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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
(Mark One)
/X/ ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the year fiscal year ended December 31, 1999
/ / TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from to
-------------------- --------------------
______________________________
Commission File No.: 0-20180
INTERNATIONAL REALTY GROUP, INC.
(Name of small business issuer in its charter)
Delaware 62-1277260
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
Av. Constituyentes 647
Mexico, D.F. 11810
011-52-5277-9211
(Address of principal executive offices and Issuer's telephone number)
Securities registered under Section 12(b) of the Exchange Act: None
Title of each class Name of each exchange on which registered
None None
Securities registered under Section 12(g) of the Exchange Act:
COMMON STOCK, $0.001 PAR VALUE PER SHARE
(Title of class)
______________________________
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 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 disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not 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. / /
The registrant did not record any revenues for the most recent fiscal
year.
The estimated aggregate market value of voting and non-voting common
equity held by non-affiliates as of March 31, 2000 is below $25,000,000, which
is based upon the last trading price of $0.125 per share of Common Stock on
March 20, 2000, and the significant affiliate ownership of the shares of Common
Stock of the registrant.
Common Stock, $0.001 par value per share: 115,792,613 shares
outstanding as of March 31, 2000.
Documents Incorporated by Reference: None.
Transitional Small Business Disclosure Format (check one):
YES / / NO /X/
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
CAUTIONARY NOTE REGARDING FORWARD LOOKING STATEMENTS
This report contains forward-looking statements within the meaning of Section
27A of the Securities Act of 1933 (the "SECURITIES ACT"), and Section 21E of
the Securities Exchange Act of 1934. All forward-looking statements are
inherently uncertain as they are based on current expectations and
assumptions concerning future events or future performance of International
Realty Group, Inc. (the "COMPANY"). These 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) a downturn in general or local
economic conditions where the Company owns real property; (vii) the delay or
failure to properly manage growth and successfully integrate acquired
companies and operations; (viii) lack of geographic diversification; (ix)
effect of uninsured loss; (x) the financial condition of the Company's
clients; (xi) imposition of new regulatory requirements affecting the
Company; and (xii) other factors that are described in further detail in this
report and the Company's other filings with the Securities and Exchange
Commission ("SEC").
Readers are cautioned not to place undue reliance on these forward-looking
statements, which are only predictions and speak only as of the date hereof.
Forward-looking statements usually contain the words "estimate,"
"anticipate," "believe," "expect," "plan" or similar expressions, and are
subject to numerous known and unknown risks and uncertainties. Any
forward-looking statement speaks only as of the date on which the 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. Because new factors emerge from time to time, the
Company's management cannot predict all of these factors. Furthermore,
management cannot assess the impact of each 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.
BUSINESS OF THE COMPANY
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.
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LAND DEVELOPMENT
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.
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
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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 did not
undertake additional steps to develop or determine a comprehensive or
definitive plan relating to any of these properties during 1999. 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.
During 1999, the Company sold or disposed of all or substantially all of the
following properties:
CENTRO DE PROMOCIONES GUERRERO
Centro de Promociones Guerrero, S. A. de C. V., a company formed under the
laws of Mexico, owned Campo de Tiro, an eight-acre, partially developed
property located in Acapulco, State of Guerrero, Mexico. In November 1999,
this property was foreclosed by, and delivered to, an existing creditor to
satisfy outstanding encumbrances on this property.
VILLAS DEL CARBON
Villas del Carbon, a joint venture formed under the laws of Mexico, owned a
24-acre residential development located in Villa del Carbon, State of Mexico,
Mexico, in which Nueva Tierra had an approximate 79% interest. In November
1999, this property was re-instated to the Community of San Jeronimo
Zacapexco, State of Mexico, after the applicable court determined that such
community was the proper owner of the property.
CLEAR LAKE PINES. During 1999, the Company sold two developed vacant lots
totaling one acre, which were located in Clear Lake Pines, La Grange, Texas,
a second-home recreational development.
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ENVIRONMENTAL REGULATIONS
The Company believes that its real estate properties are not subject to any
claims for liability for cleanup of waste sites or environmental
contamination of property. During 1999, the Company did not incur material
costs in complying with federal, state and local environmental laws.
REAL ESTATE CONSULTING SERVICES
The Company previously operated its real estate consulting services through
Appraisal Group International, Inc., a wholly-owned Florida corporation
("AGII"). Appraisal Group International, Rt., a partially-owned company
organized under the laws of Hungary ("AGI RT."), did not conduct business
operations during 1999.
APPRAISAL GROUP INTERNATIONAL, RT.
AGI Rt. engages in valuations of businesses, real estate, management,
consulting, privatization management and trade brokerage in Central and
Eastern Europe. The majority of AGI Rt.'s business has involved the valuation
of businesses and real estate, primarily for the State Property Agency of the
Hungarian government and local city municipalities. During 1999, AGI Rt. did
not perform any real estate consulting services. The Company presently
intends to discontinue the operations of AGI Rt.
APPRAISAL GROUP INTERNATIONAL, INC.
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
director. See "Item 12--Certain Relationships and Related Transactions." AGII
performed appraisal and valuation services on a domestic and international
level for a variety of real estate properties, including office buildings,
shopping centers, apartment complexes, hotels, resorts, golf courses and
single-family homes. AGII also performed business valuations, equipment and
machinery valuations and litigation support for its clients.
COMPETITION
Significant competition exists in the field of real estate development and
resort operations. Many of the Company's competitors are significantly larger
and more established than the Company. As a result, these competitors possess
greater financial, marketing and other resources and name recognition that
provide them with a competitive advantage over the Company. There can be no
assurance that the Company will compete effectively with existing or new
competitors.
EMPLOYEES.
The Company has no current employees. Urbaterra, S.C., an administrative and
financial services provider company formed under the laws of Mexico,
currently provides management support to the Company. The Urbaterra personnel
assisting the Company includes one executive,
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one administrative assistant, one secretary, one financial consultant and one
engineering consultant.
ITEM 2. DESCRIPTION OF PROPERTY
The Company currently owns interests in four parcels of vacant or partially
developed land. See "Item One-Description of Business."
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 (i) income producing real estate
properties to provide current income and cash flow and (ii) undeveloped real
estate properties for future capital appreciation. This real estate policy is
not restricted to a particular type, size or geographic location for any
acquisition or the number or amount of mortgages that may be placed on any
one piece of property.
The Company seeks to acquire real estate properties: (i) that are
significantly under-valued in relation to its market or type; (ii) where the
properties' debt can be restructured to provide enhanced cash flow; and (iii)
that are partially developed and can be acquired for a discount for later
development and operation. Management presently believes that there are a
number of potential opportunities in the United States, Mexico, the Caribbean
and other South American countries. The Company may acquire its ownership
through the direct purchase of a property or through the acquisition of the
capital stock or other equity securities of an entity engaged primarily in
the operation or development of real estate properties. Subject to the
fiduciary obligations of the Company's Board of Directors to its
stockholders, the Company may acquire real estate properties for either
investment or development that are owned directly or indirectly by affiliates
of the Company. The Company may acquire real estate through the issuance of
equity or the assumption of existing debt. There can be no assurance that the
Company will acquire any real estate properties in the future or, if the
Company does acquire any properties, that these properties will generate any
income or capital appreciation. All real estate acquisitions by the Company
are subject to real estate investment and development risks, including, but
not limited to, the potential for increases in real property taxes and
interest rates, fluctuating demand for real estate, difficulties in obtaining
building permits or necessary zoning changes, construction delays, strikes,
adverse weather conditions and other conditions beyond the control of the
Company.
ITEM 3. LEGAL PROCEEDINGS
On February 28, 2000, the Company received written notice from counsel to a
former employee demanding payment of outstanding wages of $193,245. The
Company currently is analyzing the merits of this demand and intends to
defend any resulting claim vigorously.
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ITEM 4. SUBMISSION OR MATTERS TO A VOTE OF SECURITY HOLDERS
The Company did not submit any matter to a vote of its security holders
during the quarter ended December 31, 1999.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The following table indicates the high and low bid prices for the Company's
Common Stock as quoted on the OTC Bulletin Board for the periods indicated.
The prices shown are representative inter-dealer prices, do not include
retail markups, markdowns or commissions and may not necessarily reflect
actual transactions.
<TABLE>
<CAPTION>
BID AND ASK PRICES
- ---------------------------------------------------------- ---------------------------------------------------------
PERIOD ENDING HIGH CLOSE LOW CLOSE
- ---------------------------------------------------------- ---------------------------- --------------------------
<S> <C> <C>
December 31, 1999 $0.125 $0.0625
September 30, 1999 $0.125 $0.0625
June 30, 1999 $0.3125 $0.125
March 31, 1999 $0.500 $0.0469
December 30, 1998 $1.00 $0.03125
September 30, 1998 $1.00 $0
June 30, 1998 $1.00 $0
March 31, 1998 $1.00 $0
</TABLE>
HOLDERS OF RECORD
As of March 31, 2000, there were 894 holders of record of the Company's
Common Stock, with 115,792,613 shares issued and outstanding.
DIVIDENDS
The Company has not declared any cash dividends for the two-year period ended
December 31, 1999.
RECENT SALES OF UNREGISTERED SECURITIES
During 1999, the Company issued and sold the following securities, none of
which were registered under the Securities Act, because the subject
transactions involved non-public offerings exempt from registration under
Section 4(2) of the Securities Act and Regulation D promulgated thereunder:
On January 8, 1999, the Company issued an aggregate of 105,638,280 shares of
Common Stock to ITD, S.A. de C.V. ("ITD"), formerly known as DSC, S.A. de
C.V., and Hemisphere
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Developments, Ltd. ("HEMISPHERE") upon the conversion of outstanding 5%
Convertible Promissory Notes that were issued to ITD and Hemisphere on August
19, 1996. See "Item 12 - Certain Relationships and Related Transactions."
During the first quarter of 1999, Mr. Bradbury exercised stock options
issuable into 200,000 shares of the Company's Common Stock.
ITEM 6. MANAGEMENT'S DISCUSSION AND 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 twelve months ended December 31, 1999, as
compared to the same period in 1998. This discussion and analysis should be
read in conjunction with the Company's audited consolidated financial
statements and the related notes thereto and the other financial information
included elsewhere in this report. This discussion contains forward-looking
statements that include risk and uncertainties. The Company's actual results
could differ materially from those anticipated in these forward-looking
statements as a result of any number of factors, including those contained
elsewhere in this report.
RESULTS OF OPERATIONS
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. See "Item 12--Certain Relationships and Related
Transactions." Net sales of AGII for 1998 and 1999 were $707,701 and
$710,857. These amounts are not included in net sales in the accompanying
statements of operations. AGII accounted for 92% and 100% of the Company's
consolidated revenue in 1998 and 1999. See Note 6 to the Notes to the
Company's Financial Statements. The results of operations for AGII have been
separately classified in the consolidated statements of operations.
CONTINUING OPERATIONS
The Company did not record any revenues from foreign operations in 1999 as a
result of its sale of AGII at the end of 1999. The Company generated total
revenues of $60,317 in 1998 that were generated from real estate consulting
services.
General and administrative expenses decreased to $211,033 in 1999 from
$403,285 in 1998 as a result of decreased costs related to foreign operations
and reduced operating expenses resulting from the domestic cost control
measures implemented during 1999.
OTHER INCOME AND EXPENSES
A portion of the interest expense ($4,507 of the $6,939 in 1999 and $263,285
of the $334,827 in 1998) was attributable to the Notes issued in connection
with the purchase of the real estate properties from ITD and Hemisphere in
1996. The balance of $2,432 in 1999 relates to interest
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incurred on short term borrowings and the balance of $71,542 in 1998 resulted
primarily from mortgage and other short-term interest expense for the
Company's real estate properties in Mexico and domestic and foreign
operations.
The Company did not sustain losses for exchange rate fluctuations in 1999,
compared to losses of $64,874 in 1998 related to its Mexican operations.
Mexico was considered a highly inflationary economy during 1998.
During 1999, the Company recognized a gain of $154,694 from the disposition
and abandonment of certain assets, primarily parcels of undeveloped land, and
the settlement of certain liabilities which were collateralized by the
parcels of land.
NET LOSSES
As a result of the above, the Company had a consolidated net loss of $66,614
in 1999 compared to a loss of $604,789 in 1998.
LIQUIDITY AND CAPITAL RESOURCES
On January 8, 1999, the Company issued an aggregate of 105,638,280 shares of
Common Stock to ITD and Hemisphere upon the conversion of certain outstanding
5% Convertible Promissory Notes (the "NOTES") that the Company issued to ITD
and Hemisphere in August, 1996. The Company issued the Notes pursuant to a
transaction in which the Company previously acquired, among other things,
ownership interest in four parcels of vacant or partially developed land in
Mexico.
The Company's primary source of financing are receivables in the aggregate
amount of $1,286,946 that is due from a significant shareholder. The Company
currently has no revenue producing activities and is dependent on this
receivable to finance its operations.
Net cash used in operating activities was $86,845 in 1999 and net cash
provided by operating activities was $68,598 in 1998. Net cash used in
operating activities in 1999 resulted primarily from the net loss adjusted by
the gain on the disposition of assets, the reduction of the amount due from a
shareholder and a decrease in accounts payable. Net cash provided by
operating activities in 1998 resulted primarily from the net loss adjusted by
the reduction of the amount due from a shareholder.
Net cash used in investing activities in 1998 of $24,913 resulted from
increased investments in property held for sale or development. There were no
cash flows from investing activities in 1999.
Net cash used in financing activities in 1998 of $88,600 resulted primarily
from principal payments made on mortgages and notes. There were no cash flows
from financing activities in 1999.
The Company has no material commitments for capital expenditures at December 31,
1999.
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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 shareholders 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.
ASSETS, LIABILITIES AND LONG-TERM DEBT
At December 31, 1999, the Company's liabilities totaled $441,663, which are
attributable entirely to domestic operations. The Company, at December 31,
1999, had a balance of $1,286,946 in accounts receivable from stockholders
versus $1,463,046 in accounts receivable at December 31, 1998. The Company is
utilizing the receivables for operating expenses and future capital
requirements. See "--Results of 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 $211,843 over an
eight-year period) for its foreign operations, recognized as a component of
stockholder's deficiency. During 1998, the Company used the U.S. dollar as
the functional currency for its operations in Mexico because 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 this foreign exchange risk to protect against earnings
and cash flow volatility resulting from changes in foreign exchange rates.
ITEM 7. FINANCIAL STATEMENTS
The information required by this item is included in the financial pages
attached hereto and incorporated herein by reference. The index to the
consolidated financial statements can be found on page F-1.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
On February 28, 2000, the Company changed accountants from Tubbs & Bartnick,
P.A. to Stark Tinter & Associates, LLC. Tubbs & Bartnick, P.A. declined to
stand for re-election, given that one of its shareholders became a member of
Stark Tinter & Associates, LLC. The consolidated financial statements
reported on by Tubbs & Bartnick, P.A. were not subject to an adverse or
qualified opinion, or a disclaimer of opinion during the past fiscal year and
the interim period ended February 28, 2000, and there were no disagreements
related to accounting principles or practices, financial statement
disclosure, or auditing scope or procedure during the past fiscal year and
the interim period ended February 28, 2000. The decision to change
accountants was approved by the Company's Board of Directors.
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PART III
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
The directors and executive officers of the Company and their ages as of March
31, 2000 are as follows:
<TABLE>
<CAPTION>
----------------------------------------------- ------------- ----------------------------------------------------
NAME AGE POSITION HELD WITH THE COMPANY
----------------------------------------------- ------------- ----------------------------------------------------
<S> <C> <C>
Bernardo Dominguez Cereceres 39 Chairman of the Board of Directors
----------------------------------------------- ------------- ----------------------------------------------------
Chief Executive Officer, Acting Chief Financial
Jaime Serra 55 Officer and Director
----------------------------------------------- ------------- ----------------------------------------------------
Pablo Macedo 70 Director and Secretary
----------------------------------------------- ------------- ----------------------------------------------------
Jorge Lopez Nunez 62 Director
----------------------------------------------- ------------- ----------------------------------------------------
</TABLE>
There are no family relationships among any of the executive officers or
directors of the Company.
BERNARDO DOMINGUEZ CERECERES, Chairman of the Board of the Company, has
served as Chairman of the Board since August 1996, when the Company completed
the acquisition of certain real estate properties from ITD, S.A. de C.V., a
Mexican company formerly known as DSC, S.A. de C.V., 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 ITD, S.A. de C.V. since 1986.
JAIME SERRA, Chief Executive Officer, Acting Chief Financial Officer and a
director of the Company, has served as Chief Executive Officer and a director
since June 1999 and as Acting Chief Financial Officer since January 2000.
From 1995 to 1998, Mr. Serra also served as a financial and management
advisor for Grupo Asesor Mexicano, S.C. Since March 1998, Mr. Serra has
served as the President of Urbaterra, S.C., a land development company formed
under the laws of Mexico. From January 1994 to 1995, Mr. Serra was the
Technical Director of the Asociacion de Banqueros de Mexico A.C.; and from
July 1985 to December 1993, he held various executive offices at Casa de
Bolsa Arka, S.A. de C.V., Value Casa de Bolsa, S.A. and Casa de Bolsa, Cremi.
PABLO MACEDO, Secretary and a director of the Company, has served as a
director of the Company since June 1999 and as Secretary since January 2000.
Mr. Macedo has been Corporate Vice Chairman of ITD from 1992 to present. From
1984 to 1992, he was Chief Executive Officer of Promociones Turisticas
Banamex, S.A. de C.V.
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JORGE LOPEZ NUNEZ, a director of the Company, has served as a director of the
Company since June 1999. Mr. Lopez Nunez is a co-founder of ITD, S.A. de C.V.
and has served as its Vice-Chairman since 1986. From 1984 to 1985, Mr. Lopez
Nunez was Operational and Energy Manager of Secretaria de Minas e Industria
Paraestatal. From 1982 to 1984, he was Executive Vice President of Credito
Mexicano.
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 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 review of the copies of such
reports furnished to the Company and written representation that no other
reports were required, the Company's officers, directors and greater than ten
percent (10%) stockholders complied with all applicable Section 16(a) filing
requirements, except for: (i) one Form 5 to be filed by Bernardo Dominguez
Cereceres, Chairman of the Board of Directors; (ii) one Form 3 and one Form 5
to be filed by Jaime Serra, the Chief Executive Officer, Acting Chief
Financial Officer and Director; (iii) one Form 5 to be filed by Pablo Macedo,
a Director and Secretary; (iv) one Form 3 and one Form 5 to be filed by Jorge
Lopez Nunez, a Director; (v) one Form 5 to be filed by Richard M. Bradbury,
the Company's former President; (vi) one Form 4 to be filed by Hemisphere
Developments, Ltd.; and (vii) one Form 4 to be filed by ITD, S.A. de C.V. The
Company intends to file all delinquent Form 3s, 4s and 5s within 30 days of
the filing of this Report.
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 1999 and
other executive officers of the Company who received annual compensation,
including salary and bonus, in excess of $100,000 in 1999 (the "NAMED
EXECUTIVE OFFICERS").
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<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
ANNUAL COMPENSATION LONG TERM COMPENSATION
- --------------------- -------- ------------------------------------------ -----------------------------------------
AWARDS PAYOUTS
----------------------------- ---------
NAME AND PRINCIPAL SALARY BONUS OTHER ANNUAL RESTRICTED SECURITIES LTIP ALL OTHER
POSITION YEAR ($) ($) COMPENSATION STOCK UNDERLYING PAYOUTS COMPENSATION
($) AWARD(S) OPTIONS/SARS ($) ($)
($) (#)
- ----------------------- -------- --------------- ---------- ----------------- ------------- ------------------ ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Jaime Serra, Chief 1999 -- -- -- -- -- -- --
Executive Officer and
Acting Chief
Financial Officer (1)
- ----------------------- -------- --------------- ---------- ----------------- ------------- ------------------ ---------- ---------
Richard M. Bradbury,
Former President (2) 1999 $60,500 -- -- -- -- -- --
- ----------------------- -------- --------------- ---------- ----------------- ------------- ------------------ ---------- ---------
1998 100,000(3) -- -- -- 2,000,000 -- --
(5)
-------- --------------- ---------- ----------------- ------------- ------------------ ---------- ---------
1997 100,000(4) -- -- -- -- -- --
-------- --------------- ---------- ----------------- ------------- ------------------ ---------- ---------
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
- -------------
(1) Mr. Serra was appointed the Chief Executive Officer effective June 8,
1999, and Acting Chief Financial Officer of the Company effective
January 27, 2000.
(2) Mr. Bradbury resigned as President effective December 31, 1999.
(3) Includes accrued and deferred salary of $44,750.
(4) Includes accrued and deferred salary of $71,848.
(5) These stock options terminated in their entirety effective
December 31, 1999.
OPTION/SAR GRANTS IN LAST FISCAL YEAR - (INDIVIDUAL GRANTS)
<TABLE>
<CAPTION>
- ----------------------------- ------------------------------ ---------------------------------- --------------------- -------------
NUMBER OF SECURITIES PERCENT OF TOTAL OPTIONS/SARS
UNDERLYING OPTIONS/SARS GRANTED TO EMPLOYEES IN EXERCISE OR BASE EXPIRATION
NAME GRANTED (#) FISCAL YEAR PRICE ($/SH) DATE
- ----------------------------- ------------------------------ ---------------------------------- --------------------- -------------
<S> <C> <C> <C> <C>
Jaime Serra (1) -- -- -- --
- ----------------------------- ------------------------------ ---------------------------------- --------------------- -------------
Richard M. Bradbury (2) -- -- -- --
- ----------------------------- ------------------------------ ---------------------------------- --------------------- -------------
</TABLE>
- -------------
(1) Mr. Serra was appointed the Chief Executive Officer effective June 8,
1999, and Acting Chief Financial Officer of the Company effective
January 27, 2000.
(2) Mr. Bradbury resigned as President effective December 31, 1999.
OPTION EXERCISES IN 1999
Set forth below is information with respect to exercises of stock options by the
Named Executive Officers during 1999 and the fiscal year-end value of all
unexercised stock options held by these persons.
12
<PAGE>
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FISCAL
YEAR-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
- ------------------------ ----------------- --------------- --------------------------------------- --------------------------------
NUMBER OF UNEXERCISED VALUE OF UNEXERCISED,
OPTIONS/SARS AT FISCAL IN-THE-MONEY OPTIONS/SARS AT
YEAR-END (#) FISCAL YEAR-END ($)
- ------------------------ ----------------- --------------- --------------------------------------- ---------------- ---------------
SHARES
ACQUIRED ON VALUE
NAME EXERCISE (#) REALIZED ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------------ ----------------- --------------- ------------------ -------------------- ---------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Jaime Serra -- -- -- -- -- --
- ------------------------ ----------------- --------------- ------------------ -------------------- ---------------- ---------------
Richard M. Bradbury 200,000 27,000(1) -- -- -- --
- ------------------------ ----------------- --------------- ------------------ -------------------- ---------------- ---------------
</TABLE>
- -------------
(1) Based on an exercise price of $0.135 for shares of the Company's Common
Stock pursuant to the Employment Agreement between the Company and Mr.
Bradbury.
DIRECTOR COMPENSATION
Members of the Company's Board of Directors are entitled to receive 500
shares of Common Stock for each meeting attended. During 1999, no shares of
Common Stock were issued for this service.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the beneficial ownership of the Common Stock
as March 31, 2000 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. Unless otherwise indicated below, to the knowledge of the Company,
all persons listed below have sole voting and investing power with respect to
their shares of Common Stock, except to the extent authority is shared by
spouses under applicable community property laws, and their address is c/o
International Realty Group, Inc., Av. Constituyentes 647, Mexico, D.F. 11810.
13
<PAGE>
<TABLE>
<CAPTION>
- --------------------- ------------------------------------------------ ----------------------------- -----------------------
TITLE OF CLASS NAME AND ADDRESS OF BENEFICIAL OWNER AMOUNT AND NATURE OF PERCENT OF CLASS (1)
BENEFICIAL OWNER
- --------------------- ------------------------------------------------ ----------------------------- -----------------------
<S> <C> <C> <C>
Common Stock Hemisphere Developments, Ltd. (2) 53,277,320 46.0%
- --------------------- ------------------------------------------------ ----------------------------- -----------------------
Common Stock ITD, S.A. de C.V., formerly DSC, 52,100,070 46.0%
S.A. de C.V. (3)
- --------------------- ------------------------------------------------ ----------------------------- -----------------------
Common Stock Bernardo Dominguez Cereceres (3) 52,100,070 46.0%
- --------------------- ------------------------------------------------ ----------------------------- -----------------------
Common Stock Jaime Serra 386,438 *
- --------------------- ------------------------------------------------ ----------------------------- -----------------------
Common Stock All officers and directors as a group 52,486,508 45.3%
(4 persons)
- --------------------- ------------------------------------------------ ----------------------------- -----------------------
</TABLE>
* Represents less than one percent of class.
- -----------
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission (the "SEC") and generally includes
voting or investment power with respect to securities. Shares of Common
Stock subject to options or warrants exercisable within 60 days of
March 31, 2000 are deemed outstanding for computing the percentage of
the person or entity holding these options but are not deemed
outstanding for computing the percentage of any other person. As of
March 31, 2000, the Company had 115,792,613 shares of Common Stock
outstanding.
(2) The relevant address is c/o Hemisphere, Atlantic House, 4-8 Circular
Road, Douglas, Isle of Man.
(3) These shares are owned by ITD, S.A. de C.V., formerly known
as DSC, S.A. de C.V., of which Bernardo Dominguez Cereceres is
Chairman and has a controlling interest.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Effective as of December 31, 1999, the Company sold all of the outstanding
shares of capital stock of AGII to Mr. Bradbury, the Company's former President
and a director, in exchange for certain shares of the Company's Common Stock
owned by Mr. Bradbury. The purchase price for AGII's outstanding capital stock
was agreed upon by the parties after arms-length negotiations and consisted of:
(i) 800,000 shares of IRG Common Stock that Mr. Bradbury transferred to IRG on
the closing date of the transaction; and (ii) up to 400,000 shares of IRG Common
Stock that Mr. Bradbury will transfer to IRG pursuant to the terms and
conditions of a related escrow agreement. Under the escrow arrangement, Mr.
Bradbury, from time to time between March 1, 2000 and March 1, 2003, has the
option to reduce the number of the additional 400,000 escrow shares that he will
transfer to IRG if, among other things, the then fair market value of IRG Common
Stock exceeds $0.50 per share. These shares will be released from escrow on
March 1, 2003.
14
<PAGE>
On January 8, 1999, the Company issued an aggregate of 105,638,280 shares of
Common Stock to ITD, S.A. de C.V. (formerly known as DSC, S.A. de C.V.) and
Hemisphere Developments, Ltd. upon the conversion of certain outstanding 5%
Convertible Promissory Notes that were issued to ITD and Hemisphere on August
19, 1996. Mr. Bernardo Dominguez Cereceres, the Company's Chairman of the Board,
also serves as Chairman of ITD.
ITEM 13. EXHIBITS AND CURRENT REPORTS ON FORM 8-K
(a) Financial Statements.
(1) The index to the Company's consolidated financial
statements appears on page F-1.
(b) Current Reports on Form 8-K
(1) The Company did not file any Current Reports on Form
8-K during the last quarter of 1999.
(c) Exhibits.
<TABLE>
<CAPTION>
- --------- ----- --------------------------------------------------------------------------------------------------------------
NO. EXHIBIT
- --------- ----- --------------------------------------------------------------------------------------------------------------
<S> <C>
3.1 -- Articles of Incorporation of the Company, as filed with the Secretary of State of the State of Delaware on
April 13, 1970. (1)
- --------- ----- --------------------------------------------------------------------------------------------------------------
3.2 -- 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. (1)
- --------- ----- --------------------------------------------------------------------------------------------------------------
3.3 -- 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. (1)
- --------- ----- --------------------------------------------------------------------------------------------------------------
3.4 -- Bylaws of the Company. (1)
- --------- ----- --------------------------------------------------------------------------------------------------------------
10.1 -- Employment Agreement, dated March 1, 1993 and modified December 31, 1994, between Richard M. Bradbury and
the Company. (L)(2)
- --------- ----- --------------------------------------------------------------------------------------------------------------
10.2 -- Employment Agreement, dated December 18, 1998, between Richard M. Bradbury and the Company. (L)(3)
- --------- ----- --------------------------------------------------------------------------------------------------------------
10.3 -- Amended and Restated Agreement, dated as of August 19, 1996, between the Company, ITD, S.A. de C.V. and
Hemisphere Developments, Ltd. (4)
- --------- ----- --------------------------------------------------------------------------------------------------------------
10.4 -- Convertible Note, dated as of August 19, 1996, in favor of ITD, S.A. de C.V. (4)
- --------- ----- --------------------------------------------------------------------------------------------------------------
10.5 -- Convertible Note, dated as of August 19, 1996, in favor of Hemisphere Developments, Ltd. (4)
- --------- ----- --------------------------------------------------------------------------------------------------------------
10.6 -- Stock Purchase Agreement, dated as of December 31, 1999, between the Company and Richard M. Bradbury. (5)
- --------- ----- --------------------------------------------------------------------------------------------------------------
10.7 -- Escrow Agreement, dated as of March 1, 2000, between the Company, Richard M. Bradbury and the escrow agent.
(5)
- --------- ----- --------------------------------------------------------------------------------------------------------------
16.1 -- Letter, received by the Company on March 2, 2000, from Tubbs & Bartnick, P.A. regarding the change of
certifying accountant. (6)
- --------- ----- --------------------------------------------------------------------------------------------------------------
21.1 -- The following table sets forth, as of December 31, 1999, the name of each of the Company's subsidiaries,
the Company's percentage ownership and the jurisdiction of incorporation of each subsidiary:
- --------- ----- --------------------------------------------------------------------------------------------------------------
</TABLE>
15
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
NO. EXHIBIT
Incorporation of each subsidiary:
- ----------------------------------------------------------- --------------- --------------------------- ----------------------
PERCENT STATE OR COUNTRY OF
NAME OF SUBSIDIARY OWNERSHIP DATE OF INCORPORATION 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
- ----------------------------------------------------------- --------------- --------------------------- ----------------------
Stragix International, 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 International, Rt. 37.5 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
- ----------------------------------------------------------- --------------- --------------------------- ----------------------
- ------------------------------------------------------------------------------------------------------------------------------
27.1 -- Financial Data Schedule.
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
- ------------
(L) Denotes a management contract or compensatory plan or arrangement.
(1) Incorporated by reference to the similarly described exhibit included
with the registrant's Current Report on Form 8-K, filed on May 5, 1992.
(2) Incorporated by reference to the similarly described exhibits included
with the registrant's Annual Report on Form 10-KSB, dated May 31, 1995.
(3) Incorporated by reference to the similarly described exhibits included
with the registrant's Annual Report on Form 10-KSB, dated
April 12, 1998.
(4) Incorporated by reference to the similarly described exhibit
included with the registrant's Amendment No. 2 to Current Report on
Form 8-K, filed on November 26, 1997.
(5) Incorporated by reference to the similarly described exhibit
included with the registrant's Current Report on Form 8-K, filed on
March 15, 2000
(6) Incorporated by reference to the similarly described exhibit
included with the registrant's Current Report on Form 8-K, filed on
March 6, 2000.
16
<PAGE>
SIGNATURES
Pursuant to the requirements of section 13 or 15 (d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
INTERNATIONAL REALTY GROUP, INC.
Date: April 14, 2000 By: /s/ JAIME SERRA
--------------------------------------------
Jaime Serra, Chief Executive Officer and
Acting Chief Financial Officer (Principal
Executive and Financial Officer)
Pursuant to the requirements of the Securities and Exchange Act of 1934, this
report has been signed by the following persons on behalf of the Registrant in
the capacities indicated and on April 14, 2000.
/s/ Bernardo Dominguez Cereceres
- -------------------------------- Chairman of the Board of Directors
Bernardo Dominguez Cereceres
/s/ Jaime Serra Chief Executive Officer, Acting Chief
- -------------------------------- Financial Officer and Director (Principal
Jaime Serra Executive and Financial Officer)
/s/ Pablo Macedo
- -------------------------------- Secretary and Director
Pablo Macedo
/s/ Jorge Lopez Nunez
- -------------------------------- Director
Jorge Lopez Nunez
17
<PAGE>
INTERNATIONAL REALTY GROUP, INC. AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
<S> <C>
Independent Auditor's Reports F-2
Consolidated balance sheet as of December 31, 1999 F-4
Consolidated statements of operations for the years ended December 31,
1998 and 1999 F-5
Consolidated statement of stockholders' equity for the two years ended
December 31, 1999 F-6
Consolidated statements of cash flows for the years ended December 31,
1998 and 1999 F-7
Notes to consolidated financial statements F-8
</TABLE>
F-1
<PAGE>
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.
TUBBS & BARTNICK, P.A.
Certified Public Accountants
Boca Raton, Florida
April 12, 1999
F-2
<PAGE>
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, 1999 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, 1999 , and the results of its
operations and its cash flows for the year then ended, in conformity with
generally accepted accounting principles.
Stark Tinter & Associates, LLC
Certified Public Accountants
Denver, Colorado
April 4, 2000
F-3
<PAGE>
INTERNATIONAL REALTY GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1999
<TABLE>
<CAPTION>
ASSETS
<S> <C>
Real estate, at cost
Property held for development or sale $ 5,273,013
----------
Accounts receivable
Due from shareholder 1,286,946
Other 1,157
----------
Total accounts receivable 1,288,103
----------
Cash and cash equivalents 470
----------
Other assets 44,958
----------
$ 6,606,544
==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Accounts payable $ 441,663
----------
Minority interest 1,281,155
----------
Stockholders' equity
Common stock, $.001 par value,
450,000,000 shares authorized, 115,784,731
shares issued and outstanding 115,784
Additional paid in capital 7,258,584
Accumulated deficit (2,133,450)
Accumulated other comprehensive income:
Currency translation adjustment (211,843)
----------
5,029,075
Treasury stock, at cost (145,349)
----------
Total Stockholders' Equity 4,883,726
----------
$ 6,606,544
==========
</TABLE>
F-4
Read the accompanying notes to the financial statements.
<PAGE>
INTERNATIONAL REALTY GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1999
<TABLE>
<CAPTION>
1998 1999
---- ----
<S> <C> <C>
Service revenue $ 60,317 $ -
Operating costs and expenses
General and administrative expenses 403,285 211,033
Interest expense 334,827 6,939
Depreciation and amortization 52,912 51,698
------------ ------------
Total Operating Expenses 791,024 269,670
------------ ------------
(Loss) from operations (730,707) (269,670)
------------ ------------
Other income (expense)
Exchange rate fluctuations (64,874) -
Other income 5,556 -
Gain on the disposition of assets - 154,694
------------ ------------
(59,318) 154,694
------------ ------------
(Loss) before minority interest and
provision for income taxes (790,025) (114,976)
Minority interest 97,902 18,928
------------ ------------
(Loss) before provision for income taxes (692,123) (96,048)
Provision for income taxes (benefit) (23,300) (5,900)
------------ ------------
(Loss) from continuing operations (668,823) (90,148)
Discontinued operations:
Income from operation of discontinued subsidiary, net of
income taxes of $23,300 and $5,900 64,034 23,534
------------ ------------
Net (loss) (604,789) (66,614)
Other comprehensive income:
Foreign currency translation adjustment (30,439) 52,896
------------ ------------
Comprehensive (loss) $ (635,228) $ (13,718)
============ ============
Per share information
Weighted average common shares outstanding -
basic and fully diluted 9,954,313 115,769,375
============ ============
Income (Loss) per share - basic and fully diluted
Continuing operations $ (.07) $ (.00)
Income from operation of discontinued subsidiary .01 .00
------------ ------------
Net (loss) $ (.06) $ (.00)
============ ============
</TABLE>
F-5
Read the accompanying notes to the financial statements.
<PAGE>
INTERNATIONAL REALTY GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE TWO YEARS ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
Currency
Common Stock Paid in Translation Accumulated
------------
Shares Amount Capital Adjustment Deficit
------ ------ ------- ---------- -------
<S> <C> <C> <C> <C> <C>
Balance - December 31, 1997 9,954,313 $ 9,954 $ 1,138,985 $ (234,300) $(1,462,047)
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)
Conversion of debt to equity 105,638,280 105,638 5,186,099
Contribution to capital by
shareholder 430,217
Issuance of common shares
upon exercise of options 200,000 200 2,800
Return of common shares related to
the sale of subsidiary
Return and cancellation of shares (7,862) (8)
Effect of currency fluctuations on net
assets of foreign subsidiary 52,896
Net (loss) for the year (66,614)
------------ -------- ---------- ---------- -----------
Balance December 31, 1999 115,784,731 $ 115,784 $ 7,258,584 $ (211,843) $(2,133,450)
============ ======== ========== ========== ===========
Treasury Stock
--------------
Shares Amount
------ ---------
Balance - December 31, 1997 17,500 $ (15,472)
Effect of currency fluctuations on net
assets of foreign subsidiary
Contribution to capital
Net (loss) for the year
------- ---------
Balance December 31, 1998 17,500 (15,472)
Conversion of debt to equity
Contribution to capital by
shareholder
Issuance of common shares
upon exercise of options
Return of common shares related to
the sale of subsidiary 800,000 (129,877)
Return and cancellation of shares
Effect of currency fluctuations on net
assets of foreign subsidiary
Net (loss) for the year
------- ---------
Balance December 31, 1999 817,500 $ (145,349)
======== =========
</TABLE>
F-6
Read the accompanying notes to the financial statement.
<PAGE>
INTERNATIONAL REALTY GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1999
<TABLE>
<CAPTION>
1998 1999
---- ----
<S> <C> <C>
Cash flows from operating activities
Net (loss) $ (604,789) $ (66,614)
Adjustments to reconcile net (loss)
to net cash provided by (used in)
operating activities:
Depreciation and amortization 52,912 51,698
Exchange rate fluctuations (64,874) 52,896
(Gain) Loss on disposal of assets - (154,693)
Minority interest in subsidiaries 11,757 (36,902)
Changes in assets and liabilities:
Net assets of discontinued operations 81,040 (5,360)
(Increase) decrease in:
Accounts receivable - shareholder 560,654 176,100
Accounts receivable - other 14,684 26,540
Other assets 31,605 (29,372)
Increase (decrease) in:
Accounts payable - shareholders (19,000) -
Accounts payable 4,609 (101,138)
---------- ----------
Net Cash Provided By (Used In) Operating Activities 68,598 (86,845)
---------- ----------
Cash flows from investing activities
Improvements to real estate (24,913) -
---------- ----------
Net Cash (Used In) Investing Activities (24,913) -
---------- ----------
Cash flows from financing activities
Principal payments on mortgage and note payable (88,600) -
---------- ----------
Net Cash (Used In) Financing Activities (88,600) -
---------- ----------
Effect of exchange rates on cash 34,435 -
---------- ----------
Net (decrease) increase in cash (10,480) (86,845)
Cash - beginning of year 97,795 87,315
---------- ----------
Cash - end of year $ 87,315 $ 470
========== ==========
Supplemental disclosures of cash flow information:
Cash paid for:
Interest $ 18,400 $ 6,939
Income taxes $ - $ -
Supplemental schedule of non-cash investing and financing activities:
Contribution to capital resulting from the retirement of
Debt by shareholders $ 500,483 $ -
Conversion of debt to common stock by shareholder $ - $ 5,291,737
Contribution to capital by shareholder $ - $ 430,217
Treasury shares received for the sale of a subsidiary $ - $ 129,877
</TABLE>
F-7
Read the accompanying notes to the financial statement.
<PAGE>
INTERNATIONAL REALTY GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
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 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.
The Company is currently dependent upon the collection of the receivable from a
shareholder as described in Note 4 for the funding of its operations and
settlement of its obligations.
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.
D. Cash and cash equivalents
The Company considers all highly liquid debt instruments purchased with a
maturity of 3 months or less to be cash equivalents.
E. Revenue recognition
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 information available to management as of December 31, 1999. The
respective carrying value of certain on-balance-sheet financial instruments
approximated their fair values. These financial instruments include cash,
accounts receivable, and accounts payable. 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.
F-8
<PAGE>
INTERNATIONAL REALTY GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
H. 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 December 31, 1999.
I. 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.
J. 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' equity.
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 was considered
a highly inflationary economy for the year ended December 31, 1998.
K. Net (Loss) per Common 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 common shares outstanding
for the period. Diluted earnings (loss) per share is calculated by dividing net
income (loss) by the weighted average number of common shares and dilutive
common stock equivalents outstanding. During the periods presented common stock
equivalents were not considered as their effect would be anti dilutive.
L. Segment Information
The Company follows SFAS No. 131, Disclosures about Segments of an Enterprise
and Related Information." Certain information is disclosed, per SFAS No. 131,
based on the way management organizes financial information for making operating
decisions and assessing performance. The Company currently operates in a single
business segment and will evaluate additional segment disclosure requirements as
it expands its operations.
M. Reclassifications
Certain amounts included in the accompanying financial statements from the
previous year have been reclassified to conform to the current year's
presentation.
F-9
<PAGE>
INTERNATIONAL REALTY GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
N. Recent Pronouncements
The FASB recently issued Statement No 137, "Accounting for Derivative
Instruments and Hedging Activities-Deferral of Effective Date of FASB Statement
No. 133". The Statement defers for one year the effective date of FASB Statement
No. 133, "Accounting for Derivative Instruments and Hedging Activities". The
rule now will apply to all fiscal quarters of all fiscal years beginning after
June 15, 2000. In June 1998, the FASB issued SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities," which is required to be adopted
in years beginning after June 15, 1999. The Statement permits early adoption as
of the beginning of any fiscal quarter after its issuance. The Statement will
require the Company to recognize all derivatives on the balance sheet at fair
value. Derivatives that are not hedges must be adjusted to fair value through
income. If the derivative is a hedge, depending on the nature of the hedge,
changes in the fair value of derivatives will either be offset against the
change in fair value of the hedged assets, liabilities, or firm commitments
through earnings or recognized in other comprehensive income until the hedged
item is recognized in earnings. The ineffective portion of a derivative's change
in fair value will be immediately recognized in earnings. The Company has not
yet determined if it will early-adopt and what the effect of SFAS No. 133 will
be on the earnings and financial position of the Company.
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>
<CAPTION>
<S> <C>
Assets acquired:
Land $ 5,014,200
Receivable due from DSC 2,110,500
Cash 317,800
Other assets 33,000
---------
7,475,500
---------
Liabilities assumed:
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. The 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.
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
F-10
<PAGE>
INTERNATIONAL REALTY GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
$.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>
<CAPTION>
<S> <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 - LAND HELD FOR FUTURE DEVELOPMENT
Location Acreage Amount
-------- ------- ------
Ixtapa, Mexico 26 $ 4,534,513
Caye Bokel, Belize 87 456,400
Guanajuato, Mexico 236 272,500
La Paz, Mexico 3,451 9,600
----------
$ 5,273,013
==========
Improvements amounting to $673,913 are included in the cost of land.
NOTE 4 - DUE FROM SHAREHOLDER
Amounts due from shareholder (DSC) were acquired through the Transaction
described in Note 2. Amounts due from DSC were pledged as collateral on the
convertible notes (see Note 5). The balance at December 31, 1999 is $1,286,946.
NOTE 5 - CONVERTIBLE NOTES
Convertible notes (Notes) with a face value of $4,700,900 which had accrued
interest at 5% per annum and matured on February 1, 1999 were collateralized by
the assets acquired less liabilities assumed in the Transaction described in
Note 2. Accrued interest of $590,837 had been combined with the principal
balance. On January 8, 1999 the Notes were converted into 105,638,280 shares of
the Company's common stock.
NOTE 6 - DISCONTINUED OPERATIONS
Effective on December 31, 1999 the Company disposed of a subsidiary, Appraisal
Group International, Inc. (AGII). AGII had accounted for 92% and 100% of the
Company's consolidated revenue in 1998 and 1999. The assets disposed of
consisted principally of cash, accounts receivable and furniture and equipment.
F-11
<PAGE>
INTERNATIONAL REALTY GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
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 common shares as part of the
purchase price, which shares shall be released to the Company on February 24,
2003, provided however, that, if at any time prior to February 24, 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 common shares received
with a cost of $129,877. No gain or loss has been recognized on the transaction.
Operating results for AGII for the years ended December 31, 1999 are shown
separately in the accompanying statement of operations. The statement of
operations for the year ended December 31, 1998 has been restated and operating
results for AGII are also shown separately.
Net sales of AGII for 1998 and 1999 were $707,701 and $710,857. These amounts
are not included in net sales in the accompanying statements of operations.
Assets and liabilities disposed of consisted of consisted of the following at
December 31, 1999:
<TABLE>
<CAPTION>
<S> <C>
Cash $ 1,016
Accounts receivable 77,915
Furniture and equipment 83,142
Other assets 15,258
--------
Total assets 177,331
Accounts payable (47,454)
--------
Net assets $129,877
========
</TABLE>
Assets are shown at their net realizable values and liabilities are shown at
their face amounts.
NOTE 7 - DISPOSITION OF ASSETS
During the year ended December 31, 1999 the Company disposed of or abandoned
certain parcels of undeveloped land and other assets. In conjunction with the
dispositions certain liabilities were also settled. The Company recognized a
gain of $154,694 related to these dispositions and abandonment's.
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.
The Company's deferred tax asset of approximately $250,000 resulting from net
operating loss
F-12
<PAGE>
INTERNATIONAL REALTY GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
carryforwards is fully offset by a valuation allowance at December 31, 1999. 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 Company has net operating loss
carry forwards aggregating approximately $700,000, which expire between 2005 and
2020.
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, 1999, an officer and director of the Company resigned and at
this time he acquired one of the Company's subsidiaries (See Note 6).
During 1998 the above officer made working capital advances to the Company
aggregating $16,309. At December 31, 1999 the aggregate amount due to this
officer for advances and unpaid salary of $430,217 was contributed to the
capital of the Company.
NOTE 10 - STOCKHOLDERS' EQUITY
On January 8, 1999, the Company increased the authorized number of common shares
from 100,000,000 to 450,000,000. Concurrently with this increase the convertible
notes described in Note 5 were converted into 105,638,280 shares of the
Company's common stock.
During January, 1999 an officer of the Company exercised options to purchase
200,000 shares of common stock at $.015 per share. The officer forgave $3,000 in
amounts due to him in exchange for the common shares.
F-13
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE AUDITED
FINANCIAL STATEMENTS AS OF DECEMBER 31, 1999 AND FOR THE YEAR THEN ENDED AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 470
<SECURITIES> 0
<RECEIVABLES> 1,288,103
<ALLOWANCES> 0
<INVENTORY> 5,273,013<F1>
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 6,606,544
<CURRENT-LIABILITIES> 441,663
<BONDS> 0
0
0
<COMMON> 115,784
<OTHER-SE> 4,767,942
<TOTAL-LIABILITY-AND-EQUITY> 6,606,544
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 262,731
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,939
<INCOME-PRETAX> (96,048)
<INCOME-TAX> 5,900
<INCOME-CONTINUING> (90,148)
<DISCONTINUED> 23,534
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (66,614)
<EPS-BASIC> (.00)
<EPS-DILUTED> (.00)
<FN>
<F1>INVENTORY CONSISTS OF REAL ESTATE HELD FOR DEVELOPMENT OR SALE
</FN>
</TABLE>
