U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended June 30, 1997
[ ] UNDER SECTION 13 OR 15(D)OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from ________________to______________________
Commission file number: 0-15347
IRT INDUSTRIES, INC.
------------------------------------------------------
(Name of small business issuer in its charter)
FLORIDA 59-2720096
- ------------------------------------------ ---------------------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
2400 E. LAS OLAS BLVD., SUITE 128, FT. LAUDERDALE, FL 33301
- -------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Issuer's telephone number: (954) 525-8815
Securities registered under Section 12(b) of the Exchange Act:
Name of each exchange
on which registered:
Title of each class: NONE NONE
Securities registered under Section 12(g) of the Act:
COMMON STOCK $.0001 PAR VALUE
-------------------------------
(Title of class)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes [X] No [ ]
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [ ]
The Issuer's revenues for its most recent fiscal year were $363,557.
The aggregate market value of the voting stock held by non-affiliates was
approximately $2,838,062 as at October 24,1997, based on the closing sale price
of $2.19.
The number of shares of Common Stock outstanding as at October 24, 1997 was
5,060,782.
(1) Affiliates for the purpose of this item refer to the directors, executive
officers and persons owning 10% or more of the Company's common stock, of
record; however, this determination does not constitute an admission of
affiliate status.
1
<PAGE>
IRT INDUSTRIES, INC.
FORM 10-KSB
TABLE OF CONTENTS
PART I PAGE
- ------ ----
ITEM 1. Description of Business. 1
ITEM 2. Description of Property. 10
PART II
- -------
ITEM 5. Market for Common Equity 11
and Related Stockholder Matters.
ITEM 6. Management's Discussion and Analysis 12
or Plan of Operation.
ITEM 7. Financial Statements. 16
PART III
- --------
ITEM 9. Directors, Executive Officers, Promoters 16
and Control Persons; Compliance with Section
16(a) of the Exchange Act.
ITEM 10. Executive Compensation. 17
ITEM 11. Security Ownership of Certain 17
Beneficial Owners and Management.
ITEM 12. Certain Relationships and Related 19
Transactions.
ITEM 13. Exhibits and Reports on Form 8-K. 19
<PAGE>
PART 1
ITEM 1. DESCRIPTION OF BUSINESS.
GENERAL
IRT Industries, Inc., a Florida corporation, is in the business of operating,
developing, pursuing, establishing, and otherwise participating in gaming,
resort, and related business opportunities in Latin America and the Caribbean.
The Company currently owns and operates two casino businesses in Latin America,
and owns another casino license and casino business related equipment. The
Company seeks to become a leading U.S. public company initially in the Latin
American area with respect to gaming and resorts, then expand into the Caribbean
market, with the ultimate goal to enter Europe and the United States. While the
U.S. is saturated with companies involved in gaming and resort business
ventures, only a limited number of U.S. public companies pursue the same or
similar business overseas, where opportunities abound. The Company's principal
executive offices are located in Fort Lauderdale, Florida, U.S.A., with U.S.
management, which oversees the Company's on-going pursuits and business
operations; within minutes from the Miami International Airport, a gateway for
travel to and from Latin American countries.
The Company operates the Casino Amon in San Jose, Costa Rica, and the Casino
Bahia Ballina, located at a resort hotel on the coast in Costa Rica. Utilizing
forty-five employees, plus additional professionals and consultants, these
operations are the platform from which Management intends to pursue additional
gaming and resort related opportunities.
Prior to March, 1996, the Company pursued environmental related business
pursuits. The Company is a corporation organized under the laws of the State of
Florida, U.S., with an address at 2400 E. Las Olas Blvd., Suite 128, Fort
Lauderdale, Florida, 33301, a U.S. telephone number of (954) 525-8815 and
facsimile number of (954) 523-9915.
MISSION STATEMENT
The mission of the Company is to seek out, purchase, acquire, develop, and/or
otherwise enter into partnerships, joint ventures, and/or other relationships,
with respect to casinos, resorts, and/or related businesses, and interests,
first in Latin America, then into the Caribbean, then Europe, and ultimately
into the U.S.
Management, through employees, consultants and professionals, brings experienced
persons with foreign language capability and knowledge of Latin American issues,
cultures, and legal requirements, as well as
1
<PAGE>
knowledge with respect to public company matters, to propel the Company towards
its corporate mission.
OPERATING BUSINESSES
The Company has two operating businesses--the Casino Amon, and the Casino Bahia
Ballena. Both casinos are located in Costa Rica, one in San Jose, the capital of
Costa Rica and one on the most prominent beach location on the coast. The
business operations employ forty-one people, besides professionals and
consultants. The businesses currently generate revenues, and are entering into
the "high season" with additional anticipated revenue generated in connection
with tourism as well as holiday leisure spending. The businesses are fully
licensed and operate in conformance with applicable gaming and related laws and
regulations in Costa Rica.
CASINO AMON
The Casino Amon is a luxury casino operation, located adjacent to the lobby and
convention suites, in the five-star luxury Hotel Amon Park Plaza in San Jose,
Costa Rica. The Casino Amon has eight gaming tables, including blackjack and
poker type games, as well as slot machines. The casino was acquired with
operations commencing in July of 1996. It has 26 employees including a casino
manager, bookkeeper, and pit bosses (who monitor the casino gaming employees, as
well as customers within their designated areas). Adjacent to the Casino is a
bar area from which bar guests are able to easily access the gaming area.
Recently, the casino has undertaken the operation of the bar area as part of the
casino business, which should produce additional revenues for the operation. The
hours for the casino are 6 p.m. until 3 a.m. each evening. The casino is open to
hotel guests, tourists from other hotels, as well as local residents. The casino
is promoted through various media, including newspaper and radio advertisements,
promotions in the hotel as well as other hotels, and distribution of casino
information and promotional materials throughout the city of San Jose.
HOTEL AMON
The Hotel Amon Park Plaza, a five-star luxury hotel, has as its trademark "The
Art of Hospitality," and derives its name from the rich history and tradition of
the neighborhood in which it is located. Only twenty minutes from the
international airport, which is the prime air travel opportunity to enter into
the country of Costa Rica, the hotel surroundings feature San Jose's finest
colonial architecture, museums, theaters, restaurants and night life. Since the
doors were open in December 1993, discriminating travelers have been choosing
the Amon Park Plaza for both their business and tourist stays. Rooms are
exquisitely decorated and feature air-conditioning, cable television, telephone,
2
<PAGE>
clock radio, as well as modern bathrooms, and other amenities only the top
hotels provide. The hotel provides deluxe rooms, as well as junior and master
suites, with security boxes, an executive business center, including fax
service, a gift shop, travel agency, secure underground parking, and a gourmet
restaurant, as well as valet parking. The hotel hosts business meetings,
conventions, seminars and social events in one of four convention suites or
"salons."
COSTA RICA
Costa Rica boasts magnificent white-sand beaches with warm waters, a great
variety of national parks, protected areas and natural resources, surfing,
sport-fishing, balloon-rides, water-rafting, mountain biking and a variety of
tourist activities. The country is blessed with a spring-like climate
practically year-round, with winter normally lasting May through November, and
summer from November to April. The country aggressively pursues foreign
investment, and travel from both tourists and business persons through a number
of methods including organizations owned and operated, or supported, by the
Costa Rican government and private groups. Costa Rican night life is very active
with the presence of discotheques, bars, live shows and, of course, casinos.
Management believes all these opportunities, which make Costa Rica exciting,
benefit the business interests of gaming and resort and related endeavors of the
Company.
The population distribution in Costa Rica is important to the business of the
Company, and Management plans to analyze it more carefully in the future in
relation to expansion goals. Costa Rica spans 19,730 square miles with a
population of over three million people, yielding an average population density
of approximately 167 inhabitants per square mile. In comparison, it is believed
that the average density figure is roughly 70 persons per square mile in the
U.S. In size, Costa Rica is often compared to West Virginia, while its
population compares to the State of Connecticut. There are several principal
provinces, such as San Jose, Alajuela, Heredia, and Cartago which combined total
approximately 75% of Costa Rica's total population. The remaining population
resides in the regional provinces of Puntarenas, Guanacaste and Limon. It is
believed that over 51% of the total population is in the San Jose and extended
metropolitan area, which means most of the purchasing power in the Costa Rican
market is centrally located in the vicinity of the San Jose casino. This
provides the Company with tremendous opportunities for current and future
performance of its casino in San Jose, Costa Rica, as well as other casinos that
may open in the capital area.
3
<PAGE>
The major channels of communication are commercial television and radio
broadcast medias and two major daily newspapers, which are published in Spanish,
in addition to two weekly English language newspapers. Further, there are a
multitude of Spanish and English magazines published in Costa Rica. The Company
advertises its casinos in most of the available publications from time to time.
In regard to the age of the population, approximately 50% of the population is
between the ages of 15-44 years old, with the majority of such group (18-44
years old) a prime target for gaming endeavors.
SAN JOSE, COSTA RICA
San Jose, the capital city of Costa Rica, has a population of over one million,
excluding tourists, and is located in a sunny valley surrounded by mountains.
The city has agreeable temperatures all year round, given it is approximately
1,200 meters above sea level and benefits from the static climate conditions in
Costa Rica. San Jose has a very friendly and welcoming atmosphere and
interesting cultural activities including several historic museums, art
galleries, theaters, as well as the outstanding national theater, which is the
home of the national symphony orchestra. The fine arts attractions are also
complimented by modern shopping malls, excellent restaurants, sport clubs, golf
courses and beautiful parks. San Jose, therefore, experiences heavy
international tourist traffic, besides the activities of local inhabitants and
visitors from other parts of Costa Rica.
CASINO BAHIA BALLENA
The Casino Bahia Ballena is located on the Puntarenas coast. It was in operation
under previous management for approximately two years. The Casino Bahia Ballena
is a luxury casino operation located in the "five-star" luxury Hotel Playa
Tambor Hotel. The casino has blackjack and poker type games. It has 15
employees.
PLAYA TAMBOR HOTEL
The Playa Tambor Hotel is one of a limited number of five-star, luxury beach
hotels, owned by the Spanish hotel chain, Barcelo, which has over 20 hotels
worldwide. The Playa Tambor Hotel is advertised at many of the Barcelo locations
through literature and other marketing, which includes information about the
Company's casino. By leasing a casino in the Barcelo hotel, the Company benefits
from tremendous name recognition by international travelers familiar with the
five-star standards of the Barcelo hotel chain.
The hotel offers all-inclusive customer stay packages of food, lodging and
activities including three meals a day, unlimited beverages,
4
<PAGE>
including liquor, water sports, as well as access to horseback riding, mountain
hiking, and sport activities. The contemporary rooms are furnished with
telephone, air-conditioning, and other amenities. The hotel is accessible by an
adjacent air field, and also a newly built airport in Puntarenas, as well as by
bus, taxi and rental cars.
PUNTARENAS
Puntarenas, one of the most attractive Costa Rican provinces, is beach side
located on the Pacific coast. It is about two hours from San Jose, the capital
city. The town has several tourist attractions such as a picturesque market, a
"Casa Museum," and other sites. Puntarenas is considered to be one of the most
favorable beach locations by visitors, both tourists and inhabitants of Costa
Rica. During the "high season" almost every hotel room available in Puntarenas
is booked.
SEASONALITY
The Company's current gaming operations in Costa Rica are subject to seasonal
variation. Gaming revenues are anticipated to typically increase during the last
quarter, first quarter, and partially into the second quarter of each calendar
year. Such seasonal variations are primarily due to reliance on the tourism
business. Actual seasonal performance may vary from the aforesaid statements.
FORWARD LOOKING STATEMENTS
Discussions herein regarding proposed Company developments and operations
include certain forward looking statements which, given the effect of future
performance are impacted by unknown variables, such as competition, tourism
levels, and economic conditions, and involve risks and uncertainties. Actual
results may differ.
PERSONNEL
The Company has 45 full-time employees, besides professionals and consultants,
which supply services to the Company. The employees are primarily the casino
managers, pit bosses, bookkeepers, and other operational personnel. There are no
collective bargaining agreements or unions, of any type. Management believes its
relationship with its employees is good. With the expansion of gaming interests,
including competition, competitors are likely to actively recruit management and
casino personnel, many of whom have been trained at the expense of the Company.
No binding employment agreements exist with such personnel, but are being
considered.
5
<PAGE>
SERVICE MARKS
The Company is in the process of developing service marks related to its
business operations, including Casino Amon and Casino Bahia Ballena.
Notwithstanding that service mark registrations have not been filed, the Company
asserts ownership of such service marks and intends to defend any competitive
usage of same by others. Service marks are important to provide an identity
between the Company and its service oriented operations. The Company intends to
pursue the completion of service mark establishment and registration, upon
advice of legal counsel, in the coming months.
BUSINESS STRATEGY
The Company's business strategy, which it has implemented in its existing
operations, emphasizes the operation and development of first class, quality
casino facilities and service personnel, including utilization of updated
technologies such as casino related computer software for accumulation of casino
operational data, and analysis, and modern security measures, such as security
cameras, lock-boxes (for gaming proceeds) and recordation of operations
utilizing video machines. Included in the strategy is the emphasis of providing
the customer a attractive, comfortable environment where patrons can enjoy an
evening of gaming which will be memorable and distinctive from certain other
casino operations, which maintain lower standards for facilities and service.
The Company intends to continue pursuing the acquisition of first class
facilities, gaming equipment and related assets. The acquisition of such items
will be made, whenever possible, through the issuance of common stock of the
Company, so that Company cash may be utilized for operations and purchases where
only cash will satisfy third party sellers. By reducing the amount of initial
capital commitment, through issuance of common stock in lieu of cash outlays,
the Company is able to utilize cash flow from operations as well as any future
cash reserves to fund subsequent phases of its business endeavors, which require
cash outlays.
Management intends to continue to identify and enter gaming markets which it
believes provide long-term attractive opportunities, and possibly enter such
markets through strategic alliances or joint venture arrangements with local
business leaders, such as hotel owners or nightclub operators.
Utilizing intended future successes within the gaming industry, the Company
intends to apply its strategies to resort, and other gaming and resort related
businesses. For example, the Company seeks to enter into additional arrangements
and relationships with existing resort opportunities in Latin America. While no
agreements have been reached, Management is pursuing various opportunities to
promote the success of
6
<PAGE>
the Company in acquiring and operating the two existing casino businesses in the
gaming area as a platform for resort endeavors.
The Company expects to continue reviewing gaming opportunities and other
business endeavors and to pursue new markets based on an analysis of regulatory,
demographic, competitive and other factors, including Internet Gaming.
Management believes a consistent use of these strategies throughout all
operations, contributes to additional future operations, and will foster
customer loyalty, enhance the ability to compete effectively in existing
markets, and facilitate the efficient and cost-effective development of
facilities.
MARKETING
The Company believes that casino marketing efforts should be focused equally
upon tourists as well as local inhabitants, with respect to its casino
operations. Until sufficient data has been accumulated with respect to the
performance of such emphasis, equal pursuit of tourist and local inhabitants
will be maintained. The Company believes that it can attract such customers to
the casinos by designing and implementing marketing strategies and promotions
emphasizing the first class environment and services available at the casino
locations thereby promoting repeat visitation and customer loyalty. Marketing
efforts focus upon informing both potential customers and existing customers of
the added benefits of attending a Company casino facility, which include such
amenities as free valet parking, and luxury casino furnishings.
The Company uses radio, and outdoor print media to promote its services and
achieve greater name recognition. Utilization of such media has resulted, in
Management's opinion, with an actual increase in customer attendance at the
casino facilities.
The Company intends to encourage group sales by utilizing bus programs (e.g.
possibly purchase or lease a Company bus to pick up and deliver to its casino,
tourists from other hotels and local inhabitants throughout the city), corporate
and hotel sales programs (e.g. coupons for discounts for game playing
distributed to hotels which do not own casinos) and other programs geared
towards both tourists and local inhabitants. Data base marketing to travel
agencies, travel groups, and others is being investigated as an additional
marketing tool to identify customers and potential customers most likely to be
attracted to the Company's facilities, as well as to contact such customers.
With respect to local inhabitants, the Company places emphasis on attracting
local residents and intends to seek to create a strong local identity in each
market by staging and supporting special events.
7
<PAGE>
COMPETITION
The Company faces competition from other casino businesses in the local market
areas where its facilities are situated. While it is believed that, in Latin
America, few, if any, of such casino operations have the benefit of centralized
management and public company scale business, financial and marketing resources,
the competition exists and is prevalent. Currently, competition is greater in
the San Jose area where there are a number of casino businesses, and less
prevalent in the Puntarenas area given the fewer number of hotels at the beach
side community. The Company also faces competition from other forms of legal
gambling, such as government-sponsored lotteries. The competition for the
development of new gaming enterprises in many locations can intensify as a
larger number of established and newly organized gaming companies compete for a
finite number of sites (given that in most places, gaming licenses and
opportunities are limited given regulatory requirements for the establishment of
a gaming venture--e.g. in Costa Rica, a gaming license may, except for a
"floating license" described below, only be issued if it is utilized in a hotel
with 100 or more rooms and at least a three-star rating). On the other hand,
limited site opportunities increase the intrinsic value of established
operations which the Company currently owns, and any additional operations that
the Company establishes in the future.
FUTURE DEVELOPMENT OPPORTUNITIES
The Company has a license which permits it to place and operate a casino at a
location in any particular hotel/restaurant. The Company owns a "floating gaming
license," one of two issued by the Costa Rican government. The license permits
the Company to select a location, in which to operate a casino. Whether or not
the hotel has 100 hotel rooms, the Company is permitted to use said license for
a casino operation. Therefore, the Company may open a casino at a smaller hotel,
night club, restaurant, or other free standing building. The Company is
currently investigating potential joint venture undertakings as to this license.
In the short term, the Company intends to focus primarily on the gaming
operations of its current two casino businesses, but is still aggressively
pursuing new development and acquisition opportunities in jurisdictions where
gaming has been legalized and may be legalized in the future including, without
limitation, Costa Rica, and Colombia. Future pursuits may be categorized as
follows:
8
<PAGE>
a. the establishment of at least one additional casino operation in
Costa Rica, and an operation in Colombia as well as operations elsewhere
in Latin America;
b. the commencement of telephone "sports-betting" which, if successful, will
allow the Company to market sports-betting by telephone to gamblers outside of
Costa Rica, possibly in the U.S.;
c. entering into a strategic alliance or similar arrangement with a resort owner
or operator to obtain an ownership and/or controlling interest in a Latin
American resort, with or without a related casino business endeavor; and
d. the pursuit of gaming and resort related business opportunities and
interests, such as resort clothing manufacturing and sale, travel planning
services for international travelers, fine dining (food and beverage)
facilities, and possibly spa and fitness centers, and Internet Gaming.
GAMING REGULATORY CONCERNS
The Company's gaming facilities are regulated by governmental agencies under
laws and regulations which apply to gaming businesses, such as a casino. Such
laws and regulations affect the ability to obtain and maintain gaming licenses,
with potential for fines and other consequences in the event violations of such
laws or regulations occur. While such laws and regulations may vary in different
Latin American countries, which are the initial focus of the Company's business
pursuits, most require background checks on employees of the business
operations, the provision of significant information to authorities pertaining
to the ownership and operation of the ventures, the payment of fees and
administrative costs in order to obtain and maintain applicable licenses, and
provisions prohibiting illegal activities in connection with the gaming
businesses and barring persons who are members of any criminal element from
participating in the business ownership and/or operation. Such laws and
regulations are often in flux; often dependent on political factors, such as the
occasional replacement of governmental leaders, such as a president or governor
of a jurisdiction, as well as societal pressures on legislators and regulatory
agencies, as in the case of community efforts to curtail gambling, which is
often perceived to be a "vice" rather then a legitimate business. No assurance,
therefore, exists that complications will not occur and otherwise materially
effect in an adverse way any existing operations or future established
operations of the Company. Operations are subject to other non-gaming laws and
regulations often with respect to labor, provision of food and beverage
products, and a safe working environment for employees, besides customers.
9
<PAGE>
ITEM 2. DESCRIPTION OF PROPERTIES.
The Company's business office is located in Fort Lauderdale, Florida, at 2400 E.
Las Olas Blvd., Suite 128, Fort Lauderdale, Florida, 33301. The location is
small in size, consisting of shared space, and is utilized for nominal
consideration at this time. The Company under a monthly services arrangement
with a corporation owned by the President, has access to an office suite,
conference room and storage. SEE "Item 12 Certain Relationships and Related
Transactions."
The Company, through its subsidiaries, leases two business locations in Costa
Rica. The first lease is for the Casino Amon, which is approximately 2,000
square feet, and provides the following terms, in summary:
a. the lease is valid for two years and six months, dating from May 1,
1996, with extensions by ten year periods at the end of said term;
b. the current monthly lease payment is $14,000 U.S. currency;
c. the owner of said premises will pay electricity charges, air-conditioning,
and up keep; the tenant shall pay taxes that correspond to the operation
activity of said premises; and
d. the tenant agrees to maintain the establishment of the casino within the
terms of Costa Rican law.
The second lease, for the Casino Bahia Ballena location, is on the following
terms (summary):
a. the lease is valid for 5 years, from June, 1997, with extensions to
be negotiated; and
b. the lease fee is $9,000 per month, subject to escalations, including a
new rate of $12,000 per month starting January, 1998. The same provisions of c
and d above also apply.
10
<PAGE>
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The Company's common stock is traded on the National Association of
Securities Dealers (NASD) Bulletin Board market (trading-symbol: IRTG) as
reported on the NASD Bulletin Board Market System and the Philadelphia Stock
Exchange (trading-symbol IRG).
The following table sets forth, as reported by the NASD, for the
periods (calendar quarters) indicated, high and low bid prices of the Company's
Common Stock:
QUARTER HIGH LOW
------- ---- ---
CALENDAR 1996
First Quarter (Jan.-March) $6.00 $ .02
Second Quarter (April-June) $6.50 $5.00
Third Quarter (July-Sept.) $6.25 $5.25
Fourth Quarter (Oct.-Dec.) $7.00 $3.50
CALENDAR 1997
First Quarter (Jan.-March) $7.00 $6.75
Second Quarter (April-June) $7.00 $7.00
The quotations reflect inter-dealer prices, without retail mark-ups, mark-downs
or commissions and may not represent actual transactions. The figures have not
been adjusted as to a 1 for 10 stock split declared subsequent to the June 30,
1997, year end.
There were 813 shareholders of record of Common Stock as at October 24, 1997.
To date, the Company has not paid any dividends on its Common Stock and
does not expect to pay any dividends in the foreseeable future. Instead, the
Company intends to retain all earnings to finance the growth and development of
the Company's businesses.
11
<PAGE>
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
The following discussion should be read in conjunction with the Financial
Statements and Notes thereto contained elsewhere herein. Please note that no
assurance exists as to the actual future outcome of Management's plans,
assumptions or estimates.
RESULTS OF OPERATIONS
GENERAL
The Company experienced a significant increase in revenues and expenditures for
the fiscal years ended June 30, 1996 and 1997. This primarily resulted from the
establishment of two fully operating businesses, during the June 30, 1997,
fiscal year. Since the first business was established subsequent to the end of
the June 30, 1996 fiscal year, most revenues and expenditures resulted from
operations during the June 30, 1997, fiscal year. Therefore, material changes
exist in revenues and expenditures for the June 30, 1997, fiscal year, as
compared to the June 30, 1996, fiscal year, but same are primarily due to the
foregoing (which is that most operations occurred during the June 30, 1997,
fiscal year). Therefore, even though material changes exist from period to
period in one or more line items, as to the Financial Statements, these changes
can be primarily attributed to the lack of significant operations during the
June 30, 1996, fiscal year, compared to the June 30, 1997 fiscal year.
REVENUES
Revenues for the Company are primarily attributed to operations of its casino
businesses. Revenues for the fiscal year ended June 30, 1997, were significantly
higher from the prior year given that the Company had little or no operations
prior to the June 30, 1997, fiscal year, with significant revenues being
reported during the June 30, 1997, fiscal year, due to the operation of two
businesses. Those businesses are the two casino gaming operations.
COST OF SALES, OPERATING EXPENSES, AND OTHER EXPENDITURES
While significant increases occurred in revenues, as described above, the same
is true as to costs of sales, operating expenses, and other expenditures. With
respect to its two operating businesses, the ratio of such expenditures is
higher for the Casino Amon as compared to the second operation, the Casino Bahia
Ballena. This is due to the fact that the Casino Amon was the first business
established and therefore absorbed many of the initial start up costs and
expenses. Further, it took time for the Company to learn how to streamline
expenditures, as part of the
12
<PAGE>
learning process of operating the first business. Therefore, Management was able
to streamline operations, therefore benefiting the second casino operation.
Further, the difference in expenditures can be attributable to the fact that the
first operation also absorbs more expenditures dealing with professional fees,
including attorneys and accountants, in that the first operation is the platform
for all gaming operations, expansion, and the undertaking of the Latin American
business pursuits of the Company. Domestically, the Company maintains a minimal
employment staff and utilizes consultants extensively. By doing so, payroll and
other taxes, office space, health insurance benefits and other significant costs
are avoided by using independent contractors rather than in-house employees.
LIQUIDITY AND FINANCIAL CONDITION
The Company has experienced significant losses from operations. Management
believes this is normal due to the pursuit of an international roll-out of its
business services and products. This is a long term plan of expansion, and
initial losses can be expected. As additional casino and other business
operations are pursued, Management believes expenditures will increase, but will
be proportionately lower by being offset, to a certain extent, by revenues from
additional business pursuits. By way of illustration, many fixed expenditures
such as professional fees and advertising expenses, which will remain relatively
constant whether the Company operates two casinos or six casinos and will become
less material as revenues from additional casino and other operations increase.
Management, therefore, hopes to spread the cost of future expenditures upon
additional revenue generating casinos and other operations. The Company
experiences most cash flow from its operations and subscriptions receivable from
stock issuance. While current operations have shown losses, Management
anticipates that losses should relatively decrease as time passes and additional
casino operations and other businesses are acquired. Additional operations,
although bringing additional expenses, should provide an economy of scale with
respect to expenditures. Professional fees, advertising, and other expenditures
may remain relatively fixed notwithstanding additional operations, and should be
offset by additional revenues. Further, as additional operations are
established, the purchasing power of the Company for casino chips, tables,
liquor, and other items, may permit better opportunities for purchases at volume
or discounted rates. Inventories may also then be utilized from one casino to
another, in the case that one casino has additional inventories of any of these
products, and another casino is in need of same (so that the Company may be able
to avoid, from time to time, the necessity of purchasing additional items it
otherwise has in stock at other casino locations). The economy of scale benefits
as to professional fees, advertising, inventories, and other items, should
permit more cash liquidity. As the Company establishes more casino operations,
and proves its ability to be successful, the Company should be able to pursue
acquisitions of more significant established businesses
13
<PAGE>
having profitability, which acquisitions are relatively difficult during these
early stages of gaming pursuits. Therefore, as more time passes and more
operations are established, the Company will have the leverage and the strength
to pursue larger profitable casino and other business opportunities as
acquisitions.
PLAN OF OPERATION
The Company's plan of operation for the twelve month period June 30, 1997, to
June 30, 1998, is to focus upon the acquisition and/or establishment of
additional revenue generating businesses in Latin America. Specifically:
a. Management believes that, based upon current income and projected income
estimates, the Company can satisfy cash requirements through the end of 1997,
and anticipates it will raise additional funds in 1998 for acquisitions and
operational needs;
b. the Company intends to establish at least one additional casino prior to
the December 31, 1997, year end, bringing total operating businesses to three,
up to two additional casinos prior to the June 30, 1998, fiscal year end; and
c. Management is undertaking a plan of reviewing and pursuing other related
opportunities, such as Internet gaming, and utilization of the public company to
undertake spin-off transactions of other companies.
Management believes the ability of the Company to achieve profitability is
conditioned upon several variables, but primarily the successful pursuit of
acquisitions, including the establishment of new operating businesses. (For the
purpose of this discussion, acquisitions include the establishment of new
operating businesses, unless the context otherwise requires.) By completing
acquisitions, the Company increases its market share in the gaming industry in
Latin America, providing increase revenues and name recognition. Further, the
spreading of expenditures among multiple operations should increase the
probability of profitable operations overall for the Company. With regard to
these issues, additional acquisitions will increase the revenue base of the
Company due to the revenues generated by additional operations. Name recognition
will be improved, which is important to the Company's long term plans of
acquiring operating businesses, and promoting itself among customers and clients
throughout Latin America. As name recognition improves, casino owners and
related business opportunities will be more interested in selling their
businesses or entering into a joint venture or other relationship with the
Company. Further, gamblers may find that visiting a Company operated casino,
where five star treatment, quality furniture, and an upscale environment, is
preferable to visiting casinos operated by third parties. (For example, on this
last point, persons
14
<PAGE>
visiting the Casino Amon, which is in the capital city of Costa Rica, are
advised of the opportunity to visit the sister/brother casino operation at the
coast hotel, the Casino Bahia Bellena). This is due to the comfort zone of the
gambler, as well as certain marketing activities of the casino operation
including offering chips, and dining discounts, to refer gamblers from one
operation to the other. (This is similar to the night club industry where one
night club often suggests its patrons visit their second night club location
while traveling, which second location is operated by the same management.)
A key variable in the establishment of acquisition opportunities, and completing
same, among other variables, is the trading volume and price of the Company's
common stock, which is the primary consideration the Company intends to utilize
for the purchase of such opportunities. Potential sellers are believed to focus
upon volume and price to determine the final negotiated terms and agreements
with respect to selling their interests or entering into a transaction with the
Company whereby they will receive shares of common stock. Therefore, the Company
believes maintaining volume and trading price for the common stock is crucial to
future acquisitions. To accomplish this, the Company has undertaken a plan of
responding as promptly as possible to the inquiries of shareholders, potential
investors, brokerage firms, market analysts, and others, pursuing promotional
opportunities such as responding to interviews which will be published or
circulated to the investment community, and engaging consultants, to speak to
stockholders, investors, brokerage firms, and others about the strength and
viability of the Company.
ITEM 7. FINANCIAL STATEMENTS
Financial Statements of the Company in response to this Item are attached.
15
<PAGE>
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT.
The table below sets forth the name, age and certain information as to
the Directors and executive officers of the Company.
POSITION WITH FIRST YEAR
------------- ----------
NAME AGE THE COMPANY BECAME A DIRECTOR
- ---- --- ----------- -----------------
Richard Rossi 34 President, Treasurer, 1996
Secretary, and Director
Walter A.
Vega Jimenz 39 Director 1996
Mr. Richard Rossi has been a Director of the Company since March, 1996,
and has been President and Director of Rossi & Associates, Attorneys, P.A.,
since January 1995, which is a law firm that supplies legal services to the
Company. He was an attorney with a law firm with offices in Hollywood and Boca
Raton, Florida, for approximately 7 years from September, 1988 to January, 1995.
He is also President of International Escrow Agents, Inc., a business which
supplies escrow and registered agent services, as well as a Director of
Diversified Beverage Distributors, Inc., a private Colorado wholesale liquor
distributor. From February, 1996, to July, 1996, he served as a Director of RT
Industries, Inc., a Delaware corporation listed on the NASDAQ Stock Market,
involved in the manufacture of automotive parts. He has a Bachelors of Science
Degree in Management (1984) and a Juris Doctorate degree from the University of
Miami, School of Law (1987).
Mr. Walter Asdrubal Vega Jimenz has been a Director of the Company
since January, 1996. He has a Degree in Technical Legal Assistance (1990). He
currently maintains a Real Estate Development Business in Costa Rica, which he
has supervised since 1991.
AUDIT COMMITTEE
The Company maintains an Audit Committee of disinterested (non-Directors or
stockholders) members. The members did not receive compensation during fiscal
1996 but compensation arrangements are pending. The
16
<PAGE>
Committee was established in May, 1996, to review certain material Board actions
and provides a liaison with the Company's independent auditors. The names and
backgrounds of the members are as follows: Mr. Bernardo Protano received a
Degree in Business Management from Barry University, Miami Shores, Florida, in
1992, and a Master in International Business Degree from Nova University, Fort
Lauderdale, Florida, in 1993. He is currently the Chief Financial Officer of
Protano and Sons, Incorporated, a wholesale bakery company located in South
Florida. Prior to his position at Protano and Sons, Incorporated. Mr. Protano
held the office of Jr. Vice-President at Gruntle and Company, Incorporated, a
brokerage firm. He retains professional licensing in the following securities
areas: Series 7 and Series 63.
Mr. Terrence R. Cullinan received a Bachelor of Science in Business Management
and Finance from the University of Scranton, Pennsylvania in 1994. He is
currently pursuing the development of a fast food health store chain business in
South Florida. He has extensive experience regarding the design and successful
implementation of operational procedures and marketing and advertising as to
food industry business.
ITEM 10. EXECUTIVE COMPENSATION.
EMPLOYEE SALARIES
The President of the Company serves without compensation at this time,
and received no direct compensation during the year-ended June 30, 1996. The
Directors of the Company do not currently receive any compensation for services
as Directors. No employment agreement exists with any officers of the Company.
There are no stock options, or warrants, or bonus or profit sharing plans, with
respect to the officers of the Company.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
(A) SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS.
The following table sets forth known beneficial ownership of common stock of the
Company as of October 24, 1997 by each person (except Management)owning 5% or
more of the Common Stock of the Company (also see table below).
17
<PAGE>
<TABLE>
<CAPTION>
NAME AND ADDRESS AMOUNT AND NATURE PERCENT OF
TITLE OF CLASS OF BENEFICIAL OWNER OF BENEFICIAL OWNER(1) CLASS (2)
- -------------- ------------------- ---------------------- ----------
<S> <C> <C> <C>
Common Stock Corporacion Inversiones 1,875,000 37%
Internacionales K & Z, shares/Stockholder
S.A., Ave. 8-10 Calle 17-
845 San Jose, Costa Rica
Common Stock Corporacion De Inversiones 1,604,624
Internacionales, R & G, S.A. shares/
Ave. 8-10 Calle 17-845 Stockholder 32%
San Jose, Costa Rica
Common Stock Cede & CO. 962,300/shares 19%
Box 222 Stockholder
Bowling Green Station
New York, NY 10274
- ------------------------
(1) Information is supplied based upon identity as a shareholder of record
without any verification of beneficial ownership which may apply as to the
identified party.
(2) Rounded to nearest whole number.
(B) SECURITY OWNERSHIP OF MANAGEMENT.
NAME AND ADDRESS AMOUNT AND NATURE PERCENT OF
TITLE OF CLASS OF BENEFICIAL OWNER OF BENEFICIAL OWNER (1) CLASS(2)
- -------------- ------------------- ----------------------- -----------
Common Stock Richard Rossi 114,096 shares 2.3%
c/o IRT Industries, Inc. President, Treasurer,
2400 E. Las Olas Blvd. Secretary, Director,
Suite 128 and Stockholder
Ft. Lauderdale, FL 33301
Common Stock Walter Asbrudal Vega 171,143 shares 3.4%
Jimenz Director
Ave. 8-10, Calle 17-845
San Jose, Costa Rica
Common Stock Officers and Directors 285,239 5.7%
of the Issuer as a shares
Group
- ----------------------------
(1) Information is supplied based upon identity as a shareholder of record
without any verification of beneficial ownership which may apply as to the
identified party.
(2) Rounded to nearest whole number.
</TABLE>
18
<PAGE>
ITEM 12.CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The President of the Company is a shareholder of a law firm which supplies legal
services to the Company, and is a shareholder of a company, which also provides
services as registered agent to the Company. Aside from the payment for
corporate and securities legal services by the Company to the law firm, the
Company also makes payments of at least $5,000 per month under an office
services arrangement whereby the Company is supplied with various services,
products and benefits including office suite, conference room, receptionist area
and storage facilities, photocopying, faxing, and computers, and office supplies
and personnel, including secretary and receptionist.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits Index - Form 10-KSB
EXHIBIT NO. DESCRIPTION EXHIBIT NO
- ----------- ----------- ----------
3(i) Articles of Incorporation Note 1
3(ii) Bylaws Note 1
4 Specimen Stock Certificate Note 1
21 Subsidiaries List Note 2
b. Reports on Form 8-K.
No Reports were filed for the last quarter of the fiscal year covered
by this report.
- ------------------------------------------------------------------------
Note 1: Incorporated by reference to the Company's Form 10-K for the fiscal
year ended June 30, 1995, SEC Commission File Number 0-15347
Note 2: Incorporated by reference to the Company's Form 10-KSB for the
fiscal year ended June 30, 1996, SEC Commission File Number 0- 15347
19
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
IRT INDUSTRIES, INC.
By: /S/ RICHARD ROSSI
------------------------------------------
Richard Rossi, President
Date:10/27/97
In accordance with the Exchange Act, this report has been signed below
by the following persons on behalf of the registrant and in the capacities and
on the dates indicated.
By: /S/ RICHARD ROSSI
------------------------------------------
Richard Rossi, President(principal
executive officer) and Treasurer
(principal financial officer), Secretary
By: /S/ WALTER ASDRUBAL VEGA JIMENZ
------------------------------------------
Walter Asdrubal Vega Jimenz, Director
Date:10/27/97
20
<PAGE>
IRT INDUSTRIES, INC.
CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1997, 1996 and 1995
<PAGE>
CONTENTS
PAGE
----
INDEPENDENT AUDITOR'S REPORT F-2
CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Balance Sheets F-3
Consolidated Statements of Loss F-4
Consolidated Statements of Stockholders' Equity F-5
Consolidated Statements of Cash Flows F-6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS F-7 to F-16
F-1
<PAGE>
Dohan and Company 7700 North Kendall Drive, #204
CERTIFIED PUBLIC ACCOUNTANTS Miami, Florida 33156-7564
A Professional Association Telephone: (305) 274-1366
Facsimile: (305) 274-1368
INDEPENDENT AUDITOR'S REPORT
Board of Directors
IRT Industries, Inc.
Fort Lauderdale, Florida
We have audited the accompanying consolidated balance sheets of IRT Industries,
Inc. and subsidiaries at June 30, 1997 and 1996, and the related consolidated
statements of loss, stockholders' equity and cash flows for the years then
ended. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the consolidated financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of IRT Industries, Inc.
and subsidiaries at June 30, 1997 and 1996, and the results of their operations
and their cash flows for the years then ended, in conformity with generally
accepted accounting principles.
/s/ DOHAN AND COMPANY, P.A.
----------------------------
Dohan and Company, P.A.
Certified Public Accountants
Miami, Florida
October 27, 1997
F-2
<PAGE>
<TABLE>
<CAPTION>
IRT INDUSTRIES, INC. AND SUBSIDIARIES
- ------------------------------------------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEETS
==================================================================================================================
June 30, 1997 1996
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 100,198 $ 18,675
Accounts receivable 485 -
Prepaid expenses 6,190 -
Current portion of prepaid rent (Notes 2 and 9) 84,000 84,000
- ------------------------------------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 190,873 102,675
- ------------------------------------------------------------------------------------------------------------------
PROPERTY AND EQUIPMENT (NOTES 2 AND 4) 423,451 291,278
- ------------------------------------------------------------------------------------------------------------------
OTHER ASSETS
Long-term portion of prepaid rents (Notes 2 and 9) 28,000 112,000
Security deposits 12,828 248
Casino license, less accumulated amortization of $52,889 (Note 2) 542,111 581,778
Casino interests, less accumulated amortization of $168,511 and
asset impairment loss of $409,000 (Note 2) 1,325,138 1,332,000
- ------------------------------------------------------------------------------------------------------------------
TOTAL OTHER ASSETS 1,908,077 2,026,026
- ------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $ 2,522,401 $ 2,419,979
==================================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable (Note 5) $ 91,027 $ 35,430
Accrued liabilities (Note 6) 73,004 61,583
Taxes payable 3,318 3,318
Note payable - officer/director (Note 5) - 100
- ------------------------------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 167,349 100,431
- ------------------------------------------------------------------------------------------------------------------
COMMITMENTS AND CONTINGENCIES (NOTES 9, 10 AND 11)
STOCKHOLDERS' EQUITY (NOTE 7)
Common stock, $.0001 par value, 100,000,000 shares authorized, 10,339,949
and 10,023,283 shares issued and outstanding 1,034 1,002
Additional paid-in capital 7,740,569 7,040,581
Deficit (4,977,437) (3,455,163)
Equity adjustment from foreign currency translation 2,176 -
Treasury stock, at cost (60) (60)
Stock subscription receivable (411,230) (1,266,812)
- ------------------------------------------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY 2,355,052 2,319,548
- ------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 2,522,401 $ 2,419,979
=================================================================================================================
See accompanying notes to consolidated financial statements
</TABLE>
F-3
<PAGE>
<TABLE>
<CAPTION>
IRT INDUSTRIES, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF LOSS
========================================================================================================
FOR THE YEARS ENDED JUNE 30,
1997 1996
- --------------------------------------------------------------------------------------------------------
CASINO REVENUE $ 363,557 $ -
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
EXPENSES
Consulting, professional and administrative fees (Notes 5 and 9) 660,499 190,476
Casino operating expenses (Note 9) 544,977 22,135
Casino asset impairment loss (Note 2) 409,000 -
Depreciation and amortization (Notes 2 and 4) 223,343 53,139
Advertising and promotion 107,902 4,673
General and administrative 55,350 15,949
Travel and entertainment 53,966 4,174
- --------------------------------------------------------------------------------------------------------
TOTAL EXPENSES 2,055,037 290,546
- --------------------------------------------------------------------------------------------------------
LOSS FROM OPERATIONS BEFORE INTEREST INCOME (1,691,460) (290,546)
- --------------------------------------------------------------------------------------------------------
INTEREST INCOME (NOTE 7) 169,206 66,171
- --------------------------------------------------------------------------------------------------------
NET LOSS $ (1,522,274) $ (224,375)
========================================================================================================
PRIMARY WEIGHTED AVERAGE SHARES OUTSTANDING 10,287,171 5,055,948
FULLY-DILUTED WEIGHTED AVERAGE SHARES OUTSTANDING 10,287,171 5,121,522
NET LOSS PER SHARE, PRIMARY AND FULLY-DILUTED $ (0.15) $ (0.04)
========================================================================================================
See accompanying notes to consolidated financial statements
</TABLE>
F-4
<PAGE>
<TABLE>
<CAPTION>
IRT INDUSTRIES, INC. AND SUBSIDIARIES
- ---------------------------------------------------------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
=================================================================================================================================
NUMBER COMMON ADDITIONAL FOREIGN
OF STOCK PAID-IN CURRENCY
DESCRIPTION SHARES AMOUNT CAPITAL DEFICIT TRANSLATION
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
BALANCE AT JUNE 30, 1995 3,010,193 $ 301 $ 3,160,719 $(3,230,788) $ -
Adjustment for issuance of prior year shares 440 - - - -
Capitalization of note payable Officer/Director (Note - - 56,737 - -
Issuance of common stock for subscription receivable 4,000,000 400 1,499,600 - -
Imputed interest on common stock subscription receiva - - (228,674) - -
Issuance of common stock (Note 7) 20,000 2 4,996 - -
Issuance of common stock for debt (Note 2) 2,380,000 238 594,762 - -
Issuance of common stock for services (Note 7) 300,000 30 112,470 - -
Issuance of common stock for casino interest (Note 2) 269,361 29 1,699,971 - -
Issuance of common stock for casino furniture and equ 23,289 2 139,998 - -
Net loss for the year ended June 30, 1996 - - - (224,375) -
- ---------------------------------------------------------------------------------------------------------------------------------
BALANCE AT JUNE 30, 1996 10,023,283 1,002 7,040,581 (3,455,163) -
Exercise of stock purchase option (Note 7) 200,000 20 - - -
Issuance of common stock for casino interest (Note 2) 116,666 12 699,988 - -
Payments on subscription receivable (Note 7 - - - - -
Fluctuation in foreign currency - - - - 2,176
Net loss for the year ended June 30, 1997 - - - (1,522,274) -
- ---------------------------------------------------------------------------------------------------------------------------------
BALANCE AT JUNE 30, 1997 10,339,949 $1,054 $ 7,740,668 $(4,977,437) 2,176
=================================================================================================================================
See accompanying notes to consolidated financial statements
<PAGE>
IRT INDUSTRIES, INC. AND SUBSIDIARIES
- -------------------------------------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
=============================================================================================================
STOCK TOTAL
TREASURY SUBSCRIPTION STOCKHOLDERS'
DESCRIPTION STOCK RECEIVABLE EQUITY
- -------------------------------------------------------------------------------------------------------------
BALANCE AT JUNE 30, 1995 $ (60) $ - $ (69,828)
Adjustment for issuance of prior year shares - - -
Capitalization of note payable Officer/Director (Note - - 56,737
Issuance of common stock for subscription receivable - (1,429,315) 70,685
Imputed interest on common stock subscription receiva - 162,503 (66,171)
Issuance of common stock (Note 7) - - 5,000
Issuance of common stock for debt (Note 2) - - 595,000
Issuance of common stock for services (Note 7) - - 112,500
Issuance of common stock for casino interest (Note 2) - - 1,700,000
Issuance of common stock for casino furniture and equ - - 140,000
Net loss for the year ended June 30, 1996 - - (224,375)
- -------------------------------------------------------------------------------------------------------------
BALANCE AT JUNE 30, 1996 (60) (1,266,812) 2,319,548
Exercise of stock purchase option (Note 7) - - 20
Issuance of common stock for casino interest (Note 2) - - 700,000
Payments on subscription receivable (Note 7 - 855,582 855,582
Fluctuation in foreign currency - - 2,176
Net loss for the year ended June 30, 1997 - - (1,522,274)
- -------------------------------------------------------------------------------------------------------------
BALANCE AT JUNE 30, 1997 $ (60) $ (411,230) $ 2,355,052
=============================================================================================================
See accompanying notes to consolidated financial statements
</TABLE>
F-5
<PAGE>
<TABLE>
<CAPTION>
IRT INDUSTRIES, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
========================================================================================================
FOR THE YEARS ENDED JUNE 30,
1997 1996
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(1,522,274) $ (224,375)
Adjustments to reconcile net loss to net cash provided
(used) by operating activities:
Amortization 190,179 50,498
Depreciation 33,164 2,641
Common stock issued for services - 112,500
Common stock issued for rent - 14,000
Foreign currency adjustment 2,176 -
Change in long-term portion of prepaid rent 84,000 -
Asset impairment loss 409,000 -
Increase in:
Accounts receivable (485) -
Prepaid expenses (6,190) -
Accounts payable 55,597 4,332
Accrued liabilities 11,321 61,583
- --------------------------------------------------------------------------------------------------------
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES (743,512) 21,179
- --------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Disbursements
Purchase of property and equipment (17,987) (13,667)
- --------------------------------------------------------------------------------------------------------
NET CASH USED BY INVESTING ACTIVITIES (17,987) (13,667)
- --------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Receipts
Proceeds from issuance of common stock 20 14,514
Payments on subscription receivable 855,582 -
Proceeds from notes payable - 1,850
- --------------------------------------------------------------------------------------------------------
RECEIPTS FROM FINANCING ACTIVITIES 855,602 16,364
- --------------------------------------------------------------------------------------------------------
Disbursements
Security deposit (12,580) (248)
Principal payments on long-term debt and notes payable - (5,000)
- --------------------------------------------------------------------------------------------------------
DISBURSEMENTS FROM FINANCING ACTIVITIES (12,580) (5,248)
- --------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 843,022 11,116
- --------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH AND EQUIVALENTS 81,523 18,628
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 18,675 47
- --------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 100,198 $ 18,675
========================================================================================================
SUPPLEMENTAL DISCLOSURES:
Note payable Officer/Director contributed to capital $ - $ 56,737
Common stock issued for prepaid rent $ - $ 210,000
Common stock issued to acquire casino interest $ 552,650 $ 1,490,000
Common stock issued to acquire casino license $ - $ 595,000
Common stock issued to acquire casino equipment $ 147,350 $ 280,000
========================================================================================================
See accompanying notes to consolidated financial statements
</TABLE>
F-6
<PAGE>
IRT INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997, 1996, AND 1995
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS ACTIVITY
IRT Industries, Inc. (IRT) was incorporated in Florida in August
1986, as Triumph Capital, Inc. (Triumph). Triumph was originally
engaged in the stock transfer business. In 1992, Triumph changed its
name to IRT as part of a reorganization in which it exchanged
2,900,000 of its common stock for all of the issued and outstanding
shares of IRT Industries, Inc., a company incorporated in California
on December 13, 1990, pursuing environmental business opportunities.
Triumph then merged into IRT and reincorporated in the State of
Florida. By the end of the fiscal year ended June 30, 1996, IRT had
discontinued most of its prior business activities. In March 1996,
the management of IRT changed as a result of the sale of a majority
of its outstanding shares of common stock. Under its new management,
IRT has actively sought international casino acquisition
opportunities throughout Latin America.
During the fiscal year ended June 30, 1996, the Company acquired a
casino interest and licenses in San Jose, Costa Rica, including a
facility leased by a recently formed wholly-owned subsidiary, Juegos
Ruro, S.A. (Juegos). Additionally, the Company has acquired, by
agreements in September 1996, another operating casino, the Casino
Bahia Ballena, located in a "Five Star" beach hotel on the west
coast of Costa Rica, through its wholly-owned subsidiaries Casino
Bahia Ballena, S.A. (Ballena) and Inmobiliaria la J Tres S.R.L.
(Inmobiliaria).
Consequently, the Company currently owns and operates two casino
businesses in Central America, which together with South America, is
the primary location in which the Company is focusing its continuing
acquisition efforts. The sole source of the Company's revenue is
derived from gaming operations.
In September 1996, the Company filed an application to list the
Company's common stock for trading on the Philadelphia Stock
Exchange, which application was subsequently accepted in early 1997.
The Company has also started the process to change its business name
to "Intercontinental Gaming and Resorts" to more accurately reflect
the current scope of the Company's business activities.
BASIS OF PRESENTATION
The consolidated financial statements include the accounts of IRT
Industries, Inc. and its wholly-owned foreign subsidiaries, Juegos
Ruro, S.A., Casino Bahia Ballena, S.A. and Inmobiliaria la J Tres
S.R.L. All significant intercompany accounts and transactions of IRT
Industries, Inc. and subsidiaries (the Company) have been eliminated
in consolidation.
CASH AND CASH EQUIVALENTS
For purposes of the statements of cash flows, the Company considers
all short-term debt securities purchased with a maturity of three
months or less to be cash equivalents.
CASINO REVENUE
Casino revenue is the net win from gaming activities, which is the
difference between gaming wins and losses, plus 50% of the net win
from slot machines owned and serviced by an independent third party.
CONCENTRATION OF CREDIT RISK
As of June 30, 1997, the Company had outstanding stock subscription
receivable which are secured by the Company's common stock and are
non-interest bearing. The carrying value of these receivables was
reduced to estimated fair market value by imputing interest (See
Note 3).
F-7
<PAGE>
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PROPERTY AND EQUIPMENT
Property and equipment, consisting of furnishings and casino
equipment used in its current and future casino operations, is
stated at cost, less accumulated depreciation, while equipment not
yet placed in service is carried at cost. Depreciation is begun when
the assets are placed in service and computed using the
straight-line method over the estimated useful lives of the assets,
which range from five to ten years.
ORGANIZATION COSTS AND RELATED AMORTIZATION
Organization costs related to prior business operations, such as
patent related costs, consulting fees related to obtaining funding
sources, etc., had been capitalized, and were being amortized using
the straight-line method over a five-year period. Upon the Company
changing its focus from previous activities, all such prior
capitalized costs were charged to expense as of June 30, 1996.
LICENSES AND LEASEHOLD INTERESTS AND AMORTIZATION
The amounts expended in connection with the acquisition of the
Juegos casino gaming license and leasehold interests have been
capitalized and are being amortized over the term of the lease,
including the first lease option extension period, for a total of
150 months. Operating casino and leasehold interests have been
capitalized and are also being amortized over the initial term of
the lease and the first expected extension period, for a total of
150 months.
The amounts expended in connection with the acquisition of the
Ballena casino gaming license and leasehold interests have been
capitalized and are being amortized over the term of the lease,
including subsequent expected option extension periods, for a total
of 130 months. Operating casino and leasehold interests have been
capitalized and are also being amortized over the initial term of
the lease and subsequent expected extension periods, for a total of
130 months.
LONG-LIVED ASSETS
Long-lived assets to be held and used are reviewed for impairment
whenever events or changes in circumstances indicate that the
related carrying amount may not be recoverable. When required,
impairment losses on assets to be held and used are recognized based
on the fair value of the asset. Long-lived assets to be disposed of,
if any, are reported at the lower of carrying amount or fair value
less cost to sell.
DEVELOPMENT STAGE ACTIVITIES
The Company was a development stage enterprise and had no revenues
until the grand opening of its first casino on July 12, 1996. It is
no longer considered a development stage enterprise.
NET LOSS PER SHARE
Net loss per share of common stock is based on the weighted average
number of shares outstanding during the years presented and the
dilutive effect of stock options to purchase 200,000 shares of
common stock at par value for the year ended June 30, 1996. There
were no other common stock equivalents.
INCOME TAXES
Income taxes are provided for the tax effects of transactions
reported in the financial statements and consist of taxes currently
due plus deferred taxes, if any, related primarily to differences
between the bases of certain assets and liabilities for financial
and tax reporting. The deferred taxes, if any, represent the future
tax return consequences of those differences, which will either be
taxable or deductible when the assets and liabilities are recovered
or settled.
F-8
<PAGE>
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions. These estimates and assumptions affect the reported
amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
FOREIGN CURRENCY CONVERSION
The functional currency of the wholly-owned subsidiaries located in
Costa Rica is the colon ((cent)). The income statements at June 30,
1997 and 1996, were converted to U.S. dollars based on the average
monthly exchange rate while the assets and liabilities were
translated using the current exchange rate. Because there was little
fluctuation in the rate of exchange, no gain or loss from currency
fluctuation has been reflected in these financial statements for
1996.
The gain resulting from the translation of foreign currency for the
year ended June 30, 1997, was $2,176. This gain is reflected in
stockholders' equity as "Equity adjustment from foreign currency
translation".
RECLASSIFICATION
Certain prior year amounts have been reclassified to conform to the
current year's presentation.
NOTE 2. ACQUISITIONS
The Company has issued shares of its common stock as payment for the
following acquisitions:
ACQUISITION OF FLOATING GAMING CASINO LICENSE
In a series of transactions from March 14, 1996, to March 21, 1996,
the Company issued 2,400,000 shares of common stock, received $5,000
in cash and a transfer of a floating license to operate a casino in
the country of Costa Rica, valued at $595,000 from a related party
(See Notes 5 and 7), plus $5,000 in cash. A "floating license"
allows the placement of one casino business at almost location where
any legal business can be conducted. This is one of only two such
licenses believed to exist in the country. The floating casino
license has been valued at $595,000. Payment for this license was
made by canceling the seller's promissory note to the Company, which
resulted from issuance of common stock.
ACQUISITION OF CASINOS
JUEGOS - On May 3, 1996, the Company agreed to issue 289,361 shares
of common stock and received, by transfer, a license to operate a
casino in the country of Costa Rica, as well as leasehold rights for
the casino in which to operate, plus related furniture, casino
equipment and improvements. The license and leasehold interest were
valued at $1,350,000, while the furniture, casino equipment and
improvements were valued at $140,000. In addition, $210,000 was
recorded as prepaid rent.
BALLENA - The Company has acquired, by agreements on September 5,
1996, an additional operating casino, the Casino Bahia Ballena,
located in a "Five Star" beach hotel in Costa Rica, for a price of
$700,000, payable in common stock of the Company (a total of 116,666
of common shares, of which 50,000 shares were issued as an
acquisition fee). The Company received a license to operate a casino
in the country of Costa Rica, as well as leasehold rights for the
casino, furniture, casino equipment and improvements. The license
and leasehold interest were valued at $552,650, while the furniture,
casino equipment and improvements were valued at $147,350.
Inmobiliaria is a shell company formed to lease the property and had
no other transactions.
F-9
<PAGE>
NOTE 2. ACQUISITIONS (CONTINUED)
AMORTIZATION OF CASINO LICENSES AND INTERESTS
For the years ended June 30, 1997 and 1996, amortization related to
the acquisition of the floating gaming casino license was $39,667
and $32,498, respectively, while the amortization for the operating
casinos' gaming licenses were $150,512 and $18,000, respectively.
ACQUISITION OF FURNITURE AND CASINO EQUIPMENT
In a separate transaction, on May 9, 1996, the Company issued 23,289
shares of common stock and received furniture and casino equipment
to be used in future operations. The furniture and casino equipment
have been valued at $140,000.
ASSET IMPAIRMENT LOSS
In accordance with Statement of Financial Accounting Standards No.
121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of" the Company recorded an
impairment loss on the long-lived assets of the Juegos casino. The
trend in cosmopolitan San Jose is for professional gamblers to visit
smaller casinos, in the expectation of winning substantial funds
before being excused from gaming. As a result, the first year's
revenues indicated that the undiscounted future revenue from this
business would be less than the carrying value of the long-lived
assets related to that business (principally the equipment and
intangibles of the Casino License and Interest). Accordingly, on
June 30, 1997, the Company recognized an impairment loss of
approximately $409,000. This loss is the difference between the
carrying value of the Juegos Casino License and Interest and the
fair value of this asset based on a multiple of future net revenues
and is reflected in the consolidated statement of loss as "Casino
asset impairment loss".
NOTE 3. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following disclosure of the estimated fair value of financial
instruments is made in accordance with the requirements of Statement
of Financial Accounting Standards No. 107. The fair value amounts
have been determined based on available market information and
appropriate valuation methodology. The carrying amounts and
estimated fair values of the Company's financial assets and
liabilities approximate fair value due to the short maturity of the
instruments. The fair value of the stock subscriptions receivable
are estimated based on an annual interest rate of 18% and the
anticipated dates of payment and have been reduced accordingly. Fair
value estimates are subjective in nature and involve uncertainties
and matters of significant judgment; therefore, fair value cannot be
determined with precision.
NOTE 4. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following:
1997 1996
---------- ---------
Furniture and fixtures $ 20,489 $ 7,742
Computer equipment 6,152 -
Casino equipment 425,013 287,190
Leasehold improvements 7,349 -
Accumulated depreciation (35,552) (3,654)
--------- ---------
$ 423,451 $ 291,278
========== =========
For the years ended June 30, 1997 and 1996, respectively,
depreciation and amortization related to the above assets was
$33,164 and $2,641.
F-10
<PAGE>
NOTE 5. RELATED PARTY TRANSACTIONS
DUE TO PARTIES
During the year ended June 30, 1997 and 1996, various legal fees of
approximately $120,031 and $34,000, respectively, were charged to
the Company by its United States legal counsel, a professional
association whose principal shareholder is also a principal
shareholder, President and Board of Directors Member of the Company.
The outstanding balances as of June 30, 1997 and 1996, were $20,000
and $19,000, respectively, and are included in accounts payable.
Additionally, reflected in "Note payable -officer/director" at June
30, 1996, was $100 owed to the legal counsel for the advance of the
initial deposit required to open a bank account for the Company,
which was subsequently repaid.
Additionally, at June 30, 1995, the Company had an outstanding
short-term note payable to a former Officer/Board of Directors
Member for $49,887. With the consent of that individual, on February
29, 1996, that note, plus an additional advance of $6,850, was
reclassified to additional paid-in capital.
During the year ended June 30, 1996, the Company issued 300,000
shares of common stock to parties related to the Company by virtue
of a 40% ownership interest in exchange for consulting services. The
expense recorded was $112,500 and is included in professional and
consulting fees.
In 1996, the Company purchased a floating casino gaming license for
$595,000 (See Note 2) from a party related to the Company by virtue
of a 44% ownership interest (at that time) in the Company.
Also in 1996, the Company purchased a license to operate a specific
casino in the country of Costa Rica, as well as leasehold rights and
related furniture, casino equipment and improvements in the amount
of $1,700,000 (See Note 2) from a party related to the Company by
virtue of ownership. Additionally, the Company purchased furniture
and casino equipment for $140,000 (See Note 2) from the same related
party.
NOTE 6. ACCRUED LIABILITIES
Accrued liabilities consisted of the following:
<TABLE>
<CAPTION>
1997 1996
---------- ---------
<S> <C> <C>
Audit fees $ 29,000 $ 30,000
Legal settlement and related interest 31,098 31,583
Other 12,906 -
---------- ---------
$ 73,004 $ 61,583
========== =========
</TABLE>
NOTE 7. STOCKHOLDERS' EQUITY
COMMON STOCK
The Company has authorized 100,000,000 shares of common stock with a
par value of $.0001 per share. At June 30, 1997, and June 30, 1996,
10,339,949 shares and 10,023,283 shares, respectively, were issued
and outstanding (See Note 2 and below). The Company has no other
authorized or outstanding securities of any class. Additional
issuances of 289,361 shares were in the process of being issued and
documented and are included as issued and outstanding at June 30,
1996.
During the year ended June 30, 1996, the Company issued 300,000
shares of common stock in exchange for consulting services (See Note
5).
F-11
<PAGE>
NOTE 7. STOCKHOLDERS' EQUITY (CONTINUED)
STOCK SUBSCRIPTIONS RECEIVABLE
On March 13, 1996, the Company issued 2,400,000 of common stock in
exchange for $5,000 cash and a promissory note in the amount of
$595,000. This promissory note was subsequently canceled in payment
of the purchase price of a floating gaming license (See Note 2).
On March 14, 1996, the Company issued 4,000,000 shares of common
stock to two separate individuals under Stock Subscription
Agreements, for an aggregate purchase price of $1,500,000.
Promissory notes, in the amount of $750,000 each, were executed by
each of these individuals. On June 4, 1996, the notes were assigned
to a third party corporation and the repayment terms were fixed to
provide for minimum monthly payments of $75,000, without interest
until the end of April 1997, at which time any with any remaining
balance would be due. The due date of the remaining subscription
receivable was verbally extended, and at June 30, 1997, $411,230,
remained outstanding.
Interest in the amount of $228,674 had been imputed on this
receivable based on an annual percentage rate of 18%, and reflected
in the financial statements as a reduction in the value of the
receivable. Consequently, interest of $169,206 and $66,171 was
considered earned during the years ended June 30, 1997 and 1996,
respectively.
STOCK OPTIONS
On February 29, 1996, the Board of Directors granted an option to a
former officer/stockholder to purchase 200,000 shares of common
stock at an exercise price of $.0001 per share. The options were
exercisable during a period of two years between March 1, 1996, to
March 1, 1998. On July 30, 1996, all options were exercised.
NOTE 8. INCOME TAXES
The Company and its subsidiaries do not file consolidated income tax
returns. The Company files its income tax return using the cash
method of accounting wherein revenue is recognized when received and
expenses are deducted when paid effectively eliminating all prepaid
expenses, accounts payable and accrued expenses from the
determination of taxable income or loss. For the years ended June
30, 1997 and 1996, the Company generated for U.S. income tax
purposes a net operating loss of approximately $1,047,349 and
$109,536, respectively. These loss carryforwards expire in the years
2012 and 2011, respectively.
The Company had a net operating loss carryforward of approximately
$634,000 as of June 30, 1995. However, as of March 1, 1996, and
subsequently, there were ownership changes in the Company as defined
in Section 382 of the Internal Revenue Code. As a result of these
changes, the Company's ability to utilize net operating losses and
capital losses available before the ownership change is restricted
to a total of approximately $43,860 per year (approximately 7.31% of
the market value of the Company at the time of the ownership
change). Therefore, substantial net operating loss carryforwards
will, in all likelihood, be eliminated in future years due to the
change in ownership. The utilization of the remaining carryforwards
is dependent on the Company's ability to generate sufficient taxable
income during the carryforward periods and no further significant
changes in ownership.
The Company computes deferred income taxes under the provisions of
Statement of Financial Accounting Standards No. 109, which requires
the use of an asset and liability method of accounting for income
taxes. Statement No. 109 provides for the recognition and
measurement of deferred income tax benefits based on the likelihood
of their realization in future years. A valuation allowance must be
established to reduce deferred income tax benefits if it is more
likely than not that a portion of the deferred income tax benefits
will not be realized. It is Management's opinion that the entire
deferred tax benefit may not be recognized in future years.
Therefore, a valuation allowance equal to the deferred tax benefit
has been established, resulting in no deferred tax benefits as of
the balance sheet dates.
F-12
<PAGE>
NOTE 9. COMMITMENTS AND CONTINGENCIES
LEASED PREMISES
Pursuant to the acquisition of the leasehold interest, discussed in
Note 2, the Company assumed a lease for the operation of a casino in
a hotel in San Jose, Costa Rica. The lease was executed on May 1,
1996, and has an initial term of thirty (30) months. Rent comprising
approximately 50% for the initial lease term has been prepaid. At
June 30, 1997 and 1996, prepaid rent is $112,000 and $196,000,
respectively. The Company has reflected $84,000 as a current asset
in both years, while $28,000 and $112,000, is classified as the
long-term portion of prepaid rent at June 30, 1997 and 1996.
The lease provides for options to renew for additional ten (10) year
periods. Management expects that the options will be exercised.
Rental payments are $14,000 per month with an eight percent (8%)
escalation clause. The seller of the leasehold interests to the
Company agreed to pay the owner of the hotel $900,000 in eight
quarterly payments of $112,500 commencing on August 1, 1996, which
amounts were included in the original lease as rental payments. The
terms of the lease were such that the quarterly payments were
guaranteed as additional rents if not made to the hotel's owner by
the seller. This provision of the agreement has since been rescinded
by mutual agreement. Futhermore, the hotel owner has waived portions
of the rent during periods of low occupancy. The lessor has agreed
verbally to make future concessions if conditions warrant, but is
not under any written obligation to do so.
The original lease for the Ballena casino expired on June 30, 1997,
and was renewed for an additional five year period, until June 30,
2002. The agreement provides for payments of $9,000 per month
through December 31, 1997 and $12,000 thereafter.
Minimum future lease expense payments of all non-cancelable
operating leases (partially prepaid as discussed above) for the next
five years are as follows:
1998 $ 294,000
1999 200,000
2000 144,000
2001 144,000
2002 and thereafter 144,000
----------
$ 926,000
==========
Rent expense for the years ended June 30, 1997 and 1996, was
$232,133 and $14,000, respectively and is included in Casino
operating expenses.
GOVERNMENTAL REGULATION
The Company's casino facilities are subject to regulation by the
Costa Rican government. Compliance with government regulations has
not had, nor does the Company expect such compliance to have, any
material effect upon capital expenditures, expense or the Company's
competitive position. Management believes that its practices for the
control of its casino operations comply with all Costa Rican
requirements.
LITIGATION
A lawsuit against the Company was settled on March 13, 1995, to
recover license agreement royalties in the amount of $6,000. The
legal action was initiated by Herman J. Schellstede, licenser of
certain patents included in the license agreement. This amount, plus
accrued interest, is included in accrued liabilities at June 30,
1995.
F-13
<PAGE>
NOTE 9. COMMITMENTS AND CONTINGENCIES (CONTINUED)
A lawsuit against the Company was settled on November 16, 1994, in
the amount of $22,173, plus interest, from IRT Industries, Inc.,
formally known as Triumph Capital, Inc. and Steven Telsey, jointly
and severally. The legal action was initiated by Morton I.
Singerman. This amount plus accrued interest is included in accrued
liabilities.
CONSULTING AGREEMENTS
From time-to-time, the Company engages, retains and dismisses
various consultants. The consultants provide various services
including assisting with shareholder relations, responding to
inquiries, short and long-term strategic planning, marketing the
Company to the investment community and identification and
negotiation of potential acquisitions.
FINECOL S.A.:
On October 22, 1996, the Company entered into a consulting agreement
(Agreement) with Finencol, S.A., (Finencol), a Colombian
corporation, which is a foreign broker-dealer engaged in the
business of, among other things, providing financial consulting and
investment banking services. The term was for one (1) year
commencing on November 29, 1996, and would automatically renew for
successive one-year terms. This Agreement was subject to termination
by either party upon at least thirty day's prior written notice.
Finencol was to receive $5,000 per month as a base rate. If Finencol
materially assisted the Company with certain services as outlined in
the Agreement, the Company agreed to pay Finencol additional
compensation above the base rate, in either cash or stock as agreed
by both parties in writing based on the actual services performed
which result in tangible goals being achieved by the Company. The
agreement was rescinded in November 1996.
C. DANIEL CONSULTING, INC.:
On December 1, 1996, the Company entered into a consulting agreement
(Agreement) with C. Daniel Consulting, Inc., (Daniel), a Florida
corporation, which is a company engaged in the business of, among
other things, providing financial consulting, promotion and
investment banking services. The initial term is for one (1) year
commencing on December 1, 1996, and will automatically renew for
successive one-year terms. This Agreement may be terminated by
either party upon at least thirty day's prior written notice. Daniel
will receive $15,000 per month as a base rate. If Daniel materially
assists the Company with certain services as outlined in the
Agreement, the Company agreed to pay Daniel additional compensation
above the base rate, in either cash or stock as agreed by both
parties in the future.
The Company is in the process of entering into written agreements
with other consultants who are currently providing services on a
month-to-month basis with varying consideration.
OFFICE FACILITIES AND STAFFING
The Company is also charged at least $5,000 per month under an
informal office services arrangement. Consequently, the Company is
supplied with various services, products and benefits including an
office suite, conference room, receptionist area, storage
facilities, photocopying, faxing, computers, office supplies and
personnel, including a secretary and receptionist.
NOTE 10. MANAGEMENT'S PLANS
The Company's financial statements for the year ended June 30, 1997,
have been prepared on a going concern basis, which contemplates the
realization of assets and the settlement of liabilities and
commitments in the normal course of business. The Company has
suffered recurring losses, consequently there is an accumulated
deficit at June 30, 1997.
F-14
<PAGE>
NOTE 10. MANAGEMENT'S PLANS (CONTINUED)
The Company also experienced difficulties in paying its creditors
timely, mostly legal and professionals, according to their terms,
and certain bills were past due. These factors raise doubt about the
Company's ability to continue as a going concern without achieving
profitable operations or an infusion of capital or additional
financing. The Company believes that with the collection of the
existing stock subscription receivable and the agreements and
commitments by investors to purchase $800,000 of additional common
stock it can continue for at least another year. Were the
stockholders who received shares in exchange for a stock
subscription receivable to default or those agreeing to and
committing to purchase additional shares rescind their agreements
and commitments, such problems would be compounded. The financial
statements do not include any adjustments that might be necessary
should the Company be unable to continue as a going concern.
Management recognizes that the Company must generate additional
resources in order to continue. Management's plans include
continuing collections on the subscription receivable, purchases and
commitments to purchase subsequent to year end as well as the
proposed acquisition of at least one, and possibly three, additional
revenue producing casinos and the generation of additional proceeds
from a potential private placement offering of shares or debt (see
Note 11). Management is also reviewing the opportunities and costs
of commencing other operations, including Internet casino gaming and
sports wagering.
Furthermore, management anticipates continuing its current operating
activities and generating funds from such activities during the year
ending June 30, 1998, due to its belief that the existing casino
operations have the potential to achieve profitability during the
fiscal year ended June 30, 1998, with improved fiscal controls.
NOTE 11. SUBSEQUENT EVENTS
CASINO ACQUISITION NEGOTIATIONS
In early August 1997, the Company began negotiations to acquire a
third casino operation in the Raddison Hotel, located in San Jose,
Costa Rica.
SALE OF COMMON STOCK
On August 15, 1997, the Company sold 4,000,000 shares of its common
stock for a total of $400,000, 2,000,000 shares to two corporations,
which companies already held a substantial controlling interest in
the Company. Corporacion de Inversiones, R&G, S.A. and Corporacion
de Inversiones, K&Z, S.A., consummated the purchase by signing
promissory notes, collateralized by the shares to be held in escrow.
The notes are each to be paid in monthly installments of at least
$10,000 each, and do not provide for the payment of interest.
Pursuant to agreement, these shares were not subjected to the
subsequent reverse stock split described below
The same entities have committed in writing to the purchase of at
least $400,000 of additional common stock over the six-month period
ending April 1998, on at least the same terms and conditions
described above.
LITIGATION
On September 3, 1997, the Company entered into litigation in
connection with a lawsuit resulting from the Company's stop transfer
on shares based upon alleged fraudulent representations relating to
the original issuance. A judge agreed with the Company to the extent
of issuing a temporary injunction against the shares. The Company
posted a $10,000 bond as security for its position, and subsequently
issued 300,000 shares of its common stock to be held as additional
security for the Defendant. The suit remains pending, however, the
Company expects no adverse monetary result upon adjudication.
F-15
<PAGE>
NOTE 11. SUBSEQUENT EVENTS (CONTINUED)
REVERSE STOCK SPLIT
During the first fiscal quarter of the Company's 1998 fiscal year,
the common stock of the Company experienced a significant decline in
the trading per share price. In addition to the detrimental effect
the lower trading price had to the shareholders, it diminished the
Company's ability to make acquisitions using the Company's common
stock. Further, the Company received a warning from the Philadelphia
Stock Exchange that, were the stock price to remain low, the Company
would be brought before a committee for evaluation, which could
result in material adverse consequences as to the listing of the
stock.
As a result of the above, effective on September 17, 1997, except
for the 4,000,000 shares of common stock sold on August 15, 1997, as
described above, the Company reverse split its common stock at a
ratio of one new share for each ten old shares issued and
outstanding. No recognition of the reverse stock split has been
given in the June 30, 1997, consolidated financial statements.
F-16
