U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB/A
(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, 1999
[ ] 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.)
6230 Fairview Road, Suite 102, Charlotte, North Carolina 28210
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(Address of principal executive offices) (Zip Code)
Issuer's telephone number: 704-364-2066
Securities registered under Section 12(b) of the Exchange Act: None
Name of each exchange on which registered: None
Title of each class: NONE
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Securities registered under Section 12(g) of the Act: Common Stock, par
value of $.0001 per share
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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 [X] No [ ]
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 Registrant's revenues for the fiscal year ended June 30, 1999 were:
$ 0.
The aggregate market value of the voting stock held by non-affiliates
of the Registrant as of September 30, 1999 was approximately $4,841,368 based on
the closing sales price of the Registrant's Common Stock on the OTCBB (the OTB
Bulletin Board(R)) of $.47 on September 30, 1999.
The number of shares of Common Stock of the Registrant outstanding as
at September 30, 1999 was 31,300,782 shares.
This amendment to the Annual Report on Form 10-KSB (the "Report") for
the fiscal year ended June 30, 1999 is filed to include revisions to Item 1
(Description of Business), Item 6 (Management's Discussion and Analysis or Plan
of Operations), Item 7 (Financial Statements) and Item 12 (Certain
Relationships and Related Transactions) of the Report.
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IRT INDUSTRIES, INC.
FISCAL YEAR ENDED JUNE 30, 1999 ANNUAL REPORT ON FORM 10-KSB
TABLE OF CONTENTS
PART I PAGE
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ITEM 1. Description of Business 4
ITEM 2. Description of Property 9
ITEM 3. Legal Proceedings 9
ITEM 4. Submission of Matters to a Vote of Security Holders. 11
PART II
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ITEM 5. Market for Common Equity and Related Stockholder Matters 11
ITEM 6. Management's Discussion and Analysis or Plan of Operation 12
ITEM 7. Financial Statements 20
ITEM 8. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure. 20
PART III
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ITEM 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act 20
ITEM 10. Executive Compensation 22
ITEM 11. Security Ownership of Certain Beneficial Owners and 24
Management
ITEM 12. Certain Relationships and Related Transactions 26
ITEM 13. Exhibits, List and Reports on Form 8-K. 26
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FORWARD-LOOKING STATEMENTS.
This Annual Report on Form 10-KSB (the "10-KSB" or 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 upon 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 under
the caption, "Factors Affecting Future Operating Results" under Item 6.
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, including the
Quarterly Reports on Form 10-QSB to be filed by the Company in fiscal year 2000
and thereafter.
PART 1
ITEM 1. DESCRIPTION OF BUSINESS.
GENERAL
IRT Industries, Inc. (the "Company"), a Florida corporation, is a
company currently engaged in acquiring businesses focused on the Internet.
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
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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, 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.
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.
BACKGROUND
The Company was originally 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 Industries, Inc. as
part of a reorganization in which it exchanged a portion of its common stock
(2,900,000 shares) for all of the issued and outstanding stock of IRT
Industries, Inc. which had been incorporated in California on December 13, 1990.
Triumph then merged into IRT Industries, Inc. and reincorporated in the State of
Florida. Prior to March 1996, the Company pursued environmental-related
businesses.
In March 1996, the Company's management and business strategy changed as
a result of the sale of the majority of its outstanding shares of common stock.
The Company sought to acquire interests in casinos throughout Latin America.
During 1996 the Company acquired interests and operating licenses in two casinos
in Costa Rica. These included a facility leased by a wholly-owned subsidiary,
Juegos Ruro, S.A. ("Juegos") and the Casino Bahia Ballena through the Company's
wholly-owned subsidiaries Casino Bahia Ballena, S.A. ("Ballena") and
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Inmobiliaria la J Tres S.R.L. ("Inmobiliaria"). The Casino Amon, which was
acquired in July 1996, was located in the "five star" Hotel Amon Park Plaza in
San Jose, Costa Rica. The Casino Bahia Ballena was located in the "five star"
Hotel Playa Tambor situated on the Puntarenas coast in Costa Rica.
In 1998, the Company decided to discontinue its casino operations and
change its business focus to domestic opportunities in the Internet area. This
intent was formally communicated by the Company in a Current Report on Form 8-K
filed on September 1, 1998. The Casino Bahia was sold in May, 1998 for a sales
price of $150,000. The Casino Amon was sold in February, 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.
NEW STRATEGIC FOCUS
The Company's new business seeks to provide an interactive approach to
estate and financial planning for financial services professionals and advisers.
To date, individuals seeking to obtain estate or other related financial plans
have been required to go to a number of different advisers and service providers
in order to complete the design and execution of their plans. The Company
expects that its interactive system will streamline fact-gathering, information
storage, design and documentation for professional and individual users thereby
allowing brokerage firms, certified public accountants, attorneys and other
financial advisers to provide "one-stop", value-added, on-line financial
planning products and services to their clients.
THE PERSONAL ESTATE PLAN(TM) SYSTEM
The Personal Estate Plan(TM) system is primarily composed of a
transaction-based web site that is powered by an advanced artificial
intelligence search engine and a fully relational Oracle 8 database. Together
with its Electronic Law Scribe function (the "ELS(TM)"), which is a document
generation program, the Personal Estate Plan(TM) package supports the user from
data gathering to document production.
A new user begins by accessing the database and entering information
into the PEP(TM) system. The PEP(TM) system uses the artificial intelligence
search engine to analyze the information entered by the user. Once the user has
responded to system's menu of questions and/or inquiries which provide the
PEP(TM) system with the user's estate planning objectives, the PEP(TM) system is
expected to generate additional inquiries based upon the user's responses. Once
the additional information provided by the user is analyzed, the PEP(TM) system
is expected to initiate a search of the Oracle 8 relational database to review
existing federal and state laws and regulations against the information entered
by the user. After its search has been completed, the PEP(TM) system is expected
to generate a result query that both confirms it has searched all available
estate planning variables and produces a proposed plan and set of documents
that, based upon the search, are designed to meet the user's estate planning
objectives. Once the user has reviewed and confirmed
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its approval of the proposed estate plan, the user can request production and
delivery of the proposed estate plan from the PEP(TM) system. The proposed
estate plan and related documents are then assembled by CCG and delivered to the
user via overnight delivery.
The Personal Estate Plan(TM) system contains several components which
the Company expects to be phased in gradually over the fiscal year 2000
including the following: (i) Website Creation; (ii) Insurance Trust Module;
(iii) Full Estate Planning; and (iv) Other Products and Services.
PHASE I. WEBSITE CREATION
During Phase I, both the Company and CCG are expected to establish
websites which will provide users with access to the Company and to the PEP(TM)
system.
The Company has recently established a website and has registered to
use the URL, "Xpedian.com". The Company expects to complete its website during
the next several months. The Company expects that its website will provide
information to potential investors and users including a product overview, an
electronic customer qualification/application form for potential users of its
products and a planning consideration forum. The Company's website is expected
to also function as an entry portal allowing the Company's customers to access
the CCG website where the actual PEP(TM) system resides.
CCG, the licensor of the PEP(TM) system, is expected to establish a
website through which users can access and use the PEP(TM) system. The user is
expected to be able to gain access to CCG both directly and through links from
the Company's website.
PHASE II. INSURANCE TRUST PRODUCT
During Phase II, the Company expects to introduce its insurance trust
product, the "Insurance Trust" module, which is a component module of the
PEP(TM) system. CCG has indicated that the necessary coding for the Insurance
Trust module has been completed and is currently being tested. The Company
expects that the Insurance Trust module will allow users to access the Oracle 8
relational database containing federal and state laws and government regulations
relating to estate planning considerations. The Company expects that use of the
Insurance Trust module will allow users to quickly and efficiently produce the
plan and documentation necessary to implement insurance trusts for their
clients.
PHASE III. FULL ESTATE PLANNING PRODUCT
During Phase III, the Company expects to focus developmental efforts on
completing any remaining system/website programming and testing, while at the
same time finalizing its advertising, marketing materials and sales programs in
preparing to roll-out its full estate planning
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package. The Company expects to provide automatic upgrades to previously
approved users of its Insurance Trust module.
PHASE IV. OTHER PRODUCTS AND SERVICES
Once the Company has introduced the PEP(TM) system and its component
modules to the market during Phases I, II and III, the Company plans to expand
its products and services. Pursuant to the License Agreement, CCG will provide
the Company with automatic product enhancements and upgrades.
The Company's long-range plan is to continue to pursue development
opportunities into products and services outside of the License in ways that are
complementary to its business plan.
SALES AND MARKETING
The Company is in the developmental stage of its Internet business and
currently has no sales. The Company, however, has identified a potential market
for its products including certified public accountants, insurance agents, stock
brokers, financial planners, lawyers and human resource departments. These
advisers will be asked to complete a customer qualification/application form by
which the Company ensures that such users satisfy the Company's educational and
other criteria. Once the user completes the Company's application process and
has been approved, the user will be provided with access to the Company's
website which will allow the user to enter the PEP(TM) system through a hot-link
in the CCG website.
During Phase I, the Company expects CCG to establish its website. At
about the same time, the Company also expects to finalize its own website. Once
both websites are completed the Company expects CCG to establish a hot-link from
the CCG website to the Company's website linking the Company's users to the
PEP(TM) system.
During Phase II, the Company expects to target licensed insurance
representatives in conjunction with its introduction of the "Insurance Trust"
module.
During Phase III, the Company's sales efforts will be expected to focus
on all potential target groups including certified public accountants, insurance
agents, stock brokers, financial planners, lawyers and human resource
departments. The Company expects to focus its direct person-to-person sales
efforts on state, regional and national financial service corporations which are
headquartered in Florida.
During Phase IV, the Company plans to expand its territory into
additional states outside of Florida. Pursuant to the License Agreement, the
Company has an option to expand its territory to the states of Alabama, Georgia,
Mississippi and Tennessee.
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To the extent that sales personnel are needed, the Company presently
intends to develop a sales force comprised of both contract and permanent sales
professionals. The Company plans to hire sales and administrative personnel from
time to time.
COMPETITION
The Company is not aware of any direct competitors. However, providers
of financial services including certified public accountants, insurance agents,
stock brokers, financial planners, lawyers and professionals in related
industries may seek to develop similar software programs and databases and to
establish web sites which offer same "full-process" estate-planning (i.e., data
collection through documentation) directly to the user.
EMPLOYEES
As of September 30, 1999, the Company had one full-time employee, Dale
K. Chapman, who serves as its President, Chief Executive Officer, Secretary and
Treasurer. The Company's employee is not represented by a labor union. The
Company believes its employee relations are satisfactory.
ITEM 2. DESCRIPTION OF PROPERTY.
The Company was previously located at 289-C Commercial Blvd., Suite
208, Lauderdale By The Sea, Florida 33308.
As of the August 12, 1999, the Company relocated its principal
executive offices to 6230 Fairview Road, Suite 102, Charlotte, North Carolina.
The Company currently leases office space under a two-year lease which
terminates in August 2001. The leased space covers approximately 800 square
feet. The annual rent is $ 11,900 and the Company has paid one year of rent in
advance.
ITEM 3. LEGAL PROCEEDINGS.
On or about November 16, 1994, Morton I. Singerman obtained an amended
final judgment against the defendants in the following action, Morton Singerman
v. Triumph Financial Corp., IRT Industries, Inc. et al., Defendants, Case
#90-27018-20, in the Circuit Court of the 17th Judicial Circuit in and for
Broward County, Florida. The judgment was issued against the defendants,
including the Company's predecessor Triumph Capital, Inc., Triumph Financial
Corp. and Stephen Telsey and was in the original amount of $22,173.37 plus
interest. The Company believes a portion of this sum has been paid to the
plaintiff and that the outstanding amount is less than $25,000.
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On or about March 21, 1997, the Company filed a complaint against
International Corporation, K&Z, S.A, in IRT Industries, Inc. v. International
Corporation, K&Z, S.A., a Costa Rican corporation; Securities Transfer
Corporation, a Texas corporation; Ron Rafael Zavalla Tasies; and Pacific
International Securities, Inc., a Canadian corporation, Defendants, Case #97-
4323, in the Circuit Court of the 17th Judicial Circuit in and for Broward
County, Florida. In the complaint, the Company alleged that the defendants had
breached an agreement to sell a license to operate a casino in San Jose, Costa
Rica. As consideration for the license, the defendants issued a promissory note
in the amount of $ 595,000 while simultaneously purchasing 2,400,000 shares of
the Company's common stock. As security for the validity of the license, the
defendants pledged a certain number of shares of the Company's common stock and
agreed not to transfer the shares until the validity of the license could be
confirmed. However, one of the co-defendants, Tasies, attempted to transfer his
shares. The Company then placed a stop-transfer order on the defendant's shares.
Tasies subsequently filed a counterclaim against the Company alleging that the
Company had improperly caused a stop-transfer order to be placed on his shares
of the Company's common stock. Tasies is seeking damages in excess of $
300,000.00. The Company believes that the counter-claim has no merit. However,
if the counter-claim were to be adjudicated against the Company, there can be no
assurance that the outcome would not have a material adverse effect on the
Company's liquidity, financial position or results of operations.
On or about January 12, 1998, Jose Humberto Brenes filed a complaint
against the Company in Jose Humberto Brenes v. IRT Industries, Inc., Case
#97-0102510-18, in the 17th Judicial Circuit in and for Broward County, Florida.
In the complaint, the plaintiff alleged that the Company had defaulted on its
obligation to make payments due under a guarantee. The plaintiff seeks damages
of approximately $ 119,000. Although the plaintiff voluntarily dismissed the
action on or about November 4, 1998, the plaintiff has indicated that he intends
to refile the action against the Company and to seek to collect the alleged
damages from the Company unless the parties can reach a settlement. The Company
intends to investigate the underlying facts of the plaintiff's complaint.
However, if the action were re-filed and the complaint were to be adjudicated
against the Company, there can be no assurance that the outcome would not have a
material adverse effect on the Company's liquidity, financial position or
results of operations.
On or about November 2, 1998, Jose Humberto Brenes-Jenkins (also known
as Jose Humberto Brenes), as a shareholder of the Company and on behalf of the
Company, filed a complaint against Richard R. Rossi in Jose Humberto
Brenes-Jenkins, as a Shareholder and in the right of IRT Industries, Inc. v.
Richard R. Rossi, Case #98-9852 AI in the Circuit Court of the 15th Judicial
Circuit for Palm Beach County, Florida. In the complaint, the plaintiff alleged
that Richard R. Rossi, the then President and Director of the Company had
breached his fiduciary duty by causing the Company to enter into certain stock
purchase transactions with entities controlled by him resulting in losses to the
Company. The complaint alleged damages of $ 550,000. On April 30, 1999, the
Court granted the plaintiff's motion for a final default judgment in favor of
the Company and ordered the defendant to pay damages in the amount of $
695,712.18 (including a principal sum of $ 550,000
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plus prejudgment interest in the amount of $ 145,712.18). However, there can be
no assurance that the Company will be able to collect the damages awarded from
the defendant.
On or about November 25, 1998, the Company voluntarily entered into a
Consent to Entry of Judgment of Permanent Injunction and Other Relief in
connection with In the Matter of IRT Industries, Inc., Securities and Exchange
Commission ("SEC") File No. A-1605, pursuant to which the SEC has the right to
present to the United States District Court, Southern District of Florida (Miami
Division) a Final Judgment without further notice to the Company. The proposed
Final Judgment restrains and enjoins the Company from committing fraud in
violation of Section 17(a) of the Securities Act of 1933, as amended or Section
10(b) of the Securities Exchange Act of 1934, as amended and Rule 10-5
thereunder. In the event the Company fails to comply with the terms of the Final
Judgment, the SEC will be able to petition the Court to assess civil penalties
against the Company.
On or about February 10, 1999, Oscar Hamod filed a complaint against
the Company in Oscar Hamod v. IRT Industries, Inc.; D.L. Cromwell Investments,
Inc.; Rossi & Associates, Attorneys, P.A.; Texas Capital Securities; Brad
Nirenberg, Individually; and Robert Brook, Individually, Case # 99001496AG in
the Circuit Court of the Fifteenth Judicial Circuit in and for Palm Beach
County, Florida-Civil Division. In the complaint, the plaintiff alleged the
defendants made various misrepresentations and fraudulent statements to him
thereby inducing him to purchase shares of the Company's common stock at a cost
of approximately $ 100,000 which shares subsequently decreased in value. The
complaint seeks to rescind the sale of the common stock or alternatively,
damages of up to $ 100,000. The Company believes that the complaint has no merit
and intends to vigorously defend the action. However, if the action were to be
adjudicated against the Company, there can be no assurance that the outcome
would not have a material adverse effect on the Company's liquidity, financial
position or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The Company's common stock is traded on the OTCBB (trading-symbol:
IRTG). At September 30, 1999, the Company had approximately 936 stockholders of
record according to the records of the Company's transfer agent, Securities
Transfer Corporation. Because many of such shares are held by brokers and other
institutions on behalf of stockholders, the Company is unable to estimate the
total number of stockholders represented by these record holders.
The following table sets forth the high and low bid prices of the
Company's common stock for each of the Company's eight fiscal quarters, as
reported by IDD Information Services,
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Tradeline(R). The quotations reflect inter-dealer prices, without retail
mark-ups, mark-downs or commission and may not necessarily represent actual
transactions.
RANGE OF BIDS FOR THE COMMON STOCK
FISCAL 1999 HIGH LOW
First Quarter (July, August, September) $ .39 $ .06
Second Quarter (October, November, December) $ .41 $ .05
Third Quarter (January, February, March) $ 2.56 $ .13
Fourth Quarter (April, May, June) $ 3.13 $ .19
FISCAL 1998
First Quarter (July, August, September) $ 5.88 $ .19
Second Quarter (October, November, December) $ 2.75 $ .89
Third Quarter (January, February, March) $ 1.67 $ .44
Fourth Quarter (April, May, June) $ .77 $ .31
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
its business.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS.
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 consolidated financial statements and
notes thereto appearing elsewhere herein.
GENERAL
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 1998 and 1999, the Company
discontinued its operations in the casino and related activities, 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, the Internet Auction site. On August
2, 1999, the Company completed negotiations with Commerce Capital Group, L.L.C.
("CCG") for the right to license and market CCG's emerging line of
Internet-based financial services products.
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During the year ended June 30, 1998, the Company had both operating
revenues and operating businesses. The financial statements for that year
reflect those revenues; however they also reflect the decision by the Company to
discontinue its gaming operations. Thus the financial statements for the year
ended June 30, 1998, contain the majority of the losses and provisions for
losses incurred as the result of the initial decision to discontinue gaming
operations, as reflected herein in the Consolidated Statements of Loss as
"Discontinued Operations".
During the year ended June 30, 1999, the Company had operating revenues
but ceased to have operating businesses. The financial information and
statements provided herein reflect the operations of the discontinued casino
operations which are reflected in the financial statements as discontinued
operations. All revenue and expenditure information discussed herein is
reflected in the Consolidated Statements of Loss as "Discontinued Operations."
As will be seen in the Company's financials and in the analysis listed below,
the 1998 charge-off caused a significant decrease in the losses when comparing
1998 and 1999.
RESULTS OF OPERATIONS
Year Ended June 30, 1999 Compared to Year Ended June 30, 1998
Net Revenues for both years for the parent company remained at zero.
Revenues collected during both periods was credited to the subsidiaries that
generated the revenues. When consolidated for the Company's financial reporting,
these revenues were offset by the substantial losses posted due to discontinued
casino operations.
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Expenses before bad debts for the year ended June 30, 1999 decreased by
46.7%. This decrease is the direct result of the Company enacting plans to cease
its casino operations. Taken in total, the Company casino operations were only
functioning for roughly half the year. The Company's need for consultants and
professional and administrative services was thus cut in half. The change in
management which occurred in September 1998, also served to decrease
administrative expenses. The bad debts resulted from a charge-off of a
subscription receivable deemed uncollectible.
Other Income for the year ended June 30, 1999 decreased by 34%. This
decrease is due to a $22,500 litigation settlement expense which was incurred
during the year. Actual interest income increased by 13.4%; however this
increase was mitigated by the aforementioned settlement expense, combined with
litigation settlement income posted in the previous year.
Losses posted due to Continuing Operations for the year ended June 30,
1999 decreased by 1%. Just like expenses, the primary reason for this decrease
was the closing of the Company's casino operations offset by the bad debts.
Losses posted due to Discontinued Operations for the year ended June
30, 1999 decreased by 98.7%. Such a large deviation between years is due to the
write-off of Losses and Provisions for Losses that occurred in the previous
year. Per standard accounting practices, the actual and foreseeable losses due
to the Company's decision to discontinue casino operations were accounted for in
the fiscal year in which the decision was made.
The Company experienced a Net Loss of $956,736 for the year ended June
30, 1999. When compared to the previous year, the Company actually experienced a
74% decrease in Net Loss.
Net Loss Per Share (Primary and Fully-Diluted) reflects the same trend
detailed above. Loss per share decreased by 86% in the year ended June 30, 1999.
This decrease is primarily due to the 1998 write-offs and provisions for
discontinued operations, however the percentage was also influenced by a 92%
increase in the number of shares outstanding. Had the number of shares
outstanding remained constant, the loss per share would still have decreased by
74%.
Liquidity and Capital Resources
As of June 30, 1999, cash and cash equivalents were $1,904 as compared
with $9,899 at June 30, 1998. The decrease is due primarily to the period of
time during which the Company has operated without operating revenue. The
Company reported losses for the year ended June 30, 1999 of $ 956,736. The
Company will continue to incur operating losses until it launches its
Internet-based estate planning business and realizes revenues. The Company had a
working capital deficit of $ (144,714) at June 30, 1999 as compared to
$(77,134) at June 30, 1998, an increase of 88%.
The Company expects to fund its first expansion into domestic Internet
businesses from
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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.
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.
FACTORS AFFECTING FUTURE OPERATING RESULTS
The Company operates in a rapidly changing environment that involves
numerous risks, some of which are beyond the Company's control. The following
discussion highlights some of these risks.
Limited Operating History
Since the Company changed its strategic focus in 1998 to the proposed
acquisition and development of Internet-based domestic businesses, the Company
has not yet generated any revenues from operations. The Company has begun
marketing its proposed Internet-based estate-planning products to certain
customer groups through direct presentations and expects to begin preparing an
advertising campaign in the near future. The Company will be required to incur
significant marketing expenses, including advertising and promotion expenses, to
introduce its products into the marketplace. There can be no assurance that its
proposed products will be given sufficient
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<PAGE>
consumer acceptance at their intended price range or any other price range to
enable the Company to generate significant revenues or to operate profitably.
Need for Financing
The Company needs to raise funds in order to facilitate its new
business strategy of acquiring businesses focused on the Internet. At present,
not generating revenues, the Company needs to raise funds from outside sources
to fund its developmental and working capital needs, and it may need to raise
funds in order to respond to unanticipated competitive pressures. In addition,
if the Company experiences rapid growth, the Company may require additional
funds to expand its operations or to enlarge its organization and increase its
personnel. There can be no assurance that the Company will be able to obtain
financing on favorable terms or that additional financing will be available, if
at all. If adequate funds are not available or are not available on favorable
terms, the Company may not be able to support its developmental and day-to-day
activities, or otherwise respond to unanticipated competitive pressures. Such
inability to obtain financing could have a material adverse effect on the
Company's business, financial condition or results of operations and could
require the Company to materially reduce, suspend or cease operations.
Dependence upon Single Employee
The Company's success and operations depends upon the continued
employment of its single employee. If the Company loses the services of its
employee and does not find a suitable replacement, the Company's business could
be adversely affected.
Reliance Upon Single License
The Company's proposed Internet-based estate-planning product is based
upon proprietary software which the licensor has granted to the Company under a
license. The license grants the Company the right to market the software in a
specific territory which may be expanded in the future. There can be no
assurance that the proprietary nature of the software will not be infringed upon
or that others will not try to reproduce the software. Furthermore, there can be
so assurance that the license will afford protection against possible
competitors who might seek to market their products in the same territory and to
the same customers. In the event that the licensor terminates the Company's
license (which it may do under circumstances including a material breach of the
terms of the license), the termination could have a material adverse effect on
the Company's business.
Compliance with Law
The Company will attempt to comply with laws and regulations applicable
to its planned business. In this early stage of its business, the Company
intends to investigate the laws and regulations of relevant jurisdictions,
particularly the question of whether any aspect of the business would constitute
the unauthorized practice of law. Based upon the experience and representations
of CCG, the Company believes that the PEP(TM) system would not constitute the
unauthorized practice of law within the several states where the Company may do
business. In the event it were determined that the Company's intended business
does constitute the unauthorized practice of law, the Company could be subjected
to investigations and lawsuits and the attendant expenses and risks and the
Company's operations could be severely and adversely affected.
Marketing; Sales
The Company has targeted potential customer groups for its proposed
Internet-based estate-planning products including certified public accountants,
insurance agents, stock brokers, financial planners, lawyers and professionals
in human resources. There can be no assurance that the Company will be
successful in marketing and selling its proposed products to such potential
customers or in generating revenues from such sales. Furthermore there can be no
assurance that the Company's proposed products will achieve significant market
acceptance or will generate significant revenue. Additional products that the
Company plans to directly or indirectly market in the future are in various
stages of development.
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<PAGE>
Revenue Growth and Economic Conditions
The revenue growth and profitability of the Company's proposed
Internet-based estate-planning products depends on the overall demand for
estate-planning services. Because the Company's potential customers are
primarily professional and financial services advisers, the Company's business
also depends on general economic conditions. A softening of the demand for
estate-planning services from professional and financial services advisers
caused by a weakening of the economy may result in lack of revenues or lack of
growth.
Competition
Although the Company is not aware of any direct competitors to its
proposed Internet-based estate-planning products, there can be no assurance that
providers of financial services including certified public accountants,
insurance agents, stock brokers, financial planners, lawyers and professionals
in human resources and related fields will not seek to develop similar products.
Moreover, the Company is aware of numerous personal computer products providing
some but not all of the features and benefits of the Company's web-based
estate-planning product.
Control by Majority Shareholder
The licensor of the Company's Internet-based estate-planning product,
Commerce Capital Group, L.L.C. ("CCG"), owns a majority of the Company's common
stock. Although CCG has advised the Company that CCG does not presently intend
to cause a CCG representative to be appointed as an officer or director, there
can be no assurance that CCG, based upon its majority ownership, would not seek
to elect all of the Company's directors and/or replace its officers and to
determine the results of all matters submitted to the stockholders for action
including fundamental corporate transactions.
Absence of Dividends
The Company does not expect to declare or pay any dividends in the
foreseeable future, but instead intends to retain earnings, if any, to expand
the Company's operations.
Changes in Federal Estate Tax
Legislation has been proposed in U.S. Congress to phase out the federal
estate tax over a number of years. While the prospects of such legislation are
uncertain, should the legislation become law, the PEP(TM) product could become
of limited or of no usefulness and the Company could be materially and adversely
affected.
-17-
<PAGE>
Government Regulation of the Internet
Due to the increased use of the Internet by individuals and businesses,
it is possible that federal or state laws or regulations governing the use of
the Internet may be adopted including with respect to privacy, pricing,
characteristics of products or services and taxation. The Company cannot predict
the impact, if any, that future laws or regulations or legal or regulatory
changes may have on its proposed estate-planning product business.
Failure of Computer Systems to Recognize Year 2000
Many currently installed computer systems are not capable of
distinguishing 21st century dates from 20th century dates because they were
programmed using two digits rather than four digits to define the applicable
year. As a result, at the turn of this century, computer systems and software
used by many companies and organizations in a wide variety of industries may
experience operating difficulties unless they are adequately modified or
upgraded to process information related to the century change. This could result
in a system failure or miscalculations causing disruptions of operations,
including, among other things, a temporary inability to process transactions,
collect revenues or engage in similar normal business activities.
The Company recognizes the need to ensure that its operations will not
be adversely impacted by Year 2000 software failures. The Company therefore
believes it has identified all significant information technology systems ("IT
Systems"). The Company believes that it has achieved Year 2000 compliance
readiness for its IT Systems and non-IT Systems. In addition, the Company has
received assurances from CCG, the licensor of the PEP(TM) system, that the
PEP(TM) system and related technology are Year 2000 compliant. There can be no
assurance that the systems of other companies on which the Company relies will
be timely converted to become Year 2000 compliant systems or that a failure to
convert by another company would not have a material adverse effect on the
Company.
Based upon the results of its review of Year 2000 issues to date, the
Company does not believe that a contingency plan to handle the Year 2000 issue
is necessary at this time and has not developed such a plan. The Company will,
however, continue to monitor its Year 2000
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<PAGE>
compliance program and evaluate the need for a contingency plan to handle the
most reasonably likely worst case Year 2000 scenario which might include: (i) a
key material vendor or service provider experiencing problems with delivery of
materials, components or services; or (ii) the failure of infrastructure
services provided by government agencies and other third parties (e.g.,
electricity, telephone, transportation, Internet services, etc. ).
-19-
<PAGE>
ITEM 7. FINANCIAL STATEMENTS
The Financial Statements of the Company in response to this Item are
attached beginning on page 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 following table sets forth the names, ages (at September 30, 1999)
and positions of the executive officers and the directors of the Company.
NAME AGE POSITION
- ---- --- --------
Dale K. Chapman 37 President, Chief Executive Officer, Treasurer,
Secretary, and Director
Eric F. Heintschel 27 Director
Dale K. Chapman has been an officer and director of the Company since
August 2, 1999. Mr. Chapman previously worked at Green Point Mortgage
Corporation, a subsidiary of GreenPoint Financial as a Corporate Operations
Analyst. Prior to July 1997, he worked at the
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<PAGE>
Bank of America (f/k/a NationsBank) in the areas of Planning and Strategy,
Treasury Services and Nationwide Float Analysis for six years from 1991 to 1997.
Eric F. Heintschel has been a director of the Company since August 2,
1999. Mr. Heintschel is a certified public accountant at PricewaterhouseCoopers
and has worked at the accounting firm since 1997. From 1995 to 1997, Mr.
Heintschel was employed as a certified public accountant at Dellinger and Deese,
a privately held accounting firm. Prior to 1995, Mr. Heintschel obtained a
master's degree in accounting.
James H. Feeney has been nominated as a director. Mr. Feeney currently
serves as the President and Chief Executive Officer of Trone Advertising, Inc.
Prior to joining Trone Advertising, Inc. in March 1996, Mr. Feeney served as the
President and Chairman of the Executive Committee of Albert Frank-Guenther Law,
a 125-year old firm. He has also spent more than 12 years with Ally & Gargano,
Inc., a prominent advertising agency.
The officers of the Company are elected annually by the Board of
Directors at its meeting held immediately after the annual meeting of
shareholders, and hold their respective offices until their successors are duly
elected and qualified. Officers may be removed at any time by the Company's
Board of Directors.
The Board of Directors has formed an advisory committee to advise the
Company's management on matters including, but not limited to, Internet and
systems technology and estate planning law. The Advisory Committee currently has
one member, Gary N. Dixon, Sr. who resigned as Chairman of the Board and
director effective as of August 2, 1999. Mr. Dixon currently works as Client
Services Director for Oracle Consulting Services. The Company expects to expand
the number of members of the Advisory Committee. The Board of Directors has also
formed a focus committee composed of Mr. Chapman and Mr. Heintschel. The Focus
Committee's primary goal is to seek qualified candidates for appointment as
officers and directors of the Company. The Audit Committee was inactive and has
been disbanded. However, the Board of Directors intends to re-form the Audit
Committee and resume its operations once the Company achieves revenues.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act requires the Company's
executive officers and directors and persons who beneficially own more than 10%
of the Company's common stock, to file initial reports of beneficial ownership
on Form 3 ("Form 3") and reports of changes of beneficial ownership on Form 4
("Form 4") of the Company's equity securities with the Securities and Exchange
Commission and to furnish copies of those reports to the Company.
Based solely on a review of the reports furnished to the Company to
date, the following reports and written representations that no reports were
required to be filed, the Company believes that all reports required to be filed
by such persons with respect to the Company's fiscal
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<PAGE>
year ended June 30, 1999 were timely filed, except for the following: a Form 3
required to have been filed by Arnold J. Wrobel in connection with his
appointment as the Company's President, Secretary, Treasurer and sole director
in September 1998.
ITEM 10. EXECUTIVE COMPENSATION.
The following table sets forth information concerning the annual and
long-term compensation of the Company's chief executive officer for the fiscal
years ended 1999, 1998 and 1997. The Company employed no other persons whose
total annual compensation exceeded $ 100,000 for the fiscal years ended 1999,
1998 and 1997.
<TABLE>
Summary Compensation Table
--------------------------
<CAPTION>
Annual Compensation Long-term Compensation
------------------- ---------------------
Name and Other Securities
Principal Position Fiscal Annual Underlying
Year Salary Bonus Compensation Options Granted
------ ------ ----- ------------ ---------------
<S> <C> <C> <C> <C> <C>
Richard R. Rossi, 1999 ----- ---- ---- ----
President, 1998 (1) ---- ---- ----
Secretary, 1997 (1) ---- ---- ----
Treasurer and
Director(1)
Arnold J. Wrobel, 1999 (2) ---- ---- ----
Chief Executive 1998 (2) ---- ---- ----
Officer, President, 1997 ----- ---- ---- ----
Chief Financial
Officer, Secretary,
Treasurer and Sole
Director(2)
- -----------------------
</TABLE>
(1) Richard R. Rossi served as the Company's President, Secretary and
Treasurer and a director from March 6, 1996 until his resignation in all
capacities on August 30, 1998. During July 1998, Mr. Rossi did not receive any
compensation from the Company. During August 1998, the Company paid Mr. Rossi
approximately $40,386. During the year ended June 30, 1998, the Company paid Mr.
Rossi approximately
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<PAGE>
$128,000 (approximately $ 10,000 per month) for salary consideration,
various legal and business services and related offices expenses
supplied by Mr. Rossi through a corporation in which he is a
shareholder. During the year ended June 30, 1997, the Company paid Mr.
Rossi approximately $60,000 (at least $5,000 per month) for various
legal and business services and related offices expenses supplied by
Mr. Rossi through a corporation in which he is a shareholder. See also
Item 12. Certain Relationships and Related Transactions.
(2) Arnold J. Wrobel served as the Company's Chief Executive Officer,
President, Chief Financial Officer, Secretary, Treasurer and sole
director from September 1998 until his resignation in all capacities on
August 2, 1999. Mr. Wrobel served without compensation. The Company
reimbursed Mr. Wrobel for expenses incurred as a director.
Dale K. Chapman was appointed as the Company's President, Secretary,
Treasurer and director as of August 2, 1999. In lieu of a first year salary, the
Company granted Mr. Chapman the option to purchase 200,000 shares of the
Company's common stock at an exercise price of $.0001 per share which option is
exercisable effective August 2, 2000 and expires on August 2, 2001. The company
also granted Mr. Chapman an option to purchase up to 300,000 shares of the
Company's common stock at an exercise price of $.50 per share, of which: (i)
100,000 of the underlying shares vest and are exercisable on August 2, 2000;
(ii) 100,000 of the underlying shares vest and are exercisable on August 2,
2001; and (iii) the last 100,000 of the underlying shares vest and are
exercisable on August 2, 2002. The Company also pays Mr. Chapman a monthly
stipend of approximately $2,000 and provides reimbursement for expenses. As a
director, the Company has granted Mr. Chapman an option to purchase up to
300,000 shares of the Company's common stock at an exercise price of $.50 per
share; provided, however, that the option is not exercisable unless the
Company's common stock trading price equals $25 or more for twenty consecutive
business days and once exercisable, if applicable, will vest over a three-year
period as follows: (i) 100,000 of the underlying shares will vest on the first
anniversary of the date the option first becomes exercisable; (ii) 100,000 of
the underlying shares will vest on the second anniversary of such date; and
(iii) the last 100,000 of the underlying shares will vest on the third
anniversary of such date.
Option/SAR Grants in Last Fiscal Year
The Company did not grant any options or stock appreciation rights to
the executive officers named in the Summary Compensation Table (the "Named
Executive Officers") during the year ended June 30, 1999.
Aggregated Option/SAR Exercises in Last Fiscal Year and Fiscal Year-End
Option/SAR Values
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<PAGE>
No options to purchase shares of the Company's common stock were
exercised by the Named Executive Officers during the fiscal year ended June 30,
1999.
Long-Term Incentive Plans Awards ("LTIP") in the Last Fiscal Year
No awards under any LTIPs were made to any of the Named Executive
Officers during the fiscal year ended June 30, 1999.
Compensation of Directors
For the year ended June 30, 1999, the Company did not provide any
compensation to its directors, except for reimbursement of direct expenses
including travel and related expenses.
On or about August 1999, the Company established a plan for its
non-employee directors that provides for options to the purchase the Company's
common stock. Each non-employee director is granted the following: (a) an option
to purchase up to 100,000 shares of the Company's common stock at an exercise
price of $ .0001 per share which option is exercisable on the first anniversary
of the date of the director's appointment and expires one year thereafter; (b)
an option to purchase up to 100,000 shares of the Company's common stock at an
exercise price of $ .50 per share which option is exercisable on the third
anniversary of the date of the director's appointment and expires one year
thereafter; provided, however, the director must serve a 3-year minimum term;
and provided, further, that the Company is then profitable and meets certain
financial criteria; and (c) an option to purchase up to 100,000 shares of the
Company's common stock at an exercise price of $.50 per share; provided,
however, that the option is not exercisable unless the Company's common stock
trading price equals $25 or more for twenty consecutive business days; once
exercisable the option vests immediately on such date and expires one year
thereafter. The Company also provides non-employee directors with directors and
officers liability insurance and reimbursement of expenses for attending board
meetings.
Employment Contracts and Termination of Employment, and Change of Control
Arrangements
The Company had no employment contracts with any of the Named Executive
Officers who were employees of the Company and the Company had no compensatory
plan or arrangement with any of its named executives who were employees of the
Company in which the amount to be paid exceeded $100,000 and which were
activated upon resignation, termination or retirement of any such Named
Executive Officer upon a change of control of the Company.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
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<PAGE>
The following table sets forth certain information regarding the
ownership of shares of the Company's common stock as of September 30, 1999
(except as noted below) with respect to (i) holders known to the Company to
beneficially own more than five percent or more of the outstanding common stock
of the Company; (ii) each director of the Company; (iii) each executive officer
named in the Summary Compensation Table under the caption "Executive
Compensation" in Item 11 of this Report; and (iv) all directors and executive
officers of the Company as a group. The Company understands that each beneficial
owner has sole voting and investment power with respect to all shares
attributable to such owner. The number of outstanding shares of the Company's
common stock at September 30, 1999 was 31,300,782.
Amount and Nature of Percent of
Beneficial Owner Beneficial Ownership(1)(2) Class (2)
- ---------------- -------------------------- ----------
Commerce Capital Group, L.L.C.(3) 21,000,000 67.1%
1517 Mary Ellen Drive
Ft. Mill, South Carolina 29715
Dale K. Chapman (4) * *
6230 Fairview Road, Suite 102
Charlotte, North Carolina 28210
Eric F. Heintschel (5) * *
100 North Tryon, Suite 3400
Charlotte, North Carolina 28202
All directors and executive officers * *
as a group (2 persons) (4)(5)
- ------------------------
(1) Shares subject to options are considered beneficially owned to the
extent currently exercisable or exercisable within 60 days of September
30, 1999.
(2) Asterisk indicates less than one percent. Shares subject to options
that are considered to be beneficially owned are considered
outstanding only for the purpose of computing the percentage of
outstanding common stock which would be owned by the optionee if such
options were exercised, but (except for the calculation of beneficial
ownership by all executive officers and directors as a group) are not
considered outstanding for the purposed of computing the percentage of
outstanding common stock owned by any other person.
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<PAGE>
(3) Commerce Capital Group, L.L.C. ("CCG") is a South Carolina limited
liability company. Mr. R. Hughes, whose address is c/o Commerce
Capital Group, L.L.C., 1517 Mary Ellen Drive, Fort Mill, South
Carolina 29715, is the Managing Member of CCG.
(4) Excludes 800,000 shares subject to options which are not exercisable
within 60 days of September 30, 1999.
(5) Excludes 300,000 shares subject to options which are not exercisable
within 60 days of September 30, 1999.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
During the year ended June 30, 1998, the former president of the
Company, Richard R. Rossi, through a corporation that he owned, provided
services to the Company and received approximately $ 128,000 or approximately $
10,000 per month for services and supplying at his expense the Company's U.S.
corporate headquarters. This amount included office suites, a conference room, a
receptionist and storage facilities, photocopying, faxing, computers, office
supplies and personnel including a secretary and a 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 arose, which loans were repaid. During
July 1998, Mr. Rossi did not receive any compensation from the Company. During
August 1998, the Company paid Mr. Rossi approximately $40,386.
On August 2, 1999, the Company consummated a licensing arrangement with
CCG to license CCG's proprietary "Personal Estate Plan(TM)" 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. After the
transaction, CCG became the owner of more than five percent of the Company's
common stock.
ITEM 13. EXHIBITS, LIST AND REPORTS ON FORM 8-K
a. The following documents are filed as a part of this Report:
Independent Auditor's Report
Consolidated Financial Statements at June 30, 1999 and 1998
Consolidated Balance Sheets Consolidated Statements of Loss
Consolidated Statements of Stockholders' Equity (Deficiency in Assets)
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
b. Reports on Form 8-K.
Subsequent to the year ended June 30, 1999, the Company filed a Report
on Form 8-K (the "Report") dated August 2, 1999 (date of earliest event
reported), reporting under Item 1 (Changes in Control of Registrant), Item 2
(Acquisition or Disposition of Assets) and Item 7 (Financial Statements and
Exhibits). No financial statements were filed with the Report.
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<PAGE>
c. Exhibits
EXHIBIT NO. DESCRIPTION
- ----------- -----------
3.1 Articles of Incorporation (1)
3.2 Bylaws (1)
4.1 Specimen Stock Certificate (1)
10.1 Agreement for Purchase and Assignment of License dated
Effective July 30, 1999
21.1 Subsidiaries List (2)
27.1 Financial Data Schedule
- -------------------------
(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
(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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<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
/s/ Dale K. Chapman
By: --------------------------------------------
Name: Dale K. Chapman
Title: President
Date: October 14, 1999
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<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Report has been executed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Signature Title Date
- --------- ----- ----
/s/ Dale K. Chapman
______________________ President, Chief Executive October 14, 1999
Name: Dale K. Chapman Officer, Secretary, Treasurer,
Director
/s/ Eric F. Heintschel
_________________________ Director October 14, 1999
Name: Eric F. Heintschel
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<PAGE>
IRT INDUSTRIES, INC.
CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1999 and 1998
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-16
F-1
<PAGE>
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, 1999 and 1998, 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 IRT's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
Except as described in the following paragraph, 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.
As discussed in Note 4 to the financial statements, the Company has had numerous
significant transactions with businesses, which may be controlled by, and with
people who were related to, former officers, and directors of the Company. As
further discussed in Note 8, fraud was alleged in the initial purchase of the
foreign subsidiaries or affiliates, and the Company was granted a final default
judgment against its former president to compensate for certain losses resulting
from the purchase and disposition of those subsidiaries or affiliates. We were
unable to obtain additional financial data supporting the Company's investment
in these foreign subsidiaries and affiliates and, without adequate valuation
information, were unable to determine the components of those subsidiaries'
losses from discontinued operations stated in total at $34,908 and $2,768,152 at
June 30, 1999 and 1998, respectively; nor were we able to satisfy ourselves as
to any discrepancies in the initial carrying values of the investment in the
foreign subsidiaries or affiliates by other auditing procedures.
In our opinion, except for the effects of such adjustments, if any, as might
have been determined to be necessary had we been able to examine further
evidence regarding the original investment in foreign subsidiaries or affiliates
and components of their earnings reported as "Loss from Discontinued
Operations," the consolidated financial statements referred to in the first
paragraph above present fairly, in all material respects, the financial position
of IRT Industries, Inc. and subsidiaries at June 30, 1999 and 1998, 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, IRT 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
October 12, 1999
F-2
<PAGE>
<TABLE>
<CAPTION>
IRT INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1999 1998
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 1,904 $ 9,899
Common stock held in escrow 30 30
Net current assets of discontinued operations - 57,821
Judgment receivable, less valuation allowance of $695,712 - -
Deferred tax asset, less valuation allowances
of $1,268,400 and $1,112,000 - -
- ------------------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS $ 1,934 $ 67,750
================================================================================================
LIABILITIES AND DEFICIENCY IN ASSETS
CURRENT LIABILITIES
Accounts payable 53,330 77,653
Accrued audit and accounting 29,000 29,000
Taxes payable 3,318 3,318
Loan from related party 60,000 -
Loan from others 1,000 -
Net current liabilities of discontinued operations - 34,913
- ------------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 146,648 144,884
- ------------------------------------------------------------------------------------------------
COMMITMENTS AND CONTINGENCIES (NOTES 8, 9, AND 10)
DEFICIENCY IN ASSETS
Common stock, $.0001 par value, 100,000,000 shares authorized
8,450,331 and 6,600,331 shares issued and outstanding 845 660
Additional paid-in capital 9,236,057 8,761,242
Deficit (9,381,556) (8,424,820)
Treasury stock, at cost (60) (60)
Stock subscription receivable, less
valuation allowance of $435,571 in 1999 - (414,156)
- ------------------------------------------------------------------------------------------------
TOTAL DEFICIENCY IN ASSETS (144,714) (77,134)
- ------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND DEFICIENCY IN ASSETS $ 1,934 $ 67,750
================================================================================================
</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,
1999 1998
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
EXPENSES
Consulting, professional and administrative fees 512,745 959,912
Bad debts 435,571 -
Amortization - 29,750
General and administrative 8,199 10,865
Travel and entertainment 14,228 4,621
- --------------------------------------------------------------------------------------------------------------------
TOTAL EXPENSES 970,743 1,005,148
- --------------------------------------------------------------------------------------------------------------------
OTHER INCOME (EXPENSE)
Interest income 71,415 62,995
Litigation settlement income (expense) (22,500) 11,098
- --------------------------------------------------------------------------------------------------------------------
TOTAL OTHER INCOME, NET 48,915 74,093
- --------------------------------------------------------------------------------------------------------------------
LOSS FROM CONTINUING OPERATIONS BEFORE INCOME TAX BENEFITS (921,828) (931,055)
INCOME TAX (BENEFITS) - -
- --------------------------------------------------------------------------------------------------------------------
LOSS FROM CONTINUING OPERATIONS, NET OF INCOME TAX BENEFITS (921,828) (931,055)
- --------------------------------------------------------------------------------------------------------------------
DISCONTINUED OPERATIONS
Loss from operations of discontinued subsidiaries (116,676) (383,066)
Loss on abandonment of floating casino license - (652,361)
Provision for loss on future disposal of discontinued subsidiary - (852,714)
Gain (Loss) on disposal of discontinued subsidiary 81,768 (880,011)
Income tax benefits - -
- --------------------------------------------------------------------------------------------------------------------
LOSS ON DISCONTINUED OPERATIONS, NET OF INCOME TAX BENEFITS (34,908) (2,768,152)
- --------------------------------------------------------------------------------------------------------------------
NET LOSS $(956,736) $(3,699,207)
====================================================================================================================
PRIMARY AND FULLY-DILUTED WEIGHTED AVERAGE SHARES OUTSTANDING 8,081,290 4,210,084
BASIC NET LOSS PER SHARE, PRIMARY AND FULLY-DILUTED FROM CONTINUING OPERATIONS $ (0.11) $ (0.22)
BASIC NET LOSS PER SHARE, PRIMARY AND FULLY-DILUTED FROM DISCONTINUED OPERATIONS $ (0.01) $ (0.66)
- --------------------------------------------------------------------------------------------------------------------
BASIC NET LOSS PER SHARE, PRIMARY AND FULLY-DILUTED $ (0.12) $ (0.88)
====================================================================================================================
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-4
<PAGE>
IRT INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY IN ASSETS)
<TABLE>
<CAPTION>
NUMBER COMMON ADDITIONAL
OF STOCK PAID-IN
DESCRIPTION SHARES AMOUNT CAPITAL
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
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 40,000 4 4,996
Issuance of common stock 9,100,000 910 1,014,359
Payments on subscription receivable - - -
Common stock held in escrow related to litigation 300,000 30 -
Decrease in deficit from disposal of Casino Bahia Ballena - - -
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
Issuance of common stock for services 1,500,000 150 449,850
Issuance of common stock 350,000 35 24,965
Payments on subscription receivable - - -
Net loss for the year ended June 30, 1999 - - -
- ----------------------------------------------------------------------------------------------------------------------
BALANCE AT JUNE 30, 1999 8,450,331 $ 845 $9,236,057
======================================================================================================================
FOREIGN
CURRENCY TREASURY
DESCRIPTION DEFICIT TRANSLATION STOCK
- --------------------------------------------------------------------------------------------------------------------------
BALANCE AT JUNE 30, 1997 (RESTATED) $(4,976,491) $ 1,230 $(60)
Reverse stock split - - -
Issuance of common stock for services - - -
Issuance of common stock
Payments on subscription receivable - - -
Common stock held in escrow related to litigation
Decrease in deficit from disposal of Casino Bahia Ballena 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)
Issuance of common stock for services - - -
Issuance of common stock - - -
Payments on subscription receivable - - -
Net loss for the year ended June 30, 1999 (956,736) - -
- --------------------------------------------------------------------------------------------------------------------------
BALANCE AT JUNE 30, 1999 (9,381,556) $(60)
==========================================================================================================================
TOTAL
STOCK STOCKHOLDERS'
SUBSCRIPTION EQUITY
DESCRIPTION RECEIVABLE (DEFICIENCY IN ASSETS)
- ----------------------------------------------------------------------------------------------------------------------
BALANCE AT JUNE 30, 1997 (RESTATED) (411,230) 2,355,052
Reverse stock split - -
Issuance of common stock for services - 5,000
Issuance of common stock (1,015,269) -
Payments on subscription receivable 1,012,343 1,012,343
Common stock held in escrow related to litigation - 30
Decrease in deficit from disposal of Casino Bahia Ballena - 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)
Issuance of common stock for services - 450,000
Issuance of common stock - 25,000
Payments on subscription receivable 50,000 50,000
Accrued interest on subscription receivable (71,415) (71,415)
Allowance of stock subscriptions receivable 435,571 435,571
Net loss for the year ended June 30, 1999 - (956,736)
- ---------------------------------------------------------------------------------------------------------------------
BALANCE AT JUNE 30, 1999 0 (144,714)
=====================================================================================================================
</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,
1999 1998
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(956,736) $(3,699,207)
Adjustments to reconcile net loss to net cash provided
(used) by operating activities:
Amortization - 121,478
Depreciation - 32,859
Accrued interest on stock subscription receivable (71,415) -
Common stock issued for services 450,000 5,000
Bad Debts 435,571 -
Foreign currency translation - 71,530
Asset impairment loss - 852,714
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 57,821 237,056
Increase (decrease) in liabilities:
Accounts payable (24,323) 2,838
Accrued liabilities - (31,098)
Net current liabilities of discontinued operations (34,913) 5,795
- --------------------------------------------------------------------------------------------------------
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES (143,995) (1,002,557)
- --------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Receipts
Proceeds from issuance of common stock 25,000 -
Loan from related party 60,000 -
Due from Others 1,000 -
Payments on subscription receivable 50,000 1,012,343
- --------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 136,000 1,012,343
- --------------------------------------------------------------------------------------------------------
NET (DECREASE) INCREASE IN CASH AND EQUIVALENTS (7,995) 9,786
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 9,899 113
- --------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 1,904 $ 9,899
========================================================================================================
SUPPLEMENTAL DISCLOSURES:
Common stock issued for services rendered $ 450,000 $ 5,000
Common stock issued for subscription receivable $ - $ 1,015,269
Interest received $ - $ -
Interest paid $ - $ -
Income taxes paid $ - $ -
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-6
<PAGE>
IRT INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999 AND 1998
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, IRT 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, IRT 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, IRT filed an application to list the Company's
common stock for trading on the Philadelphia Stock Exchange, which
application was subsequently accepted in early 1997. The Company's
common stock was subsequently delisted on February 4, 1999.
In April 1998, IRT 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
and subsidiaries have been eliminated in consolidation. IRT disposed of
its interest in Ballena in April 1998, and also decided to discontinue
the operations of Juegos, which was subsequently sold in 1999.
Accordingly, the casino operations are classified under the heading of
"Discontinued Operations," in the consolidated statements of loss.
CASH AND CASH EQUIVALENTS
For purposes of the statements of cash flows, IRT 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, 1999 and 1998, IRT had outstanding stock subscriptions
receivable, which are secured by IRT's common stock and are
non-interest bearing. The carrying value of these receivables was
reduced to estimated fair market value by imputing interest and in
1999, an allowance for uncollectibility(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 casino operations, was stated at cost, less accumulated
depreciation, while equipment not yet placed in service was carried at
cost. Depreciation was begun when the assets were placed in service and
computed using the straight-line method over the estimated useful lives
of the assets, which ranged from five to ten years. Property and
equipment used in IRT's casino operations is classified in "net current
assets of discontinued operations."
Depreciation and amortization expense was $0 and $32,859 for June 30,
1999 and 1998, 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 had been capitalized and
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 had been capitalized and 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
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 amortized over the initial
term of the lease and subsequent expected extension periods, for a
total of 130 months. During the prior year, any unamortized amounts
were 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 IRT'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, 1999
and 1998, 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, 1999 and 1998, was $38,464 and $71,530,
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, IRT 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 year ended June 30, 1998, were approximately
$121,000.
In February 1999, IRT 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 was used to pay IRT'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."
Net revenues for Juegos for the years ended June 30, 1999 and 1998,
were approximately $37,816 and $94,500, respectively. Net assets of
Juegos (excluding intercompany balances) as of June 30, 1998, consisted
of the following:
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
<PAGE>
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
============.
AMORTIZATION OF CASINO LICENSES AND INTERESTS
For the years ended June 30, 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 $0, and $91,728, respectively.
F-9
<PAGE>
NOTE 2. CASINO AND DISCONTINUED OPERATIONS (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" IRT 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, IRT 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 IRT'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, 1999 and 1998, various legal fees of
approximately $40,400 and $133,409, respectively, were charged to the
Company by its United States legal counsel, a professional association
whose principal shareholder is also a principal shareholder and was
President and Board of Directors Member of IRT. The outstanding
balance as of June 30, 1998, was $30,504, and is included in accounts
payable. (See Note 8).
NOTE 5. MANAGEMENT CHANGES
In September, 1998, the President of IRT resigned and in November,
1998, IRT 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 J. Wrobel. Mr. Wrobel also became the
President, Secretary and Treasurer.
F-10
<PAGE>
NOTE 6. STOCKHOLDERS' EQUITY
COMMON STOCK
IRT has authorized 100,000,000 shares of common stock with a par value
of $.0001 per share. At June 30, 1999, and June 30, 1998, 8,450,331
shares and 6,600,331 shares, respectively, were issued and outstanding.
IRT has no other authorized or outstanding securities of any class.
SALE OF COMMON STOCK
On August 15, 1997, IRT 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 IRT'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 does not provide for the payment of interest.
REVERSE STOCK SPLIT
During the first fiscal quarter of IRT's 1998 fiscal year, the common
stock of IRT 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 IRT's common stock. Further, IRT received a warning
from the Philadelphia Stock Exchange that, were the stock price to
remain low, IRT 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, IRT reverse split its common stock at a ratio of one
new share for each ten old shares issued and outstanding.
STOCK ISSUED FOR SERVICES
On September 24, 1997, IRT issued 40,000 shares of common stock
pursuant to a 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, IRT authorized to be issued to various consultants
1,500,000 shares of the common stock of IRT for services pursuant to a
registration statement on Form S-8 filed on August 14, 1998. The
parties agreed that the value of each share was $.30.
STOCK SUBSCRIPTIONS RECEIVABLE
On March 14, 1996, IRT 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 notes with any remaining balance would be due. At June
30, 1999, the $435,571 still due was deemed uncollectible.
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 $169,206 was considered earned during the
year ended June 30, 1998.
F-11
<PAGE>
NOTE 6. STOCKHOLDERS' EQUITY (CONTINUED)
On August 15, 1997 and on October 13, 1997, IRT 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
IRT and its subsidiaries do not file consolidated income tax returns.
IRT 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, 1999 and 1998, IRT generated for
U.S. income tax purposes a net operating loss of approximately
$4,228,000 and $3,706,900, respectively. These loss carryforwards
expire in the years 2018 and 2012, respectively.
IRT 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 IRT 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 IRT 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.
IRT 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 of approximately
$2,684,000 at June 30, 1999 and $1,112,000 may not be recognized in
future years, considering anticipated ownership changes and income
possibilities. 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-12
<PAGE>
NOTE 8. COMMITMENTS AND CONTINGENCIES (CONTINUED)
Rent expense for the years ended June 30, 1999 and 1998, was $61,518
and $232,133, and is included under discontinued operations.
LITIGATION
In November 1994, Morton I. Singerman obtained an amended final
judgment against IRT. The judgment was issued for against the
defendants including the Company's predecessor Triumph Financial Corp.
and Triumph Capital, Inc. which, with interest, is approximately $
30,000. The Company believes a portion of this sum has been paid to the
plaintiff and that the outstanding mount is less than $25,000. IRT has
provided for a liability of $17,500 which is reflected in the balance
sheet as accounts payable.
In March 1997, IRT filed a complaint against International Corporation,
K&Z, S.A. and others. In the complaint, IRT alleged that the defendants
had breached an agreement to sell a license to operate a casino in San
Jose, Costa Rica. As consideration for the license, the defendants
issued a promissory note in the amount of $ 595,000 while
simultaneously purchasing 2,400,000 shares of IRT's common stock. As
security for the validity of the license, the defendants pledged a
certain number of shares of the Company's common stock and agreed not
to transfer the shares until the validity of the license could be
confirmed. However, one of the co-defendants attempted to transfer his
shares. IRT then placed a stop-transfer order on the defendant's
shares. The co- defendant subsequently filed a counterclaim against IRT
alleging that it had improperly caused a stop-transfer order to be
placed on his shares of IRT's common stock, as is seeking damages in
excess of $300,000. IRT believes that the counter-claim has no merit.
However, if the counterclaim were to be adjudicated against IRT,
outcome could have a material adverse effect on the Company's
liquidity, financial position or results of operations.
In January 1998, Jose Humberto Brenes filed a complaint against IRT. In
the complaint, the plaintiff alleged that IRT defaulted on its
obligation to make payments due under a guarantee. The plaintiff seeks
damages of approximately $ 119,000. Although the plaintiff voluntarily
dismissed the action on or about November 4, 1998, the plaintiff has
indicated that he intends to refile the action against IRT and to seek
to collect the alleged damages unless the parties can reach a
settlement. The Company intends to investigate the underlying facts of
the plaintiff's complaint. However, if the action were re-filed and the
complaint were to be adjudicated against IRT, the outcome could have a
material adverse affect on the Company's liquidity, financial position
or results of operations.
In November 1998, Mr. Brenes-Jenkins, as a shareholder of and on behalf
of IRT, filed a complaint against Richard R. Rossi, the then President
and Director of the Company had breached his fiduciary duty by causing
IRT to enter into certain stock purchase transactions with entities
controlled by him resulting in losses to IRT. The complaint alleged
damages of $550,000. In April 1999, the Court granted the plaintiff's
motion for a final default judgment in favor of IRT and ordered the Mr.
Rossi to pay damages in the amount of $ 695,712 (including a principal
sum of $ 550,000, plus prejudgment interest in the amount of $
145,712). While the Company is attempting to collect its judgment, an
allowance in the full amount of the award has been established as there
is no assurance that IRT will be able to collect the damages awarded.
F-13
<PAGE>
In November 1998, IRT voluntarily entered into a Consent to Entry of
Judgment of Permanent Injunction and Other Relief with the Securities
and Exchange Commission ("SEC") File No. A- 1605, pursuant to which the
SEC has the right to present to the United States District Court,
Southern District of Florida (Miami Division) a Final Judgment without
further notice to IRT. The proposed Final Judgment restrains and
enjoins IRT from committing fraud in violation of Section 17(a) of the
Securities Act of 1933, as amended and Section 10(b) of the Securities
Exchange Act of 1934 and Rule 10B-5 thereunder. In the event IRT fails
to comply with the terms of the Final Judgment, the SEC will be able to
petition the Court to assess civil penalties against the Company. If
civil penalties were assessed against the Company, such sums, if any,
could have a material adverse effect on the Company's liquidity,
financial position and results of operations.
In February 10, 1999, Oscar Hamod filed a complaint against IRT and
others alleging the defendants made various misrepresentations and
fraudulent statements to him thereby inducing him to purchase shares of
IRT's common stock at a cost of approximately $100,000 which shares
subsequently decreased in value. The complaint seeks to rescind the
sale of the common stock or alternatively, damages of up to $ 100,000.
IRT believes that the complaint has no merit and intends to vigorously
defend the action. However, if the action were to be adjudicated
against IRT, the outcome could have a material adverse effect on the
Company's liquidity, financial position and results of operations.
CONSULTING AGREEMENTS
From time-to-time, IRT 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 IRT to the investment
community and identification and negotiation of potential acquisitions.
C. DANIEL CONSULTING, INC.
On December 1, 1996, IRT 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. Either party may terminate this Agreement upon at least thirty
day's prior written notice. Daniel will receive $15,000 per month as a
base rate. If Daniel materially assists IRT with certain services as
outlined in the Agreement, IRT agreed to pay Daniel additional
compensation above the base rate, in either cash or stock as agreed by
both parties in the future. IRT paid C. Daniel Consulting, Inc.
$270,000 plus issued 40,000 shares of common stock, and $289,800 for
their services for the year ended June 30, 1998. (See Note 6).
F-14
<PAGE>
NOTE 8. COMMITMENTS AND CONTINGENCIES
OFFICE FACILITIES AND STAFFING
IRT was also charged at least $5,000 per month under an informal office
services arrangement. Consequently, IRT was 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 IRT's financial position or results of operations.
Future business endeavors are expected to address any Year 2000
issues.
NOTE 9. MANAGEMENT'S PLANS
IRT's financial statements for the year ended June 30, 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. IRT has suffered recurring losses,
consequently there is an accumulated deficit at June 30, 1999.
IRT 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
financial statements do not include any adjustments that might be
necessary should IRT be unable to continue as a going concern.
Management recognizes that IRT must generate additional resources in
order to continue. Management's plans include changing its focus to
domestic opportunities in the Internet area or other business area.
IRT intends to actively pursue a business combination through a merger
or acquisition. (see Note 10).
In connection, with IRT changing its focus to domestic opportunities in
the Internet area, or other business area, IRT discontinued all of its
casino operations. In February 1999, IRT sold the business and all
assets and properties related to the operations of its subsidiary,
Juegos Ruro, S.A.
NOTE 10. SUBSEQUENT EVENTS
On July 29, 1999, IRT granted consultants a total of 1,650,000 shares
of its common stock as compensation for consultation services which
were rendered on its behalf.
As a result of the closing of the agreement discussed below, IRT now
holds licensing rights for software distribution/marketing of
artificial intelligence software licensed by Commerce Capital Group,
LLC. IRT will be using advanced technology to deliver web-based
financial planning services. Cisco Systems routing and wide area
networking (WAN) equipment and MCI WorldCom Internet backbone are
incorporated into the technology. IRT expects that this e-commerce
network will enable established brokerage firms, certified public
accountants, financial planners, attorneys and other financial
intermediaries to provide value-added on-line products and services to
their clients.
F-15
<PAGE>
The new direction of IRT is the result of an agreement entered into on
August 2, 1999 between IRT, as licensee and Commerce Capital Group
L.L.C., a South Carolina limited liability company ("CCG") pursuant to
which IRT has the right to market and sell CCG's proprietary technology
and software in a defined territory (the "License").
CCG is the holder of certain proprietary technology and software, for
estate and financial planning, which will permit professionals, and
others, to access forms, assistance and other pertinent information,
on-line, through the Internet. CCG is in the process of establishing an
Internet access site for users. CCG represented to IRT that over ten
years and hundreds of thousands of dollars were expended in creating
the software, content, trial testing, marketing, etc., and, the parties
agreed that the market demand for the products is projected to produce
revenues in the millions of dollars.
Pursuant to the License, IRT received an initial territory of the State
of Florida, and representations from CCG to bring persons with
substantial backgrounds and talents to the management of IRT, together
with cooperation, training, and aid in obtaining financial assistance
from CCG to build and implement its business model in the subject
business area. CCG received, as initial consideration, twenty-one
million shares of restricted common stock, as such term is defined
under Rule 144 promulgated under the Securities Act of 1933, as
amended, and established the terms for future territories.
In conjunction with the closing of the subject transaction, the
following occurred:
1. The corporate headquarters of IRT was changed to Charlotte, North
Carolina. IRT signed a two year lease for these facilities.
2. The then sole Director and officer of IRT appointed replacements to
vacant seats, and resigned with the following persons holding,
currently, the following positions:
Name Title
---- -----
Laurence F. Spears Chairman of the Board
Dale K. Chapman President, Secretary, Treasurer and Director
Eric F. Heintschel Director
Gary N. Dixon, Sr., initially, following the closing, acted as
Director and Chairman, and was replaced by Mr. Spears. Mr. Spears
resigned as Chairman of the Board on October 11, 1999. Mr. Dixon
serves on a newly established Advisory Committee for IRT.
3. Immediately following the closing, IRT established various plans to
compensate persons for services to it, including an incentive stock
option plan for non-employee directors. The plan relating to Directors
provides that each Director will receive the following: (a) an option
to purchase up to 100,000 shares of IRT's common stock at an exercise
price of $.0001 per share which option is exercisable one year after
the date the director is appointed and expires one year thereafter; (b)
an option to purchase up to 100,000 shares of IRT's common stock at an
exercise price of $.50 per share, which option is exercisable on the
third anniversary of the date the director is appointed and expires one
year thereafter; provided, however, the director must serve a minimum
three year term; and provided, further, IRT is then profitable and
meets certain financial criteria; and (c) an option to purchase up to
100,000 shares of IRT's common stock at an exercise price of $.50 per
share which option is not exercisable unless the common stock's per
share trading price equal $25 or more for twenty consecutive business
days and once exercisable will vest immediately on such date and expire
one year from such date, and provided that the director serve a three
year minimum term.
F-16
Exhibit 10.1
AGREEMENT FOR PURCHASE AND ASSIGNMENT OF LICENSE
THIS AGREEMENT is dated effective July 30, 1999, and is entered into by and
between IRT Industries, Inc., a Florida corporation ("Licensee") and Commerce
Capital Group, LLC, a South Carolina limited liability company ("Licensor").
RECITALS:
1. Licensor has the rights to certain proprietary technology and software, for
estate planning, which permits professionals and non-professional users, to
access forms, instructions, assistance, on-line through the Internet, to develop
estate planning and related documentation, as more specifically identified in
documentation delivered to Licensee, under including future modifications,
additions, corrections, and improvements (the "Software"); and
2. Licensor wishes to license, and Licensee wishes to receive, a license (the
"License") for the limited right to market and use such "Software" in certain
states, and the parties would like to confirm their agreement on certain related
matters, all as described below and upon the terms and conditions hereinafter
set forth;
NOW, THEREFORE, in consideration of the premises, mutual promises,
covenants, terms and conditions herein, and other good and valuable
considerations, the receipt and sufficiency of which are hereby acknowledged by
the parties hereto, the parties hereby agree as follows:
1. RECITALS, EXHIBITS AND SCHEDULES. All of the above recitals are true, correct
and complete, as well as each exhibit and schedule attached hereto, which are
incorporated herein by reference.
2. ASSIGNMENT. Licensee agrees to receive from Licensor, and Licensor agrees to
assign to Licensee (hereinafter the "Assignment"), on the "Closing" (hereinafter
defined in Section titled "Closing and Certain Related Matters" herein), the
"License." Licensor represents and warrants that, among other things, the
License to be conveyed to Licensee by Licensor at Closing will be free and clear
of any and all liens, encumbrances, claims or demands of third parties, except
as both disclosed and otherwise provided for herein, and shall include:
(i) the right to market and use the Software in the "Territory"
(herein defined;
(ii) the right to market the Software to defined potential customers
in the Territory only as follows: professionals in the fields of accounting,
stock brokerage, insurance, lawyers, investment advisory services, financial
planning, and human resources;
<PAGE>
(iii) the Territory is initially Florida (but may also include,
subject to the following terms, Georgia, Alabama, Mississippi, and Tennessee as
the "Remaining States");
(iv) the non-exclusive right to utilize the logos and names related to
the Software, as supplied to Licensee by Licensor;
(v) all current, and any future amendments, of sales, usage, limited
technical, instructional, and similar documentation and literature relating to
the Software; and
(vi) the right to receive all income generated from the sale of the
Software in the Territory, less any nominal adjustments or delivery costs to be
resolved between Licensor and Licensee.
3. PURCHASE PRICE. The purchase price for the License, which includes the
financial and other assistance of Licensor described herein, is the sum of
21,000,000 shares of Common Stock to include as the Territory the State of
Florida, and the agreement below to pay additional money, or shares for
additional states, which will be paid by the Licensee to the Licensor as
provided below ("Purchase Price").
4. PAYMENT OF PURCHASE PRICE. The Purchase Price shall be paid to Licensor as
follows, subject to the terms and conditions of this Agreement:
(i) a certificate for 21,000,000 shares of Common Stock (unless noted
otherwise herein, all shares shall be "restricted securities" with reference to
Rule 144) will be delivered to Licensor on or about the Closing, with Licensee
to be deemed to have as the "Territory" the State of Florida;
(ii) the Licensee may, only as an option that may be exercised by
Licensee if it elects, to deliver additional shares of Common Stock, or cash as
the parties may agree, to Licensor for the "Remaining States," described above,
over the next three years in installments at such times and amounts as
determined by the Board of Licensee, but not later than two years from the
Closing;
(iii) as to said Remaining States, Licensee may pay same in money or
in shares of Common Stock of Licensee, and if in stock, the following shall be
the number of shares needed for each state: Georgia, 15,003,007 shares; Alabama
8,701,251 shares; Mississippi 5,496,601 shares; Tennessee 10,799,141 shares.
As to the Shares, the following shall apply:
(a) On the Closing, the Licensee shall deliver an initial certificate in
the total of 21,000,000 Shares to the Licensor, of Common Stock of the Licensee.
The Shares shall be
-2-
<PAGE>
unregistered, in the common form of "restricted securities" as defined under
Rule 144 of the U.S. Securities and Exchange Commission ("SEC").
(b) After the Closing, as additional shares of Common Stock that become
available due to any recapitalization, or otherwise, the Licensee shall deliver
promptly additional certificates to Licensor of Shares, until the balance of the
Purchase Price is paid in full.
(c) The Licensor will have the right, on no more than 3 occasions per year,
following the Closing, to require that the Licensee use best efforts to register
the Shares with the SEC and applicable states, in order for the Shares to be
free trading securities. While the Licensor will cooperate as to any such
registration, the expense and effort of same shall be borne by the Licensee.
5. ASSUMPTION OF LIABILITIES. A. At Closing, Licensor will not assume any
obligations of Licensee, and Licensee will not assume any obligations of
Licensor.
A. Following the Closing, Licensor shall not assume, or become liable for,
any obligations or liabilities of Licensee due to the operation of its business,
including as to the marketing of the Software, including, without limitation,
liabilities or obligations in respect of (i) as the case may be, the
shareholders, partners, owners, directors or officers of Licensee; (ii) any
pension or profit sharing, bonus or similar compensation or other plan; (iii)
employees for any period; (iv) Federal, state or local taxes measured by or in
respect of Licensee's income for any period; (v) taxes, fines, penalties and the
like imposed by any person (for the purpose of this Agreement, "person" includes
any individual entity or person, natural or otherwise) on Licensee or any
affiliate of Licensee; (vi) any loans, notes or accounts payable; (vii) Federal,
state or local payroll, excise or property taxes and any other type of tax
whatsoever; and (viii) any fines, penalties or the like due to the Federal
government, the State of Florida, or any other state or any instrumentality or
agency of the foregoing for any events, circumstances or facts.
6. CLOSING AND CERTAIN RELATED MATTERS. A. Closing Date. The date for the
closing of the Agreement (herein "Closing") shall be the date first written
above, unless the parties agree otherwise in writing. The Closing shall be held
by overnight mail or fax unless another time and place are mutually agreed upon
by the parties hereto in writing.
B. Conditions Precedent to the Closing.
(i) By Licensor. The obligation of Licensor to consummate this
Agreement shall be subject to, and conditioned upon, the satisfaction, at or
prior to Closing, of each of the following conditions, and as otherwise provided
in this Section, except to the extent of any waiver by Licensor in writing
signed by Licensor:
C. Compliance with Agreement. Licensee shall have performed and complied
with all covenants and agreements of Licensee hereunder, and satisfied all
conditions hereunder, that Licensee is required by this Agreement to perform,
comply with, or satisfy before or at Closing, and all actions,
-3-
<PAGE>
proceedings, instruments and documents required of Licensee to carry out the
terms of this Agreement shall have been duly delivered to Licensor.
D. Adverse Changes. No event shall have occurred between the date of this
Agreement and the Closing date which has or might reasonably have a material
adverse affect on the Licensee.
E. Representations. The representations of Licensee hereunder, which shall
be deemed (1) to have been made as of the date of this Agreement and also on the
Closing date and (ii) to continue and survive the Closing, shall be true,
complete and correct.
F. Financial Conditions. There shall have been no material adverse change
in the financial condition of Licensee, including the results of operations and
liquidity.
G. Errors, Etc. Licensor shall not have discovered any material error,
misstatement or omission of Licensee hereunder or in any information, schedule
or exhibit delivered to Licensee on or before the Closing date.
(ii) By Licensee. The obligation of Licensee to consummate this
Agreement shall be subject to and conditioned upon the satisfaction, at or prior
to Closing, the same conditions under (i) above, except as they apply to
Licensor.
(A) Transition. Licensor shall aid and assist Licensee in the transition of the
business focus of the Licensee, and use of the Software related thereto.
(B) CERTAIN REPRESENTATIONS OF LICENSEE. As a material inducement to Licensor
to enter into this Agreement and perform hereunder, Licensee hereby
represents to Licensor, in addition to such other representations contained
elsewhere herein, the following:
A. Financial Statements. The filings with the SEC pertaining to the
Licensee were prepared under generally accepted accounting principles and fairly
represent the financial performance and condition of the Licensee as of the date
hereof with the current financial performance and conditions as of the date
hereof being represented by Licensee to Licensor as being equal to or better
than such past performance and condition.
B. Absence of Specified Changes. Except as provided herein, Licensee has
not, and from the date hereof to and including the Closing, Licensee will not
have: (i) mortgaged, pledged, subjected to lien, charged, encumbered or granted
a security interest, tangible or intangible, in its assets; or (ii) suffered any
damage, destruction or loss (whether or not covered by insurance) or waived any
rights of substantial value, except, notwithstanding anything herein, for the
need of Licensee to compensate certain consultants and professionals with shares
of its Common Stock prior to the Closing, and after giving effect to this and
the issuance of the 21,000,000 Shares above, approximately sixty nine million
shares remain available for issuance subject to proper formalities and issuance
requirements.
-4-
<PAGE>
C. Liabilities. Except as disclosed in its SEC filings or herein, Licensee
has no other debts, contracts, liabilities or obligations of any kind, character
or description, whether accrued, absolute, contingent or otherwise, or due or to
become due, for which Licensor shall in any way be directly or indirectly
subject to or liable for.
D. Taxes. Within the times and in the manner prescribed by law, Licensee
has filed all Federal, state and local tax returns required by law and has paid
all taxes, assessments and penalties due and payable. There are no present
disputes as to taxes, of any nature, payable by Licensee.
E. Compliance with Law and Other Instruments. Licensee is a duly organized,
validly existing corporation in good standing in the State of Florida, Licensee
is not in violation or default of any term or provision of any law, charter,
bylaw, mortgage, indenture, contract, agreement, lease, instrument, judgment,
decree, order, statute, rule, regulation or ordinance, and the execution,
delivery and performance of, and compliance with, this Agreement will not result
in the violation of, or be in conflict with, or constitute a default under, any
such term or provision or result in the creation of any mortgage, lien,
encumbrance, or charge upon any assets pursuant to any such term or provision.
II. CERTAIN REPRESENTATIONS OF LICENSOR. As a material inducement to Licensee to
enter into this Agreement and perform hereunder, Licensor hereby represents to
Licensee, in addition to such other representations contained elsewhere herein,
the following:
A. Review. Prior to Closing, Licensor has the opportunity to review, among
other things, SEC filings of Licensee, and any other information requested, and
has had a complete opportunity to ask questions and receive answers.
B. Rights To Software. Licensor has good and marketable rights to the
Software.
C. Compliance with Law and Other Instruments. Licensor is a duly organized,
validly existing limited liability company in good standing in the State of
South Carolina. Licensor is not in violation or default of any term or provision
of any law, charter, bylaw, mortgage, indenture, contract, agreement, lease,
instrument, judgment, decree, order, statute, rule, regulation or ordinance, and
the execution, delivery and performance of, and compliance with, this Agreement
will not result in the violation of, or be in conflict with, or constitute a
default under, any such term or provision or result in the creation of any
mortgage, lien, encumbrance, or charge upon any assets pursuant to any such term
or provision.
D. Software Value, Assistance and Financing. (i). The parties believe the
Software has a multi-millon dollar potential market. The Licensor and its
founders have expended hundreds of thousands of dollars and approximately 15
years of development to create the Software. There is little or no competition
for the type of software at issue considering the intended delivery via the
Internet, and research and comparables in the market place.
-5-
<PAGE>
(ii) Licensor will soon have a high-quality multi-linked Internet site
established, and currently market demographics, research, and planning is in
place, having been undertaken by, or at the direction of the Licensor, and all
of such benefits will be made available to Licensee at no additional cost.
Licensor has established numerous industry contacts, and has highly experienced
persons from such companies as Oracle and its business partners, and Price
Waterhouse Coopers, which such people have or will shortly be involved in the
promotion, and business pursuit of the Software, and for the benefit of the
Licensee as well.
(iii) Licensor has already established close ties with investors,
brokers, investment bankers, and institutions as well as banks, who are prepared
to assist in the funding by way of loans, collateralization, private placements,
letter of credits, etc. the necessary funds to not only assist Licensor, but
also for the benefit of Licensee. Licensor acknowledges Licensee is and will be
in need of substantial funding to pursue the exploitation of the License, and
also its responsibilities as a publicly trading company. Licensor is committed
to use its best efforts to establish the necessary funding to assist Licensee.
8. ACCESS TO RECORDS. Prior to this Agreement, Licensee has afforded to Licensor
free and full access to the properties, books and records of Licensee.
9. COVENANT NOT TO COMPETE AND NON-DISCLOSURE. The Licensor further covenants
and agrees that it will not, jointly, individually or collectively as a
participant in a partnership, sole proprietorship, corporation or other entity,
or as an operator, investor, shareholder, partner, director, employee,
consultant, manager, advisor or in any other capacity whatsoever, either
directly or indirectly, compete with Licensee in the Territory, except for
categories of customers not expressly included in the "Territory" described
above.
10. BROKERAGE AND FINDER'S FEES. The parties represent to one another that there
are no brokerage or finder fees due to anyone in connection with this Agreement.
11. LICENSE TERM. The term of the License, as described herein by the Licensee,
shall start from the Closing and shall continue until sooner terminated as the
parties hereto may agree in writing or due to a material breach of the terms
hereof.
12. BOARD OF DIRECTORS. In order to improve the probability of the success of
Licensee in its use of the License, the current sole Director of the Licensee
will appoint the following persons to serve on the Board of Licensee as
replacements for vacant seats, upon the intended resignation of said sole
Director as a Director and officer of Licensee upon the Closing. Licensor
represents that the following persons have qualifications and have agreed to sit
on the Board, and assume positions as the officers of the Licensee:
NAMES:
Gary N. Dixon, Sr. Director,
-6-
<PAGE>
Eric F. Heintschel Director
Dale Chapman President, Secretary and Treasurer
13. MISCELLANEOUS PROVISIONS. A. Gender. Wherever the context shall require, all
words herein in the masculine gender shall be deemed to include the feminine or
neuter gender, all singular words shall include the plural, and all plural shall
include the singular.
B. Severability. If any provision hereof is deemed unenforceable by a court of
competent jurisdiction, the remainder of this Agreement, and the application of
such provision in other circumstances shall not be affected thereby.
C. Further Cooperation. From and after the date of this Agreement, each of
the parties hereto agrees to execute whatever additional documentation or
instruments as are necessary to carry out the intent and purposes of this
Agreement or to comply with any law.
D. Waiver. No waiver of any provision of this Agreement shall be valid
unless in writing and signed by the waiving party. The failure of any party at
any time to insist upon strict performance of any condition, promise, agreement
or understanding set forth herein, shall not be construed as a waiver or
relinquishment of any other condition, promise, agreement or understanding set
forth herein or of the right to insist upon strict performance of such waived
condition, promise, agreement or understanding at any other time.
E. Expenses. Except as otherwise provided herein, each party hereto shall
bear all expenses incurred by each such party in connection with preparing and
signing this Agreement and in the consummation of the transactions contemplated
hereby and in preparation thereof.
F. Amendment. This Agreement may only be amended or modified at any time,
and from time to time, in writing, executed by the parties hereto.
G. Captions. Captions herein are for the convenience of the parties and
shall not affect the interpretation of this Agreement.
H. Counterpart Execution. This Agreement may be executed by fax and in two
or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
I. Assignment. This Agreement is not assignable.
J. Parties in Interest. Provisions of this Agreement shall be binding upon
and inure to the benefit of and be enforceable by Licensee and Licensor, other
permitted successors and assigns, if any. Nothing contained in this Agreement,
whether express or implied, is intended to confer any rights or remedies under
or by reason of this Agreement on any persons other than the parties to it and
their respective successors and assigns, nor is anything in this Agreement
intended to relieve or
-7-
<PAGE>
discharge the obligation or liability of any third persons to any party to this
Agreement, nor shall any provision give any third persons any right of
subrogation over, or action against, any party to this Agreement.
K. Entire Agreement. This Agreement and the exhibits attached hereto
constitute the entire agreement and understanding of the parties on the subject
matter hereof and supersede all prior agreements and understandings.
L. Construction. This Agreement shall be governed by the laws of the State
of Florida without reference to conflict of laws and the venue for any action,
claim or dispute in respect of this Agreement shall be such court of competent
jurisdiction as is located in Broward County, Florida. The parties agree and
acknowledge that each has reviewed this Agreement and the normal rule of
construction that agreements are to be construed against the drafting party
shall not apply in respect of this Agreement given the parties have mutually
negotiated and drafted this Agreement
M. Independent Legal Counsel. The parties hereto agree that (i) each has
retained independent legal counsel in connection with the negotiation,
preparation and execution of this Agreement, (ii) each has been advised of the
importance of retaining legal counsel, and (iii) by the execution of this
Agreement, each party who has not retained independent legal counsel
acknowledges having waived such right.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the
day and year first above written.
/s/ Clint F. Walker LICENSOR:
COMMERCE CAPITAL GROUP, LLC
- -------------------------
Witness
By: /s/ R.E. Hughes
---------------------------------------
Its: Managing Member
---------------------------------------
LICENSEE:
IRT INDUSTRIES, INC.
/s/ Patrick Trapper
- ------------------------ By: /s/ Arnold J. Wrobel
---------------------------------------
Witness
President and Chief Executive Officer
Its: --------------------------------------
-8-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS FOR THE YEARS ENDED JUNE 30, 1999 AND 1998 IS QUALIFIED
UNITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 12-MOS
<FISCAL-YEAR-END> JUN-30-1999 JUN-30-1998
<PERIOD-START> JUL-01-1998 JUL-01-1997
<PERIOD-END> JUN-30-1999 JUN-30-1998
<CASH> 1,904 9,899
<SECURITIES> 0 0
<RECEIVABLES> 0 0
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 1,934 67,750
<PP&E> 0 0
<DEPRECIATION> 0 0
<TOTAL-ASSETS> 1,934 67,750
<CURRENT-LIABILITIES> 146,648 144,884
<BONDS> 0 0
0 0
0 0
<COMMON> 845 660
<OTHER-SE> (145,559) (77,794)
<TOTAL-LIABILITY-AND-EQUITY> 1,934 67,750
<SALES> 0 0
<TOTAL-REVENUES> 0 0
<CGS> 0 0
<TOTAL-COSTS> 0 0
<OTHER-EXPENSES> 970,743 1,005,148
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 0 0
<INCOME-PRETAX> (921,828) (931,055)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (921,828) (931,055)
<DISCONTINUED> (34,908) (2,768,152)
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (956,736) (3,699,207)
<EPS-BASIC> (.12) (.88)
<EPS-DILUTED> (.12) (.88)
</TABLE>
