U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the fiscal year ended June 30, 1998
[ ] TRANSACTION REPORT UNDER SECTION 13 OR 15(D)OF THE SECURITIES EXCHANGE ACT
OF 1934
For the transition period from
________________to______________________
Commission file number: 0-15347
IRT INDUSTRIES, INC.
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(Name of small business issuer in its charter)
FLORIDA 59-2720096
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(State or other jurisdiction) (I.R.S. Employer
of incorporation or organization) Identification No.)
289-C Commercial Blvd., Suite 208, Lauderdale By The Sea, Florida 33308
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(Address of principal executive offices) (Zip Code)
Issuer's telephone number: 954-351-0270
Securities registered under Section 12(b) of the Exchange Act:
Name of each exchange on which registered:
Title of each class: NONE
Securities registered under Section 12(g) of the Act:
COMMON STOCK $.0001 PAR VALUE
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(Title of class)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes [ ] No [X]
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [ ]
The Issuer's revenues for its most recent fiscal year were 0.
The aggregate market value of the voting stock held by non-affiliates was
approximately $2,941,265 as at June 14, 1999, based on the closing sale price of
$.34.
The number of shares of Common Stock outstanding as at June 14, 1999 was
8,650,782.
(1) Affiliates for the purpose of this item refer to the directors, executive
officers and persons owning 10% or more of the Company's common stock, of
record; however, this determination does not constitute an admission of
affiliate status.
<PAGE>
IRT INDUSTRIES, INC.
FORM 10-KSB
TABLE OF CONTENTS
PART I PAGE
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ITEM 1. Description of Business. 1
ITEM 2. Description of Properties. 3
ITEM 3. Legal Proceedings. 3
ITEM 4. Submission of Matters to a Vote of Security Holders. 3
PART II
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ITEM 5. Market for Common Equity and Related Stockholder Matters. 4
ITEM 6. Management's Discussion and Analysis or Plan of Operation. 4
ITEM 7. Financial Statements. 5
ITEM 8. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosures. 5
PART III
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ITEM 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act. 5
ITEM 10. Executive Compensation. 6
ITEM 11. Security Ownership of Certain Beneficial Owners and Management. 6
ITEM 12. Certain Relationships and Related Transactions. 6
ITEM 13. Exhibits and Reports on Form 8-K. 6
<PAGE>
PART 1
ITEM 1. DESCRIPTION OF BUSINESS.
GENERAL. IRT Industries, Inc., a Florida corporation, is pursuing one or more
acquisitions of other businesses, with the preference or concentration in the
Internet area. The Company is seeking qualified business acquisition
opportunities which may satisfy certain needs, to be modified from time to time
as determined by Management, but will generally include the following
considerations: the experience or ability of management of the acquisition; the
financial history of the acquisition; the opportunity of the acquisition to
generate significant future revenues and profits in its business area or areas;
the ability of the acquisition to satisfy the cash needs of an operating public
company; and, the ability to expand business operations in the future.
For most of the year ended June 30, 1998, the Company owned and operated two
casino businesses in Latin America, with related items, which were subsequently
sold. The Company operated the Casino Amon in San Jose, Costa Rica, and the
Casino Bahia Ballina, located at a resort hotel on the coast in Costa Rica,
which operations, subject to change from time to time, utilized approximately
forty-five employees, plus additional professionals and consultants. The casinos
did not generate profitability, and the Company was not successful in efforts to
acquire additional gaming ventures being sought overseas. Prior to March, 1996,
the Company pursued environmental related businesses.
The Company is a corporation organized under the laws of the State of Florida.
MISSION STATEMENT. The current mission of the Company is to seek out and acquire
qualified business acquisition opportunities which may satisfy certain needs, to
be modified from time to time as determined by Management, but will generally
include the following considerations: the experience or ability of management of
the acquisition; the financial history of the acquisition; the opportunity of
the acquisition to generate significant future revenues and profits in its
business area or areas; the ability of the acquisition to satisfy the cash needs
of an operating public company; and the ability to expand business operations in
the future. During the year ended June 30, 1998, the mission of the Company was
to seek out, purchase, acquire, and/or otherwise enter into partnerships, joint
ventures, and/or other relationships, with respect to casinos, resorts, and/or
related businesses focused in Latin America.
OPERATING BUSINESSES. The Company had two operating businesses--the Casino Amon,
and the Casino Bahia Ballena, which were then sold. Both casinos were located in
Costa Rica, one in San Jose, the capital of Costa Rica and one on the coast. The
business operations employed approximately forty-five people, besides
professionals and consultants. The businesses generated revenues, but were not
able to achieve profitability. The businesses were licensed and operated in
conformance with applicable gaming and related laws and regulations in Costa
Rica. The Casino Amon was a located adjacent to the lobby and convention suites
in the five-star luxury Hotel Amon Park Plaza in San Jose, Costa Rica. The
Casino Amon had eight gaming tables, including blackjack and poker type games,
as well as slot machines. The casino was acquired with operations commencing in
July of 1996. It had approximately 26 employees including a casino manager,
bookkeeper, and pit bosses (who monitor the casino gaming employees, as well as
customers within their designated areas). Adjacent to the Casino was a bar area
from which bar guests were able to easily access the gaming area. The hotel, in
which the casino was located, provided deluxe rooms, as well as junior and
master suites, with security boxes, an executive business center, including fax
service, a gift shop, travel agency, secure underground parking, and a gourmet
restaurant, as well as valet parking. The hotel hosts business meetings,
conventions, seminars and social events in its convention suites or "salons."
The Casino Bahia Ballena was located on the Puntarenas coast in the "five-star"
luxury Hotel Playa Tambor. The casino has blackjack and poker type games. It had
approximately 15 employees. The Playa Tambor Hotel is one of a limited number of
five-star, luxury beach hotels, owned by the Spanish hotel chain, Barcelo, which
has over 20 hotels worldwide The hotel is accessible by an adjacent air field,
and also a newly built airport in Puntarenas, as well as by bus, taxi and rental
cars. Puntarenas, one of the most attractive Costa Rican provinces, is beach
side located on the Pacific coast. It is about two hours from San Jose, the
capital city.
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Costa Rica boasts magnificent white-sand beaches with warm waters, a great
variety of national parks, protected areas and natural resources, surfing, sport
fishing, balloon-rides, water-rafting, mountain biking and a variety of tourist
activities. The country is blessed with a spring-like climate practically
year-round, with winter normally lasting May through November, and summer from
November to April. The country aggressively pursues foreign investment, and
travel from both tourists and businesspersons through a number of methods
including organizations owned and operated, or supported, by the Costa Rican
government and private groups. The population distribution in Costa Rica is
important to the business of the Company, and Management plans to analyze it
more carefully in the future in relation to expansion goals. Costa Rica spans
19,730 square miles with a population of over three million people, yielding an
average population density of approximately 167 inhabitants per square mile. In
comparison, it is believed that the average density figure is roughly 70 persons
per square mile in the U.S. In size, Costa Rica is often compared to West
Virginia, while its population compares to the State of Connecticut. The major
channels of communication are commercial television and radio broadcast media
and two major daily newspapers, which are published in Spanish, in addition to
two weekly English language newspapers. Further, there are a multitude of
Spanish and English magazines published in Costa Rica.
The Company's gaming operations in Costa Rica were subject to seasonal
variations, with increased attendance during the last quarter, first quarter,
and partially into the second quarter of each calendar year. Such seasonal
variations are primarily due to reliance on the tourism business. Actual
seasonal performance may vary from the aforesaid statements.
SUBSEQUENT EVENTS. The Casino Bahia was sold in May, 1998 for a sales price of
$150,000. The Casino Amon was sold in January, 1999 for a sales price of $85,000
of which $67,500 was paid and the balance of $17,500 is currently overdue. The
Company has demanded payment of the balance and is reviewing its options to
collect it. As reported in a prior Form-8K filing, the Company had settled the
matter of claims asserted by the SEC with an agreement not to commit any future
violations of securities laws. The SEC is awaiting the enclosed financials to
complete the settlement. Also, in June, 1999, the SEC staff informed the Company
that it did not timely file past report and may recommend action against the
Company. While the Company is in the process of filing overdue reports, and
expects to complete this on or about the beginning of July,1999, no assurance
exists that the SEC will not file an enforcement action against the Company.
PERSONNEL. The Company currently has one employee, its President. During the
operations of the casinos, the Company had approximately 45 full-time employees,
besides professionals and consultants, which supplied services to the Company.
The employees were primarily the casino managers, pit bosses, bookkeepers, and
other operational personnel. There are no collective bargaining agreements or
unions, of any type. Management believes its relationship with its employees is
good. No binding employment agreements exist with such personnel.
BUSINESS STRATEGY. The current strategy is to keep costs at a minimum while
pursuing viable business acquisition opportunities. The Company's previous
business strategy was to establish quality casino facilities and service
personnel providing the customer an attractive, comfortable environment. The
Company had intended, during the June 30, 1998 fiscal period, to apply its
strategies to resort, and other gaming and resort related businesses.
MARKETING. The Company believes that casino-marketing efforts should be focused
equally upon tourists as well as local inhabitants, with respect to the casino
operations. Marketing efforts focused upon informing both potential customers
and existing customers of the added benefits of attending a Company casino
facility, which include such amenities as free valet parking, and luxury casino
furnishings. The Company used radio, and outdoors print media to promote its
services and to achieve greater name recognition.
COMPETITION / GAMING REGULATORY CONCERNS. The Company faced competition from
other casino businesses in the local market areas where its facilities were
situated. The Company also faced competition from other forms of legal gambling,
such as government-sponsored lotteries. The Company's gaming facilities were
regulated by governmental agencies under laws and regulations which apply to
gaming businesses, such as a casino. Such laws and regulations affect the
ability to obtain and maintain gaming licenses, with potential for fines and
other consequences in the event violations of such laws or regulations occur.
While such laws and regulations may vary in different Latin American countries,
which are the initial focus of the Company's business pursuits, most required
background checks on employees of the business operations, the provision of
significant information to authorities pertaining to the ownership and operation
of the ventures, the payment of fees and administrative costs in order to obtain
and maintain applicable licenses, and provisions prohibiting illegal activities
in connection with the gaming businesses and barring persons who are members of
any criminal element from participating in the business ownership and/or
operation. Operations were subject to other non-gaming laws and regulations
often with respect to labor, provision of food and beverage products, and a safe
working environment for employees, besides customers.
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FORWARD STATEMENTS. Certain statements herein constitute forward-looking
statements. These statements involve known and unknown risks, uncertainties and
other factors that may cause actual results, levels of activity, performance, or
achievements to be materially different from any future results, levels of
activity, performance, or achievements expressed or implied by such
forward-looking statements. In some cases, you can identify forward-looking
statements by terminology such as "may," "will," "should," "could," "expects,"
"plans," "anticipates," "believes," "estimates," "predicts," "potential," or
"continue" or the negative of such terms or other comparable terminology.
Although we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results, levels of
activity, performance, or achievements. Moreover, neither we nor any other
person assumes responsibility for the accuracy and completeness of such
statements. The Company does not undertake to update any of the forward-looking
statements herein.
YEAR 2000 (Y2K) READINESS DISCLOSURE. The Company is subject to external Year
2000-related failures or disruptions that might generally affect industry and
commerce. Moreover, businesses might experience substantial slow-downs in
business if consumers avoid products and services such as air travel both before
and after January 1, 2000 arising from concerns about reliability and safety
because of the Year 2000 issue. All of these factors could have a material
adverse effect on the business, financial condition and results of operations
during this calendar year change. Information technology time and date data
processes including, but not limited to, calculating, comparing and sequencing
data from, into and between the 20th and 21st centuries contained in the
products and services which may be offered by the Company through future
endeavors should function accurately, continuously and without degradation in
performance and without requiring intervention or modification in any manner
that will or could adversely affect performance, given Management's position not
to start any business or acquire any business unless satisfactory confirmation
of Y2K readiness is addressed (as best as reasonable).
ITEM 2. DESCRIPTION OF PROPERTIES. The Company does not maintain any current
business office, and has relied upon facilities supplied by its Management.
During the year ended June 30, 1998, the Company, under a prior monthly service
arrangement with a corporation owned by a prior President, had access to an
office suite, conference room and storage. SEE "Item 12 Certain Relationships
and Related Transactions." The Company, through its subsidiaries, leased two
business locations in Costa Rica for most of the year ended June 30, 1998. The
obligations for these leases ended when the casinos were sold. The first lease
was for the Casino Amon, which is approximately 2,000 square feet, and provided
the following terms, in summary: a. the lease is valid for two years and six
months, dating from May 1, 1996, with extensions by ten year periods at the end
of said term; b. a monthly lease payment of $14,000 U.S. currency; c. the owner
of said premises will pay electricity charges, air-conditioning, and up keep;
the tenant shall pay taxes that correspond to the operational activity of said
premises; and the tenant agrees to maintain the establishment of the casino
within the terms of Costa Rican law. The second lease, for the Casino Bahia
Ballena location, was on the following terms (summary): a. the lease is valid
for 5 years, from June, 1997, with extensions to be negotiated; and b. the lease
fee is $9,000 per month, subject to escalations. The same provisions of c and d
above also apply.
ITEM 3. LEGAL PROCEEDINGS. Oscar Hammod v. IRT Industries, Inc., et. al., Palm
Beach County, Case # 99-1496, involves a Plaintiff who has alleged he purchased
17,000 shares of Company stock while alleged misrepresentations and omissions
were made by the Company and others, claiming damages of $100,000. The Company
did not sell him the shares. Morton Singerman v. IRT Industries, Inc., Broward
County, Case #9027018, relates to an outstanding judgment obtained by Mr.
Singerman sometime prior to 1996 against a predecessor company, which he seeks
to collect from the Company. He claims the current obligation is approximately
$30,000, but Management believes it is under $20,000. In IRT Industries, Inc. v.
International Corporation, K&Z, S.A. et al. , Broward County, Case #974323, the
Company filed a lawsuit relating to a breach of an agreement and to foreclose on
a security interest, with a Defendant by the name of Tasies asserting a
counterclaim against the Company seeking damages in excess of $300,000 alleging
the improper stopping of transfer of his stock in the Company. The Company has
been defending itself against these matters, and intends to continue to do so.
The foregoing is a summary. The Company is defending all actions. See, also,
Subsequent Events herein.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. NONE.
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PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. The Company's
common stock is traded on the National Association of Securities Dealers (NASD)
Bulletin Board market (trading-symbol: IRTG) as reported on the NASD Bulletin
Board Market System and was traded, during the year ended June 30, 1998, on the
Philadelphia Stock Exchange (trading-symbol IRG.X)( in June 1998, the Company
was informed that the Exchange determined to delist the Company). The following
sets forth, as reported by the NASD, for the periods (calendar quarters)
indicated, high and low bid prices of the Company's Common Stock:
QUARTER HIGH LOW
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CALENDAR 1997
First Quarter (Jan.-March) $7 $2.375
Second Quarter (April-June) $7 $1.375
Third Quarter (July-Sept.) $5.0625 $0.1875
Fourth Quarter (Oct.-Dec.) $2.125 $ .875.
CALENDAR 1998
First Quarter (Jan.-March) $1.5 $ .44
Second Quarter (April-June) $ .75 $ .3125
Third Quarter (July-Sept.) $ .35 $ .0625
Fourth Quarter (Oct.- Dec.) $ .33 $ .04.
The quotations reflect inter-dealer prices, without retail mark-ups, markdowns
or commissions and may not represent actual transactions. The figures have not
been adjusted as to a 1 for 10 stock split declared in September 1997. There
were 924 shareholders of record of Common Stock as at June 17, 1999. To date,
the Company has not paid any dividends on its Common Stock and does not expect
to pay any dividends in the foreseeable future. Instead, the Company intends to
retain all earnings to finance the growth and development of the Company's
businesses.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN 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, while having operating revenues during the year ended June
30, 1998, does not currently have any operating business. The financial figures
and statements herein reflect the operations of the Company with consideration
of the two prior operating casino businesses which are reflected in the
financial statements as discontinued operations. All revenue and expenditure
information discussed herein is reflected on the Consolidated Statements of Loss
as "Discontinued operations". The Company experienced an increase in revenues
and expenditures for the fiscal years ended June 30, 1997 and 1998. This
primarily resulted from the operating businesses. Since the first business was
established subsequent to the end of the June 30, 1996 fiscal year, most
revenues and expenditures resulted from operations during the June 30, 1997,
fiscal year.
REVENUES. Revenues for the Company are primarily attributed to operations of its
prior casino businesses. Revenues for the fiscal year ended June 30, 1997, were
significantly higher from the prior year given that the Company had little or no
operations prior to the June 30, 1997, fiscal year, with significant revenues
being reported during the June 30, 1997, fiscal year, due to the operation of
two businesses.
COST OF SALES, OPERATING EXPENSES, AND OTHER EXPENDITURES. Currently, Management
is seeking to maintain costs at a minimum while seeking business acquisition
opportunities. During the period ended June 30, 1998, prior increases in
revenues, as described above, reflected the same as to costs of sales, operating
expenses, and other expenditures. The Company determined to expend capital
resources to aggressively pursue the promotion of the Company and its
businesses, and it experienced the expense of having numerous employees and
consultants assist in its focus to expand, while not benefiting from any
profitable operational results.
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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
business services and products. However, the Company could not maintain the
burden of non-profitable operations, notwithstanding a long-term plan of
expansion, with initial losses. As additional casino and other business
operations were pursued, the Company knew expenditures would increase, but
believed they would be proportionately lower by being offset by revenues from
additional business pursuits. However, the benefits of additional pursuits and
profitability were not realized. Management anticipates that losses should
relatively decrease as time passes and one or more other businesses are
acquired.
PLAN OF OPERATION. The Company's plan of operation for the twelve-month period
to June 30, 1999, was to focus upon the acquisition and/or establishment of
additional revenue generating businesses in Latin America, but changed during
this period to focus on domestic opportunities in the Internet area, or other
business area. The Company believes it can satisfy cash requirements through the
end of 1999. Management believes the ability of the Company to achieve
profitability is conditioned upon several variables, but primarily the
successful pursuit of acquisitions, including the establishment of new operating
businesses.
ITEM 7. FINANCIAL STATEMENTS. Financial Statements of the Company in response to
this Item are attached beginning at F-1.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES. NONE.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;COMPLIANCE
WITH SECTION 16(A) OF THE EXCHANGE ACT.
The information below sets forth the name, age and certain information as to the
Directors and executive officers of the Company.
NAME: AGE: POSITION:
Arnold J. Wrobel 47 President, Treasurer, Secretary, and Sole
Director
On June 1, 1998, Mr. Ross John and Mr. Ronald D'Grillo became Directors of the
Company replacing Mr. Walter Asdrubal Vega Jimenz and Mr. Richard Rossi, whom
had resigned. At the request of the new Board of Messrs. John and D'Grillo, Mr.
Rossi remained as an officer of the Company until his resignation in September,
1998, with the understanding that the Board would, however, guide and direct all
matters pertaining to the Company with the assistance of a Washington D. C. law
firm, which became legal counsel and advised the Board. Subsequently, in
November, 1998, Messrs. John and D'Grillo resigned and Mr. Wrobel was appointed
to the Board, and became President.
Arnold J. Wrobel, since November, 1998, and currently, serves as the Management
of the Company. His background, for the past 5 years, has involved consulting
to private and public companies, as applicable, on the structuring of "going
public" transactions, mergers, acquisitions, hiring professionals and
consultants, and similar advice. While he has provided such service to numerous
companies in the capacity of an individual consultant for over the past five
years and more, from approximately January, 1994, until December, 1997, he
provided such services as President of his own company called American Public
Companies.
Ross L. John Sr. served as President of JohnCo. Inc., a minority contractor firm
in New York, from 1991 and while on the Board of the Company, and was President
of Big Paw Construction, Inc., a New York construction firm, during the same
period. He was also Chairman of the Seneca Nation of Indians Economic
Development Corporation , and facilitator of economic development for the Seneca
Indian Nation in New York, from 1996, and also during service in Management of
the Company, and had a degree from St. Bonaventure University in Sociology,
1983.
Richard Rossi was an attorney with various law firms from 1987, and while a
member of Management. From February 1996 to July 1996 he served as a Director of
a publicly trading company in the business of manufacture and sale of certain
automotive parts called RTI Industries, a Delaware corporation, has served with
various other companies and has a Juris Doctor degree from the University of
Miami School of Law, 1987, and a Bachelors of Science degree in Management from
Barry University, Miami Shores, Florida, 1984.
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Walter Asdrubal Vega Jimenz had a degree in Technical Legal Assistance (1990),
Costa Rica, and maintained a real estate development business since 1991 and
while a member of Management.
Ronald D'Grilllo was a Welfare & Pension Fund Administrator for the Laborers
Union Local #91 in New York from 1996 to 1997, and provided various consulting
services to various companies for hire during his business past.
ITEM 10. EXECUTIVE COMPENSATION.
EMPLOYEE SALARIES. The current President of the Company serves without
compensation at this time, and has received no compensation. See "Certain
Relationships and Related Transactions." The Directors of the Company do not
currently receive any compensation for services as Directors. No employment
agreement exists with any officers of the Company. There are no stock options,
or warrants, or bonus or profit sharing plans, with respect to the officers of
the Company.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
(A) SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS. The following table sets
forth known beneficial ownership of common stock of the Company as of June 16,
1999 by each person (except Management) owning 5% or more of the Common Stock of
the Company (also see table below).
NAME AND ADDRESS(1) AMOUNT AND NATURE PERCENT OF OWNERSHIP(2)
N/A
The Company is not aware of any person holding in excess of 5% of record of the
Common Stock of the Company.
1) Information is supplied based upon identity as a shareholder of record
without any verification of beneficial ownership which may apply as to the
identified party.(2) Rounded to nearest whole number.
(B) SECURITY OWNERSHIP OF MANAGEMENT.
NAME AND ADDRESS(1) AMOUNT AND NATURE PERCENT OF OWNERSHIP(2)
Arnold J. Wrobel 0 0
(1) Information is supplied based upon identity as a shareholder of record
without any verification of beneficial ownership which may apply as to the
identified party. (2) Rounded to nearest whole number.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. The prior President of
the Company, Mr. Rossi, through a corporation he owned, provided services to the
Company, during the prior year ended June 30, 1998, and received for services,
and supplying at his expense corporate headquarters of the Company in the U.S.,
approximately $128,000, or approximately $10,000 per month. This included office
suites, conference room, receptionist and storage facilities, photocopying,
faxing, and computers, and office supplies and personnel, including secretary
and receptionist, and reimbursement for business related expenses, and salary
consideration. From time to time, he made unsecured and non-interest bearing
loans to the Company to help it meet certain financial needs as they would
arise, which loans were repaid.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits Index - Form 10-KSB
EXHIBIT NO. DESCRIPTION EXHIBIT NO
- ----------- ----------- ----------
3(i) Articles of Incorporation Note 1
3(ii) Bylaws Note 1
4 Specimen Stock Certificate Note 1
21 Subsidiaries List Note 2
27 Financial Data Schedule
b. Reports on Form 8-K. No Reports were filed for the last quarter of the fiscal
year covered by this report.
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Note 1: Incorporated by reference to the Company's Form 10-K for the fiscal year
ended June 30, 1995, SEC Commission File Number 0-15347
Note 2: Incorporated by reference to the Company's Form 10-KSB for the fiscal
year ended June 30, 1996, SEC Commission File Number 0-15347
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SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
IRT INDUSTRIES, INC.
By: /s/ ARNOLD J. WROBEL
-------------------------------
Arnold J. Wrobel, President
Date:06/18/99
In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By: /s/ ARNOLD J. WROBEL
- -----------------------------------------------
Arnold J. Wrobel, President
(principal executive officer) and
Treasurer (principal financial officer)
Date:06/18/99
7
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IRT INDUSTRIES, INC.
CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1998 and 1997
CONTENTS
PAGE
----
INDEPENDENT AUDITOR'S REPORT F-2
CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Balance Sheets F-3
Consolidated Statements of Loss F-4
Consolidated Statements of Stockholders' Equity
(Deficiency in Assets) F-5
Consolidated Statements of Cash Flows F-6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS F-7 to F-15
F-1
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Dohan and Company 7700 North Kendall Drive, #204
CERTIFIED PUBLIC ACCOUNTANTS Miami, Florida 33156-7564
A Professional Association Telephone: (305) 274-1366
Facsimile: (305) 274-1368
INDEPENDENT AUDITOR'S REPORT
Board of Directors
IRT Industries, Inc.
Fort Lauderdale, Florida
We have audited the accompanying consolidated balance sheets of IRT Industries,
Inc. and subsidiaries at June 30, 1998 and 1997, and the related consolidated
statements of loss, stockholders' equity (deficiency in assets) and cash flows
for the years then ended. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the consolidated financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of IRT Industries, Inc.
and subsidiaries at June 30, 1998 and 1997, and the results of their operations
and their cash flows for the years then ended, in conformity with generally
accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 9 to the
financial statements, the Company has suffered recurring losses from operations,
has a working capital deficiency and has a deficiency in assets that raise
substantial doubt about its ability to continue as a going concern. Management's
plans in regard to these matters are also described in Note 9. The financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
/s/Dohan and Company, P.A.
Certified Public Accountants
Miami, Florida
June 25, 1999
F-2
<PAGE>
<TABLE>
<CAPTION>
IRT INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1998 1997
- ----------------------------------------------------------------------------------------------------------------
(RESTATED)
(SEE NOTE 2)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 9,899 $ 113
Common stock held in escrow (Note 8) 30 -
Net current assets of discontinued operations (Notes 2 and 11) 57,821 2,522,288
- ----------------------------------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 67,750 2,522,401
- ----------------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY IN ASSETS)
CURRENT LIABILITIES
Accounts payable (Note 4) 77,653 74,815
Accrued liabilities (Note 5) 29,000 60,098
Taxes payable 3,318 3,318
Net current liabilities of discontinued operations (Notes 2 and 11) 34,913 29,118
- ----------------------------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 144,884 167,349
- ----------------------------------------------------------------------------------------------------------------
COMMITMENTS AND CONTINGENCIES (NOTES 8, 9, 10 AND 11)
STOCKHOLDERS' EQUITY (DEFICIENCY IN ASSETS) (NOTE 6)
Common stock, $.0001 par value, 100,000,000 shares authorized, 6,600,331
and 1,002,328 shares issued and outstanding 660 100
Additional paid-in capital 8,761,242 7,741,503
Deficit (8,424,820) (4,976,491)
Equity adjustment from foreign currency translation - 1,230
Treasury stock, at cost (60) (60)
Stock subscription receivable (414,156) (411,230)
- ----------------------------------------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY (DEFICIENCY IN ASSETS) (77,134) 2,355,052
- ----------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY IN ASSETS) $ 67,750 $ 2,522,401
================================================================================================================
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-3
<PAGE>
<TABLE>
<CAPTION>
IRT INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF LOSS
FOR THE YEARS ENDED JUNE 30,
1998 1997
- ------------------------------------------------------------------------------------------------------------------------
(RESTATED)
(SEE NOTE 2)
<S> <C> <C>
EXPENSES
Consulting, professional and administrative fees (Notes 4, 5, 6 and 9) 959,912 545,341
Amortization (Note 2) 29,750 39,667
General and administrative 10,865 11,627
Travel and entertainment 4,621 45,050
- -------------------------------------------------------------------------------------------------------------------
TOTAL EXPENSES 1,005,148 641,685
- -------------------------------------------------------------------------------------------------------------------
OTHER INCOME
Interest income 62,995 169,206
Litigation settlement (Note 5) 11,098 -
- -------------------------------------------------------------------------------------------------------------------
TOTAL OTHER INCOME 74,093 169,206
- -------------------------------------------------------------------------------------------------------------------
LOSS FROM CONTINUING OPERATIONS BEFORE INCOME TAX BENEFITS (931,055) (472,479)
INCOME TAX (BENEFITS) (NOTE 7) - -
- -------------------------------------------------------------------------------------------------------------------
LOSS FROM CONTINUING OPERATIONS, NET OF INCOME TAX BENEFITS (931,055) (472,479)
- -------------------------------------------------------------------------------------------------------------------
DISCONTINUED OPERATIONS (NOTE 2)
Loss from operations of discontinued subsidiaries (383,066) (521,918)
Loss on abandonment of floating casino license (652,361) -
Provision for loss on future disposal of discontinued subsidiary (852,714) (409,000)
Loss on disposal of discontinued subsidiary (880,011) (117,931)
Income tax benefits (Note 7) - -
- -------------------------------------------------------------------------------------------------------------------
LOSS ON DISCONTINUED OPERATIONS, NET OF INCOME TAX BENEFITS (2,768,152) (1,048,849)
- -------------------------------------------------------------------------------------------------------------------
NET LOSS $(3,699,207) $(1,521,328)
===================================================================================================================
PRIMARY WEIGHTED AVERAGE SHARES OUTSTANDING 4,210,084 1,028,717
FULLY-DILUTED WEIGHTED AVERAGE SHARES OUTSTANDING 4,210,084 1,028,717
BASIC NET LOSS PER SHARE, PRIMARY AND FULLY-DILUTED FROM CONTINUING OPERATIONS $ (0.22) $ (0.46)
BASIC NET LOSS PER SHARE, PRIMARY AND FULLY-DILUTED FROM DISCONTINUED OPERATIONS $ (0.66) $ (1.02)
BASIC NET LOSS PER SHARE, PRIMARY AND FULLY-DILUTED $ (0.88) $ (1.48)
===================================================================================================================
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-4
<PAGE>
<TABLE>
<CAPTION>
IRT INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY IN ASSETS)
NUMBER COMMON ADDITIONAL
OF STOCK PAID-IN
DESCRIPTION SHARES AMOUNT CAPITAL
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at June 30, 1996 10,023,283 $1,002 $7,040,581
Exercise of stock purchase option 200,000 20 -
Issuance of common stock for casino interest 116,666 12 699,988
Payments on subscription receivable (Note 6) - - -
Retroactive effect for reverse stock split (9,337,621) (934) 934
Fluctuation in foreign currency - - -
Net loss for the year ended June 30, 1997 - - -
- ----------------------------------------------------------------------------------------------------------------------
BALANCE AT JUNE 30, 1997 (RESTATED) 1,002,328 100 7,741,503
======================================================================================================================
Reverse stock split (3,841,997) (384) 384
Issuance of common stock for services (Note 6) 40,000 4 4,996
Purchase of common stock 9,100,000 910 1,014,359
Payments on subscription receivable (Note 6) - - -
Common stock held in escrow related to litigation 300,000 30
Decrease in deficit from disposal of Casino Bahia Ballena (Note 2) - - -
Reclassification adjustment to foreign currency translation
for sale of subsidiary - - -
Net loss for the year ended June 30, 1998 - - -
- ----------------------------------------------------------------------------------------------------------------------
BALANCE AT JUNE 30, 1998 6,600,331 $ 660 $8,761,242
======================================================================================================================
<CAPTION>
FOREIGN
CURRENCY TREASURY
DESCRIPTION DEFICIT TRANSLATION STOCK
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at June 30, 1996 $(3,455,163) $ - $(60)
Exercise of stock purchase option - - -
Issuance of common stock for casino interest - - -
Payments on subscription receivable (Note 6) - - -
Retroactive effect for reverse stock split - - -
Fluctuation in foreign currency 1,230 -
Net loss for the year ended June 30, 1997 (1,521,328) - -
- --------------------------------------------------------------------------------------------------------------------------
BALANCE AT JUNE 30, 1997 (RESTATED) (4,976,491) 1,230 (60)
==========================================================================================================================
Reverse stock split - - -
Issuance of common stock for services (Note 6)
Purchase of common stock
Payments on subscription receivable (Note 6) - - -
Common stock held in escrow related to litigation
Decrease in deficit from disposal of Casino Bahia Ballena (Note 2) 250,878 - -
Reclassification adjustment to foreign currency translation
for sale of subsidiary - (1,230) -
Net loss for the year ended June 30, 1998 (3,699,207) - -
- --------------------------------------------------------------------------------------------------------------------------
BALANCE AT JUNE 30, 1998 $(8,424,820) $ - $(60)
==========================================================================================================================
<CAPTION>
TOTAL
STOCK STOCKHOLDERS'
SUBSCRIPTION EQUITY
DESCRIPTION RECEIVABLE (DEFICIENCY IN ASSETS)
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Balance at June 30, 1996 $(1,266,812) $ 2,319,548
Exercise of stock purchase option - 20
Issuance of common stock for casino interest - 700,000
Payments on subscription receivable (Note 6) 855,582 855,582
Retroactive effect for reverse stock split - -
Fluctuation in foreign currency - 1,230
Net loss for the year ended June 30, 1997 - (1,521,328)
- ------------------------------------------------------------------------------------------------------------------
BALANCE AT JUNE 30, 1997 (RESTATED) (411,230) 2,355,052
==================================================================================================================
Reverse stock split - -
Capital contributed - -
Issuance of common stock for services (Note 6) - 5,000
Purchase of common stock (1,015,269) -
Payments on subscription receivable (Note 6) 1,012,343 1,012,343
Common stock held in escrow related to litigation - 30
Decrease in deficit from disposal of Casino Bahia Ballena (Note 2) - 250,878
Reclassification adjustment to foreign currency translation
for sale of subsidiary - (1,230)
Net loss for the year ended June 30, 1998 - (3,699,207)
- ------------------------------------------------------------------------------------------------------------------
BALANCE AT JUNE 30, 1998 $ (414,156) $ (77,134)
==================================================================================================================
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-5
<PAGE>
<TABLE>
<CAPTION>
IRT INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JUNE 30,
1998 1997
- -----------------------------------------------------------------------------------------------------------
(RESTATED)
(SEE NOTE 2)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(3,699,207) $(1,521,328)
Adjustments to reconcile net loss to net cash provided
(used) by operating activities:
Amortization 121,478 190,179
Depreciation 32,859 33,164
Common stock issued for services 5,000 -
Foreign currency translation 71,530 1,230
Asset impairment loss 852,714 409,000
Loss on sale of discontinued operations 746,117 -
Loss on abandonment of floating casino license 652,361 -
(Increase) decrease in assets:
Net current assets of discontinued operations 237,056 (5,536)
Increase (decrease) in liabilities:
Accounts payable 2,838 41,702
Accrued liabilities (31,098) (1,000)
Net current liabilities of discontinued operations 5,795 26,215
- --------------------------------------------------------------------------------------------------------
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES (1,002,557) (826,374)
- --------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Disbursements
Purchase of property and equipment - (17,987)
- --------------------------------------------------------------------------------------------------------
NET CASH USED BY INVESTING ACTIVITIES - (17,987)
- --------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Receipts
Proceeds from issuance of common stock - 20
Payments on subscription receivable 1,012,343 855,582
- --------------------------------------------------------------------------------------------------------
RECEIPTS FROM FINANCING ACTIVITIES 1,012,343 855,602
- --------------------------------------------------------------------------------------------------------
Disbursements
Security deposit - (12,580)
- --------------------------------------------------------------------------------------------------------
DISBURSEMENTS FROM FINANCING ACTIVITIES - (12,580)
- --------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 1,012,343 843,022
- --------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH AND EQUIVALENTS 9,786 (1,339)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 113 1,452
- --------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 9,899 $ 113
========================================================================================================
SUPPLEMENTAL DISCLOSURES:
Common stock issued for services rendered $ 5,000 $ -
Common stock issued to acquire casino interest $ - $ 552,650
Common stock issued for subscription receivable $ 1,015,269 $ -
Common stock issued to acquire casino equipment $ - $ 147,350
========================================================================================================
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-6
<PAGE>
IRT INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998 AND 1997
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS ACTIVITY
IRT Industries, Inc. (IRT) was incorporated in Florida in August 1986,
as 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 IRT
changed as a result of the sale of a majority of its outstanding shares
of common stock. Under its new management, IRT 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 San Jose, Costa Rica, including a
facility leased 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), both of
which were sold in April 1998.
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.
In April 1998, the Company decided to discontinue its entire casino
operations and in February 1999 sold Juegos Ruro, S.A., its last casino
operation (See Note 2).
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 disposed of its interest in Ballena in April 1998,
and also decided to discontinue the operations of Juegos. Accordingly,
the casino operations are classified under the heading of "Discontinued
Operations," in the consolidated statements of loss. Prior year
financial statements have been restated to show the effect of
Management's decision to discontinue its casino operations.
CASH AND CASH EQUIVALENTS
For purposes of the statements 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 June 30, 1998 and 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 (See Note 3).
F-7
<PAGE>
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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. Property and equipment used in the Company's casino operations
are classified in "net current assets of discontinued operations."
Depreciation and amortization expense was $32,859 and $33,164 for June
30, 1998 and 1997, respectively and is classified in "loss from
operations of discontinued subsidiaries."
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
lease option extension period, for a total of 150 months. Operating
casino 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. These assets are reflected
in the balance sheets as "net current assets of discontinued
operations".
The amounts expended in connection with the acquisition of the Ballena
casino gaming license and leasehold interests were capitalized and were
amortized over the term of the lease, including subsequent expected
option extension periods, for a total of 130 months. Operating casino
and leasehold interests were capitalized and were amortized over the
initial term of the lease and subsequent expected extension periods,
for a total of 130 months. During the current year, any unamortized
amounts have been charged to expense in connection with the sale of
Ballena, and classified as "loss on disposal of discontinued
subsidiary."
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 or fair value less cost to
sell.
NET LOSS PER SHARE
Basic net loss per common share from continuing operations is computed
by dividing the loss from continuing operations by the weighted average
number of common shares outstanding during each period. Basic net loss
per common share from discontinued operations is computed by dividing
the loss from discontinued operations by the weighted average number of
common shares outstanding during each period Basic net loss per common
share is computed by dividing the net loss by the average number of
common shares outstanding during each period. There were no common
stock equivalents.
F-8
<PAGE>
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INCOME TAXES
Income taxes are computed under the provisions of the Financial
Accounting Standards Board (FASB) Statement 109 No. (SFAS 109),
Accounting for Income Taxes. SFAS 109 is an asset and liability
approach that requires the recognition of deferred tax assets and
liabilities for the expected future tax consequences of the difference
in events that have been recognized in the Company's financial
statements compared to the tax returns.
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 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 functional currency of the wholly-owned subsidiaries located in
Costa Rica is the colon (/cents/) and their account balances have been
translated in accordance with SFAS No. 52, "Foreign Currency
Translation." Assets and liabilities have been translated at exchange
rates as of the end of the year. The income statements at June 30, 1998
and 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
year ended June 30, 1998 and 1997, was $71,530 and $2,176,
respectively. This gain is included in the consolidated statements of
loss in determining the loss on disposal of discontinued subsidiary.
RECLASSIFICATION AND RESTATEMENT
Certain prior year amounts have been reclassified to conform to the
current year's presentation and Casino operations have been reflected
as discontinued operations.
NOTE 2. CASINO AND DISCONTINUED OPERATIONS
DISCONTINUED OPERATIONS
On April 29, 1998, the Company entered into an agreement to sell the
business and all assets and properties related to the operations of its
subsidiary, Casino Bahia Ballena, S.A. Accordingly, the results of
Ballena as well as the loss on the sale of its assets have been
reported separately as discontinued operations in the accompanying
statements, including restatement of the previous year. Net revenues
for Ballena for the years ended June 30, 1998 and 1997, were
approximately $121,000 and $154,000, respectively.
AMORTIZATION OF CASINO LICENSES AND INTERESTS
For the years ended June 30, 1998 and 1997, amortization related to the
acquisition of the floating gaming casino license was $29,750, and
$39,667, respectively, while the amortization for the operating
casinos' gaming licenses were $91,728,and $150,512, respectively.
F-9
<PAGE>
NOTE 2. ACQUISITIONS, DISCONTINUED OPERATIONS, AND RESTATEMENT (CONTINUED)
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 and another $852,714 for the
year ended June 30, 1998. The loss recognized on June 30, 1997, 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. The loss recognized on June 30, 1998, is based on the
amount recognized from the subsequent sale of the casino in 1999 and is
reflected in the consolidated statement of loss as "Provision for loss
on future disposal of discontinued subsidiary".
NOTE 3. 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 the short maturity 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 4. RELATED PARTY TRANSACTIONS
During the year ended June 30, 1998 and 1997, various legal fees of
approximately $133,409 and $120,031, respectively, were charged to the
Company by its United States legal counsel, a professional association
whose principal shareholder is also a principal shareholder, President
and Board of Directors Member of the Company. The outstanding balances
as of June 30, 1998 and 1997, were $30,504 and $20,000, respectively,
and are included in accounts payable.
NOTE 5. ACCRUED LIABILITIES
Accrued liabilities consisted of the following:
1998 1997
------------- -------------
Audit fees $ 29,000 $ 29,000
Litigation provision - 31,098
------------- ------------
$ 29,000 $ 60,098
============= ============
The litigation of Morton Singerman v. IRT Industries, Inc. was settled
in July 1997, and the Company was required to pay the amount of
$20,000, which is included in consulting, professional and
administrative fees. The Company had accrued a liability of $31,098 in
a previous year for the outstanding judgment obtained by Mr. Singerman,
in the amount of $22,173, plus interest. The difference, between the
accrued liability and settlement amount of $11,098 is classified as
other income.
F-10
<PAGE>
NOTE 6. STOCKHOLDERS' EQUITY
COMMON STOCK
The Company has authorized 100,000,000 shares of common stock with a
par value of $.0001 per share. At June 30, 1998, and June 30, 1997,
6,600,331 shares and 1,002,328 shares, respectively, were issued and
outstanding. The Company has no other authorized or outstanding
securities of any class.
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.
On October 13, 1997, the same two entities purchased an additional
4,000,000 shares of the Company's common stock for a total of $400,000.
A promissory note was signed, to be paid in monthly installments of at
least $10,000 each, and do not provide for the payment of interest.
REVERSE STOCK SPLIT
During the first fiscal 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, except for
the 4,000,000 shares of common stock sold on October 13, 1997, as
described above, the Company reverse split its common stock at a ratio
of one new share for each ten old shares issued and outstanding.
Recognition of the reverse stock split has been given in the June 30,
1998, and 1997 consolidated financial statements.
STOCK ISSUED FOR SERVICES
On September 24, 1997, the Company issued 40,000 shares of common stock
pursuant to consulting agreement with C. Daniel Consulting, Inc. These
shares have been recorded using the average quote between the bid and
asked price of the shares on the date shares were issued.
STOCK SUBSCRIPTIONS RECEIVABLE
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 each, 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 with any remaining balance would be due. The due date of the
remaining subscription receivable was verbally extended, and at June
30, 1997, $411,230, remained outstanding.
Interest in the amount of $228,674 had been imputed on this receivable
based on an annual percentage rate of 18%, and reflected in the
financial statements as a reduction in the value of the receivable.
Consequently, interest of 62,995 and $169,206 was considered earned
during the years ended June 30, 1998 and 1997, respectively.
F-11
<PAGE>
NOTE 6. STOCKHOLDERS' EQUITY (CONTINUED)
On August 15, 1997 and on October 13, 1997, the Company issued
4,000,000 shares of common stock to Corporacion de Inversiones, R&G,
S.A. and Corporacion de Inversiones, K&Z, S.A. under Stock Subscription
Agreements, for an aggregate purchase price of $800,000. Four separate
promissory notes, for $200,000 each, were executed by each of these
entities. The due date of the remaining subscription receivable was
verbally extended.
NOTE 7. INCOME TAXES
The Company and its subsidiaries 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, 1998 and 1997, the Company
generated for U.S. income tax purposes a net operating loss of
approximately $3,706,893 and $1,047,349, respectively. These loss
carryforwards expire in the years 2018 and 2012, 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
subsequently, there were ownership changes in the Company as defined in
Section 382 of the Internal Revenue Code. Because 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, in all likelihood,
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.
NOTE 8. COMMITMENTS AND CONTINGENCIES
LEASED PREMISES
Pursuant to the acquisition of the leasehold interest, discussed in
Note 2, 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 the initial lease term has been prepaid. At June
30, 1998 and 1997, prepaid rent is $28,000 and $112,000, 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 of the
agreement has since been rescinded by mutual agreement. Futhermore, 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.
F-12
<PAGE>
NOTE 8. COMMITMENTS AND CONTINGENCIES (CONTINUED)
Rent expense for the years ended June 30, 1998 and 1997, was $251,832
and $232,133, and is included under discontinued operations.
LITIGATION
On September 3, 1997, the Company entered into litigation with
International Corporation, K & Z, S.A. et al, in connection with a
lawsuit resulting from the Company's stop transfer on shares based upon
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.
The Company is a party to a pending administrative proceeding initiated
by the Securities and Exchange Commission. Although, the Commission
alleged various violations of the Securities Act of 1933 and the
Securities Exchange Act of 1934 against the Company, to date the
Commission has not filed suit. An informal settlement has been reached
in the matter which, if approved by the Commission, will not require
payment of civil fees.
In Oscar Hammond v. IRT Industries, Inc., et. al., Mr. Hammond was
allegedly a shareholder, who purchased 17,000 shares of the Company's
stock while alleged misrepresentations and omissions were made by the
Company and others. He is claiming damages of $100,000. The suit
remains pending, however, the Company expects no adverse monetary
result upon adjudication.
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.
FINECOL S.A.:
On October 22, 1996, the Company entered into a consulting agreement
(Agreement) with Finencol, S.A., (Finencol), a Colombian corporation,
which is a foreign broker-dealer engaged in the business of, among
other things, providing financial consulting and investment banking
services. The term was for one (1) year commencing on November 29,
1996, and would automatically renew for successive one-year terms. This
Agreement was subject to termination by either party upon at least
thirty day's prior written notice. Finencol was to receive $5,000 per
month as a base rate. If Finencol materially assisted the Company with
certain services as outlined in the Agreement, the Company agreed to
pay Finencol additional compensation above the base rate, in either
cash or stock as agreed by both parties in writing based on the actual
services performed which result in tangible goals being achieved by the
Company. The agreement was rescinded in November 1996.
C. DANIEL CONSULTING, INC.:
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 paid C.
Daniel Consulting, Inc. $270,000 plus issued 40,000 shares of common
stock, and $289,800 for their services for the years ended June 30,
1998 and 1997, respectively.
F-13
<PAGE>
NOTE 8. COMMITMENTS AND CONTINGENCIES (CONTINUED)
OFFICE FACILITIES AND STAFFING
The Company is also charged at least $5,000 per month under an informal
office services arrangement. Consequently, the Company is supplied with
various services, products and benefits including an office suite,
conference room, receptionist area, storage facilities, photocopying,
faxing, computers, office supplies and personnel, including a secretary
and receptionist.
YEAR 2000 ISSUES
The year 2000 issue results from certain computer systems and software
applications that use only two digits (rather than four) to define the
applicable year. As a result, such systems and applications may
recognize a date of "00" as 1900 instead of the intended year 2000,
which could result in data miscalculations and software failures. The
Company does not own any computer systems as of year-end and does not
have any key suppliers. Thus, the Year 2000 issue should not have a
material impact on the Company's financial position or results of
operations.
NOTE 9. MANAGEMENT'S PLANS
The Company's financial statements for the year ended June 30, 1998,
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, consequently there is an accumulated deficit at June 30, 1998.
The Company also experienced difficulties in paying its creditors
timely, mostly legal and professionals, according to their terms, and
certain bills were past due. These factors raise doubt about the
Company's ability to continue as a going concern without achieving
profitable operations or an infusion of capital or additional
financing. The Company believes that with the collection of the
existing stock subscription receivable it can continue for at least
another year. Were the stockholders who received shares in exchange for
a stock subscription receivable to default 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 subscription receivable and also changed their focus
to domestic opportunities in the internet area, or other business area.
The Company intends to actively pursue a business combination through a
merger or acquisition.
In connection, with the Company changing its focus to domestic
opportunities in the internet area, or other business area, the Company
discontinued all its casino operations. In February 1999, the Company
sold the business and all assets and properties related to the
operations of its subsidiary, Juegos Ruro, S.A. See Note 11.
NOTE 10. SUBSEQUENT EVENTS
On July 24, 1998, the Company authorized to be issued to various
consultants 1,500,000 shares of the common stock of the Company for
services pursuant to an S-8 registration filed on August 14, 1998. The
parties agreed that the value of each share was $.34.
In September, 1998, the President of the Company resigned and in
November, 1998, the Company confirmed the resignations of the then
directors, Mr. Ross John and Mr. Ronnie D'Gallo, who then appointed as
the new Board to serve as sole Director, Arnold Wrobel. Mr. Wrobel also
became the President, Secretary and Treasurer.
F-14
<PAGE>
NOTE 11. SUBSEQUENT EVENTS - SALE OF DISCONTINUED CASINO OPERATIONS
In February 1999, the Company entered into an agreement to sell the
business and all assets and properties related to the operations of its
subsidiary, Juegos Ruro, S.A. for a price of $81,906. A total of
$64,406 will be used to pay the Company's debts and liabilities and
$17,500 was made payable to IRT Industries, Inc. Accordingly, the
results of Juegos are reported separately as "Loss from operations of
discontinued operations" Management has also estimated a provision for
loss on future disposal of discontinued subsidiary.
Net revenues for Juegos for the years ended June 30, 1998 and 1997,
were approximately $94,500 and $210,000, respectively. Net assets of
Juegos (excluding intercompany balances) as of June 30, 1998, consisted
of the following:
1998
------------
Assets:
Cash $ 7,509
Accounts receivable 1,046
Prepaid expenses 28,000
Property and equipment, net 2,595
Due from others 3,313
Casino license, net 14,705
Other assets 653
------------
Total assets 57,821
------------
Liabilities:
Accounts payable 17,522
Due to others 2,424
Accrued liabilities 14,967
------------
Total liabilities 34,913
------------
Net assets $ 22,908
============
F-15
<PAGE>
EXHIBIT INDEX
EXHIBIT DESCRIPTION
- ------- -----------
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS FOR THE YEARS ENDED JUNE 30, 1998 AND 1997 IS QUALIFIED
INITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 12-MOS
<FISCAL-YEAR-END> JUN-30-1998 JUN-30-1997
<PERIOD-START> JUL-01-1997 JUL-01-1996
<PERIOD-END> JUN-30-1998 JUN-30-1997
<CASH> 9,899 113
<SECURITIES> 0 0
<RECEIVABLES> 0 0
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 67,750 2,522,401
<PP&E> 0 0
<DEPRECIATION> 0 0
<TOTAL-ASSETS> 67,750 2,522,401
<CURRENT-LIABILITIES> 144,884 167,349
<BONDS> 0 0
0 0
0 0
<COMMON> 660 100
<OTHER-SE> (77,794) 2,354,952
<TOTAL-LIABILITY-AND-EQUITY> 67,750 2,522,401
<SALES> 0 0
<TOTAL-REVENUES> 0 0
<CGS> 0 0
<TOTAL-COSTS> 0 0
<OTHER-EXPENSES> 1,005,148 641,685
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 0 0
<INCOME-PRETAX> (931,055) (472,479)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (931,055) (472,479)
<DISCONTINUED> (2,768,152) (1,048,849)
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (3,699,207) (1,521,328)
<EPS-BASIC> (.88) (1.48)
<EPS-DILUTED> (.88) (1.48)
</TABLE>
