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, 1998
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 Number)
incorporation or organization)
555 S. Federal Highway, Boca Raton, FL 33432
(Address of principal executive offices)
(561) 416-7239
(Registrant's telephone number, including area code)
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 reports(s), and (2) has been subject to such filing
requirements for the past 90 days.
Yes (X)
No ( )
As at March 31, 1998, the registrant had outstanding 6,533,995
shares of Common Stock, par value $0.0001.
PART 1 - FINANCIAL INFORMATION
Item 1. - Financial Statements
Please see enclosed financial statements.
PART 2 - OTHER INFORMATION
Item 2. - Management's Discussion and Analysis of Financial
Condition and Results of Operation.
The following discussion should be read in conjunction with
the Financial Statements and Notes thereto contained elsewhere
herein. Please note that no assurance exists as to the actual
future outcome of Management's plans, assumptions, or estimates.
Results of Operations
General
The Company experienced a material increase in revenues and
expenditures for the fiscal quarters ended March 31, 1997 and
1998. 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
operating businesses, the ratio of such expenditures was 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 should eventually be 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, 1998, to June 30, 1999 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 1998, 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 quarter ending December 31, 1997,
bringing total operating businesses to three. However,
management determined to liquidate the Casino Bahia Ballena and
focus efforts on opening one other casino. Management believes
the new second casino may not be established until sometime prior
to 1999 with additional business anticipated, with no assurances,
also within the next twelve months.
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.
d. The forgoing is limited in that new Directors are in
the process of creating a new plan for the Company which may
differ.
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 06/30/98
Item 1. - FINANCIAL STATEMENTS
IRT INDUSTRIES, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
March June
31, 1998 30, 1997
(Unaudited) (Audited)
ASSETS
CURRENT ASSETS
Cash in Bank $ 96,067 $ 100,198
Prepaid Rent (Current Portion) 49,000 84,000
Other Current Assets 26,509 6,675
171,576 190,873
PROPERTY & EQUIPMENT
Net of accumulated depreciation of
$64,206 and $35,552 394,979 423,451
OTHER ASSETS
Casino License, net of accumulated
amortization of $82,639 and $52,889 512,361 542,111
Casino Interests, less asset
impairment loss of $409,000 and
amortization of $290,794 and $168,511 1,252,855 1,325,138
Prepaid Rent - Long-term Portion - 28,000
Security Deposits 12,828 12,828
1,778,044 1,908,077
TOTAL ASSETS $ 2,344,599 $ 2,522,401
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts Payable $ 76,996 $ 91,027
Accrued and Other Current Liabilities 99,799 76,322
TOTAL CURRENT LIABILITIES 176,795 167,349
SHAREHOLDERS' EQUITY
Common Stock 653 1,034
Capital in Excess of Par 8,807,696 7,740,569
Accumulated Deficit (6,189,303) (4,977,437)
Equity adjustment from foreign
currency translation 22,936 2,176
Treasury Stock, at Par Value (60) (60)
Stock Subscription Receivable (474,118) (411,230)
TOTAL STOCKHOLDERS' EQUITY 2,167,804 2,355,052
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 2,344,599 $ 2,522,401
(The accompanying notes are an integral part of this financial
statement.)
INDUSTRIES, INC. AND SUBSIDIARIES
Consolidated Statements of Loss
Three Months Ended Nine Months Ended
(UNAUDITED) (UNAUDITED)
MARCH 31, MARCH 31,
1998 1997 1998 1997
CASINO REVENUE - SEE NOTE A $ 78,064 $ 146,947 $ 185,942 $ 274,845
CASINO OPERATING EXPENSES 265,294 262,372 615,099 762,972
LOSS FROM CASINO OPERATIONS (187,230) (115,425) (429,157) (488,127)
ADMINISTRATIVE EXPENSES
Bank & Credit Card Charges 190 244 520 322
Consultants 33,755 146,000 571,167 175,300
Depreciation & Amortization 9,917 9,917 29,750 29,750
Legal Settlements 0 0 20,000 -
Licenses & Taxes 0 0 0 7,875
Miscellaneous 5,141 0 5,412 (1,004)
Office Expense 27 157 2,151 1,214
Professional Services 66,131 14,862 174,271 107,708
Telephone 229 101 945 697
Transfer Agent & Service 5,074 5,917 14,482 10,073
Bureau fees
Travel & Entertainment (1) 17,635 5,991 40,873
Total Expenses 120,463 194,833 824,689 372,808
OTHER INCOME
Interest 7,571 39,080 41,980 143,494
7,571 39,080 41,980 143,494
Net Loss $(300,122) $(271,178) $(1,211,866) $(717,441)
(The accompanying notes are an integral part of this financial statement)
- -2-
IRT INDUSTRIES, INC.
Consolidated Statements of Stockholders' Equity
<TABLE>
<CAPTION>
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 0 0 0 0 0 20
Issuance of common stock
for casino 116,666 12 699,988 0 0 0 0 700,000
Net Loss for the year
ended June 30, 1997
- - Unaudited 0 0 0 (1,522,274) 0 0 0 (1,522,274)
Payments received on
stock for subscription
receivable 0 0 0 0 0 0 855,582 855,582
Fluctuation in foreign
currency 0 0 0 0 2,176 0 0 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 0 0 0 (400,000) 0
Imputed interest on
common stock receivable 0 0 (56,627) 0 0 0 56,627 0
Reverse stock split
1 for 10 (12,905,954) (1,291) 1,291 0 0 0 0 0
Payments received on
stock for subscription
receivable 0 0 0 0 0 0 1,003,858 1,003,858
Fluctuation in foreign
currency 0 0 0 0 20,760 0 0 20,760
Issuance of common
stock for subscription
receivable 4,000,000 400 399,600 0 0 0 (400,000) 0
Imputed interest on
common stock receivable 0 0 (56,627) 0 0 0 56,627 0
Issuance of common
stock for subscription
receivable 1,100,000 110 379,890 0 0 0 (380,000) 0
Net Loss for the nine
months ended
March 31, 1998 -
Unaudited 0 0 0 (1,211,866) 0 0 0 (1,211,866)
Balance -
March 31, 1998- Unaudited 6,533,995 $ 543 $8,807,696 $(6,189,303) $22,936 $(60) $(474,118) $2,167,804
</TABLE>
(The accompanying notes are an integral part of this financial
statement.)
-3-
IRT INDUSTRIES, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Nine Months
Ended
March 31, 1998
(Unaudited)
-
CASH FLOWS FROM OPERATING ACTIVITIES
Net Loss $ (1,211,866)
Adjustments to reconcile net loss from
development stage activities to net
cashprovided (used) by operating
activities:
Amortization 102,033
Depreciation 28,654
Currency fluctuation 20760
Increase in:
Other Current Assets 23,477
Accrued and Other Current Liabilities (19,834)
Decrease in:
Accounts Payable (14,031)
Prepaid Rent 63,000
-
Net Cash used by operating activities (1,007,807)
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of property and equipment (182)
-
Net cash provided by financing activities (182)
CASH FLOWS FROM FINANCING ACTIVITIES
Receipts:
Payments on stock subscription receivable 1,003,858
Net cash provided by financing activities 1,003,858
NET DECREASE IN CASH AND EQUIVALENTS (4,131)
CASH AND EQUIVALENTS - BEGINNING 100,198
CASH AND EQUIVALENTS - ENDING $ 96,067
SUPPLEMENTAL DISCLOSURES:
Common stock issued for stock subscription receivable $ 1,180,000
(The accompanying notes are an integral part of this financial
statement.)
4
IRT INDUSTRIES, INC. AND SUBSIDIARIES
Notes to consolidated Financial Statements
March 31, 1998 and 1997 (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
Casino Bahia Ballena, located in a "Five Star" beach hotel on the
west coast of Costa Rica, through its wholly owned subsidiaries,
Casino Bahia Ballena, S.A. (Ballena). and Inmobiliaria la J Tres
S.R.L. (Inmobiliaria).
Consequently, the Company owned and operated 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.
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.
IRT INDUSTRIES, INC. AND SUBSIDIARIES
Notes to consolidated Financial Statements
March 31, 1998 and 1997 (Unaudited)
and June 30, 1997 (Audited)
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 nine months ended:
March March
31, 1998 31, 1997
(Unaudited) (Unaudited)
Gross winnings, including slot
machine revenues $ 1,213,399 $ 1,511,384
Less pay-outs ( 1,027,457) ( 1,236,539)
Casino Revenue $ 185,942 $ 274,845
Concentration of Credit Risk
As of March 31, 1998 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.
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.
IRT INDUSTRIES, INC. AND SUBSIDIARIES
Notes to consolidated Financial Statements
March 31, 1998 and 1997 (Unaudited)
and June 30, 1997 (Audited)
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.
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.
IRT INDUSTRIES, INC. AND SUBSIDIARIES
Notes to consolidated Financial Statements
March 31, 1998 and 1997 (Unaudited)
and June 30, 1997 (Audited)
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 March
31, 1998, March 31, 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 nine months ended March 31, 1998 and for the year ended June
30, 1997, was $20,760 and $2,176, respectively. This gain is
reflected in stockholders' equity as "Equity adjustment from
foreign currency translation".
Reclassification
Certain prior year amounts have been reclassified to conform to
the current year's presentation.
NOTE 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.
IRT INDUSTRIES, INC. AND SUBSIDIARIES
Notes to consolidated Financial Statements
March 31, 1998 and 1997 (Unaudited)
and June 30, 1997 (Audited)
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. This casino
was subsequently sold. Refer to Note K - Subsequent Events.
Amortization of Casino Licenses and Interests
For the nine months ended March 31, 1998 and 1997, amortization
related to the acquisition of the floating gaming casino license
was $29,750 for both periods, while the amortization for the
operating casinos' gaming licenses were $72,283 and $99,422,
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.
IRT INDUSTRIES, INC. AND SUBSIDIARIES
Notes to consolidated Financial Statements
March 31, 1998 and 1997 (Unaudited)
and June 30, 1997 (Audited)
Asset Impairment Loss
In accordance with Statement of Financial Accounting Standards
No. 121, "Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to Be Disposed Of" the Company recorded an
impairment loss on the long-lived assets of the Juegos casino.
The trend in cosmopolitan San Jose is for professional gamblers
to visit smaller casinos, in the expectation of winning
substantial funds before being excused from gaming. As a result,
the first year's revenues indicated that the undiscounted future
revenue from this business would be less than the carrying value
of the long-lived assets related to that business (principally
the equipment and intangibles of the Casino License and
Interest). Accordingly, on June 30, 1997, the company recognized
an impairment loss of approximately $409,000. This loss is the
difference between the carrying value of the Juegos Casino
License and Interest and the fair value of this asset based on a
multiple of future net revenues and is reflected in the
consolidated statement of loss as "Casino asset impairment loss".
NOTE 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.
IRT INDUSTRIES, INC. AND SUBSIDIARIES
Notes to consolidated Financial Statements
March 31, 1998 and 1997 (Unaudited)
and June 30, 1997 (Audited)
NOTE D - PROPERTY AND EQUIPMENT
Property and equipment consisted of the following:
March June
31, 1998 30, 1997
(Unaudited) (Audited)
Furniture and fixtures $ 20,489 $ 20,489
Computer equipment 6,333 6,151
Casino equipment 425,013 425,013
Leasehold Improvements 7,350 7,350
Accumulated depreciation ( 64,206) ( 35,552)
$ 394,979 $ 423,451
For the nine months ended March 31, 1998, and 1997, respectively,
depreciation related to the above assets was $28,654 and $21,549.
NOTE E - RELATED PARTY TRANSACTIONS
Due to Related Parties
During the nine months ended March 31, 1998 and 1997, various
fees of approximately $90,000 and $52,000, respectively, were
charged to the Company by its United States legal counsel, a
professional association whose principal was also a shareholder,
President, and Board of Directors member of the Company. The
outstanding balances as of March 31, 1998, and June 30, 1997,
were approximately $30,000, and $20,000, respectively, and are
included in accounts payable.
IRT INDUSTRIES, INC. AND SUBSIDIARIES
Notes to consolidated Financial Statements
March 31, 1998 and 1997 (Unaudited)
and June 30, 1997 (Audited)
NOTE F - ACCRUED LIABILITIES
Accrued liabilities consisted of the following:
March June
31, 1998 30, 1997
(Unaudited) (Audited)
Audit fees $ - $ 29,000
Legal settlement and related interest 31,098 31,098
Other 68,701 16,224
$ 99,799 $ 76,322
NOTE G - STOCKHOLDER'S EQUITY
Common Stock
The Company has authorized 10,000,000 shares of common stock with
a par value of $.0001 per share. At March 31, 1998, 6,533,995
shares were issued and outstanding, after giving effect to the
March 1998 transaction for 1,100,000 shares (See Stock
Subscriptions Receivable, below). The Company has no other
authorized or outstanding securities of any class.
IRT INDUSTRIES, INC. AND SUBSIDIARIES
Notes to consolidated Financial Statements
March 31, 1998 and 1997 (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.
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 $41,980 and
$143,494 was considered earned during the nine months ended March
31, 1998 and 1997, respectively.
In March 1998, the Company agreed to sell to two foreign
companies, a total of 1,100,000 shares, in return for promissory
notes, at an average price per share of approximately $0.341/2,
totaling $380,000. Interest has not been imputed on these
subscriptions because all payments are to be received on or
before September 22, 1998.
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
March 31, 1998 and 1997 (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.
Effective September 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, 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 7.31% 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
March 31, 1998 and 1997 (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
March 31, 1998 and June 30, 1997, prepaid rent is $49,000 and
$112,000, respectively. The Company has reflected $49,000 as a
current asset for both periods, while $0 and $28,000 is
classified as the long-term portion of prepaid rent at March 31,
1998 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. This
lease was subsequently transferred pursuant to the sale of the
casino, which is described in Note K - Subsequent Events, below.
IRT INDUSTRIES, INC. AND SUBSIDIARIES
Notes to consolidated Financial Statements
March 31, 1998 and 1997 (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 nine months ended March 31, 1998, and 1997,
was $186,865 and $181,408, 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
Two lawsuits are pending against the Company, one involving
50,000 shares of previously issued stock and the other alleging
liability of the Company for an alleged guarantee of
approximately $100,000. Various claims an defenses are being
argued and the amounts are in dispute. The Company is vigorously
defending both lawsuits.
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. The Company had agreed to supply Mr.
Singerman with
IRT INDUSTRIES, INC. AND SUBSIDIARIES
Notes to consolidated Financial Statements
March 31, 1998 and 1997 (Unaudited)
and June 30, 1997 (Audited)
Litigation - Continued
periodic payments to reduce and pay the obligation over time. In
summary, payments of $750.00 per month were due to him. The
Company has defaulted on the payments but is anticipating
satisfying the default.
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.
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,
but his law firm received fees.). 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 use of office furniture, equipment, computers, copy
machine, and staff. The Company also has access to unlimited
amount 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, or health insurance
benefits for such people. Under this arrangement, the Company
pays the law firm a sum of $5,000 per month for the foregoing,
starting in March of 1998. However, unpaid fees of approximately
$5,000 for the quarter ended March 31, 1998 have been accrued.
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
President, however, as part of the agreed amount to the law firm,
to the benefit of the Company, has waived receiving health
insurance, disability insurance, officer and
IRT INDUSTRIES, INC. AND SUBSIDIARIES
Notes to consolidated Financial Statements
March 31, 1998 and 1997 (Unaudited)
and June 30, 1997 (Audited)
Office Facilities and Staffing - Continued
director liability insurance, and life insurance, which items are
often required by executive officers of public companies. From
time to time, the Company has and may continue to pay the
automobile and certain other expenses of its President.
NOTE J - MANAGEMENT'S PLANS
The Company's financial statements for the nine months ended
March 31, 1998 and 1997 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 March 31,
1998.
The Company also experienced difficulties in paying certain
creditors timely, mostly legal and professionals, according to
their terms, and certain bills were past due. The Company
believes that with the collection of the existing stock
subscription receivable and the agreements and commitments by
investors to purchase 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 or two 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.
IRT INDUSTRIES, INC. AND SUBSIDIARIES
Notes to consolidated Financial Statements
March 31, 1998 and 1997 (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 was delayed in entering into a letter of
intent. Currently, the transaction remains pending while the new
Directors of the Company review the matter
Sale of Casino
In April 1998, the Company entered into an agreement to sell the
Casino Bahia Ballena to a Costa Rican company for a price of
$150,000.
Cessation of Trading on the Philadelphia Stock Exchange
The continuation of trading of the Company's stock on the
Philadelphia Stock Exchange is doubtful due to an inability to
maintain the minimum trading price for the stock.
New Directors
Effective June 1998, Directors Rossi and Jimenez resigned and
were replaced by Mr. Ross John and Mr. Ronald D'Grillo. Both
individuals have various business experience including gaming.
Mr. Rossi continues to serve as President, pending election of
new officers.
