SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K/A
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended May 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from June 1, 1995 to May 31,
1997
Commission File No. 33-1534-D
IRT HOLDING CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 22-3253496
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(State or other jurisdiction of (IRS EIN).
incorporation or organization)
272 South White Horse Pike, Berlin, NJ 08009
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(Address of principal executive offices)
800-448-8199
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(Telephone Number)
Section Registered Pursuant to Section 12(b) of the Act:
Name of Each Exchange
Title Each Class on which Registered
--------------- --------------------
None None
Securities Registered Pursuant to Section 12(g) of the
Act:
None
(Title of Class)
No
(Former name, Former Address and from fiscal year if
changed since last report)
Indicated by check mark whether the Registrant (1)
has filed all reports required to be filed by Sections
13 or 15(d) of the Securities Exchange Act o f 1934
during the preceding 12 months (or for such short
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 [ ] No
[X]
The Registrant's voting stock is traded
Over-The-Counter and is quoted in the National
Quotation Bureau "pink sheets." As of May 31, 1996,
there was no significant market for trading of the
Registrant's voting stock.
On May 31, 1997, the Registrant had outstanding
39,455,816 shares of its common stock, par value .001.
Documents incorporated by reference: None
PART I
Item 1. Business
General Development of Business
L'Autrec, Inc., a public corporation was
incorporated under the laws of the State of Delaware on
May 3, 1985. From June 30, 1988 until April 2, 1992,
L'Autrec was inactive and conducted no operations.
Immuno Response Technology, Inc., a Delaware
corporation ("IRT"), was organized in 1988 and
developed the programs, procedures and business of the
Registrant. On February 27, 1992, IRT entered into an
Agreement and Plan of Reorganization (the
"Reorganization Agreement") with L'Autrec. The
Reorganization Agreement, as amended, provided
pertinently that L'Autrec's wholly-owned subsidiary,
L'Autrec Merger Co., would merge with IRT. The
Reorganization Agreement provided that all shares of
outstanding common stock of IRT be exchanged for shares
of L'Autrec common stock.
The merger of L'Autrec Merger Co. and IRT was
completed on April 2, 1992, whereby all of IRT's
outstanding shares of common stock were exchanged for
shares of common stock of L'Autrec, comprising
approximately 89 percent of L'Autrec's issued and
outstanding common stock. Subsequently, L'Autrec
changed its name to IRT Holding Corporation and IRT
changed its name to IRT Diagnostic, Inc.
On July 12, 1991, the Registrant completed an
acquisition of Advanced Allergy Management, Inc., a
California-based operator of a clinical testing
laboratory. The Company closed the AAM facility during
January of 1995. (See Note 1 of the Consolidated
Financial Statement.)
Description of Business
The Registrant through its wholly-owned
subsidiary, IRT Diagnostic, Inc. and IRT Laboratory,
Inc. (collectively, the "Company"), (i) has developed
and presently markets proprietary asthma/allergy and
immunology management programs, including clinical
diagnostic consultations provided through a network of
clinical allergists and ear, nose and throat
specialists; and (ii) operates a clinical testing
laboratory performing allergy testing, including its
FDA-approved, proprietary Rapid Allergen Procedure
serum test. The Company's services are designed to
principally support primary care physicians in the
diagnosis and treatment of allergic disease.
The Company seeks to expand the scope of its
services to reach health maintenance organizations
contracting with state governments to provide health
coverage to Medicaid patients. Management
believes its services will improve the delivery and
reduce the cost of medical care for asthma and other
allergic diseases by using its proprietary laboratory
technology and a standardized approach to the delivery
of its services. The Company has developed a unique
approach for the delivery of medical services by
combining the training of primary care physicians,
overseeing their diagnostic and treatment protocols and
utilizing more effective, less costly technology.
DISCUSSION OF THE COMPANY'S BUSINESS
Allergy refers to a group of diseases in which
immunologically induced inflammation is triggered by
environmental antigens referred to as allergens.
Allergic diseases are common and can cause local or
systemic effects. The most common ones - allergic
rhinitis, sinusitis, asthma and allergic contact
dermatitis - are responsible for significant
morbidity, and in asthma significant mortality.
Accurate diagnoses and appropriate treatment can
curtail drastically their associated clinical
impairment and disability. Common to the various
allergic diseases is the role of immediate (IgE)
hypersensitivity and the allergen triggers involved.
Furthermore, early diagnosis and treatment will reduce
the occurrence of these problems, particularly with the
detection of IgE responses in these patients to
identify the allergen triggers.
NATIONAL INSTITUTE OF HEALTH POSITION:
Asthma is a major health problem in America.
Despite improvements in pharmaceutical treatment, it
has an increasing incidence, hospitalization and
mortality. This conclusion led to the publication of
an Expert Panel Report by the National Institute of
Health that emphasized an increased role for the
primary care physicians in the management of asthma.
ROLE OF THE PRIMARY CARE PHYSICIAN:
The NIH report outlines in detail recommended
steps to correct this alarming trend. Because of the
magnitude of the problem and the scarcity and poor
distribution of asthma and allergic disease
specialists, the majority of the care must be borne by
the primary care physician with correct diagnosis and
evaluation of severity to appropriate treatment
including care of allergies and environmental controls.
Paramount to these recommendations is the necessity
for all physicians to understand the new knowledge
about the pathophysiology of asthma and the changes in
treatment regimens based on it. Dr. Myron J. Zitt, a
representative of Asthma Zero Mortality Coalition, in a
survey found that very few primary care physicians
follow the "Guidelines for the Diagnosis and Treatment
of Asthma" issued in 1991. This important survey
provides some solid data to help us understand what's
behind the increase in asthma morbidity and mortality
over the past decade.
These increases have been noted in several other
papers that include these highlights:
o Prevalence of asthma has increased 66 percent from
1979-1992;
o The U.S. mortality rate has increased by 40
percent from 1980-1990;
o African-Americans are three times more likely to
die of asthma than whites;
o Inner city minority hospitalization rates are
significantly higher; and
o African-American children ages 6-11 have a higher
prevalence of asthma than white children, 12 percent
versus 6.2 percent.
Several reasons have been offered to account for
this disparity: ethnicity, poverty, overcrowding,
access to health care and indoor allergens. A
confluence of circumstances seems to have combined so
that the highest prevalence of asthma occurs among
populations of low socioeconomic standing living in the
inner city and thereby increasing their exposure to
allergens. The high incidence of asthma among
minorities is more likely due to their disproportionate
percentage of inner city populations rather than a
genetic predisposition. In terms of costs, a low
income family with a moderate to severe asthmatic child
will spend 12 percent of its annual income on asthma
related costs, whereas an average middle class family
will spend 6.4 percent of its annual income. THE
LIFETIME EFFECTS OF IMPROPERLY MANAGED ASTHMA ARE
PROFOUND AND CANNOT BE ESTIMATED. MISSED SCHOOL DAYS
CAN NEGATIVELY IMPACT LIFETIME INCOME.
When asthma is well controlled, it rarely leads to
hospitalization or to emergency room visits. THE
IMPROVEMENT OF OUTCOMES AND THE REDUCTION IN COSTS MUST
COME THROUGH THE PRIMARY CARE PHYSICIANS, TO WHOM THE
NIH REFERS AS THE FRONT-LINE IN ASTHMA MANAGEMENT.
Because of the increasing incidence and mortality
of asthma, every physician, especially primary care
physicians, must be made aware of the current
guidelines and recommendations for its treatment. For
most patients, optimal care can be achieved in the
primary care physician's office, including education,
environmental control information, allergy diagnosis,
immunotherapy and pharmacotherapy. FOR THE HMO TO
CONTROL COSTS, OPTIMAL CARE MUST BE PERFORMED AT THE
PCP LEVEL.
IRT RESPIRATORY MANAGEMENT POSITION:
Asthma
Asthma is a lung disease characterized by airway
obstruction, airway inflammation and airway
hyperresponsiveness to a variety of stimuli including,
allergen exposure, air pollution, viral infections,
chemical irritants, exercise, and cold air. It is well
established that allergy has a significant role in the
pathophysiology of asthma. The medical literature
strongly supports that 75 PERCENT TO 85 PERCENT OF THE
PATIENTS WITH ASTHMA HAVE AN ALLERGIC TRIGGER. Allergy
provokes not only an immediate obstruction of the
airway but also a late bronchial obstruction associated
with inflammatory changes and hypersensitivity to
non-immunological stimuli. The delayed response may
persist for several weeks.
The diagnosis of an allergic disease is dependent
upon an accurate and thorough history and physical
examination. Depending on the results of the history
and physical examination provided by the primary care
physician and the in vitro test, RAP (detection of
circulating IgE antibodies) performed at IRT, specific
management protocols are recommended by IRT allergist.
This includes tests for target organ dysfunction such
as pulmonary function testing (PFT), imaging of
paranasal sinuses, avoidance of allergens, medications
and immunotherapy.
Optimal care entails a thorough knowledge of the
goals of asthma therapy to include:
o Recognizing the disease symptoms (usual triggers,
course of disease, background);
o Correlating these with laboratory studies
(Includes lung function measurement and allergy tests
[RAP]);
o Preventing asthma symptoms;
(utilizing appropriate treatment including
immunotherapy);
o Maintaining nearly normal pulmonary function and
activity levels;
o Preventing asthmatic exacerbations; and
o Avoiding adverse effects from asthma medications.
Immunotherapy can significantly improve and/or
render a patient non-symptomatic. IRT provides the
education for understanding of allergic disease and a
standardized approach to diagnosing and treating the
disease, particularly IgE-mediated asthma.
Immunization induces clinical tolerance to the
effects of environmental allergens by repeated
subcutaneous injection of allergen at frequent
intervals in increasing dosage. The treatment is
tailored to each patient to ensure that the amount of
allergen administered each time is small enough to
avoid initiating an allergic reaction, but sufficient
to stimulate an ongoing protective immunity. Numerous
controlled clinical trials over the past 30 years prove
that this form of therapy is effective without long
term toxicity.
Although standards of care have been published
which include the identification of possible allergies,
allergy diagnosis is seldom used for asthma by the
primary care physician office; yet allergy is relevant
in 94 percent of the cases with an onset of asthma
before age 30. Too often PCP's will acknowledge that
allergy plays a role in asthma but admit allergy
testing is done only in a few cases. Identifying the
relevant allergens leads to more effective
environmental controls (avoidance) and in selected
patients immunotherapy. Furthermore, in a report from
the City of Camden, New Jersey, 20-25 percent of
individuals were reported to have asthma. It is also
believed that the national statistics for the number of
asthmatics has been underestimated since most of the
patients and PCP's do not understand the nature of
asthma. In addition, barriers to health care and
adequate physician supply in the inner city has
contributed markedly to the morbidity and mortality of
asthma patients.
Studies have indicated that a high percentage of
the inner city asthmatic population used the ER as
their main source for asthma care. With the advent of
managed care, such episodic care may hopefully end as
the patients now must have the referral of the PCP; but
are the PCP's effectively ready to address a rapidly
growing problem whose solution so far has eluded them?
When asthma is well controlled, it rarely leads to
hospitalization or to emergency room visits. The
improvement of outcomes and the reduction in costs must
come at the primary care level.
In a study of asthma patients presenting to the
emergency room at Johns Hopkins University Hospital,
the patients were questioned on hospital usage in the
previous 12 months. The researchers found:
Frequency of Percent of Patients
ER Use (N = 270)
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Low (0 or 1 visit) 33% (n = 88)
Moderate (2-5 visits) 38% (n = 104)
High (6 or more visits) 29% (n = 78)
Hospitalized
ER Use 0 Hosp 1 Hosp >1 Hosp
Low 94% 6% .01%
Moderate 55% 28% 17%
High 39% 22% 39%
Percent of patients hospitalized within the last
12 months. F. Malveaux, et al.
Traditionally, primary care physicians have
provided the majority of outpatient care for asthma
(65%). Specialists such as allergists (26%) and
pulmonologists (5%) make up most of the remainder.
What is crucial to bringing the costs associated with
asthma under control is in the examination of the
differences in care provided by the specialist and the
generalist and narrowing that gap by improving the
generalist care. This does not mean we should make
specialists of the generalist, but for a disease whose
incidence rate can range from 5 percent to as high as
30 percent in the inner city populations, clearly the
level of care must improve on the part of the
generalist. This can only happen if the generalists
are led through an education and training program to
identify allergic triggers that cause asthma.
The American College of Allergy, Asthma &
Immunology published a review of immunotherapy for
asthma. In the review, several articles pointed out
the difference in outcomes of asthmatics managed by
expert care v. generalist care. The following charts
note the reductions in emergency room visits and
hospitalizations. The differences are substantial.
These studies looked at patients who had reported to
the emergency room for asthma and do not take into
account patients whose asthma is either under control
or is not severe enough to warrant such measures.
IT IS CLEAR THAT PROPERLY MANAGED ASTHMATICS CAN
EXPERIENCE DRAMATIC REDUCTIONS IN PHARMACEUTICALS,
EMERGENCY ROOM VISITS AND HOSPITALIZATIONS.
Immunotherapy has played an effective role in the
treatment of asthma for many years and is well
documented. The conclusion drawn from the data
examined was that immunotherapy:
1. Consistently controls asthma symptoms;
2. Reduces airway reactivity;
3. Improves FEV1;
4. While at the same time reduces the need
for medications.
5. Reduces morbidity and mortality.
In one study the patients on immunotherapy
required 2.5 times less medications to control their
symptoms than did the control group. Other studies
noted a more than 50 percent reduction in medications.
The costs for a patient using the recommended
medications are likely to be in the range of $1,000 per
year. These costs will continue unless alterations are
made in an effort to reduce the severity of the disease
through allergen avoidance and/or immunotherapy.
Furthermore for the specialist, the costs for
immunotherapy range $600-$1,000 for the first year and
$400 to $500 for the next two to four years. Under the
IRT model, the cost of immunotherapy is less than $150
per year provided to the PCP. The patient improvement
is lasting and will clearly offset the cost of
immunotherapy and the savings will continue for many
years after the therapy has ended.
Recognizing the substantial economic as well as
patient benefit of properly managed asthmatics, IRT's
goal is to work with primary care physicians to narrow
the distance between what is considered to be the
standard in asthma care and what is currently practiced
at the PCP level. Emphasis should be placed on the
inner city asthma in order to substantially reduce
morbidity and mortality in these locations as well as
substantially reduce HMO costs.
Allergic Rhinitis
Allergic Rhinitis is usually caused by mucous
membrane exposure to inhalants (allergens) and is
mediated by specific immunological pathways. It is
present in over half of the asthmatic patients. The
characteristic symptoms include sneezing, nasal
congestion, watery discharge, as well as nasal and
conjunctiva itching. Bronchoconstriction may accompany
these symptoms. IgE antibody response to specific
allergens is the primary cause of symptoms. This
response is measured by in vitro allergy testing. This
procedure measures both total and specific IgE
antibodies to specific allergens. It can be formatted
either as a single specific IgE measurement or
multi-allergen IgE response. Non-allergic rhinitis
conditions (NARES) may mimic the symptoms of allergic
rhinitis; NARES are due to non-IgE mechanisms and often
require alternative treatments. Rhinitis should be
evaluated when it is not well controlled with
antihistamines or decongestants or when it requires
more than six weeks of medications per year.
Most rhinitis is non-complex and should be managed
in the primary care office. Within the managed care
model, most patients are tested by the allergist and
those found to be allergic are returned to the PCP for
immunotherapy. Under this model, third party payers
should be aware that when the allergists send patients
back to their PCP's for immunotherapy and the allergist
prepares and sends the PCP the injection sets, under
those circumstances, the FDA considers the allergist a
manufacturer of pharmaceutical materials and the
allergist is required to have an FDA manufacturing
license which most, if not all, do not have. Where
this is occurring, the HMO could be exposed to FDA
action. Also many PCP's areusinglaboratories with
capitated agreements with the HMO's. The PCP then
provides treatment of the patients based on positive
test results rather than based on the testing results,
history and a physical. The cost of determining the
allergic patient in the specialist office can range
from $1,200 to $1,600. IRT's cost of its service using
the PCP is less than $100 and if extracts for the first
year are included, it is considerably less than that of
the specialist. The patients are kept in the PCP
office where they are more comfortable and a costly
referral is avoided.
Sinusitis
Chronic or recurrent sinusitis is defined as
documented infections of the sinuses that persist after
a ten-day course of antibiotics or occur frequently
during the year. It can be divided into allergic and
non-allergic. The process of chronic thickening of the
sinus membranes and polyps of the nose is the main
cause of sinusitis. IgE antibody response to specific
allergens can help identify atopic sinusitis conditions
and permit proper treatment.
For those patients whose sinusitis is determined
to be allergic, non-treatment of the allergy can lead
to nasal polyps and other problems. If surgery is
conducted and the allergy not treated, the conditions
may return requiring another round of expensive
surgery. To properly manage the sinusitis patient, it
must be determined whether the problem is allergic and,
if so, treated as such.
Food Allergy
Clinically, two types of food allergies occur that
involve the immune system. The IgE-mediated
anaphylactic reaction occurs within minutes to hours
and symptoms may include urticaria, hives, angioedema,
edema of the face, laryngeal edema, rhinitis and/or
asthma. Specific IgE testing is helpful in the
diagnosis of food allergies. The second type of food
allergy include delayed symptoms which range from
HEADACHE, MUSCLE ACHE, TENSION AND FATIGUE TO
EXACERBATION OF ALLERGIC IGE RHINITIS AND ASTHMA.
INFLAMMATORY BOWEL DISEASE (IBD), ULCERATIVE COLITIS
AND CROHN'S DISEASE MAY HAVE A FOOD ALLERGY ETIOLOGY
ASSOCIATED WITH IMMUNOLOGICAL MECHANISMS. For both
types of food allergies, it is imperative to have
specific IgE responses along with clinical history and
physical to be considered as guidelines for dietary
elimination and reintroduction of the food.
As food allergy problems can manifest
systemically into chronic disease problems, it is
imperative that identification and elimination of the
offending food allergens be carried out. This can best
be accomplished by a standardized approach by the
primary care physician. Appropriate intervention will
reduce the costs of unnecessary re-visits of the
patient to the PCP with chronic disease problems.
The Rapid Allergen Procedure
The Company's clinical testing is based upon its
FDA-approved Rapid Allergen Procedure. The Rapid
Allergen Procedure ("RAP") is an enzyme-linked
immunosorbent assay ("ELISA") based procedure that
employs a monoclonal anti-IgE as well as an amplified
step that allows the detection of extremely low
concentrations of specific IgE antibodies to a wide
variety of allergens. The Company has automated this
procedure resulting in performance characteristics
which exceed those of competitive in vitro, i.e. serum
based, allergy testing procedures. The RAP test can be
performed in twenty-four hours with an infinite
capacity of specific IgE antibody determinations. The
method requires minimal hands-on time by the laboratory
technician and the automated component minimizes
technical error. IRT formulates its own testing
reagents giving the Company a significant cost of
laboratory operations advantage over commercially
purchased reagents. IRT's average cost per reagent is
$0.20 as compared to $2.50 to $4.80 for other test
systems.
The Company's RAP gained FDA approval in 1986 by
demonstrating a high degree of correlation to RAST
radioallergosorbent test ("RAST") and skin prick
testing. The RAP has proven to be the most cost-
effective allergen testing procedure available. There
have been excellent performance characteristics as
compared to other radioactive immunoassay ("RIA") or
ELISA immunoassay ("ELISA") in vitro allergy
procedures. The RAP, in combination with the clinical
history of the patient, is used to develop a
confirmation of the primary care physician's diagnosis
and a recommendation for a treatment protocol. The RAP
can measure specific IgE antibody responses to
inhalants, foods and insect venoms. The RAP can be
employed to determine single IgE antibody tests or
panels of 16 or 24 geographically adjusted allergens.
This automated RAP system delivers reagents into
microtiter plates and the related software program is
designed for single or panel IgE antibody test
determination.
The Company has adopted an ongoing quality control
program, assessing lot-to-lot variations of the
allergens which determines allergen potency. These
quality assurance procedures permit the RAP to use
extracts matched for determination of appropriate
immunotherapy doses for each patient.
Continuing Medical Education
The National Institute of Health has recognized
that education and support for the primary care
physician must be available to successfully implement
its vision of "front line" delivery of health care.
Hence, the Company has developed an educational and
support network directed toward the primary care
physicians.
The Company's Continuing Medical Education modules
are co-sponsored by the Annenberg Center at Eisenhower
and are designed to provide the primary care physician
as well as the specialist with state-of-the-art
diagnosis and treatment protocols. Continuing Medical
Education ("CME") programs couple topic areas promoted
by the American Academy of Allergy and Immunology with
hands-on workshops. The CME programs are designed to
improve the identification of patients with
allergic/immunologic disorders. These programs are
structured to provide primary care physicians with an
improved academic and clinical background regarding
diagnosis and treatment protocols for asthma and
allergic/ immunologic disorders.
Marketing
In August, 1996, the Company engaged the services
of a consulting firm experienced in health care
management. The consulting firm has introduced the
Company to institutional managed care companies and has
developed substantive discussions with these operations
aimed at IRT providing asthma, allergy and immunology
services to those managed care institutions. There is
no assurance that any agreement will be consummated;
however, management is continuing discussions and
believes that there exists a reasonable basis for an
agreement.
Competition
Competition for the Company's testing services
arises primarily from allergists and commercial
clinical laboratories. Clinical laboratories with
allergy programs, such as Roche Laboratory, using
computer diagnostics in their recommendation of
appropriate patient treatment comprise the largest
segment of the competition. The Company uses qualified
physician diagnosis rather than computer diagnostics in
their recommendation of appropriate patient treatment.
The Company does not believe its competition is of any
consequence in the HMO Medicaid market.
MANAGEMENT OF THE COMPANY VIEWS THE QUALITY OF ITS
SERVICES AND COST AS THEIR MOST COMPETITIVE ATTRIBUTES.
UNLIKE ITS PRIMARY COMPETITORS, THE COMPANY'S TESTING
PROGRAMS ARE SUPPORTED BY ON-STAFF PHYSICIANS AND
MEDICALLY-TRAINED PERSONNEL. MOREOVER, THESE PROGRAMS
WERE DEVELOPED AND ARE CURRENTLY IMPLEMENTED BY
ASTHMA/ALLERGY/ IMMUNOLOGY SPECIALISTS WITH EXTENSIVE
EXPERIENCE.
Governmental Regulation
Regulatory agencies are authorized by law to
monitor and regulate the Company's operations as a
condition to licensure and renewal. IRT Diagnostic is
licensed as a clinical laboratory in New Jersey, New
York, Maryland and California, is licensed by Medicare
to conduct interstate business, and is approved in most
states as a Medicaid provider.
Human Resources
IRT Diagnostic has eleven (11) full-time and three
(3) part-time employees and utilizes the services of
six consultants.
The Board of Directors of the Company have
reserved 1,937,572 shares of common stock for possible
distribution to employees and/or consultants as part of
an incentive and retention program. As of May 31,
1996, all of these shares have been distributed to
employees or consultants.
Directors and Executive Officers of the Registrant
The following table sets forth as of May 31, 1996
certain information regarding directors and executive
officers of the Registrant:
Name Age Title
George H. Young 66 Chairman of the
Board of Directors,
President, CEO
Lewis Perelmutter 62 Director, Vice President,
Director of Research and
Education, Lab. Director
James Hartwright 57 Medical Director
Jay Galli 69 Director
William T. Foster 66 Director
Richard Manini 63 Director
Lois M. Butler 65 Assistant Secretary
Pertinent biographical information with respect to
each of such persons follows:
George Young
Chairman of the Board of Directors, Chief Executive
Officer
A founder of the Company and a director since
inception, Mr. Young received his B.S. degree in
Mechanical Engineering from the Philadelphia College of
Textile and has held various operations and managerial
positions in business for more than 35 years. Mr.
Young was the founder and President of Educational
Computer Corporation, a public company acquired by
Western Union International, of which Mr. Young was a
director. Mr. Young has been a director of several
other corporations and chairman of a commercial banking
organization. He has been an officer and director of
the Company since inception.
Lewis Perelmutter, Ph.D.
Director, Director of Research and Education,
Laboratory Director
Dr. Perelmutter, a founder of the Company and a
director since inception, received his Ph.D. in
Immunochemistry from McGill University in 1962. Until
1987, he was the chief of immunology for the Canadian
Government, where he was in charge of the national
quality control program for immunological procedures
and participated in allergy and immune systems
research. From 1987 to 1991, he was Research Director
at Cooper Hospital in Camden, New Jersey. He is widely
published. He has acted as consultant to many
pharmaceutical companies in the field of immunology.
Dr. Perelmutter has served on the In Vitro Allergy
Standards Committees of the American Academy of Allergy
and Immunology and is a member of the American College
of Allergists. He is a member of the Board of
Directors and the American In-Vitro Allergy and
Immunology Society.
A. James Hartwright, M.D.
Medical Director
Dr. Hartwright graduated from Southern Methodist
University in 1959 with a B.S. degree in Biology and
from the University of Texas Southwestern Medical
School in 1963. He interned in pediatrics at the
Medical College of Georgia and was a resident in
pediatrics at Columbia Hospital in South Carolina and
at the University of Kansas. Dr. Hartwright served in
the United States Air Force as a clinical instructor of
pediatrics at Southwestern Medical School. He
completed a Fellowship in Allergy and Immunology at
Children's Mercy Hospital University School of Medicine
and Kansas University Medical Center. He was also a
clinical instructor at the University of Michigan
Medical Center. He is a member of the American Academy
of Allergy and Clinical Immunology, the College of
Allergists and a Fellow of the American Society of In-
Vitro Allergists. He was Chairman of the In-Vitro
Committee for the American College of Allergy from 1985
though 1987. Dr. Hartwright has had a private practice
as an allergist and clinical immunologist in Newport
News, Virginia, for the past 18 years.
Jay Galli, Director
Mr. Galli is retired and resides in Salt Lake
City, Utah. He graduated from the Sheep's Head Bay
Maritime School in New York with fireman and oiler
credentials. Mr. Galli spent much of his forty-two
years of employment in the construction trades
supervising major projects, including coal fired power
plants and oil refineries. He has been a director
since inception.
William T. Foster, Director
Mr. Foster graduated from Duke University in 1958
with a Degree in Mechanical Engineering. In 1970, he
formed Will Foster Associates, a manufacturer's
representative business which specializes in the field
of indoor air quality. Mr. Foster has served a number
of firms in his field as a consultant establishing
manufacturer's representative organizations and
developing marketing plans. He has been a director
since inception.
Richard Manini, Director
Mr. Manini has been a major investor with IRT
Holding Corporation since November, 1989.
In addition, he has also been a major fund raiser
for capital required to expand and contribute to the
advancement of the Company. Mr. Manini's 23 years of
restaurant ownership has enabled him to develop a
natural market to contact potential investors for IRT.
A unique baking process was developed by Richard
Manini, a partner with a major pizza franchise, that
provided a labor saving baking process for the
franchises and excellent quality control for the
franchise.
For a period of 11 years, Richard A. Manini has
been a licensed representative for the following life
insurance companies:
Massachusetts Indemnity Life Insurance Company
Investors Life Insurance Company
American Family Life Assurance Company
Massachusetts General Life Insurance
American Republic Insurance Company
In addition, he has been security licensed with
the following companies:
First American National Securities
American Classic Securities, Inc.
North American Management, Inc.
Directors' Compensation
The Board of Directors in its discretion may award
annual director's fees or salaries or other
remuneration at a level that is competitive with other
companies similarly situated, although no such fees or
salaries have been paid since the Company's inception.
Executive Compensation
Management compensation is determined by the Board
of Directors after periodic review. The following
table sets forth the total compensation paid during the
fiscal year to date and for all executive officers
including deferred compensation and common stock issued
as a result of the conversion of deferred compensation.
=======================================================
Name of Capacities Cash
Individual served Compensation Total Accrual
Young CEO, Board Chairman
President $41,044 $ - 0
Perelmutter Director of Research
and Education
Laboratory Director $19,600 $ -0-
Total of all executive
officers as a group: $60,644
=======================================================
Principal Stockholders
The following table sets forth certain information
with respect to the direct and beneficial ownership of
the Company's securities by control persons known by
the Company to be the beneficial owners of outstanding
classes and by all executive officers and directors as
of May 31, 1996:
Current Number Current
of Shares of Stock Percentages
George H. Young
P. O. Box 289
Leesburg, NJ 08327 10,027,771(1) 25.48%
Richard Manini
582 Store Road
Harleysville, PA 19438 2,590,304 6.57%
Lewis L. Perelmutter
290 Tavistock
Cherry Hill, NJ 08034 2,947,794(2) 7.47%
John C. David
2651 Woodsview Drive
Bensalem, PA 19020 906,667 2.30%
Jay Galli
3065 South 7th East
Salt Lake City, UT 84121 447,167(2)
William T. Foster
253 S. 4th St.
Fulton, NY 13069 1,277,576(2) 3.24%
Directors and
Officers as a Group 18,197,279 46.12%
(1) Includes shares held in spouse's name and
children's names.
(2) Includes shares held in children's names.
Item 2. Properties
The principal offices and facilities of IRT
Holding Corporation and IRT Diagnostic, comprising
approximately 2,500 square feet, are located at 272
South White Horse Pike, Berlin, New Jersey. The
Company leases the premises on a month-to-month basis
at a monthly cost of approximately $3,450.
Item 3. Legal Proceedings
The Company has filed for relief under Chapter 7
of the United States Bankruptcy Code with respect to
its San Diego, California operations and termination
thereof. Total liabilities relieved by such action are
estimated to be approximately $350,000. The reasons
for the filing of the petition are related to the
management's belief that certain irregularities existed
amongst the key employees of its California operations,
some of whom were officers of the Company. These
irregularities appear to be from the operations of a
renegade laboratory within the AAM facilities and the
IRT management believes the above listed liabilities
are not the responsibilities of IRT. The trial
attorney retained by the Company on a contingency basis
is presently preparing a RICO civil action against all
of the parties including the two principals of the
Company. The Company expects that to be filed before
the end of the present fiscal year.
PART II
Item 4. Market for Registrant's Common Equity and
Related Stockholder Matters
(a) Market Information. The Company's Common
Stock is not listed on any exchange, nor is it quoted
on the National Association of Securities Dealers, Inc.
Automated Quotation System. There is no established
trading market for the Common Stock, which is traded
infrequently in the over-the-counter market under the
symbol `IRTD' on the pink sheets issued by the
National Quotation Bureau, Inc.
The following table sets forth, for the periods
indicated, the high and low bid prices per share of
Common Stock as reflected in the pink sheets.
1997 Low Bid High Ask High Close/Bid
June 1, 1996 through $0.25
May 31, 1997 $0.625 $0.625
The above quotations reflect inter-dealer prices,
and do not include retail mark-ups, mark-downs and may
not necessarily represent actual transactions.
(b) Holders. As of May 31, 1997, the Company had
outstanding 39,455,816 shares of Common Stock, issued
to approximately 765 holders.
(c) Dividends. The Registrant has not paid any
dividends on Common Stock. Payment of future
dividends, if any, will be determined by the Company's
Board of Directors based on conditions then existing,
including the Company's financial condition, capital
requirements, cash flow, profitability, business
outlook and other factors. Additionally, the Company
intends to follow a policy of retaining all or
substantially all of its earnings, if any, to finance
the development and expansion of its business.
Item 5. Selected Financial Data
The following selected consolidated financial data
of the Company as of and for the year ended May 31,
1997 have been derived from the Consolidated Financial
Statements of the Company.
Item 6. Management's Discussion:
Management has continued to be aggressive in
denying services to physicians and state Medicaid
systems that do not remit payments on a timely basis.
The Company has further reduced management and
staff personnel and has continued to reduce costs
within the Company. Management, however, believes that
because of regulatory requirements, its staffing is now
at an absolute minimum to conduct the on-going
business.
During fiscal 1997, management continues to reduce
marketing efforts to individual physicians since (1)
marketing to individual physicians is extremely
expensive and (2) individual physicians have not been
receptive to additional training to enable them to
recognize most patients with allergic disease and its
significance within their patient base. These
physicians run out of patients and are short lived
within the IRT program. The Company continues to
concentrate its efforts on the newly developing
Medicaid managed care market where the management of
the HMO's will be able to mandate the utilization of
new approaches to treatment in order for the HMO's to
be more cost-effective in the delivery of their
services.
During September, 1997, the Company received a
commitment letter from United American HealthCare
Corporation of Detroit, Michigan for a pilot project
contract in the State of Tennessee and an endorsement
by the senior medical director, Dr. William C. Sharp,
to all of United's medical directors to utilize the
services of IRT.
The Company also received a national contract for
United's ChoiceOne Preferred Provider Organization.
The discussion following on page 23 should be read
in conjunction with the Company's Consolidated
Financial Statements appearing elsewhere in this
document.
ANALYSIS OF FINANCIAL CONDITION
( Year ended May 31/in thousands except for per share data)
1997 1996 1995 1994 1993 1992
Operations
Statement Data:
Revenues 361 393 525 676 262 262
Net Loss (447) (530) 59 (623) (1293) (1108)
Net Loss Per Share
of Common Stock (.01) (.02) 0 (.05) (.27) (.35)
Cash Dividend
Per Share 0 0 0 0 0 0
Balance Sheet Data
Total Assets 720 658 782 294 477 283
Current Liab. 581 512 515 532 990 731
Long Term Debt 41 43 0 0 12 28
Stockholders'
Equity(deficit) 98 103 267 (238) (525) (476)
RESULTS OF OPERATIONS
Overview
IRT Holding Corporation was formed pursuant to an
agreement and plan of reorganization between L'Autrec,
Inc., a Delaware public shell corporation, and Immuno
Response Technology, Inc., a Delaware corporation, and
its subsidiaries. The following discussion is based on
the continuing operations of the post-reorganization
entity which consists of IRT Holding Corporation, IRT
Diagnostic, Inc. and IRT Laboratory, Inc.
Costs and Expenses
The costs and expenses relating to the operations of
the Company were $807,626, for the fiscal year ended May
31, 1997. These costs consisted of general and
administrative expense, development of the Company's
services, laboratory equipment and operational expense,
marketing and promotional expense, and depreciation and
amortization.
Revenues
Net revenue from operations was $360,887 for the
fiscal year ended May 31, 1997, as described fully in
the Statement of Operations. These revenues consisted
of monies generated from laboratory testing and
immunotherapy support services for physicians and are
presented net of contractual allowances and
intercompany adjustments. The decrease in revenue in
fiscal year 1996 is due primarily to losses of business
associated with serious operational problems in
California which resulted in the closure of the AAM
laboratory in January, 1995; and increased HMO
marketing expenses.
Inflation
The Company believes that it is not affected by
inflation except to the extent that the economy is
generally affected thereby.
Liquidity and Capital Resources
The Company is seeking to improve liquidity through
(i) increased sales through aggressive marketing
Medicaid HMO's, including marketing and sales
associated with the implementation of the continuing
medical education program; (ii) reducing testing costs
through contractual agreements with suppliers by which
the Company receives volume discounts; (iii) the
election of certain members of management to defer
payment of their salaries (may elect to receive common
stock); (iv) increased speed of collection of
receivables through electronic filing with Medicare and
third party providers; and (v) sales of the Company's
securities.
Item 7. Financial Statements and Supplementary Data
The Financial Statements and Supplementary Data
required by this Item 7 are set forth in Item 12 of
this interim Annual Report on Form 10-K.
Item 8. Changes in and Discussion with Accountants
on Accounting and Financial Disclosure
None.
Item 9. Executive Compensation
Information with respect to executive compensation by
the Registrant is included in Part I, Item 1 under the
caption "Executive Compensation."
Item 10. Security Ownership of Certain Beneficial
Owners and Management
Information with respect to security ownership of
certain beneficial owners and management is included in
Part I, Item 1 under the caption `Principal Shareholders.'
Item 11. Certain Relationships and Related Transactions
The Company's principal offices and facilities,
comprising approximately 2,500 square feet, are located
at 272 South White Horse Pike, Berlin, New Jersey. The
Company leases the premises on a month-to-month basis
at a cost of approximately $3,450.
The Company's Medical Director operated an independent
medical practice which concentrated in allergy immunology
treatment. Laboratory services to this practice were
$22,500.00 in fiscal year ended May 31, 1996.
Financial Statements and Schedules - See Exhibit 1.
The Compiled Financial Statements and Schedules
listed below as prepared by Yemi Koyejo, Certified
Public Accountant, are filed as a part of this Annual
Report on Form 10-K.
Balance Sheet at May 31, 1997
Statements of Operations
Statement of Cash Flow for Fiscal Year Ended May 31, 1997
Notes to Financial Statements (2 pages)
Reports on Form 8-K
None
Pursuant to the requirements of Section 13 or 15(d)
of the Securities Exchange Act of 1934, the Registrant
has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
Date: 09/30/97 IRT HOLDING CORPORATION
Registrant
By:
George H. Young
Title: Chief Executive Officer and
Chairman of the Board of
Directors
Pursuant to the requirements of the Securities
Exchange Act of 1934, this report has been signed below
by the following person on behalf of the Registrant and
in the capacities and on the dates indicated.
SIGNATURE: CAPACITY
Chief Executive Officer and
George H. Young Chairman of the
Board of Directors
Date Filed: 09/30/97 SEC File No. 33-1534-D
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
EXHIBIT I
TO
ANNUAL REPORT ON FORM 10-K
UNDER
THE SECURITIES EXCHANGE ACT OF 1934
IRT HOLDING CORPORATION
IRT HOLDING CORPORATION
BALANCE SHEET AT MAY 31, 1997
ASSETS
May 31
------
1997 1996
CURRENT ASSETS
Cash $ 13,167 130
Accounts Receivable, Net of Allowance
For Doubtful Accounts of $34,000 and
advances from Factoring company (Note 1) 146,225 100,858
Inventory 30,000 29,165
--------- -------
Total Current Assets 189,392 130,153
EQUIPMENTS AND IMPROVEMENTS
Laboratory Equipment 236,175 236,175
Office Equipment 102,567 67,710
Furniture and Fixtures 27,362 27,362
------- ------
366,104 340,627
Less accumulated depreciation 356,199 340,627
------- -------
9,905 10,620
SERA INVENTORY (Note 1)
OTHER ASSETS
Receivable from litigation (Note 5) 500,000 500,000
Other Assets 23,354 21,801
------- -------
523,354 521,801
------- -------
Total Assets 722,651 662,574
======= =======
IRT HOLDING CORPORATION
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
MAY 31
-----------------------
1997 1996
-------- --------
CURRENT LIABILITIES
Bank overdraft 0 4,914
Accounts payable and accrued expenses 322,863 336,049
Notes payable - Director 42,554 42,554
Accrued payroll taxes payable
and related costs 254,361 172,497
------- -------
Total Current Liabilities 619,778 556,014
COMMITMENTS AND CONTINGENCIES (Note 5)
STOCKHOLDERS' EQUITY (DEFICIT)
Common stock 21,852 21,409
Additional paid-in capital 6,052,287 5,609,678
Accumulated deficit (5,960,260) (5,513,521)
--------- ---------
113,879 117,566
Less treasury stock, at
cost (20,000 shares) (10,000) ( 10,000)
Less subscriptions receivable ( 1,006) ( 1,006)
-------- ---------
102,873 106,560
-------- ---------
Total stockholders' equity (deficit) $ 722,651 662,574
IRT HOLDING CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS
Years ended May 31
------------------
1997 1996
---- ----
Revenue
Net of Laboratory revenue $ 360,218 $ 400,778
Operating Expenses
Cost of sales 191,888 220,137
Selling and promotional expenses 144,604 146,072
General and administrative expenses 365,889 380,004
Depreciation and amortization 15,572 27,395
------- --------
717,953 773,608
Operating Loss (357,735) (372,830)
Other income/(expense)
Other income (expense) 669 ( 7,904)
Interest expense and
factoring charges (89,673) (53,431)
-------- --------
(89,004) (51,335)
-------- ---------
Net income/Loss (446,739) (434,165)
========= ==========
Net income/Loss per share $ ( 0.01) ( 0.02)
--------- ----------
Weighted average shares outstanding 33,390,372 23,587,713
========== ===========
IRT HOLDING CORPORATION AND SUBSIDIRIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED MAY 31, 1997 AND 1996
Additional
Common stock Paid in
Shares Amount Capital
Balance at May 31, 1995 19,728,287 $ 19,728 $ 5,337,176
Issuance of common stock 7,596,641 1,681 272,502
Balance at May 31, 1996 27,324,928 21,409 5,609,678
Issuance of common
stock, net 12,130,888 443 442,609
---------- ------- ---------
Balance at May 31, 1997 39,455,816 21,852 6,052,287
========== ======= =========
IRT HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
Years ended May 31,
-----------------------
1997 1996
---- -----
Increase (decrease in cash)
Cash Flows from operating
activities
Net Loss (446,739) (434,165)
Adjustments to reconcile net
cash used in operating activities
Depreciation and amortization 15,572 27,395
Changes in current assets and
liabilities:
(Increase) decrease in:
Accounts Receivable (45,367) 72,419
Inventory ( 835) 0
Other assets ( 1,553) 0
(Decrease) increase in:
Bank overdraft ( 4,914) 4,914
Accounts Payable and accruals (13,186) (69,169)
Obligations under capital lease 0 ( 3,923)
Accrued payroll taxes payable
and related costs 81,864 66,578
Net cash used for -------- -------
operating activities (415,158) (335,951)
Cash flows used for investing
activities:
Additions to property and equipment (14,857) ( 574)
Net cash used for -------- ---------
investing activities (14,857) ( 574)
-------- ---------
Cash flows from financing activities:
Proceeds/increases from notes payable
to director 0 42,554
Proceeds/increases from issuance of
common stock 443,052 274,183
Net cash provided by ------- -------
financing activities 443,052 316,737
------- -------
Net increase (decrease) in cash 13,037 ( 19,788)
Cash, beginning of year 130 19,918
------- --------
Cash, end of year 13,167 130
======= ========
The accompanying notes are an integral part of these statements.
IRT HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED MAY 31, 1997 AND 1996
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
IRT Holding Corporation ("IRT") was formed on April 2, 1992 through an
agreement and plan of reorganization between L'Autrec, Inc., a Delaware
public shell corporation, and Immuno Response Technology, Inc.
The historical financial statements at May 31, 1997 are of IRT Holding
Corporation and its subsidiary, IRT Diagnostic, Inc. ("IRT Diagnostic").
On January 23, 1995, the Board of Directors of IRT Holding Corporation voted
to close the La Jolla, California facility in which IRT Lab./AAM operated and
seized its records and assets. Reasons for the closure include assertions
that a Director and Shareholder misappropriated corporate resources in favor
of his personal business. Work previously performed at the La Jolla facility
is now performed at the Berlin, New Jersey facility and minimal disruption to
the operations and customer base were experienced.
The Company was in the development stage through its year ended May 31, 1990.
Revenue Recognition
Net laboratory revenue is recognized at the time the laboratory testing and
diagnostic services are completed. Revenues are reported at the estimated
realizable amounts net of contractual allowances.
Inventories
Inventories consist primarily of allergens. Inventories are stated at cost
on a first-in, first-out basis.
Equipment
Equipment is recorded at cost. Depreciation is computed using the
straight-line method over the shorter of the estimated useful life of the
equipment or the lease term, as follows:
Laboratory equipment 3 - 5 years
Office equipment 5 - 7 years
Furniture & fixtures 5 - 7 years
Transportation equipment 5 years
SERA Inventory
IRT retains customers' Sera upon completion of testing procedures for a
minimum of one year in the event the sample is needed or could be utilized
again on behalf of the patient/customer. The Sera inventory, which is
maintained in freezers, contains items dating back to 1989. Sera which has
tested positive for one or more antigens can be a valuable commodity for
which there is a current market. Organizations demand Sera for research and
development as well as educational progress. The sale of Sera is an option
for IRT although it is not the purpose of the corporation. The estimated net
realizable value for the Sera if sold at the current market price is between
$2 million and $4 million.
Loss Per Share
Loss per share is based upon the weighted average number of shares of common
stock outstanding during the year. Shares issuable upon exercise of common
stock equivalents are excluded because the effect would be antidilutive.
IRT HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED MAY 31, 1997 AND 1996
Note 2. Basis of Presentation
The consolidated financial statements have been presented on the basis that
it is a going concern which contemplates the realization of assets and the
satisfaction of liabilities in the normal course of business. The Company's
continued existence is dependent upon its ability to resolve its liquidity
problems. The Company is presently pursuing additional equity funding. In
the interim, the Company must continue to operate with the limited cash flow
generated internally. The Company has experienced accummulated losses since
inception of approximately $6,000,000.
Management believes that cash flow generated through operations will
continue to improve, as the Company is experiencing a growth trend in its
laboratory revenues from primary care physicians. Management has minimized
costs by closing the California laboratory as discussed in Note 1, as well as
continuing other cost reduction efforts. Management believes that these
factors, in addition to obtaining equity funding will be adequate to sustain
its ongoing operation.
Note 3. ACCOUNTS RECEIVABLE FACTORING
The Company receives advances of 85% of eligible accounts receivable pursuant
to a factoring agreement which also provides for the collection of
non-eligible accounts receivable. The fees for the factoring service depend
upon the age of the related invoice. Upon collection of the factored
receivables, a settlement amount is calculated with certain expenses
(wire transfers, overnight mailings, etc.) reducing the net amount due the
Company. The factoring fees incurred represent a form of interest and are
therefore classified with interest expense as an "other expense" in the
income statement.
Note 4. SUPPLEMENTAL CASH FLOW INFORMATION
CASH PAID DURING THE YEAR FOR:
1997 1996
Interest and factoring charges $87,483 $54,809
Income taxes 0 0
Note 5. COMMITMENTS AND CONTINGENT LIABILITIES
Litigation
The Company has filed for relief under Chapter 7 of the United States
Bankruptcy Code with respect to its San Diego, California operations and
termination thereof. Total liabilities relieved by such action are
estimated to be approximately $350,000. The reasons for the filing of the
petition are related to the management's belief that certain irregularities
existed amongst the key employees of its California operations, some of whom
were officers of the Company. Total recoveries related to litigation against
such officers are estimated to net $1,000,000, written down to $500,000 as of
this date.
There is a second pending case against three major companies, the outcome of
which cannot be determined as of this date.
Note 6. PAYROLL TAX LIABILITIES
The Company has been unable to make certain required payroll tax deposits.
The net liability for such including all subsidiaries and affiliates have
been reflected herein.
Note 7. INCOME TAXES
For financial reporting purposes, the Company had unrecognized tax benefits
due to book loss carry forwards of approximately $6,000,000. This amount is
also available for federal income tax purposes which will, if unused, expire
from 2003 to 2012.
The full realization of the tax benefits associated with the carryforwards
depends predominately upon the recognition of ordinary income during the
carryforward period.
Note 8. OTHERS
During previous years, the Company expensed the development cost for its
testing system, the regulatory requirements to license the system for
operation, as well as its educational training programs for physicians and
nurses. This is partly responsible for the accumulated deficit in the
Stockholders' equity.
