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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITES AND EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1999
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES AND EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ____________________ TO _____________.
COMMISSION FILE NUMBER 0-21986
IRT INDUSTRIES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
FLORIDA 59-2720096
(STATE OR OTHER JURISDICTION OF (IRS EMPLOYER
INCORPORATION OR ORGANIZATION IDENTIFICATION NO.)
289-C COMMERCIAL BLVD.
SUITE 208
LAUDERDALE BY THE SEA, FLORIDA 33308
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
954-351-0270
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
NOT APPLICABLE
(FORMER NAME, FORMER ADDRESS AND FORMER FISCAL YEAR,
IF CHANGED SINCE LAST REPORT)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for 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 X NO __
As at 03/31/99, the registrant had outstanding 8,450,782 shares of
Common Stock, par value $0.0001.
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<PAGE>
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.
GENERAL. The Company, while having operating revenues during the prior fiscal
quarter for the period ended March 31, 1999, does not currently have any
operating business generating any revenues.
REVENUES. Revenues for the company were primarily attributed to operations of
its prior casino businesses during the March 31, 1999 quarter, which businesses
were sold prior to the period ended March 31, 1999.
COST OF SALES, OPERATING EXPENSES, AND OTHER EXPENDITURES. Currently, Management
is seeking to maintain costs at a minimum while seeking business acquisition
opportunities.
LIQUIDITY AND FINANCIAL CONDITION. The Company has experienced significant
losses from past operations. Management believes this is normal due to the
pursuit of an international rollout 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 expected.
Management anticipates that losses should relatively decrease as time passes and
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.
FORWARD STATEMENTS. Certain statements in this Prospectus constitute
forward-looking statements. 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. We make no representation to update any of the forward-looking
statements.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27 Financial data schedule
(b) Reports on Form 8-K
None.
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/ ARNOLD J. WROBEL
----------------------------------
Arnold J. Wrobel,
President and Treasurer
(Principal Executive Officer and
Principal Financial Officer)
Date 07/07/99
<PAGE>
ITEM 1.- FINANCIAL STATEMENTS IRT INDUSTRIES, INC.
CONTENTS
PAGE
----
Consolidated Balance Sheets F-2
Consolidated Statements of Loss F-3
Consolidated Statements of Stockholders' Equity F-4
Consolidated States of Cash Flows F-5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS F-6 to F-15
F-1
<PAGE>
IRT INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH JUNE
31, 1999 30, 1998
(UNAUDITED) (AUDITED)
---------- ---------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash in Bank 552 9,899
Net Current Assets of Discontinued Operations 0 57,821
Common Stock Held In Escrow 30 30
Due From Third Parties 8,500 0
---------- ----------
TOTAL CURRENT ASSETS 9,082 67,750
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts Payable 77,077 77,653
Accrued and Other Current Liabilities 29,000 29,000
Taxes Payable 3,318 3,318
Net Current Liabilities of Discontinued Operation 0 34,913
Due to Shareholder 1,000 0
---------- ----------
TOTAL CURRENT LIABILITIES 110,395 144,884
SHAREHOLDERS' EQUITY
Common Stock 845 660
Capital in Excess of Par 9,236,057 8,761,242
Accumulated Deficit (8,921,292) (8,424,820)
Treasury Stock, at Par Value (60) (60)
Stock Subscription Receivable (416,863) (414,156)
---------- ----------
TOTAL STOCKHOLDERS' EQUITY (101,313) (77,134)
---------- ----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY 9,082 67,750
========== ==========
</TABLE>
(THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THIS FINANCIAL STATEMENT)
F-2
<PAGE>
IRT INDUSTRIES, INC. AND SUBSIDIARIES
Consolidated Statements of Loss
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
March March March March
31, 1999 31, 1998 31, 1999 31, 1998
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
----------- ---------- ----------- -----------
(RESTATED) (RESTATED)
<S> <C> <C> <C> <C>
EXPENSES
Amortization $ 0 $ 9,917 $ 0 $ 29,750
Bank & Credit Card Charges 176 190 290 520
Consulting 0 33,755 287,916 571,167
Legal Settlements 0 0 0 20,000
Miscellaneous 0 5,141 0 5,412
Office Expense 0 27 45 2,151
Professional Services 15,234 66,131 123,561 174,271
Promotion & Advertising 0 0 102,000 0
Telephone 855 229 1,171 945
Transfer Agent & Service Bureau Fees 1,100 5,074 6,497 14,482
Travel & Entertainment 815 (1) 1,290 5,991
-------- ----------- --------- ------------
TOTAL EXPENSES 18,180 120,463 522,770 824,689
OTHER INCOME
Interest 17,715 7,571 52,707 41,980
-------- ----------- --------- ------------
LOSS FROM CONTINUING OPERATIONS, BEFORE
INCOME TAX BENEFIT (465) (112,892) (470,063) (782,709)
Income Tax Benefit 0 0 0 0
-------- ----------- --------- ------------
LOSS FROM CONTINUING OPERATIONS, NET OF
INCOME TAX BENEFIT (465) (112,892) (470,063) (782,709)
-------- ----------- --------- ------------
DISCONTINUED OPERATIONS
Gain (Loss) from operations of discontinued
subsidiary 90,265 (187,230) (26,409) (429,157)
Income Tax Benefit 0 0 0 0
-------- ----------- --------- ------------
INCOME (LOSS) FROM DISCONTINUED OPERATIONS, NET OF
INCOME TAX BENEFIT 90,265 (187,230) (26,409) (429,157)
-------- ----------- --------- ------------
NET INCOME (LOSS) $ 89,800 $(300,122)$(496,472)$(1,211,866)
======== =========== ======== =============
</TABLE>
(The accompanying notes are an integral part of this financial statement.)
F-3
<PAGE>
IRT INDUSTRIES, INC.
Consolidated Statements of Stockholders' Equity
<TABLE>
<CAPTION>
COMMON ADDITIONAL FOREIGN
NUMBER STOCK PAID-IN ACCUMULATED CURRENCY
OF SHARES AMOUNT CAPITAL DEFICIT TRANSLATION
------------ -------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Balance - June 30, 1997 - Audited (Restated) 1,002,326 $ 100 $7,741,50 $(4,976,491) $ 1,230
Reverse stock split (3,841,997) (384) 384 0 0
Issuance of common stock for services 40,000 4 4,996 0 0
Purchase of common stock 9,100,000 910 1,014,359 0 0
Payments received on stock for subscription receivable 0 0 0 0 0
Common stock held in escrow related to litigation 300,000 30 0 0 0
Decrease in deficit from disposal of Casino Bahia Ballena 0 0 0 250,878 0
Reclassification adjustment to foriegn currency translation
for sale of subsidiary 0 0 0 0 (1,230)
Net Loss for the year ended June 30, 1998 - Audited 0 0 0 (3,699,207) 0
------------ -------- -------- ----------- ---------
Balance - June 30, 1998 - Audited 6,600,329 660 8,761,24 (8,424,820) 0
Issuance of common stock for services 1,500,000 150 449,850 0 0
Payments received on stock for subscription receivable 0 0 0 0 0
Imputed interest on common stock receivable 0 0 0 0 0
Sale of common stock 350,000 35 24,965 0 0
Net Loss for the nine months ended March 31, 1999 - Unaudited 0 0 0 (496,472) 0
------------ ----- -------- ---------- ---------
Balance - March 31, 1999 - Unaudited 8,450,329 $ 845 $9,236,05 $(8,921,292) $ 0
============ ===== ========= =========== ========
<CAPTION>
STOCKHOLDERS'
STOCK EQUITY
TREASURY SUBSCRIPTION (DEFICIENCY)
STOCK RECEIVABLE IN ASSETS
-------- ------------ -------------
<S> <C> <C> <C>
Balance - June 30, 1997 - Audited (Restated) $ (60) $ (411,230) $ 2,355,052
Reverse stock split 0 0 0
Issuance of common stock for services 0 0 5,000
Purchase of common stock 0 (1,015,269) 0
Payments received on stock for subscription receivable 0 1,012,343 1,012,343
Common stock held in escrow related to litigation 0 0 30
Decrease in deficit from disposal of Casino Bahia Ballena 0 0 250,878
Reclassification adjustment to foriegn currency translation
for sale of subsidiary 0 0 (1,230)
Net Loss for the year ended June 30, 1998 - Audited 0 0 (3,699,207)
------- ----------- -----------
Balance - June 30, 1998 - Audited (60) (414,156) (77,134)
Issuance of common stock for services 0 0 450,000
Payments received on stock for subscription receivable 0 50,000 50,000
Imputed interest on common stock receivable 0 (52,707) (52,707)
Sale of common stock 0 0 25,000
Net Loss for the nine months ended March 31, 1999 - Unaudited 0 0 (496,472)
------- ----------- -----------
Balance - March 31, 1999 - Unaudited $ (60) $ (416,863) $ (101,313)
======== =========== ===========
</TABLE>
(The accompanying notes are an integral part of this financial statement.)
F-4
<PAGE>
IRT INDUSTRIES, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
DECEMBER
31, 1998
(UNAUDITED)
-----------
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Loss $ (496,472)
Adjustments to reconcile net loss to net cash provided
(used) by operating activities:
Common Stock Issued for Services 450,000
Decrease in Net Current Assets of Discontinued Operations 57,821
Decrease in Accounts Payable (576)
Decrease in Net Current Liabilites of Discontinued Operations (34,913)
Increase in Receivables (8,500)
Increase in Due to Shareholder 1,000
-----------
Net Cash used by operating activities (31,640)
CASH FLOWS FROM FINANCING ACTIVITIES
Receipts:
Sale of Common Stock 25,000
Payments on Stock Subscription Receivable (2,707)
-----------
Net cash provided by financing activities 22,293
-----------
NET DECREASE IN CASH AND EQUIVALENTS (9,347)
CASH AND EQUIVALENTS - BEGINNING 9,899
-----------
CASH AND EQUIVALENTS - ENDING 552
===========
SUPPLEMENTAL DISCLOSURES:
Common stock issued for services rendered 450,000
===========
Common stock sold 25,000
===========
</TABLE>
(The accompanying notes are an integral part of this financial statement.)
F-5
<PAGE>
IRT INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999 AND 1998 (UNAUDITED)
AND JUNE 30, 1998 (AUDITED)
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 March 31, 1999, and 1998 and June 30, 1998, 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-6
<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 $10,492 and $128,076 for
the nine months ended March 31, 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-7
<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 ((cent)) 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 each period. The consolidated
statements of loss at March 31, 1999 and, 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, 1999 and 1998, was $52,464 and $20,760,
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 period'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 of loss. Net revenues for Ballena for the nine months
ended March 31, 1999 and 1998, were approximately $ -0- and $108,938
respectively.
AMORTIZATION OF CASINO LICENSES AND INTERESTS
For the nine months ended March 31, 1999 and 1998, amortization
related to the acquisition of the floating gaming casino license was
$ -0-, and $29,750 respectively, while the amortization for the
operating casinos' gaming licenses were $8,639, and $8,639,
respectively.
F-8
<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 nine months ended March 31, 1999 and 1998, various legal
fees of approximately $41,000 and $90,000, respectively, were
charged to the Company by its United States legal counsel, a
professional association whose principal shareholder was also a
principal shareholder, President and Board of Directors Member of
the Company. The outstanding balances as of March 31, 1999 and 1998,
were approximately $30,000 and $ 30,000, respectively, and are
included in accounts payable.
NOTE 5. ACCRUED LIABILITIES
Accrued liabilities consisted of the following:
1999 1998
------------- -------------
AUDIT FEES $ 29,000 $ -0-
LITIGATION PROVISION - 31,098
OTHER - 68,701
------------- ------------
$ 29,000 $ 99,799
============= ============
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-9
<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 December 31, 1998, and 1997,
8,450,782 shares and 5,433,995 shares, respectively, were issued and
outstanding (See Note 2 and below). 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.
In November 1998, the Company sold 350,000 shares its common stock
for a total of $25,000 to two individuals. The funds were used to
support the casino operation in Costa Rica.
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 December 31, 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.
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.
F-10
<PAGE>
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.
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 $52,707 and $41,980 was
considered earned during the nine months ended March 31, 1999 and
1998, respectively.
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.
F-11
<PAGE>
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. As a
result of the sale of Juegos, the company is no longer committed
under this lease.
Rent expense for the nine months ended March 31, 1999 and 1998,
was $61,518 and $186,865, 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.
F-12
<PAGE>
NOTE 8. COMMITMENTS AND CONTINGENCIES (CONTINUED)
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.
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. $
-0-, and $74,500 plus 40,000 shares of common stock for their
services for the nine months ended March 31, 1999 and 1998,
respectively. This agreement was cancelled prior to January 1998.
OFFICE FACILITIES AND STAFFING
The Company was being 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 nine months ended March
31, 1999, 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 March 31, 1999.
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.
F-13
<PAGE>
NOTE 9. MANAGEMENT'S PLANS (CONTINUED)
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 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 0f $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 nine months ended March 31, 1999
and 1998, were approximately $37,816 and $77,004, respectively.
F-14
<PAGE>
EXHIBIT INDEX
EXHIBIT DESCRIPTION
- ------- -----------
27 Financial data schedule
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-01-1998
<PERIOD-END> MAR-31-1999
<CASH> 552
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 9,082
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 9,082
<CURRENT-LIABILITIES> 110,395
<BONDS> 0
0
0
<COMMON> 845
<OTHER-SE> (102,158)
<TOTAL-LIABILITY-AND-EQUITY> (101,313)
<SALES> 0
<TOTAL-REVENUES> 52,707
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 522,770
<LOSS-PROVISION> (470,063)
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (496,472)
<INCOME-TAX> 62
<INCOME-CONTINUING> (470,063)
<DISCONTINUED> (26,409)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (496,472)
<EPS-BASIC> (0.06)
<EPS-DILUTED> (0.06)
</TABLE>
