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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES AND EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1998
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES AND EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM _________ TO ________.
COMMISSION FILE NUMBER 0-21986
IRT INDUSTRIES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
FLORIDA 59-2720096
(STATE OR OTHER JURISDICTION OF (IRS EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
289-C COMMERCIAL BLVD.
SUITE 208
LAUDERDALE BY THE SEA, FLORIDA 33308
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(954) 351-0270
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
NOT APPLICABLE
(FORMER NAME, FORMER ADDRESS AND FORMER FISCAL YEAR,
IF CHANGED SINCE LAST REPORT)
Indicate by checkmark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports(s), and (2) has been subject to
such filing requirements for the past 90 days.
Yes ( ) No (X)
As at 09/30/98, the registrant had outstanding 8,100,782 shares of
Common Stock, par value $0.0001.
<PAGE>
PART 1 - FINANCIAL INFORMATION
Item 1. - Financial Statements. Please see enclosed financial statements.
PART 2 - OTHER INFORMATION
Item 2. - Management's Discussion and Analysis of Financial Condition and
Results of Operation. The following discussion should be read in conjunction
with the Financial Statements and Notes thereto contained elsewhere herein.
Please note that no assurance exists as to the actual future outcome of
Management's plans, assumptions, or estimates.
Results of Operations. General. The Company experienced a decrease in revenues
and expenditures for the fiscal quarter. Revenues were down due to the
termination of one casino operation and the winding down of the other.
Significant losses are reflected due to reduced revenues with high costs of
operations. Management had intended, during the quarter, undertake a plan of
reviewing and pursuing other related opportunities, such as Internet gaming, and
utilization of the public company to undertake spin-off transactions of other
companies. New Directors believed Internet gaming would be a succesful area of
business. The Company, however, was not capable of entering into this area, and
had little success.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27 Financial data schedule
(b) Reports on Form 8-K
None.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
IRT Industries, Inc. (Registrant)
By:/s/ Arnold J. Wrobel
----------------------------------------
Arnold J. Wrobel, President and
Treasurer (Principal Executive Officer
and Principal Financial Officer)
Date 06/18/99
<PAGE>
IRT INDUSTRIES, INC.
CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1998 and 1997 (Unaudited)
And June 30, 1998 (Audited)
CONTENTS
PAGE
----
Consolidated Balance Sheets F-2
Consolidated Statements of Loss F-3
Consolidated Statements of Stockholders' Equity F-4
Consolidated Statements of Cash Flows F-5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS F-6 to F-15
F-1
<PAGE>
<TABLE>
<CAPTION>
IRT INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
SEPT JUNE
30, 1998 30, 1998
(Unaudited) (Audited)
----------- ---------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash in Bank $ 0 $ 9,899
Net Current Assets of Discontinued Operations 26,087 57,821
Common Stock Held In Escrow 30 30
----------- ---------
TOTAL CURRENT ASSETS $ 26,117 67,750
=========== =========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts Payable $ 72,345 $ 77,653
Accrued and Other Current Liabilities 29,000 29,000
Taxes Payable 3,318 3,318
Net Current Liabilities of Discontinued Operations 61,136 34,913
----------- ---------
TOTAL CURRENT LIABILITIES 165,799 144,884
SHAREHOLDERS' EQUITY
Common Stock 810 660
Capital in Excess of Par 9,211,092 8,761,242
Accumulated Deficit (8,969,699) (8,424,820)
Treasury Stock, at Par Value (60) (60)
Stock Subscription Receivable (381,825) (414,156)
----------- ---------
TOTAL STOCKHOLDERS' EQUITY (139,682) (77,134)
----------- ---------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 26,117 $ 67,750
=========== =========
</TABLE>
(The accompanying notes are an integral part of this financial statement)
F-2
<PAGE>
<TABLE>
<CAPTION>
IRT INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF LOSS
THREE MONTHS ENDED
SEPTEMBER SEPTEMBER
30, 1998 30, 1997
(UNAUDITED) (UNAUDITED)
--------- ---------
(RESTATED)
<S> <C> <C>
EXPENSES
Amortization $ 0 $ 9,917
Bank & Credit Card Charges 13 124
Consulting 287,916 183,300
Legal Settlements 0 20,000
Miscellaneous 0 271
Office Expense 45 1,109
Professional Services 108,428 30,624
Promotion & Advertising 102,000 0
Telephone 316 652
Transfer Agent & Service Bureau Fees 5,397 1,940
Travel & Entertainment 475 6,929
--------- ---------
TOTAL EXPENSES 504,590 254,866
OTHER INCOME
Interest 17,669 17,716
--------- ---------
LOSS FROM CONTINUING OPERATIONS, BEFORE
INCOME TAX BENEFIT (486,921) (237,150)
Income Tax Benefit 0 0
--------- ---------
LOSS FROM CONTINUING OPERATIONS, NET OF
INCOME TAX BENEFIT (486,921) (237,150)
--------- ---------
DISCONTINUED OPERATIONS
Loss from operations of discontinued subsidiary (57,958) (165,328)
Income Tax Benefit 0 0
--------- ---------
LOSS FROM DISCONTINUED OPERATIONS, NET OF
INCOME TAX BENEFIT (57,958) (165,328)
--------- ---------
NET LOSS $(544,879) $(402,478)
========= =========
</TABLE>
(THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THIS FINANCIAL STATEMENT.)
F-3
<PAGE>
<TABLE>
<CAPTION>
IRT INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
COMMON ADDITIONAL
NUMBER STOCK PAID-IN
OF SHARES AMOUNT CAPITAL
---------- ----- ----------
<S> <C> <C> <C>
Balance - June 30, 1997 - Audited (Restated) 1,002,326 $ 100 $7,741,503
Reverse stock split (3,841,997) (384) 384
Issuance of common stock for services 40,000 4 4,996
Purchase of common stock 9,100,000 910 1,014,359
Payments received on stock for subscription receivable 0 0 0
Common stock held in escrow related to litigation 300,000 30 0
Decrease in deficit from disposal of Casino Bahia Ballena 0 0 0
Reclassification adjustment to foriegn currency translation
for sale of subsidiary 0 0 0
Net Loss for the year ended June 30, 1998 - Audited 0 0 0
---------- ----- ----------
Balance - June 30, 1998 - Audited 6,600,329 660 8,761,242
Issuance of common stock for services 1,500,000 150 449,850
Payments received on stock for subscription receivable 0 0 0
Imputed interest on common stock receivable 0 0 0
Net Loss for the three months ended September 30, 1998 - Unaudited 0 0 0
---------- ----- ----------
Balance - September 30, 1998 - Unaudited 8,100,329 $ 810 $9,211,092
========== ===== ==========
<CAPTION>
FOREIGN
ACCUMULATED CURRENCY TREASURY
DEFICIT TRANSLATION STOCK
----------- ------- ----
<S> <C> <C> <C>
Balance - June 30, 1997 - Audited (Restated) $(4,976,491) $ 1,230 $(60)
Reverse stock split 0 0 0
Issuance of common stock for services 0 0 0
Purchase of common stock 0 0 0
Payments received on stock for subscription receivable 0 0 0
Common stock held in escrow related to litigation 0 0 0
Decrease in deficit from disposal of Casino Bahia Ballena 250,878 0 0
Reclassification adjustment to foriegn currency translation
for sale of subsidiary 0 (1,230) 0
Net Loss for the year ended June 30, 1998 - Audited (3,699,207) 0 0
----------- ------- ----
Balance - June 30, 1998 - Audited (8,424,820) 0 (60)
Issuance of common stock for services 0 0 0
Payments received on stock for subscription receivable 0 0 0
Imputed interest on common stock receivable 0 0 0
Net Loss for the three months ended September 30, 1998 - Unaudited (544,879) 0 0
----------- ------- ----
Balance - September 30, 1998 - Unaudited $(8,969,699) $ 0 $(60)
=========== ======= ====
<CAPTION>
TOTAL
STOCKHOLDERS'
STOCK EQUITY
SUBSCRIPTION (DEFICIENCY)
RECEIVABLE IN ASSETS
----------- -----------
<S> <C> <C>
Balance - June 30, 1997 - Audited (Restated) $ (411,230) $ 2,355,052
Reverse stock split 0 0
Issuance of common stock for services 0 5,000
Purchase of common stock (1,015,269) 0
Payments received on stock for subscription receivable 1,012,343 1,012,343
Common stock held in escrow related to litigation 0 30
Decrease in deficit from disposal of Casino Bahia Ballena 0 250,878
Reclassification adjustment to foriegn currency translation
for sale of subsidiary 0 (1,230)
Net Loss for the year ended June 30, 1998 - Audited 0 (3,699,207)
----------- -----------
Balance - June 30, 1998 - Audited (414,156) (77,134)
Issuance of common stock for services 0 450,000
Payments received on stock for subscription receivable 50,000 50,000
Imputed interest on common stock receivable (17,669) (17,669)
Net Loss for the three months ended September 30, 1998 - Unaudited 0 (544,879)
----------- -----------
Balance - September 30, 1998 - Unaudited $ (381,825) $ (139,682)
=========== ===========
</TABLE>
(THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THIS FINANCIAL STATEMENT.)
F-4
<PAGE>
<TABLE>
<CAPTION>
IRT INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS
ENDED
SEPTEMBER
30, 1998
(UNAUDITED)
------------
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Loss $(544,879)
Adjustments to reconcile net loss to net cash provided
(used) by operating activities:
Common Stock Issued for Services 450,000
Decrease in Net Current Assets of Discontinued Operations 31,734
Decrease in Accounts Payable (5,308)
Increase in Net Current Liabilites of Discontinued Operations 26,223
---------
Net Cash used by operating activities (42,230)
CASH FLOWS FROM FINANCING ACTIVITIES
Receipts:
Payments on Stock Subscription Receivable 32,331
---------
Net cash provided by financing activities 32,331
---------
NET DECREASE IN CASH AND EQUIVALENTS (9,899)
CASH AND EQUIVALENTS - BEGINNING 9,899
---------
CASH AND EQUIVALENTS - ENDING $ 0
=========
SUPPLEMENTAL DISCLOSURES:
Common stock issued for services rendered $ 450,000
=========
</TABLE>
(THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THIS FINANCIAL STATEMENT.)
F-5
<PAGE>
IRT INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998 AND 1997 (UNAUDITED)
AND JUNE 30, 1998 (AUDITED)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS ACTIVITY
IRT Industries, Inc. (IRT) was incorporated in Florida in August 1986,
as Triumph Capital, Inc. (Triumph). Triumph was originally engaged in
the stock transfer business. In 1992, Triumph changed its name to IRT
as part of a reorganization in which it exchanged 2,900,000 of its
common stock for all of the issued and outstanding shares of IRT
Industries, Inc., a company incorporated in California on December 13,
1990, pursuing environmental business opportunities. Triumph then
merged into IRT and reincorporated in the State of Florida. By the end
of the fiscal year ended June 30, 1996, IRT had discontinued most of
its prior business activities. In March 1996, the management of IRT
changed as a result of the sale of a majority of its outstanding shares
of common stock. Under its new management, IRT actively sought
international casino acquisition opportunities throughout Latin
America.
During the fiscal year ended June 30, 1996, the Company acquired a
casino interest and licenses in San Jose, Costa Rica, including a
facility leased by a recently formed wholly-owned subsidiary, Juegos
Ruro, S.A. (Juegos). Additionally, the Company acquired, by agreements
in September 1996, another operating casino, the Casino Bahia Ballena,
located in a "Five Star" beach hotel on the west coast of Costa Rica,
through its wholly-owned subsidiaries Casino Bahia Ballena, S.A.
(Ballena) and Inmobiliaria la J Tres S.R.L. (Inmobiliaria), both of
which were sold in April 1998.
In September 1996, the Company filed an application to list the
Company's common stock for trading on the Philadelphia Stock Exchange,
which application was subsequently accepted in early 1997.
In April 1998, the Company decided to discontinue its entire casino
operations and in February 1999 sold Juegos Ruro, S.A., its last casino
operation (See Note 2).
BASIS OF PRESENTATION
The consolidated financial statements include the accounts of IRT
Industries, Inc. and its wholly-owned foreign subsidiaries, Juegos
Ruro, S.A., Casino Bahia Ballena, S.A. and Inmobiliaria la J Tres
S.R.L. All significant intercompany accounts and transactions of IRT
Industries, Inc. and subsidiaries (the Company) have been eliminated in
consolidation. IRT disposed of its interest in Ballena in April 1998,
and also decided to discontinue the operations of Juegos. Accordingly,
the casino operations are classified under the heading of "Discontinued
Operations," in the consolidated statements of loss. Prior year
financial statements have been restated to show the effect of
Management's decision to discontinue its casino operations.
CASH AND CASH EQUIVALENTS
For purposes of the statements of cash flows, the Company considers all
short-term debt securities purchased with a maturity of three months or
less to be cash equivalents.
CONCENTRATION OF CREDIT RISK
As of September 30, 1998, and 1997 and June 30, 1998, the Company had
outstanding stock subscriptions receivable which are secured by the
Company's common stock and are non-interest bearing. The carrying value
of these receivables was reduced to estimated fair market value by
imputing interest (See Note 3).
F-6
<PAGE>
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PROPERTY AND EQUIPMENT
Property and equipment, consisting of furnishings and casino equipment
used in its current and future casino operations, is stated at cost,
less accumulated depreciation, while equipment not yet placed in
service is carried at cost. Depreciation is begun when the assets are
placed in service and computed using the straight-line method over the
estimated useful lives of the assets, which range from five to ten
years. Property and equipment used in the Company's casino operations
are classified in "net current assets of discontinued operations."
Depreciation and amortization expense was $5,245 and $37,606 for
September 30, 1998 and 1997, respectively, and is classified in "loss
from operations of discontinued subsidiaries."
LICENSES AND LEASEHOLD INTERESTS AND AMORTIZATION
The amounts expended in connection with the acquisition of the Juegos
casino gaming license and leasehold interests have been capitalized and
are being amortized over the term of the lease, including the first
lease option extension period, for a total of 150 months. Operating
casino and leasehold interests have been capitalized and are being
amortized over the initial term of the lease and the first expected
extension period, for a total of 150 months. These assets are reflected
in the balance sheets as "net current assets of discontinued
operations".
The amounts expended in connection with the acquisition of the Ballena
casino gaming license and leasehold interests were capitalized and were
amortized over the term of the lease, including subsequent expected
option extension periods, for a total of 130 months. Operating casino
and leasehold interests were capitalized and were amortized over the
initial term of the lease and subsequent expected extension periods,
for a total of 130 months. During the current year, any unamortized
amounts have been charged to expense in connection with the sale of
Ballena, and classified as "loss on disposal of discontinued
subsidiary."
LONG-LIVED ASSETS
Long-lived assets to be held and used are reviewed for impairment
whenever events or changes in circumstances indicate that the related
carrying amount may not be recoverable. When required, impairment
losses on assets to be held and used are recognized based on the fair
value of the asset. Long-lived assets to be disposed of, if any, are
reported at the lower of carrying amount or fair value less cost to
sell.
NET LOSS PER SHARE
Basic net loss per common share from continuing operations is computed
by dividing the loss from continuing operations by the weighted average
number of common shares outstanding during each period. Basic net loss
per common share from discontinued operations is computed by dividing
the loss from discontinued operations by the weighted average number of
common shares outstanding during each period Basic net loss per common
share is computed by dividing the net loss by the average number of
common shares outstanding during each period. There were no common
stock equivalents.
F-7
<PAGE>
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INCOME TAXES
Income taxes are computed under the provisions of the Financial
Accounting Standards Board (FASB) Statement 109 No. (SFAS 109),
Accounting for Income Taxes. SFAS 109 is an asset and liability
approach that requires the recognition of deferred tax assets and
liabilities for the expected future tax consequences of the difference
in events that have been recognized in the Company's financial
statements compared to the tax returns.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions. These estimates and assumptions affect the reported
amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
FOREIGN CURRENCY CONVERSION
The functional currency of the wholly-owned subsidiaries located in
Costa Rica is the colon (/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 each period. The income statements at September
30, 1998 and 1997 were converted to U.S. dollars based on the average
monthly exchange rate.
The gain resulting from the translation of foreign currency for the
three months ended September 30, 1998 and 1997, was $6,890 and $8,752,
respectively. This gain is included in the consolidated statements of
loss in determining the loss on disposal of discontinued subsidiary.
RECLASSIFICATION AND RESTATEMENT
Certain prior year amounts have been reclassified to conform to the
current period's presentation and Casino operations have been reflected
as discontinued operations.
NOTE 2. CASINO AND DISCONTINUED OPERATIONS
DISCONTINUED OPERATIONS
On April 29, 1998, the Company entered into an agreement to sell the
business and all assets and properties related to the operations of its
subsidiary, Casino Bahia Ballena, S.A. Accordingly, the results of
Ballena as well as the loss on the sale of its assets have been
reported separately as discontinued operations in the accompanying
statements of loss. Net revenues for Ballena for the three months ended
September 30, 1998 and 1997, were approximately $ -0- and $31,858,
respectively.
AMORTIZATION OF CASINO LICENSES AND INTERESTS
For the three months ended September 30, 1998 and 1997, amortization
related to the acquisition of the floating gaming casino license was $
-0-, and $9,917, respectively, while the amortization for the operating
casinos' gaming licenses were $4,320, and $28,031, respectively.
F-8
<PAGE>
NOTE 2. ACQUISITIONS, DISCONTINUED OPERATIONS, AND RESTATEMENT (CONTINUED)
ASSET IMPAIRMENT LOSS
In accordance with Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of" the Company recorded an impairment loss on
the long-lived assets of the Juegos casino. The trend in cosmopolitan
San Jose is for professional gamblers to visit smaller casinos, in the
expectation of winning substantial funds before being excused from
gaming. As a result, the first year's revenues indicated that the
undiscounted future revenue from this business would be less than the
carrying value of the long-lived assets related to that business
(principally the equipment and intangibles of the Casino License and
Interest). Accordingly, on June 30, 1997, the Company recognized an
impairment loss of approximately $409,000 and another $852,714 for the
year ended June 30, 1998. The loss recognized on June 30, 1997, is the
difference between the carrying value of the Juegos Casino License and
Interest and the fair value of this asset based on a multiple of future
net revenues. The loss recognized on June 30, 1998, is based on the
amount recognized from the subsequent sale of the casino in 1999 and is
reflected in the consolidated statement of loss as "Provision for loss
on future disposal of discontinued subsidiary".
NOTE 3. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following disclosure of the estimated fair value of financial
instruments is made in accordance with the requirements of Statement of
Financial Accounting Standards No. 107. The fair value amounts have
been determined based on available market information and appropriate
valuation methodology. The carrying amounts and estimated fair values
of the Company's financial assets and liabilities approximate fair
value due to the short maturity of the instruments. The fair value of
the stock subscriptions receivable are estimated based on an annual
interest rate of 18% and the anticipated dates of payment and have been
reduced accordingly. Fair value estimates are subjective in nature and
involve uncertainties and matters of significant judgment; therefore,
fair value cannot be determined with precision.
NOTE 4. RELATED PARTY TRANSACTIONS
During the three months ended September 30, 1998 and 1997, various
legal fees of approximately $41,000 and $22,035, respectively, were
charged to the Company by its United States legal counsel, a
professional association whose principal shareholder is also a
principal shareholder, President and Board of Directors Member of the
Company. The outstanding balances as of September 30, 1998 and 1997,
were $30,000 and $20,000, respectively, and are included in accounts
payable.
NOTE 5. ACCRUED LIABILITIES
Accrued liabilities consisted of the following:
1998 1997
------------- -------------
AUDIT FEES $ 29,000 $ 29,000
LITIGATION PROVISION - 31,098
OTHER - 22,212
------------- ------------
$ 29,000 $ 82,310
============= ============
The litigation of Morton Singerman v. IRT Industries, Inc. was settled
in July 1997, and the Company was required to pay the amount of
$20,000, which is included in consulting, professional and
administrative fees. The Company had accrued a liability of $31,098 in
a previous year for the outstanding judgment obtained by Mr. Singerman,
in the amount of $22,173, plus interest. The difference, between the
accrued liability and settlement amount of $11,098 is classified as
other income.
F-9
<PAGE>
NOTE 6. STOCKHOLDERS' EQUITY
COMMON STOCK
The Company has authorized 100,000,000 shares of common stock with a
par value of $.0001 per share. At September 30, 1998, and 1997,
8,100,782 shares and 1,433,995 shares, respectively, were issued and
outstanding (See Note 2 and below). The Company has no other authorized
or outstanding securities of any class.
SALE OF COMMON STOCK
On August 15, 1997, the Company sold 4,000,000 shares of its common
stock for a total of $400,000, 2,000,000 shares to two corporations,
which companies already held a substantial controlling interest in the
Company. Corporacion de Inversiones, R&G, S.A. and Corporacion de
Inversiones, K&Z, S.A., consummated the purchase by signing promissory
notes, collateralized by the shares to be held in escrow. The notes are
each to be paid in monthly installments of at least $10,000 each, and
do not provide for the payment of interest.
On October 13, 1997, the same two entities purchased an additional
4,000,000 shares of the Company's common stock for a total of $400,000.
A promissory note was signed, to be paid in monthly installments of at
least $10,000 each, and do not provide for the payment of interest.
REVERSE STOCK SPLIT
During the first fiscal quarter of the Company's 1998 fiscal year, the
common stock of the Company experienced a significant decline in the
trading per share price. In addition to the detrimental effect the
lower trading price had to the shareholders, it diminished the
Company's ability to make acquisitions using the Company's common
stock. Further, the Company received a warning from the Philadelphia
Stock Exchange that, were the stock price to remain low, the Company
would be brought before a committee for evaluation, which could result
in material adverse consequences as to the listing of the stock.
As a result of the above, effective on September 17, 1997, except for
the 4,000,000 shares of common stock sold on October 13, 1997, as
described above, the Company reverse split its common stock at a ratio
of one new share for each ten old shares issued and outstanding.
Recognition of the reverse stock split has been given in the September
30, 1998, and 1997 consolidated financial statements.
STOCK ISSUED FOR SERVICES
On September 24, 1997, the Company issued 40,000 shares of common stock
pursuant to consulting agreement with C. Daniel Consulting, Inc. These
shares have been recorded using the average quote between the bid and
asked price of the shares on the date shares were issued.
On July 24, 1998, the Company authorized to be issued to various
consultants 1,500,000 shares of the common stock of the Company for
services pursuant to an S-8 registration filed on August 14, 1998. The
parties agreed that the value of each share was $.34.
STOCK SUBSCRIPTIONS RECEIVABLE
On March 14, 1996, the Company issued 4,000,000 shares of common stock
to two separate individuals under Stock Subscription Agreements, for an
aggregate purchase price of $1,500,000. Promissory notes, in the amount
of $750,000 each, were executed by each of these individuals. On June
4, 1996, the notes were assigned to a third party corporation and the
repayment terms were fixed to provide for minimum monthly payments of
$75,000, without interest until the end of April 1997, at which time
any with any remaining balance would be due. The due date of the
remaining subscription receivable was verbally extended, and at
September 30, 1998, $381,825, remained outstanding.
Interest in the amount of $228,674 had been imputed on this receivable
based on an annual percentage rate of 18%, and reflected in the
financial statements as a reduction in the value of the receivable.
Consequently, interest of $17,669 and $17,716 was considered earned
during the three months ended September 30, 1998 and 1997,
respectively.
F-10
<PAGE>
NOTE 6. STOCKHOLDERS' EQUITY (CONTINUED)
On August 15, 1997 and on October 13, 1997, the Company issued
4,000,000 shares of common stock to Corporacion de Inversiones, R&G,
S.A. and Corporacion de Inversiones, K&Z, S.A. under Stock Subscription
Agreements, for an aggregate purchase price of $800,000. Four separate
promissory notes, for $200,000 each, were executed by each of these
entities. The due date of the remaining subscription receivable was
verbally extended.
NOTE 7. INCOME TAXES
The Company and its subsidiaries do not file consolidated income tax
returns. The Company files its income tax return using the cash method
of accounting wherein revenue is recognized when received and expenses
are deducted when paid effectively eliminating all prepaid expenses,
accounts payable and accrued expenses from the determination of taxable
income or loss. For the years ended June 30, 1998 and 1997, the Company
generated for U.S. income tax purposes a net operating loss of
approximately $3,706,893 and $1,047,349, respectively. These loss
carryforwards expire in the years 2018 and 2012, respectively.
The Company had a net operating loss carryforward of approximately
$634,000 as of June 30, 1995. However, as of March 1, 1996, and
subsequently, there were ownership changes in the Company as defined in
Section 382 of the Internal Revenue Code. Because of these changes, the
Company's ability to utilize net operating losses and capital losses
available before the ownership change is restricted to a total of
approximately $43,860 per year (approximately 7.31% of the market value
of the Company at the time of the ownership change). Therefore,
substantial net operating loss carryforwards will, in all likelihood,
be eliminated in future years due to the change in ownership. The
utilization of the remaining carryforwards is dependent on the
Company's ability to generate sufficient taxable income during the
carryforward periods and no further significant changes in ownership.
The Company computes deferred income taxes under the provisions of
Statement of Financial Accounting Standards No. 109, which requires the
use of an asset and liability method of accounting for income taxes.
Statement No. 109 provides for the recognition and measurement of
deferred income tax benefits based on the likelihood of their
realization in future years. A valuation allowance must be established
to reduce deferred income tax benefits if it is more likely than not
that a portion of the deferred income tax benefits will not be
realized. It is Management's opinion that the entire deferred tax
benefit may not be recognized in future years. Therefore, a valuation
allowance equal to the deferred tax benefit has been established,
resulting in no deferred tax benefits as of the balance sheet dates.
NOTE 8. COMMITMENTS AND CONTINGENCIES
LEASED PREMISES
Pursuant to the acquisition of the leasehold interest, discussed in
Note 2, the Company assumed a lease for the operation of a casino in a
hotel in San Jose, Costa Rica. The lease was executed on May 1, 1996,
and has an initial term of thirty (30) months. Rent comprising
approximately 50% for the initial lease term has been prepaid. At
September 30, 1998 and 1997, prepaid rent is $11,100 and $91,000,
respectively.
The lease provides for options to renew for additional ten (10) year
periods. Management expects that the options will be exercised. Rental
payments are $14,000 per month with an eight percent (8%) escalation
clause. The seller of the leasehold interests to the Company agreed to
pay the owner of the hotel $900,000 in eight quarterly payments of
$112,500 commencing on August 1, 1996, which amounts were included in
the original lease as rental payments. The terms of the lease were such
that the quarterly payments were guaranteed as additional rents if not
made to the hotel's owner by the seller. This provision of the
agreement has since been rescinded by mutual agreement. Futhermore, the
hotel owner has waived portions of the rent during periods of low
occupancy. The lessor has agreed verbally to make future concessions if
conditions warrant, but is not under any written obligation to do so.
F-11
<PAGE>
NOTE 8. COMMITMENTS AND CONTINGENCIES (CONTINUED)
Rent expense for the three months ended September 30, 1998 and 1997,
was $34,898 and $71,808, and is included under discontinued operations.
LITIGATION
On September 3, 1997, the Company entered into litigation with
International Corporation, K & Z, S.A. et al, in connection with a
lawsuit resulting from the Company's stop transfer on shares based upon
alleged fraudulent representations relating to the original issuance. A
judge agreed with the Company to the extent of issuing a temporary
injunction against the shares. The Company posted a $10,000 bond as
security for its position, and subsequently issued 300,000 shares of
its common stock to be held as additional security for the Defendant.
The suit remains pending, however, the Company expects no adverse
monetary result upon adjudication.
The Company is a party to a pending administrative proceeding initiated
by the Securities and Exchange Commission. Although, the Commission
alleged various violations of the Securities Act of 1933 and the
Securities Exchange Act of 1934 against the Company, to date the
Commission has not filed suit. An informal settlement has been reached
in the matter which, if approved by the Commission, will not require
payment of civil fees.
In Oscar Hammond v. IRT Industries, Inc., et. al., Mr. Hammond was
allegedly a shareholder, who purchased 17,000 shares of the Company's
stock while alleged misrepresentations and omissions were made by the
Company and others. He is claiming damages of $100,000. The suit
remains pending, however, the Company expects no adverse monetary
result upon adjudication.
CONSULTING AGREEMENTS
From time-to-time, the Company engages, retains and dismisses various
consultants. The consultants provide various services including
assisting with shareholder relations, responding to inquiries, short
and long-term strategic planning, marketing the Company to the
investment community and identification and negotiation of potential
acquisitions.
C. DANIEL CONSULTING, INC.:
On December 1, 1996, the Company entered into a consulting agreement
(Agreement) with C. Daniel Consulting, Inc., (Daniel), a Florida
corporation, which is a company engaged in the business of, among other
things, providing financial consulting, promotion and investment
banking services. The initial term is for one (1) year commencing on
December 1, 1996, and will automatically renew for successive one-year
terms. This Agreement may be terminated by either party upon at least
thirty day's prior written notice. Daniel will receive $15,000 per
month as a base rate. If Daniel materially assists the Company with
certain services as outlined in the Agreement, the Company agreed to
pay Daniel additional compensation above the base rate, in either cash
or stock as agreed by both parties in the future. The Company paid C.
Daniel Consulting, Inc. $ -0-, and $74,500 plus 40,000 shares of common
stock for their services for the three months ended September 30, 1998
and 1997, respectively.
F-12
<PAGE>
NOTE 8. COMMITMENTS AND CONTINGENCIES (CONTINUED)
OFFICE FACILITIES AND STAFFING
The Company is also charged at least $5,000 per month under an informal
office services arrangement. Consequently, the Company is supplied with
various services, products and benefits including an office suite,
conference room, receptionist area, storage facilities, photocopying,
faxing, computers, office supplies and personnel, including a secretary
and receptionist.
YEAR 2000 ISSUES
The year 2000 issue results from certain computer systems and software
applications that use only two digits (rather than four) to define the
applicable year. As a result, such systems and applications may
recognize a date of "00" as 1900 instead of the intended year 2000,
which could result in data miscalculations and software failures. The
Company does not own any computer systems as of year-end and does not
have any key suppliers. Thus, the Year 2000 issue should not have a
material impact on the Company's financial position or results of
operations.
NOTE 9. MANAGEMENT'S PLANS
In September 1998, the President of the Company resigned and in
November 1998, the Company confirmed the resignations of the then
directors, Mr. Ross John and Mr. Ronnie D'Gallo, who then appointed as
the new Board to serve as sole Director, Arnold Wrobel. Mr. Wrobel also
became the President, Secretary and Treasurer.
The Company's financial statements for the three months ended September
30, 1998, have been prepared on a going concern basis, which
contemplates the realization of assets and the settlement of
liabilities and commitments in the normal course of business. The
Company has suffered recurring losses, consequently there is an
accumulated deficit at September 30, 1998.
The Company also experienced difficulties in paying its creditors
timely, mostly legal and professionals, according to their terms, and
certain bills were past due. These factors raise doubt about the
Company's ability to continue as a going concern without achieving
profitable operations or an infusion of capital or additional
financing. The Company believes that with the collection of the
existing stock subscription receivable it can continue for at least
another year. Were the stockholders who received shares in exchange for
a stock subscription receivable to default such problems would be
compounded. The financial statements do not include any adjustments
that might be necessary should the Company be unable to continue as a
going concern.
Management recognizes that the Company must generate additional
resources in order to continue. Management's plans include continuing
collections on the subscription receivable and also changed their focus
to domestic opportunities in the internet area, or other business area.
The Company intends to actively pursue a business combination through a
merger or acquisition.
In connection, with the Company changing its focus to domestic
opportunities in the internet area, or other business area, the Company
discontinued all its casino operations. In February 1999, the Company
sold the business and all assets and properties related to the
operations of its subsidiary, Juegos Ruro, S.A. See Note 11.
F-13
<PAGE>
NOTE 10. SUBSEQUENT EVENTS - SALE OF DISCONTINUED CASINO OPERATIONS
In February 1999, the Company entered into an agreement to sell the
business and all assets and properties related to the operations of its
subsidiary, Juegos Ruro, S.A. for a price of $81,906. A total of
$64,406 will be used to pay the Company's debts and liabilities and
$17,500 was made payable to IRT Industries, Inc. Accordingly, the
results of Juegos are reported separately as "Loss from operations of
discontinued operations" Management has also estimated a provision for
loss on future disposal of discontinued subsidiary.
Net revenues for Juegos for the three months ended September 30, 1998
and 1997, were approximately $33,592 and $31,858, respectively. Net
assets of Juegos (excluding intercompany balances) as of September 30,
1998, consisted of the following:
1998
---------
ASSETS:
ACCOUNTS RECEIVABLE $ 2,280
PREPAID EXPENSES 11,100
PROPERTY AND EQUIPMENT, NET 1,669
CASINO LICENSE, NET 10,386
OTHER ASSETS 653
---------
TOTAL ASSETS 26,088
---------
LIABILITIES:
BANK OVERDRAFT 27,190
ACCOUNTS PAYABLE 17,173
ACCRUED LIABILITIES 16,773
TOTAL LIABILITIES 61,136
---------
NET ASSETS $ (35,048)
=========
F-14
<PAGE>
EXHIBIT INDEX
EXHIBIT DESCRIPTION
- ------- -----------
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-END> SEP-30-1998
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 26,117
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 26,117
<CURRENT-LIABILITIES> 165,799
<BONDS> 0
0
0
<COMMON> 810
<OTHER-SE> (140,492)
<TOTAL-LIABILITY-AND-EQUITY> (139,682)
<SALES> 0
<TOTAL-REVENUES> 17,669
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 504,590
<LOSS-PROVISION> (486,921)
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (486,921)
<INCOME-TAX> 0
<INCOME-CONTINUING> (486,921)
<DISCONTINUED> (57,958)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (544,879)
<EPS-BASIC> (0.07)
<EPS-DILUTED> (0.07)
</TABLE>
