Page 1 of consecutively numbered pages including exhibit (pages - )
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended May 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from June 1, 1997 to May 31, 1998
Commission File No. 33-1534-D
IRT HOLDING CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 22-3253496
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
272 South White Horse Pike, Berlin, NJ 08009
(Address of principal executive offices) (Zip Code)
800-448-8199
(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
of 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, 1998, there was no
significant market for trading of the Registrant's voting stock.
On May 31, 1998, the Registrant had outstanding 60,460,048 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 3 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 disease 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 its FDA-approved, proprietary Rapid
Allergen Procedure. The Company's services are designed to
principally support primary care physicians within the HMO's.
The Company markets its services to 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 and staff, critiquing their diagnostic and
treatment protocols and utilizing more effective, less costly
technology.
DISCUSSION OF THE COMPANY'S BUSINESS
Allergic Disease 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
increased knowledge and improvements in pharmaceutical treatment,
it has an increasing incidence, hospitalization and mortality that
is increasing about 100% every decade and having a $60,000,000,000
cost to the economy (including treatment, lost school days and lost
work days). These facts 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:
African-Americans are three times more likely to die of
asthma than whites;
Inner city minority hospitalization rates are
significantly higher; and
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 ECONOMIC STATUS.
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. IRT'S PROGRAM CAN REDUCE THESE COSTS MORE THAN 50%
WITH COMPLIANT PATIENTS.
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. (See cost savings through
standardized proper treatment, figures 1 and 2.)
Inner-City Medicaid Population
Footnotes and References to the Asthma Cost Calculations
1. Asthma Incidence Rate: The national incidence rates for asthma are 5%.
The Medicaid populations tend to have a higher incidence rate, with inner-city
populations ranging between 12% -18%. The analysis uses 15%.
2. Severe Asthmatics: A weighted average of three studies that looked at the
costs associated with severe asthmatics. National Asthma Education and
Prevention Program Task Force Report on the Cost Effectiveness, Quality of Care,
and Financing of Asthma Care: Respiratory and Critical Care Medicine; Vol 154,
Number 3, pg s88, September 1996.
3. Asthma Testing Rate: 50% of the asthma patients are tested. Expert Panel
Report II: Guidelines for the Diagnosis and Management of Asthma page 2-11
4. Immunotherapy: will be started after symptoms have been brought under
control. We expect that of the asthmatics tested 80% (40% of the population)
will go on immunotherapy. For the most part the severe asthmatics would require
immunotherapy but, a portion will not be able to tolerate it.
5. IRT Costs of Testing: 16 allergen inhalant panel composed of the primary
asthma triggers and a Total IgE.
6. Immunotherapy per patient, reflects a year's cost of extracts for
immunotherapy.
7. Hospitalization costs: costs and average stays were reported Philadelphia
rates.
8. Asthma Hospitalization Rates: The national average in 1994 was 17.4 per
10,000. The inner-city Medicaid population have a much higher rate of
hospitalizations which are influenced by such variables as sex, race,
socioeconomic standing and population density. The analysis uses 115 per
10,000. Weiss KB, Carr W, Zeitel L, Geographic variations in asthma
hospitalizations and deaths in New York City.
9. Emergency Room costs: Visits: reported Philadelphia averages
10. Emergency room visits: were estimated using a ratio of 3.35:1 for emergency
room visits to hospitalizations. Figures were obtained from the NIH on the
national rates of hospitalizations (17.4 per 10,000) and emergency room visits
(58.3 per 10,000).
11. Medication costs: Ratio of emergency room and hospitalizations to
medications applied to the Philadelphia costs. Ratio obtained from:
Weiss KB, Gergen PJ, Hodgson TA, An Economic Evaluation of Asthma in the United
States, NE Journal of Medicine, Mar 21,1992: 862-866
12. IRT Savings Percentages: are based on the following four articles:
Mayo PH, Richman J, Harris HW. Results of a Program to reduce admissions
for adult asthma. Annals Intern Med 1990; 112:864-871.
Zeiger RS, Heller S, Mellon MH, Wald J, Falkhoff R, Schatz M. Facilitated
referral to asthma specialists reduces relapses in asthma emergency room
visits. J Allergy Clin Immunol 1991; 87: 1160-1168.
Mahr TA, Evans R. Allergist influence on asthma care. Ann Allergy 1993;
71:115-120
Creticos PS, Reed CE, Norman PS, The NIAID cooperative study of the role
of immunotherapy in ragweed-induced adult asthma: 3rd year, J Allergy
Clin Immuno 1993;91:227
13. IRT Costs have two components testing and immunotherapy. The fee-for
-service costs equation is; (10,000 * incidence * .5 * $96) + (10,000
* incidence * .5 * .8 * $150) for the first year. The second year's cost
equation is; (10,000 * incidence * .5 * .8 * 100), there is no testing in
the second year.
14. Second Year IRT Costs: There are no testing costs in the second year.
IRT RESPIRATORY MANAGEMENT POSITION:
Asthma
Asthma is a lung disease characterized by airway obstruction,
airway inflammation and airway hyper responsiveness 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's network of specialists. 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:
Recognizing the disease symptoms (usual triggers, course of
disease, background);
Correlating these with laboratory studies
(Includes lung function measurement and allergy tests [RAP]);
Preventing asthma symptoms;
(utilizing appropriate treatment including immunotherapy);
Maintaining nearly normal pulmonary function and activity levels;
Preventing asthmatic exacerbations; and
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.
Harold S. Nelson, M.D., Professor of Medicine at the
University of Colorado and Senior Staff Physician at the National
Jewish Medical and Research Center, Denver (Allergy & Asthma,
Spring 1997), says "Allergen immunotherapy is the only allergy
treatment that alters the basic pathophysiological mechanisms of
allergic disease. Immunotherapy, or "allergy vaccination," a newer
term adopted by the World Health Organization, has been
demonstrated safe and effective in the treatment of allergic
rhinitis, allergic conjunctivitis, allergic asthma, and insect-
sting anaphylaxis."
National Institute of Health Clinical Practice Guidelines,
February 1997: Allergen immunotherapy may be considered for asthma
patients when (1) there is clear evidence of a relationship between
symptoms and exposure to an unavoidable allergen to which the
patient is sensitive, (2) symptoms occur all year or during a major
portion of the year, and (3) there is difficulty controlling
symptoms with pharmacologic management either because the
medication is ineffective, multiple medications are required, or
the patient is not accepting of medication. (AAAI Board of
Directors 1994; Frew; 1993). . . . Controlled studies of
immunotherapy, usually conducted with single allergens, have
demonstrated reduction in asthma symptoms caused by exposure to
grass, cat, house-dust mite, ragweed, Cladosporium, and Alternaria
(Reid et al. 1986; Malling et al. 1986; Creticos et al. 1996; Horst
et al. 1990). A meta-analysis of 20 randomized, placebo-
controlled studies has confirmed the effectiveness of
immunotherapy in asthma (Abramson et al. 1995).
American College of Allergy, Asthma & Immunology, Expert Care
and Immunotherapy for Asthma, November 1996: Immunotherapy is used
as a strategy for consolidation of control of the disease. Antigen
avoidance and medications are used to gain immediate control of the
disease. Antigen avoidance has progressive impact over time.
Immunotherapy is used in appropriate patients to reduce the degree
of allergy and thereby reduce the severity of the disease.
Immunotherapy reduces or eliminates the need for relentless use of
expensive medications, while maintaining or improving the control
of the disease.
Immunotherapy 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. Numerous controlled clinical trials
over the past 30 years prove that this form of therapy is effective
without long term toxicity whereas a pharmaceutical only treatment
is a lifetime event.
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, 15-20 percent of individuals were reported to
have asthma. In Philadelphia, 18% of the Hispanics and 13-15% of
African Americans 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 (n=270) presenting to the
emergency room at Johns Hopkins University Hospital, the patients
were questioned on hospital usage in the previous 12 months. The
patients were segmented by emergency room usage for the last year
into low 32% (0-1), moderate 39% (2-5) and high 29% (>5). ER usage
was then correlated to hospitalizations (0,1 or >1) for the same
time period. As expected those patients with the higher ER
visits were found to be hospitalized at a greater rate. As an
example, 29% of the patients with high ER usage (>5) had more the
one hospitalization in the same 12 months. Of note, those patients
with moderate usage 2-5 visits of the ER were also at significant
risk of a hospitalization.
The costs of improperly treated asthma can be substantial. By
extrapolating from the Hopkins study the costs associated with
these groups of asthmatics can be determined. Using an average of
emergency room costs and hospitalization costs, $170 and $3000
respectfully, from Philadelphia and applying conservative estimates
of usage we find that the costs per patient are $4000 (high),
$2500 (moderate) and $300 (low).
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. A recent study
comparing expert care vs generalist care found that expert care reduced
hospitalizations and emergency room visits by 77% and 53% respectfully
over generalist care. This gap in the level of care needs to be narrowed
by improving the care provide by the generalist. 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 20 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 chart
note the reductions in emergency room visits and hospitalizations.
The differences are substantial. The data is an average of several
studies examining the imapct of expert care for moderate to severe
asthmatics
In comparison the following graphes (figure 1,2) denote
outcomes of a study by a physician associated with IRT. The study
although limited in the number of patients exhibit comparable
outcomes. The study examined utilization one and two years prior to
proper asthma management and one and two years following.
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 are using laboratories 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 allergic 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.
In June, 1998, the company became an associate member of The
Disease Management Purchasing Consortium (DMPC). DMPC acts as an
advisor and purchaser of disease management program on behalf of
manage care companies (HMO's & PPO's) who are members of the
consortium. Currently DPMC has 19 member plans comprising
30,000,000 covered lives. When a member plan requests disease
management program the DPMC works with the plan to release an RFP
to preapproved vendors who meet the DPMC's strict criteria for
outcomes and contracting.
On occasion the DPMC finds vendors that have a lot of
potential but need minor improvements and polishing to meet their
potential. IRT is one such vendor and only a limited number of
vendors are accepted as associate members. DPMC has a consultative
relationship with IRT and has greater improved the company's
offerings. To date IRT has not received an RFP from the DPMC .
Competition
Competition for the Company's laboratory testing services
arises primarily from allergists and commercial clinical
laboratories. Clinical laboratories with allergy programs, such as
Lab One, 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 AND
COMPREHENSIVENESS 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.
Directors and Executive Officers of the Registrant
The following table sets forth as of May 31, 1998 certain
information regarding directors and executive officers of the
Registrant:
Name Age Title
George H. Young 67 Chairman of the
Board of Directors, President, CEO
Lewis Perelmutter 63 Director, Vice President, Director of
Research and Education
Laboratory Director
Jay Galli 70 Director
William T. Foster 67 Director
Richard Manini 64 Director
Lois M. Butler 66 Assistant Secretary
Senior Medical Personnel
James Hartwright 58 Medical Director
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.
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.
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.
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 Capacities in which served Cash Compensation Total Accrual
Young Chief Executive Officer, Chairman
of the Board, President $141,044 $0
Perelmutter Director of Research & Education
Laboratory Director $ 19,200 $0
Total of all executive officers as a group: $160,244 $0
=========================================================================
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, 1998:
Current Number Current
of Shares of Stock Percentage
George H. Young
P. O. Box 289
Leesburg, NJ 08327 15,897,439(2) 26.29%
Richard Manini
582 Store Road
Harleysville, PA 19438 5,042,245 8.34%
Lewis L. Perelmutter
290 Tavistock
Cherry Hill, NJ 08034 4,481,461(2) 7.41%
John C. David
2651 Woodsview Drive
Bensalem, PA 19020 1,823,334 3.02%
Jay Galli
3065 South 7th East
Salt Lake City, UT 84121 828,081(1) 1.37%
William T. Foster
253 S. 4th St.
Fulton, NY 13069 1,771,702(1) 2.93%
Directors and
Officers as a Group 29,844,242 49.43%
(1) Includes shares held in spouse's name and children's names.
(2) Includes shares held in trust and families' 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
from Alexander Sinelnik at a monthly cost of approximately $3,450.
Item 3. Legal Proceedings
None.
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.
1998 Low Bid High Ask High Close/Bid
June 1, 1997 through
May 31, 1998 $0.25 $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, 1998, the Company had outstanding
shares of Common Stock, issued to approximately
shareholders.
(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.
(d) Name Change. A corporate name change will take effect in
September, 1998, from IRT Holding Corporation to Asthma Disease
Management, Inc. The names of the two subsidiaries will also be
changed from IRT Diagnostic, Inc. and IRT Laboratory, Inc. to ADM
Diagnostic, Inc. and ADM Laboratory, Inc. The management believes
the new name will reflect more appropriately the current growing.
Item 5. Selected Financial Data
The following selected consolidated financial data of the
Company as of and for the year ended May 31, 1998 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 1998, 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.
In July, 1998 IRT presented its asthma disease management
program to the provider base of Cape Health Plan of Detroit MI. The
role out of the program will continue through August and into
September of 1998. In addition the company is awaiting the final
signoff on a contract offered to IRT by Total Health Plan of
Cleveland, OH.
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)
1998 1997 1996 1995 1994 1993
Operations
Statement Data
Revenues 161 361 393 525 676 262
Net Loss (756) (447) (530) 59 (623) (1293)
Net Loss Per Share (.01) (.01) (.02) 0 (.05) (.27)
Of Common Stock
Cash Dividend
Per Share 0 0 0 0 0 0
BALANCE SHEET DATA
Total Assets 717 723 663 782 294 477
Current Liab. 546 579 513 515 532 990
Long term Debt 0 41 43 0 0 12
Stockholders'
Equity(Deficit) 171 103 107 267 (238) (525)
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 $908,415 for the fiscal year ended May
31, 1998. 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.
Revenues
Net revenue from operations was $160,830 for the
fiscal year ended May 31, 1998, 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 during the
fiscal year ended 1998 is due primarily to a shift in our
marketing focus. Due to recent regulatory changes in the
Health care industry, servicing independent primary physicians,
which constituted the bulk of our operations, forced us to
abandon this market in favor of the larger, but highly
competitive HMO's.
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 Medical Director operated an independent
medical practice which concentrated in allergy immunology
treatment. Laboratory services to this practice were
$22,414.00 in fiscal year ended May 31, 1998.
Financial Statements and Schedules - See Exhibit 1.
The Audited Financial (DRAFT) Statements and Schedules
listed below as prepared by Colleen Bishop, Certified
Public Accountant, are filed as a part of this Annual
Report on Form 10-K.
Balance Sheet at May 31, 1998
Statements of Operations
Statement of Cash Flow for Fiscal Year Ended May 31, 1998
Notes to Financial Statements
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: 11/16/98 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: 11/16/98 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
BALANCE SHEET AT MAY 31, 1998
ASSETS
May 31
------
1998 1997
CURRENT ASSETS
Cash $ 101,751 13,167
Accounts Receivable, Net of Allowance
For Doubtful Accounts of $34,000 and
advances from Factoring company (Note 1) 60,462 146,225
Inventory 15,000 30,000
--------- -------
Total Current Assets 177,213 189,392
EQUIPMENTS AND IMPROVEMENTS
Laboratory Equipment 236,175 236,175
Office Equipment 119,232 102,567
Furniture and Fixtures 27,362 27,362
------- --------
382,769 366,104
Less accumulated depreciation 366,699 356,199
------- -------
16,070 9,905
SERA INVENTORY (Note 1)
OTHER ASSETS
Receivable from litigation (Note 5) 500,000 500,000
Other Assets 23,354 23,354
------- -------
523,354 523,354
------- -------
Total Assets 716,637 722,651
======= =======
IRT HOLDING CORPORATION
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
MAY 31
-----------------------
1998 1997
-------- --------
CURRENT LIABILITIES
Accounts payable and accrued expenses 122,958 322,863
Notes payable - Director 0 42,554
Accrued payroll taxes payable
and related costs 336,060 254,361
-------- -------
Total Current Liabilities 459,018 619,778
COMMITMENTS AND CONTINGENCIES (Note 5)
STOCKHOLDERS' EQUITY (DEFICIT)
Common stock 22,675 21,852
Additional paid-in capital 6,873,918 6,052,287
Accumulated deficit (6,627,968) (5,960,260)
--------- ---------
268,625 113,879
Less treasury stock, at
cost (20,000 shares) (10,000) ( 10,000)
Less subscriptions receivable ( 1,006) ( 1,006)
-------- ---------
257,619 102,873
-------- ---------
Total stockholders' equity (deficit) $ 716,637 722,651
======== ========
IRT HOLDING CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS
Years ended May 31
------------------
1998 1997
---- ----
Revenue
Net of Laboratory revenue $ 160,926 $ 360,218
Operating Expenses
Cost of sales 251,945 191,888
Selling and promotional expenses 224,939 144,604
General and administrative expenses 398,856 365,889
Depreciation and amortization 10,500 15,572
-------- --------
886,240 717,953
Operating Loss ( 725,314) (357,735)
Other income/(expense)
Forgiveness of Debt 78,777 0
Other income (expense) 904 669
Interest expense and
factoring charges (22,175) (89,673)
--------- --------
65,078 (89,004)
--------- ---------
Net income/Loss (667,708) (446,739)
========== ==========
Net income/Loss per share $ (0.01) (0.01)
--------- ----------
Weighted average shares outstanding 60,133,715 39,455,816
========== ===========
IRT HOLDING CORPORATION AND SUBSIDIRIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED MAY 31, 1998 AND 1997
Additional
Common stock Paid in
Shares Amount Capital
Balance at May 31, 1995 27,324,928 $ 21,409 $ 5,609,678
Issuance of common stock 12,130,888 443 442,609
Balance at May 31, 1996 39,455,816 21,852 6,052,287
Issuance of common
stock, net 20,677,899 823 821,631
---------- ------- ---------
Balance at May 31, 1997 60,133,715 $ 22,675 6,873,918
========== ======= =========
IRT HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
Years ended May 31,
-----------------------
1998 1997
---- -----
Increase (decrease in cash)
Cash Flows from operating
activities
Net Loss 667,708 (446,739)
Adjustments to reconcile net
cash used in operating activities
Depreciation and amortization 10,500 15,572
Changes in current assets and
liabilities:
(Increase) decrease in:
Accounts Receivable 85,763 (45,367)
Inventory 15,000 ( 835)
Other assets ( 1,553)
Bank overdraft ( 4,914)
Accounts Payable and accruals (200,205) (13,186)
Accrued payroll taxes payable
and related costs 81,699 81,864
Net cash used for -------- --------
operating activities (674,951) (415,158)
Cash flows used for investing
activities:
Additions to property and equipment (16,665) (14,857)
Net cash used for -------- ----------
investing activities (16,665) (14,857)
-------- ----------
Cash flows from financing activities:
Proceeds/increases from issuance of
common stock 780,200 443,052
Net cash provided by ------- --------
financing activities 780,200 443,052
------- --------
Net increase (decrease) in cash 88,584 13,037
Cash, beginning of year 13,167 130
-------- ---------
Cash, end of year 101,751 13,167
======== ========
The accompanying notes are an integral part of these statements.
IRT HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED MAY 31, 1998 AND 1997
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, 1998 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. However, as a result of
the potential financial and business losses attributable to the misuse of
assets and support and the related termination of operations, Immuno Response
Technologies and AAM pettitioned for relief under Chapter 7 of the United
States Bankruptcy Court.
Effective April 20, 1998, the bankruptcy estate of Immuno Response Technology
was closed as the case had been fully administered. A similar conclusion is
expected on the AAM filing within the forthcoming fiscal year.
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, 1998 AND 1997
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 $6,600,000.
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 discontinued its use of accounts receivable factoring and all
outstanding charges and/or clains were released effective 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:
1998 1997
Interest and factoring charges $ 22,175 $87,483
Income taxes 0 0
Note 5. COMMITMENTS AND CONTINGENT LIABILITIES
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.
Lease Commitments
The Company leases office space on a month to month basis at the rate of
$2,850 per month. The Company also rents office equipment under leases
accounted for as operating leases with the following future minimal annual
rentals as of May 31, 1998:
For the year ended:
1999 $ 4,455
2000 3,613
2001 3,332
2002 1,665
Contracts
The Company has entered into a contract to pay the Chairman an annual salary,
a portion of which is to be paid currently until the Company has placed its
new financing and related plans in effect (see Note 8.). The balance beyond
the payroll payments will be taken in stock without legend at 50 percent of
market value.
Employee Stock
The Company has instituted a plan for the issuance of restricted stock bonuses
to various employees as a reward for past service and loyalty. The issuance
of such stock during the current fiscal year has been reflected in the
Consolidated Statements of Stockholders' Equity.
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 $6,600,000. This amount is
also available for federal income tax purposes which will, if unused, expire
from 2003 to 2013.
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. SUBSEQUENT EVENTS
The Company is in the process of obtaining a private placement in the amount
of eight million dollars for (a) providing the funding to purchase a
corporation for vertical integration; (b) relocating to a more appropriate
facility; (c) obtaining state of the art equipment; (d) providing working
capital.
The company's new marketing focus is in the area of asthma management and
services to inner city markets. This market is neglected with a higher than
normal asthma population, directly due to its socio-economic conditions.
The Company can benefit from this niche primarily due to its ability to provide
very cost effective asthma prevention programs.
Note 9. 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.
