U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.
FORM 10-QSB
Quarterly Report Under
the Securities Exchange Act of 1934
For Quarter Ended: March 31, 1998
Commission File Number: 0-23208
IRON HOLDINGS CORP.
-------------------
(Exact name of small business issuer as specified in its charter)
Nevada 84-1251553
------ ----------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
88-90 103rd Avenue
Ozone Park, New York 11417
- -------------------- -----
(Address of principal executive office) (Zip Code)
(718) 843-4753
--------------
(Issuer's Telephone Number)
Check whether the issuer (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
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 ____.
The number of shares of the registrant's only class of common stock
issued and outstanding, as of March 31, 1998, was 6,687,000 shares.
Page One of Twenty-One Pages
<PAGE>
PART I
ITEM 1. FINANCIAL STATEMENTS.
The unaudited financial statements for the nine month periods
ended March 31, 1998 and 1997 are attached hereto.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with
the Financial Statements and notes thereto included herein. In
connection with, and because it desires to take advantage of, the
"safe harbor" provisions of the Private Securities Litigation
Reform Act of 1995, the Company cautions readers regarding certain
forward looking statements in the following discussion and
elsewhere in this report and in any other statement made by, or on
the behalf of the Company, whether or not in future filings with
the Securities and Exchange Commission. Forward looking statements
are statements not based on historical information and which relate
to future operations, strategies, financial results or other
developments. Forward looking statements are necessarily based
upon estimates and assumptions that are inherently subject to
significant business, economic and competitive uncertainties and
contingencies, many of which are beyond the Company's control and
many of which, with respect to future business decisions, are
subject to change. These uncertainties and contingencies can
affect actual results and could cause actual results to differ
materially from those expressed in any forward looking statements
made by, or on behalf of, the Company. The Company disclaims any
obligation to update forward looking statements.
Overview
Iron Holdings Corp. f/k/a Comstock Tailings Company,
Incorporated, (the "Company"), was incorporated under the laws of
the State of Nevada on May 13, 1988. On March 31, 1997, pursuant
to the terms of an Agreement and Plan of Reorganization, the
Company acquired all of the issued and outstanding securities of
Iron Holdings Corp., a New York corporation, including its wholly
owned subsidiary company, Iron Eagle Contracting & Mechanical, Inc.
("IECM"), in exchange for 4,500,000 "restricted" common shares of
the Company. As a result, the Company was the surviving entity,
with one wholly owned subsidiary company, IECM, which is the sole
operating company as of the date of this report. As part of the
terms of the aforesaid transaction, the Company amended its
Articles of Incorporation, changing its name to its present name.
IECM is a construction contractor engaged in pipe work,
including gas and water mains, as well as steel installation,
primarily for city and state infrastructure construction. IECM
commenced operations in January 1996 and spent most of fiscal year
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1996 bidding on potential jobs. It has also purchased and
developed a tract of real estate in Ozone Park, New York, on which
it has built and sold five (5) two-family homes.
The following information is intended to highlight
developments in the Company's operations to present the results of
operations of the Company and its subsidiaries, to identify key
trends affecting the Company's businesses and to identify other
factors affecting the Company's consolidated results of operations
for the nine month period ended March 31, 1998.
Results of Operations
Comparison of Results of Operations for the Nine Month Periods
Ended March 31, 1998 and 1997.
During the nine month period ended March 31, 1997, the Company
generated revenues of $3,579,590, compared to the Company's
revenues for the nine month period ended March 31, 1998, of
$3,175,691, a decrease of $403,899 (11.3%). Of the aggregate
revenues generated by the Company during the nine month period
ended March 31, 1998, $2,850,691 were from construction projects,
with the balance ($325,000) derived from the sale of the last of
the Company's five original residential homes. This decrease in
revenues can best be explained by the fact that the Company's
operating subsidiary, IECM, did not generate any revenues during
the quarter ended March 31, 1998.
Cost of revenues was $3,001,344 at March 31, 1997, compared to
$3,556,313 at March 31, 1998, an increase of $554,969 (18.5%), due
primarily to construction costs associated with the Company's bid
construction work ($3,220,226), as well as costs applicable to the
residential home sold ($336,087). Costs of the Company's bid
construction work exceeded gross revenues during the nine month
period ended March 31, 1998 by $369,535 (approximately 13% of gross
revenues) because projects were under bid and management believes
that the Company should have done a better job of managing the
costs associated with the contracts in progress. An additional
factor was inclement weather (rain) which affected the number of
work days which the Company could perform on these projects.
Management cannot definitively estimate when, or if, costs of
revenues will decrease sufficiently to allow the Company to begin
to have any opportunity to generate profits from operations. As a
result, management is considering revising the Company's business
plan in order to undertake other businesses, which will allow the
Company to generate profits in the future. As of the date of this
report, no definitive new business plan has been adopted in this
regard, but it is the intention of management to finalize such a
new plan in the next thirty days. Applicable thereto, the Company
entered into a non-binding letter of intent with CRT Corporation,
a Nevada corporation, wherein the Company is considering changing
its principal business by acquiring new businesses and "rolling
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<PAGE>
out" the Company's current operations. See "Part II, Item 5. Other
Information," below herein. However, as of the date of this
report, management is not optimistic as to the success of this
proposed transaction due, among other things, to the dispute
between the Company and one of its creditors concerning an alleged
default by the Company on a promissory note in the principal amount
of approximately $1.1 million. See "Liquidity and Capital
Resources" below.
Operating expenses were $602,433 for the nine month period
ended March 31, 1998 compared to $534,465 for the nine month period
ended March 31, 1997, an increase of $67,968 (12.7%). This
increase was due to an increase in bad debts of $131,450, which was
partly offset by a $63,482 decrease in other operating expenses.
Such decrease resulted from a reduction in office staff and other
administrative economies. Interest was $84,367 for the nine month
period ended March 31, 1998 compared to $0 for the nine month
period ended March 31, 1997. Interest expense arose principally
from long-term debt related to the business combination effected
March 31, 1997. As a result, the Company had a net loss for the
nine month period ended March 31, 1998 (including deferred income
tax expense) of ($1,213,677) (approximately $.19 per share) as
compared to a net income for the same period in 1997 of $59,469
(earnings of $.01 income per share) inclusive of income tax
benefits.
Comparison of Results of Operations for the Three Month
Periods ended March 31, 1998 and 1997.
In the three month period ended March 31, 1998, the Company's
business continued to suffer a significant negative turn, primarily
as a result of costs continuing to be recognized on construction
projects where the Company was not able to recognize any revenues.
This situation resulted from two developments. First, the Company
lost two contracts because the awarding agency found that the
Company was not performing as required under the contracts. The
deficiencies were the result of the Company not having sufficient
liquidity to perform its contract obligations on a timely basis.
Due to the loss of those contracts, the Company would not recognize
any revenue from those contracts despite the fact that it had
incurred construction costs on such contracts of over $80,000
during the quarter. In addition, the Company recognized bad debts
of $131,450 from prior billings on those contracts.
Secondly, the Company continued to incur construction costs on
one contract, which has experienced significant cost overruns. It
is unlikely that the Company will be able to bill such cost
overruns. Therefore, the Company did not recognize any further
revenue under such contract.
Further, as a result of the loss of such contracts, it is
possible that the Company may incur a future cost associated with
4
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the bonding company awarding the job to a different contractor.
However, in the opinion of management, unreimbursed costs incurred
in connection with such contracts are more than sufficient to
eliminate any potential liability. In any event, the amount or
timing of any such potential liability cannot be determined at the
date of this report.
Operating expenses were $252,228 for the three month period,
ended March 31, 1998 compared to $181,945 for the three month
period ended March 31, 1997, an increase of $70,283 (38.6%). The
increase was due to bad debts of $131,450, which resulted from the
loss of contracts described above. Such increase was offset by a
$61,167 decrease in other operating expenses, which resulted from
a reduction in office staff and other administrative economies.
Management continued its practice of not taking any salaries during
this period. As a result, the Company had a net loss for the three
month period ended March 31, 1998, of ($582,401) (approximately
$.09 per share) as compared to net income for the same period in
1997 of $107,469 ($.02 per share) net of deferred income tax
expense.
Liquidity and Capital Resources
Relating to the Company's assets and liabilities, during the
nine month period ended March 31, 1998, cash decreased from
$164,977 at June 30, 1997, to $44,856 at March 31, 1998, as a
result of losses incurred during the period.
Outstanding long term notes aggregating $1,130,184 are also
owed to unaffiliated parties, including a $1.1 million note payable
which arose from the acquisition of Old IHC's acquisition of IECM,
which bears interest at the prime rate, plus 1%. The original terms
were that principal was payable in five equal consecutive
installments commencing January 1998 and ending January 2002. In
the event the Company completes a public or private offering of its
securities during the principal term of this note, it is obligated
to prepay the lesser of $500,000 or the remaining balance. Upon
completion of a second offering, all balances would become due. As
a result of the private financing undertaken by the Company to
date, the Company reached an agreement with the holder of this
note, wherein the Company paid $212,500 towards the principal
balance of this note. In addition, all interest accrued to date
under the obligation was paid in full. The holder of the note
agreed at that time not to call the remaining balance of $287,500
that would have been due upon completion of the Company's initial
private securities offering, pending completion of a final
financing plan. The note is secured by all of the issued and
outstanding shares of IECM, a wholly owned subsidiary of the
Company, as well as 300,000 shares of post-recapitalization common
stock of the Company. In January 1998, the Company received a
notice of default from this creditor, wherein the creditor alleged
a default in the Company's obligations under this note due to non-
5
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payment of interest due in January 1998. As of the date of this
report, management is meeting with this creditor to discuss the
situation but a definitive agreement between the parties has not
been reached.
The Company has several outstanding notes to unaffiliated
parties. The Company has two notes collateralized by equipment,
with an interest rate of approximately 10% per annum. These notes
have monthly payments aggregating approximately $2,500 and are due
April 1998 and June 1999, respectively. The Company also has a
short term note outstanding to an unaffiliated party. The note is
a demand note, which had an original principal balance of $450,000.
The Company reduced the principal balance to $75,000 as of March
31, 1998. This note bears no interest.
In August 1997, the Company executed a contract to purchase
the Lindenwood Shopping Center located in Lindenwood, Queens. This
contract was subsequently extended on September 29, 1997. The
proposed purchase price is Eight Million Dollars ($8,000,000) and
the Company tendered a non-refundable deposit of $400,000 pursuant
to the terms of the relevant contract. The balance of the closing
price was scheduled to be tendered on or about December 31, 1997.
Prior to the proposed closing date, management recognized that the
Company did not have sufficient cash available to allow it to close
this acquisition. In response, management met with various parties
in order to attempt to raise the necessary cash, or alternatively,
generate interest in the property in order to allow the transaction
to close by having these non-affiliated parties acquire the
shopping center for their own account and allow the Company to
recover its deposit. When management entered into the contract,
they had a verbal commitment from investment bankers to raise up to
$2 million in additional equity capital. Unfortunately, these
investment bankers advised the Company of their inability to
successfully raise this capital subsequent to execution of the
applicable contract. The transaction was closed by the Company
assigning its rights under the applicable contract to a third party
in exchange for receipt by the Company of a promissory note in the
principal amount of $400,000, the amount originally deposited by
the Company with the initial owners. The Company did not retain
any interest in the shopping center.
In September 1997, Tahoe Realty Corp. ("Tahoe"), a wholly
owned subsidiary of the Company, entered into a contract to
purchase vacant land in Queens, N.Y. consisting of approximately
two acres, for $400,000. In April 1998, the Company purchased the
property and began to clear the land for construction. The Company
intends to build eight two-family houses. The purchase was
financed by borrowing $200,000 from unaffiliated parties at 12% to
15% interest with the seller receiving a $200,000 mortgage at 10%
interest. Principal is payable on all of the loans as the houses
are sold. Construction is expected to begin in June 1998 and to be
completed by December 1998. Proceeds from sales and total costs to
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<PAGE>
develop the property, including administrative and financing costs,
are estimated to be approximately $2,870,000 and $2,310,000,
respectively. However, there can be no assurance that the Company
will have sufficient financial resources to undertake these
projects, or, if so undertaken, that the proceeds to the Company
will be as indicated herein.
Trends
The Company's principal revenues to date have been from its
bid construction business. However, as a result of unanticipated
increased costs, the construction costs associated with these
construction projects has far exceeded management's expectation,
resulting in significant losses to the Company from operations. It
is unlikely that this situation will change in the future. If it
does not change, it is unlikely that the Company could continue to
operate without the protection afforded by US bankruptcy laws. As
a result, management has elected to revise the current business
plan of the Company, to expand into other businesses which
management believes will allow the Company to generate profits in
the future, including the real estate development business with
which it has had some measure of success. As of the date of this
report, while various discussions and ideas have been undertaken,
no definitive new business plan has been adopted. Initially, the
Company reported that it was considering undertaking an acquisition
of various businesses from CRT Corporation, an unaffiliated private
corporation, and "rollout" the current business of the Company, in
order to protect the investment of its shareholders in the Company.
As of the date of this report, it is not anticipated that this
proposed transaction between the Company and CRT Corporation will
close, primarily because of the alleged default on a $1.1 million
promissory note by the Company with one of its creditors, described
above under "Liquidity and Capital Resources". There can be no
assurances that, even if a new business plan is adopted, that the
operations of the Company will generate profits in the near future,
or at all.
Inflation
Although the operations of the Company are influenced by
general economic conditions, the Company does not believe that
inflation had a material effect on the results of operations during
the nine month period ended March 31, 1998.
Year 2000 Disclosure
Many existing computer programs use only two digits to
identify a year in the date field. These programs were designed
and developed without considering the impact of the upcoming change
in the century. If not corrected, many computer applications could
fail or create erroneous results by or at the Year 2000. As a
result, many companies will be required to undertake major projects
7
<PAGE>
to address the Year 2000 issue. The Company presently owns less
than $20,000 worth of computers. It utilizes outside contractors
for the bulk of its computer work. These consultants have advised
the Company that they have made all necessary revisions to their
software to avoid any potential problems arising in the year 2000.
Relevant to the Company's computers, management is in the process
of retaining outside computer consultants to assist the Company in
insuring that its computers will not fail in 2000. However, as of
the date of this report, the Company does not have available a
definitive cost applicable to any service to be undertaken on its
computer software to avoid any problems in this regard. While no
assurances can be provided, management believes that such cost will
not be material to the Company.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS - NONE
ITEM 2. CHANGES IN SECURITIES - NONE
ITEM 3. DEFAULTS UPON SENIOR SECURITIES - NONE
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS -
NONE
ITEM 5. OTHER INFORMATION -
Previously, in December 1997, the Company filed a report on
Form 8-K advising of its execution of a non-binding letter of
intent to acquire various existing businesses from CRT Corporation,
an unaffiliated private corporation. As of the date of this
report, this transaction has not closed due to reasons discussed in
"Results of Operations" included herein.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K -
(a) Exhibits
EX-27 Financial Data Schedule
(b) Reports on Form 8-K
On or about March 30, 1998, the Company filed a Form 8-K dated
March 20, 1998, with the SEC advising of a restructuring of the
transaction reported in its Form 8-K dated December 29, 1997,
advising of a proposed share exchange with CRT Corporation, a
simultaneous "unwinding" of the merger effectuated on or about
March 31, 1997, with Iron Holdings Corp., a New York corporation
("Old Iron") and the simultaneous "rollout" of the Company's
present subsidiary companies. The restructure of the transaction
eliminated the unwinding of the merger with Old Iron, and provided
8
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for the sale of its existing subsidiary companies to a third party.
The contents of this 8-K are incorporated herein as if set forth.
9
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SIGNATURES
Pursuant to the requirements of Section 12 of the
Securities and Exchange Act of 1934, the Registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
IRON HOLDINGS CORP.
(Registrant)
Dated: May 27, 1998 By:/s/ Anthony E. Gurino
---------------------------
Anthony E. Gurino, President
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IRON HOLDINGS CORP.
AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
----------
Consolidated balance sheets as of
March 31 1998 and June 30, 1997 F-2 - F-3
Consolidated statements of operations and
retained earnings (accumulated deficit)
for the nine-month period ended March 31, 1998
and for the nine-month period ended March 31,
1997 including its predecessor, Iron Eagle
Contracting and Mechanical, Inc. for the
three-month periods ended March 31, 1998 and 1997 F-4
Consolidated statements of cash flows for the
nine-month period ended March 31, 1998, and
for the nine-month period ended March 31, 1997,
including its predecessor, Iron Eagle Contracting
and Mechanical, Inc. F-5
Notes to consolidated financial statements F-6 - F-9
F-1
11
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<TABLE>
IRON HOLDINGS CORP.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<CAPTION>
ASSETS
(unaudited)
March 31, June 30,
1998 1997
----------- -----------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 44,856 $ 164,977
Contract receivables 357,583 1,075,425
Officers' loan receivable 1,172 -
Costs and estimated earnings in
excess of billings on
uncompleted contracts 584,162 262,204
Real estate under development - 274,138
Prepaid expenses and other assets - 88,264
Current portion of note receivable 43,102 -
Deferred income taxes - 25,000
----------- -----------
Total current assets 1,030,875 1,890,008
----------- -----------
Property and equipment, at cost:
Construction and transportation
equipment 302,709 310,210
Office furniture and equipment 34,794 34,794
----------- -----------
337,503 345,004
Less accumulated depreciation 133,824 86,488
----------- -----------
203,679 258,516
----------- -----------
Other assets:
Note receivable 171,898 -
Intangibles 431,400 573,482
Deposits 32,505 12,505
Deferred income taxes, net
of current portion - 121,255
----------- -----------
635,803 707,242
----------- -----------
$ 1,870,357 $ 2,855,766
=========== ===========
<FN>
See notes to consolidated financial statements
</TABLE>
F-2
12
<PAGE>
<TABLE>
IRON HOLDINGS CORP.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<CAPTION>
LIABILITIES AND STOCKHOLDERS' DEFICIT
(unaudited)
March 31, June 30,
1998 1997
----------- -----------
<S> <C> <C>
Current liabilities:
Notes payable $ 75,000 $ 425,000
Current portion of long-term debt
from business combination 1,100,000 262,500
Current portion of long-term debt 22,956 25,032
Accounts payable and accrued expenses 915,191 989,983
Deposits 12,244 73,000
Billings in excess of costs and
estimated earnings on
uncompleted contracts 17,533 11,453
Officer's loan payable - 66,500
----------- -----------
Total current liabilities 2,142,924 1,853,468
----------- -----------
Long-term debt from business
combination, net of current portion - 1,050,000
Long-term debt, net of current portion 7,228 17,864
----------- -----------
7,228 1,067,864
----------- -----------
Stockholders' deficit:
Common stock, par value $.001 per
share, 500,000,000 shares
authorized, 6,687,000 shares issued
and outstanding at March 31, 1998 6,687 -
5,000,000 shares issued and
outstanding at June 30, 1997 - 5,000
Additional paid-in capital 1,025,761 28,000
Accumulated deficit (1,312,243) (98,566)
----------- -----------
(279,795) (65,566)
----------- -----------
$ 1,870,357 $ 2,855,766
=========== ===========
<FN>
See notes to consolidated financial statements
</TABLE>
F-3
13
<PAGE>
<TABLE>
IRON HOLDINGS CORP.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINER EARNINGS
(ACCUMULATED DEFICIT)
(Unaudited)
<CAPTION>
Nine-month period ended Three-month period ended
March 31, March 31,
----------------------- -----------------------
1998 1997 1998 1997
----------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Revenues:
Construction revenues earned $ 2,850,691 $3,579,590 $ - $2,520,706
Sales of developed real estate 325,000 - - -
----------- ---------- ----------- ----------
3,175,691 3,579,590 - 2,520,706
----------- ---------- ----------- ----------
Cost of revenues:
Construction costs 3,220,226 3,001,344 304,404 2,123,480
Costs of developed real estate 336,087 - - -
----------- ---------- ----------- ----------
3,556,313 3,001,344 304,404 2,123,480
----------- ---------- ----------- ----------
Gross profit (loss) (380,622) 578,246 (304,404) 397,226
Operating expenses 602,433 534,465 252,228 181,945
----------- ---------- ----------- ----------
Income (loss) from operations (983,055) 43,781 (556,632) 215,281
Interest expense (84,367) - (25,769) -
----------- ---------- ----------- ----------
Income (loss) before income taxes (1,067,422) 43,781 (582,401) 215,281
Deferred income taxes (benefit) 146,255 (15,688) - 107,812
----------- ---------- ----------- ----------
Net income (loss) (1,213,677) 59,469 (582,401) 107,469
Accumulated deficit,
beginning of period (98,566) (167,932) (729,842) (38,856)
----------- ---------- ----------- ----------
Retained earnings (accumulated
deficit), end of period $(1,312,243) $ (108,463) $(1,312,243) $ 68,613
=========== ========== =========== ==========
Income (loss) per share $ (.187) $ .013 $ (.087) $ .024
=========== ========== =========== ==========
<FN>
See notes to consolidated financial statements
</TABLE>
F-4
14
<PAGE>
<TABLE>
IRON HOLDINGS CORP.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<CAPTION>
Nine-month period ended
March 31,
-------------------------
1998 1997
----------- -----------
<S> <C> <C>
Net income (loss) $(1,213,677) $ 59,469
----------- -----------
Adjustments to reconcile net income (loss) to
net cash used in operating activities:
Amortization 65,419 50,726
Depreciation 49,336 47,058
Loss on sale of equipment 2,500 -
Write off of deferred charges 35,112 -
Changes in assets and liabilities:
Decrease (increase) in contract receivables 717,842 (583,269)
Decrease (increase) in costs and estimated earnings
in excess of billings on uncompleted contracts (321,958) (246,653)
Decrease (increase) in real estate under development 274,138 133,430
Decrease (increase) in prepaid expenses and
other assets 88,264 41,819
Decrease (increase) in deferred income taxes 146,255 (15,688)
Decrease (increase) in deposits (20,000) (11,605)
Increase (decrease) in accounts payable
and accrued expenses (74,792) 364,377
Increase (decrease) in billings in excess of
and estimated earnings on uncompleted contracts 6,080 79,922
Increase (decrease) in deposits (60,756) -
----------- -----------
Total adjustments 907,440 (139,883)
----------- -----------
Net cash used in operating activities (306,237) (80,414)
----------- -----------
Cash flow from investing activities:
Capital expenditures - (10,085)
Proceeds from sale of equipment 3,000 -
Deposit converted to note receivable (400,000) -
Principal payments from note receivable 185,000 -
Advances made to officer (8,500) -
----------- -----------
Net cash used in investing activities (220,500) (10,085)
----------- -----------
Cash flows from financing activities:
Principal payments under loan agreements (225,212) (468,302)
Proceeds from loan agreements - 450,000
Principal payments on notes payable (500,000) -
Proceeds from notes payable 150,000 -
Capital contribution from parent company - 250,000
Proceeds from issuance of common stock 1,041,000 -
Advances from (repayment to) officer (59,172) 120,985
Deferred financing costs - (20,525)
----------- -----------
Net cash provided by financing activities 406,616 332,158
----------- -----------
Net increase (decrease) in cash and cash equivalents (120,121) 241,659
Cash and cash equivalents, beginning of period 164,977 195,668
----------- -----------
Cash and cash equivalents, end of period $ 44,856 $ 437,327
=========== ===========
<FN>
See notes to consolidated financial statements
</TABLE>
F-5
15
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IRON HOLDINGS CORP.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the nine-month period ended March 31, 1998 and the
nine-month period ended March 31, 1997, including
its predecessor, Iron Eagle Contracting and Mechanical, Inc.,
for the three-month periods ended March 31, 1998 and 1997
1. Unaudited interim financial statements
The accompanying unaudited financial statements have been prepared in
accordance with the instructions for Form 10-QSB and do not include all
of the information and footnotes required by generally accepted accounting
principles for the complete financial statements. In the opinion of
management, all adjustments, consisting only of normal recurring
adjustments considered necessary for a fair presentation, have been
included. Operating results for any quarter are not necessarily indicative
of the results for any other quarter or for the full year.
Basis of presentation
On March 31, 1997, pursuant to the terms of a plan of merger, Comstock
Tailings Company, Incorporated ("Comstock") acquired all of the outstanding
common stock of Iron Holdings Corp. ("Old IHC") and its wholly-owned
subsidiary, Iron Eagle Contracting & Mechanical, Inc. ("Iron Eagle"), in
exchange for 4,500,000 unregistered shares of Comstock's common stock. As
a result of the transaction, the former shareholders of Old IHC received
shares representing an aggregate of 90% of Comstock's outstanding common
stock, resulting in a change in control of Comstock. As a result of the
merger, Comstock was the surviving entity, Old IHC (a holding company)
ceased to exist and Iron Eagle (the operating company) became the wholly-
owned subsidiary of Comstock. Simultaneously therewith, Comstock amended
its articles of incorporation to reflect a change in Comstock's name to
Iron Holdings Corp. ("IHC"). References to the "Company" refer to IHC
together with the predecessor companies, Old IHC and Iron Eagle.
The acquisition of Iron Eagle has been accounted for as a reverse
acquisition. Under the accounting rules for a reverse acquisition, Iron
Eagle is considered the acquiring entity. As a result, historical
financial information for periods prior to the date of the transaction
are those of Iron Eagle or of Old IHC and Iron Eagle, its wholly-owned
subsidiary. However, the capital structure of Iron Eagle has been
retroactively restated to reflect the number of shares received by Old
IHC shareholders in the acquisition and the Company's par value. Under
purchase method accounting, balances and results of operation of IHC will
be included in the accompanying consolidated financial statements from
the date of the transaction, March 31, 1997. The Company recorded the
assets and liabilities (excluding intangibles) at their historical cost
bases which was deemed to approximate fair market value. The reverse
acquisition is treated as a non-cash transaction except to the extent of
cash acquired, since all consideration given was in the form of stock.
F-6
16
<PAGE>
1. Unaudited interim financial statements (continued)
Basis of presentation (continued)
Effective October 3, 1996, Old IHC acquired Iron Eagle Contracting and
Mechanical, Inc. ("Iron Eagle") in a business combination accounted for
as a purchase. The results of operations of Iron Eagle is included in
the accompanying consolidated financial statements since the date of
acquisition. The total cost of the acquisition was $1,312,500, which
exceeded the fair value of the net assets of Iron Eagle by $239,576.
The excess is being amortized on the straight-line method over ten
years. As the predecessor company, the results of operations of Iron
Eagle have also been presented for the period prior to its acquisition
by Old IHC.
Principles of consolidation
The accompanying consolidated financial statements include the accounts
of Iron Holdings Corp. ("IHC"), and of its wholly-owned subsidiaries, Iron
Eagle Contracting and Mechanical, Inc. ("Iron Eagle"), LW Plaza Realty
Corp. and Tahoe Realty Corp., for the nine-month and three-month periods
ended March 31, 1998 and 1997. Intercompany transactions and balances have
been eliminated in consolidation.
History and business activity
IHC was originally incorporated as Comstock Tailings Company Incorporated
on May 13, 1988, under the laws of the State of Nevada. The name was
changed to Iron Holdings Corp. concurrent with the business combination
described above. Prior to such business combination, IHC had not engaged
in any operations or generated any revenue.
Old IHC was incorporated in the State of New York on October 3, 1996.
Effective October 3, 1996, it acquired all the shares of Iron Eagle in a
business combination described above. Iron Eagle Contracting and
Mechanical, Inc. was incorporated on December 7, 1995, and began
operations on December 29, 1995.
Old IHC was a holding company which had no operations and conducted
business solely through its wholly-owned construction subsidiary, Iron
Eagle Contracting and Mechanical, Inc. Old IHC ceased to exist as a
result of its merger with Comstock.
Iron Eagle is a construction contractor engaged in pipe work including
gas and water mains as well as steel installation. The subsidiary
operates in the New York City metropolitan area. The Company has also
developed a tract of real estate in Ozone Park, New York, on which it
built five two-family homes. The final home was sold during the nine-
month period ended March 31, 1998.
On February 18, 1997, Iron Holdings Corp. incorporated a wholly-owned
subsidiary, LW Plaza Realty Corp. The subsidiary is inactive and has not
engaged in any operations or generated any revenue. However, it had
entered into a contract to purchase a shopping center as discussed in
Note 3.
During August 1997, Iron Holdings Corp. incorporated a wholly-owned
subsidiary, Tahoe Realty Corp. The subsidiary is inactive and has not
engaged in any operations or generated any revenue. However, it had
entered into a contract to purchase land as discussed in Note 3.
F-7
17
<PAGE>
1. Unaudited interim financial statements (continued)
Income (loss) per share
Income (loss) per share has been computed based on the weighted average
number of common shares outstanding. For the period prior to the reverse
acquisition discussed in the basis of presentation section above, the
number of common shares outstanding used in computing earnings per share
is the number of common shares received by the shareholders of Old IHC in
connection with such reverse acquisition (4,500,000 shares). For the
nine-month periods ended March 31, 1998 and March 31, 1997, the weighted
average number of shares used in the calculation was 6,484,325 and
4,500,000, respectively. For the three-month periods ended March 31, 1998
and 1997, the weighted average number of shares used in the calculation
was 6,687,000 and 4,500,000, respectively.
2. Stockholders' equity
Stock option plan
During May 1997, the Company established a non-qualified stock option
plan (the "Plan") to attract and retain qualified and competent persons
who are key employees, consultants, representatives, officers and
directors of the Company upon whose efforts and judgment the success of
the Company is largely dependent.
During May 1997, the Company awarded a total of 1,000,000 stock options
to purchase common stock at an option price of $.01 per share. All such
options vest upon execution of the consulting agreement and shall be
exercisable for one year from such date. These options were awarded to
companies which are providing public relations service and assistance in
creating a secondary market for the Company's stock. All options were
exercised in July 1997 and 1,000,000 shares of the Company's common
stock were issued.
Offshore securities offering
On April 21, 1997, the Company entered into an Offshore Securities
Subscription Agreement with Anchor Capital Management, Ltd. ("Anchor"), a
corporation organized under the laws of Turks and Caicos, British West
Indies. Under the terms of the agreement, Anchor paid $28,000 for the
option to purchase up to 2,800,000 shares of the Company's common stock
at $1.50 per share. The options expired October 21, 1997.
During August 1997, pursuant to the Offshore Securities Subscription
Agreement described above, Anchor Capital Management, Ltd. exercised
options to purchase 687,000 shares of the Company's common stock at $1.50
per share, thereby providing the Company with $1,030,500 in proceeds from
the exercise of options.
F-8
18
<PAGE>
3. Commitments
Shopping center acquisition
The Company has negotiated the purchase of a shopping center located in
Queens, New York, and designated as the "Lindenwood Shopping Center".
The Company executed a Contract of Sale for a purchase price of
$8,000,000 and tendered a non-refundable deposit of $400,000. When
management entered into the contract, they had a verbal commitment from
investment bankers to raise up to $2 million in additional equity
capital. Unfortunately, these investment bankers advised the Company
of their inability to successfully raise this capital subsequent to
execution of the applicable contract. During 1997, management recognized
that the Company did not have sufficient cash available to allow it to
close this acquisition. On December 31, 1997, in response to these
developments, management assigned the contract to an unrelated third
party. To compensate the Company for its $400,000 deposit, the purchaser
gave the Company a $400,000 note. During March of 1998, the Company
received $185,000 against the note receivable. The balance of $215,000
is receivable in quarterly installments of $14,367, including interest at
8% commencing April 1998.
Land purchase contract
In August 1997, the Company incorporated a wholly-owned subsidiary, Tahoe
Realty Corp. ("Tahoe"). In September 1997, Tahoe entered into a contract
to purchase vacant land in Queens, New York for approximately $400,000
and paid a $20,000 refundable deposit. In April 1998, Tahoe purchased
land for $400,000. The company intends to build eight two-family homes on
the tract of land. Construction is expected to begin in June 1998 and
completed by December 1998. Proceeds from sales and total costs to
develop the property, including administrative and financing costs, are
estimated to be $2,870,000 and $2,310,000, respectively.
4. Notice of default
In January 1998, the Company was notified by JJFN Services, Inc.
("JJFN"), the holder of the note payable from the business combination,
that JJFN considered it to be in default on its obligation for non-
payment of interest due in January 1998. Management is in the process
of re-negotiating the terms of the note in an attempt to cure the
default.
5. Proposed reverse merger and rollout
Effective December 24, 1997, the Company entered into a letter of intent
with CRT Corporation ("CRT"), a privately held Nevada corporation,
whereby the Company has agreed in principle to acquire all of the issued
and outstanding shares of CRT, in exchange for issuance by the Company
of previously unissued "restricted" common stock. Simultaneous thereto,
the Company intends to "rollout" the subsidiary companies which were
acquired as part of the merger which took place on or about March 31,
1997 with Iron Holdings Corp., a New York corporation ("Old Iron"). The
Company will cancel all of the shares previously issued to the
shareholders of Old Iron aggregating 4,500,000 shares as part of the
material terms of unwinding this transaction.
The relevant terms of the proposed CRT transaction require the Company
to issue to the CRT shareholders an aggregate of 8,748,000 "restricted"
common shares, representing 80% of the Company's then outstanding common
stock, in exchange for all of the issued and outstanding shares of CRT.
It is anticipated that this transaction will close shortly after the
filing of this report. However, there can be no assurances that either
or both of the aforesaid transactions will successfully close.
F-9
19
<PAGE>
IRON HOLDINGS CORP.
Exhibit Index to Quarterly Report on Form 10-QSB
For the Quarter Ended March 31, 1998
EXHIBITS Page No.
EX-27 Financial Data Schedule . . . . . . . . . . . . 21
20
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
UNAUDITED FINANCIAL STATEMENTS FOR THE NINE MONTH PERIOD ENDED MARCH 31, 1998,
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-END> MAR-31-1998
<CASH> 44,856
<SECURITIES> 0
<RECEIVABLES> 357,583
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,030,875
<PP&E> 337,503
<DEPRECIATION> 133,824
<TOTAL-ASSETS> 1,870,357
<CURRENT-LIABILITIES> 2,142,924
<BONDS> 0
0
0
<COMMON> 6,687
<OTHER-SE> (286,482)
<TOTAL-LIABILITY-AND-EQUITY> 1,870,357
<SALES> 3,175,691
<TOTAL-REVENUES> 3,175,691
<CGS> 3,556,313
<TOTAL-COSTS> 3,556,313
<OTHER-EXPENSES> 602,433
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 84,367
<INCOME-PRETAX> (1,067,422)
<INCOME-TAX> 146,255
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,213,677)
<EPS-PRIMARY> (.187)
<EPS-DILUTED> 0
</TABLE>
