("Term") shall commence as of December 1, 1998
(the "Effective Date"), and shall continue for a period of three (3) years from
the Effective Date. The term shall be automatically renewed upon its expiration
for one additional year and every year thereafter unless (i) it is sooner
terminated in accordance with Article IV or (ii) either party gives written
notice to the other party in the manner provided in Section 8.6 indicating such
party's intention not to renew this Agreement, which notice is given not less
than 30 days prior to the expiration of the three-year Term, specified above, or
any annual renewal Term thereafter (each term so renewed deemed part of the
continuing Term).
SECTION 2.3 - BEST EFFORTS: During the Term, the Employee shall devote
substantially all of his business time and energy to the performance of the
duties hereunder and shall perform his Duties as defined herein to the best of
his ability subject to the instruction, direction and control of the Chairman of
the Board, CEO, Employer's Executive Committee, and Board of Directors of
Employer.
SECTION 2.4 - DUTIES: Employee shall serve as President of Employer, and be
responsible for the U.S. operations of Employer. Employee shall perform the
duties ("Duties") customarily associated with such capacity and from time to
time, and at such place or places as Employer shall designate, provided that
Employer shall not require Employee to permanently relocate from a 30-mile
radius of Miami, Florida without Employee's prior consent.
ARTICLE III
COMPENSATION
SECTION 3.1 - BASE SALARY: Employer shall pay to Employee during the Term a
salary of One hundred two thousand dollars ($102,000) per annum (such annual
compensation and any increases thereto, referred to as "Base Salary"), from
which applicable withholding will be made for taxes, in accordance with the law.
Base Salary will be paid in periodic installments at such time as Employer
customarily pays its other employees holding comparable positions, but in any
event not less than monthly. Base Salary will be reviewed each year and may be
amended (but not decreased below the amount specified above) at the sole
discretion of the Board of Directors of Employer. Nothing herein shall be
considered as a promise or guaranty of increase in Base Salary, nor shall any
such increase act as a promise or guaranty of future increases in Base Salary.
SECTION 3.2 - BONUS: Employee shall receive bonuses (in cash or property) as
may, from time to time, be determined by the Board of Directors of Employer.
SECTION 3.3 - STOCK OPTION: Employee shall, at the Effective date, be awarded an
option to purchase 2,000,000 shares of the Company's Common Stock. Such option
can be exercised in whole or part at a purchase price of $0.135 per share. Such
option shall be for the Term of this Employment Agreement, and any extension
thereof.
2
<PAGE> 3
ARTICLE IV
TERMINATION
SECTION 4.1 - GROUNDS FOR TERMINATION:
(a) TERMINATION UPON DEATH. This Agreement shall terminate immediately upon
the death of Employee.
(b) TERMINATION BY EMPLOYER FOR CAUSE. This Agreement shall terminated
immediately upon written notice by Employer to Employee that Employee has
been terminated for "Cause." "Cause" shall mean one or more of the
following.
(i) The perpetration of a fraud on the Company;
(ii) Conviction of a felony or other crime involving moral turpitude;
(iii) Habitual insobriety or use of illegal drugs interfering with
performance of the Duties; or,
(iv) Other than a failure resulting from Disability, Employee's failure
or refusal to perform the Duties or to carry out any reasonable and
lawful directives of Employer with respect to the Duties or the
manner in which the Duties are to be rendered; provided, however,
that (A) such failure of refusal is material to this Agreement and
repetitive, and (B) Employee has been given 10-days written notice
and explanation of a refusal or failure, as well as 10-days to cure
such refusal or failure, and no cure has been effected within such
10-days.
SECTION 4.2 - EFFECTS OF TERMINATION:
(a) General Provisions. Upon the termination of this Agreement for any reason
specified in this Article IV;
(i) Effective upon the date or termination, Employee's Duties will
cease. Employee will be deemed to have given his resignation from
all offices then held by him, and will immediately provide Employer
with confirmation of same, and Employee will immediately return all
keys and all information required to be returned by Article VII
hereof.
(ii) The obligation of Employer to pay Base Salary or bonus as provided
in Section 3.1 and 3.2 hereof will cease effective upon the date of
termination.
(iii) Employer will reimburse Employee for all properly reimbursable
expenses incurred through the date of termination..
(iv) Employee shall continue to be bound by all of the provisions of
Article VII hereof for the periods provided therein.
3
<PAGE> 4
(b) TERMINATION FOR CAUSE; VOLUNTARY TERMINATION BY EMPLOYEE: In the event
that this Agreement is terminated by Employee, Employee will receive no
further compensation hereunder, whether by bonus, severance pay or salary.
(c) TERMINATION DUE TO DEATH OF EMPLOYEE: In the event that this Agreement is
terminated by reason of the death of Employee:
(i) Employee's beneficiaries will receive no further compensation
hereunder provided, however, that any life insurance payable
pursuant to Section 6.3 to Employee's beneficiaries shall be so paid
in accordance with any such policy. Further provided, that any stock
option granted, any salaries earned, or bonus which has been awarded
(but not paid) by the Board of Directors of Employer to Employee,
prior to Employee's death shall be promptly paid or transferred to
Employee's estate.
ARTICLE V
DISABILITY
SECTION 5.1 - DEFINITION AND DETERMINATION OF DISABILITY: "Disability" or
"Disabled" shall mean any sickness or injury that, in the opinion of a physician
acceptable to Employer and Employee, renders Employee unable to perform the
major duties of his regular occupation with Employer.
(a) A Disability which continues for a period of ninety (90) days or more
shall conclusively be presumed permanent and shall be a "Permanent
Disability" for purposes of this Agreement. Successive periods of
disability shall be considered one period of continuing disability unless
separated by a return to employment for a period of at least thirty (30)
days.
(b) In the event the Parties fail to agree on whether Employee is Disabled or
fail to locate a physician who is acceptable to both Parties to make a
determination in this regard, the following will apply:
(i) If Employer owns a policy of disability insurance covering the
Employee, a determination of such insurance company shall be binding
upon the Parties; or
(ii) If the Employer does not own a policy of disability income insurance
covering the Employee, the Employee and the Employer shall each
designate an arbitrator, and the two arbitrators so selected shall
designate a third arbitrator and the decision of majority of such
arbitrators shall be binding upon the parties; the arbitrators shall
be entitled to receive and rely on any medical evidence or other
information which they shall deem necessary to enable them to make a
determination as to Disability; or
4
<PAGE> 5
(iii) Employee shall further be considered Disabled if he has been found
by a court of competent jurisdiction to be incompetent or if a
guardian or conservator of his affairs is appointed.
SECTION 5.2 - EFFECTS OR DISABILITY: In the event that the Employee becomes
Disabled, as defined in Section 5.1, while he is employed by the Employer then
during the period of such Disability or until the end of the period set forth
below, whichever period ends first, he shall be compensated as follows:
(a) The Employee shall receive his Base Salary for a period of three (3)
months.
(b) Thereafter, the Employee shall receive fifty percent (50%) of his Base
Salary for an additional period of three (3) months.
(c) Thereafter, all payments by Employer will cease and this Agreement will be
terminated.
ARTICLE VI
EXPENSES, BENEFITS, PERQUISITES
SECTION 6.1 - EXPENSES: Employer will reimburse Employee for all ordinary,
necessary and reasonable out-of-pocket expenses related to his performance of
the Duties during the Term. Reimbursement of such expenses will be made in
accordance with Employer's normal expense approval procedures in effect from
time to time.
SECTION 6.2 - HOLIDAYS: VACATION: Employee shall be entitled to all legal
holidays plus four (4) weeks paid vacation per year. Employee shall, subject to
current business circumstances, attempt to schedule such vacation, two weeks in
December and two weeks during the summer months, but in no event, in a single
four (4) week period. Any vacation not used within the calendar year is carried
forward into the next year and is used up to a maximum of six (6) weeks of
vacation per year, provided that Employee may in the alternative elect within
sixty (60) days after the calendar year-end to receive additional compensation
at the then current Base Salary rate in lieu of any unused vacation time.
SECTION 6.3 - BENEFITS: Employee shall be eligible for any health,
hospitalization, dental care, disability insurance, stock option plan,
retirement, income or pension plan or other future or present group employee
benefit plan for which executives of the Company would be eligible. The
inclusion of this provision does not obligate the Company to institute any of
the above plans.
5
<PAGE> 6
ARTICLE VII
NON-DISCLOSURE AND NON-USE OF CONFIDENTIAL
INFORMATION AND NON-COMPETITION.
SECTION 7.1 - NON-DISCLOSURE AND NON-USE OF CONFIDENTIAL INFORMATION:
Employee recognized the interest of Employer in maintaining the confidential
nature of its proprietary matter and agrees that he will not, directly or
indirectly, during the Term, nor at any time after the termination of this
Agreement, disclose or use for his own purposes (or for purposes other than
those of Employer) any confidential or proprietary matter or trade secret of
Employer, including, but not limited to, software, technical processes, customer
and mailing lists, records, files, data, methods, formulae, compositions,
products, apparati, activity reports, plans, files, data, methods,
specifications, price lists, notebooks, reports, and logbooks, and any other
information (and similar information received from third parties) which is or
reasonably may be construed to be proprietary or confidential to the Employer.
The Parties recognize that it is not the intent of this paragraph to include
herein information, data and methods of operation which become part of the
public domain without breach of confidentiality by Employee. All customer and
mailing lists, records, files, data, drawings, documents, equipment and all
other property of Employer shall be and remain Employer's sold property and
shall not be removed from Employer's premises without written consent.
SECTION 7.2 - NON-COMPETITION:
In consideration of this Agreement and the right to participate in any future
Employer's Stock Incentive Plan, Employee covenants and agrees that he will not,
during the Term of this Agreement, either directly or indirectly, for himself or
for any other person, whether as principal, agent, stockholder, officer,
director or employee, or through any corporation, partnership or other entity,
have any interest in, engage in, or otherwise be involved with any business or
enterprise in the United States and in Mexico, which directly competes with (or
proposes or plans to directly compete with) the Employer in any line of business
engaged in or under development by the Employer ("Direct Competitor"), nor shall
Employee entice, induce or encourage any of the Employer's other Employees to
engage in any activity which, were it done by the Employee, would violate any
provision of this Section 7.2 As used in this Section 7.2, the phrase "any line
of business engaged in or under development by the Employer" shall be applied as
of the date of termination of Employee's employment.
SECTION 7.3 - NON-SOLICITATION:
Employee covenants and agrees he will not, during the Term and for a period of
one (1) year following the termination of this Employment Agreement, either
directly or indirectly, for himself or any other person, whether as principal,
agent or employee, or through any corporation, partnership or other entity,
solicit or contact for, or seek to engage in any business dealings or
communications with, any then-current or any other prospective customer of
Employee.
6
<PAGE> 7
SECTION 7.4 - FORMER EMPLOYERS.
(a) Employee represents that his employment under this Agreement does not
conflict with any agreement with a former employer.
(b) If Employee is in possession of confidential information arising out of
any prior employment, other than the Company, Employee will not disclose
such information to any officer, director, agent or employee of the
Employer.
SECTION 7.5 - SURVIVAL OF OBLIGATIONS: REMEDIES:
(a) Employee's obligations under this Article VII shall survive the expiration
or termination of Employee's employment under this Agreement (whether
through Employee's resignation or otherwise).
(b) The Employee acknowledges that the restrictions contained in this Article
VII are, in view of the nature of the business of Employer, reasonable and
necessary to protect the legitimate interests of Employer, and that any
violation of any provisions of these Sections will result in irreparable
injury to the Employer and that a remedy at law for any such violation
would be inadequate. The Employee therefore agrees that Employer shall be
entitled to temporary and permanent injunctive relief, without the
necessity of proving actual damages, and to an equitable accounting of all
earnings, profits and other benefits arising from any such violations,
which rights shall be cumulative of and in addition to any other rights or
remedies to which Employer may be entitled.
(c) In the event of any such violation, Employer shall be entitled to commence
an action for temporary and permanent injunctive relief and other
equitable relief in any court of competent jurisdiction. In the event that
said violation by Employee shall be intentional or willful, Employer shall
be entitled to attorney's fees in connection with the enforcement of this
covenant.
ARTICLE VIII
CONCLUDING PROVISIONS
SECTION 8.1 - ENTIRE AGREEMENT: This Agreement contains the entire understanding
of the Parties with respect to the subject matter hereof. There are no oral
understandings, terms or conditions, and no party has relied upon any
representation, express or implied, not contained in this Employment Agreement.
SECTION 8.2 - AMENDMENTS: This Agreement may not be amended in any respect
whatsoever except by a further agreement, in writing, fully executed by each of
the parties.
7
<PAGE> 8
SECTION 8.3 - ASSIGNMENTS: This Agreement and the rights and obligations of the
Parties shall bind and inure to the benefit of any successor or successors of
the Employer by reorganization, merger, consolidation or acquisition and any
assignee of all or substantially all of the Employer's business and properties,
but, except as to any such successor or assignee of the Employer, neither this
Agreement nor any rights or benefits hereunder may be assigned by the Employer
or by the Employee, except ;by operation of law.
SECTION 8.4 - CAPTIONS: The captions of this Agreement are for convenience and
reference only and in no way define, describe, extend or limit the scope or
intent of this Agreement at the intent of any provision contained in this
Agreement.
SECTION 8.5 - ARBITRATION: Any controversy or claim arising out of or relating
to this Agreement or for the breach thereof, or for Employee's employment, if
not otherwise settled between the parties, shall be conclusively settled by
arbitration to be held in Miami, Florida, in accordance with the American
Arbitration Association's Employment Dispute Resolution Rules. Arbitration in
accordance with the foregoing shall be parties' exclusive remedy for any such
controversies, claims or breaches. The parties also consent to personal
jurisdiction in Miami, Florida, with respect to such arbitration. Any aware
resulting from such arbitration shall be final and binding upon both parties.
Judgment upon said award may be entered in any court having jurisdiction.
SECTION 8.6 - NOTICE: Any notice, demand, offer, or other written instrument
("Notice") required or permitted to be given shall be in writing signed by the
Party giving such Notice and shall be hand-delivered or sent, postage prepaid,
by certified or Registered Mail, Return Receipt Requested, to the parties at the
addresses as set forth in this Agreement. Any Notice to be given to the estate
of any deceased person shall be addressed to the personal representative of such
deceased person at his address, or if there be no personal representative to the
estate of the deceased person at his address as set forth in this Agreement. Any
Party shall have the right to change the place to which such Notice shall be
sent or delivered, by similar notice sent in like manner to all other parties
hereto.
SECTION 8.7 - GENDERS: Any reference to the masculine gender shall be deemed to
include the feminine and neuter genders and vice versa, and any reference to the
singular shall include the plural, and vice versa, unless the context otherwise
requires.
SECTION 8.8 - GOVERNING LAW: This Agreement shall be governed by, construed and
enforced in accordance with the laws of the State of Florida.
SECTION 8.9 - COUNTERPARTS: This Agreement may be executed in one or more
counterparts each of which shall be deemed an original.
SECTION 8.10 - REFORMATION: In the event that the provisions of this Agreement
should ever be adjudicated to exceed the time, geographic, service or product
limitations permitted by applicable law in any jurisdiction, then such
provisions shall be deemed reformed in such jurisdiction to the maximum time,
geographic service or product limitations permitted by applicable law.
8
<PAGE> 9
SECTION 8.11 - SEVERABILITY: If any provision of this Agreement of application
thereof to anyone or under any circumstances is adjudicated to be invalid or
unenforceable in any jurisdiction, such invalidity or unenforceability shall not
affect any other provision or applications or this Agreement that can be given
effect without the invalid or unenforceable provision in any other jurisdiction
or under any other circumstance.
SECTION 8.12 - WAIVERS: If either party should waive any breach of any provision
of this Agreement, such Party shall not thereby be deemed to have waived any
preceding or succeeding breach(es) of the same provision, or have thereby waived
any other provision of this Agreement.
IN WITNESS WHEREOF, THE PARTIES HAVE HEREUNTO SET THEIR HANDS AND SEALS
EFFECTIVE AS PROVIDED HEREIN.
INTERNATIONAL REALTY GROUP, INC.
By: /s/ Bernardo Dominguez Date:
-------------------------------------- -------------------------
BERNARDO DOMINGUEZ, CHAIRMAN
/s/ Richard M. Bradbury Date: Dec. 18, 1998
-------------------------------------- -------------------------
RICHARD M. BRADBURY
<PAGE> 1
EXHIBIT 16
ACCOUNTANT LETTER
- --------------------------------------------------------------------------------
HIXSON, MARIN, POWELL & DESANCTIS, P.A. CERTIFIED PUBLIC ACCOUNTANTS
- --------------------------------------------------------------------------------
DAVID L. HIXSON, C.P.A. RAYMOND F. MARIN, C.P.A.
DONALD F. POWELL, C.P.A. PETER V. DE SANCTIS, C.P.A.
16100 NORTHEAST 16TH AVENUE, SUITE B 3300 PGA BOULEVARD
NORTH MIAMI BEACH, FLORIDA 33162 GARDENS PLAZA, SUITE 810
DADE: (305) 944-7001 PALM BEACH GARDENS, FL 33410
BROWARD: (954) 920-1311 TEL: (561) 624-5700
FAX: (305) 944-6637 FAX: (561) 624-5702
RESPOND TO: [X] RESPOND TO:
March 19, 1999
Securities and Exchange Commission
450 Fifth Street N.W.
Washington, D.C. 20549
RE: International Realty Group, Inc.
Dear Sir/ Madam:
Pursuant to the request of the above referenced Company, we affirm that:
1. We have read the Company's response to Item 4 of Form 8-K dated
March 16, 1999, and;
2. We agree with the response.
Sincerely,
Hixson, Marin, Powell & DeSanctis, P.A.
By: /s/ Raymond F. Marin
-------------------------------
Raymond F. Marin
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
INTERNATIONAL REALTY GROUP, INC.'S AUDITED FINANCIAL STATEMENTS DATED DECEMBER
31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 98,737
<SECURITIES> 0
<RECEIVABLES> 1,550,746
<ALLOWANCES> 0
<INVENTORY> 5,527,113<F1>
<CURRENT-ASSETS> 7,176,596
<PP&E> 283,633
<DEPRECIATION> (182,104)
<TOTAL-ASSETS> 7,440,910
<CURRENT-LIABILITIES> 6,801,975
<BONDS> 18,503
0
0
<COMMON> 9,954
<OTHER-SE> (707,579)
<TOTAL-LIABILITY-AND-EQUITY> 7,440,910
<SALES> 0
<TOTAL-REVENUES> 794,240
<CGS> 0
<TOTAL-COSTS> 879,518
<OTHER-EXPENSES> 278,580
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 338,833
<INCOME-PRETAX> (604,789)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (604,879)
<EPS-PRIMARY> (.06)
<EPS-DILUTED> 0
<FN>
<F1>Inventory consists of real estate help for development or sale.
</FN>
</TABLE>
