<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 March 31, 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 incorporation (I.R.S. Employer
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 June 2, 1997, the registrant had outstanding 10,318,523 shares of Common
Stock, 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. 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 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, the purchase of large quantities of casino chips and
related gaming equipment to lower the costs of such items through volume
purchases, 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.
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
IRT INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31, JUNE 30,
1997 1996
(UNAUDITED) (AUDITED)
----------- ---------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash in Bank $ 99,346 $ 18,675
Prepaid Rent (Current Portion) 84,000 84,000
Other Current Assets 18,702 --
----------- -----------
202,048 102,675
PROPERTY & EQUIPMENT
Net of accumulated depreciation of $24,942 and $3,654 415,219 291,278
OTHER ASSETS
Casino Interests, net of accumulated amortization of
$160,394 and $31,222 2,337,256 1,913,778
Prepaid Rent - Long-term Portion 49,000 112,000
Security Deposits 12,898 248
----------- -----------
2,399,154 2,026,026
----------- -----------
TOTAL ASSETS $ 3,016,421 $ 2,419,979
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts Payable $ 159,515 $ 35,430
Accrued and Other Current Liabilities 65,726 65,001
----------- -----------
TOTAL CURRENT LIABILITIES 225,241 100,431
SHAREHOLDERS' EQUITY
Common Stock 1,034 1,002
Capital in Excess of Par 7,740,569 7,040,581
Accumulated Deficit (4,172,605) (3,455,163)
Treasury Stock, at Par Value (60) (60)
Stock Subscription Receivable (777,758) (1,266,812)
----------- -----------
TOTAL STOCKHOLDERS' EQUITY 2,791,180 2,319,548
----------- -----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 3,016,421 $ 2,419,979
=========== ===========
</TABLE>
(THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THIS FINANCIAL STATEMENT.)
<PAGE> 4
IRT INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
MARCH 31,
1997
(UNAUDITED)
-----------
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Loss $(717,442)
Adjustments to reconcile net loss from development stage
activities to net cash provided (used) by
operating activities:
Amortization 129,172
Depreciation 21,549
Increase in:
Accounts Payable 124,085
Other Current Assets (18,702)
Accrued and Other Current Liabilities 725
Decrease in:
Prepaid Rent 63,000
---------
Net Cash used by operating activities (397,613)
CASH FLOWS FROM INVESTING ACTIVITIES
Receipts:
Disposition of property and equipment 1,860
---------
Net cash provided used by investing activities 1,860
CASH FLOWS FROM FINANCING ACTIVITIES
Receipts:
Proceeds from stock subscriptions receivable 489,074
---------
Receipts from financing activities 489,074
Disbursements:
Security Deposits (12,650)
---------
Disbursements from financing activities (12,650)
---------
Net cash provided by financing activities 476,424
---------
NET INCREASE IN CASH AND EQUIVALENTS 80,671
CASH AND EQUIVALENTS - BEGINNING 18,675
---------
CASH AND EQUIVALENTS - ENDING $ 99,346
=========
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> 5
IRT INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF LOSS
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
March 31, March 31, March 31, March 31,
1997 1996 1997 1996
(Unaudited) (Unaudited) (Unaudited) (Unaudited) 12-31-96 12-31-95
----------- ----------- ----------- ----------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
INCOME
Income from Gaming Operations $ 606,679 -- $ 1,511,384 $ -- 904,705 --
Less Payment of Winnings (459,732) -- (1,236,539) -- (776,807) --
----------- ----------- ----------- ----------- ----------- -----------
Gross Income 146,947 -- 274,845 -- 127,898 --
OPERATING EXPENSES
Administrative Fees -- -- 30,000 -- 30,000 --
Advertising & Promotion 38,418 -- 78,143 -- 39,725 --
Bank & Credit Card Charges 3,989 44 8,043 147 4,054 103
Computer Services -- -- 1,234 -- 1,234 --
Depreciation & Amortization 55,039 -- 150,721 -- 95,682 --
Employee Benefits & Taxes 7,562 -- 27,539 -- 19,977 --
Licenses & Taxes 4,337 -- 26,573 250 22,236 250
Miscellaneous 1,568 -- 5,680 -- 4,112 --
Office Expense 1,829 -- 6,781 -- 4,952 --
Operating Expenses 18,009 -- 93,226 -- 75,217 --
Professional Services 192,346 24,980 359,825 26,380 167,479 1,400
Rent 64,090 -- 181,408 -- 117,318 --
Security 2,110 -- 5,418 -- 3,308 --
Telephone 1,222 -- 4,087 -- 2,865 --
Transfer Agent & Service Bureau Fees 5,917 3,560 10,073 3,560 4,156 --
Travel & Entertainment 19,291 -- 48,985 -- 29,694 --
Wages & Bonus 41,479 -- 98,045 -- 56,566 --
----------- ----------- ----------- ----------- ----------- -----------
Total Expenses 457,206 28,584 1,135,781 30,337 678,575 1,753
OTHER INCOME
Interest 39,080 -- 143,494 -- 104,414 --
----------- ----------- ----------- ----------- ----------- -----------
39,080 -- 143,494 -- 104,414 --
----------- ----------- ----------- ----------- ----------- -----------
Net Loss $ (271,179) $ (28,584) $ (717,442) (30,337) (446,263) (1,753)
=========== =========== =========== =========== =========== ===========
</TABLE>
(THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THIS FINANCIAL STATEMENT.)
<PAGE> 6
IRT INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
TOTAL
STOCKHOLDERS'
COMMON ADDITIONAL STOCK EQUITY
NUMBER STOCK PAID-IN ACCUMULATED TREASURY SUBSCRIPTION (DEFICIENCY
OF SHARES AMOUNT CAPITAL DEFICIT STOCK RECEIVABLE IN ASSETS)
--------- ------ ---------- ----------- -------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance - June 30, 1995 - Audited 3,010,193 $ 301 $ 3,160,719 $(3,230,788) $(60) $ -- $ (69,828)
Adjustment for issuance of prior
year shares 440 -- -- -- -- -- --
Capitalization of note payable
Officer/Director -- -- 56,737 -- -- -- 56,737
Issuance of common stock for
subscription receivable 4,000,000 400 1,499,600 -- -- (1,429,315) 70,685
Imputed interest on common stock
subscription receivable -- -- (228,674) -- -- 162,503 (66,171)
Issuance of common stock 20,000 2 4,998 -- -- -- 5,000
Issuance of common stock for debt 2,380,000 238 594,762 -- -- -- 595,000
Issuance of common stock for services 300,000 30 112,470 -- -- -- 112,500
Issuance of common stock for casino 289,361 29 1,699,971 -- -- -- 1,700,000
Issuance of common stock for casino
furniture and equipment 23,289 2 139,998 -- -- -- 140,000
Net Loss for 1996 -- -- -- (224,375) -- (224,375)
---------- ------ ----------- ----------- ---- ----------- -----------
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 nine months ended
March 31, 1997 - Unaudited -- -- -- (717,442) -- (717,442)
Payments received on stock for
subscription receivable -- -- -- -- -- 632,547 632,547
Imputed interest on common stock
subscription receivable -- -- -- -- -- (143,493) (143,493)
---------- ------ ----------- ----------- ---- ----------- -----------
Balance - March 31, 1997 - Unaudited 10,339,949 $1,034 $ 7,740,569 $(4,172,605) $(60) $ (777,758) $ 2,791,180
========== ====== =========== =========== ==== =========== ===========
</TABLE>
(THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THIS FINANCIAL STATEMENT.)
<PAGE> 7
IRT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1997 (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. 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 March 31, 1997, 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> 8
IRT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1997 (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> 9
IRT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1997 (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 March 31, 1997, 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> 10
IRT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1997 (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 nine months ended March 31, 1997, and the year ended June 30, 1996,
amortization related to the acquisition of the floating gaming casino license
and the casino was $160,394 and $31,222, respectively.
<PAGE> 11
IRT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1997 (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 March 31, 1997, 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>
March 31, June 30,
1997 1996
(Unaudited) (Audited)
------------ ------------
<S> <C> <C>
Furniture and fixtures $ 5,621 $ 7,742
Leasehold Improvements 7,350 --
Casino equipment 427,190 287,190
Accumulated depreciation (24,942) (3,654)
------------ ------------
$ 415,219 $ 291,278
============ ============
</TABLE>
For the nine months ended March 31, 1997, and for the year ended June 30, 1996,
respectively, depreciation related to the above assets was $24,942 and $2,641.
<PAGE> 12
IRT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1997 (UNAUDITED)
AND JUNE 30, 1996 (AUDITED)
NOTE E - RELATED PARTY TRANSACTIONS
DUE TO RELATED PARTIES
During the nine months ended March 31, 1997 and the year ended June 30, 1996,
various legal fees and costs of approximately $52,000 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 March 31,
1997, and June 30, 1996, respectively, was approximately $30,000 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> 13
IRT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1997 (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 March 31, 1997, 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 $143,493 and $66,171 was considered earned during the nine months ended March
31, 1997 and the year ended June 30, 1996, respectively.
<PAGE> 14
IRT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1997 (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, 1995. However, as of March 1, 1996, 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> 15
IRT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1997 (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 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.
Minimum future lease expenses of all non-cancelable operating leases (currently
prepaid) for the next five years are as follows:
<TABLE>
<CAPTION>
March 31, June 30,
1997 1996
(Unaudited) (Audited)
------------ -----------
<S> <C> <C>
Year 1 $ 84,000 $ 84,000
Year 2 49,000 84,000
Year 3 - 28,000
Year 4 - -
Year 5 and thereafter - -
---------- -----------
$ 133,000 $ 196,000
========== ===========
</TABLE>
Rent expense for the nine months ended March 31, 1997, and the year ended June
30, 1996, was $181,408 and $14,000, respectively.
<PAGE> 16
IRT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1997 (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 March 31, 1997 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 nine months ended March 31, 1997 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 March 31, 1997.
<PAGE> 17
IRT INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1997 (UNAUDITED)
AND JUNE 30, 1996 (AUDITED)
Management recognizes that the Company must generate additional resources.
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 March 31, 1997, the Company has received
approximately $655,602 as of April 21, 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 the 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> 18
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 6/2/97 BY: /s/ Richard R. Rossi
------------------- ----------------------------------------
Richard R. Rossi, President and Treasurer
(Principal Executive Officer and
Principal Financial Officer)
