ROYAL INVEST INTERNATIONAL CORP. - FORM 10-Q - November 19, 2009

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EX-31.2 - CFO CERTIFICATION - ROYAL INVEST INTERNATIONAL CORP.f10q093_x312-riic.htm
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EX-32.2 - CFO CERTIFICATION - ROYAL INVEST INTERNATIONAL CORP.f10q093_x322-riic.htm
EX-31.1 - CEO CERTIFICATION - ROYAL INVEST INTERNATIONAL CORP.f10q093_x311-riic.htm

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
 
THE SECURITIES EXCHANGE ACT OF 1934

For the quarter ended September 30, 2009
 
Commission file number 000-27097
 
  
 ROYAL INVEST INTERNATIONAL CORP.
(Exact name of registrant as specified in its charter)

Delaware
  
98-0215778
(State or other jurisdiction of incorporation or organization)
  
(I.R.S. Employer Identification No.)

 595 Fifth Avenue, 4th Floor
    
 New York, New York, USA 
  
10017
 (Address of principal executive offices)
  
(Zip Code)
 
Registrant's telephone number including area code (203) 557-3845

 
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 
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or small reporting company.  See the definition of "large accelerated filer," "accelerated filer" and "small reporting company" in Rule 12b-2 of the Exchange Act.
 
 Large accelerated filer     Accelerated filer      Non-accelerated filer        Smaller reporting company    x
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).   Yes      No  x
 
As of November 19, 2009, there were 150,208,861 shares of common stock of the registrant issued and outstanding.
                    
1

ROYAL INVEST INTERNATIONAL CORP.
 
FORM 10-Q
 

 
Item #
  
Description
  
Page Numbers
           
     
 4
  
           
   
4
  
           
 ITEM 2    
23
  
           
ITEM 3   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK    29  
           
   
29
  
           
   
29
  
           
       30  
           
   
30
  
           
ITEM 1A   RISK FACTORS    30  
           
   
33
  
           
ITEM 3   DEFAULTS UPON SENIOR SECURITIES    34  
           
   
34
  
           
   
34
  
           
ITEM 6   EXHIBITS    35  
           
     
37
  
           
EXHIBIT 31.1   SECTION 302 CERTIFICATION OF CHIEF EXECUTIVE OFFICER      
           
EXHIBIT 31.2   SECTION 302 CERTIFICATION OF CHIEF FINANCIAL OFFICER      
           
EXHIBIT 32.1   SECTION 906 CERTIFICATION OF CHIEF EXECUTIVE OFFICER      
           
EXHIBIT 32.2   SECTION 906 CERTIFICATION OF CHIEF FINANCIAL OFFICER      
 
 
2
INFORMATION REGARDING FORWARD-LOOKING DISCLOSURE
 
 
This quarterly report on Form 10-Q contains forward-looking statements. Statements in this report that are not historical facts, including statements about management’s beliefs and expectations, constitute forward-looking statements. These statements are based on current plans, estimates and projections, and are subject to change based on a number of factors, including those outlined under Item 1A, Risk Factors, in our most recent annual report on Form 10-K, and any updated risk factors we include in our quarterly reports on Form 10-Q and other filings with the SEC. Forward-looking statements speak only as of the date they are made, and we undertake no obligation to update publicly any of them in light of new information or future events.
 
 
Forward-looking statements involve inherent risks and uncertainties. A number of important factors could cause actual results to differ materially from those contained in any forward-looking statement. Such factors include, but are not limited to, the following:
 
     
 
•
risks arising from material weaknesses in our internal control over financial reporting, including material weaknesses in our control environment;
     
 
•
our ability to attract new clients and retain existing clients;
     
 
•
our ability to retain and attract key employees;
     
 
•
risks associated with assumptions we make in connection with our critical accounting estimates;
     
 
•
potential adverse effects if we are required to recognize impairment charges or other adverse accounting-related developments;
     
 
•
potential downgrades in the credit ratings of our securities;
     
 
•
risks associated with the effects of global, national and regional economic and political conditions, including fluctuations in economic growth rates, interest rates and currency exchange rates; and
     
 
•
developments from changes in the regulatory and legal environment for advertising and marketing and communications services companies around the world.
 
Investors should carefully consider these factors and the additional risk factors outlined in more detail under Item 1A, Risk Factors, in our 2008 Annual Report on Form 10-K and other filings with the SEC.
 

 
3
 
 

 
ROYAL INVEST INTERNATIONAL CORP. AND SUBSIDIARIES

UNAUDITED FINANCIAL STATEMENTS

SEPTEMBER 30, 2009

 
4
 
CONTENTS
______________________________________________________________________________________

Consolidated Balance Sheets as of September 30, 2009 (Unaudited) and December 31, 2008
Page   6

Consolidated Statements of Operations for the three months and nine months ended September 30, 2009 and 2008 (Unaudited) 
  7

Consolidated Statements of Cash Flows for the nine months ended September 30, 2009 and 2008 (Unaudited)
  8

Consolidated Statement of Changes in Stockholders' Equity (Deficit) for the nine months ended September 30, 2009 (Unaudited) and the year ended December 31, 2008
10
 
Notes to Consolidated Financial Statements (Unaudited)
11


 
5
 
 

 
ROYAL INVEST INTERNATIONAL CORP. AND SUBSIDIARIES
  
             
CONSOLIDATED BALANCE SHEETS
  
             
   
September 30.
    
December 31,
  
   
2009
    
2008
  
   
(Unaudited)
        
ASSETS
            
             
Rental Property
            
Land
   $ 25,532,099     $ 24,665,981  
Buildings
     112,332,212       108,521,600  
Improvements
     2,303,291       2,216,586  
Equipment
     265,696       105,429  
      140,433,298       135,509,596  
Less - accumulated depreciation
     (5,178,181 )     (2,940,478 )
Net Investment in Rental Property
     135,255,117       132,569,118  
                 
                 
Cash and Cash Equivalents
     624,095       278,817  
Current Rents Receivable, Net of Allowance for Doubtful Accounts of
                
$270,682 as of September 30, 2009 and $130,524 as of December 31, 2008
     1,428,335       521,540  
Prepaid Expenses
     141,535       187,759  
Deferred Financing Costs, Net
     2,260,560       2,573,184  
Total Assets
   $ 139,709,642     $ 136,130,418  
                 
                 
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
                
                 
LIABILITIES
                
Mortgages Payable
   $ 119,118,577     $ 115,377,702  
Accounts Payable
     3,732,571       4,675,622  
Net VAT Payable
     9,161       101,722  
Accrued Expenses and Other Liabilities
     82,852       81,499  
Accrued Interest
     7,259,751       3,512,371  
Accrued Interest - Related Parties
     802,005       312,217  
Income Taxes Payable
     346,634       113,947  
Loans Payable - Related Parties
     1,786,662       1,774,449  
Loans Payable - Other
     52,181       211,455  
Notes Payable - Related Parties
     6,699,562       6,472,295  
Convertible Notes
     379,848       426,000  
Rents Received in Advance
     850,003       409,070  
Deferred Income Taxes
     1,133,704       1,175,358  
Total Liabilities
     142,253,511       134,643,707  
                 
Commitments and Contingencies
     -       -  
                 
STOCKHOLDERS' EQUITY (DEFICIT)
                
Preferred Stock, $0.001 par value, 1,000,000 shares authorized; 1,000 shares issued and outstanding
     1       1  
Common Stock, $0.001 par value; 300,000,000 shares authorized; 150,208,861 shares issued and outstanding
     150,209       150,209  
Additional Paid-In Capital
     22,282,703       22,282,703  
Accumulated Other Comprehesive Loss
     (569,877 )     (373,061 )
Accumulated Deficit
     (24,975,155 )     (21,141,391 )
Total RIIC Stockholders' Equity (Deficit)
     (3,112,119 )     918,461  
Non-controlling Interests, Preferred Stock of Subsidiaries
     568,250       568,250  
Total Stockholders' Equity (Deficit)
     (2,543,869 )     1,486,711  
                 
Total Liablities and Stockholders' Equity (Deficit)
   $ 139,709,642     $ 136,130,418   
The accompanying notes to consolidated financial statements are an integral part of these statements.
 
6
 
ROYAL INVEST INTERNATIONAL CORP. AND SUBSIDIARIES
             
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
             

   
FOR THE THREE MONTHS ENDED
    
FOR THE NINE MONTHS ENDED
  
   
SEPTEMBER 30,
    
SEPTEMBER 30,
  
   
2009
    
2008
    
2009
    
2008
  
REVENUES
                        
Base Rents
   $ 2,687,065     $ 3,463,990     $ 7,487,213     $ 9,477,260  
Real Estate Services
     30,416       63,220       174,723       329,693  
Other Income
     228,167       202,304       1,294,392       1,422,927  
      2,945,648       3,729,514       8,956,328       11,229,880  
                                 
EXPENSES
                                
Operating Services
     831,924       864,091       2,511,732       2,582,458  
Real Estate Taxes
     65,088       54,894       148,285       166,256  
General and Administrative
     482,756       753,596       1,938,295       2,401,340  
Depreciation
     632,620       793,096       1,999,842       2,399,221  
Fair Value Adjustment on Property
     -       1,941,239       -       1,941,239  
Total Expenses
     2,012,388       4,406,916       6,598,154       9,490,514  
                                 
OPERATING INCOME (LOSS)
     933,260       (677,402 )     2,358,174       1,739,366  
                                 
OTHER INCOME (EXPENSES)
                                
Interest Income
     -       (2 )     -       325  
Interest Expense
     (2,005,328 )     (2,350,689 )     (5,680,507 )     (6,677,384 )
Amortization - Deferred Financing Costs
     (131,656 )     (136,208 )     (377,473 )     (411,821 )
Currency Gain (Loss)
     (2 )     57,709       (87 )     58,082  
Change in Value of Derivative Liabilty
     -       -       -       2,313,130  
Loss on Debt Modification
     -       -       -       (1,416,852 )
Amortization - Debt Discount
     -       -       -       (541,096 )
      (2,136,986 )     (2,429,190 )     (6,058,067 )     (6,675,616 )
                                 
Loss Before Income Taxes
     (1,203,726 )     (3,106,592 )     (3,699,893 )     (4,936,250 )
                                 
Provision for Income Taxes
     39,834       14,069       133,871       100,909  
                                 
NET LOSS
   $ (1,243,560 )   $ (3,120,661 )   $ (3,833,764 )   $ (5,037,159 )
                                 
NET LOSS PER
                                
COMMON SHARE:
                                
Basic and diluted
   $ (0.01 )   $ (0.02 )   $ (0.03 )   $ (0.03 )
                                 
Weighted Average Common Shares Outstanding:
                                
Basic and diluted
     150,208,861       150,208,861       150,208,861       150,208,861  

The accompanying notes to consolidated financial statements are an integral part of these statements.
 
7
 
ROYAL INVEST INTERNATIONAL CORP. AND SUBSIDIARIES
             
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
             
 
   
FOR THE NINE MONTHS ENDED
  
   
SEPTEMBER 30,
  
   
2009
    
2008
  
CASH FLOWS FROM OPERATING ACTIVITIES
            
Net Loss
   $ (3,833,764 )   $ (5,037,159 )
                 
Adjustments to reconcile net loss to net cash provided by  operating activities:
                
Depreciation
     1,999,842       2,399,221  
Currency Loss (Gain)
     87       (58,082 )
Amortization - Deferred Financing Costs
     377,473       411,821  
Provision for Doubtful Accounts
     140,158       66,024  
Deferred Income Tax
     (41,654 )     (81,813 )
Change in Value of Derivative Liability
     -       (2,313,130 )
Loss on Debt Modification
     -       1,416,852  
Fair Value Adjustment on Property
     -       1,941,239  
Amortization - Debt Discount
     -       541,096  
Other
     -       2,267  
                 
Changes in operating assets and liabilities
                
(Increase) Decrease in:
                
Current Rents Receivable
     (959,246 )     (467,078 )
Prepaid Expenses
     49,474       (1,409 )
Deposits
     -       150,783  
Other Receivables
     -       (182,551 )
Net VAT Receivable
     -       203,177  
Income Tax Receivable
     -       165,021  
Increase (Decrease) in:
                
Accounts Payable
     (1,037,156 )     (23,980 )
Net VAT Payable
     (90,049 )     35,313  
Accrued Expenses and Other Liabilities
     (1,413 )     57,303  
Accrued Interest
     3,394,688       2,082,118  
Accrued Interest - Related Parties
     448,521       -  
Income Taxes Payable
     214,213       28,799  
Rents Received in Advance
     399,572       12,886  
        Net cash provided by operating activities
     1,060,746       1,348,718  
                 
                 
CASH FLOWS FROM INVESTING ACTIVITIES
                
Property Acquired
     (154,967 )     (155,763 )
Advance Payment on Property Purchase
     -       (680,100 )
        Net cash used in investing activities
     (154,967 )     (835,863 )
                 
CASH FLOWS FROM FINANCING ACTIVITIES
                
Payments on Mortgages Payable
     (290,831 )     (921,999 )
Payments on convertible notes
     (46,152 )     -  
Proceeds from loans payable -related parties
     596,780       286,727  
Payments on loans payable - related parties
     (643,706 )     -  
Proceeds from loans payable -other
     -       296,665  
Payments on loans payable - other
     (156,149 )     (141,450 )
      Net cash used in financing activities
     (540,058 )     (480,057 )
                 
Net increase in cash and cash equivalents
     365,721       32,798  
                 
Adjustment for change in exchange rate
     (20,443 )     (20,574 )
                 
Cash and cash equivalents, beginning of period
     278,817       176,765  
                 
Cash and cash equivalents, end of period
   $ 624,095     $ 188,989  
 
 
The accompanying notes to cosolidated financial statements are an integral part of these statements.
 
 
8
 

ROYAL INVEST INTERNATERNATIONAL CORP. AND SUBSIDIARIES
             
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
             
 
   
FOR THE NINE MONTHS ENDED
  
   
SEPTEMBER 30,
  
   
2009
    
2008
  
             
             
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
            
             
CASH PAID FOR
            
Interest
   $ 1,837,298     $ 4,595,266  
Taxes
   $ 19,294     $ 121,636  
                 
NON-CASH INVESTING AND FINANCING ACTIVITIES:
                
Accounts Receivable Settled with Amounts Due to Related Parties
   $ -     $ 747,999  
Accrued Interest Classified to Amounts Due to Related Parties
   $ -     $ 287,332  
 
The accompanying notes to consolidated financial statements are an integral part of these statements.
 
 
9
 
 
ROYAL INVEST INTERNATIONAL CORP. AND SUBSIDIARIES
  
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
  
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2009 (UNAUDITED) AND THE YEAR ENDED DECEMBER 31, 2008
  
                                                         
                                                         
                                              Non-controlling        
                           
Accumulated
         Total   Interests        
                      Aditional  
Other
         RIIC   Preferred   Total  
 
Preferred Stock
  
Common Stock
   Paid-In  
Comprehensive
   Accumulated   Stockholders'   Stock of   Stockholders'  
 
Shares
  
Amount
  
Shares
  
Amount
   Capital  
Income (Loss)
   Deficit   Equity (Deficit)   Subsidiaries   Equity (Deficit)  
                                                         
Balance at December 31, 2007
1,000
  
$        
  1  
150,208,861
   $
150,209
   $
22,282,703
   $
234,828
   $
 (4,821,892
 ) $
 17,845,849
   $
593,726
   $
 18,439,575
  
                                                         
Components of Comprehensive Loss:
                                                        
                                                         
Foreign Currency Translation
                            
(607,889
 )        
   (607,889
 )  
 (25,476
 )  
(633,365)
  
                                                         
Net Loss for the Year Ended December 31, 2008
                                  
(16,319,499
 )  
   (16,319,499
 )        
(16,319,499
 ) 
                                                         
Total Comprehensive Loss
                                        
  (16,927,388
 )        
(16,952,864
 ) 
                                                         
Balance at December 31, 2008
1,000
  
           
  1  
150,208,861
    
      150,209
    
22,282,703
    
        (373,061
 )  
(21,141,391
 )  
     918,461
    
  568,250
    
 1,486,711
  
                                                         
Components of Comprehensive Loss:
                                                        
                                                         
Foreign Currency Translation
                            
(196,816
) 		        
  (196,816
 )        
 (196,816
 )
                                                         
Net Loss for the Nine Months Ended
                                                        
September 30, 2009
                                  
  (3,833,764
 )  
  (3,833,764
 )        
 (3,833,764
 )
                                                         
Total Comprehensive Loss
                                        
   (4,030,580
 )        
 (4,030,580
 )
                                                         
Balance at September 30, 2009 (Unaudited)
1,000
  
$        
  1  
150,208,861
   $
150,209
   $
22,282,703
   $
(569,877
 )  $
(24,975,155
 ) $
 (3,112,119
 ) $
 568,250
   $
 (2,543,869
 )
                                                         
                                                         
                                                         
The accompanying notes to consolidated financial statements are an integral part of these statements.
  

 
10
 
ROYAL INVEST INTERNATIONAL CORP. AND SUBSIDIARIES

SEPTEMBER 30, 2009
(UNAUDITED)

 
NOTE 1 – ORGANIZATION AND BASIS OF PRESENTATION

Organization
Royal Invest International Corp., a Delaware corporation, together with its subsidiaries (collectively, the “Company”), owns, operates and manages real estate, in Europe. At September 30, 2009 and December 31, 2008, the Company owned 18 properties. The properties aggregate approximately 88,077 square meters (approximately 948,053 square feet), which are comprised of office buildings and business centers.  The properties are located in Germany and the Netherlands.

Basis of Presentation
The accompanying unaudited interim consolidated financial statements as of September 30, 2009, and for the three and nine months ended September 30, 2009 and 2008 have been prepared in accordance with generally accepted accounting principles and in accordance with the instructions for Form 10-Q and Item 210.8-03 of Regulation S-X.  Accordingly, they do not include all the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statement presentation.  In the opinion of management, the financial statements contain all adjustments (consisting only of normal recurring accruals) necessary to present fairly the consolidated financial position as of September 30, 2009, the consolidated results of operations for the three and nine months ended September 30, 2009 and 2008 and the consolidated cash flows for the nine months ended September 30, 2009 and 2008.  The results of operations for the nine months ended September 30, 2009 are not necessarily indicative of the results that may be expected for the year ending December 31, 2009. These interim financial statements should be read in conjunction with the consolidated financial statements and notes thereto of the Company and management’s discussion and analysis of financial condition and results of operations included in the Company’s annual report on Form 10-K for the year ended December 31, 2008.

Changes in Classifications
In December 2007, the FASB issued SFAS No. 160, '“Non-controlling Interests in Consolidated Financial Statements - an amendment of ARB N0. 51”, which effective July 1, 2009 (see Note 3), is incorporated in FASB ASC (“Accounting Standards Codification”) Topic 810, “Consolidation.”. The objective of this Statement is to improve the relevance, comparability, and transparency of the financial information that a reporting entity provides in its consolidated financial statements by establishing accounting and reporting standards that require the following changes.  The ownership interests in subsidiaries held by parties other than the parent be clearly identified, labeled, and presented in the consolidated statement of financial position within equity, but separate from the parent's equity.  The amount of consolidated net income attributable to the parent and to the non-controlling interest be clearly identified and presented on the face of the consolidated statement of income. When a subsidiary is deconsolidated, any retained non-controlling equity investment in the former subsidiary is initially measured at fair value.  The gain or loss on the deconsolidation of the subsidiary is measured using the fair value of any non-controlling equity investment rather than the carrying amount of that retained investment and entities provide sufficient disclosures that clearly identify and distinguish between the interests of the parent and the interests of the non-controlling owners. The Company adopted these provisions effective January 1, 2009 and as a result, reclassified the preferred stock in subsidiaries, representing non-controlling interests, to the equity section of the balance sheet. The preferred shares do not have interests, with the exception of the possible payment of dividends, in the income or loss of the Company.

NOTE 2 – GOING CONCERN
 
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business.  The Company has incurred a net loss of $3,833,764 for the nine months ended September  30, 2009, has an accumulated deficit of $24,975,155 at September 30, 2009, and there are existing uncertain conditions which the Company faces relative to its obtaining financing and capital in the equity markets. These conditions raise substantial doubt about the Company’s ability to continue as a going concern.  The accompanying consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
 
The Company is presently working to raise additional capital to meet its working capital needs and is restructuring operating costs to be more in line with revenues.  There can be no assurances, however, that it will be successful in its efforts to raise capital or to reduce operating costs to a level where it will attain profitability.
 
11
ROYAL INVEST INTERNATIONAL CORP. AND SUBSIDIARIES

SEPTEMBER 30, 2009
(UNAUDITED)
 
 NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
Other accounting policies are set forth in Note 3 of the audited consolidated financial statements included in the Company’s Form 10-K for the year ended December 31, 2008.

Principals of Consolidation
The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries.  All significant intercompany accounts and transactions have been eliminated.

Foreign Currency Translation,
The Company considers the EURO (“€”) to be its functional currency. Assets and liabilities were translated into US dollars (“US$”) as of September 30, 2009 and December 31, 2008 at the period end exchange rates of € 1.00 to US $1.4592 and € 1.00 to US $1.4097, respectively. Statement of Operations amounts for the nine months ended September 30, 2009 and 2008 were translated using the average rates during the periods of € 1.00 to US $1.36685 and € 1.00 to US $1.52254, respectively.


Income and Other Taxes
Royal Invest Europe B.V. (“RIE”), a Dutch corporation and a subsidiary of the Company, presently owns nine real estate properties located in the Netherlands. Since RIE is a Dutch corporation, it is subject to the Dutch tax laws and therefore needs to do income tax declarations in the Netherlands.

Royal Invest Germany Properties 1 BV (“RIGP1”) (formerly Rico Staete B.V.), a Dutch corporation and one of the subsidiaries of the Company presently owns one real estate property located in Germany. The rental income is originating from a German tenant in Germany and therefore subject to German tax laws. RIGP1 declares and pays the income tax according to German tax rules. Since RIGP1 is a Dutch corporation, it is also subject to Dutch tax laws and therefore also needs to do income tax declarations in the Netherlands. The difference between the German and the Dutch income tax is payable in the Netherlands.

Alfang B.V. trading as Royal Invest Dutch Properties 1 B.V. (“RIDP1”), a Dutch corporation and one of the subsidiaries of the Company presently owns five real estate properties located in the Netherlands.  Since RIDP1 B.V. is a Dutch corporation, it is subject to the Dutch tax laws and therefore needs to do income tax declarations in the Netherlands.

AmogB B.V. trading as Royal Invest Dutch Properties 2 B.V. (“RIDP2”), a Dutch corporation and one of the subsidiaries of the Company presently owns three real estate properties located in the Netherlands.  Since RIDP2 B.V. is a Dutch corporation, it is subject to the Dutch tax laws and therefore needs to do income tax declarations in the Netherlands.

Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reporting period.  Actual results could differ from those estimates.
 
 
12
 
ROYAL INVEST INTERNATIONAL CORP. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2009
(UNAUDITED)

 NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
 
Derivative Instruments
The Company measures derivative instruments, including certain derivative instruments embedded in other contracts, at fair value and records them as an asset or liability, depending on the Company’s rights or obligations under the applicable derivative contract. For derivatives designated and qualifying as fair value hedges, the changes in the fair value of both the derivative instrument and the hedged item are recorded in earnings. For derivatives designated as cash flow hedges, the effective portions of the derivative are reported in other comprehensive income and are subsequently reclassified into earnings when the hedged item affects earnings. Changes in fair value of derivative instruments not designated as hedging and ineffective portions of hedges are recognized in earnings in the affected period.

Fair Value
Effective January 1, 2008, the Company adopted SFAS 157, “Fair Value Measurements” (SFAS 157), currently FASB ASC Topic 820, “Fair Value Measurements and Disclosures”. The pronouncement clarifies the definition of fair value, prescribes methods for measuring fair value, and establishes a fair value hierarchy to classify the inputs used in measuring fair value.  At September 30, 2009 and December 31, 2008, there are no assets or liabilities that are measured at fair value on a recurring basis.

Recent Accounting Pronouncements

Effective July 1, 2009, the Accounting Standards Codification became FASB’s officially recognized source of authoritative U.S. generally accepted accounting principles applicable to all public and non-public non-governmental entities, superseding existing FASB, AICPA, EITF and related literature. Rules and interpretive releases of the SEC under the authority of federal securities laws are also sources of authoritative GAAP for SEC registrants. All other accounting literature is considered non-authoritative. The switch to the ASC affects the way companies refer to U.S. GAAP in financial statements and accounting policies. Citing particular content in the ASC involves specifying the unique numeric path to the content through the Topic, Subtopic, Section and Paragraph structure.

FASB ASC Topic 260, “Earnings Per Share.” On January 1, 2009, the Company adopted new authoritative accounting guidance under FASB ASC Topic 260, “Earnings Per Share,” which provides that unvested share-based payment awards that contain nonforfeitable rights to dividends or dividend equivalents (whether paid or unpaid) are participating securities and shall be included in the computation of earnings per share pursuant to the two-class method.

FASB ASC Topic 320, “Investments - Debt and Equity Securities.” New authoritative accounting guidance under ASC Topic 320, “Investments - Debt and Equity Securities,” (i) changes existing guidance for determining whether an impairment is other than temporary to debt securities and (ii) replaces the existing requirement that the entity’s management assert it has both the intent and ability to hold an impaired security until recovery with a requirement that management assert: (a) it does not have the intent to sell the security; and (b) it is more likely than not it will not have to sell the security before recovery of its cost basis. Under ASC Topic 320, declines in the fair value of held-to-maturity and available-for-sale securities below their cost that are deemed to be other than temporary are reflected in earnings as realized losses to the extent the impairment is related to credit losses. The amount of the impairment related to other factors is recognized in other comprehensive income. The Company adopted the provisions of the new authoritative accounting guidance under ASC Topic 320 during the first quarter of 2009. Adoption of the new guidance did not significantly impact the Company’s financial statements.
 
13
 
ROYAL INVEST INTERNATIONAL CORP. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2009
(UNAUDITED)

 

 NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
 
Recent Accounting Pronouncements (continued)
FASB ASC Topic 805, “Business Combinations.” On January 1, 2009, new authoritative accounting guidance under ASC Topic 805, “Business Combinations,” became applicable to the Company’s accounting for business combinations closing on or after January 1, 2009. ASC Topic 805 applies to all transactions and other events in which one entity obtains control over one or more other businesses. ASC Topic 805 requires an acquirer, upon initially obtaining control of another entity, to recognize the assets, liabilities and any non-controlling interest in the acquiree at fair value as of the acquisition date. Contingent consideration is required to be recognized and measured at fair value on the date of acquisition rather than at a later date when the amount of that consideration may be determinable beyond a reasonable doubt. This fair value approach replaces the cost-allocation process required under previous accounting guidance whereby the cost of an acquisition was allocated to the individual assets acquired and liabilities assumed based on their estimated fair value. ASC Topic 805 requires acquirers to expense acquisition-related costs as incurred rather than allocating such costs to the assets acquired and liabilities assumed, as was previously the case under prior accounting guidance. Assets acquired and liabilities assumed in a business combination that arise from contingencies are to be recognized at fair value if fair value can be reasonably estimated. If fair value of such an asset or liability cannot be reasonably estimated, the asset or liability would generally be recognized in accordance with ASC Topic 450, “Contingencies.” Under ASC Topic 805, the requirements of ASC Topic 420, “Exit or Disposal Cost Obligations,” would have to be met in order to accrue for a restructuring plan in purchase accounting. Pre-acquisition contingencies are to be recognized at fair value, unless it is a non-contractual contingency that is not likely to materialize, in which case, nothing should be recognized in purchase accounting and, instead, that contingency would be subject to the probable and estimable recognition criteria of ASC Topic 450, “Contingencies.”

FASB ASC Topic 810, “Consolidation.” New authoritative accounting guidance under ASC Topic 810, “Consolidation,” amended prior guidance to establish accounting and reporting standards for the non-controlling interest in a subsidiary and for the deconsolidation of a subsidiary. Under ASC Topic 810, a non-controlling interest in a subsidiary, which is sometimes referred to as minority interest, is an ownership interest in the consolidated entity that should be reported as a component of equity in the consolidated financial statements. Among other requirements, ASC Topic 810 requires consolidated net income to be reported at amounts that include the amounts attributable to both the parent and the non-controlling interest. It also requires disclosure, on the face of the consolidated income statement, of the amounts of consolidated net income attributable to the parent and to the non-controlling interest. The new authoritative accounting guidance under ASC Topic 810 became effective on January 1, 2009 (see Note 1).

Further new authoritative accounting guidance under ASC Topic 810 amends prior guidance to change how a company determines when an entity that is insufficiently capitalized or is not controlled through voting (or similar rights) should be consolidated. The determination of whether a company is required to consolidate an entity is based on, among other things, an entity’s purpose and design and a company’s ability to direct the activities of the entity that most significantly impact the entity’s economic performance. The new authoritative accounting guidance requires additional disclosures about the reporting entity’s involvement with variable-interest entities and any significant changes in risk exposure due to that involvement as well as its affect on the entity’s financial statements. The new authoritative accounting guidance under ASC Topic 810 will be effective January 1, 2010 and is not expected to have a significant impact on the Company’s financial statements.

FASB ASC Topic 815, “Derivatives and Hedging.” New authoritative accounting guidance under ASC Topic 815, “Derivatives and Hedging,” amends prior guidance to amend and expand the disclosure requirements for derivatives and hedging activities to provide greater transparency about (i) how and why an entity uses derivative instruments, (ii) how derivative instruments and related hedge items are accounted for under ASC Topic 815, and (iii) how derivative instruments and related hedged items affect an entity’s financial position, results of operations and cash flows. To meet those objectives, the new authoritative accounting guidance requires qualitative disclosures about objectives and strategies for using derivatives, quantitative disclosures about fair value amounts of gains and losses on derivative instruments and disclosures about credit-risk-related contingent features in derivative agreements. The new authoritative accounting guidance under ASC Topic 815 became effective on January 1, 2009 and did not have a significant impact on the Company’s financial statements.

 
14
 
Recent Accounting Pronouncements (Continued)
FASB ASC Topic 820, “Fair Value Measurements and Disclosures.” New authoritative accounting guidance under ASC Topic 820,”Fair Value Measurements and Disclosures,” affirms that the objective of fair value when the market for an asset is not active is the price that would be received to sell the asset in an orderly transaction, and clarifies and includes additional factors for determining whether there has been a significant decrease in market activity for an asset when the market for that asset is not active. ASC Topic 820 requires an entity to base its conclusion about whether a transaction was not orderly on the weight of the evidence. The new accounting guidance amended prior guidance to expand certain disclosure requirements. The Company adopted the new authoritative accounting guidance under ASC Topic 820 during the first quarter of 2009. Adoption of the new guidance did not significantly impact the Company’s financial statements.

Further new authoritative accounting guidance (Accounting Standards Update No. 2009-5) under ASC Topic 820 provides guidance for measuring the fair value of a liability in circumstances in which a quoted price in an active market for the identical liability is not available. In such instances, a reporting entity is required to measure fair value utilizing a valuation technique that uses (i) the quoted price of the identical liability when traded as an asset, (ii) quoted prices for similar liabilities or similar liabilities when traded as assets, or (iii) another valuation technique that is consistent with the existing principles of ASC Topic 820, such as an income approach or market approach. The new authoritative accounting guidance also clarifies that when estimating the fair value of a liability, a reporting entity is not required to include a separate input or adjustment to other inputs relating to the existence of a restriction that prevents the transfer of the liability. The forgoing new authoritative accounting guidance under ASC Topic 820 will be effective for the Company’s financial statements beginning October 1, 2009 and is not expected to have a significant impact on the Company’s financial statements.

FASB ASC Topic 855 “Subsequent Events”, formerly SFAS No. 165, “Subsequent Events” issued in May 2009, provides guidance which establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or available to be issued. The Company adopted ASC Topic 855 on a prospective basis effective April 1, 2009. The Company evaluated events between the end of the most recent quarter, September 30, 2009, and November 19, 2009, the date the consolidated financial statements were issued.

 
15
 
ROYAL INVEST INTERNATIONAL CORP. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2009
(UNAUDITED)

 
NOTE 4 – NOTES PAYABLE - RELATED PARTIES AND CONVERTIBLE PROMISSORY NOTES
 
In December 2007, the Company issued 8% convertible promissory notes to ECM Participations (formerly, ECM Hoff Holding B.V) and Muermans Vast Goed Roemond B.V. in the amounts of € 1,091,257 (US $1,724,186) and € 3,500,000 (US $5,530,000), respectively, as part of the consideration for the purchase price of properties acquired. The notes are due December 31, 2010, but are convertible at any time into shares of common stock, along with any accrued and unpaid interest, at a conversion price of $1.60 per share, unless the price of common stock on the date of conversion is $1.60 or less. If the price of common stock on the date of conversion is $1.60 or less, than the conversion price will be the average price of the common stock over the 90 days prior to the conversion date reduced by 25%.

The Company accounts for the fair value of the conversion feature of its convertible notes in accordance with FASB ASC Topic 815 “Derivatives and Hedging”, formerly SFAS No. 133 “Accounting For Derivative Instruments And Hedging Activities” and EITF Issue No. 00-19 “Accounting For Derivative Financial Instruments Indexed To And Potentially Settled In A Company’s Own Stock” which requires the Company to bifurcate and separately account for the conversion features as embedded derivatives contained in the Company’s convertible notes. Pursuant to ASC Topic 815, the Company bifurcated the fair value of the conversion feature from the convertible notes, since the conversion features were determined to not be clearly and closely related to the debt host. In addition, since the effective registration of the securities underlying the conversion feature is an event outside of the control of the Company, the Company recorded the fair value of the conversion feature as either short-term or long-term liabilities (based on the underlying term of the notes) as it was assumed that the Company would be required to net-cash settle the underlying securities. The Company is required to carry these embedded derivatives on its balance sheet at fair value and unrealized changes in the values of these embedded derivatives are reflected in the consolidated statement of operations.

Effective on June 30, 2008, the Company and note holders modified the terms of the promissory notes where as the conversion features on the notes were waived in consideration for the company agreeing to pay the note holders a premium on the original notes. Such premium is calculated based on 21% of the original note principal plus interest accrued through June 30, 2008.  The modifications are accounted for as a debt extinguishment with the modified terms representing new notes.  The premiums amounted to € 238,534 (US $376,820) and € 765,053 (US $1,208,708), respectively.  The Company recognized a net loss on the modification of € 896,799 (US $1,416,852) at June 30, 2008, based on the fair value of the notes after the modification compared to the carrying value of the notes under the original terms (which included the derivative liability). As a result of the modification, the Company no longer had a derivative liability as of June 30, 2008.

On October 9, 2007, the board of directors approved the issuance of a 6% approximately US $141,000 (€ 100,000) convertible promissory note which can be converted prior to October 9, 2010 at the option of the holder into shares of common stock at a fixed conversion price of $1.25 per share. During the quarter ended March 31, 2009, approximately US $55,000 (€ 35,000) was paid on the note. The balance outstanding at September 30, 2009 is US $94,848 (€ 65,000).

During the period March 1, 2005 to July 31, 2005, the Company issued convertible promissory notes aggregating US $589,000. The notes are unsecured and bear interest at a rate of 10% per annum. The principal and interest was due June 27, 2006.  On November 16, 2005, a majority of holders of the outstanding notes opted to convert the principal and interest on their notes into common shares of the Company at US $0.75 per share.  The Company converted US $542,067 of notes plus interest into 849,176 shares of common stock. The outstanding notes of approximately US $65,000 are currently in default.

During the period January 1, 2006 to June 30, 2006, the Company issued additional convertible promissory notes aggregating US $220,000.  The notes are unsecured and bear interest at a rate of 10% per quarter.  The principal and interest is due 90 days after the issuance of the notes, but automatically renews and continues to accrue interest. The notes are convertible into shares of common stock of the company at US $0.75 per share. These notes are currently in default.
 
 
16
 
ROYAL INVEST INTERNATIONAL CORP. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2009
(UNAUDITED)

NOTE 5 – MORTGAGES PAYABLE

The Company has mortgages which are collateralized by most of the Company’s rental properties. As of September 30, 2009 and December 31, 2008 all of the Company’s properties, with a total book value of approximately US $135 million and US $133 million respectively, are encumbered by the Company’s mortgages. Payments on mortgages are generally due in quarterly installments of principal and interest, or interest only.

The Company’s properties are primarily mortgaged through a € 100,000,000 financing agreement with the Bank of Scotland. The terms call for a pay down based on a percentage of the outstanding amount utilized (1.25% in year 1; 1.50% in years 2 & 3; 2.0% in years 4, 5 & 6) with maturity at 6 years from the initial drawdown which was December 27, 2007. Interest is due quarterly at Euribor + 1.32%. The agreement contains customary financial covenants which the Company is not in compliance with as of September 30, 2009. The amount outstanding at September 30, 2009 and December 31, 2008 is US $115,194,790 (€ 78,943,798) and US $111,287,072 (€ 78,943,798), respectively. The remaining amount of the facility at € 20,310,100 can be used for financing other properties (85% LTV/LTC). The mortgage is currently in default and as of September 2009 approximately US $7,124,690 (€ 4,882,600) of interest due is in arrears.

The Company has an additional mortgage payable to SNS Bank. The amount outstanding on this mortgage at September 30, 2009 and December 31, 2008 is US $3,923,787 (€ 2,688,999) and US $4,090,630 (€ 2,901,774), respectively. The SNS Bank Mortgage is payable in monthly installments of $22,335. The mortgage bears a variable interest rate (monthly Euribor + 2%). The mortgage is collateralized by the land and buildings. The mortgage is currently in default as the balloon payment due at maturity was not paid.  The Company continues to make monthly payments.  The Company is currently in negotiations with SNS Bank to refinance the mortgage.
 
 
At December 31, 2008, minimum future principal payments over the next five years and in the aggregate are as follows:
 
 
  
Amount to be paid
    
Total Percentage
  
  Year  
Yearly
    
To be paid Yearly *
  
2009
   $ 1,882,911       1.50 %
2010
     1,953,124       1.50 %
2011
     2,374,400       2.00 %
2012
     2,514,825       2.00 %
2013
     2,514,825       2.00 %
Thereafter
     104,137,617       89.75 %
                 
          Total
   $ 115,377,702       98.75 %

*  Bank of Scotland Facility

 
17
 
ROYAL INVEST INTERNATIONAL CORP. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2009
(UNAUDITED)

 
NOTE 6 - TENANT LEASES

At September 30, 2009 and December 31, 2008, the Properties are leased to tenants under various operating leases expiring through 2023. The leases provide for annual base rents and the pass-through of charges for electrical usage. On an ongoing basis lease contracts are renegotiated and extended.

At December 31, 2008 future minimum rentals to be received under non-cancelable operating leases over the next five years were as follows:
 
Year
  
Amount
  
2009
   $
10,050,550
  
2010
    
5,573,359
  
2011
     4,836,528  
2012
    
4,201,137
  
2013
    
3,231,920
  
         
Total
   $
27,893,494
  
 
 
NOTE 7 – INCOME TAXES

Income tax expense consists of the following:
 
   
For The Three Months Ended
    
For The Nine Months Ended
  
   
September 30,
    
September 30,
  
   
2009
    
2008
    
2009
    
2008
  
   
 (Unaudited)
    
 (Unaudited)
    
 (Unaudited)
    
 (Unaudited)
  
Current
                        
United States
   $ --     $ --     $ --     $ --  
Foreign
     28,370       41,097       175,525       182,722  
 
     28,370       41,097       175,525       182,722  
                                 
                                 
Deferred
                                
United States
     -       --       -       --  
Foreign
     11,464       (27,028 )     (41,654 )     (81,813 )
      11,464       (27,028 )     (41,654 )     (81,813 )
                                 
Totals
   $ 39,834     $ 14,069     $ 133,871     $ 100,909  
 
Pre-tax income (loss) consisted of the following:
 
   
For The Three Months Ended
    
For The Nine Months Ended
  
   
September 30,
    
September 30,
  
   
2009
    
2008
    
2009
    
2008
  
   
 (Unaudited)
    
 (Unaudited)
    
 (Unaudited)
    
 (Unaudited)
  
 
                        
United States
   $ 13,393     $ (202,665 )   $ (269,492 )   $ (47,810 )
Foreign
     (1,217,119 )     (2,903,927 )     (3,430,401 )     (4,888,440 )
 
   $ (1,203,726 )   $ (3,106,592 )   $ (3,699,893 )   $ (4,936,250 )
 
 
18
 
ROYAL INVEST INTERNATIONAL CORP. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2009
(UNAUDITED)
 
NOTE 7 – INCOME TAXES (Continued)
 
The income tax expense differs from the amount computed by applying the United States statutory corporate income tax rate as follows:
 
 
   
For The Three Months Ended
    
For The Nine Months Ended
  
   
September 30,
    
September 30,
  
   
2009
    
2008
    
2009
    
2008
  
   
 (Unaudited)
    
 (Unaudited)
    
 (Unaudited)
    
 (Unaudited)
  
 
                        
United States Statutory Corporate Income Tax Rate
     (34.0 )%     (34.0 )%     (34.0 )%     (34.0 )%
Permanent Differences
     -- %     -- %     -- %     -- %
Change in Valuation Allowance on Deferred Tax Assets
     34.0 %     34.0 %     34.0 %     34.0 %
Effect of Foreign Earnings, Net of Allowable Credits
     3.3 %     0.4 %     3.6 %     2.0 %
Income Tax
    3.3 %     0.4 %     3.6 %     2.0 %
 
The components of deferred tax assets (liabilities) at September 30, 2009 and December 31, 2008 are as follows:

   
September 30,
    
December 31,
  
   
2009
    
2008
  
   
 (Unaudited)
        
             
Deferred Tax Assets (Liabilities) – Long Term
            
Net Operating Losses
   $ 830,000     $ 739,000  
Property
     (1,133,704 )     (1,175,358 )
                 
Valuation Allowance
     (830,000 )     (739,000 )
                 
Net Deferred Tax Liability
   $ (1,133,704 )   $ (1,175,358 )
 
The Company has established a full valuation allowance on its deferred tax asset because of a lack of sufficient positive evidence to support its realization.  The valuation allowance increased by approximately $91,000 and $71,000 in the nine months ended September 30, 2009 and the year ended December 31, 2008.

As of December 31, 2008, there are approximately $2.2 million in US net operating loss carryforwards expiring through 2028.  Section 382 of the Internal Revenue Code limits the utilization of these losses when there is a change in ownership, as defined in the code. As a result of stock issued for acquisitions and properties purchased, the utilization of net operating loss carryforwards are limited.

In the past, RIGP1, RIDP1 and RIDP2, wholly-owned subsidiaries of the Company, sold certain properties at a profit. Dutch tax law allows Real Estate Investment Trusts to postpone the payment of income tax resulting from the sale of properties by setting up a replacement reserve to purchase another property within a certain time. A portion of the original profit is not allowed to be postponed. The postponed income tax payable is shown as deferred tax in the balance sheet.

 
19
 
ROYAL INVEST INTERNATIONAL CORP. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2009
(UNAUDITED)

NOTE 8 – STOCKHOLDERS’ EQUITY
 
The Company is authorized to issue 1,000,000 shares of preferred stock, par value $0.001 and 300,000,000 shares of common stock, par value $0.001 per share.   At September 30, 2009 and December 31, 2008 there were 1,000 shares of preferred stock and 150,208,861 common shares issued and outstanding.  The preferred shareholders have the right to appoint one member to the Board of Directors and the right to request the Board of Directors to call for a shareholders’ meeting. The preferred shares were issued in conjunction with the MTMN B.V. property acquisition.

NOTE 9 – RELATED PARTY TRANSACTIONS

At September 30, 2009 and December 31, 2008, the Company had loans payable to related parties of US $1,786,662 and US $ 1,774,449, respectively, of which US $1,388,756 and US $1,344,465, respectively, was payable to two note holders.  The US $1,388,756 at September 30, 2009, is payable on demand and bears interest at 8%.

Effective October 22, 2008, the shareholders approved the appointment of Mr. Lambert Kassing as the new Managing Director of RIE and RIDS.  Mr. Kassing is to provide management services to the Company, as defined in the agreement, for compensation of €15,000 (approximately US $22,000) per month, commencing October 22, 2008, for an indefinite period (with a minimum term of one year),  subject to one month written notice by either party. The Company incurred US $185,000 in expense under this agreement during the nine months ended September 30, 2009

On October 22, 2008, the Company entered into a new Legal Services Agreement with SEC ATTORNEYS LLC in which Jerry Gruenbaum, the CEO of the Company is the Managing Member.  Under said Legal Services Agreement, the Company agreed to pay SEC ATTORNEYS LLC €12,500 (approximately US $18,000) per month for one year and thereafter for an indefinite period subject to one month written notice by either party to provide legal service to the Company and to provide a CEO and CFO for the Company. The new agreement is effective December 1, 2008. The Company incurred approximately US $148,000 in expense under this agreement in the nine months ended September 30, 2009 and approximately US $157,000 under a similar agreement in the nine months ended September 30, 2008. There is approximately US $350,000 and US $200,000 payable as of September 30, 2009 and December 31, 2008.

On May 25, 2007 the Company entered into a Consulting Agreement with ECM Participations B.V. [formerly ECM Hoff B.V.] in which the then Managing Director of the Company's subsidiary Royal Invest Europe B.V. is a shareholder, to secure financing for the Company and to fund its planned acquisitions.  ECM was to be paid up to a 2% finders fee for securing funding from a bank, and up to 8% finder's fee for securing funding from investors for the Company. The Company incurred a fee of approximately € 1,594,000 (US $2,352,000) upon the successful completion of funding with the Bank of Scotland. Effective May 20, 2008, the Company and ECM mutually agreed to cancel the Consulting Agreement as it relates to future funding arrangements.  Commissions earned prior to the effective date of the cancellation agreement are due and payable to ECM. At September 30, 2009, € 157,322 (US $230,000) is outstanding.

Loans totaling US $322,520 and US $317,965 at September 30, 2009 and December 31, 2008 are unsecured and bear a variable interest rate (Eurobor + 2%).
 
20
ROYAL INVEST INTERNATIONAL CORP. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2009
(UNAUDITED)

NOTE 10 – LOANS PAYABLE - OTHER

In August 2008, the Company borrowed € 150,000 (US $218,880 and US $211,455 at September 30, 2009 and December 31, 2008, respectively) from an unrelated party. The loan is unsecured, bears interest at 6% per annum and was due August 2009.  Through September 30, 2009, the Company has paid € 114,240 (US $166,699) on the loan.  The note is past due.  The balance at September 30, 2009 is € 35,760 (US $52,181).

NOTE 11 – NON-CONTROLLING INTEREST

The Company’s subsidiary, Royal Invest Europe B.V., has non-cumulative preference shares outstanding valued at € 166,500 (US $242,957) which are owned by minority shareholders.  The shareholders are entitled to 6% of the nominal value of these shares annually (approximately US $15,000) payable from the profits of RIE. No amount is payable if RIE’s operations result in a loss.

The Company’s subsidiary, Alfang B.V., has non-cumulative preference shares outstanding valued at € 224,000 (US $326,861) which are owned by minority shareholders.  The shareholders are entitled to 6% of the nominal value of these shares annually (approximately US $20,000) payable from the profits of Alfang B.V.  No amount is payable if Alfang B.V.’s operations result in a loss.

The Company’s subsidiary, AmogB B.V., has non-cumulative preference shares outstanding valued at € 12,600 (US $18,386) which are owned by minority shareholders.  The shareholders are entitled to 6% of the nominal value of these shares annually (approximately US $1,000) payable from the profits of AmogB B.V. No amount is payable if AmogB B.V.’s operations result in a loss.
 
NOTE 12 - COMMITTMENTS AND CONTINGENCIES

On or about June 19, 2007 the Company signed a Contract with Bloemers Onroerend Goed B.V. (“Bloemers”) to purchase a commercial warehouse and office building known as J.C.Beetslaan 153 at 2131 AL Hoofddorp, the Netherlands for € 6,500,000 (US $9,163,000), € 6,000,000 (US $8,458,000) in cash and € 500,000 (US $704,850) in Company common stock.  In addition the Company will pay any real estate transfer tax and notary transfer expenses.  This binding contract required the property to be transferred by October 1, 2007.  While awaiting new equity funding, the transfer has been postponed until December 1, 2008. In connection with the postponement of the acquisition to December 1, 2008, the Company has agreed to make a deposit of € 500,000 (US $704,850) which will be forfeited if the closing does not take place and to pay a fee of 7% of the € 6,000,000 (US $8,458,000) financing on a monthly basis less applicable rental income received. In addition the Company has agreed to reimburse Bloemers for the interest incurred on the property loans and certain other operating costs until the deal is closed. As at December 31, 2008, the Company paid € 446,688 (US $629,696) of the deposit and incurred an expense of € 487,684 (US $717,549) for the fee, of which € 454,825 (US $641,167) has been paid. Additionally, during 2008, the Company has paid € 293,016 (US $431,126) in interest and accrued € 300,000 (US $441,402) in other operating costs. In the fourth quarter of 2008, due to the current economic climate, the Company charged the deposit to operations and at December 31, 2008, there is a balance due for the fee and deposit of €86,171 (US $121,475). In the nine months ended September 30, 2009, the Company paid US $430,558 (€ 315,000) in interest and US $139,420 (€ 102,000) in other operating costs.

On June 14, 2007 the Company signed a Contract with Stedekroon B.V. to acquire two commercial properties, one is a 8,713 square meters (approx. 93,688 square feet) office building in Amersfoort, the Netherlands which has an annual rental income of €417,590 (approximately US $614,000) with Norit N.V. a subsidiary of a publicly traded tenant that has a lease contract until December 20, 2016 and the other, is a 4,402 square meters (approx. 47,333 square feet) office building with a shopping strip in Emmen, the Netherlands which has an annual rental income from four tenants, including from the national government of the Netherlands which pays €438,634 (approximately US $645,000) and the other tenants pay a total of €93,510 , €22,231 and €30,945 (approximately US $138,000, US $33,000 and US $46,000, respectively) for a total of €585,320 (approximately US $862,000), for a combined rental income of €1,002,910 (approximately US $1,476,000).  The properties are being purchased for €13,750,000 (approximately US $20,797,000) for cash.  The Contract has been approved by the Board of Directors.  In addition the Company will pay any real estate transfer tax and notary transfer expenses. Negotiations are currently taking place with the current owner concerning rent increases and contract renewals in conjunction with extensive upgrades requested by the national government of the Netherlands (requiring approximately € 2,500,000 or US $3,524,250 in additional investment). On May 26, 2008, the Company signed a definitive and binding Purchase Agreement with Stedekroon, B.V. Due to the current economic climate the Company could not obtain adequate financing and the Purchase Agreement was terminated. As provided in the Purchase Agreement, the Company incurred a penalty of 10% of the purchase price, €1,375,000 (US $2,023,093), in the fourth quarter of 2008. At December 31, 2008, €250,000 (US $352,425) has been paid and €1,150,000 (US $1,621,155), including €25,000 (US $35,243) of interest has been accrued for this amount.

 
21
 
ROYAL INVEST INTERNATIONAL CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2009
(UNAUDITED)

 
NOTE 12 - COMMITTMENTS AND CONTINGENCIES (Continued)
 
On April 24, 2009, the Company, through its wholly-owned subsidiary RIE, and Stedekroon BV mutually agreed to the following:

On April 25, 2009 RIE will pay Stedekroon BV € 60,000 (approximately US $79,000).
On or before July 15, 2009, RIE will pay Stedekroon BV € 60,000 (approximately US $79,000)
On or before October 15, 2009, RIE will pay Stedekroon BV € 60,000 (approximately US $79,000)
On or before December 15, 2009, RIE will pay Stedekroon BV € 120,000 (approximately US $158,000)

If the Company makes these payments timely, Stadekroon BV will release the Company from any and all liabilities that have arisen from the purchase agreement dated May 26, 2008. If any payment is not made on or before its due date, the original penalty of € 1,375,000 (approximately US $1,816,000) net of the payments already made by the Company will be immediately due and payable.  Through September 30, 2009, the Company has made the required payments.
 
On September 7, 2007, the Company entered into a binding Memorandum of Agreement to acquire all of the issued and outstanding shares of Glacier Gazdasagi Tanacsado es Szolgaltato Korlatolt Felelossegu Tarsagag (“Glacier”) for €15,000,000 (approximately US $21,000,000 excluding transfer costs which are to be paid by the Company.  The purchase price is to be paid as follows: notes payable in the amount of €12,000,000 (approximately US $17,000,000) and cash and shares of the Company's common stock in the amount of €3,000,000 (approximately US $4,000,000).  The amount of Company common stock issued in the purchase is limited to €1,500,000 (approximately US $2,000,000) with a 24 month lock-up period and will be based on $1.25 per share.  Glacier owns five (5) commercial rental properties in Budapest, Hungary.
 
22
 
Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the financial statements in Item 1 and the cautionary statements below.
 
Executive Summary
 
                We were incorporated in the State of Delaware as part of a reorganization on May 2, 2005.  In January 2007 we changed our name to Royal Invest International Corp. (“Royal Invest”) and we trade on the OTC under the stock symbol “RIIC”.  We were originally organized on October 30, 1980, under the laws of the State of Florida as C.N.W. Corp.  
 
On July 19, 2007 through our subsidiary Royal Invest Europe B.V. we acquired the shares of Rico Staete B.V. which owns a commercial real estate property located at Tackenweide 48, in Emmerich, Germany, consists of approximately 9.005 m2 rentable floor surface business accommodation as well as 1.478 m2 rentable floor surface office space.   In December 18, 2007 we acquired a new subsidiary called Vastgoed Beleggings Mij. Bunnik I B.V.   Thereafter, Royal Invest Europe B.V., our subsidiary transfered Royal Invest Germany Properties 1 B.V.,a subsidiary of Royal Invest Europe B.V. to our subsidiary Vastgoed Beleggings Mij. Bunnik I B.V.  With the addition of Vastgoed Beleggings Mij. Bunnik I B.V., we have a total of three subsidiaries in the Netherlands, including Royal Invest Europe B.V., and Royal Invest Development and Services B.V.  Vastgoed Beleggings Mij. Bunnik I B.V. has filed with the Chamber of Commerce at The Hague allowing it to use the trade name Royal Invest Europe 2.

      On December 27, 2007 through our subsidiary Royal Invest Europe B.V., we acquired a 2,680 m2 (approximately 28,817 square feet) commercial office building known as Sloterweg 22 in Badhoevedorp, the Netherlands, we acquired a 5,150 m2 (approximately 55,434 square feet) commercial office building known as Emmakade 59-60 in Leeuwarden, the Netherlands, we acquired 6 properties in the Netherlands, located at Mijlweg 7, in Vianen, the Netherlands; Berenkoog 53, in Alkmaar, the Netherlands; Keulsekade 21, in Utrecht, the Netherlands; Edisonweg 9, in Woerden, the Netherlands; De Schans 1802, in Lelystad, the Netherlands; and Franciscusweg 8-10, in Hilversum, the Netherlands, we acquired an 18,338 m2 (approximately 197,183 square feet) commercial office building known as Schepersmaat 4, 9405 TA Assen, the Netherlands, we acquired the shares of Alfang B.V.of Eindhoven, the Netherlands which owns a series of mortgaged commercial properties located at Parallelweg 29 in Beverwijk, The Netherlands; Kriuisweg 855, 857, 859 in Hoofddorp, The Netherlands; Schinkelwaard 20 in Alkmaar , The Netherlands; Willemstraat 47, 67, 69 in Hengelo, The Netherlands; Zuidermolenweg 7 in Amsterdam, The Netherlands; and Produktieweg 119 in Wormerveer, The Netherlands and we acquired the shares of AmogB B.V. which owns a portfolio of mortgaged commercial properties in the Netherlands.

Business and Investment Objectives and Operating Strategies
 
Since our formation, our business and investment objectives have been to:
 
· obtain capital gain on the sale of any properties;
· make new investments in properties or joint ventures, including by, directly or indirectly, developing new properties; and
· preserve and protect the shareholders’ capital.
 
Our board of directors in their sole discretion, may change these investment objectives as it deems appropriate and in our best interests.  Prior to changing any of the investment objectives, the board of directors will consider, among other factors, expectations, changing market trends, management expertise and ability and the relative risks and rewards associated with any change.
 
We intend to reach our business and investment objectives through our acquisition and operating strategies. Our acquisition and operating strategies are to:
 
· focus on Continental European and Great Britain markets; 
●maintain a portfolio which is diversified by property type and to some degree by geographical location;
· achieve and maintain high occupancy and increase rental rates through: (1) efficient leasing strategies, and (2) providing quality maintenance and services to tenants;
· control operating expenses through operating efficiencies and economies of scale;
· attract and retain high quality tenants;
· invest in properties that we believe offer significant growth opportunity; and
· emphasize regular repair and capital improvement programs to enhance the properties’ competitive advantages in their respective markets.
 
Competition
 
We compete with other entities to locate suitable properties for acquisition, to locate purchasers for our properties and to locate tenants to rent space at each of our properties.  Although our business is competitive, it is not seasonal.  While the markets in which we compete are highly fragmented with no dominant competitors, we face substantial competition.  This competition is generally for the retention of existing tenants at lease expiration or for new tenants when vacancies occur.  There are numerous other similar types of properties located in close proximity to each of our properties.  We maintain the suitability and competitiveness of our properties primarily on the basis of effective rents, amenities and services provided to tenants.  The amount of leasable space available in any market could have a material adverse effect on our ability to rent space and on the rents charged.  Competition to acquire existing properties from institutional investors and other publicly traded real estate limited partnerships and real estate investment trusts has increased substantially in the past several years.  In many of our markets, institutional investors, owners and developers of properties compete vigorously to acquire, develop and lease space.  Many of these competitors have substantially more resources than we do.

 
23
 

Critical Accounting Policies
 
General
 
A critical accounting policy is one that would materially affect our operations or financial condition, and requires management to make estimates or judgments in certain circumstances.  These judgments often result from the need to make estimates about the effect of matters that are inherently uncertain.  Critical accounting policies discussed in this section are not to be confused with accounting principles and methods disclosed in accordance with U.S. generally accepted accounting principles (‘‘GAAP’’).  GAAP requires information in financial statements about accounting principles, methods used and disclosures pertaining to significant estimates.  The following disclosure discusses judgments known to management pertaining to trends, events or uncertainties known which were taken into consideration upon the application of those policies and the likelihood that materially different amounts would be reported upon taking into consideration different conditions and assumptions.
 
Impairment and Valuation
 
Statement of Financial Accounting Standards (‘‘SFAS’’) No. 144 “Accounting for the Impairment or Disposal of Long-Lived Assets,’’ specifies circumstances in which certain long-lived assets must be reviewed for impairment.  If this review indicates that the carrying amount of an asset exceeds the sum of its expected future cash flows, the asset’s carrying value must be written down to fair value.  In determining the value of an investment property and whether the investment property is impaired, management considers several factors such as projected rental and vacancy rates, property operating expenses, capital expenditures, interest rates and recent appraisals when available.  The capitalization rate used to determine property valuation is based on among others, the market in which the investment property is located, length of leases, tenant financial strength, the economy in general, demographics, environment, property location, visibility, age and physical condition.  All of these factors are considered by management in determining the value of any particular investment property.  The value of any particular investment property is sensitive to the actual results of any of these factors, either individually or taken as a whole.  If the actual results differ from management’s judgment, the valuation could be negatively or positively affected.
 
The mergers was accounted for using the purchase method of accounting in accordance with SFAS No. 141 ‘‘Business Combinations.’’  Royal Invest Europe BV was treated as the purchasing entity.  For the merger, the portion of the assets and liabilities acquired from unaffiliated third parties was adjusted to reflect its fair market value.  That portion owned by affiliates of the Company was reflected at historical cost.
 
In accordance with SFAS No. 141, we allocate the purchase price of each acquired investment property among land, buildings and improvements, other intangibles, including acquired above market leases, acquired below market leases and acquired in place lease origination cost which is the market cost avoidance of executing the acquired leases.  Allocation of the purchase price is an area that requires complex judgments and significant estimates.  We use information contained in third-party appraisals as the primary basis for allocating the purchase price between land and buildings.  A pro rata portion of the purchase price is allocated to the value of avoiding a lease-up period for acquired in-place leases.  The value of in-place leases is amortized to expense over the remaining initial term of the respective leases.  A portion of the purchase price is allocated to the estimated lease origination cost based on estimated lease execution costs for similar leases and considered various factors including geographic location and size of leased space.  We then evaluate acquired leases based upon current market rates at the acquisition date and various other factors including geographic location, size and the location of leased space within the property, tenant profile and the credit risk of the tenant in determining whether the acquired lease is above or below market.  After acquired leases are determined to be at, above or below market, we allocate a pro rata portion of the purchase price to any acquired above or below market lease based upon the present value of the difference between the contractual lease rate and the estimated market rate.  We also consider an allocation of purchase price to in-place leases that have a customer relationship intangible value.  The characteristics we consider in allocating these values include the nature and extent of existing business relationships with the tenant, growth prospects for developing new business with the tenant and the tenant’s credit quality and expectations of lease renewals.  We did not have any tenants with whom we have identified a developed relationship that we believe had any intangible value.
 
Recognition of Rental Income
 
Under GAAP, we are required to recognize rental income based on the effective monthly rent for each lease.  The effective monthly rent is equal to the average monthly rent during the term of the lease, not the stated rent for any particular month.  The process, known as ‘‘straight-lining’’ or ‘‘stepping’’ rent generally has the effect of increasing rental revenues during the early phases of a lease and decreasing rental revenues in the latter phases of a lease.  If rental income calculated on a straight-line basis exceeds the cash rent due under the lease, the difference is recorded as an increase in deferred rent receivable and included as a component of accounts receivable on the relevant balance sheet.  If the cash rent due under the lease exceeds rental income calculated on a straight-line basis, the difference is recorded as a decrease in deferred rent receivable and is recorded as a decrease of accounts receivable on the relevant balance sheet.  We defer recognition of contingent rental income, such as percentage or excess rent, until the specified target that triggers the contingent rental income is achieved.  We periodically review the collectability of outstanding receivables.  Allowances are generally taken for tenants with outstanding balances due for a period greater than ninety days and tenants with outstanding balances due for a period less than ninety days but that we believe are potentially uncollectible.
 
Recognition of Lease Termination Income
 
We recognize lease termination income upon receipt of the income.  We accrue lease termination income if there is a signed termination agreement, all of the conditions of the agreement have been met and the tenant is no longer occupying the property.
 
Cost Capitalization and Depreciation Policies
 
We review all expenditures and capitalize any item exceeding $2,500 deemed to be an upgrade or a tenant improvement with an expected useful life greater than one year.  Land, buildings and amenities are stated at cost.  Depreciation expense is computed using the straight-line method over the estimated useful lives of the assets.  Buildings and improvements have estimated useful lives between 25-40 years, land improvements have estimated useful lives of 10 years and amenities have estimated useful lives of 5 years.  Acquired above and below market leases are amortized on a straight-line basis over the life of the related leases as an adjustment to rental income.  Acquired in place lease origination cost is amortized over the life of the lease as a component of amortization expense.
 
24
 
Liquidity and Capital Resources
 
                 Our most liquid asset is our cash.  Operating income generated by the properties will be the primary source from which we generate cash.  Our main uses of cash will relate to capital expenditures, required payments of mortgages and notes payable, distributions and property taxes.
 
Cash Flow from Operating Activities
 
Net cash provided by operating activities decreased from $1,348,718 for the nine months ended September 30, 2008 to $1,060,746 for the nine months ended September 30, 2009.  The decrease is primarily the result of a decrease in net loss from $(5,037,159) for the nine months ended September 30, 2008 to $(3,833,764) for the nine months ended September 30, 2009, an increase in change in value of derivative liability from $(2,313,130) for the nine months ended September 30, 2008 to $0 for the nine months ended September 30, 2009,  a decrease in loss on debt modification from $1,416,852 for the nine months ended September 30, 2008 to $0 for the nine months ended September 30, 2009, a decrease in the fair value adjustment on property from $1,941,239 for the nine months ended September 30, 2008 to $0 for the nine months ended September 30, 2009, a decrease in amortization - debt discount from $541,096 for the nine months ended September 30, 2008 to $0 for the nine months ended September 30, 2009, an decrease in accounts payable from $(23,980) for the nine months ended September 30, 2008 to $(1,037,156) for the nine months ended September 30, 2009, an increase in accrued interest from $2,082,118 for the nine months ended September 30, 2008 to $3,394,688 the nine months ended September 30, 2009, and an increase in accrued interest - related party from $0 for the nine months ended September 30, 2008 to $448,521 for the nine months ended September 30, 2009.
 
Cash Flow from Investing Activities
 
Net cash used in investing activities decreased from $(835,863) for the nine months ended September 30, 2008 to ($154,967) for the nine months ended September 30, 2009.   
 
Cash Flow from Financing Activities
 
Net cash used in financing activities increased  from $(480,057) for the nine months ended September 30, 2008 to ($540,058) for the nine months ended September 30, 2009.  The decrease is primarily the result of an decrease on payments on mortgage payable from $(921,999) for the nine months ended September 30, 2008 to ($290,831) for the nine months ended September 30, 2009,  an increase in proceeds from loan payable - related party from $286,727 for the nine months ended September 30, 2008 to $596,780 for the nine months ended September 30, 2009,  an increase in payment on loans payable - related parties from $0 for the nine months ended September 30, 2008 to $(643,706) for the nine months ended September 30, 2009, a decrease in proceeds from loans payable - other from $296,665 for the nine months ended September 30, 2008 to $0 for the nine months ended September 30, 2009.
 
Future Liquidity
 
Our future liquidity depends significantly on our properties’ occupancy remaining at a level which allows us to make debt payments and have adequate working capital, currently and in the future.  If occupancy were to fall below that level and remain at or below that level for a significant period of time, our ability to make payments due under our debt agreements and to continue paying daily operational costs would be greatly impaired.  In the next twelve months, we intend to operate the properties in a similar manner to their operation in recent years.  Cash reserves, which consist of unrestricted cash as shown on our balance sheet, were $624,095 on September 30, 2009.
 
Property Transactions
 
Acquisitions
 
During the quarter ended September  30, 2009, we had no property acquisitions.
 
         Dispositions
 
                 During the quarter ended September 30, 2009, we had no property disposition.
 
25
RESULTS OF OPERATIONS
 
QUARTER AND NINE MONTHS ENDED SEPTEMBER 30, 2009 AS COMPARED TO SEPTEMNBER 30, 2008
 
This section includes our actual results of operations for the quarter ended and nine months ended September 30, 2009 and 2008.  As of December 31, 2007, we owned wholly 18 commercial properties.  We generate substantially all of our operating income from property operations.
 
   
For The Three Months Ended
    
For The Nine Months Ended
  
   
September 30,
    
September 30,
  
   
2009
    
2008
    
2009
    
2008
  
 
                        
Revenues    $ 2,945,648     $ 3,729,514     $ 8,956,328     $ 11,229,880  
                                 
Operating Services
     831,924       864,091       2,511,732       2,582,458  
Real Estate Taxes
     65,088       54,894       148,285       166,256  
General and Administrative
     482,756       753,596       1,938,295       2,401,340  
Depreciation
     632,620       793,096       1,999,842       2,399,221  
Fair Value Adjustment on Property
     -       1,941,239       -       1,941,239  
                                 
Operting Income (Loss)
     933,260       (677,402 )      2,358,174       1,739,366  
                                 
Net Other Income (Expenses)     (2,136,986 )     (2,429,190 )     (6,058,067 )     (6,675,616 )
                                 
Loss Before Income Taxes
     (1,203,726 )     (3,106,592 )     (3,699,893 )     (4,936,250 )
Provision for Income Taxes
     39,834       14,069       133,871       100,909  
Net Loss
   $ (1,243,560 )   $ (3,120,661 )   $ (3,833,764 )   $ (5,037,159 )
 
 
Our net loss for the three months ended September 30, 2009 and 2008 was $(1,243,560), and $(3,120,661), respectively.  Revenues decreased from $3,729,514 for the quarter ended September 30, 2008 to $2,945,648 for the quarter ended September 30, 2009.   Our net loss for the nine months ended September 30, 2009 was $(3,833,764) and for the nine months ended September 30, 2008 was $(5,037,159).  Revenues decreased from $11,229,880 for the nine months ended September 30, 2008 to $8,956,328 for the nine months ended September 30, 2009.
 
 
Rental Income and Tenant Reimbursements
 
Rental income from continuing operations for the quarter ended September 30, 2009 and 2008 were $2,687,065 and $3,643,990, respectively.  Rental income from continuing operations for the nine months ended September 30, 2009 and 2008 were $7,487,213 and $9,477,260, respectively.
 
General and Administrative Expenses
 
General and administrative expenses from continuing operations for the quarter ended September 30, 2009 and 2008 were $482,756 and $753,596, respectively.  General and administrative expenses from continuing operations for the nine months ended September 30, 2009 and 2008 were $1,938,295 and $2,401,340, respectively.

26
 
Property Taxes
 
Property taxes from continuing operations for the quarter ended September 30, 2009 and 2008 were $65,088 and $54,894, respectively.  Property taxes from continuing operations for the nine months ended September 30, 2009 and 2008 were $148,285 and $166,256, respectively.
 
 
Depreciation
 
Depreciation expense from continuing operations for the quarter ended September 30, 2009 and 2008 were $632,620 and $793,096, respectively.   Depreciation expense from continuing operations for the nine months ended September 30, 2009 and 2008 were $1,999,842 and $2,399,221, respectively.
 
 
Interest Expense
 
Interest expense from continuing operations for the quarter ended September 30, 2009 and 2008 were $2,005,328 and $2,350,689, respectively.  Interest expense from continuing operations for the nine months ended September 30, 2009 and 2008 were $5,680,507 and $6,677,384, respectively.  
 
 
Contractual Obligations and Commercial Commitments
 
Following is an overview of the Company’s mortgages as of December 31, 2008: 

         
Principal Balance at
    
   
Interest
    
December 31, 2008
    
Lender
  
Rate
    
in Euros
    
in Dollars****
  
Maturity
Bank of Schotland PLC
    
*
     € 78,943,797     $ 111,287,071  
December 27, 2013
SNS Bank
    
**
       2,901,774       4,090,631  
Mature ***
            € 81,845.571     $ 115,377,702    
                           

*
Variable Interest Rate (Quarterly Euribor + 1,32%).
**
Variable Interest Rate (Monthly Euribor + 2%).
***
Royal Invest Europe is currently negotiating with the Bank of Schotland to refinance this object under the terms of the current Facility Agreement
****
 Currency exchange rate for December 31, 2008 EUR € to US $ = 1.4097

At December 31, 2008, the Properties are leased to tenants under operating leases with various expiring dates through 2023. The lease provides for annual base rents and the pass-through of charges for electrical usage.

Future minimum rentals to be received under non-cancelable operating leases over the next five years:
 

Year
  
Amount
  
2009
     10,050,550  
2010
     5,573,359  
2011
     4,836,528  
2012     4,201,137  
2013
     3,231,920  
         
Total
   $ 27,893,494  
 
 
Our primary market risk exposure with regard to financial instruments is expected to be our exposure to changes in interest rates.  We refinanced substantially all of our debt acquired at the time of our merger with instruments, which bear a variable interest set quarterly at Euribor +1,32%.  A minimum of 65% of the facility is subject to a hedging contract; 20% is capped, and the remaining 15% is subject to market conditions.
 
 
 
Disclosure Controls and Procedures - As of September 30, 2009, we, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as defined in Exchange Act Rules 13a-15(e) and 15(d)-15(e).  Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the disclosure controls and procedures were effective as of September 30, 2009. 
 
Management’s Report on Internal Control Over Financial Reporting - Management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a-15(f) under the Exchange Act.  Our internal control system is designed to provide reasonable assurance regarding the preparation and fair presentation of published financial statements.  Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.  Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.  Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that compliance with the policies or procedures may deteriorate or be circumvented. 
 
Management assessed the effectiveness of our internal control over financial reporting as of September 30, 2009.  In making this assessment, management used the criteria established in Internal Controls-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission, or COSO.  Based on management’s assessment and the criteria established by COSO, management believes that we maintained effective internal control over financial reporting as of September 30, 2009. 
 
Changes in Internal Control Over Financial Reporting- There has been no change in our internal control over financial reporting during the quarter ended September 30, 2009, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. 
 
 
This quarterly report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting.  Management’s report was not subject to attestation by our registered public accounting firm pursuant to temporary rules of the SEC that permit us to provide only management’s report in this quarterly report.
 
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In the normal course of our business, we and/or our subsidiaries are named as defendants in suits filed in various state and federal courts.  We believe that none of the litigation matters in which we, or any of our subsidiaries, are involved would have a material adverse effect on our consolidated financial condition or operations.
 
On August 7, 2008. a judgement was awarded to Jeff and Deborah Hilger in the amount of $22,408 for a unpaid Promissory Note including costs and fees.  The judgement has not been paid to date.  There is no other past, pending or, to the Company’s knowledge, threatened litigation or administrative action which has or is expected by the Company’s management to have a material effect upon our Company’s business, financial condition or operations, including any litigation or action involving our Company’s officers, directors, or other key personnel.

 
 
 
 
Certain information included in this report or in other materials we have filed or will file with the Securities and Exchange Commission (the “SEC”) (as well as information included in oral statements or other written statements made or to be made by us) contains or may contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended. You can identify these statements by the fact that they do not relate strictly to historical or current facts. They contain words such as “anticipate,” “estimate,” “expect,” “project,” “intend,” “plan,” “believe,” “may,” “can,” “could,” “might” and other words or phrases of similar meaning in connection with any discussion of future operating or financial performance. Such statements include information relating to anticipated operating results, financial resources, changes in revenues, changes in profitability, interest expense, growth and expansion, anticipated income to be realized from our investments in unconsolidated entities, the ability to acquire land, the ability to gain approvals and to open new communities, the ability to sell properties, the ability to secure materials and subcontractors, the ability to produce the liquidity and capital necessary to expand and take advantage of opportunities in the future, and stock market valuations. From time to time, forward-looking statements also are included in our other periodic reports on Forms 10-Q and 8-K, in press releases, in presentations, on our website and in other material released to the public.
 
 
We undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise. However, any further disclosures made on related subjects in our subsequent reports on Forms 10-K, 10-Q and 8-K should be consulted. The following cautionary discussion of risks, uncertainties and possible inaccurate assumptions relevant to our business includes factors we believe could cause our actual results to differ materially from expected and historical results. Other factors beyond those listed below, including factors unknown to us and factors known to us, which we have not determined to be material, could also adversely affect us. This discussion is provided as permitted by the Private Securities Litigation Reform Act of 1995, and all of our forward-looking statements are expressly qualified in their entirety by the cautionary statements contained or referenced in this section.
 
 
 
 
 
 
 
 
We carry comprehensive liability, fire, extended coverage, terrorism and rental loss insurance covering all of our properties.  We believe the policy specifications and insured limits are appropriate given the relative risk of loss, the cost of the coverage and industry practice.  None of the entities carry insurance for generally uninsured losses such as losses from riots, war, acts of God or mold.  Some of the policies, like those covering losses due to terrorism and floods, are insured subject to limitations involving large deductibles or co-payments and policy limits, which may not be sufficient to cover losses.  If we experience a loss which is uninsured or which exceeds policy limits, we could lose the capital invested in the damaged property as well as the anticipated future cash flows from that property.  In addition, if the damaged property is subject to recourse indebtedness, we would continue to be liable for the indebtedness, even if it was irreparably damaged.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Under various laws, ordinances and regulations relating to the protection of the environment, a current or previous owner or operator of real estate may be held liable for contamination resulting from the presence or discharge of hazardous or toxic substances at that property, and may be required to investigate and clean up any contamination at, or emanating from, that property. These laws often impose liability, which may be joint and several, without regard to whether the owner or operator knew of, or was responsible for, the presence of the contaminants. The presence of contamination, or the failure to remediate contamination, may adversely affect the owner’s ability to sell, lease or develop the real estate or to borrow using the real estate as collateral. In addition, the owner or operator of a site may be subject to claims by third parties based on personal injury, property damage or other costs, including costs associated with investigating or cleaning up the environmental contamination present at, or emanating from, a site.
 
 
 
 
 
 
 
 
 

    The Company has not sold any equity securities during the quarter ended September 30, 2009.  Information with respect to previously reported sales prior to July 1, 2009 may be found in the Company’s prior filings.


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ITEM 3     DEFAULT UPON SENIOR SECURITIES

During the period March 1, 2005 to July 31, 2005, the Company issued convertible promissory notes aggregating $589,000. The notes are unsecured and bear interest at a rate of 10% per annum. The principal and interest was due June 27, 2006.  On November 16, 2005, a majority of holders of the outstanding notes opted to convert the principal and interest on their notes into common shares of the Company at $0.75 per share.  The Company converted $542,067 of notes plus interest into 849,176 shares of common stock. The outstanding notes of approximately $65,000 are currently in default.
 
During the period January 1, 2006 to March 31, 2006, the Company issued additional convertible promissory notes aggregating $220,000.  The notes are unsecured and bear interest at a rate of 10% per quarter.  The principal and interest is due 90 days after the issuance of the notes, but automatically renews and continues to accrue interest. The notes are convertible into shares of common stock of the company at $0.75 per share. These notes are currently in default.
 
The Company’s properties are primarily mortgaged through a € 100,000,000 financing agreement with the Bank of Scotland. The terms call for a pay down based on a percentage of the outstanding amount utilized (1.25% in year 1; 1.50% in years 2 & 3; 2.0% in years 4, 5 & 6) with maturity at 6 years from the initial drawdown which was December 27, 2007. Interest is due quarterly at Euribor + 1.32%. The agreement contains customary financial covenants which the Company is not in compliance with as of September 30, 2009. The amount outstanding at September 30, 2009 and December 31, 2008 is US $115,194,790 (€ 78,943,798) and US $111,287,072 (€ 78,943,798), respectively. The remaining amount of the facility at € 20,310,100 can be used for financing other properties (85% LTV/LTC). The mortgage is currently in default and as of September 2009 approximately US $7,124,690 (€ 4,882,600) of interest due is in arrears.

The Company has an additional mortgage payable to SNS Bank. The amount outstanding on this mortgage at September 30, 2009 and December 31, 2008 is US $3,923,787 (€ 2,688,999) and US $4,090,630 (€ 2,901,774), respectively. The SNS Bank Mortgage is payable in monthly installments of $22,335. The mortgage bears a variable interest rate (monthly Euribor + 2%). The mortgage is collateralized by the land and buildings. The mortgage is currently in default as the balloon payment due at maturity was not paid.  The Company continues to make monthly payments.  The Company is currently in negotiations with SNS Bank to refinance the mortgage.
 
 

No matters were submitted to a vote of security holders, through the solicitation of proxies or otherwise, during the first quarter of the year ended September 30, 2009.
 
 
 
 
              Exhibit No.                 Document Description

 
3.1
Certificate of Incorporation of C.N.W. Corp. as filed with the Florida Secretary of State on October 30, 1980, incorporated by reference to the Company’s Registration Statement on Form 10SB12G filed with the Securities and Exchange Commission on August 20, 1999.

 
3.2
Amended Certificate of Incorporation of C.N.W. Corp. to change name to C.N.W. of Orlando, Inc., increased its capitalization from 1,000 common shares to 50,000,000 common shares and changed its par value from $1.00 to $0.001 as filed with the Florida Secretary of State on July 21, 1998, incorporated by reference to the Company’s Registration Statement on Form 10SB12G filed with the Securities and Exchange Commission on August 20, 1999.

 
3.3
Amended Certificate of Incorporation of C.N.W. of Orlando, Inc. to change name to GlobalNetCare, Inc. as filed with the Florida Secretary of State on December 28, 1998, incorporated by reference to the Company’s Registration Statement on Form 10SB12G filed with the Securities and Exchange Commission on August 20, 1999.

 
3.4
Amended Certificate of Incorporation of GlobalNetCare, Inc. to change name to BusinessWay International Corp., and increased its authorized capital to 300,000,000 common shares as filed with the Florida Secretary of State on January 31, 2001, incorporated by reference to the Company’s Form DEF 14C filed with the Securities and Exchange Commission on February 14, 2001.

 
3.5
Amended Certificate of Incorporation of BusinessWay International Corp. to change name to ICBS International Corp. and added restrictions on newly issued shares as filed with the Florida Secretary of State on September 29, 2004, incorporated by reference to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on September 29, 2004.

 
3.6
Amended Certificate of Incorporation of ICBS International Corp. to remove the restrictions on newly issued shares that were added on September 29, 2005 as filed with the Florida Secretary of State on February 14, 2005, incorporated by reference to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on February 14, 2005
 
 
3.7
Certificate of Incorporation of Wah King Invest Corp., authorizing 300,000,000 common shares and 1,000,000 blank check preferred shares as filed with the Delaware Secretary of Sate on May 2, 2005, incorporated by reference to the Registrant's Form DEC 14C, as filed with the Securities and Exchange Commission on May 20, 2005.

 
3.8
Articles of Merger of ICBS International Corp., a Florida corporation into Wah King Invest Corp, a Delaware corporation as filed with the Florida Secretary of State on May 9, 2005, incorporated by reference to the Registrant's Form DEC 14C, as filed with the Securities and Exchange Commission on May 20, 2005.

 
3.9
Certificate of Merger of ICBS International Corp., a Florida corporation into Wah King Invest Corp, a Delaware corporation as filed with the Delaware Secretary of State on May 9, 2005, incorporated by reference to the Registrant's Form DEC 14C, as filed with the Securities and Exchange Commission on May 20, 2005.
 
 
3.10
Amended Certificate of Incorporation of Wah King Invest Corp. to change name tp Royal Invest International Corp. as filed with the Delaware Secreatry of State on Janmuary 26, 2007, iincorporated by reference to the Registrant's Current Report on Form 8-K, as filed with the Securities and Exchange Commission on June 7, 2007
 
 
10.1
Agreement to purchase Vastgoed Beleggings Mij. Bunnik I B.V., dated December 18, 2007, incorporated by reference to the Registrant's Curent Report on Form 8-K, as filed with the Securities and Exchange Commission on January 14, 2008.

 
10.2
 Transfer of Royal Invest Germany Properties 1 B.V.,by Royal Invest Europe B.V. to Vastgoed Beleggings Mij. Bunnik I B.V. dated December 18, 2007, incorporated by reference to the Registrant's Curent Report on Form 8-K, as filed with the Securities and Exchange Commission on January 14, 2008.

35
 
10.3
  Bank of Scotland Term Sheet € 100.000.000 dated November 23, 2007, incorporated by reference to the Registrant's Current Report on Form 8-K, as filed with the Securities and Exchange Commission on November 23, 2007.

 
10.4
Contract for Sloterweg 22 in Badhoevedorp, The Netherlands incorporated by refernce to the Registrant's Current Report on Form 8-K, as filed with the Securities and Exchange Commission on June 12, 2007.
 
 
10.5
Deed of Transfer for Sloterweg 22 in Badhoevedorp, The Netherlands dated December 27, 2007, incorporated by reference to the Registrant's Curent Report on Form 8-K, as filed with the Securities and Exchange Commission on January 14, 2008.
 
 
10.6
Contract for MTMN BV et al dated May 25, 2007, incorporated by reference to the Registrant’s Current Report on Form 8-K, as filed with the Securities and Exchange Commission on May 25, 2007.

 
10.7
Deed of Transfer for MTMN BV et al dated December 27, 2007, incorporated by reference to the Registrant's Curent Report on Form 8-K, as filed with the Securities and Exchange Commission on January 14, 2008.

 
10.8
Contract for Schepersmaat 4, 9405 TA Assen , The Netherlands, incorporated by reference to the Registrant’s Current Report on Form 8-K, as filed with the Securities and Exchange Commission on July 12, 2007.

 
10.9
 Management Agreement with Statenconsult B.V. dated May 25, 2007 for the services of David Havenaar as Managing Director of the Registrant's subsidiary Royal Invest Europe B.V. incorporated by reference to the Registrant's Current Report on Form 8-K, as filed with the Securities and Exchange Commission on August 13, 2007. 
 
 
10.10
Legal Service Agreement with Sec Attorneys, LLC dated May 25, 2007 incorporated by reference to the Registrant's Current Report on Form 8-K, as filed with the Securities and Exchange Commission on August 13, 2008.
 
 
10.11
Deed of Transfer for Schepersmaat 4, 9405 TA Assen , The Netherlands dated December 27, 2007, incorporated by reference to the Registrant's Curent Report on Form 8-K, as filed with the Securities and Exchange Commission on January 14, 2008.
 
 
10.12
Contract for Alfang B.V. dated July 25, 2007, incorporated by reference to the Registrant’s Current Report on Form 8-K, as filed with the Securities and Exchange Commission on August 15, 2007.
 
 
10.13
Deed of Sale for Alfang B.V. dated December 27, 2007, incorporated by reference to the Registrant's Curent Report on Form 8-K, as filed with the Securities and Exchange Commission on January 14, 2008.
 
 
10.14
Deed of Sale and Transfer of AmogB B.V. dated December 27, 2007, incorporated by reference to the Registrant's Curent Report on Form 8-K, as filed with the Securities and Exchange Commission on January 14, 2008.

 
10.15
Convertible 8% Note with Muermans Vast Goed Roermond B.V for  €3.500.000 dated December 21, 2007, incorporated by reference to the Registrant's Curent Report on Form 8-K, as filed with the Securities and Exchange Commission on January 14, 2008. 

 
10.16
€100.000.000 Term Loan Agreement with Bank of Scotland dated December 21, 2007, incorporated by reference to the Registrant's Curent Report on Form 8-K, as filed with the Securities and Exchange Commission on January 14, 2008.
 
 
10.17
Convertible 8% Note with ECM Hoff Holding B.V. for  €1.091.257 dated December 21, 2007, incorporated by reference to the Registrant's Curent Report on Form 8-K, as filed with the Securities and Exchange Commission on January 14, 2008.
 
 
10.18
Mortgage Deed with Bank of Scotland dated December 27, 2007, incorporated by reference to the Registrant's Curent Report on Form 8-K, as filed with the Securities and Exchange Commission on January 14, 2008.

 
10.19
Mortgage Deed with Bank of Scotland for Alfong B.V. dated December 27, 2007, incorporated by reference to the Registrant's Curent Report on Form 8-K, as filed with the Securities and Exchange Commission on January 14, 2008.

 
10.20
 Mortgage Deed with Bank of Scotland for AmogB B.V. dated December 27, 2007, incorporated by reference to the Registrant's Curent Report on Form 8-K, as filed with the Securities and Exchange Commission on January 14, 2008.
 
 
21.1
 Subsidiaries of the Company, incorporated by reference to the Registrant's Annual Report on Form 10-K, as filed with the Securities and Exchange Commission on April 15, 2008.
 
 
31.1
Certification of Chief Executive Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act, as amended.

 
31.2
Certification of Chief Financial Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act, as amended.

 
32.1
Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350 as adopted Pursuant to Section 906 of the Sarbanes Oxley Act of 2002.

 
32.2
Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350 as adopted Pursuant to Section 906 of the Sarbanes Oxley Act of 2002.

36
 
Reports on Form 8-K:
                                               
                                                None.

 
 

In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, there unto duly authorized.

     ROYAL INVEST INTERNATIONAL CORP.
                           (Registrant)
     
     
 Date: November 19, 2009     By:  /s/ JERRY GRUENBAUM
             Jerry Gruenbaum
            Chief Executive Officer and
     
 Date: November 19, 2009    By:  /s/ NATHAN LAPKIN
             Nathan Lapkin
             President and Chief Financial Officer
             and Director
     


In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.


SIGNATURE
  
NAME
  
TITLE
  
DATE
             
/s/Jerry Gruenbaum
  
Jerry Gruenbaum
  
CEO & Chairman
  
November 19, 2009
       
of the Board
    
             
/s/Nathan Lapkin
  
Nathan Lapkin
  
President, CFO,
  
November 19, 2009
       
& Director
    


37

ROYAL INVEST INTERNATIONAL CORP. Reports