<PAGE> 1
FORM 10-QSB
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
- --------------------------------------------------------------------------------
(Mark one)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1996
--------------------------------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES ACT OF 1934
For the transition period from to
------------------------ ----------------------
Commission file number: 0-15347
--------------------
IRT INDUSTRIES, INC.
---------------------------------------------------------------
(Exact name of registrant as specified in its charter)
FLORIDA 59-2720096
- --------------------------------- ------------------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
Suite 128, 2400 E. Las Olas Blvd., Ft. Lauderdale, FL 33301
-----------------------------------------------------------------------------
(Address of principal executive offices)
(Zip Code)
(954) 525-8815
-----------------------------------------------------------------------------
(Registrant's telephone number, including area code)
Not Applicable
-----------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such report(s), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
----- -----
As at March 12, 1997, the registrant had outstanding 10,303,313 shares of
Common Stock, which includes 16,667 Treasury Shares in the Company, par value
$0.0001.
1
<PAGE> 2
PART I -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Please see enclosed financial statements.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
The Company's plan of operation for the twelve month period June 30, 1996,
to June 30, 1997, is to continue Management's efforts to market the existing
casino operations in order to generate revenues for the Company, and raise
capital from the sale of capital stock, and continue efforts with respect to
the acquisition and/or establishment of 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 1996,
but anticipates a need to raise additional funds in 1997 for acquisitions and
operational needs;
b. in summary, Management is researching and developing both marketing
strategies and acquisition strategies with respect to overseas business
development in Latin American countries through review of available data
concerning demographic, legal and other information as to these types of
countries, due diligence travel to these countries, and pursuit of the
establishment of legal business relationships with foreign businesses and
professionals in Latin America;
c. Management is pursuing, for 1996, the purchase of large quantities of
casino chips and related gaming equipment to lower the costs of such items
through volume purchases, with anticipated larger quantity purchases of such
items to occur in early 1997; and
d. Management is focusing on, also, the hiring and training of additional
employees for anticipated, with no assurance, acquisitions or for newly
established casino operations, with projected increases of total employees up
to a figure 100, by the end of 1996, and at least 200 by June 30, 1997.
PART II -- OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
Not Applicable
ITEM 2. CHANGES IN SECURITIES.
Not Applicable
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
Not Applicable
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not Applicable.
2
<PAGE> 3
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a). EXHIBIT TABLE
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
ITEM NO. ITEM LOCATION
- --------------------------------------------------------------------------------
<S> <C> <C>
3(i) Articles of Incorporation *
- --------------------------------------------------------------------------------
3(ii) By-laws *
- --------------------------------------------------------------------------------
</TABLE>
*Previously filed with U.S. Securities and Exchange commission, File Number
0-15347
3
<PAGE> 4
IRT INDUSTRIES, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
<TABLE>
<CAPTION>
December June
31, 1996 30, 1996
(Unaudited) (Audited)
--------------- -------------
ASSETS
<S> <C> <C>
CURRENT ASSETS
Cash in Bank $ 62,586 $ 18,675
Prepaid Rent (Current Portion) 84,000 84,000
Other Current Assets 6,735 -
--------------- -------------
153,321 102,675
PROPERTY & EQUIPMENT
Net of accumulated depreciation of $16,030 and $3,654 423,578 291,278
OTHER ASSETS
Casino Interests, net of accumulated amortization of $114,267 and $31,222 2,383,383 1,913,778
Prepaid Rent - Long-term Portion 70,000 112,000
Security Deposits 12,898 248
--------------- -------------
2,466,281 2,026,026
--------------- -------------
TOTAL ASSETS $ 3,043,180 $ 2,419,979
=============== =============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts Payable $ 125,808 $ 35,430
Accrued and Other Current Liabilities 64,195 65,001
--------------- -------------
TOTAL CURRENT LIABILITIES 190,003 100,431
SHAREHOLDERS' EQUITY
Common Stock 1,034 1,002
Capital in Excess of Par 7,740,569 7,040,581
Accumulated Deficit (3,901,426) (3,455,163)
Treasury Stock, at Par Value (60) (60)
Stock Subscription Receivable (986,940) (1,266,812)
--------------- -------------
TOTAL STOCKHOLDERS' EQUITY 2,853,177 2,319,548
--------------- -------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 3,043,180 $ 2,419,979
=============== =============
</TABLE>
(The accompanying notes are an integral part of this financial statement.)
<PAGE> 5
IRT INDUSTRIES, INC. AND SUBSIDIARIES
Consolidated Statements of Loss
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
December December December December
30, 1996 30, 1995 30, 1996 30, 1995
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
INCOME
Income from Gaming Operations $ 546,331 $ - $ 904,705 $ -
Less Payment of Winnings (472,377) - (776,807) -
----------- ----------- ----------- -----------
Gross Income 73,954 - 127,898 -
OPERATING EXPENSES
Administrative Fees 15,000 - 30,000 -
Advertising & Promotion 26,891 - 39,726 -
Bank & Credit Card Charges 2,769 36 4,054 103
Computer Services - - 1,234 -
Depreciation & Amortization 54,994 - 95,681 -
Employee Benefits & Taxes 14,282 - 19,977 -
Licenses & Taxes 20,770 - 22,236 250
Miscellaneous 3,760 - 4,112 -
Office Expense 2,076 - 4,952 -
Operating Expenses 38,026 - 75,217 -
Professional Services 137,493 - 167,479 1,400
Rent 71,220 - 117,318 -
Security 1,014 - 3,308 -
Table Taxes (9,506) - - -
Telephone 1,409 - 2,865 -
Transfer Agent & Service Bureau Fees 4,156 - 4,156 -
Travel & Entertainment 17,291 - 29,694 -
Wages & Bonus 32,420 - 56,566 -
----------- ----------- ----------- -----------
Total Expenses 434,065 36 678,575 1,753
OTHER INCOME
Interest 28,940 - 104,414 -
----------- ----------- ----------- -----------
28,940 - 104,414 -
----------- ----------- ----------- -----------
Net Loss $ (331,171) $ (36) $ (446,263) $ (1,753)
=========== =========== =========== ===========
</TABLE>
(The accompanying notes are an integral part of this financial statment.)
<PAGE> 6
IRT INDUSTRIES, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Six Months
Ended
December
31, 1996
(Unaudited)
-----------
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Loss (446,263)
Adjustments to reconcile net loss from development stage
activities to net cash provided (used) by operating activities:
Amortization 83,045
Depreciation 12,637
Increase in:
Accounts Payable 90,378
Other Current Assets (6,735)
Decrease in:
Prepaid Rent 42,000
Accrued and Other Current Liabilities (806)
-----------
Net Cash used by operating activities (225,744)
CASH FLOWS FROM INVESTING ACTIVITIES
Receipts:
Disposition of property and equipment 2,413
-----------
Net cash provided used by investing activities 2,413
CASH FLOWS FROM FINANCING ACTIVITIES
Receipts:
Proceeds from issuance of common stock 279,892
-----------
Receipts from financing activities 279,892
Disbursements:
Security Deposits (12,650)
-----------
Disbursements from financing activities (12,650)
-----------
Net cash provided by financing activities 267,242
-----------
NET INCREASE IN CASH AND EQUIVALENTS 43,911
CASH AND EQUIVALENTS - BEGINNING 18,675
-----------
CASH AND EQUIVALENTS - ENDING 62,586
===========
SUPPLEMENTAL DISCLOSURES:
Common stock issued to acquire casino interest 552,650
Common stock issued to acquire casino equipment 147,350
</TABLE>
(The accompanying notes are an integral part of this financial statement.)
<PAGE> 7
IRT INDUSTRIES, INC.
Consolidated Statements of Stockholders' Equity
<TABLE>
<CAPTION>
Common Additional
Number Stock Paid-in Accumulated
of Shares Amount Capital Deficit
----------- -------- ------------ -------------
<S> <C> <C> <C> <C>
Balance - June 30, 1995 - Audited 3,010,193 $ 301 $ 3,160,719 $ (3,230,788)
Adjustment for issuance of prior year shares 440 - - -
Capitalization of note payable Officer/Director - - 56,737 -
Issuance of common stock for subscription receivable 4,000,000 400 1,499,600 -
Imputed interest on common stock subscription receivable - - (228,674) -
Issuance of common stock 20,000 2 4,998 -
Issuance of common stock for debt 2,380,000 238 594,762 -
Issuance of common stock for services 300,000 30 112,470 -
Issuance of common stock for casino 289,361 29 1,699,971 -
Issuance of common stock for casino furniture and equipment 23,289 2 139,998 -
Net Loss for 1996 - - - (224,375)
----------- --------- ------------- -------------
Balance - June 30, 1996 - Audited 10,023,283 1,002 7,040,581 (3,455,163)
Issuance of common stock pursuant to exercise of stock options 200,000 20 - -
Issuance of common stock for casino 116,666 12 699,988 -
Net Loss for the three months ended September 30, 1996 - Unaudited - - - (446,263)
Payments received on stock for subscription receivable - - - -
Imputed interest on common stock subscription receivable - - - -
----------- --------- ------------- -------------
Balance - December 31, 1996 - Unaudited 10,339,949 $ 1,034 $ 7,740,569 $ (3,901,426)
=========== ========= ============= =============
</TABLE>
(The accompanying notes are an integral part of this financial statement.)
<TABLE>
<CAPTION>
Total
Stockholders'
Stock Equity
Treasury Subscription (Deficiency
Stock Receivable in Assets
----------- -------------- ---------------
<S> <C> <C> <C>
Balance - June 30, 1995 - Audited $ (60) $ - $ (69,828)
Adjustment for issuance of prior year shares - - -
Capitalization of note payable Officer/Director - - 56,737
Issuance of common stock for subscription receivable - (1,429,315) 70,685
Imputed interest on common stock subscription receivable - 162,503 (66,171)
Issuance of common stock - - 5,000
Issuance of common stock for debt - - 595,000
Issuance of common stock for services - - 112,500
Issuance of common stock for casino - - 1,700,000
Issuance of common stock for casino furniture and equipment - - 140,000
Net Loss for 1996 - (224,375)
----------- -------------- ---------------
Balance - June 30, 1996 - Audited (60) (1,266,812) 2,319,548
----------- -------------- ---------------
Issuance of common stock pursuant to exercise of stock options - - 20
Issuance of common stock for casino - - 700,000
Net Loss for the three months ended September 30, 1996 - Unaudited - (446,263)
Payments received on stock for subscription receivable - 387,286 387,286
Imputed interest on common stock subscription receivable - (104,414) (104,414)
----------- -------------- ---------------
Balance - December 31, 1996 - Unaudited $ (60) $ (983,940) $ 2,856,177
=========== ============== ===============
</TABLE>
<PAGE> 8
IRT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996 (UNAUDITED)
AND JUNE 30, 1996 (AUDITED)
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS ACTIVITY
IRT Industries, Inc. (IRT) was incorporated in Florida in August 1986 under the
name 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. On March 1, 1996, the
management of the Company changed following the sale of a substantial amount of
outstanding shares of common stock. Under its new management, the Company 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 Costa Rica including a leased facility
purchased by a recently formed wholly owned subsidiary, Juegos Ruro, S.A.
(Juegos). In September 30, 1996, the Company acquired another casino interest
and license in Costa Rica that is being operated by its wholly owned
subsidiary, Casino Bahia Ballena, S.A. (Ballena). The Company is currently in
the process of seeking other casino interests. The Company currently owns and
operates two casino businesses in Central America, which together with South
America, is the primary location in which it is focusing its acquisition
efforts.
CASH AND EQUIVALENTS
For purposes of the statement of cash flows, the Company considers all
short-term debt securities purchased with a maturity of three months or less to
be cash equivalents.
CONCENTRATION OF CREDIT RISK
As of December 31, 1996, and June 30, 1996, the Company had outstanding stock
subscriptions receivable, from two separate individuals, that were assigned to
a corporation with the Company's consent. The carrying value of these
receivables was reduced to estimated fair market value by imputing interest.
<PAGE> 9
IRT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996 (UNAUDITED)
AND JUNE 30, 1996 (AUDITED)
BASIS OF CONSOLIDATION
The consolidated financial statements include the accounts of IRT, and its
wholly owned foreign subsidiaries, Juegos Ruro, S.A. and Casino Bahia Ballena,
S.A. All significant intercompany accounts and transactions of IRT and its
subsidiaries (the Company) have been eliminated in consolidation.
PROPERTY AND EQUIPMENT
Property and equipment, consisting of furnishings and casino equipment to be
used in its current and future casino operations, is stated at cost, less
accumulated depreciation. Depreciation is computed using the straight-line
method over the estimated useful lives of the assets, which range from five to
ten years.
ORGANIZATION COSTS AND 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 amount recorded in connection with the acquisition of a casino gaming
license has been capitalized and is being amortized over 180 months, while the
operating casinos and leasehold interests have been capitalized and are being
amortized over the initial term of the lease and the first expected extension
period, for a total of 150 months.
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.
<PAGE> 10
IRT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996 (UNAUDITED)
AND JUNE 30, 1996 (AUDITED)
NET LOSS PER SHARE
Net loss per share of common stock is based on the weighted 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. 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. Deferred taxes, if any, represent
the future tax return consequences of those differences, which will either be
taxable when the assets and liabilities are recovered or settled.
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 acquisitions,
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of expenses
during the reporting period. Actual results could differ from those estimates.
FOREIGN CURRENCY CONVERSION
The operating currency of the wholly owned subsidiary located in Costa Rica is
the colone. The financial statements at December 31, 1996, and June 30, 1996,
were converted to U.S. dollars based on the average monthly 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.
<PAGE> 11
IRT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996 (UNAUDITED)
AND JUNE 30, 1996 (AUDITED)
NOTE B - ACQUISITIONS
In addition to the issuance of the 4,000,000 shares as described in Note F, 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. A "floating license" allows the
placement of one casino business at almost any location where business can be
legally conducted. This is one of only two such licenses believed to exist in
the country. 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 CASINO
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 and 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.
On September 5, 1996, the Company agreed to issue 116,666 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 and related furniture,
casino equipment and improvements. The license and leasehold interest were
valued at $560,000, while the furniture, casino equipment and improvements
were valued at $140,000.
AMORTIZATION OF CASINO LICENSES AND INTERESTS
For the six months ended December 31, 1996, and the year ended June 30, 1996,
amortization related to the acquisition of the floating gaming casino license
and the casino was $83,045 and $31, 222, respectively.
<PAGE> 12
IRT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996 (UNAUDITED)
AND JUNE 30, 1996 (AUDITED)
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.
NOTE C - 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 as of December 31, 1996, and June 30, 1996, for cash
and accounts payable approximate fair value. 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 discounted accordingly for
the recorded carrying amount. Fair value estimates are subjective in nature
and involve uncertainties and matters of significant judgment; therefore, fair
value cannot be determined with precision.
NOTE D - PROPERTY AND EQUIPMENT
Property and equipment consisted of the following:
<TABLE>
<CAPTION>
DECEMBER JUNE
31, 1996 30, 1996
(UNAUDITED) (AUDITED)
----------- ---------
<S> <C> <C>
Furniture and fixtures $ 5,068 $ 7,742
Leasehold Improvements 7,350 -
Casino equipment 427,190 287,190
Accumulated depreciation (16,030) (3,654)
----------- ---------
$ 423,578 $ 291,278
=========== =========
</TABLE>
For the six months ended December 31, 1996, and for the year ended June 30,
1996, respectively, depreciation related to the above assets was $12,637 and
$2,641.
<PAGE> 13
IRT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996 (UNAUDITED)
AND JUNE 30, 1996 (AUDITED)
NOTE E - RELATED PARTY TRANSACTIONS
DUE TO RELATED PARTIES
During the six months ended December 31, 1996 and the year ended June 30, 1996,
various legal fees and costs of approximately $40,000 and $34,000,
respectively, were charged to the Company by a law firm whose principal is also
a shareholder and member of management of the Company. The outstanding balance
as of December 31, 1996, and June 30, 1996, respectively, was approximately
$55,000 and $20,000, and is included in accounts payable. Additionally,
reflected in Accrued and Other Current Liabilities at June 30, 1996, is $100
owed to the legal counsel for the advance of the initial deposit required to
open a bank account for the Company.
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.
During the year ended June 30, 1996, the Company purchased a casino gaming
license in the amount of $595,000 from a party related to the Company by virtue
of a 44% ownership interest in the Company.
During the year ended June 30, 1996, the Company purchased a license to operate
a 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 from a
party related to the Company by virtue of ownership. Additionally, the Company
purchased furniture and casino equipment in the amount of $140,000 from the
same related party.
<PAGE> 14
IRT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996 (UNAUDITED)
AND JUNE 30, 1996 (AUDITED)
NOTE F - STOCKHOLDER'S EQUITY
COMMON STOCK
The Company has authorized 100,000,000 shares of common stock with a par value
of $.0001 per share. At December 31, 1996, and June 30, 1996, 10,303,313
shares and 9,710,663 shares, respectively, were issued and outstanding. The
Company has no other authorized or outstanding securities of any class.
Additional issuances of 289,361 and 23,289 shares are in the process of being
issued and documented and are included as issued and outstanding at June 30,
1996. The Company issued 300,000 shares of common stock in exchange for
consulting services.
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.
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,
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 remaining balance would be due. Management
believes that the full amount of these notes will be collected.
Interest in the amount of $228,674 has been imputed on this receivable based on
an annual percentage rate of 18%, and has been reflected in the financial
statements as a reduction in the value of the receivable. As a result,
interest of $104,414 and $66,171 was considered earned during the six months
ended December 31, 1996 and the year ended June 30, 1996, respectively.
<PAGE> 15
IRT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996 (UNAUDITED)
AND JUNE 30, 1996 (AUDITED)
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 may be exercised for a period of two
years between March 1, 1996, to March 1, 1998. On July 30, 1996, all options
were exercised.
NOTE G - INCOME TAXES
The Company and its subsidiary do not file consolidated income tax returns.
For the year ended June 30, 1996, the Company generated for U.S. income tax
purposes a net operating loss carryforward, of approximately $173,447, that
expires in the year 2011. The Company had a net operating loss carryforward of
approximately $575,000 as of June 30, l995. However, as of March l, l996, and
subsequent, 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% of the market value of the Company at the time of the
ownership change). Therefore, substantial net operating loss carryforwards
will 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.
<PAGE> 16
IRT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996 (UNAUDITED)
AND JUNE 30, 1996 (AUDITED)
NOTE H - COMMITMENTS AND CONTINGENCIES
LEASED PREMISES
Pursuant to the acquisition of the leasehold interest, the Company assumed a
lease for the operation of a casino in a hotel in Costa Rica. The lease was
executed on May 1, 1996, and has an initial term of thirty (30) months. Rent
for the initial lease term has been fully paid. At June 30, 1996, prepaid rent
is $196,000. The Company has reflected $84,000 as a current asset, while
$112,000 is classified as the long-term portion of prepaid rent.
The lease provides for options to renew for additional ten (10) year periods.
Management expects that the options will be exercised. Rental payments are
$7,000 per month with an eight percent (8%) escalation clause. The seller of
the leasehold interests tot he 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 s
additional rents if not made to the hotel's owner by the seller. This
provision has since been rescinded by mutual agreement.
Minimum future lease expenses of all non-cancelable operating leases (currently
prepaid) for the next five years are as follows:
<TABLE>
<CAPTION>
DECEMBER JUNE
31, 1996 30, 1996
(UNAUDITED) (AUDITED)
----------- ---------
<S> <C> <C>
Year 1 $ 84,000 $ 84,000
Year 2 70,000 84,000
Year 3 - 28,000
Year 4 - -
Year 5 and thereafter - -
----------- ---------
$ 154,000 $ 196,000
=========== =========
</TABLE>
Rent expense for the six months ended December 31, 1996, and the year ended
June 30, 1996, was $117,318 and $14,000, respectively.
<PAGE> 17
IRT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996 (UNAUDITED)
AND JUNE 30, 1996 (AUDITED)
GOVERNMENTAL REGULATIONS
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, expenses 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 December 31, 1996 and June 30, 1996.
A lawsuit against the Company was settled on November 16, 1994, in the amount
of $22,173, plus interest, from IRT, 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.
NOTE I - MANAGEMENT'S PLANS
The Company's financial statements for the six months ended December 31, 1996
and the year ended June 30, 1996 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 from development stage activities, as a result of which there
is an accumulated deficit as of December 31, 1996. All of these factors raised
substantial doubt in prior years about the Company's ability to continue as a
going concern without achieving profitable operations, an infusion of capital
or additional financing. If the stockholders who received shares for a
receivable were to default, such a condition would again exist. The financial
statements do not include any adjustments that might be necessary should the
Company be unable to continue as a going concern.
<PAGE> 18
IRT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996 (UNAUDITED)
AND JUNE 30, 1996 (AUDITED)
Management recognizes that the Company must generate additional resources in
order to continue. Management's plans include continuing collections on the
subscriptions receivable as well as the proposed acquisition of additional
revenue producing casinos and the generation of additional net proceeds from a
potential private placement offering of shares or debt. Furthermore,
management anticipates continuing recently implemented operating activities and
generating funds from such activities during the year ending June 30, 1997, and
believes that casino operations will achieve profitability soon.
NOTE J - SUBSEQUENT EVENTS
Including payments received prior to December 31, 1996, the Company has
received approximately $415,494 as of March 14, 1997, from the Stock
Subscription Receivable described above.
As of September 10, 1996, the Company has filed an application to list the
Company's common stock for trading on the Philadelphia Stock Exchange. The
Company started trading on he exchange on February 28, 1997. The Company has
also started the process to change its business name to "Intercontinental
Gaming and Resorts" to more accurately reflect the new scope of the Company's
business activities.
<PAGE> 19
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
IRT INDUSTRIES, INC.
----------------------------------------
(Registrant)
Date 3/21/97 BY: /s/ Richard R. Rossi
---------------------- ------------------------------------------
Richard R. Rossi, President and Treasurer
(Principal Executive Officer and Principal Financial Officer)
4
