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, 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) Number)
555 S. Federal Highway, Suite 200, Boca Raton, FL 33432
(Address of principal executive offices)
(561-416-7239
(Registrant's telephone number, including area code)
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 12months
(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 December 31, 1997, the registrant had outstanding
5,433,995 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 December 31, 1996
and 1997. This primarily resulted from its operating businesses.
Cost of Sales, Operating Expenses, and Other Expenditures
Significant increases also occurred in 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
generating businesses in Latin America. Specifically:
a. Management believes that, based upon current income
and projected income estimates, the Company can satisfy cash
requirements through the end of 1997, and anticipates it will
raise additional funds in 1998 for acquisitions and operational
needs;
b. the Company had intended 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,
however due to the year end holiday season, and other delays, it
believes the third casino may not be established until sometime
prior to mid - 1998 with additional casinos anticipated, with no
assurances, until later in the year; 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. As to same, the Company
continues to review Internet gaming viability and has reviewed
numerous spin-offs and other opportunities.
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 Rossi
Richard Rossi, President and Treasurer
(Principal Executive Officer and Principal Financial
Officer)
Date: 3/06/98
Item 1. FINANCIAL STATEMENTS
IRT INDUSTRIES, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
December June
31, 1997 30, 1997
(Unaudited) (Audited)
ASSETS
CURRENT ASSETS:
Cash in Bank $ 65,731 $ 100,198
Prepaid Rent (Current Portion) 70,000 84,000
Other Current Assets 34,672 6,675
TOTAL CURRENT ASSETS 170,403 190,873
PROPERTY & EQUIPMENT,
Net of accumulated depreciation
of $64,771 and $35,552 403,808 423,451
OTHER ASSETS:
Casino License, net of accumulated
amortization of $72,722 and
$52,889 522,278 542,111
Casino Interests, less asset
impairment loss of $409,000
and net of accumulated
amortization of $224,573 and
$168,511 1,269,077 1,325,138
Prepaid Rent - Long-term Portion - 28,000
Security Deposits 12,828 12,828
TOTAL OTHER ASSETS 1,804,183 1,908,077
TOTAL ASSETS
$2,378,394 $2,522,401
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts Payable $ 77,113 $ 91,027
Accrued and Other Current Liabili-
ties 77,259 76,322
TOTAL CURRENT LIABILITIES 154,372 167,349
SHAREHOLDERS' EQUITY
Common Stock 543 1,034
Capital in Excess of Par 8,427,806 7,740,569
Accumulated Deficit (5,889,181) (4,977,437)
Equity adjustment from foreign
currency translation (64,571) 2,176
Treasury Stock, at Par Value (60) (60)
Stock Subscription Receivable (250,515) (411,230)
TOTAL STOCKHOLDERS' EQUITY 2,224,022 2,355,052
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $2,378,394 $2,522,401
(The accompanying notes are an integral part of this financial
statement.)
-1-
IRT INDUSTRIES, INC. AND SUBSIDIARIES
Consolidated Statements of Loss
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
December December December December
31, 1997 31, 1996 31, 1997 31, 1996
(Unaudited)(Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
CASINO REVENUE - SEE NOTE A $ 51,549 $ 73,954 $ 107,878 $ 127,898
OPERATING EXPENSES:
LOSS FROM CASINO OPERATIONS (76,599) (212,947) (241,927) (372,702)
ADMINISTRATIVE EXPENSES
Bank & Credit Card Charges 206 58 330 78
Consultants 354,112 28,800 537,412 29,300
Depreciation & Amortization 9,916 9,916 19,833 19,833
Employee Benefits & Taxes 7,201 5,695
Legal Settlements 20,000
Licenses & Taxes 7,500 7,875
Miscellaneous 271 (1,004)
Office Expense 1,015 134 2,124 1,057
Professional Services 77,516 86,501 108,140 92,846
Telephone 64 326 71 596
Transfer Agent & Service Bureau
Fees 7.468 5,587 9,408 4,156
Travel & Entertainment (937) 14,343 5,992 23,238
Total Expenses 449,360 153,165 704,226 177,975
OTHER INCOME:
Interest 16,693 28,940 34,409 104,414
Total Other Income 16,693 28,940 34,409 104,414
Net Loss (509,266) (346,172) (911,744) (446,263)
</TABLE>
(The accompanying notes are an integral part of this financial statement.)
-2-
-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 - - - - - - 847,461 847,461
Fluctuation in foreign
currency - - - - (66,747) - - (66,747
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 -
Net Loss for the three
months ended
December 31, 1997 -
Unaudited - - - (911,744) - - - (911,274)
Balance -
December 31, 1997
Unaudited 5,433,995 $ 543 $8,427,806 $(5,889,181) (64,571) $(60) $ (250,515) $2,224,022
</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
December
31, 1997
(Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES
Net Loss $ (911,744)
Adjustments to reconcile net loss from
development stage
activities to net cash provided (used)
by operating activities:
Amortization 75,895
Depreciation 19,643
Currency fluctuation (66,747)
Increase in:
Other Current Assets (27,998)
Accrued and Other Current Liabilities 937
Decrease in:
Accounts Payable (13,914)
Prepaid Rent 42,000
Net Cash used by operating activities (881,928)
CASH FLOWS FROM FINANCING ACTIVITIES
Receipts:
Payments on stock subscription receivable 847,461
Net cash provided by financing activities 847,461
NET DECREASE IN CASH AND EQUIVALENTS (34,467)
CASH AND EQUIVALENTS - BEGINNING 100,198
CASH AND EQUIVALENTS - ENDING $ 65,731
SUPPLEMENTAL DISCLOSURES:
Common stock issued for stock
subscription receivable $ 800,000
(The accompanying notes are an integral part of this financial
statement.)
-4-
IRT INDUSTRIES, INC. AND SUBSIDIARIES
Notes to consolidated Financial Statements
December 31, 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 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). 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
December 31, 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:
December December
31, 1997 31, 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. It is no longer considered a development stage
enterprise.
IRT INDUSTRIES, INC. AND SUBSIDIARIES
Notes to consolidated Financial Statements
December 31, 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
December 31, 1997, and June 30, 1997, were converted to U.S.
dollars based on the average monthly exchange rate.
The gain (loss) resulting from the translation of foreign
currency for the three months ended December 31, 1997 and for
the year ended June 30, 1997, was ($66,747) and $2,176,
respectively. This gain (loss) is reflected in stockholders'
equity as "Equity adjustment from foreign currency translation".
IRT INDUSTRIES, INC. AND SUBSIDIARIES
Notes to consolidated Financial Statements
December 31, 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
December 31, 1997 and 1996 (Unaudited)
and June 30, 1997 (Audited)
Amortization of Casino Licenses and Interests
For the three months ended December 31, 1997 and 1996,
amortization related to the acquisition of the floating gaming
casino license was $19,643 for both periods, while the
amortization for the operating casinos' gaming licenses were
$75,895 and $83,045, 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
December 31, 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:
December June
31, 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 ( 55,195) ( 35,552)
$ 403,808 $ 423,451
For the six months ended December 31, 1997, and 1996,
respectively, depreciation related to the above assets was
$19,643 and $12,637.
IRT INDUSTRIES, INC. AND SUBSIDIARIES
Notes to consolidated Financial Statements
December 31, 1997 and 1996 (Unaudited)
and June 30, 1997 (Audited)
NOTE E - RELATED PARTY TRANSACTIONS
Due to Related Parties
During the six months ended December 31, 1997 and 1996,
various legal fees of approximately $60,000 and $40,000,
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 December 31,
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:
December June
31, 1997 30, 1997
(Unaudited) (Audited)
Audit fees $ 0 $ 29,000
Legal settlement and 31,098 31,098
related interest
Other 51,212 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 December 31, 1997, and
June 30, 1997, 5,433,995 shares and 10,339,949 shares,
respectively,were issued and outstanding. As a part of its
recent stock split, the total authorized shares is 10,000,000.
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
December 31, 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 $34,409 and $104,414 was considered
earned during the three months ended December 31,1997 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. Such commitment is being negotiated
as to final terms.
IRT INDUSTRIES, INC. AND SUBSIDIARIES
Notes to consolidated Financial Statements
December 31, 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
December 31, 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
December 31, 1997 and June 30, 1997, prepaid rent is $70,000 and
$112,000, respectively. The Company has reflected $70,000 as a
current asset for both periods, while $0 and $28,000 is
classified as the long-term portion of prepaid rent at December
31, 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 in
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
December 31, 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 six months ended December 31, 1997, and
1996, was $143,616 and $117,318, 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 December 31, 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
December 31, 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 President of the Company is also the President of a law firm
which has supplied office and related facilities to the Company,
as well as legal services. The Company has also commenced
accruing compensation to the President starting with the month
of October, 1997. (Prior to October 1, 1997, since he first
became President, in approximately March 1996, he received no
salary). With respect to the office and related facilities, the
President, through his law firm, supplies the Company with its
corporate headquarters in the U.S.A., including the use of
office furniture, equipment, computers, copy machine, and staff.
The Company also has access to unlimited amout of office
supplies. Under this arrangement, the Company also utilizes the
conference room on an as needed basis, and obtains the
assistance of employees and independent contractors employed by
the law firm. As a benefit to the Company, the Company does not
need to, however, pay compensation or taxes with respect to such
persons, or obtain insurance benefits for such people. Under the
arrangement, the Company pays the law firm a sum of $5,000 per
month for the foregoing.
The law firm also supplies the Company with legal services.
Management believes that such services are very competitively
priced. These services include assistance with respect to
drafting Form 10-KSB, Form 10-QSB for each quarter, Form 8-K's
and other reports and filings as appropriate. The law firm also
coordinates activities with other law firms supplying legal
services, drafts, corporate minutes, contracts, demand letter,
and provides other general corporate and securities law
services. The services are estimated to be approximately two
hours per day, and at an agreed reduced hourly rate of $200 (the
law firm normally charges its clients between $250 and $275 per
hour), the bill would be approximately $8,500 per month.
However, out of professional courtesy, the law firm discounts
each bill to $5,000 per month, for certain months in the
discretion of the law firm depending upon the quantity of work
effort for the particular month. The Company also commenced
accruing salary to Mr. Rossi of an annual amount of $90,000.
(Commencing January 1, 1998, the $90,000 is deemed salary and
prior to such date is deemed payment fees, pursuant to Mr.
Rossi's assignment of his salary to his law firm) the President,
however, as part of the agreed amount, to the benefit of the
Company, has waived receiving health insurance, disability
insurance, officer and director liability insurance and life
insurance, which items are often required by executive officers
of a public companies. From time to time, the Company has and
will continue to have, to pay, for the automobile expenses for
its President. Apart from any automobile expense, after taking
into consideration all payments made by the Company in
connection with the foregoing during the months of October,
November and December 1997, essentially all fees, accrued
salary, and expenses discussed herein were essentially paid.
IRT INDUSTRIES, INC. AND SUBSIDIARIES
Notes to consolidated Financial Statements
December 31, 1997 and 1996 (Unaudited)
and June 30, 1997 (Audited)
NOTE J - MANAGEMENT'S PLANS
The Company's financial statements for the three months ended
December 31, 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 December
31, 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 oradditional 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
December 31, 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. Because of the year end holidays and other
delays, the Company remains in the process of entering into a
letter of intent or agreement while negotiations are pending,
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. Subsequently, the Company entered into
litigation with respect to an alleged guarantee supplied by the
Company in relation to one of its acquisitions. The Company is
in the process of litigating same and is consulting with its
attorneys to determine what, if any, is its liability as to
same.
