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 September 30, 1997
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 of (IRS Employer Identification
incorporation or organization) 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 checkmark 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 September 30, 1997, the registrant had outstanding
1,433,995 shares of Common Stock, par value $0.0001.
Part I- FINANCIAL INFORMATION
Item 1. Financial Statements
Please see enclosed financial statements.
PART II- OTHER INFORMATION
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
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 quarters ended September 30, 1996
and 1997. This primarily resulted from the establishment of two
fully operating businesses.
Cost of Sales, Operating Expenses, and Other Expenditures
Though significant increases occurred in revenues, 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 Amstel as
compared to the second operation, the Casino Bahia Ballena.
This is due to the fact that the Casino Amstel 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 learning
process of operating the first business.
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 initially 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.
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 generatingbusinesses
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, and at least three 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.
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)
By: /s/ Richard R. Rossi
Richard R. Rossi, President and Treasurer
(Principal Executive Officer and Principal Financial Officer)
Date:11/24/97
Item 1. FINANCIAL STATEMENTS
IRT INDUSTRIES, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
September June
30, 1997 30, 1997
(Unaudited) (Audited)
ASSETS
CURRENT ASSETS:
Cash in Bank $ 73,431 $ 100,198
Prepaid Rent (Current Portion) 84,000 84,000
Other Current Assets 8,526 6,675
TOTAL CURRENT ASSETS 165,957 190,873
PROPERTY & EQUIPMENT,
Net of accumulated depreciation
of $45,128 and $35,552 413,876 423,451
OTHER ASSETS:
Casino License, net of accumulated
amortization of $62,806 and $52,889 532,194 542,111
Casino Interests, less asset impairment
loss of $409,000 and net of accumulated
amortization of $196,542 and $168,511 1,297,108 1,325,138
Prepaid Rent - Long-term Portion 7,000 28,000
Security Deposits 12,828 12,828
TOTAL OTHER ASSETS 1,849,130 1,908,077
TOTAL ASSETS $2,428,963 $2,522,401
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts Payable $ 81,064 $ 91,027
Accrued and Other Current Liabilities 82,310 76,322
TOTAL CURRENT LIABILITIES 163,374 167,349
SHAREHOLDERS' EQUITY
Common Stock 143 1,034
Capital in Excess of Par 8,084,833 7,740,569
Accumulated Deficit (5,379,915) (4,977,437)
Equity adjustment from foreign
currency translation 10,928 2,176
Treasury Stock, at Par Value (60) (60)
Stock Subscription Receivable (450,340) (411,230)
TOTAL STOCKHOLDERS' EQUITY 2,265,589 2,355,052
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $2,428,963 $2,522,401
(The accompanying notes are an integral part of this financial statement.)
-1-
IRT INDUSTRIES, INC. AND SUBSIDIARIES
Consolidated Statements of Loss
For the Three Months Ended: September September
30, 1997 30, 1996
(Unaudited) (Unaudited)
CASINO REVENUE - SEE NOTE A $ 56,329 $ 53,944
OPERATING EXPENSES:
Advertising & Promotion 21,386 12,835
Bank & Credit Card Charges 2,169 1,285
Consultants 183,300 -
Depreciation & Amortization 47,524 40,687
Employee Benefits & Taxes 7,201 5,695
Legal Settlements 20,000 -
Licenses & Taxes 870 1,466
Miscellaneous 1,440 352
Office Expense 995 2,876
Operating Expenses 5,242 37,191
Professional Services 52,745 44,986
Rent 71,808 46,098
Security 400 2,294
Table Taxes 6,298 9,506
Telephone 1,554 1,456
Transfer Agent & Service Bureau Fees 1,940 1,234
Travel & Entertainment 10,267 12,403
Wages & Bonus 41,384 24,146
Total Expenses 476,523 244,510
OTHER INCOME:
Interest 17,716 75,474
Total Other Income 17,716 75,474
Net Loss $(402,478) $(115,092)
(The accompanying notes are an integral part of this
financial statement.)
-2-
IRT INDUSTRIES, INC.
Consolidated Statements of Stockholders' Equity
<TABLE>
Foreign Total
Curren- Stockholders'
Common Additional cy Tran Treas- Stock Equity
Number Stock Paid-in Accumulated -slat- sury Subscription (Deficiency)
of Shares Amount Capital Deficit tion Stock Receivable in Assets
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance - June 30, 1996
- - Audited 10,023,283 $1,002 $7,040,581 $(3,455,163) - $(60) $(1,266,812) $2,319,548
Issuance of common stock
pursuant to exercise of
stock options 200,000 20 - - - - - 20
Issuance of common stock
for casino 116,666 12 699,988 - - - - 700,000
Net Loss for the year
ended June 30, 1997
- - Unaudited - - - (1,522,274) - - - (1,522,274)
Payments received on
stock for subscription
receivable - - - - - - 855,582 855,582
Fluctuation in foreign
currency - - - - 2,176 - - 2,176
Balance - June 30, 1997
- - Audited 10,339,949 1,034 7,740,569 (4,977,437) 2,176 (60) (411,230) 2,355,052
Issuance of common
stock for subscription
receivable 4,000,000 400 399,600 - - - (400,000) -
Imputed interest on
common stock receivable - - (56,627) - - - 56,627 -
Reverse stock split
1 for 10 (12,905,954) (1,291) 1,291 - - - - -
Payments received on
stock for subscription
receivable - - - - - - 304,263 304,263
Fluctuation in foreign
currency - - - - 8,752 - - 8,752
Net Loss for the three
months ended
September 30, 1997 -
Unaudited - - - (402,478) - - - (402,478)
Balance -
September 30, 1997
- - Unaudited 1,433,995 $ 143 $8,084,833 $(5,379,915) $10,928 $(60) $(450,340) $2,265,589
</TABLE>
(The accompanying notes are an integral part of this financial statement.)
-3-
IRT INDUSTRIES, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Three Months
Ended
September
30, 1997
(Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES
Net Loss $ (402,478)
Adjustments to reconcile net loss from development stage
activities to net cash provided (used) by operating
activities:
Amortization 37,948
Depreciation 9,576
Currency fluctuation 8,752
Increase in:
Other Current Assets (1,851)
Accrued and Other Current Liabilities 5,988
Decrease in:
Accounts Payable (9,965)
Prepaid Rent 21,000
Net Cash used by operating activities (331,030)
CASH FLOWS FROM FINANCING ACTIVITIES
Receipts:
Payments on stock subscription receivable 304,263
Net cash provided by financing activities 304,263
NET DECREASE IN CASH AND EQUIVALENTS (26,767)
CASH AND EQUIVALENTS - BEGINNING 100,198
CASH AND EQUIVALENTS - ENDING $ 73,431
SUPPLEMENTAL DISCLOSURES:
Common stock issued for stock subscription receivable $ 400,000
(The accompanying notes are an integral part of this financial
statement.)
-4-
IRT INDUSTRIES, INC. AND SUBSIDIARIES
Notes to consolidated Financial Statements
September 30, 1997 and 1996 (Unaudited)
and June 30, 1997 (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. In March 1996, the management of the
Company changed as a result of a majority of its outstanding
sharesof 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). Additionally, the Company acquired,
by agreements in September 1996, another operating casino, the
CasinoBahia 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 it 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.
IRT INDUSTRIES, INC. AND SUBSIDIARIES
Notes to consolidated Financial Statements
September 30, 1997 and 1996 (Unaudited)
and June 30, 1997 (Audited)
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 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.
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. The following table represents the gross winnings and
pay-outs for the three months ended:
September September
30, 1997 30, 1996
(Unaudited) (Unaudited)
Gross winnings, including slot
machine revenues $ 391,622 $ 358,374
Less pay-outs ( 335,293) ( 304,430)
Casino Revenue $ 56,329 $ 53,944
Concentration of Credit Risk
As of September 30, 1997 and June 30, 1997, the Company had
outstanding stock subscriptions 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.
IRT INDUSTRIES, INC. AND SUBSIDIARIES
Notes to consolidated Financial Statements
September 30, 1997 and 1996 (Unaudited)
and June 30, 1997 (Audited)
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.
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 expected 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 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 the subsequent expected 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 and the first expected extension period, 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
of 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.
Itis no longer considered a development stage enterprise.
IRT INDUSTRIES, INC. AND SUBSIDIARIES
Notes to consolidated Financial Statements
September 30, 1997 and 1996 (Unaudited)
and June 30, 1997 (Audited)
Net Loss Per Share
Net loss per share of common stock is based on the weighted
number of shares outstanding during the periods presented. There were
no 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 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 revenues and
expenses during the reporting period. Actual results could
differ from those estimates.
Foreign Currency Conversion
The operating currency of the wholly-owned subsidiaries located
in Costa Rica is the colone. The financial statements at September
30, 1997, and June 30, 1997, were converted to U.S. dollars based
on the average monthly exchange rate.
The gain resulting from the translation of foreign currency for
the three months ended September 30, 1997 and for the year ended June
30, 1997, was $8,752 and $2,176, respectively. This gain is
reflected in stockholders' equity as "Equity adjustment from
foreign currency translation".
IRT INDUSTRIES, INC. AND SUBSIDIARIES
Notes to consolidated Financial Statements
September 30, 1997 and 1996 (Unaudited)
and June 30, 1997 (Audited)
Reclassification
Certain prior year amounts have been reclassified to conform to
the current year's presentation.
NOTE B - 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. A "floating license" allows the placement of one
casino business at almost any 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 Casino
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 - On September 5, 1996, the Company acquired, by
agreements, 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.
IRT INDUSTRIES, INC. AND SUBSIDIARIES
Notes to consolidated Financial Statements
September 30, 1997 and 1996 (Unaudited)
and June 30, 1997 (Audited)
Amortization of Casino Licenses and Interests
For the three months ended September 30, 1997 and 1996,
amortization related to the acquisition of the floating gaming
casino license was $9,917 for both periods, while the
amortization for the operating casinos' gaming licenses were $28,031 and
$27,000, 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".
IRT INDUSTRIES, INC. AND SUBSIDIARIES
Notes to consolidated Financial Statements
September 30, 1997 and 1996 (Unaudited)
and June 30, 1997 (Audited)
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 approximate fair value due to short maturities 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 D - PROPERTY AND EQUIPMENT
Property and equipment consisted of the following:
September June
30, 1997 30, 1997
(Unaudited) (Audited)
Furniture and fixtures $ 20,489 $ 20,489
Computer equipment 6,152 6,152
Casino equipment 425,013 425,013
Leasehold Improvements 7,349 7,349
Accumulated depreciation ( 45,127) ( 35,552)
$ 413,876 $ 423,451
For the three months ended September 30, 1997, and 1996,
respectively, depreciation related to the above assets was $9,575
and $3,770.
IRT INDUSTRIES, INC. AND SUBSIDIARIES
Notes to consolidated Financial Statements
September 30, 1997 and 1996 (Unaudited)
and June 30, 1997 (Audited)
NOTE E - RELATED PARTY TRANSACTIONS
Due to Related Parties
During the three months ended September 30, 1997 and 1996,
various legal fees of approximately $22,035 and $20,000, respectively,
were charged to the Company by its United States legal counsel, a
professional association whose principal is also a principal
shareholder, President, and Board of Directors member the
Company.The outstanding balances as of September 30, 1997, and June 30,
1997, were approximately $20,000, respectively, and are included
in accounts payable.
NOTE F - ACCRUED LIABILITIES
Accrued liabilities consisted of the following:
September June
30, 1997 30, 1997
(Unaudited) (Audited)
Audit fees $ 29,000 $ 29,000
Legal settlement and related interest 31,098 31,098
Other 22,212 16,224
$ 82,310 $ 76,322
NOTE G - 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 September 30, 1997, and June
30, 1997, 1,433,995 shares and 10,339,949 shares, respectively,
were issued and outstanding. The Company has no other authorized
or outstanding securities of any class. The decrease in the
number of outstanding shares resulted from the transactions described
below.
IRT INDUSTRIES, INC. AND SUBSIDIARIES
Notes to consolidated Financial Statements
September 30, 1997 and 1996 (Unaudited)
and June 30, 1997 (Audited)
Stock Subscriptions Receivable
On March 14, 1996, the Company issued 4,000,000 shares of common
stock under Stock Subscription Agreements, for an aggregate
purchase price of $1,500,000. 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. The due date of the remaining subscription
receivable was extended.
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. Consequently, interest of $17,716 and $75,474
was considered earned during the three months ended September 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.
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.
The same entities have committed in writing to 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.
IRT INDUSTRIES, INC. AND SUBSIDIARIES
Notes to consolidated Financial Statements
September 30, 1997 and 1996 (Unaudited)
and June 30, 1997 (Audited)
Reverse Stock Split
During the first 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, 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.
NOTE H - INCOME TAXES
The Company and its subsidiary 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 net operating losses, 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, 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 7.31% 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.
IRT INDUSTRIES, INC. AND SUBSIDIARIES
Notes to consolidated Financial Statements
September 30, 1997 and 1996 (Unaudited)
and June 30, 1997 (Audited)
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.
NOTE I - 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 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 initial lease term has been prepaid. At
September 30, 1997 and June 30, 1997, prepaid rent is $91,000 and
$112,000, respectively. The Company has reflected $84,000 as a
current asset for both periods, while $7,000 and $28,000 is
classified as the long-term portion of prepaid rent at September
30, 1997 and June 30, 1997, respectively.
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 has since
been rescinded by mutual agreement. Furthermore, 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.
IRT INDUSTRIES, INC. AND SUBSIDIARIES
Notes to consolidated Financial Statements
September 30, 1997 and 1996 (Unaudited)
and June 30, 1997 (Audited)
Minimum future lease expenses of all non-cancelable operating
leases (partially prepaid as discussed above) for the next five
years, as of June 30, 1997, 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 three months ended September 30, 1997, and
1996, was $71,808 and $46,098, respectively.
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
September 30, 1997 and June 30, 1997.
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.
IRT INDUSTRIES, INC. AND SUBSIDIARIES
Notes to consolidated Financial Statements
September 30, 1997 and 1996 (Unaudited)
and June 30, 1997 (Audited)
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.
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.
IRT INDUSTRIES, INC. AND SUBSIDIARIES
Notes to consolidated Financial Statements
September 30, 1997 and 1996 (Unaudited)
and June 30, 1997 (Audited)
NOTE J - MANAGEMENT'S PLANS
The Company's financial statements for the three months ended
September 30, 1997 and 1996 and 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 from development stage activities, as a
result of which there is an accumulated deficit as of September
30, 1997.
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 subscriptions 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. 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
improve fiscal controls.
IRT INDUSTRIES, INC. AND SUBSIDIARIES
Notes to consolidated Financial Statements
September 30, 1997 and 1996 (Unaudited)
and June 30, 1997 (Audited)
NOTE K - 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.
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 on 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.
