SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, .C. 20549
FORM 10-QSB
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1999.
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM _______ TO ________.
Commission File No. 1-12765
IRT INDUSTRIES, INC.
----------------------------------------------
(Exact Name of Small Business Issuer as Specified in Its Charter)
Florida 59-2720096
(State or Other Jurisdiction of (IRS Employer
Incorporation or Organization) Identification No.)
6230 Fairview Road, Suite 102, Charlotte, North Carolina 28210
(Address of Principal Executive Offices)
Issuer's Telephone Number, Including Area Code: (704) 364-2066
Check whether the issuer: (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities 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 |X| No |_|
State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date: 31,100,331 shares of common
stock as of October 31, 1999.
Transitional Small Business Disclosure Format (check one):
Yes |_| No |X|
<PAGE>
IRT INDUSTRIES, INC.
INDEX
PAGE
----
PART I. - FINANCIAL INFORMATION.............................................. 3
Item 1. Consolidated Financial Statements............................... 3
Consolidated Balance Sheets..................................... 3
Consolidated Statements of Loss................................. 4
Consolidated Statements of Stockholder's Equity
(Deficiency in Assets)........................................ 5
Consolidated Statements of Cash Flows........................... 6
Notes to Consolidated Financial Statements...................... 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations........................... 9
PART II. - OTHER INFORMATION.................................................12
Item 6. EXHIBITS AND REPORTS ON FORM 8-K................................12
(a) Exhibits........................................................15
(b) Reports on Form 8-K.............................................12
Signatures.............................................................13
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Part I. Financial Information
Financial Statements.
IRT INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPT JUNE
30, 1999 30, 1999
(UNAUDITED) (AUDITED)
----------- ---------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash in Bank $ 308 $ 1,904
Common Stock Held In Escrow 30 30
Prepaid Rent 11,960 -
---------- ----------
TOTAL CURRENT ASSETS 12,298 1,934
OTHER ASSETS
Software Licensing Agreement 10,561,800 -
---------- ----------
TOTAL ASSETS $10,574,098 $1,934
----------- ----------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts Payable $69,049 $82,330
Taxes Payable 3,318 3,318
Loan from Related Party 114,000 60,000
Loan from Others - 1,000
----------- ----------
TOTAL CURRENT LIABILITIES 186,367 146,648
SHAREHOLDERS' EQUITY
Common Stock, $.0001 par value, 100,000,000 shares
authorized and 31,100,331 and 8,450,331 shares
issued and outstanding 3,110 845
Additional paid-in capital 20,605,592 9,236,057
Accumulated Deficit (10,220,911) (9,381,556)
Treasury Stock, at cost (60) (60)
Stock Subscription Receivable,
less valuation allowance of $435,571 - -
---------- ----------
TOTAL STOCKHOLDERS' EQUITY 10,387,731 (144,714)
---------- ----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $10,574,098 $1,934
========== ==========
</TABLE>
(THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THIS FINANCIAL STATEMENT)
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<PAGE>
IRT INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF LOSS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER SEPTEMBER
30, 1999 30, 1998
(UNAUDITED) (UNAUDITED)
----------- -----------
<S> <C> <C>
EXPENSES
Consulting, Professional and Administrative Fees $ 831,317 $396,344
General and Administrative 5,584 107,771
Travel & Entertainment 2,454 475
--------- -------
TOTAL EXPENSES 839,355 504,590
OTHER INCOME
Interest - 17,669
--------- -------
- -
LOSS FROM CONTINUING OPERATIONS, BEFORE
INCOME TAX BENEFIT (839,355) (486,921)
Income Tax Benefit - -
LOSS FROM CONTINUING OPERATIONS, NET OF
INCOME TAX BENEFIT (839,355) (486,921)
--------- -------
DISCONTINUED OPERATIONS
Loss from operations of discontinued subsidiaries - (57,958)
Income Tax Benefit - -
LOSS FROM DISCONTINUED OPERATIONS, NET OF
INCOME TAX BENEFIT - (57,958)
--------- -------
NET LOSS $ (839,355) $(544,879)
========= =======
Primary and Fully-Diluted Weighted Average Shares Outstanding 23,047,614 7,709,027
Basic Net Loss Per Share, Primary and
Fully-Diluted From Continuing Operations $(0.04) $(0.06)
Basic Net Loss Per Share, Primary and
Fully-Diluted From Discontinued
Operations $- $(0.01)
Basic Net Loss Per Share, Primary and Fully-Diluted $(0.04) $(0.07)
</TABLE>
(THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THIS FINANCIAL STATEMENT.)
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<PAGE>
IRT INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON ADDITIONAL FOREIGN
NUMBER STOCK PAID-IN ACCUMULATED CURRENCY TREASURY
OF SHARES AMOUNT CAPITAL DEFICIT TRANSLATION STOCK
---------- ------ ---------- ------------ ----------- --------
<S> <C> <C> <C> <C> <C>
Balance - June 30, 1998 - Audited 6,600,331 $660 $8,761,242 $(8,424,820) $- $(60)
Issuance of common stock for services 1,500,000 150 449,850 - - -
Payments received on stock subscription
receivable - - - - - -
Issuance of common stock 350,000 35 24,965 - - -
Accrued interest on subscriptions
receivable - - - - - -
Allowance for stock subscriptions
receivable - - - - - -
Net Loss for the year ended June 30, 1999 - - - (956,736) - -
Balance - June 30, 1999 - Audited 8,450,331 $845 $9,236,057 $(9,381,556) $- $(60)
Issuance of common stock for services 1,650,000 165 824,835 - - -
Issuance of common stock for License
Agreement 21,000,000 2,100 10,544,700 - - -
Net Loss for the three months ended
September 30, 1999 - Unaudited - - - (839,355) - -
Balance - September 30, 1999 - Unaudited 31,100,331 $3,110 $20,605,592 $(10,220,911) $- $(60)
</TABLE>
(THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THIS
FINANCIAL STATEMENT.)
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<PAGE>
TOTAL
STOCKHOLDERS'
STOCK EQUITY
SUBSCRIPTION (DEFICIENCY)
RECEIVABLE IN ASSETS
------------ ------------
Balance - June 30, 1998 - Audited $(414,156) $(77,134)
Issuance of common stock for services - 450,000
Payments received on stock subscription
receivable 50,000 50,000
Issuance of common stock - 25,000
Accrued interest on subscriptions
receivable (71,415) (71,415)
Allowance for stock subscriptions
receivable 435,571 435,571
Net Loss for the year ended June 30, 1999 - (956,736)
Balance - June 30, 1999 - Audited $- $(144,714)
Issuance of common stock for services - 825,000
Issuance of common stock for License
Agreement - 10,546,800
Net Loss for the three months ended
September 30, 1999 - Unaudited - (839,355)
Balance - September 30, 1999 - Unaudited $- $10,387,731
(THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THIS
FINANCIAL STATEMENT.)
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<PAGE>
IRT INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS
ENDED
SEPTEMBER
30, 1999
(UNAUDITED)
------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net Loss $ (839,355)
Adjustments to reconcile net loss to net cash provided
(used) by operating activities:
Common Stock Issued for Services 825,000
Increase in Prepaid Rent (11,960)
Decrease in Accounts Payable (13,281)
---------
Net Cash used by operating activities (39,596)
CASH FLOWS FROM FINANCING ACTIVITIES
Receipts:
Loan from related party 53,000
---------
Net cash provided by financing activities 53,000
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of Software License Agreement 15,000
---------
NET DECREASE IN CASH AND EQUIVALENTS (1,596)
CASH AND EQUIVALENTS - BEGINNING 1,904
---------
CASH AND EQUIVALENTS - ENDING $308
SUPPLEMENTAL DISCLOSURES:
==========
Common stock issued for Software License Agreement $10,546,800
(THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THIS FINANCIAL STATEMENT.)
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<PAGE>
IRT INDUSTRIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1999 and 1998
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited condensed financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information, the instructions to Form 10-QSB and Item 310 (b) of
Regulation SB. Accordingly, they do not include all the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for fair presentation have
been included. For further information, refer to the Financial Statements and
footnotes thereto included in the Company's Annual Report on Form 10-KSB for the
year ended June 30, 1999 as filed with the Securities and Exchange Commission.
NOTE B - LOSS PER SHARE
Basic and diluted net loss per share was computed based on the weighted
average number of shares of common stock outstanding during the period.
NOTE C - RECENT DEVELOPMENTS
On August 2, 1999, the Company consummated a licensing arrangement (the
"License") with Commerce Capital Group, L.L.C., a South Carolina limited
liability company ("CCG") to market and sell CCG's proprietary "Personal Estate
Plan(TM)" (the "PEP") which allows professional and individual users to conduct
estate planning and financial planning through use of the Internet. The Company
paid CCG a license fee of 21 million shares of the Company's unregistered common
stock. Pursuant to the License, the Company was given: (i) a right to market the
PEP(TM) system to accountants, stock brokers, insurance companies and brokers,
lawyers, investment advisers, financial planners and human resource departments
(the "Customers"); (ii) a non-exclusive right to use the logos and names
relating to the PEP(TM) system which will be provided by CCG to the Company,
including Personal Estate Plan(TM), Estate Legal Services, ELS(TM) and ELS(TM);
(iii) the right to obtain any current and future amendments, of sales, usage,
limited technical, instructional and similar documentation and literature
relating to the PEP(TM) system; and (iv) the right to receive any income
generated from Customers who sign-up and use the PEP(TM) system. Under the
License, the Company's initial geographic territory is limited to Florida,
although the Company has the option to expand its territory to Alabama,
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<PAGE>
Georgia, Mississippi and Tennessee by paying additional license fees in the form
of shares of the Company's common stock.
On August 2, 1999, the Company changed its corporate headquarters to
6230 Fairview Road, Suite 102, Charlotte, North Carolina 28210 and changed its
telephone number to 704-364-2066. At the same time, the following officers and
directors were appointed: (i) Laurence F. Spears, as Chairman of the Company's
Board of Directors; (ii) Dale K. Chapman, as President, Secretary, Treasurer and
Director; and (iii) Eric F. Heintschel, as Director. Gary N. Dixon, Sr., who was
the immediately preceding Chairman and a director, resigned in both capacities
and was appointed to serve on a newly established advisory committee for the
Company. Laurence F. Spears resigned as Chairman of the Company's Board of
Directors for personal and professional reasons on October 11, 1999 and James H.
Feeney was appointed as a director on October 18, 1999.
On September 22, 1999, the Company announced that it expects to begin
doing business under the name, "Xpedian.com, Inc." The Company intends to change
its name from IRT Industries, Inc. to Xpedian.com, Inc. at the next shareholders
meeting..
NOTE D - LICENSE VALUATION
The amounts expended in connection with the acquisition of the License
has been capitalized and will be amortized over its estimated useful life. The
Company acquired the License in exchange for 21,000,000 shares of its common
stock. For purposes of presentation in these financial statements and notes
thereto, the value assigned to the License was based on the average per-share
closing price of the Company's stock during the 30 days immediately preceding
the effective date of the License. Management will re-evaluate this valuation
prior to the end of the current fiscal year and, if necessary, adjust its
carrying value.
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<PAGE>
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Forward-Looking Statements
This Quarterly Report on Form 10-QSB (the "Report") contains
forward-looking statements concerning, among other things, the Company's
expected future revenues, operations and expenditures, competitors or potential
competitors, and licensing and distribution activity. These forward-looking
statements are identified by the use of terms and phrases such as "anticipate,"
"believe," "could," "estimate," "expect," "intent," "may," "will," "plan,"
"predict," "potential," and similar terms and phrases, including references to
assumptions. These statements are contained in each Part of this Report and in
the documents incorporated by reference herein. These forward-looking statements
represent the expectations of the Company's management as of the filing date of
this Report. The Company's actual results could differ materially from those
anticipated by the forward-looking statements due to a number of factors,
including:(i) limited operating history; (ii) need for financing; (iii)
dependence upon single employee; (iv) reliance on single license; (v) compliance
with law; (vi) lack of sales; (vii) reliance of revenue growth on economic
conditions; (viii) competition; (ix) control by majority shareholder; (x)
absence of dividends; (xi) changes in federal estate tax; (xii) government
regulation of the Internet; (xiii) failure of computer systems to recognize the
Year 2000; and the other risks and uncertainties described elsewhere herein and
in the Company's Annual Report on Form 10-KSB for the fiscal year ended June 30,
1999 under the caption, "Factors Affecting Future Operating Results" under Item
2. - "Management's Discussion and Analysis of Financial Condition and Results of
Operations."
The Company is under no obligation to revise or publicly release the
results of any revision to these forward-looking statements. Readers should
carefully review the risk factors described in other documents the Company files
from time to time with the Securities and Exchange Commission ("SEC").
The following discussion and analysis provides information which the
Company's management believes is relevant to an assessment and understanding of
the Company's results of operations and financial condition. This discussion
should be read in conjunction with the financial statements and notes thereto
appearing elsewhere herein.
Overview
Near the end of fiscal year 1998, the Company changed its focus from
owning and operating casinos and related activities to focus on domestic
opportunities in the Internet area. Subsequently, in 1999, the Company
discontinued its casino operations and began an active search for domestic
Internet opportunities. The Company sold its final remaining casino operation in
February 1999. In April 1999, the Company made an unsuccessful attempt to
purchase ThinkBid, an Internet auction site. On August 2, 1999 the Company
entered into a license agreement with Commerce Capital Group, L.L.C. ("CCG")
giving the Company rights to
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<PAGE>
market and sell in a specific geographic territory CCG's emerging line of
Internet-based financial services products. Management believes the ability of
the Company to achieve profitability is conditioned upon both the successful
exploitation of the Company's license agreement with CCG and upon the successful
pursuit of additional acquisitions that support the overall business plan of the
Company. The Company's plan of operation for the twelve month period ending June
30, 2000 is to continue to focus upon the acquisition and/or establishing of
revenue-generating businesses in the domestic Internet market.
During the quarter ended September 30, 1998, the Company had both
operating revenues and operating businesses. Thus the financial statements for
the quarter ended September 30, 1998 contain the revenues, gains and losses
incurred as a result of those operations. During the quarter ended September 30,
1999, the Company did not have revenues from operations. As the result of the
license agreement with CCG, from August 2, 1999 to September 30, 1999, the
Company focused upon reorganization, audits, completing periodic reports to the
SEC on a timely basis, acquiring necessary financing and developing the sales
strategies and pipelines necessary to market the products that it anticipates as
a result of the license agreement with CCG.
Results of Operations
Three Months Ended September 30, 1999 Compared with the Three Months Ended
September 30, 1998
Revenues. Net revenues for both quarters remained at zero. Revenue collected
during the quarter ended September 30, 1998 was credited to the subsidiaries
that generated the revenue. When consolidated for the Company's financial
reporting, these revenues were offset by losses posted due to discontinued
casino operations.
Expenses. Expenses for the quarter ended September 30, 1999 increased by 66%.
This increase is primarily the result of consulting fees which were paid with
1,650,000 shares of the Company's common stock on July 30, 1999.
Other Income. Other income for the quarter ended September 30, 1999 decreased by
100%, from $17,669 to zero. This decrease is due to the previously mentioned
lack of operating revenues and a corresponding decrease in interest income.
Losses. Losses posted due to Continuing Operations for the quarter ended
September 30, 1999 increased by 73%. As with expenses, this increase is
primarily attributable to the increase in consulting fees posted during the
quarter. Losses posted due to Discontinued Operations for the quarter ended
September 30, 1999 decreased by 100%, from ($57,958) to zero. This decrease is
attributed to the Company's cessation of casino operations during the fiscal
year ended June 30, 1999. The actual and foreseeable losses due to the Company's
cessation of casino operations were accounted for in the fiscal year in which
the decision was made. The Company experienced a net loss of $839,366 for the
quarter ended September 30, 1999. When compared
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<PAGE>
to the previous year, the Company experienced a 54% increase in net loss. This
increase reflects all of the income and loss changes described above that
occurred between 1998 and 1999.
Net Loss Per Share. Net Loss Per Share (Primary and Fully-Diluted) decreased by
43% from $.07 in the quarter ended June 30, 1999 to $.04 in the quarter ended
September 30, 1999. This decrease is primarily due to the increase in shares
outstanding, which resulted from the license agreement with CCG and the stock
paid to consultants during the quarter. Had the number of shares outstanding
remained constant, the Loss per share would have increased by 54%.
Liquidity and Capital Resources
As of September 30, 1999, cash and cash equivalents were $308 as
compared with $1,904 at June 30, 1999. The Company reported losses for the
quarter ended September 30, 1999 of $839,366. The Company will continue to incur
operating losses until it launches its Internet estate planning business and
realizes revenues. The Company had working capital of $ (186,059) at September
30, 1999 as compared to $ (144,714) at June 30, 1999.
The Company has experienced significant losses from past operations.
The Company anticipates that it will continue to experience losses during the
fiscal quarter ending December 31, 1999 as it develops and implements sales and
advertising campaigns promoting the Company's financial services products.
Management anticipates that losses should decrease as time passes due to product
sales and resulting revenues. The Company acquired $53,000 in short-term loans
to finance operations until arrangements for more substantial financing were
completed.
The Company expects to fund its first expansion into domestic Internet
businesses from funds that are to be derived from financing from outside
sources. Once the Company launches its products and begins generating revenues,
the Company hopes to use its operating revenues to fund expansion. However,
there can be no assurance that outside financing will be available or that
future revenues will be generated in sufficient amounts or that additional funds
will not be required for the continued expansion of operations. The Company
intends to meet its short-term and long-term liquidity needs through additional
financing from outside sources. There can be no assurance that the Company will
achieve profitability or positive cash flows. If the Company is not successful
in raising additional funds, it may be required to limit the scope of its
proposed expansion into domestic Internet businesses.
On September 23, 1999, the Company entered into a loan arrangement with
Diamond Point Partners, L.L.C., a Florida limited liability company ("DPP"), in
which DPP agreed to provide an aggregate loan of $ 2.7 million dollars to the
Company ("Loan") to be funded in three tranches of $900,000. The Loan would be
repayable approximately one year after the first funding, with an option given
to the Company under certain conditions to extend the maturity of the principal
amount of the Loan for approximately two one year periods. To secure payment of
the Loan, the Company pledged 18,000,000 shares of its common stock. DPP has
advised the Company that the first tranche of the Loan in an aggregate amount of
$900,000 will be funded
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to the Company in mid-November 1999. The proceeds of the Loan will be used by
the Company for working capital needs. There can be no assurance that the Loan
will be funded at all or completely, or, if funded, that the Company will be
able to repay the Loan when due.
Inflation and Seasonality
The rate of inflation was insignificant during the year ended June 30,
1999. The Company's business is not expected to be seasonal.
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10.1 Promissory Note dated as of September 23, 1999 by IRT Industries,
Inc.
10.2 Pledge Agreement dated as of September 23, 1999 by and among IRT
Industries, Inc. and Diamond Point Partners, LLC
27.1 Financial Data Schedule
(b) Reports on Form 8-K
The Company filed a Report on Form 8-K dated August 2, 1999 (date of
earliest event reported).
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<PAGE>
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.
Dated: November 15, 1999
By: /s/Dale K. Chapman
------------------------------------
Name: Dale K. Chapman
Title: President
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<PAGE>
EXHIBIT INDEX
-------------
Exhibit
Number Description
- ------ -----------
10.1 Promissory Note dated as of September 23, 1999 by IRT Industries,
Inc.
10.2 Pledge Agreement dated as of September 23, 1999 by and among
IRT Industries, Inc. and Diamond Point Partners, LLC
27.1 Financial Data Schedule
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<PAGE>
Exhibit 10.1
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR THE SECURITIES LAWS OF
ANY STATE, AND MAY NOT BE OFFERED, SOLD TRANSFERRED, PLEDGED, HYPOTHECATED OR
OTHERWISE DISPOSED OF EXCEPT PURSUANT TO (i) AN EFFECTIVE REGISTRATION STATEMENT
UNDER THE ACT AND ANY APPLICABLE STATE LAWS, (ii) TO THE EXTENT APPLICABLE, RULE
144 UNDER THE ACT (OR ANY SIMILAR RULE UNDER THE ACT RELATING TO THE DISPOSITION
OF SECURITIES), OR (iii) AN OPINION OF COUNSEL, IF SUCH OPINION SHALL BE
REASONABLY SATISFACTORY TO COUNSEL TO THE ISSUER, THAT AN EXEMPTION FROM
REGISTRATION UNDER THE ACT AND APPLICABLE STATE LAW IS AVAILABLE.
PROMISSORY NOTE
---------------
$2,700,000.00 September 23, 1999
FOR VALUE RECEIVED, the undersigned, IRT Industries, Inc. ("Maker"),
hereby promises to pay to the order of Diamond Point Partners, L.L.C., a Florida
limited liability company, or its assigns (the "Noteholder"), in lawful money of
the United States of America, and in immediately payable funds, the principal
sum of up to Two Million Seven Hundred Thousand and no/100 ($2,700,000.00)(the
"Funds"). The principal hereof, to the extent funded in accordance with
Paragraph 1 hereof, and (subject to the provisions of Paragraph 1 hereof) any
unpaid accrued interest thereon shall be due and payable One (1) year and Two
(2) weeks from the first delivery of funds, as set forth in Paragraph 1 (the
"Maturity Date") (unless such payment date is accelerated as provided in
Paragraph 6 hereof or extended by the Noteholder as provided in Paragraph 3
hereof). Payment of all amounts due hereunder shall be made at the address of
the Noteholder provided for in Paragraph 7 hereof. Subject to the provisions of
Paragraph 1 hereof, the Company further promises to pay interest at the rate
equal to the LIBOR (6 month rate) plus 2% per annum (exact interest rate to be
determined on date of first delivery of funds) on the outstanding principal
balance hereof, such interest accruing monthly from delivery of the Funds and
payable upon the Maturity Date.
To secure payment of this Note, the Maker has pledged an aggregate of
Eighteen Million (18,000,000) shares of the Maker's common stock ("Pledged
Stock") pursuant to the terms of a certain Pledge Agreement by and between IRT
Industries, Inc. and Diamond Point Partners, L.L.C. of even date herewith (the
"Pledge Agreement"). A copy of the Pledge Agreement is attached hereto as
Exhibit A. THE PROVISIONS OF THE PLEDGE AGREEMENT ARE INCORPORATED HEREIN BY
REFERENCE.
1. LOAN; DELIVERY OF FUNDS. The Two Million Seven Hundred Thousand
Dollars and no/100 ($2,700,000.00) Dollars shall be delivered by the Noteholder
to the Maker pursuant to the following schedule: (a) Nine Hundred Thousand and
no/100 ($ 900,000.00) Dollars shall be paid in no less than Three (3) weeks and
no more than Six (6) weeks from the date hereof ("Initial Funding"); (b)
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Nine Hundred Thousand and no/100 ($ 900,000.00) Dollars shall be paid Two (2)
weeks thereafter ("Second Funding"); and (c) the remaining Nine Hundred Thousand
and no/100 ($ 900,000.00) Dollars shall be paid Two (2) weeks following the
second payment ("Third Funding"); provided, however, that the full amount of the
Two Million Seven Hundred Thousand Dollars and no/100 ($2,700,000.00) Dollars
will be paid within a minimum of Seven (7) weeks and a maximum of Ten (10) weeks
from the date hereof. In addition to the remedies set forth in the Pledge
Agreement, in the event the Noteholder does not deliver either of the Second
Funding or the Third Funding to the Maker, then this Note will automatically
become interest-free and the Maker will not owe any interest, whether previously
accrued or thereafter accruing.
2. EXERCISE OF RIGHTS UNDER PLEDGE AGREEMENT. In the event Noteholder
declares a default pursuant to Paragraph 6 hereof and exercises its rights under
the Pledge Agreement with respect to any of the Pledged Stock, the Pledged Stock
shall be valued at the average for the previous Thirty (30) consecutive trading
days of the average of the bid and ask price of the Pledged Stock prior to the
date of the applicable Foreclosure (as defined in the Pledge Agreement).
3. EXTENSION OF MATURITY DATE. The Maker shall have the right, in its
sole discretion, to extend the maturity of this Note for up to Two (2)
additional One (1) year and Two (2) weeks periods (the "Extended Maturity
Date"), provided that the Maker tenders to Noteholder all interest due as of the
then existing Maturity Date. The Maker's election to extend the Maturity Date
shall be effectuated by delivery of written notice of such extension of any time
prior to the Maturity Date then in effect. Additional interest shall then accrue
from the then existing Maturity Date on a monthly basis unless pre-paid by the
Maker as set forth in Paragraph 4 or until the Extended Maturity Date and is
payable to Noteholder on the Extended Maturity Date.
4. PREPAYMENT. The Maker shall have the right to prepay this Note at
any time, thereby having no further obligation to pay interest beyond the date
of such prepayment. Notwithstanding anything to the contrary, if and only if,
funding of all three installments of the Funds has occurred as set forth under
Paragraph 1, the Pledged Securities shall remain pledged, pursuant to the Pledge
Agreement, for a minimum of One (1) year and Two (2) weeks, or if the term of
this Note is extended as set forth in Paragraph 3 herein, the Pledged Securities
shall remain pledged for an additional period of One (1) year and Two (2) weeks
for each such extended term.
5. TRANSFERABILITY. This Note shall be freely transferable by the
Noteholder provided such transfer is in compliance with applicable federal and
state securities laws.
6. DEFAULT. The occurrence of any one of the following events shall
constitute an Event of Default:
a. The non-payment, when due, of any principal or interest
pursuant to this Note;
b. The commencement by the Maker of any voluntary proceeding under
any bankruptcy, reorganization, arrangement, insolvency, readjustment or debt,
receivership, dissolution, or liquidation law or statute or any jurisdiction,
whether now or hereafter in effect; or the adjudication of the Maker as
insolvent or bankrupt by a decree of a court of competent jurisdiction; or the
petition or application by the Maker for acquiescence in, or consent by the
Maker to, the appointment of any receiver or trustee for the Maker or for all or
a substantial part of the property of the Maker; or the assignment by
-17-
<PAGE>
the Maker for the benefit of creditors; or the written admission of the Maker of
its inability to pay its debts as they mature; or
c. The commencement against the Maker of any proceeding relating
to receivership, dissolution or liquidation law or statute or any jurisdiction,
whether now or hereafter in effect; provided, however, that the commencement of
such a proceeding shall not constitute an Event of Default unless the Maker
consents to the same or admits in writing the material allegations of same, or
said proceeding shall remain undismissed for Twenty (20) days; or the issuance
of any order, judgment or decree for the appointment of a receiver or trustee
for the Maker or for all or a substantial part of the property of the Maker
which order, judgment or decree remains undismissed for 20 days; or a warrant of
attachment, execution, or similar process shall be issued against any
substantial part of the property of the Maker.
Upon the occurrence of any Event of Default, the Noteholder may, by
written notice to the Maker (a) declare all or any portion of the unpaid
principal amount due to Noteholder, together with all accrued interest thereon,
immediately due and payable, and/or (b) foreclose upon the Pledged Securities.
7. NOTICES. All notices provided for in this Note shall be in writing
signed by the party giving such notice, and delivered personally or sent by
overnight courier or messenger or sent by registered or certified mail (air mail
if overseas), return receipt requested, or by telex, facsimile transmission,
telegram or similar means of communication. Notices shall be deemed to have been
received on the date of personal delivery, telex, facsimile transmission,
telegram or similar means of communication, or if sent by overnight courier or
messenger, shall be deemed to have been received on the next delivery day after
deposit with the courier or messenger, or if sent by certified or registered
mail, return receipt requested, shall be deemed to have been received on the
third business day after the date of mailing. Notices shall be sent to the
following addresses:
If to the Maker:
----------------
IRT Industries, Inc.
6230 Fairview Road, Suite 102
Charlotte, North Carolina 28210
Attention: President
Tel: 704-364-2066
Fax: 704-364-7172
With copy to:
Parker Chapin Flattau & Klimpl, LLP
1211 Avenue of the Americas
New York, New York 10036
Attention: Melvin Weinberg, Esq.
Tel: 212-704-6418
Fax: 212-704-6288
-18-
<PAGE>
If to Noteholder:
-----------------
Diamond Point Partners, LLC
c/o Shapiro & Dector, P.A.
7777 Glades Road, Suite 200
Boca Raton, Florida 33434
Attention: Michael Shapiro, Esq.
Tel: 561-477-7800
Fax: 561-477-7722
With copy to:
Austin Bleich
150 West 96th Street, Apt. 9-D
New York, New York 10025
Tel: 212-665-4550
Fax: 212-316-5025
8. CONSENT TO JURISDICTION AND SERVICE OF PROCESS. The parties hereto,
consent to the jurisdiction of any court of the State of Florida and of any
federal court located in Florida. Palm Beach County, Florida shall be proper
venue.
9. GOVERNING LAW. THIS NOTE HAS BEEN DELIVERED IN BOCA RATON, FLORIDA
AND SHALL BE GOVERNED BY AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH THE
LAWS OF THE STATE OF FLORIDA, APPLICABLE TO CONTRACT MADE AND TO BE PERFORMED
ENTIRELY THEREIN, WITHOUT GIVING EFFECT TO THE RULES AND CONFLICTS OF LAW.
10. RULES OF INTERPRETATION. The terms and conditions of this Note
shall be deemed to have been prepared jointly by all of the parties hereto. Any
ambiguity or uncertainty existing hereunder shall not be construed against any
one of the drafting parties, but shall be resolved by reference to the other
rules of interpretation of contracts as they apply in the State of Florida.
11. CONFORMITY WITH LAW. It is the intention of the Maker and the
Noteholder to conform strictly to applicable usury and similar laws.
Accordingly, notwithstanding anything to the contrary in this Note, it is agreed
that the aggregate of all charges which constitute interest under applicable
usury and similar laws that are contract for, chargeable or receivable under or
in respect of this Note, shall under no circumstances exceed the maximum amount
of interest permitted by such laws, and any excess, whether occasioned by
acceleration or maturity of this Note or otherwise, shall be canceled
automatically, and if theretofore paid, shall be either refunded to the Maker or
credited on the principal amount of this Note.
-19-
<PAGE>
IN WITNESS WHEREOF, the Maker has signed and sealed this Note and
delivered it in Boca Raton, Florida as of September 23, 1999.
IRT INDUSTRIES, INC.
By: /s/Dale K. Chapman
----------------------------------------
Name: Dale K. Chapman
Title: President
ACCEPTED AND AGREED:
DIAMOND POINT PARTNERS, LLC
By: /s/ Austin Bleich
- ---------------------------------------
Name: Austin Bleich
Title: Member
-20-
<PAGE>
Exhibit 10.2
PLEDGE AGREEMENT
This PLEDGE AGREEMENT dated as of September 23, 1999 is by and among
IRT Industries, Inc. (the "Pledgor") and Diamond Point Partners, LLC (the
"Pledgee").
The terms and conditions of this Agreement are as follows:
1. The Pledged Securities. The property subject to this Agreement is
Eighteen Million (18,000,000) shares of the Pledgor's common stock, par value
$.0001 per share (the "Pledged Securities").
2. Delivery and Pledge.
a. The Pledgor has previously delivered or is delivering herewith
to Raymond James & Associates, Inc. ("Raymond James") the Pledged Securities
together with stock powers duly endorsed in blank with signature guarantee. All
Pledged Securities shall be held in pledge in accordance with the terms of this
Agreement as security for the payment and performance of the Pledgor's
obligations and agreements now existing or hereafter arising under that certain
Promissory Note issued by IRT Industries, Inc. in favor of Diamond Point
Partners, L.L.C. on the date hereof (the "Note") (a copy of which is attached
hereto as Exhibit A) (such obligations and agreements hereafter collectively
referred to as the "Obligations"). Upon delivery of the Pledged Securities, the
parties will cause Raymond James to deliver to both the Pledgor and the Pledgee
a Safekeeping Receipt which shall be in substantially the same form as attached
hereto as Exhibit B.
b. Subject to the actual exercise by the Pledgor of its rights in
respect of the Pledged Securities pursuant to this Agreement, the Pledgee shall
have and may exercise all rights of a pledgee with respect to the Pledged
Securities; provided, however, that the Pledgee may not register the Pledged
Securities in its name or in the name of its nominee or nominees, as pledgee,
unless an Event of Default pursuant to Section 6 has occurred.
3. Voting Rights; Distributions. Pledgee shall have no rights to
vote the Pledged Securities, or to receive any dividends or distributions on the
Pledged Securities, unless and until a Foreclosure (as defined in Section 7)
occurs.
4. Representation and Warranties.
a. The Pledgor hereby makes the following representations and
warranties with respect to the Pledged Securities, all of which shall survive so
long as the Obligations exist: (i) the Pledged Securities are duly issued and
are free and clear of all liens, charges and encumbrances whatsoever; (ii) the
Pledgor has full power and authority to execute, deliver and
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<PAGE>
perform its obligations under this Agreement and to pledge the Pledged
Securities in accordance with the terms hereof; (iii) all corporate action on
the part of the Pledgor and its officers, directors, stockholders, employees and
agents necessary for the authorization, execution and delivery of this Agreement
and the performance by the Pledgor of the Obligations hereunder has been duly
taken; (iv) this Agreement has been duly executed and delivered by the Pledgor
and constitutes the legal, valid and binding agreement of the Pledgor; (v) this
Agreement creates a valid first lien and perfected security interest in the
Pledged Securities; and (vi) none of the Pledged Securities is subject to any
prohibition against encumbering, pledging, hypothecating or assigning the same
or requires notice or consent in connection therewith; except, however, as
expressly set forth in a certain restrictive legend appearing on the reverse
side of the certificate representing such Pledged Securities which states as
follows, "The shares represented by this Certificate have not been registered
under the Securities Act of 1933 (the "Act") and are "restricted securities" as
that term is defined in Rule 144 under the Act. The shares may not be offered
for sale, sold or otherwise transferred except pursuant to an effective
registration statement under the Act or pursuant to an exemption from
registration under the Act, the availability of which is to be established to
the full satisfaction of the Company."
b. Pledgee represents that it has provided full consideration for
the Pledged Securities, and the pledge hereunder is intended to be a bona fide
pledge for purposes of the Act.
5. Covenants of Pledgor.
a. The Pledgor hereby covenants and agrees that for so long as
this Agreement shall remain in force and effect, it will not sell, convey or
dispose of any of the Pledged Securities or any interest therein, or create,
incur or permit to exist any pledge, mortgage, lien, charge, encumbrance or
other security interest whatsoever with respect to any of the Pledged
Securities.
b. The Pledgor hereby covenants and agrees to defend the Pledgee's
right, title and interest in and to the Pledged Securities against the claims of
any person, firm, corporation or other entity.
c. The Pledgor hereby covenants and agrees to immediately take all
action necessary (including, without limitation, using its best efforts to
ensure that the Pledgor's transfer agent effects a registered transfer to the
Pledgee of the Pledged Securities), to transfer the Pledged Securities to
Pledgee's name after the occurrence of an Event of Default (as defined in
Section 6 hereof).
6. Events of Default. Any of the following shall constitute an Event of
Default:
a. An Event of Default under the Note; or
b. An attempt by the Pledgor to sell or otherwise transfer any of
the Pledged Securities in contravention of the provisions of this Agreement; or
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<PAGE>
c. The Pledgor permits any of the Pledged Securities to become
subject to any pledge, assignment, lien, charge or encumbrance other than the
pledge under this Agreement.
7. Remedies on Default. In the event that an Event of Default shall
have occurred, Pledgee shall have the right to foreclose (a "Foreclosure") upon
the Pledged Securities, thereby becoming the owner of such number of the Pledged
Securities which shall equal the number of shares of the Pledgor's common stock
resulting from dividing: (i) the total principal and unpaid but accrued interest
on the Note by (ii) the average of the bid and ask prices for the Pledgor's
common stock for the thirty (30) consecutive trading days prior to such Event of
Default (such number of Pledged Securities hereafter referred to as the
"Foreclosed Securities"). Pledgee shall promptly notify the Pledgor of its
election to foreclose on the Pledged Securities. Any remaining number of shares
of the Pledged Securities shall be returned to the Pledgor.
8. Raymond James. Upon the election by the Pledgee to foreclose upon
the Pledged Securities hereunder, Pledgee shall notify Raymond James of such
election simultaneously with its notice to the Pledgor in accordance with the
provisions of Section 7 and Section 13 hereof. As soon as practicable after
receipt of such notice, the parties will cause Raymond James to deliver to the
Pledgor's transfer agent (Securities Transfer Corporation, P.O. Box 701629,
Dallas, Texas 75370, Attention: George Johnson, Tel: 972-447-9890)("Transfer
Agent") the share certificate evidencing the Pledged Securities and the
accompanying stock powers with a notice that such documents are being delivered
by Raymond James merely as an agent for Pledgee under this Agreement.
All additional instructions to the Transfer Agent with respect to
Foreclosed Securities shall come from the Pledgee or the Pledgor, as the case
may be. The parties hereto acknowledge that Raymond James is acting as a
depositary of the Pledged Securities for the benefit of the Pledgor and the
Pledgee. Neither Raymond James nor the Pledgee shall have the power to act for
or give instructions on behalf of the Pledgor nor shall they be deemed to have
any such duty absent a written agreement signed by Raymond James and/or the
Pledgee agreeing to accept such duty.
-23-
<PAGE>
9. Duration of the Pledge; Termination.
a. This Agreement and the pledge hereunder shall remain in full
force and effect until the date on which all of the Obligations are satisfied.
Upon such satisfaction, the Pledged Securities shall be immediately returned to
the Pledgor (and the Pledgee agrees to give Raymond James the necessary
instructions to cause the Pledged Securities to be immediately returned to the
Pledgor) and this Agreement shall terminate. Notwithstanding anything to the
contrary, if and only if, funding of the loan under the Note has occurred, the
Pledged Securities shall remain subject to this pledge for a minimum of One (1)
year and Two (2) weeks, or if the term of the Note is extended as set forth in
Paragraph 3 of the Note therein, the Pledged Securities shall remain subject to
this pledge for an additional One (1) year and Two (2) weeks for each extended
term.
b. The parties hereto hereby agree that unless the Pledgor
receives all three installments of the funding provided for in Paragraph 1 of
the Note, the Pledged Securities shall be immediately returned to the Pledgor
(and the Pledgee agrees to give Raymond James the necessary instructions to
cause the Pledged Securities to be immediately returned to the Pledgor) Ten (10)
weeks after the date hereof and this Agreement shall thereupon terminate.
10. Transfer of Pledge Agreement. The parties hereto hereby agree that,
subject to the provisions of Section 4(a) hereof and the legend appearing on the
Note and the certificate representing the Pledged Securities, the Pledgee may
transfer in whole or in part all of its right, title and interest under and
pursuant to this Agreement to any other individuals or entities upon written
notice to the Pledgor. Upon any such transfer, all of the terms, conditions and
covenants herein shall enure to the benefit of and be binding upon such
transferees. Upon any such transfer, all of the rights to the Pledged Securities
of Pledgee shall be transferred to such transferees.
11. Further Assurances. The Pledgor and the Pledgee shall at any time
and, from time to time, upon the written request of any party, execute and
deliver such further documents, including without limitation, representation
letters, and do such further acts and things as each party may reasonably
request in order to effectuate the purposes of this Agreement and in order to
create, preserve and perfect the interest granted pursuant hereto.
12. Amendments; Waiver; Consent. No amendment or waiver of any
provision of this Agreement, nor consent to any departure by any party
therefrom, shall in any event be effective unless the same shall be in writing
and signed by all parties, and then such waiver or consent shall be effective
only in the specific instance and for the specific purpose for which given.
13. Notices. All notices provided for in this Agreement shall be in
writing signed by the party giving such notice, and delivered personally or sent
by overnight courier or messenger or sent by registered or certified mail (air
mail if overseas), return receipt requested, or by telex, facsimile
transmission, telegram or similar mean of communication. Notices shall be deemed
to have been received on the date of personal delivery, telex, facsimile
transmission, telegram or
-24-
<PAGE>
similar means of communication, or if sent by overnight courier or messenger,
shall be deemed to have been received on the next delivery day after deposit
with the courier or messenger, or if sent by certified or registered mail,
return receipt requested, shall be deemed to have been received on the third
business day after the date of mailing. Notices shall be sent to the following
addresses:
If to the Pledgor:
------------------
IRT Industries, Inc.
6230 Fairview Road, Suite 102
Charlotte, North Carolina 28210
Attention: President
Tel: 704-364-2066
Fax: 704-364-7172
With copy to:
Parker Chapin Flattau & Klimpl, LLP
1211 Avenue of the Americas
New York, New York 10036
Attention: Melvin Weinberg, Esq.
Tel: 212-704-6418
Fax: 212-704-6288
If to the Pledgee:
------------------
Diamond Point Partners, LLC
c/o Shapiro & Dector, P.A.
7777 Glades Road, Suite 200
Boca Raton, Florida 33434
Attention: Michael Shapiro, Esq.
Tel: 561-477-7800
Fax: 561-477-7722
With copy to:
Austin Bleich
150 West 96th Street, Apt. 9-D
New York, New York 10026
Tel: 212-665-4550
Fax: 212-316-5025
-25-
<PAGE>
If to Raymond James:
--------------------
Raymond James & Associates, Inc.
Raymond James Financial Center
880 Carillon Parkway
St. Petersburg, Florida 33716
Attention: Laura Bishop
Tel: 727-573-3800
Fax: 727-573-8740
14. GOVERNING LAW. THIS AGREEMENT AND ALL DOCUMENTS DELIVERED IN
CONNECTION THEREWITH SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH THE
LAWS OF THE STATE OF FLORIDA, WITHOUT GIVING EFFECT TO THE RULES OF CONFLICTS OF
LAW.
15. Binding Effect. This Agreement shall be binding upon and inure to
the benefit of the parties hereto and their respective heirs, personal
representatives, successors and assigns, except that the Pledgor shall not have
the right to assign any rights hereunder without the prior written consent of
the Pledgee.
16. Execution in Counterparts. This Agreement may be executed in any
number of counterparts, each of which when so executed shall be deemed to be an
original and all of which taken together shall constitute but one and the same
agreement.
17. Severability of Provisions. Any provision of this Agreement that is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions of this Agreement or affecting the
validity or enforceability of such provisions in any other jurisdiction.
18. Headings. The headings preceding the text of this Agreement are
inserted solely for convenience of reference and shall not constitute a part of
this Agreement nor affect its meaning, construction or effect.
19. Rules of Interpretation. The terms and conditions of this Agreement
shall be deemed to have been prepared jointly by all of the parties hereto. Any
ambiguity or uncertainty existing hereunder shall not be construed against any
one of the drafting parties, but shall be resolved by reference to the other
rules of interpretation of contracts as they apply in the State of Florida.
-26-
<PAGE>
IN WITNESS WHEREOF, and in consideration of the agreements contained
herein and intending to be legally bound hereby, the Pledgor and the Pledgee
have caused this Agreement to be executed by their respective officers thereunto
duly authorized, as of the date first above written.
IRT Industries, Inc. (the "Pledgor")
By: /s/ Dale K. Chapman
----------------------------------------
Name: Dale K. Chapman
Title: President
Diamond Point Partners, L.L.C. (the "Pledgee")
By: /s/ Austin Bleich
-----------------------------------------
Name: Austin Bleich
Title: Member
-27-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
UNAUDITED FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1999 AND
1998 IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 3-MOS
<FISCAL-YEAR-END> JUN-30-1999 JUN-30-1998
<PERIOD-START> JUL-01-1999 JUL-01-1998
<PERIOD-END> SEP-30-1999 SEP-30-1998
<CASH> 308 1,904
<SECURITIES> 0 0
<RECEIVABLES> 0 0
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 12,298 1,934
<PP&E> 0 0
<DEPRECIATION> 0 0
<TOTAL-ASSETS> 10,561,800 1,934
<CURRENT-LIABILITIES> 186,367 146,648
<BONDS> 0 0
0 0
0 0
<COMMON> 3,110 845
<OTHER-SE> 10,387,731 (144,714)
<TOTAL-LIABILITY-AND-EQUITY> 10,574,098 1,934
<SALES> 0 0
<TOTAL-REVENUES> 0 0
<CGS> 0 0
<TOTAL-COSTS> 0 0
<OTHER-EXPENSES> 839,355 504,590
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 0 17,669
<INCOME-PRETAX> (839,355) (544,879)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (839,355) (486,921)
<DISCONTINUED> 0 (57,958)
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (839,355) (544,879)
<EPS-BASIC> (0.04) (0.07)
<EPS-DILUTED> (0.04) (0.07)
</TABLE>
