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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 JUNE 30, 2000
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 (I.R.S. Employer Identification No.)
incorporation or organization)
Av. Constituyentes 647 Mexico, D.F. 11810
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(Address of principal executive office) (Zip Code)
011 (525) 277-9211
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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 July 20, 2000.
Common Stock, $0.001 par value per share 115,784,731
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Title of Class Number of Shares
Transitional Small Business Disclosure Format yes no X
--- ---
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International Realty Group, Inc.
Index
PART I
<TABLE>
<S> <C> <C>
Item 1. Financial Statements
Consolidated Balance Sheet as of June 30, 1999 2
Consolidated Statements of Operations for the Three Months and
Six Months Ended June 30, 1999 and 2000 3
Consolidated Statements of Cash Flows for the Six Months Ended
June 30, 1999 and 2000 4
Notes to Consolidated Financial Statements 5
Item 2. Management's Discussion and Analysis or Plan of Operation 7
PART II
Other information 12
Signatures 13
</TABLE>
1
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PART I: FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
INTERNATIONAL REALTY GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
JUNE 30, 2000
(UNAUDITED)
ASSETS
<S> <C>
REAL ESTATE AT COST:
Property held for development or sale $ 5,273,013
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ACCOUNTS RECEIVABLE:
Due from stockholder 1,166,604
Accounts receivable 1,113
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Total accounts receivable 1,167,717
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CASH AND CASH EQUIVALENTS 506
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OTHER ASSETS 38,579
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$ 6,479,815
============
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Accounts payable and accrued liabilities $ 237,730
Due to stockholders 193,245
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Total Liabilities 430,975
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MINORITY INTEREST 1,270,148
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STOCKHOLDERS' EQUITY:
Common stock, $0.001 par value per share; 450,000,000 shares
authorized; 115,784,731 shares issued and outstanding 115,784
Additional paid in capital 7,258,584
Accumulated deficit (2,196,682)
Accumulated other comprehensive income:
Currency translation adjustment (253,645)
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4,924,041
Treasury Stock, at cost 145,349
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Total Stockholders' Equity 4,778,692
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$ 6,479,815
============
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
</TABLE>
2
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PART I: FINANCIAL INFORMATION, CONTINUED.
ITEM 1. FINANCIAL STATEMENTS, CONTINUED.
<TABLE>
<CAPTION>
INTERNATIONAL REALTY GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 2000 AND 1999
(UNAUDITED)
----------------------------------------------------------------------------------------------
THREE MONTHS SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
REVENUE
Revenues from services provided $ -- $ -- $ -- $ --
OPERATING COSTS AND EXPENSES:
General and administrative expenses 33,746 80,853 74,237 123,982
Interest expense -- 733 -- 6,028
Depreciation and amortization -- 13,104 -- 25,838
----------- ----------- ------------ -----------
Total Operating Expenses 33,746 94,690 74,237 155,848
(LOSS) BEFORE MINORITY INTEREST AND (33,746) (94,690) (74,237) (155,848)
PROVISION FOR INCOME TAXES
MINORITY INTEREST 6,359 5,689 11,006 11,198
----------- ----------- ------------ -----------
(LOSS) BEFORE PROVISION FOR INCOME TAXES (27,387) (89,001) (63,231) (144,650)
PROVISION FOR INCOME TAXES (BENEFIT) -- (10,391) -- (10,591)
----------- ----------- ------------ -----------
(LOSS) FROM CONTINUING OPERATIONS (27,387) (78,610) (63,231) (134,059)
DISCONTINUED OPERATIONS
Income from operation of discontinued subsidiary, net of
income taxes $10,391 and $10,591 in 1999 -- 15,713 -- 16,567
----------- ----------- ------------ -----------
NET (LOSS) (27,387) (62,897) (63,231) (117,492)
Other comprehensive income:
Foreign currency translation adjustment (97,222) (2,730) (69,377) (29,037)
----------- ----------- ------------ -----------
COMPREHENSIVE (LOSS) $ (124,609) $ (65,627) $ (132,608) $ (146,529)
=========== =========== ============ ===========
PER SHARE INFORMATION
Weighted average number of shares 115,784,731 115,792,613 115,784,731 115,792,613
=========== =========== ============ ===========
(Loss) per share - basic and fully diluted $ (.00) $ (.00) $ (.01) $ (.01)
=========== =========== ============ ===========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
</TABLE>
3
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PART I: FINANCIAL INFORMATION, CONTINUED.
ITEM 1. FINANCIAL STATEMENTS, CONTINUED.
<TABLE>
<CAPTION>
INTERNATIONAL REALTY GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 2000 AND 1999
(UNAUDITED)
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SIX MONTHS ENDED
2000 1999
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
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Net Cash Provided By (Used In) Operating Activities $ 36 $ (85,105)
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-- --
CASH FLOWS FROM INVESTING ACTIVITIES -- --
Net Cash Provided By (Used In) Investing Activities -- --
----------------- ----------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net Cash Provided By (Used In) Financing Activities -- --
----------------- ----------------
NET INCREASE (DECREASE) IN CASH 36 (85,105)
BEGINNING - CASH BALANCE 470 87,315
----------------- ----------------
ENDING - CASH BALANCE $ 506 $ 2,210
================= ================
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
</TABLE>
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
JUNE 30, 2000
(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 S-B. 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 International Realty Group,
Inc., a Delaware corporation (the "Company") as of December 31, 1999 and for the
two years then ended, including notes thereto included in the Company's Form
10-KSB for the fiscal year ended December 31, 1999.
The accompanying consolidated financial statements include the accounts of the
Company and its subsidiaries. Intercompany transactions and balances have been
eliminated in consolidation.
(2) EARNINGS PER SHARE
The Company calculates net income (loss) per share as required by SFAS No. 128,
"Earnings per Share." Basic earnings (loss) per share is calculated by dividing
net income (loss) by the weighted average number of shares of the Company's
Common Stock outstanding for the period. Diluted earnings (loss) per share is
calculated by dividing net income (loss) by the weighted average number of
shares of the Company's Common Stock and dilutive Common Stock equivalents
outstanding. During the periods presented, Common Stock equivalents, if any,
were not considered as their effect would be anti-dilutive.
(3) 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.
Management has not identified any impairment losses as of June 30, 2000.
(4) RECLASSIFICATIONS
Certain amounts included in the accompanying financial statements from the
previous year have been reclassified to conform to the current year's
presentation.
(5) DISCONTINUED OPERATIONS
Effective on December 31, 1999 the Company completed the sale of all of the
outstanding capital stock of Appraisal Group International, Inc., a Florida
corporation ("AGII"). AGII had accounted for 100% of the Company's consolidated
revenue in 1999. The assets disposed of consisted principally of cash, accounts
receivable and furniture and equipment.
5
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PART I: FINANCIAL INFORMATION, CONTINUED.
ITEM 1. FINANCIAL STATEMENTS, CONTINUED.
The Company exchanged the net assets of AGII of $129,877 for 800,000 shares
of its Common Stock previously held by an officer and director. Additionally,
the officer agreed to escrow an additional 400,000 shares of Common Stock as
part of the purchase price, which shares shall be released to the Company on
March 1, 2003, provided however, that, if at any time prior to March 1, 2003
the cumulative fair market value of the escrowed shares exceeds $200,000, the
officer shall have the right to adjust the number of escrowed shares
deliverable to the Company downward. If the cumulative fair market value
exceeds $200,000 the number of shares deliverable will be calculated by
dividing $200,000 by the fair market value per share. Concurrently with this
exchange this officer resigned from the Company.
The Company has recorded as treasury stock the 800,000 shares of the Company's
Common Stock received with a cost of $129,877. No gain or loss has been
recognized on the transaction.
Operating results for AGII for the three months and six months ended June 30,
1999 are shown separately in the accompanying statement of operations. Net sales
of AGII for the three months and six months ended June 30, 1999 were $379,596
and $228,168, respectively. These amounts are not included in the Company's net
sales in the accompanying statement of operations.
The Company disposed of the following assets and liabilities at December 31,
1999:
<TABLE>
<S> <C>
Cash $ 1,016
Accounts receivable 77,915
Furniture and equipment 83,142
Other assets 15,258
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Total assets 177,331
Accounts payable (47,454)
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Net assets $ 129,877
==========
</TABLE>
Assets are shown at their net realizable values and liabilities are shown at
their face amounts.
(6) RECEIVABLE FROM RELATED PARTY
The Company is currently dependent upon the collection of the receivable from a
stockholder for the funding of its operations and settlement of its obligations.
6
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PART I: FINANCIAL INFORMATION, CONTINUED
ITEM 2
Item 2. Management's Discussion and Analysis or Plan of Operations.
The following discussion and analysis covers material changes in financial
condition since December 31, 1999 and material changes in the results of
operations for the three months and six months ended June 30, 2000, as compared
to the same periods in 1999. 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, 1999.
RESULTS OF OPERATIONS
OVERVIEW
The Company was incorporated in the State of Delaware on April 13, 1970. The
Company's Common Stock is quoted on the OTC Bulletin Board under the symbol
"IRGR," and its fiscal year ends on December 31. The Company's principal offices
are located at Av. Constituyentes 647, Mexico, D.F. 11810, and its telephone
number is 011-52-5277-9211.
The Company, together with its subsidiaries, has operated in two business
segments: (i) land development; and (ii) real estate consulting services. The
Company intends to develop its real estate properties for use in resort,
residential and commercial applications. The Company's ability to achieve these
objectives depends on many factors, including its ability to raise the necessary
capital to develop, maintain and market its real estate properties. The Company
has no present understanding, agreement or commitment for financing any of its
real estate properties and there can be no assurance that financing will be
available to the Company on commercially reasonable terms, or at all.
The Company currently owns a majority interest in the following four parcels of
vacant or partially developed land:
CLUSTER IXTAPA
The Company has a 75% interest in Cluster Inmobiliaria de Ixtapa, S.A. de C.V.,
a company formed under the laws of Mexico ("CLUSTER IXTAPA"). Cluster Ixtapa
owns 26 acres of partially developed property on the Pacific coast of Mexico in
Ixtapa, State of Guerrero, Mexico. This property is part of the 208-acre "Marina
Ixtapa" planned unit development located in the town of Ixtapa-Zihuatanejo,
approximately 240 kilometers northwest of the port of Acapulco. The preliminary
site work has been completed and this property is being held for future
development and/or sale of all or a portion of this property.
If it receives sufficient financing to develop these real estate properties,
then Cluster Ixtapa intends to develop up to 14 commercial lots and 124
residential lots with an additional investment in infrastructure of
approximately $4 million. Cluster Ixtapa then would market developed lots to
local builders/developers for construction of townhomes, villas and/or
commercial use for sale to the general public.
CAYE BOKEL
Caye Bokel, Limited, a wholly-owned subsidiary of the Company formed under the
laws of Belize, owns an 87-acre property on the Island of Caye Bokel in Belize.
The Company is holding this property for future development. If it receives
sufficient financing, then the Company intends to develop this property as a
marina resort for domestic and foreign tourists. This property is not subject to
a mortgage.
7
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PART I: FINANCIAL INFORMATION, CONTINUED
ITEM 2
NUEVA TIERRA
Nueva Tierra, S.A. de C.V., a wholly-owned subsidiary of the Company formed
under the laws of Mexico ("NUEVA TIERRA"), is the general partner of the
following joint ventures in Mexico:
- HACIENDA DE FRANCO. Nueva Tierra has an approximate 81% interest in
Hacienda de Franco, a joint venture formed under the laws of Mexico, that
owns a residential development project located near Silao in the State of
Guanajuato, Mexico. This property consists of approximately 236 acres of
land and includes a traditional colonial style hacienda. The Company is
holding this property for future development that will be centered around
the hacienda. This property is not subject to a mortgage.
- BAHIA DE CORTES. Nueva Tierra has an approximate 78% interest in Bahia de
Cortes, a joint venture formed under the laws of Mexico, that owns a resort
development project located in Baja California near La Paz. The Company is
holding this property for future development. This property consists of
approximately 3,451 acres of land, including over five kilometers of
beachfront property. This property is not subject to a mortgage.
The Company believes that each of these real estate properties is suitable for
future development as either a resort, residential or commercial property. 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 The Company has not undertaken additional steps to
develop or determine a comprehensive or definitive plan relating to any of these
properties during the first half of 2000. Any significant development of these
properties is contingent upon the Company obtaining necessary financing and a
review of the applicable market conditions at 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 by
the Company. The Company has no present understanding, agreement or commitment
for financing any property and there can be no assurance that financing will be
available to the Company on commercially reasonable terms, if at all. If the
Company is unable to obtain financing necessary to develop some or all of these
real estate properties, then the Company may elect to sell one or more of these
properties. Regardless of the availability of financing sources, the Company may
sell one or more of its properties if the related terms are favorable to the
Company.
DISCONTINUED OPERATIONS
Effective December 31, 1999, the Company sold all of the outstanding capital
stock of AGII to Richard M. Bradbury, the Company's former president and a
former director. Net sales of AGII for the three months and six months ended
June 30, 1999 were $228,168 and $379,586, respectively. These amounts are not
included in net sales in the accompanying statements of operations for 1999.
AGII accounted for 100% of the Company's consolidated revenue in 1999. The
results of operations for AGII have been classified separately in the
consolidated statements of operations.
CONTINUING OPERATIONS
The Company did not record any revenues from operations in 1999 or the first six
months of 2000 as a result of its sale of AGII at the end of 1999.
General and administrative expenses were $80,853 and $123,982 for the three
months and six months ended June 30, 1999 and compared to $33,746 and $74,237
for the three months and six months ended June 2000.
8
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As of January 1, 1999, the peso is recognized as the functional currency for the
Company's local operations and any adjustments are as a component of equity.
During the three months and six months ended June 30, 1999 currency translation
adjustments of $2,730 and $29,037 were recognized in stockholders' equity.
During the three months and six months ended June 30, 2000 currency translation
adjustments of $97,222 and $69,377 were recognized in stockholders' equity.
NET LOSSES
As a result of the above, the Company had a consolidated net losses of $62,897
and $117,492 during the three months and six months ended June 30, 1999 and
compared to net losses of $27,387 and $62,231 during the three months and six
months ended June 30, 2000.
9
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PART I: FINANCIAL INFORMATION, CONTINUED
ITEM 2, CONTINUED
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary source of financing are receivables in the aggregate
amount of $1,166,604 that is due from a significant stockholder. The Company
currently has no revenue producing activities and is dependent on this
receivable to finance its operations. The Company had no material commitments
for capital expenditures at June 30, 2000.
To date, the Company has financed its operations principally through borrowings
and revenues derived from its previous real estate appraisal and consulting
services. The Company will need additional capital to continue its operations
for the next twelve months and may raise funds through the sale of equity shares
and revenues from operations. There can be no assurance that additional private
or public financing, including debt or equity financing, will be available as
needed, or on terms favorable to the Company. Any additional equity financing
may be dilutive to stockholders and these additional equity securities may have
rights, preferences or privileges that are senior to those of the Company's
Common Stock. Furthermore, debt financing, if available, will require payment of
interest and may involve restrictive covenants that could impose limitations on
the operating flexibility of the Company. The failure of the Company to obtain
additional funding may jeopardize the Company's ability to continue its business
and 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 that are foreign currency denominated and are translated
to U.S. dollars at each reporting period. The Company has made quarterly
currency translation adjustments (totaling $253,645 over an eight-year period)
for its foreign operations, recognized as a component of stockholders'
deficiency. The Company has not engaged in the purchase of forward contracts, or
other hedging techniques, to manage this 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 "believe", "plan", "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 others, 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.
10
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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.
11
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PART II: OTHER INFORMATION
ITEM 1: LEGAL PROCEEDINGS
BIRNHOLZ V. INTERNATIONAL REALTY GROUP, INC., THE APPRAISAL GROUP, INC.
AND APPRAISAL GROUP INTERNATIONAL, INC. On or about April 20, 2000, Jack
Birnholz, a former employee of the Company, filed a complaint against the
Company and The Appraisal Group, Inc. and Appraisal Group International, Inc. in
the Circuit Court of the Eleventh Judicial Circuit of Miami-Dade County,
Florida. The complaint alleges a breach of an oral employment agreement and
demands payment of outstanding wages of $193,245. The Company currently is
evaluating the merits of this claim and intends to defend it vigorously.
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
A. Exhibits
27.1 Financial Data Schedule
B. Reports on Form 8-K
None.
12
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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: AUGUST 3, 2000 By: /s/ JAIME SERRA
----------------------------------------
Jaime Serra
Chief Executive Officer and Acting Chief
Financial Officer
(Principal Executive and Accounting
Officer)
13
