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FORM 10-QSB
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________________ to _______________________
Commission File Number 0-20180
INTERNATIONAL REALTY GROUP, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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DELAWARE 62-1277260
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(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
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111 NORTHWEST 183RD STREET, SUITE 518, MIAMI, FLORIDA 33169
- ----------------------------------------------------- ---------
(Address of principal executive office) (Zip Code)
305-944-8811
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
---- -----
The number of shares outstanding of each of Issuer's classes of common equity as
of May 3, 1999.
COMMON STOCK, PAR VALUE $.001 115,792,613
----------------------------- ----------------
Title of Class Number of Shares
Transitional Small Business Disclosure Format YES NO X
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INTERNATIONAL REALTY GROUP, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
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PART I PAGE
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ITEM 1. Financial Statements
Consolidated Balance Sheet as of March 31, 1999 2
Consolidated Statements of Operations for the Three 3
Months Ended March 31, 1998 and 1999
Consolidated Statements of Cash Flows for the Three 4
Months Ended March 31, 1998 and 1999
Notes to Consolidated Financial Statements 5
ITEM 2. Management's Discussion and Analysis or Plan of Operation 6
PART II
ITEM 2. Changes in Securities 9
ITEM 6. Exhibits and Reports on Form 8-K 9
Signatures 10
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1
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PART I: FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
INTERNATIONAL REALTY GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
MARCH 31, 1999
(UNAUDITED)
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ASSETS
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REAL ESTATE AT COST:
Property held for development or sale $ 5,527,113
-----------
ACCOUNTS RECEIVABLE:
Due from shareholder 1,438,957
Accounts receivable 75,253
-----------
Total accounts receivable 1,514,210
-----------
CASH AND CASH EQUIVALENTS 13,408
PROPERTY AND EQUIPMENT - NET 99,299
EXCESS OF COST OVER ESTIMATED FAIR VALUE OF 83,593
NET ASSETS ACQUIRED - NET
OTHER ASSETS 107,814
===========
TOTAL ASSETS $ 7,345,437
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LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Mortgage and note payable $ 558,323
Accounts payable and accrued liabilities 311,519
Due to shareholders 610,966
-----------
Total Liabilities 1,480,808
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MINORITY INTEREST 1,295,805
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STOCKHOLDERS' EQUITY:
Common stock, $.001 par; 450,000,000 shares
authorized; 115,792,613 shares issued and outstanding 115,792
Additional paid in capital 6,828,367
Accumulated deficit (2,121,431)
Accumulated other comprehensive income: (238,432)
-----------
Currency translation adjustment 4,584,296
Treasury stock, at cost 15,472
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Total Stockholders' Equity 4,568,824
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TOTAL LIABILITIES AND STOCKHOLDERS EQUITY $ 7,345,437
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THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
2
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PART I: FINANCIAL INFORMATION, CONTINUED.
ITEM 1. FINANCIAL STATEMENTS, CONTINUED.
INTERNATIONAL REALTY GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1998 AND 1999
(UNAUDITED)
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THREE MONTHS
ENDED MARCH 31,
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1998 1999
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REVENUE
Revenues from services provided $ 191,600 $ 151,418
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OPERATING COSTS AND EXPENSES:
Operating expenses - services 173,418 148,393
Operating expenses - development 49,182 33,220
General and administrative expenses 26,118 9,909
Interest expense 105,400 6,625
Depreciation and amortization 14,674 13,374
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Total Operating Expenses 368,792 211,521
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(LOSS) FROM OPERATIONS (177,192) (60,103)
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OTHER INCOME (EXPENSE):
Exchange rate fluctuations (29,800) --
Other income (expense) -- --
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Total other (expense) - net (29,800)
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(LOSS) BEFORE MINORITY INTEREST AND (206,992) (60,103)
PROVISION FOR INCOME TAXES
MINORITY INTEREST 29,692 5,508
------------- -------------
(LOSS) BEFORE PROVISION FOR INCOME TAXES (177,300) (54,595)
PROVISION FOR INCOME TAXES (BENEFIT) -- --
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NET (LOSS) (177,300) (54,595)
Other comprehensive income:
Foreign currency translation adjustment (3,500) 26,307
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COMPREHENSIVE (LOSS) $ (180,800) $ (28,288)
============= =============
PER SHARE INFORMATION
Weighted average number of shares 9,954,313 115,792,613
============= =============
Basic loss per share $ (.02) $ (.00)
============= =============
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS
3
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PART I: FINANCIAL INFORMATION, CONTINUED.
ITEM 1. FINANCIAL STATEMENTS, CONTINUED.
INTERNATIONAL REALTY GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 1998 AND 1999
(UNAUDITED)
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Three Months Ended
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1998 1999
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CASH FLOWS FROM OPERATING ACTIVITIES: $ 16,800 $ 1,090
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Net Cash Provided By Operating Activities 16,800 1,090
CASH FLOWS FROM INVESTING ACTIVITIES
Reduction of an investment in subsidiary company -- (85,453)
Purchases of fixed assets (4,400) (6,561)
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Net Cash (Used In) Investing Activities (4,400) (92,014)
CASH FLOWS FROM FINANCING ACTIVITIES
Increase in related party debt 3,700 5,595
--------- ---------
Net Cash Provided By Financing Activities 3,700 5,595
EFFECT OF FOREIGN EXCHANGE ON CASH (5,100) --
--------- ---------
NET INCREASE (DECREASE) IN CASH 11,000 (85,329)
BEGINNING - CASH BALANCE 107,200 98,737
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ENDING - CASH BALANCE $ 118,200 $ 13,408
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THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
4
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PART I: FINANCIAL INFORMATION, CONTINUED.
ITEM 1. FINANCIAL STATEMENTS, CONTINUED.
INTERNATIONAL REALTY GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999
(UNAUDITED)
(1) BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared in accordance
with generally accepted accounting principles ("GAAP") for interim financial
information and Item 310(b) of Regulation SB. They do not include all of the
information and footnotes required by GAAP for complete financial statements. In
the opinion of management, all adjustments (consisting only of normal recurring
adjustments) considered necessary for a fair presentation have been included.
The results of operations for the periods presented are not necessarily
indicative of the results to be expected for the full year. For further
information, refer to the financial statements of the Company as of December 31,
1998 and for the two years then ended, including notes thereto included in the
Company's Form 10-KSB.
The accompanying consolidated financial statements include the accounts of the
Company and its wholly owned subsidiaries. Intercompany transactions and
balances have been eliminated in consolidation.
(2) STOCKHOLDERS' EQUITY
Increase in Authorized Capital:
On January 7, 1999 the Company amended Article IV of its Articles of
Incorporation to increase the number of authorized shares of Common Stock from
10,000,000 shares to 450,000,000 shares. Such amendment followed an Information
Statement, dated December 17, 1999, which was sent to all shareholders on
December 16, 1998 advising them of such action.
Among other reasons, the amendment allowed sufficient capital stock to retire
certain convertible notes (the "Notes") issued, pursuant to an Amended and
Restated Agreement dated August 19, 1996, when the Company consummated a
transaction ("Transaction") on such date with DSC, S.A. de C.V. ("DSC") and
Hemisphere Development Limited ("Hemisphere"). In the Transaction, the Company
acquired the majority interest in five (5) parcels of land amounting to
approximately 3,745 acres in Mexico, other assets and assumed liabilities of DSC
and Hemisphere in exchange for 1,000,000 shares of common stock with a fair
value of $.0445 per share and Notes with a face value of $4,700,900, convertible
into 105,638,300 shares of Common Stock. On January 8, 1999 the Company
cancelled the Notes, and issued Common Stock to DSC and Hemisphere, as provided
for in such Notes.
Stock Options:
During the current period, the Company's president exercized an option to
acquire 200,000 shares of common stock pursuant to an employment agreement.
(3) SUBSIDIARY COMPANIES
During the current period, minority shareholders of Appraisal Group
International, Rt. ("AGI Rt."), Budapest, Hungary, made, with the concurrence of
the parent company, a capital contribution of $105,152 reducing the Company's
ownership of such subsidiary from 75% to 37.5%.
The financial position and results of operations of AGI Rt. were not material to
those of the Company for the 1998 fiscal year or the period ended March 31,
1999. Based on the change in management and ownership position, the Company is
accounting for its investment in AGI Rt. utilizing the cost method. The
financial position and results of operations of AGI Rt. were consolidated with
those of the Company at December 31, 1998.
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PART I: FINANCIAL INFORMATION, CONTINUED
Item 2. Management's Discussion and Analysis or Plan of Operations.
The following discussion and analysis covers any material changes in financial
condition since December 31, 1998 and any material changes in the results of
operations for the three months ended March 31, 1999, as compared to the same
period in 1998. This discussion and analysis should be read in conjunction with
"Management's Discussion and Analysis and Results of Operations" included in the
Company's Form 10-KSB for the year ended December 31, 1998.
GENERAL
ORGANIZATION AND BUSINESS
INTERNATIONAL REALTY GROUP, INC., (the "Company") was incorporated in Delaware
on April 13, 1970. Its principle offices are located at 111 NW 183 Street, Suite
518, Miami, Florida 33169. Its telephone number is (305) 944-8811, Fax (305)
651-3394.
The Company, together with its consolidated subsidiaries, currently operates in
two business segments: (i) real estate consulting services, and (ii) land
development.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1999 COMPARED TO THREE MONTHS ENDED MARCH 31, 1998
REAL ESTATE CONSULTING SERVICES
Revenues decreased for the three months ended March 31, 1999 totaling
approximately $151,400 as compared to approximately $191,600 for the same period
in 1998. Revenues for 1999 were derived from operations performed by Appraisal
Group International, Inc. ("AGII"). AGII had revenues of approximately $156,600
for the same period in 1998. Revenues from foreign operations performed by
Appraisal Group International, Rt. ("AGI Rt.") during the 1998 period were
$35,000. During the current period, revenues for residential appraisals were 15%
below the comparable 1998 period. During the fourth quarter 1998, a major client
sold their residential mortgage business, which adversely affected first quarter
revenues. AGII intends to replace such lost sales volume, by providing similar
services to the new owners as well as other institutional and brokerage
residential mortgage clients.
Operating expenses for the three months ended March 31, 1999 were approximately
$148,400 compared to approximately $173,400 for the comparable period in 1998.
Of such expenses, domestic operations accounted for 100% in 1999, and in 1998,
domestic operations accounted for 81% and foreign operations accounted for 19%
or $33,300 of the 1998 expense. Direct expenses, including the production of
appraisal reports and appraiser's fees, travel, photography and other related
expenses, were $87,300 in the current period compared to $89,000 for the 1998
period.
LAND DEVELOPMENT
The Company acquired interests in five properties located in Mexico, pursuant to
the transaction ("Transaction") with DSC S.A. de C.V. ("DSC") and Hemisphere
Developments Limited ("Hemisphere"). The properties had secured the Company's
obligations under the convertible notes ("Notes") issued to DSC and Hemisphere.
Consequently, the Company undertook only limited development of such properties
until after such Notes had been converted, which occurred on January 8, 1999.
The Company believes that each of the Mexican properties is suitable for future
development or sale. Any development of the properties is contingent upon the
Company obtaining necessary
6
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PART I: FINANCIAL INFORMATION, CONTINUED
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS, CONTINUED
financing. Potential sources of financing include mortgage financing from
financial institutions located in the United States or Mexico, or the issuance
of equity securities of the Company. The Company has no present understanding,
agreement or commitment for financing any such property and there can be no
assurance that financing will be available to the Company on commercially
reasonable terms or at all.
During the current period, land development operations incurred costs, paid
directly by DSC through the reduction of their account payable to the Company,
of approximately $33,200, compared to $49,200 for the comparable period in 1998,
for personnel, engineering, site plans and other related expenses.
CORPORATE
Corporate general and administrative expenses for the current period were $9,900
compared to $26,100 in the 1998 period. The decrease in such expenses is
primarily attributable to the decrease in audit, legal and other corporate
expenses related to the Company's Transaction with DSC and Hemisphere.
Depreciation and amortization expense between the periods was consistent.
Interest expense, during the current period, was significantly reduced from
$105,400 in 1998 to $6,600 in 1999. The majority of interest expense in 1998 was
attributable to the Notes ($62,900) issued to DSC and Hemisphere in the
Transaction, and mortgage interest expense ($26,600) for properties located in
Mexico. Other income (expense), consisted of currency translation expense of
$29,800 for the 1998 period. Since September 30, 1996 the Company has recognized
translation expense as being attributable to the currency fluctuations of
Mexican pesos denominated accounts receivable and mortgages, notes and other
liabilities. As of January 1, 1999, the peso is recognized as the functional
currency for its local operations and any adjustments are recognized as a
component of equity. During the current period, currency translation adjustments
of $26,300 were recognized in stockholder's equity.
As a result of the above, the Company had a consolidated net loss of $54,600 for
the three month period in 1999 compared to a net loss of $177,300 for the
comparable 1998 period. The majority of the difference in the loss during the
1998 comparable period is attributable to accrued interest expense, as discussed
above. Domestic operations performed by AGII had an operating profit during the
current period of $1,100 compared to $18,100 in 1998. The decrease in profit
during the periods is attributable to reduced residential appraisal revenues.
Foreign operations performed by AGI RT had an operating loss of $3,800 during
the 1998 period.
LIQUIDITY AND CAPITAL RESOURCES:
CASH FLOWS FROM OPERATIONS. The Company incurred for the current 1999 period a
net loss of ($54,600) with a positive cash flow from operating activities of
$1,090 compared to a net loss of ($177,300) with a positive cash flow from
operating activities of $16,800 in 1998. Cash flows (used in) investing
activities, including the acquisition of fixed assets and the reduction of the
investment in AGI Rt., were ($92,000) for the current period compared to
($4,400) in 1998. Cash flow provided by financing activities, including related
party debt, provided $5,600 in 1999 compared to $3,700 in 1998. There was no
effect of exchange rate fluctuation in the 1999 period, compared to $5,100 in
1998.
LIQUIDITY AND LONG-TERM DEBT. As of March 31, 1999, the Company had accounts
receivable totaling $1,514,200. Of this amount, $1,439,000 is due from
shareholder. The Company is utilizing such receivables for operating expenses
and future capital requirements. In addition, accounts receivable from domestic
operations totaled $75,300. As of March 31, 1999, the Company's liabilities
totaled $1,480,800, compared to $6,820,500 as of December 31, 1998. Of
7
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PART I: FINANCIAL INFORMATION, CONTINUED
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS, CONTINUED
this latter amount, the Notes to DSC and Hemisphere and accrued interest, which
totaled $5,287,200, were converted to common stock as of January 8, 1999. Of
mortgages and notes payable at March 31, 1999, totaling $558,300, certain
Mexican financial institutions are due $525,400, and $32,900 is attributable to
domestic operations.
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 currency translation adjustments totaling $238,432 for its foreign
operations, recognized as a component of shareholder's equity. When a foreign
entity operates in a highly inflationary economy, the Company uses the U.S.
dollar as the functional currency, rather than the local currency. During 1998,
Mexico was considered a highly inflationary economy. As of January 1, 1999, the
Mexican peso is once again recognized as the functional currency. 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.
8
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PART I: FINANCIAL INFORMATION, CONTINUED
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS, CONTINUED
YEAR 2000 COMPLIANCE:
The Year 2000 issue is the result of computer programs being written using two
(2) digits rather than the four (4) digits to define the year. Any of the
Company's computer programs that have date-sensitive software may recognize a
date using "00" as the year 1900 rather than 2000. This problem could force
computers to either shut down or provide incorrect data or information. The
Company utilizes generic software programs developed, maintained and upgraded by
independent computer software providers. In response to the Year 2000 issue,
management is of the opinion that the providers of these software programs will
resolve the date sensitive issue so that all critical systems will be in
compliance prior to the Year 2000. In addition, the Company has taken measures
to resolve Year 2000 issues by upgrading its computer network systems and
ancillary software programs in its corporate, land development, and real estate
consulting segments. The Company does not anticipate any material adverse impact
on its business.
PART II: OTHER INFORMATION
ITEM 1: LEGAL PROCEEDINGS
None
ITEM 2: CHANGES IN SECURITIES
During the quarter ended March 31, 1999 the Company issued the
following securities, without registration, under the
Securities Act of 1933 ("Securities Act"): (i) On January 8,
1999, 105,638,300 shares of common stock, par value $.001 per
share ("Common Stock") were issued to two persons upon
conversion of certain convertible promissory notes with a face
value of $4,700,000, and (ii) effective January 12, 1999,
200,000 shares of Common Stock were issued to the president of
the Company upon exercise of a stock option for a total
consideration of $3,000. Such shares were issued by the
Company in reliance on the exemption under Section 4(2) of the
Securities Act for offerings not involving the public.
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5: OTHER INFORMATION
None
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
A. Exhibits
27.1 Financial Data Schedule (For SEC purposes only)
B. Reports on Form 8-K
On March 22, 1999 the Company filed a Current Report
on Form 8-K with the Securities and Exchange
Commission regarding Item 4., Change in Registrant's
Certifying Accounting.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Company
has duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
INTERNATIONAL REALTY GROUP, INC.
Date: May 10, 1999 By: /s/ Richard M. Bradbury
-------------------------------
Richard M. Bradbury
President
(Principal Executive and
Financial Officer)
10
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<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
INTERNATIONAL REALTY GROUP, INC.'S UNAUDITED FINANCIAL STATEMENTS DATED MARCH
31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 13,408
<SECURITIES> 0
<RECEIVABLES> 1,514,210
<ALLOWANCES> 0
<INVENTORY> 5,527,113<F1>
<CURRENT-ASSETS> 7,054,731
<PP&E> 274,106
<DEPRECIATION> (174,807)
<TOTAL-ASSETS> 7,345,437
<CURRENT-LIABILITIES> 1,480,808
<BONDS> 0
0
0
<COMMON> 115,792
<OTHER-SE> 4,453,032
<TOTAL-LIABILITY-AND-EQUITY> 7,345,437
<SALES> 0
<TOTAL-REVENUES> 151,418
<CGS> 0
<TOTAL-COSTS> 181,613
<OTHER-EXPENSES> 23,283
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,625
<INCOME-PRETAX> (54,595)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (54,595)
<EPS-PRIMARY> (.00)
<EPS-DILUTED> 0
<FN>
<F1>INVENTORY CONSISTS OF REAL ESTATE HELD FOR DEVELOPMENT OR SALE.
</FN>
</TABLE>
