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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT FOR THE FISCAL YEAR ENDED
JULY 31, 1997
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission file number: 0-3338
REGENT GROUP INC.
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(Exact name of registrant as specified in its charter)
DELAWARE 22-1558317
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
477 MADISON AVENUE, SUITE 701,
NEW YORK, NEW YORK 10022 212-207-4560
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(Address and telephone number, including area code, of
registrant's principal executive office)
Securities registered pursuant to Section 12(b) of the Act: None
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Securities registered pursuant to Section 12(g) of the Act:
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COMMON STOCK, $.06 2/3 PAR VALUE
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 month (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
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[X] Indicated by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not 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-K or any
amendment to this Form 10-K.
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At November 1, 1997, 1,824,493 shares of registrant's Common Stock were
outstanding.
The aggregate market value of the voting stock held by non-affiliates of
the registrant based on the average bid and asked prices of such stock as
reported in the National Quotation Bureau, Incorporated as of November 1, 1997
was $2,382,716.
Documents incorporated by reference: See Part V, Index to Exhibits
REGENT GROUP INC.
INDEX
Part I Page
- ------ ----
Item 1. Business....................................... 1
Item 2. Properties..................................... 9
Item 3. Legal Proceedings.............................. 9
Item 4. Submission of Matters to a Vote of
Security Holders............................. 9
Part II
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Item 5. Market for Registrant's Common Equity
and Related Stockholder Matters.............. 10
Item 6. Selected Financial Data........................ 12
Item 7. Management's Discussion and Analysis
of Financial Condition and Results of
Operations................................... 13-15
Item 8. Financial Statements and Supplementary
Data......................................... 16*
Item 9. Changes in and Disagreements with
Accountants on Accounting and Financial
Disclosure.................................... 17
Part III
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Item 10. Directors of the Registrant.................... 17
Item 11. Executive Compensation......................... 18-19
Item 12. Security Ownership of Certain Beneficial
Owners and Management........................ 20-21
Item 13. Certain Relationships and Related
Transactions................................. 22-23
Part IV
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Item 14. Exhibits, Financial Statement Schedules
and Reports on Form 8-K...................... 24
Signatures....................................................... 26
*Page F-1 follows Page 16.
PART I
All statements contained herein that are not historical facts, including,
but not limited to, statements regarding anticipated growth in revenue, gross
margins and earnings, statements regarding the Company's current business
strategy, the Company's projected sources and uses of cash, and the Company's
plans for future development and operations, are based upon current
expectations. These statements are forward-looking in nature and involve a
number of risks and uncertainties. Actual results may differ materially. Among
the factors that could cause results to differ materially are the following: the
availability of sufficient capital to finance the Company's business plans on
terms satisfactory to the Company; competitive factors; the ability of the
Company to adequately defend or reach a settlement of outstanding litigations
and investigations involving the Company or its management; changes in labor,
equipment and capital costs; changes in regulations affecting the Company's
business; future acquisitions or strategic partnerships; general business and
economic conditions; and other factors described from time to time in the
Company's report filed with the Securities and Exchange Commission. The Company
wishes to caution readers not to place undue reliance on any such
forward-looking statements, which statements are made pursuant to the Private
Litigation Reform Act of 1995 and, as such, speak only as of the date made.
ITEM 1. BUSINESS
GENERAL
Regent Group Inc. ("Regent" or the "Company"), formerly known as NMC Corp.,
recently acquired an eighty (80%) percent interest in one business and entered
into a letter of intent for another business.
In October 1993, Regent acquired all of the capital stock of Krystal
Fountain Water Company Limited ("Krystal"), a United Kingdom company which was
organized on April 3, 1992 for a purchase price of approximately $1,047,000.
Krystal was engaged in the business of renting water dispensers and selling
bottled mineral water, cups and ancillary items to businesses in the greater
London metropolitan area. In November 1995, acquired substantially all of the
assets of Water Express, a United Kingdom company, in the business of renting
water dispensers and selling bottled mineral water and related items, in
exchange for a fifty (50%) percent interest in Krystal. In February, 1997,
Regent sold its interest in Krystal for approximately $1,600,000 resulting in a
gain of approximately $621,000. During the subsequent period Regent had no other
operating businesses. In September 1997, Regent consummated one acquisition.
In September 1997, Regent acquired eighty (80%) percent of the capital
stock of United States Lead Testing and Removal Service Inc. ("U.S. Lead") for a
purchase price of $2,000,000, of which $750,000 has been advanced toward the
purchase price and the balance of $1,250,000 is payable by the Company upon the
successful completion of financing. U.S. Lead markets and sells franchises to
provide lead testings, hazard assessment, in-place management, abatement
planning and monitoring to owners of commercial and residential real estate.
1
In November 1997, Regent entered into a letter of intent to acquire a fifty
(50%) percent interest in Upson Rigde LLC, ("Upson"), a Georgia limited
liability company, which owns a 450-acre golf course and residential community
development in Thomaston, Georgia (the "Hickory Land"). Regent and Edenfield
Enterprises Inc. ("Edenfield") formed Upson to acquire and complete the
development of the Hickory Land. Each of Edenfield and Regent will have a fifty
(50%) percent interest in Upson. Edenfield will convey the Hickory Land to Upson
and Regent has agreed to arrange for the financing. In exchange for acquiring an
interest in Hickory Land, Regent will issue 500,000 shares of the Company's
common stock to BSM, Inc., a principal stockholder of Regent. There are not yet
any definitive agreements in connection with obtaining financing for the Hickory
Land and there can be no assurance that such financing will be obtained. In the
event Regent does not obtain financing for the Hickory Land, the acquisition
will not be consummated.
NMC Corp. was incorporated in the State of Delaware on November 28, 1967.
In September 1997, NMC Corp. changed its name to International Madison Holdings
Corp. In October 1997, International Madison Holdings Corp. changed its name to
Regent Group, Inc. The executive offices of the Company are located at 477
Madison Avenue, Suite 701, New York, New York 10022 and its telephone number is
(212) 207-4560.
INDUSTRY BACKGROUND
U.S. LEAD
U.S. Lead was formed in 1993 to exploit the market anticipated to be
created by the Lead-Based Paint Act. The Lead-Based Paint Act provides, among
other things, that all property owners will be required to disclose potential
lead paint hazards before selling a home or renting an apartment. The Lead-Based
Paint Act applies to all housing constructed before 1978, which approximates 64
million, or 74% of the residences in the United States. In September 1996, such
disclosure requirements became applicable to all housing built prior to 1978
containing more than four units and, in December 1996, such disclosure
requirements became applicable to all residential units built prior to 1978.
U.S. Lead markets lead testing, hazard assessment, management, abatement
planning and monitoring to owners of commercial and residential real estate.
Rather than building a regional organization with the infra-structure
necessary to perform lead testing services, U.S. Lead's strategy has been to
establish a market for lead testing services through a series of exclusive and
preferred vendor relationships with real estate brokerage companies, real estate
management companies, mortgage lenders, home inspection companies and insurance
companies. U.S. Lead does not intend to perform lead testing services, but
intends to utilize a network of franchisees and subcontractors to service this
business nationally. In August, 1997, U.S. Lead signed an agreement with HFS,
Inc. ("HFS"), a global consumer service company, to become their exclusive
preferred vendor of lead testing services for Century 21, ERA and Coldwell
Banker. Century 21, ERA and Coldwell Banker collectively have more than 180,000
real estate agents and have a role in approximately 40% of the real estate
transactions consummated in the United States. U.S. Lead also has exclusive or
preferred vendor status
2
with the three largest (by volume) home inspection companies in the United
States, First American Financial Corp., The Home Team Inspection Service, Inc.
and RELO, which perform over 4,000,000 inspections annually. U.S. Lead intends
to establish additional National Accounts with financial institutions, home
inspections companies, real estate brokerage companies, real estate management
companies, insurance companies and other organizations that are potential
sources of regional or national business or referrals, although there can be no
assurance thereof.
In order to service the National Accounts, and also to capture business in
the local markets, U.S. Lead has created a franchise system to perform the lead
testing services. U.S. Lead's wholly-owned subsidiary PRO-TECT Franchising Inc.
("PRO-TECT") has 29 operating franchise territories. PRO-TECT has been selected
for inclusion in the Entrepreneur Magazine "Franchise 500" listing for 1995,
1996 and 1997 and was chosen for its "Top 100 Fastest Growing Franchises" list
in 1995 and its "30 Top New Franchises in 1996". In 1997, PRO-TECT was chosen as
the No. 1 Environmental Franchise by Entrepreneur Magazine.
LEAD TESTING REGULATIONS
Lead is a pollutant that is recognized as posing long-term dangers
especially to infants and children. As reported in Newsweek, the U.S. Public
Health Service reports that one out of six children under the age of six has
enough lead in the blood to place that child at risk, and both the United States
Environmental Protection Agency (the "EPA") and the United States Center for
Disease Control ("CDC") have identified lead poisoning as the nation's number
one environmental threat to children. An EPA publication states that the
long-term effects of lead in a child include learning disabilities, decreased
growth, hyperactivity, impaired hearing and the possibility of brain damage.
Lead hazards, which were considered only as a danger to inner-city children
because of deteriorated housing, are now viewed by the EPA, CDC and the United
States Department of Housing and Urban Development ("HUD") as a threat to the
entire population. The Washington Post reports that it is estimated that
potential lead hazards exist in as many as 64 million homes and apartments that
were built before 1978. Lead poisoning can occur when lead paint on surfaces
such as walls, floors, ceilings and doors is dispersed as chips or dust
particles from sanding, renovation, age, water damage or normal wear and tear.
This dust has the potential to be ingested into the body through breathing, from
eating food that has been exposed to the dust or by a child placing an object in
his mouth that has been contaminated with lead dust particles.
The most comprehensive governmental regulation of lead hazards is contained
in TITLE X, The Residential Lead-Based Paint Hazard Reduction Act which was
enacted into law by Congress in October, 1992. The Lead-Based Paint Act
provides that as of September 6, 1996 or December 6, 1996, depending on the
number of housing units, every real estate transaction involving the sale or
lease of a residential unit (home or apartment) constructed prior to 1978 will
require the seller or lessor to disclose all known lead content and hazards, and
sign a federal lead disclosure form that will certify as to the disclosure of
such information. In addition to Lead-Based Paint Act, 23 states (including New
York, New Jersey, Connecticut, California and Massachusetts) have mandatory
programs requiring all children under 7 years old to be tested annually for lead
in their blood.
3
NATIONAL ACCOUNTS
U.S. Lead has signed a three-year agreement with HFS, Inc. ("HFS") to
become their exclusive vendor of lead testing services for Century 21, ERA and
Coldwell Banker. Century 21, ERA and Coldwell Banker have more than 180,000 real
estate brokers and have a role in approximately 40% of all real estate
transactions consummated in the United States. U.S. Lead also has exclusive or
preferred vendor status with the top three largest (by volume) home inspection
companies in the United States (e.g. First American Financial Corp., The Home
Team Inspection Service, Inc. and RELO), which perform over 4,000,000
inspections annually. U.S. Lead intends to establish additional National
Accounts with financial institutions, home inspection companies, real estate
brokerage companies, real estate management companies, insurance companies and
other organizations that are potential sources of regional or national business
or referrals, although there can be no assurance thereof. The terms of the
existing National Agreements vary, the agreement with HFS is exclusive, while
the balance of the agreements are nonexclusive. The terms generally allow U.S.
Lead to subcontract the lead testing work to the franchisees or subcontractors.
U.S. Lead will retain a percentage of the fees generated by the rendering of
such services and then remit the balance of such fees to the franchisees and the
sub-contractors. U.S. Lead is responsible for all billing of work performed for
National Accounts and retains and collects the National Account fee as bills are
paid. National Account fees vary by National Account. There can be no assurance
as to the amount of revenue which will be generated by each National Account
because the Lead-Based Paint Act regulations have only recently been phased in.
It is possible that one or more of the National Accounts may provide the
majority of National Account Fees. U.S. Lead anticipates that most of the
Company's revenue will be derived as a result of its relationship with HFS. Some
of U.S. Lead's National Accounts have agreed to market U.S. Lead's services. In
some instances, U.S. Lead pays referral fees or fixed marketing fees to National
Accounts which refer business to U.S. Lead. See "BUSINESS -- Government
Regulation". The National Agreements do not "guarantee" any specific level of
business or revenue to U.S. Lead.
LEAD TESTING SERVICES
The lead testing technicians employed by franchisees and subcontractors
follow specified procedures using x-ray florescence spectrum analyzers ("XRF")
which have met the performance criteria established by the EPA. The testing
protocols and the XRF instruments are designed so that the equipment's software
can establish the accuracy of the measurements, eliminating inaccuracies caused
by operator error or instrument malfunctions.
The results of tests are delivered to customers at the time of testing, by
mail, or electronically. Based upon its experience to date, which has been
limited, U.S. Lead expects that (i) it will take a technician approximately two
hours to perform lead testing for the average-sized two bedroom home, (ii) the
cost of the test to the customer will be between $225 to $850, depending on the
level of testing, (iii) the average schedule for a technician will be three
service calls per day.
4
If the presence of lead is detected, U.S. Lead intends to offer through its
franchisees and subcontractors an additional service called a "Hazard
Assessment", which will recommend the best method of handling the lead hazard by
means of approved methods of maintenance or encapsulation while other cases will
require physical removal of the lead according to EPA, HUD and OSHA guidelines.
Based upon its experience to date, which has been limited, U.S. Lead expects
that a franchise will charge approximately $200 for a Hazard Assessment report
on an average single family home. Additionally, franchises and subcontractors
will provide abatement planning/monitoring services and abatement clearance
testing. U.S. Lead does not intend to perform the actual lead abatement.
To date, U.S. Lead has relied upon financial newspapers and magazines to
promote its business. The use of other media such as television and radio
advertisements are being explored.
FRANCHISING
U.S. Lead has divided the 64 million residential units it believes will be
affected by the Lead-Based Paint Act into 640 territories of 100,000 units each.
Technicians employed by the franchisees and subcontractors will perform the
actual lead testing.
U.S. Lead will, upon updating and re-registering its Uniform Franchise
Offering Circular ("UFOC"), be able to sell franchises in 48 states. U.S. Lead
has elected not to register currently in North and South Dakota. As of the date
of this Memorandum, U.S. Lead has sold 49 Pro-Tect franchise territories to four
franchisees in New York, Connecticut, Washington and California of which 29 are
at the date of this Memorandum operating.
U.S. Lead is subject to regulation by the United States Federal Trade
Commission (the "FTC") and certain states relating to disclosure requirements in
the sale of franchises and to various state laws concerning franchise
operations. In addition, the state laws contain disclosure and registration
requirements pertaining to the sale of franchises and regulate franchise
relationships.
Management believes that U.S. Lead is in compliance in all material
respects with all applicable franchise laws and regulations. U.S. Lead cannot
predict the extent of future regulation and may experience difficulty in
complying with potentially adverse government regulations which may arise in the
future.
U.S. Lead's standard franchise agreement provides for a franchisee to make
a one-time payment of $15,000 to U.S. Lead for each territory, a 5% royalty
payment on gross revenues (exclusive of taxes) and a 2.5% payment on gross
revenues as a national advertising fund contribution. U.S. Lead's standard
franchise agreement provides each franchisee with an area of exclusivity for
approximately 100,000 pre-1978 household units. U.S. Lead may not render lead
testing services within a franchisee's territory. The term of the franchise
agreement is for five years with the option to renew for additional five-year
periods with a renewal fee of $3,000 per territory.
U.S. Lead estimates that a franchisee's cost to commence operations,
including the initial franchise fee, training, equipment purchases, insurance,
marketing and other start-up expenses, is approximately $85,000 to $185,000 per
territory.
5
U.S. Lead believes that a franchise should be able to provide testing
services within 60-90 days of becoming a franchisee. During this start-up
period, the franchisee and its employees will become familiar with the business
and the operation of the franchise system, be introduced to the National Account
program, receive training in the use of the XRF devices and prepare its initial
marketing and advertising campaign.
INSURANCE
U.S. Lead presently maintains insurance as required by law, including
workers' compensation coverage, and liability insurance in respect of hazards on
U.S. Lead's business premises. U.S. Lead carries a general liability policy
which provides for coverage of $1,000,000 per occurrence and $5,000,000 in the
aggregate.
U.S. Lead will face potential claims and liabilities, including claims for
environmental damage and property damage, which arise out of its business
activities and the business activities of its franchisees and subcontractors.
Even though U.S. Lead's franchisees do not perform abatement services, the
services they do perform may expose persons affiliated with U.S. Lead (i.e.,
franchisees, employees or others) and others to hazardous substances and may
involve a significant risk to U.S. Lead for liability for environmental damage,
personal injury, property damage and fines and costs imposed by regulatory
agencies. Claims could possibly be asserted against U.S. Lead under federal and
state statutes and regulations, common law, contractual indemnification
agreements or otherwise. There can be no assurance that U.S. Lead will not be
subject to claims which could materially and adversely affect its business,
prospects, financial condition or results of operations. U.S. Lead currently has
purchased insurance (which it believes to be adequate) to cover the exposure it
could face from such claims; however, there can be no assurance that adequate
insurance coverage will continue to be available to U.S. Lead at prices that are
affordable, or that U.S. Lead will not face claims outside or in excess of its
coverage under its insurance in the event a claim is asserted against U.S. Lead.
Because U.S. Lead has limited financial and managerial resources, such an action
(or the establishment of actual liability against U.S. Lead) could materially
and adversely affect U.S. Lead. While U.S. Lead will require each of its
franchisees and subcontractors to maintain insurance at levels that it believes
are adequate, there can be no assurance that such insurance will continue to be
available, or available at a cost that is acceptable. Should insurance prove
difficult or costly, this factor could materially adversely affect the marketing
of franchises, the ongoing operation of the franchisees or the availability of
subcontractors. The relatively low dollar amount of the policy limit currently
maintained, the possible future unavailability or modification of this insurance
or any significant increase in insurance rates could have a material adverse
effect on U.S. Lead's ability to compete effectively. In the event U.S. Lead
expands its services into new markets, no assurance can be given that U.S. Lead
will be able to obtain insurance coverage for such activities or, if insurance
is obtained, that the dollar amount of any liabilities incurred in connection
with the performance of such services will not exceed policy limits.
6
COMPETITION
Competition in the lead testing service business is extremely intense. Lead
testing services are currently being provided throughout the United States by
numerous persons, including, but not limited to, small, locally-based
contractors and small to mid-sized environmental services companies such as ATC
Environmental Services Inc., Allied Corp. and Mystic Air Quality, Inc. and at
least one highly capitalized company, Martin Marietta Corp. U.S. Lead expects
other companies and ventures to provide services to the market expected to
develop as a result of the adoption of the Lead-Based Paint Act, and
regulations, it any, adopted pursuant thereto and that the competition will be
very intense with respect to price and service. U.S. Lead anticipates that its
competition will come from existing environmental consulting and testing firms,
contractors, construction and existing abatement (i.e., asbestos) companies.
U.S. Lead expects that many of its competitors will have greater financial,
technical, human and managerial resources than U.S. Lead and will have already
established a reputation in the general environmental services market. No
assurance can be given that the Company will successfully compete in any market
in which it conducts or may conduct operations.
GOVERNMENT REGULATION
U.S. Lead, its franchisees and subcontractors will be required to comply
with federal, state and local government regulations applicable to environmental
service companies, (particularly regulations governing companies providing
lead-testing services) as well as with general business laws covering matters
such as minimum wage requirements, overtime, working and safety conditions, and
citizen requirements. U.S. Lead's compliance with these federal, state and local
regulations is essential, and failure to comply with such regulations may have a
material adverse effect on the business, prospects, financial condition and
results of operations of U.S. Lead.
U.S. Lead's franchise operations are subject to regulation by the FTC in
compliance with the FTC Trade Regulation Rule on Franchising and Business
Opportunities which requires, among other things, that U.S. Lead prepare and
update periodically a comprehensive disclosure document, UFOC, in connection
with the sale and operation of its franchises. In addition, some states require
a franchisor to register its franchise with the state before it may offer the
franchise. U.S. Lead believes that upon updating and reregistering its UFOC,
together with any applicable state versions or supplements, will comply with
both the FTC guidelines and all applicable state laws regulating franchising in
those states in which it has offered franchises.
In addition to the rules governing the offer and sale of franchises, U.S.
Lead is also subject to a number of state laws that regulate substantive aspects
of the franchisor-franchisee relationship, including, but not limited to, those
concerning termination and non-renewal. Currently, 18 states, the District of
Columbia, Puerto Rico and the Virgin Islands, have franchise termination and
non-renewal laws. These laws govern the termination and/or non-renewal of the
franchise agreement and, by and large, require the franchisor to have good
cause, reasonable cause or just cause in order to terminate the franchise
agreement or not to renew the franchise agreement. In addition, some of these
laws provide for longer cure periods than those which currently exit in U.S.
Lead's franchise agreement.
7
While U.S. Lead intends to comply with all federal, state and local laws
and regulations, there can be no assurance that it will continue to meet the
requirements of such laws and regulations, which, in turn, could result in a
withdrawal of approval to franchise in one or more jurisdictions. Any such loss
of approval would have a material adverse effect upon U.S. Lead's ability to
successfully market its franchises.
Violations of franchising laws and/or state laws and regulations regulating
substantive aspects of doing business in a particular state could subject U.S.
Lead and its affiliates to rescission offers, monetary damages, penalties,
imprisonment and/or injunctive proceedings. The state laws and regulations
concerning termination and non-renewal of franchisees are not expected to have a
material effect on the business, prospects, financial condition and results of
operations of U.S. Lead. In addition, under court decisions in certain states
absolute vicarious liability may be imposed upon franchisors based upon claims
made against franchisees. Even if U.S. Lead is able to obtain coverage for such
claims, there can be no assurance that such insurance will be sufficient to
cover potential claims against U.S. Lead. See "Insurance". Further, there can be
no assurance that existing or future franchise regulations will not have an
adverse effect on U.S. Lead's ability to expand its franchise program.
DESCRIPTION OF HICKORY LAND
The Hickory Ridge Golf Course Community was acquired by the predecessor of
Edenfield in June 1993. Plans for the property include an 18 hole championship
golf course which will occupy approximately 142 acres and approximately 250,
one-acre, residential single family lots. There are presently executed contracts
for the sale of seven of the residential lots.
Upon completion, the golf course will be a 7,016-yard, 18-hole, par-72 golf
course. The golf course property is situated at the easterly end of the Pine
Mountain range in west-central Georgia. The golf course property is located
approximately 6 miles north of the central business district of the city of
Thomaston, Georgia. The golf course was designed by Gary Dowling and Roger
Rulewich and built by The Golf Group which has built Robert Trent Jones golf
courses. Uspon Ridge LLC intends to hire a professional golf course manager to
manage the golf course.
As the result of the flood of 1994, the construction of the golf course was
delayed and the first nine holes were officially opened in September 1995. The
second nine holes are currently under construction and are completely shaped.
The tees have been built and six holes are completed with irrigation. The last
three holes are being designed around a wetland area in cooperation with the
U.S. Army Corps of Engineers, in order to preserve the adjacent wetland area.
There are 10,500 feet of cart paths completed as well as 7,000 feet of paved
roadways. Electricity has been brought to the pump station and 54 of the 250
one-acre residential have been surveyed and are ready for sale. The residential
lots will be serviced by a private water system, natural gas and septic tanks.
8
In addition to the golf course, the property benefits from the small town
environment of Thomaston, Georgia. The residential lots are price positioned at
the top of the local and regional market and below the Atlanta and Macon
markets. It is also positioned as a high quality golf-oriented residential
community featuring moderate to upper end housing.
EMPLOYEES
In addition to Marvin E. Greenfield, who is President, Treasurer, Chief
Executive Officer, and a Director of the Company, Regent currently employs one
administrative assistant and a file clerk.
U.S. Lead has four (4) full time employees.
The Company believes its future prospects will depend upon the ability to
identify and retain capable management. The Company considers its relations with
employees, who are not represented by any labor organization, to be
satisfactory.
ITEM 2. PROPERTIES
The Company's corporate headquarters are located at 477 Madison Avenue,
Suite 701, New York, New York 10022, where the Company occupies approximately
1,500 square feet pursuant to a lease ending June 30, 1998 at an annual rental
of $38,400. The lease is believed to be at a market rate.
U.S. Lead leases approximately 2,500 square feet at 10 Townsend Square,
Oyster Bay, New York at a monthly rental at an aggregate of $3,000, pursuant to
two separate leases. The leases expire in January 1998, and October 1998,
respectively, and the space is utilized as U.S. Lead's executive office and
classrooms for training franchisees and others. The Company has agreed to pay an
additional $5,000 per month to cover $20,100 of past arrearages.
ITEM 3. LEGAL PROCEEDINGS
The Company is not presently subject to any legal proceedings which are
material to the consolidated results of operations or financial condition of the
Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
A shareholders meeting was held on July 15, 1997 which was attended by a
majority of the shareholders. At which meeting a new Board of Directors was
elected.
9
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Regent's Common Stock is traded in the over-the-counter market on the NASD
Non-NASDAQ Electronic Bulletin Board. The following table sets forth, for the
periods indicated, the high and low closing bid and asked prices for one share
of Common Stock. These prices were obtained from the National Quotation Bureau,
Incorporated. All prices prior to April 18, 1995 reflect transactions effected
prior to the one for ten reverse stock split which was effective as of April 17,
1995. The quotations represent prices between dealers and do not include retail
markups, markdowns or commissions and do not necessarily represent actual
transactions.
The market for the Common Stock has been sporadic and there have been long
periods during which there were few, if any, transactions in the Stock and no
reported quotations. Accordingly, reliance should not be placed on the quotes
listed below, as the trades and depth of the market may be limited and,
therefore such quotes may not be a true indication of the current market value
of the Company's Common Stock.
Fiscal Year Ended Bid Prices Asked Prices
July 31, 1996 ----------------- -------------------
- ----------------- High Low High Low
------ ----- ------ ------
August 1, 1995 through
October 31, 1995 ........... 1 7/8 1/4 2 1/8 3/4
November 1, 1995 through
January 31, 1996 ........... 15/16 1/4 1 1/8 1/2
February 1, 1996 through
April 17, 1996 ............. 9/16 1/8 3/4 1/2
April 18, 1996 through
April 30, 1996 (1) ......... 2 1/8 1/8 3/4 1/2
May 1, 1996 through
July 31, 1996 .............. 2 1/8 9/16 2 1/2 5/8
10
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS (CONTINUED)
Fiscal Year Ended Bid Prices Asked Prices
July 31, 1997 ----------------- -------------------
- ----------------- High Low High Low
------ ----- ------ ------
August 1, 1996 through
October 31, 1996 ........... 3 3/16 3/4 3 5/8 1 1/4
November 1, 1996 through
January 31, 1997 ........... 3 5/8 13/16 3 7/8 1/2
February 1, 1997 through
April 30, 1997 ............. 3 3/4 2 4 2 3/8
May 1, 1997 through
July 31, 1997 .............. 4 1/4 2 9/16 4 3/4 2 7/8
- -----------
(1) The Company declared a 1 for 10 reverse stock split effected on April 17,
1995 and the prices reflect such change.
(b) Approximate Number of Equity Security Holders.
The following table sets forth the approximate number of holders of record
of the equity securities of Regent listed:
Number of Holders at
Title of Class November 1, 1997
- -------------- --------------------
Common Stock, $.06 2/3 par value ............. 1,257
Series B Convertible Preferred
Stock, $1.00 par value ..................... 10
Series C Preferred Stock,
$1.00 par value ............................ 81
(c) Dividend Policy
No cash or stock dividends have been declared or paid during the last two
fiscal years. No cash dividends may be declared or paid on the Company's Common
Stock if, and as long as, the Series B Preferred Stock is outstanding or there
are unpaid dividends on outstanding shares of Series C Preferred Stock. No
dividends may be declared on the Series C Preferred Stock if, and as long as,
the Series B Preferred Stock is outstanding. Accordingly, it is unlikely the
Company will declare any cash dividends in the foreseeable future.
11
Item 6. Selected Financial Data
Years Ended July 31,
---------------------------------------------------
1997(3)(4) 1996(4) 1995(4) 1994(4) 1993(4)
---------- ------- ------- ------- -------
(In thousands of dollars, except per share data)
Selected Statements of Operations Data:
Sales ................... $1,080 $1,496 $ 577 $ 339 $ --
Cost of sales ........... 414 555 246 177 --
Gain on sale of sub-
sidiary ................ 621 -- -- -- --
Interest expense ........ -- 181 25 6 2
(Loss) before income tax
provision .............. (326) (758) (430) (490) (168)
Income tax provision .... -- 5 1 5 3
Net (loss) .............. (326) (763) (431) (495) (171)
(Loss) per common and
common equivalent
shares ............... (.35) (.79) (.74) (1.34) (.88)
Years Ended July 31,
-----------------------------------------------
1997 1996(2) 1995 1994(1) 1993
---- ------- ---- ------- ----
(In thousands of dollars)
Selected Balance Sheet Data:
Total Assets............. $ 484 $3,186 $1,544 $1,200 $ 580
Long-term debt........... 132 96 12 39 --
(1) The Company acquired Krystal as of October 31, 1993, pursuant to a
transaction accounted for as a purchase. Accordingly, the results of
Krystal's operations are reflected above solely for the periods after the
acquisition and the balance sheet data set forth above does not include
Krystal for periods prior to 1994.
(2) Krystal acquired Water Express as of November 1, 1995, pursuant to a
transaction accounted for as a purchase. Accordingly, the results of Water
Express's operations are reflected above solely for the periods after the
acquisition and the balance sheet data set forth above does not include
Water Express for the periods prior to 1996.
(3) The Company sold Krystal on February 21, 1997. Accordingly, the results of
Krystal's operations are reflected through the date of sale.
(4) All share and per share data have been restated to reflect the 1-10
reverse stock split.
12
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Liquidity and Capital Resources
On February 21, 1997, the Company consummated the sale of its only
operating subsidiary, Krystal Fountain Water Company Limited. The selling price
was approximately $1,600,000 resulting in a gain of approximately $621,000.
Subsequent to the sale, the Company liquidated substantially all of its
liabilities. The Company continues to pursue other investment opportunities. The
Company recently acquired an eighty (80%) percent interest in one business and
entered into a letter of intent for another business.
In September 1997, Regent acquired eighty (80%) percent of the capital
stock of U.S. Lead for a purchase price of $2,000,000 of which $750,000 has been
advanced toward the purchase price and the balance of $1,250,000 is payable by
the Company upon the successful completion of financing.
In November 1997, Regent entered into a letter of intent to acquire a
fifty (50%) percent interest in Upson Ridge LLC, a Georgia limited liability
company, which owns a 410-acre golf course and residential community development
in Thomaston, Georgia known as Hickory Land. In exchange for acquiring an
interest in Hickory Land, Regent will issue 500,000 shares of the Company's
common stock to BSM, Inc., a principal stockholder of Regent. As part of the
acquisition, Regent has agreed to arrange the financing for the Hickory Land.
There are not yet any definitive agreements in connection with obtaining
financing for the Hickory Land and there can be no assurance that such financing
will be obtained. In the event Regent does not obtain financing for the Hickory
Land, the acquisition will not be consummated.
The Company's viability as a going concern is dependent upon its ability
to obtain needed working capital through additional equity and/or debt
financing. The Company has borrowed funds from stockholders of the Company to
meet obligations on the U.S. Lead acquisition. Management is actively seeking
additional capital to ensure the continuation of its operations and for the
various acquisitions. The Company has partially funded the U.S. Lead
acquisition, however, there is no assurance that additional capital will be
obtained to complete the U.S. Lead transaction or the golf course community
development project. This raises substantial doubt about the ability of the
Company to continue as a going concern.
Results of Operations
1997 Compared to 1996
The Company operated its business through Krystal. The Company acquired
Krystal in October 1993. In November 1995 Krystal acquired substantially all the
net assets of Water Express. Regent's investment in Krystal was reduced to fifty
(50%) percent as a result of the acquisition. The operating results of Water
Express have been included in the consolidated statement of operations from the
date of acquisition. On February 21, 1997, Regent sold its investment in
Krystal. The consolidated financial statements include the accounts of the
Company and its subsidiary through the sale date.
13
Sales
Revenues from sales decreased 27.8% to $1,079,808 for the year ended July
31, 1997 from $1,495,846 for the year ended July 31, 1996. The decrease is
primarily due to revenues for Krystal are reflected only through the date of
sales as compared to revenues for the entire prior year. Prior to the sale of
Krystal revenues increased from the prior year due to an increase in the number
of customers and more demand for the Company's product.
Cost of Sales
Cost of sales decreased 25.5% to $413,722 for the year ended July 31, 1997
from $555,282 for the year ended July 31, 1996 due to the reasons described
above.
Selling, General and Administrative Expenses
Selling, general and administrative expenses decreased 12.8% to
$1,404,380 for the year ended July 31, 1997 from $1,611,260 for the year ended
July 31, 1996. The decrease is primarily due to the reasons described above
offset, in part by, increases in officer's compensation and professional fees.
Interest Expenses
Interest expense increased to $228,032 for the year ended July 31, 1997
from $181,434 for the year ended July 31, 1996. The increase is primarily
attributable to interest expense on the below market warrant given to Ballydine.
The outstanding debt incurred by the Company was primarily paid off with the
proceeds from the sale of Krystal.
Gain on Sale of Subsidiary
On February 21, 1997, the Company sold its investment in Krystal for
$1,600,000, resulting in a gain of approximately $621,000.
1996 Compared to 1995
Sales
Revenues from sales increased 160% to $1,495,846 for the year ended July
31, 1996 from $575,247 for the year ended July 31, 1995. The increase is
primarily due to the inclusion of Water Express in the settlement of operations,
an increase in the number of customers and more demand for the Company's
products.
Cost of Sales
Cost of sales increased 125.6% to $555,282 for the year ended July 31,
1996 from $246,205 for the year ended July 31, 1995 due to the reasons explained
above.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased 110.5% to
$1,611,260 for the year ended July 31, 1996 from $765,504 for the year ended
July 31, 1995. The increase is primarily due to the inclusion of Water Express
in the statement of operations, an expansion of the Company's marketing program,
the write-off of costs relating to an aborted acquisition and increases in
depreciation of equipment and amortization of goodwill in connection with the
Water Express acquisition.
14
Interest Expense
Interest expense increased to $181,434 for the year ended July 31, 1996
from $25,496 for the year ended July 31, 1995. The increase is attributable to
the increase in debt incurred by the Company in the year ended July 31, 1996 as
discussed below in "Liquidity and Capital Resources".
Other Income
Other income decreased approximately $31,000 for the year ended July 31,
1996 compared to the year ended July 31, 1995 due primarily to settlement
received by Krystal for the infringement of its territorial rights by a
competitor in 1995. This event was a non-recurring transaction.
Accounting Standards
For information regarding certain promulgated accounting standards, see
Note 1 of Notes to Consolidated Financial Statements.
Other Matters
This Form 10-K, other than the historical financial information, may
consist of forward looking statements that involve risks and uncertainties,
including, but not limited to, statements contained in "Business" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations". Such statements are based on many assumptions and are subject to
risks and uncertainties. Actual results could differ materially from the results
discussed in the forward looking statements due to a number of factors,
including, but not limited to, those identified in the preceding paragraph as
well as those set forth under "Business - Risks and Uncertainties" in this Form
10-K.
15
Item 8. Financial Statements and Supplementary Data Index to Financial
Statements and Supplementary Financial Data
Page
---------
Independent Auditors' Report ................................. F-1 - F-2
Financial Statements:
Consolidated Balance Sheets as of July 31,
1997 and 1996 .......................................... F-3 - F-4
Consolidated Statements of Operations, Years
Ended July 31, 1997, 1996 and 1995 ..................... F-5
Consolidated Statements of Stockholders'
(Deficiency) Equity, Years Ended July 31,
1997, 1996 and 1995 .................................... F-6 - F-7
Consolidated Statements of Cash Flows, Years
Ended July 31, 1997, 1996 and 1995 ..................... F-8 - F-9
Notes to Consolidated Financial Statements ............. F-10 - F-24
16
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
and Stockholders of
Regent Group Inc.
New York, New York
We have audited the consolidated balance sheets of Regent Group Inc. and
subsidiary (formerly NMC Corp.), as of July 31, 1997 and 1996, and the related
consolidated statements of operations, stockholders' equity (deficiency), and
cash flows for each of the three years in the period ended July 31, 1997. Our
audits also included the financial statement schedule listed in the Index at
Item 14. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and schedule based on our audits. We did not audit the financial
statements of Krystal Fountain Water Company Limited, a wholly-owned subsidiary,
for the year ended July 31, 1995, which statements reflect total assets
constituting twenty-four (24%) percent of consolidated assets at July 31, 1995
and total revenues constituting one-hundred (100%) percent of consolidated total
revenues for the year then ended. Those statements were audited by other
auditors whose report has been furnished to us, and in our opinion, insofar as
it relates to the amounts included for Krystal Fountain Water Company Limited,
is based solely on the report of the other auditors.
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 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.
In our opinion, based on our audits and the report of other auditors for
the year ended July 31, 1995, the consolidated financial statements referred to
above present fairly, in all material respects, the financial position of Regent
Group Inc. and subsidiary at July 31, 1997 and 1996, and the results of their
operations and their cash flows for each of the three years in the period ended
July 31, 1997 in conformity with generally accepted accounting principles. Also,
in our opinion, such financial statement schedule, when considered in relation
to the basic consolidated financial statements taken as a whole, present fairly
in all material respects the information set forth therein.
F-1
The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. As more fully
explained in Note 1 of Notes to Consolidated Financial Statements, the Company
needs to obtain additional financing and achieve a level of sales to support its
cost structure. These factors raise substantial doubt about the Company's
ability to continue as a going concern. Management's plans in regard to these
matters are also described in Note 1. The consolidated financial statements do
not include any adjustments that might result from the outcome of this
uncertainty.
WIENER, PENTA & GOODMAN, P.C.
Certified Public Accountants
Eatontown, New Jersey
October 24, 1997
F-2
REGENT GROUP INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
ASSETS
July 31,
------------------------
1997 1996
-------- ----------
Current Assets:
Cash ......................................... $ 76,441 $ 15,592
Accounts receivable - less allowance
for doubtful accounts of $9,000 in 1996 ..... -- 587,696
Inventories .................................. -- 13,468
Prepaid expenses and other current
assets ...................................... 407,784 132,823
-------- ----------
Total Current Assets ................. 484,225 749,579
-------- ----------
Property, plant and equipment - net ............ 8,687 1,437,612
Unamortized excess of cost over fair
value of assets acquired ...................... -- 979,595
Investment ..................................... 50,000 --
Deferred acquisition costs ..................... 119,277 18,868
-------- ----------
TOTAL ASSETS ......................... $662,189 $3,185,654
======== ==========
See notes to consolidated financial statements
F-3
REGENT GROUP INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
July 31,
--------------------------
1997 1996
----------- -----------
Current Liabilities:
Short-term debt ......................................... $ 131,800 $ 1,251,373
Current portion of long-term debt ....................... -- 27,343
Current portion of capital lease
obligations ............................................ -- 380,897
Accounts payable ........................................ -- 333,153
Accrued expenses ........................................ 118,158 274,811
Customer deposits ....................................... -- 105,873
Deferred revenue ........................................ -- 138,312
Due to officer .......................................... 100,000 200,000
Income taxes payable .................................... -- 7,970
----------- -----------
Total Current Liabilities ....................... 349,958 2,719,732
----------- -----------
Long-term debt ............................................ -- 68,944
Deferred revenue .......................................... -- 7,392
----------- -----------
Total Liabilities ............................... 349,958 2,796,068
----------- -----------
Minority interest in consolidated
subsidiary ............................................... -- 543,461
Commitments and Contingent Liabilities
Stockholders' Equity (Deficiency):
Preferred stock, par value $1; authorized
500,000 shares (involuntary liquidation value $777,912):
Convertible Series B, at redemption
value; issued and outstanding
65,141 shares ....................................... 130,282 130,282
Cumulative Series C, par value $1;
issued and outstanding 64,763
shares .............................................. 64,763 64,763
Common stock, par value $.06-2/3;
authorized 20,000,000 shares; issued
and outstanding 1,494,493 and 986,677
shares ................................................. 99,682 65,811
Additional paid-in capital .............................. 8,224,858 7,368,110
Deficit ................................................. (8,207,354) (7,792,894)
Foreign currency translation adjustment ................. -- 10,053
----------- -----------
Total Stockholders' Equity
(Deficiency) ................................... 312,231 (153,875)
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY (DEFICIENCY) ............................ $ 662,189 $ 3,185,654
=========== ===========
See notes to consolidated financial statements.
F-4
REGENT GROUP INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
Years Ended July 31,
-------------------------------------
1997 1996 1995
---------- ---------- ----------
Revenues:
Sales ............................. $1,079,808 $1,495,846 $ 575,247
Other income ...................... 19,668 70 31,752
Gain on sale of subsidiary ........ 620,529 -- --
---------- ---------- ----------
1,720,005 1,495,916 606,999
---------- ---------- ----------
Costs and Expenses:
Cost of sales ..................... 413,722 555,282 246,205
Selling, general and administrative
expenses ......................... 1,404,380 1,611,260 765,504
Interest expense .................. 228,032 181,434 25,496
---------- ---------- ----------
2,046,134 2,347,976 1,037,205
---------- ---------- ----------
(Loss) before income tax provision ... (326,129) (852,060) (430,206)
Minority interest in net income (loss)
of consolidated subsidiary ......... 88,331 (94,368) --
---------- ---------- ----------
(Loss) before income tax provision ... (414,460) (757,692) (430,206)
Income tax provision ................. -- 5,643 1,111
---------- ---------- ----------
Net loss ............................. $ (414,460) $ (763,335) $ (431,317)
========== ========== ==========
Loss per common share ................ $(.35) $(.79) $(.74)
===== ===== =====
Weighted average number of common
shares outstanding .................. 1,177,644 970,010 581,882
========== ========== ==========
See notes to consolidated financial statements.
F-5
REGENT GROUP INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY)
YEARS ENDED JULY 31, 1997, 1996 AND 1995
Preferred Stock
--------------------------------------
Convertible Cumulative
-------------------------------------- Foreign
Series B Series C Common Stock Additional Currency
---------------- ------------------- ------------------ Paid-In Translation
Shares Amount Shares Amount Shares Amount Capital Deficit Adjustment Total
------ -------- ------ -------- ------- ------- --------- -------- ---------- -------
Balance, August 1,
1994 ............... 65,141 $130,282 64,763 $ 64,763 436,677 $29,126 $6,968,326 $(6,598,242) $ 8,051 $ 602,306
Issuance of common
stock in lieu of
compensation and
consulting (at
$.833 per share) ... 500,000 33,350 383,317 416,667
Foreign currency
translation
adjustment ......... 15,556 15,556
Net (loss) .......... (431,317) (431,317)
------ -------- ------ -------- ------- ------- --------- ----------- ------ ---------
Balance, July 31,
1995 ............... 65,141 130,282 64,763 64,763 936,677 62,476 7,351,643 (7,029,559) 23,607 603,212
Issuance of common
stock in lieu of
compensation (at
$.25 per share) .... 50,000 3,335 2,915 6,250
Issuance of warrants
in lieu of interest
(at $.001 per
share) ........... 13,552 13,552
Foreign currency
translation
adjustment ........ (13,554) (13,554)
Net (loss) ......... (763,335) (763,335)
------ -------- ------ -------- ------- ------- --------- ----------- ------ ---------
Balance, July 31,
1996 .............. 65,141 130,282 64,763 64,763 986,677 65,811 7,368,110 (7,792,894) 10,053 (153,875)
(Continued)
See notes to consolidated financial statements.
F-6
REGENT GROUP INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY) (Continued)
YEARS ENDED JULY 31, 1997, 1996 AND 1995
Preferred Stock
-----------------------------------
Convertible Cumulative
----------------------------------- Foreign
Series B Series C Common Stock Additional Currency
---------------- ------------------ ------------------ Paid-In Translation
Shares Amount Shares Amount Shares Amount Capital Deficit Adjustment Total
------ -------- ------ -------- ------- ------- --------- -------- ---------- -------
Issuance of options and
warrants in lieu of
compensation (at $.001
to $2.50 per share) .... 390,821 390,821
Issuance of common stock
in lieu of compensa-
tion and consulting (at
$1.00 to $2.9375 per
share) ................. 150,000 10,005 266,870 276,875
Exercise of stock options
and warrants (at $.001
to $1.00 per share) .... 357,816 23,866 76,343 100,209
Issuance of warrants in
lieu of interest (at
$.001 per share) ....... 122,714 122,714
Foreign currency trans-
lation adjustment ...... (10,053) (10,053)
Net (loss) .............. (414,460) (414,460)
------ -------- ------ -------- --------- -------- ---------- ----------- ------- ---------
Balance, July 31, 1997 .. 65,141 $130,282 64,763 $ 64,763 1,494,393 $ 99,682 $8,224,858 $(8,207,354) $ -- $ 312,231
====== ======== ====== ======== ========= ======== ========== =========== ======= =========
See notes to consolidated financial statements.
F-7
REGENT GROUP INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended July 31,
-----------------------------------------
1997 1996 1995
----------- ----------- -----------
Cash flows from operating activities:
Net (loss) .......................................... $ (414,460) $ (763,335) $ (431,317)
Adjustments to reconcile net (loss) to net cash
provided from operating activities:
Depreciation and amortization ..................... 208,792 285,511 100,522
Non-employee non-cash compensation ................ 456,038 19,802 --
Non-cash executive compensation ................... 211,658 150,000 150,000
Reserve for bad debts ............................. (9,000) 9,000 --
Gain on sale of subsidiary ........................ (620,529) -- --
Minority interest in income (loss) of consolidated
subsidiary ...................................... 88,331 (94,368) --
Gain on sale of equipment ......................... (21,282) (9,645) --
Changes in operating assets and liabilities net of
effects from acquisition of Water Express and sale
of Krystal Fountain Water Company Limited ........ (262,465) (53,861) 96,787
----------- ----------- -----------
Net Cash (Used in) Operating Activities ........ (362,917) (456,896) (84,008)
----------- ----------- -----------
Cash flows from investing activities:
Proceeds from sale of subsidiary .................... 1,624,295 -- --
Proceeds from sale of equipment ..................... 54,628 16,173 --
Purchase of property, plant and equipment ........... (412,904) (131,515) (51,750)
Prepayments on acquisitions ......................... (50,000) -- (164,974)
----------- ----------- -----------
Net Cash Provided by (Used in) Investing
Activities ..................................... 1,216,019 (115,342) (216,724)
----------- ----------- -----------
Cash flows from financing activities:
Proceeds from borrowings ............................ 636,243 804,711 823,567
Proceeds from minority shareholder .................. -- 77,150 --
Repayments of borrowings ............................ (1,518,652) (294,520) (525,259)
Proceeds from sale of common stock .................. 100,209 -- --
----------- ----------- -----------
Net Cash Provided by (Used in) Financing
Activities ..................................... (782,200) 587,341 298,308
----------- ----------- -----------
Foreign currency translation adjustment ............... (10,053) (13,554) 15,556
----------- ----------- -----------
Net Increase in Cash .................................. 60,849 1,549 13,132
Cash - beginning of year .............................. 15,592 14,043 911
----------- ----------- -----------
Cash - end of year .................................... $ 76,441 $ 15,592 $ 14,043
=========== =========== ===========
(Continued)
See notes to consolidated financial statements.
F-8
REGENT GROUP INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Continued)
Years Ended July 31,
----------------------------------------
1997 1996 1995
---------- ----------- ---------
Changes in operating assets and liabilities net of effects from purchase of
Water Express and the sale of Krystal Fountain Water Company Limited consist
of:
(Increase) in accounts receivable .................................................. $ (1,032) $ (206,855) $ (51,033)
(Increase) decrease in inventories ................................................. 8,214 (4,433) 12,664
(Increase) in prepaid expenses and sundry receivables .............................. (274,961) (90,683) (23,086)
(Increase) in deferred acquisition costs ........................................... (100,409) (106,570) --
Decrease in other assets ........................................................... -- -- 13,540
Increase in accounts payable ....................................................... 1,002,820 149,178 72,356
Increase (decrease) in accrued expenses ............................................ (256,653) 113,889 47,640
Increase (decrease) in income taxes payable ........................................ (7,970) 4,940 49
Increase (decrease) in deferred revenue ............................................ (145,704) 73,642 24,657
Increase (decrease) in customer deposits ........................................... (105,873) 13,031 --
(Decrease) in lease obligations .................................................... (380,897) -- --
---------- ----------- ---------
$ (262,465) $ (53,861) $ 96,787
========== =========== =========
Supplementary information:
Cash paid during the year for:
Interest ........................................................................ $ 126,566 $ 128,998 $ 7,754
========== =========== =========
Income taxes .................................................................... $ 7,950 $ 2,568 $ 2,981
========== =========== =========
Supplementary information of non-cash investing and financing activities:
During 1995, Krystal Fountain Water Company Limited purchased the net assets
of Water Express.
In conjunction with this acquisition:
Fair value of assets acquired ................................................... $ -- $ 1,260,110 $ --
========== =========== =========
Liabilities assumed ............................................................. $ -- $ 360,399 $ --
========== =========== =========
Common stock issued for compensation .............................................. $ 80,000 $ 6,250 $ 250,000
========== =========== =========
Common stock issued for consulting services ....................................... $ 196,875 $ -- $ 166,667
========== =========== =========
Warrants issued in lieu of payment of interest ..................................... $ 122,714 $ 13,552 $ --
========== =========== =========
Issuance of options and warrants for employee
and non-employee compensation .................................................... $ 390,821 $ -- $ --
========== =========== =========
See notes to consolidated financial statements.
F-9
REGENT GROUP INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
Regent Group Inc. (the "Company" or "Regent"), formerly NMC Corp.,
was incorporated under the laws of the State of Delaware on November
28, 1962 and is a holding Company for its subsidiaries.
Recent Developments
a) On February 21, 1997, the Company sold its only operating
business, Krystal Fountain Water Company Limited ("Krystal"). The
selling price was approximately $1,600,000 resulting in a gain on the
sale of approximately $621,000.
b) On September 22, 1997, the Company acquired eighty (80%)
percent of the common stock of United States Lead Testing and Removal
Service, Inc. ("U.S. Lead") for $2 million. U.S. Lead markets and
sells franchises to provide lead testings, hazard assessment, in-place
management, abatement planning and monitoring to owners of commercial
and residential real estate. U.S. Lead has executed an agreement with
HFS Inc. ("HFS") to become their exclusive preferred vendor for lead
testing services for Century 21, ERA and Coldwell Banker. HFS is a
global consumer services company. Through October 31, 1997, the
Company has advanced U.S. Lead $750,000 toward the purchase price. The
balance of $1,250,000 is payable by the Company upon the successful
completion of financing.
c) The Company has entered into an agreement with BSM Inc. ("BSM")
whereby the Company will issue to BSM 500,000 shares of Regent common
stock in exchange for BSM assigning to the Company BSM's rights, title
and interest in a contract to purchase a fifty (50%) percent interest in
a golf course and residential community development in Thomaston,
Georgia (the "Hickory Land"). In October 1997, Upson Ridge LLC
("Upson"), a Georgia limited liability company, was formed to acquire
and complete the development of the Hickory Land. Each of Edenfield
Enterprises Inc. ("Edenfield") and Regent will have a fifty (50%)
percent interest in Upson. Edenfield will convey the land to Upson and
Regent has agreed to arrange for the financing of Upson. There are not
yet any definitive agreements in connection with obtaining financing for
the Hickory Land and there can be no assurance that such financing will
be obtained. In the event that Regent does not obtain financing for the
Hickory Land the acquisition will not be consummated.
d) On March 14, 1997 the Company amended its original agreement in
principle, to acquire Select Acquisitions, Inc. ("Select"). The Board of
Directors of Select voted to reject the acquisition and the Board of
Directors of Regent voted not to proceed with any alternative offers.
e) The Company terminated its letter of intent to acquire Canal Jean
Co., Inc. The Board of Directors of the Company voted not to proceed
after completing its due diligence.
Basis of Presentation
The accompanying consolidated financial statements have been prepared
on a going concern basis, which contemplates the realization of assets
and the satisfaction of liabilities in the normal course of business.
F-10
REGENT GROUP INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
The Company has experienced recurring losses and negative cash flows
from operations through July 31, 1997. In addition, losses and negative
cash flows from operations have continued throughout the period
subsequent to July 31, 1997.
The Company's viability as a going concern is dependent upon its
ability to obtain needed working capital through additional equity
and/or debt financing. Management is actively seeking additional capital
to ensure the continuation of its operations and for various
acquisitions. The Company has partially funded the U.S. Lead
acquisition, however, there is no assurance that additional capital will
be obtained to complete the U.S. Lead transaction or the golf course
community development project. This raises substantial doubt about the
ability of the Company to continue as a going concern.
The financial statements do not include any adjustments relating to
the recoverability and classification of recorded asset amounts or the
amounts and classification of liabilities that might be necessary should
the Company be unable to continue as a going concern.
Principles of Consolidation
The consolidated financial statements include the accounts of the
Company and its fifty (50%) percent owned subsidiary through the sale
date of February 21, 1997. All significant intercompany transactions and
balances have been eliminated.
Use of Estimates
The preparation of the financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that effect 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 Translation
The financial statements of the foreign subsidiary is generally
measured using the local currency as the functional currency. Assets and
liabilities of the subsidiary are translated at the rates of exchange at
the balance sheet date. The resultant translation adjustments are
included in equity adjustment from translation, a separate component of
stockholders' equity (deficiency). Income and expense items are
translated at average monthly rates of exchange. Gains or losses from
foreign currency transactions of the subsidiary is included in net
earnings.
Deferred Acquisition Costs
Costs incurred in connection with proposed acquisitions are deferred
until the acquisitions have either been completed and will then be
included as part of the purchase price or expensed if the acquisitions
are not completed.
F-11
REGENT GROUP INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Property and Equipment
Property and equipment are stated at cost less accumulated
depreciation. Depreciation, which includes amortization of assets under
capital leases, is calculated using the straight-line and
declining-balance methods over the estimated useful lives of the assets.
Minority Interest
Minority interest represents the minority stockholders' proportionate
share of the investment of Krystal. In February 1997, the Company sold
its entire fifty (50%) percent investment interest in Krystal.
Common Stock
The Board of Directors authorized a 1-10 reverse stock split
effective as of April 17, 1995. All share and per share data for prior
periods presented have been restated to reflect the reverse stock split.
Impairment of Long Lived-Assets
In March 1995 the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards ("SFAS") No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed of". This statement was adopted by the Company in
1996. Since adoption, no impairment losses have been recognized.
Stock-Based Compensation
Effective August 1, 1996, the Company adopted Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation".
The standard encourages, but does not require, companies to recognize
compensation expense for grants of stock, stock options and other equity
instruments to employees based on fair value accounting rules. The
Company has adopted the disclosure only provisions of SFAS No. 123 for
pro forma information.
Recently Issued Accounting Standard
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, "Earnings Per
Share", which establishes new standards for computing and presenting net
income per share and replaces the standards previously found in
Accounting Principles Board Opinion No. 15, Earnings Per Share. The
Company will begin reporting per share information according to this new
standard in its January 31, 1998 quarterly report on Form 10-Q. The
Company does not expect the implementation of SFAS No. 128 regarding the
restatement of prior periods per share data to have a material effect on
the Company's computation.
In June 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income". This statement requires that changes in the
amounts of comprehensive income is not required. This statement is
effective for fiscal years beginning after December 15, 1998. The
Company expects that the adoption of this statement will not have any
significant impact on the financial statements of the Company.
F-12
REGENT GROUP INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Deferred Revenue
Assets leased under operating leases to customers are included in
fixed assets and are depreciated over their useful lives. Rental income
from operating leases is included in the statement of operations on a
straight-line basis over the term of the lease. Amounts not earned are
reflected in deferred revenue.
Unamortized Excess of Cost Over Fair Value of Assets Acquired
The excess of cost over fair value of assets acquired is being
amortized on a straight-line basis principally over twenty (20) years.
Amortization was approximately $26,000, $51,000 and $47,000 for the
years ended July 31, 1997, 1996 and 1995, respectively.
Fair Value of Financial Instruments
For financial instruments including cash, accounts receivable,
prepaid expenses and other current assets, short-term debt, accounts
payable, accrual expenses, capital lease obligations, and amounts due to
officer it was assumed that the carrying values approximated fair value
because of their short-term maturities. It is not practicable to
estimate the fair value of the non-publicly traded long-term debt.
(Loss) Per Common Share
(Loss) per common share is computed using the weighted average number
of common shares outstanding during the year. The convertible preferred
stock and outstanding options and warrants are not considered common
share equivalents for the purposes of the computation of earnings per
share because their effect is antidilutive.
Reclassification
Certain reclassifications have been made to prior year balances to
conform with the current year's presentation.
2. ACQUISITION
On November 1, 1995, Krystal acquired substantially all the net
assets of Water Express, a water distribution company in the United
Kingdom in exchange for the issuance of 363,155 shares of the common
stock of Krystal, approximately $379,000 in cash, and a promissory note
for approximately $125,000. The total purchase price approximated
$1,085,000. Accordingly, the Company's investment in Krystal was reduced
to fifty (50%) percent.
F-13
REGENT GROUP INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. ACQUISITION (Continued)
The acquisition has been accounted for using the purchase method of
accounting, and, accordingly the purchase price was allocated to the
assets purchased and the liabilities assumed based upon the fair values
at the date of acquisition. The fair value of the assets of Water
Express acquired was $1,260,000 and the liabilities assumed totalled
$360,000 resulting in goodwill of approximately $185,000, which will be
amortized principally over twenty (20) years. The operating results of
the acquired business is included in the consolidated statement of
operations from the date of acquisition.
Proforma unaudited operating information for the years ended July 31,
1996 and 1995 of Regent, Krystal and Water Express assuming the business
combinations had occurred at the beginning of the respective year in
which Water Express was acquired as well as at the beginning of the
immediate preceding year is as follows:
July 31,
----------------------------
1996 1995
---------- ----------
Net sales ........................... $1,661,505 $1,216,508
Net (loss) .......................... (726,874) (285,472)
Net (loss) per share ................ $(.75) $(.49)
During February, 1997, the Company sold its fifty (50%) percent
investment in Krystal to Regent's fifty (50%) percent equity partner in
Krystal for approximately $1,600,000.
3. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following:
July 31,
---------------------
1997 1996
------- ----------
Machinery and equipment .................. $22,710 $1,652,225
Leasehold improvements ................... 6,197 6,197
Master tapes ............................. 20,001 20,001
------- ----------
48,908 1,678,423
Less accumulated depreciation
and amortization ....................... 40,221 240,811
------- ----------
Net property, plant and equipment ........ $ 8,687 $1,437,612
======= ==========
F-14
REGENT GROUP INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. DEBT
Short-term debt is as follows:
July 31,
-----------------------
1997 1996
-------- ----------
Unsecured note, due on demand,
interest at 12% per annum (1) ................... $131,800 $ --
Secured note, due March 20, 1997,
interest at 7.5% per year (2) ................... -- 100,000
Secured note, due the earlier of March 31,
1997 or within three (3) days after the
closing of a secondary offering of the
Company's securities, interest at 18%
per year (3) .................................... -- 649,692
Secured note, due the earlier of July 31,
1997 or within ten (10) days after the
closing of a secondary offering of the
Company's securities, interest at 10%
per year (4) .................................... -- 200,000
Secured note, due on demand, interest
at 5% per year (5) .............................. -- 71,593
Unsecured note, due on demand,
interest at 5% per year (6) ..................... -- 103,541
Unsecured note, due on demand,
interest at 5% per year (7) ..................... -- 120,416
Unsecured notes, due on demand,
interest at 5% per year ......................... -- 6,131
-------- ----------
$131,800 $1,251,373
======== ==========
Long-term debt is as follows:
Secured notes payable, due July, 1997
through April, 2000, interest at 9%
per year ........................................ $ -- $ 96,287
Less current maturities .......................... -- 27,343
-------- ----------
$ -- $ 68,944
======== ==========
F-15
REGENT GROUP INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. DEBT (Continued)
(1) The unsecured note, which was advanced on July 31, 1997, is payable to
Mrs. Barbara Greenfield ("Mrs. Greenfield"), wife of Mr. Marvin E.
Greenfield ("Greenfield"), the Company's President and Chief Executive
Officer. During August and September, 1997, Mrs. Greenfield advanced
Regent $218,200.
(2) The note payable to Republic Bank was collateralized by a certificate of
deposit owned by an affiliate of Mrs. Greenfield. During September 1997,
Regent borrowed $100,000 from Republic Bank which was again
collateralized by a certificate of deposit owned by an affiliate of Mrs.
Greenfield.
(3) On December 8, 1995, Regent and Krystal entered into loan agreements
with Ballydine Investments Limited ("Ballydine") for a combined line-
of-credit ("line-of-credit") of up to $750,000 with interest at 18% per
year, payable monthly. The line-of-credit was guaranteed by Regent and
secured by the fifty (50%) percent of Krystal owned by the Company.
Any amount that Krystal borrowed was secured by an English debenture
("Security Agreement") from Krystal which encumbered all of Krystal's
assets in favor of Ballydine. The lien on this collateral was superior
to prior liens given to other lenders, including the affiliated
entities. Additionally, the Company granted to Ballydine a warrant to
purchase 9.9% of the outstanding, fully diluted shares of the Company,
or 203,990 shares at $.001 per share (which was below fair market
value) expiring December, 2006. This resulted in additional interest
expense of $13,552 and $122,714 during the years ended July 31, 1996
and 1997, respectively. Interest expense on the loans for the years
ended July 31, 1997 and 1996 was $62,092 and $59,689, respectively, of
which $10,339 was included in accrued expenses at July 31, 1996.
During May 1997, Ballydine exercised their warrant.
On September 30, 1996, Krystal paid Ballydine $286,000 in full payment
of the amounts advanced by Ballydine. The monies to repay the loan were
advanced to Krystal from the shareholders of Krystal. The advances were
due on demand subject to there being cash flow to pay the shareholders.
Ballydine advanced Regent $165,000 during the period August 1, 1996
through February 28, 1997. The amount due Ballydine from Regent in the
amount of $510,791 was repaid on February 28, 1997 from the proceeds
from the sale of Krystal.
(4) The secured note to a shareholder of the Company was collateralized by
all of the common stock of Krystal owned by the Company subordinated to
the line-of-credit discussed in (3) above. Additionally, the Company
granted to the shareholder a warrant to purchase 100,000 shares of the
Company's common stock at $1.00 per share. Interest in the amount of
$7,595, $20,000 and $8,398, has been expensed for the years ended July
31, 1997, 1996 and 1995, respectively, of which $27,595 was included in
accrued expenses at July 31, 1996. The note, including all outstanding
interest, was repaid on February 28, 1997 from the proceeds from the
sale of Krystal. In November 1996, the shareholder executed his
warrant. During August, 1997, the shareholder advanced the Company
$200,000.
F-16
REGENT GROUP INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. DEBT (Continued)
(5) The secured note payable to Mrs. Greenfield was collateralized by all
of the common stock of Krystal owned by the Company. The security
interest was subordinate to the line-of-credit and the third party
lender discussed in (3) and (4) above. Mrs. Greenfield advanced Regent
$38,394 during the period August 1, 1996 through July 31, 1997. The
note was repaid on March 20, 1997 from the proceeds from the sale of
Krystal. Interest in the amount of $6,755, $6,308 and $7,243 has been
expensed for the years ended July 31, 1997, 1996 and 1995,
respectively. As of July 31, 1996 interest in the amount of $15,058
was included in accrued expenses.
(6) The unsecured note was payable to Mrs. Greenfield representing advances
made by Mrs. Greenfield to Krystal. Interest expense was $451, $2,861
and $728 for the years ended July 31, 1997, 1996 and 1995, respectively.
Interest in the amount of $3,312 was included in accrued expenses as of
July 31, 1996. The note was repaid on February 28, 1997 from the
proceeds from the sale of Krystal.
(7) The unsecured note is payable to Matthew Mitchison, a fifty (50%)
percent owner of Krystal. This liability was assumed by Krystal as part
of the agreement with Mr. Mitchison to purchase Regent's fifty (50%)
percent interest in Krystal.
5. INCOME TAX
As of July 31, 1997, the Company has a net operating loss
carryforward ("NOL") of approximately $3,031,000 expiring in the years
1998 through 2011. The Company has not reflected any benefit of such NOL
carryforward in accordance with the Financial Accounting Board Statement
No. 109 (SFAS 109) as the realization of this deferred tax benefit is
not more than likely.
The provision for income taxes consists of the following:
Year Ended July 31,
---------------------------------
1997 1996 1995
--------- --------- ---------
Current:
Federal ......................... $ -- $ -- $ --
Foreign ......................... -- -- --
State ........................... -- 5,643 1,111
--------- --------- ---------
$ -- $ 5,643 $ 1,111
========= ========= =========
A reconciliation of taxes on income at the federal statutory rate to
amounts provided is as follows:
Year Ended July 31,
---------------------------------
1997 1996 1995
--------- --------- ---------
Tax (benefit) computed
at the Federal statutory rate .... $(140,916) $(257,615) $(146,270)
Increase in taxes resulting from:
State income taxes .............. -- 1,919 378
Effect of unused tax losses ..... 140,916 261,339 147,003
--------- --------- ---------
$ -- $ 5,643 $ 1,111
========= ========= =========
F-17
REGENT GROUP INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5. INCOME TAX (Continued)
The temporary differences between the tax bases of assets and the
financial reporting amount that give rise to the deferred tax assets and
their approximate tax effect are as follows:
July 31,
-----------------------------------------------------
1997 1996
------------------------- -------------------------
Temporary Temporary
Difference Tax Effect Difference Tax Effect
----------- ----------- ----------- -----------
Net operating
loss carryforward..... $ 3,031,000 $ 1,212,000 $ 3,387,000 $ 1,254,000
Officer salary ........ 100,000 40,000 200,000 80,000
Valuation
allowances ........... (3,131,000) (1,252,000) (3,587,000) (1,334,000)
----------- ----------- ----------- -----------
$ -- $ -- $ -- $ --
=========== =========== =========== ===========
6. EMPLOYMENT AGREEMENTS
On July 28, 1997, the Board of Directors of the Company awarded Mr.
Greenfield a bonus in the amount of $100,000 which is included in due to officer
at July 31, 1997.
The Board of Directors also approved a new employment agreement with
Mr. Greenfield commencing August 1, 1997. Mr. Greenfield's compensation will
be $250,000 per year. The employment agreement expires July 31, 2001.
7. CAPITAL STOCK
a) Preferred Stock
Convertible Series B preferred shares ("Series B") are non-
dividend bearing, and are convertible into shares of the Company's
common stock at any time at the option of the holder and are
subject to adjustment in accordance with certain antidilution
clauses. Cumulative Series C preferred shares ("Series C") are not
convertible but are entitled to cumulative cash dividends at the
rate of $.65 per share per annum, payable in each year commencing
the year after all the shares of Series B are retired.
b) Voting Rights
The holders of Series B and Series C preferred stock have no
voting rights.
c) Dividend Restrictions
No cash dividends may be declared or paid on the Company's common
stock if, and as long as, Series B is still outstanding or there
are dividends in arrears on outstanding shares of Series C. No
dividends may be declared on Series C shares if, and as long as,
any Series B shares are outstanding.
F-18
REGENT GROUP INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. CAPITAL STOCK (Continued)
d) Other information is summarized as follows:
Convertible Cumulative
Series B Series C
---------- ---------
Number of common shares to
be issued upon conversion
of each preferred share ........... 10 None
Redemption price and involuntary
liquidation value per preferred
shares (if redeemed, must be in
series order, Convertible Series
B then Cumulative Series C) ....... $2.00 $10.00(1)
(1) Plus any dividend in arrears.
Because the Series B preferred stock had mandatory redemption
requirements at the time of its issuance (which are no longer
applicable), these shares are stated at redemption value. Series
shares are stated at par value.
e) Common Stock
The Board of Directors authorized a 1-10 reverse stock split
effective as of April 17, 1995. The aggregate number of shares of
common stock which the Company is authorized to issue remained at
20,000,000, par value of $.06 2/3. All share and per share data
have been retroactively restated to give effect to the reverse
stock split.
On March 14, 1995, the Board of Directors approved the issuance of
300,000 shares of the Company's common stock to Mr. Greenfield in
consideration for his forgiving the accrued compensation due him
for services provided to the Company in the amount of $250,000 for
the period August 1, 1993 to March 31, 1995.
On March 14, 1995, the Board of Directors approved the issuance of
200,000 shares of the Company's common stock to a consultant as
consideration. This resulted in consulting expense of $166,667 for
consulting services in connection with the proposed acquisition of
certain entities in the United Kingdom of which $83,334 has been
capitalized in connection with the acquisition of Water Express
and is included in unamortized excess of cost over fair value of
assets acquired at July 31, 1996 and the balance of $83,333, was
expensed during the year ended July 31, 1996. Subsequent to the
issuance of the common stock, Mr. Poliskin was elected to the
Company's Board of Directors, but has since resigned.
On December 1, 1995, Paul Woolford ("Woolford"), the Managing
Director of Krystal and a Director of the Company, received 50,000
shares of the Company's common stock as part of his employment
agreement. Compensation expense of $6,250 was charged to
operations during the year ended July 31, 1996.
F-19
REGENT GROUP INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. CAPITAL STOCK (Continued)
On February 25, 1997, Mr. Greenfield and Mr. Woolford each
received 25,000 shares of the Company's common stock in connection
with the sale of Krystal. This resulted in a total expense of
$80,000 which was charged against the gain from the sale of
Krystal.
8. OPTIONS AND WARRANTS
The Company has adopted the disclosure only provisions of Statement of
Financial Accounting Standards No. 123 "Accounting for Stock-Based
Compensation". Accordingly, no compensation cost for employees has been
recognized for the stock options and warrants awarded except for $131,660 for
fiscal year ended 1997, which represents the value of stock options and warrants
that were granted below fair market value at the time of the grant. Had
compensation cost for the Company's stock option plans and warrants been
determined based on the fair value at the grant date for awards in fiscal year
1997 and 1996, the Company's net loss and net loss per share would have
increased to the pro forma amounts indicated below:
Years Ended July 31,
-----------------------
1997 1996
---------- ----------
Net loss -- as reported .................... $(414,460) $(763,335)
Net loss -- pro forma ...................... $(445,181) (763,335)
Loss per share -- as reported .............. $(.35) $(.79)
Loss per share -- pro forma ................ $(.38) $(.79)
The fair value of options and warrants are estimated on the date of
grant using the Black-Scholes option pricing model with the following weighted
average assumptions used for grants in 1997 and 1996: dividend yield of -0-%,
expected volatility of 148% to 386%, risk-free interest rate of 5.1% and
expected lives of .5 to 1 years.
The Company grants stock options and warrants as follows:
The granting of Company stock options is not under a formal stock option
plan.
(1) During the year ended July 31, 1997, the Board of Directors
approved the issuance of stock options to Mr. Greenfield to
purchase 475,000 shares of the Company's common stock at prices
from $.0667 per share (which was above market value) to $1.00 per
share (which was above market value) expiring in periods through
November 2007. A portion of these options were issued for his
forgiving accrued compensation for the period April 1, 1995 to
July 31, 1997. These below market value options resulted in
additional compensation expense for the year ended July 31, 1997
of approximately $132,000.
(2) On December 13, 1996, the Company issued options to purchase
53,826 shares of the Company's common stock at a price of $.0667
(which was below fair market value) expiring December 2006 in
connection with legal services performed for the Company. This
resulted in additional legal expense of approximately $74,000 for
the year ended July 31, 1997. The options were subsequently
exercised in December 1996.
F-20
REGENT GROUP INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. OPTIONS AND WARRANTS (Continued)
(3) During July 1992, certain investors including the daughter of Mr.
Greenfield, purchased 27,000 shares of the Company's common stock
and warrants to acquire 100,000 shares of the Company's common
stock at $3.00 per share. The warrants expired on August 1, 1996.
(4) On March 15, 1995, the Company entered into a secured loan
agreement with a third party. (See Notes 1 and 4 of Notes to
Consolidated Financial Statements). In consideration for the
loan, the Company issued warrants to purchase 100,000 shares of
the Company's common stock at $1.00 per share (which was above
fair value), exercisable through March 13, 1997. In November,
1996, the warrant was exercised and 100,000 shares of common stock
was issued by the Company.
(5) On August 19, 1996, the Company issued to BSM 50,000 shares of
common stock and warrants to purchase 220,000 shares of common
stock at an exercise price of $1.00 per share (which was below
fair value), expiring during November, 2000, in connection with
consulting services provided to the Company. This resulted in a
consulting expense in the amount of $153,774 for the year ended
July 31, 1997. BSM subsequently assigned these warrants to
various parties including 50,000 warrants to a related party.
(6) On December 26, 1996, the Company issued a warrant to Arnold
Poliskin, a former director, to purchase 200,000 shares of the
Company's common stock at a price of $2.50 per share, expiring
January 2000 in connection with consulting services performed for
the Company. This resulted in additional expense of $80,980 during
the year ended July 31, 1997.
Information regarding the Company's stock option plans and warrants for
fiscal years ended July 31, 1997, 1996 and 1995 is as follows:
July 31, 1997 July 31, 1996
--------------------- -------------------
Weighted Weighted
Average Average
Exercise Exercise
Shares Price Shares Price
------ ------- ------ --------
Options outstanding --
beginning of year ......... -- $ -- -- $ --
Options exercised ........... (53,826) .0667 -- --
Options granted ............. 528,826 .4189 -- --
Options cancelled ........... -- -- -- --
------- --------- -------- --------
Options outstanding --
end of year ............... 475,000 $ .4597 $ -- $ --
======= ========= ======== ========
Option price range at
end of year ............... $.0667 to $1.00 N/A
Options price range for
exercised shares .......... $.0667 N/A
Options available for
grant at end of year ...... N/A 528,826
F-21
REGENT GROUP INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. OPTIONS AND WARRANTS (Continued)
July 31, 1997 July 31, 1996 July 31, 1995
-------------------- -------------------- -------------
Weighted Weighted
Average Average
Exercise Exercise
Shares Price Shares Price Shares
------ -------- ------ -------- ------
Warrants outstanding --
beginning of year ..... 403,990 $ .99 200,000 $2.00 100,000
Warrants exercised ...... (303,990) .33 -- -- 100,000
Warrants granted ........ 420,000 1.7143 203,990 .001 --
Warrants cancelled ...... (100,000) 3.00 -- --
------- ------- -------
Warrants outstanding --
end of year ............ 420,000 $1.7143 403,990 $ .99 200,000
======= ======= =======
Warrant price range
at end of year ........ $1.00 - $2.50 $.001 - $1.00 $1.00 - $3.00
Warrant price range
for exercised shares .. $.001 - $1.00 N/A N/A
Warrants available
for grant at end
of year ............... N/A 420,000 203,990
The weighted exercise price and weighted fair value of options and warrants
granted by the Company for fiscal years ended 1996 and 1997 are as follows:
July 31, 1997 July 31, 1996
-------------------- --------------------
Weighted Weighted Weighted Weighted
Average Average Average Average
Exercise Fair Exercise Fair
Price Value Price Value
--------- -------- -------- --------
Weighted average of options
and warrants granted during
the year whose exercise
price exceeded fair market
value at the date of grant ...... $ 1.48 $.35 N/A N/A
Weighted average of options
and warrants during the
year whose exercise price
was less than fair market
value at the date of grant ...... $.0667 $.63 $.001 $.67
The following table summarizes information about fixed-price stock
options and warrants outstanding at July 31, 1997.
Weighted
Number Average Weighted Number Weighted
Range of Outstanding Remaining Average Exercisable Average
Exercise At July 31, Contractual Exercise At July 31, Exercise
Prices 1997 Life Price 1997 Price
-------- ----------- ----------- -------- ----------- --------
$.0667 275,000 10.16 years $.0667 275,000 $ .0667
$1.00 - $2.50 620,000 5.94 years 1.48 620,000 1.48
------- -------
895,000 895,000
======= =======
F-22
REGENT GROUP INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9. OPERATIONS IN GEOGRAPHIC AREAS, FOREIGN OPERATIONS AND EXPORT SALES
Adjustments
United United and
States Kingdom Eliminations Consolidated
---------- ----------- ------------ ------------
JULY 31, 1997
Sales to unaffiliated
customers ................. $ -- $ 1,079,808 $ -- $1,079,808
Transfers between
geographic areas .......... -- -- -- --
---------- ----------- --------- ----------
Total Revenue .......... $ -- $ 1,079,808 $ -- $1,079,808
========== =========== ========= ==========
Operating (loss) ............ $ (663,712) $ (74,582) $ -- $ (738,294)
========== =========== ========= ==========
Identifiable assets
at July 31, 1997 .......... $ 662,189 $ -- $ -- $ 662,189
========== =========== ========= ==========
JULY 31, 1996
Sales to unaffiliated
customers ................. $ -- $1,495,846 $ -- $1,495,846
Transfers between
geographic areas .......... -- -- -- --
---------- ----------- --------- ----------
Total Revenue .......... $ -- $ 1,495,846 $ -- $1,495,846
========== =========== ========= ==========
Operating (loss) ............ $ (437,838) $ (104,555) $ -- $ (542,393)
========== =========== ========= ==========
Identifiable assets
at July 31, 1996 .......... $1,203,009 $ 2,177,573 $ (69,540) $3,311,042
========== =========== ========= ==========
JULY 31, 1995
Sales to unaffiliated
customers ................. $ -- $ 575,247 $ -- $ 575,247
Transfers between
geographic areas .......... -- -- -- --
---------- ----------- --------- ----------
Total Revenue .......... $ -- $ 575,247 $ -- $ 575,247
========== =========== ========= ==========
Operating (loss) ............ $ (405,036) $ (31,426) $ -- $ (436,462)
========== =========== ========= ==========
Identifiable assets
at July 31, 1995 .......... $1,203,614 $ 418,902 $(111,532) $1,510,984
========== =========== ========= ==========
Operating (loss) represents total revenue less operating expenses. In
computing operating (loss), none of the following items have been
included: interest income or expense, other income and income taxes.
Identifiable assets are those assets of the Company that are
identified with the operations of each geographic area.
The Company realized exchange losses of approximately $29,125, $5,078
and $500 for the years ended July 31, 1997, 1996 and 1995, respectively.
The Company's foreign operations were principally in the United
Kingdom through February 21, 1997, the date of sale of the subsidiary.
F-23
REGENT GROUP INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
10. COMMITMENTS
The Company leases office facilities under an operating lease which
extends through June 30, 1998. The minimum annual lease payment due
under the operating lease is as follows:
Year Ending Operating
July 31, Leases
----------- ---------
1998 ................................... $38,400
-------
Total Minimum Lease Payments ........... $38,400
=======
Rent expense under operating leases for the year ended July 31, 1997,
1996 and 1995 was $34,446, $71,780 and $97,530, respectively. The
Company subleases office space on a month-to-month basis. The amount of
sublease income was $6,000 for the years ended July 31, 1997, and
$24,000 for the years ended July 31, 1996 and 1995. Included in the
sublease income were amounts received from the Mast Group Inc. ("Mast")
and National BMF Corp. ("NBMF"). The Company received $6,000 in
sublease income from Mast for the year ended July 31, 1997 and $6,000
from both Mast and NBMF for the years ending July 31, 1996 and 1995. Mr.
Greenfield is the President of Mast and NBMF. The Company believes the
terms of the sublease to Mast and NBMF were at least as favorable to
the Company as rent which have been received from unaffiliated third
parties.
F-24
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
NONE TO BE REPORTED.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The directors and executive officers and key employees of the Company,
together with their ages and a brief description of their employment history,
are as follows:
Name Age Position
- ---- --- --------
Marvin E. Greenfield ........... 66 President, Chief Executive Officer
Treasurer, Chief Financial Officer
and Director
Paul Rosen ..................... 67 Director
Paul R.C. Woolford ............. 48 Director
Judith Kardos .................. 35 Secretary and Director
Paul Rosen was elected to the Board of Directors as a Director to replace
Arnold Poliskin in July 1997.
All directors hold office until the next annual meeting of stockholders and
the election and qualification of their successors. Vacancies on the Board of
Directors may be filled by the remaining directors until the next annual
stockholders' meeting. Officers serve at the discretion of the Board. The Board
has no committees. The Company has not to date paid directors fees for service
on the Board of Directors or any committee thereof.
The following is a brief summary of the background of each executive
officer and director of the Company.
MARVIN E. GREENFIELD. Mr. Greenfield has served as the President, Director
and Chief Executive Officer of the Company since July 1, 1992. He is, and has
been since 1978, president of the Mast Group, Inc. ("Mast"), a company providing
management services to real estate entities with offices located in New York
City, N.Y. and Miami, Florida.
Mr. Greenfield filed a voluntary petition for personal bankruptcy pursuant
to Chapter 11 of the Bankruptcy Code in the United States Bankruptcy Court for
the Southern District of Florida on September 16, 1992, Docket No. 92-332126,
which has been converted to a proceeding under Chapter 7 of the Bankruptcy Code.
In addition, he is an officer and a stockholder of the corporate general
partners of six limited partnerships under the name of Video USA Associates,
Ltd. ("Video") and one limited partnership under the name of Metromall
Associates, Ltd. ("Metromall") which had filed bankruptcy petitions. The Video
proceeding was instituted in the United States Bankruptcy Court for the Eastern
District of New York on November 16, 1992 and the property owned by the bankrupt
entity has been distributed by the United States Trustee. The Metromall
proceeding was instituted in the United States District for the Southern
District of Florida in May 1992 and dismissed in January 1993. Subsequent to
such dismissal, the property owned by this partnership was foreclosed upon by
the first mortgagee. Mr. Greenfield's present proceeding is pending.
17
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT (CONTINUED)
PAUL ROSEN. Mr. Rosen became a Director of the Company in July, 1997. Mr.
Rosen is the Chief Executive Officer of Prose Management, Inc., a real estate
management company, has been in the residential construction business since
1957, and has built more than 3,000 apartment or condominium units as well as
various free-standing, retail food stores. Since 1973, he has been engaged in
the management of apartment buildings, office buildings and shopping centers
throughout the southeastern U.S. and Puerto Rico.
PAUL R. C. WOOLFORD. Mr. Woolford became a Director of the Company in
March, 1995. He was employed by Krystal since July 1992, became the managing
director thereof in March 1993 and presently serves in such capacity. From
August 1992 through November 1992, Mr. Woolford assisted Begbies, Chartered
Accountants, in collecting the outstanding receivables of R.N.I. (UK) Ltd.
("RNI"), a telemarketing merchandising company that ceased operations. From May
1992 to August 1992, Mr. Woolford helped to organize City Road Associates, a
telemarketing company located in London. From November 1990 through April 1992,
Mr. Woolford was employed by RNI (Holdings) Limited, a subsidiary of RNI, as
Group Administration manager with responsibility for supervising the operation
of six subsidiaries.
JUDITH KARDOS. Ms. Kardos has been the Secretary of the Company since July
1, 1992. She became a director in July 1992. She was employed by Mast from 1984
through November 1993 as an executive assistant.
Compliance with Section 16(a) of the Securities Exchange Act of 1934
To the Company's knowledge, based solely on a review of such materials as
are required by the Securities and Exchange Commission, no officer, director or
beneficial holder of more than ten percent of the Company's issued and
outstanding shares of Common Stock failed to timely file with the Securities and
Exchange Commission any form or report required to be so filed pursuant to
Section 16(a) of the Securities Exchange Act of 1934 during the fiscal year
ended July 31, 1996.
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth, for the fiscal years ended July 31, 1997,
1996 and 1995, the annual and long-term compensation of the Company's Chief
Executive Officer and the two other most highly compensated executive officers
of Regent ("Named Officers").
18
ITEM 11. EXECUTIVE COMPENSATION (Continued)
SUMMARY COMPENSATION TABLE
Annual Compensation Long-Term Compensation
---------------------------- ----------------------------------
Awards Payouts
----------------------- ---------
Securities
Restricted Underlying
Name and Other Annual Stock Options LTIP All Other
Principal Position Year Salary($) Bonus($) Compensation($) Award(s)($) SARs(#) Payouts($) Compensation
- ------------------ ---- --------- -------- --------------- ----------- --------- ---------- ------------
Marvin Greenfield ............. 1997 150,000 100,000 -- 40,000 475,000 -- --
President and ................ 1996 150,000 -- -- -- -- -- --
Chief Executive Officer....... 1995 150,000 -- -- -- -- -- --
- -------------
(A) Mr. Greenfield and the Company entered into an employment agreement through
July 31, 2001. The agreement provides for a base salary of $250,000 per
year. Upon termination of Mr. Greenfield's employment by the Company except
for cause or death or disability, he is to receive the sum of $750,000.
(B) During the year ended July 31, 1997, the Board of Directors approved the
issuance of stock options to Mr. Greenfield to 475,000 shares of the
Company's common stock. A portion of these options (options to purchase
275,000 shares) were issued for his forgiving accrued compensation in the
amount of $350,000 for the period April 1, 1995 to July 31, 1997. In March
1995, Mr. Greenfield waived cash compensation payable to him from August 1,
1993 through March 31, 1995, aggregating $250,000, in exchange for the
issuance of 300,000 shares of the Company's common stock.
(C) In July 1997, the Board of Directors approved a $100,000 bonus payable to
Mr. Greenfield, which has not yet been paid.
(D) On February 25, 1997, Mr. Greenfield received 25,000 shares of the
Company's common stock in connection with the sale of Krystal.
(E) During 1996 no named Officer received perquisites (i.e., personal benefits)
in excess of the lesser of $60,000 or 10% of such individual's reported
salary and bonus.
(F) "All Other Compensation" only includes amounts earned or with respect to
1995, 1996 and 1997.
19
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth as of November 1, 1997 the beneficial
ownership of voting securities of Regent by each person known to Regent to be
the beneficial owner of more than 5% of any class of its voting securities as
well as the beneficial ownership of equity securities of Regent by each of its
directors and its directors and officers as a group. To Regent's knowledge, each
person named has the sole voting and investment power with respect to the
securities listed as owned by him or it.
Only the common stock, which is also known as "Class A Common Stock", has
voting rights. An owner of Series B Convertible Stock has the right to convert
each share of such stock into one share of Class A Common Stock. Until such
conversion, the shares of Series B Preferred Stock may not be voted. None of the
classes of stock vote jointly.
Number of Shares
of Common Stock Approximate
Name and Address Beneficially Percentage of
of Beneficial Owner Owned (1) Class (1) (2)
------------------- ---------------- -------------
Marvin E. Greenfield
(3)(4)(5)(6)(7) ................. 828,345 36.0%
Paul Rosen (3) ................... 6,563 .3
Judith Kardos (3) ................ 600 *
Paul Woolford (3)(7) ............. 75,000 4.1
Ira Russack (8) .................. 175,000 9.3
504 Broadway
New York, NY 10012
Ballydine Investments Ltd. (9) ... 203,990 11.2
55 Mulgrave Street
Dun Laoghaire
County Dublin, Eire
BSM Inc. (10) .................... 750,000 32.3
Red Bank, NJ 07701
Arnold Poliskin (11) ............. 200,000 9.9
333 Recter Place
New York, NY 10280
V.C. Pinto International Corp. ... 280,000 15.3
315 Linden Place
Westbury, NY 11590
Officer and directors as a group
(five persons) ................. 910,508 39.6
================================================================================
20
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
(Continued)
(1) There were 1,824,493 shares of Common Stock outstanding as of November 1,
1997.
(2) For purposes hereof, a person is deemed to be the beneficial owner of
securities that can be acquired by such person with 60 days from the date
hereof, upon the exercise of warrants or options or conversion of
convertible securities. Each beneficial owner's percentage ownership is
determined by assuming that any warrants, options or convertible securities
that are held by such person (but not those held by any other person) and
which are exercisable or convertible within 60 days from the date hereof,
have been exercised or converted.
(3) The addresses of each of these persons is c/o Company, 477 Madison Avenue,
Suite 701, New York, NY 10014.
(4) Director, President, Chief Executive Officer and Treasurer of Regent.
(5) Includes 300,000 shares held by Mr. Greenfield's wife, 3,345 shares held of
record by National BMF Corp. ("NBMF") and 25,000 shares held of record by
Profitmargin Limited ("Profitmargin"), a company located in London,
England. The outstanding common stock of NBMF is owned by Mr. Greenfield's
daughter and a trust for which she is sole beneficiary. Mr. Greenfield's
wife is the sole trustee of the trust. Mr. Greenfield is also the President
of NBMF. The outstanding equity interest in Profitmargin is owned equally
by Mr. Greenfield's wife and NBMF.
(6) Includes (i) 200,000 shares issuable at a price $.0001 per share upon the
exercise of options, which are exercisable until October 30, 2006, (ii)
200,000 shares issuable at a price of $1.00 per share upon the exercise of
options, which are exercisable until October 30, 2006, (iii) 75,000 shares
issuable at a price of $.001 per share upon the exercise of options, which
are exercisable until October 30, 2007.
(7) Includes 25,000 shares issued in connection with the sale of Krystal.
(8) Includes (i) 100,000 shares issued upon the exercise of warrants, (ii)
25,000 shares issued in connection with a financing arrangement, (iii)
50,000 shares issuable at $1.00 per share upon the exercise of warrants
until November, 2000.
(9) Includes 203,990 shares issued upon the exercise of warrants.
(10) Includes 500,000 shares issuable upon the consummation of the Hickory Land
acquisition.
(11) Includes 200,000 shares issuable at a price of $2.50 per share until
November 1, 2000.
* Represents less than one percent of the Common Stock outstanding.
21
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Barbara Greenfield, the wife of Mr. Marvin E. Greenfield, the President,
Chief Executive Officer and a Director of the Company, collateralized the
Company's note to Republic National Bank of New York dated March 20, 1996 in the
principal amount of $100,000 with a certificate of deposit. The note was repaid
in March 1997 from the proceeds of the sale of Krystal and the certificate of
deposit was released. During September 1997, Mr. Greenfield again collateralized
$100,000 note to Republic Bank with a certificate of deposit.
On December 8, 1995 the Company and Krystal entered into separate loan
agreements with Ballydine Investments Limited ("Ballydine") for a combined
line-of-credit (the "Line-of-Credit") of up to $750,000. The line-of-credit was
guaranteed by the Company and was secured by the 50% of Krystal owned by the
Company and all of Krystal's assets. On September 30, 1996, Krystal paid
Ballydine $286,000 which liquidated the liability to Ballydine from Krystal and
Ballydine's lien on Krystal's assets was released. The funds for such payment
were advanced from the shareholders of Krystal to repay the loan. As additional
consideration for the Line-of-Credit, the Company issued 203,990 shares of
Common Stock, upon the exercise of a warrant granted to Ballydine, which was
exercised in June 1997, exercisable at $.001 per share. The amount due Ballydine
from the Company in the amount of $510,791 was repaid on February 28, 1997 from
the proceeds from the sale of Krystal.
In April 1997, the Company issued 25,000 shares of Common Stock to each of
Mr. Greenfield and Paul Woolford as additional compensation in connection with
the sale of Krystal.
A secured note, dated August 1, 1994, in the original principal amount of
$118,596, bearing interest at a rate of 5% per annum, with an outstanding
balance of $109,987 as of March 17, 1997 was payable to Mrs. Greenfield and
collateralized by all of the common stock of Krystal owned by the Company. The
security interest was subordinated to the Line-of-Credit and the third party
lender. The note was repaid on March 20, 1997 from the proceeds from the sale of
Krystal.
An unsecured note, dated July 31, 1997 in the amount of $131,800 was
payable by the Company to Mrs. Greenfield representing advances made by Mrs.
Greenfield to Regent.
An unsecured note, dated May 31, 1995, in the original amount of $108,417
was payable by the Company to Mrs. Greenfield representing advances made by Mrs.
Greenfield to Krystal. The note was repaid on February 28, 1997 from the
proceeds from the sale of Krystal.
An advance from BSM, a principal stockholder of the Company, in the amount
of $143,400 was repaid on February 28, 1997 from the proceeds from the sale of
Krystal.
22
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS (Continued)
In March 1995, the Company issued 200,000 shares of Common Stock to Arnold
Poliskin, a Director of the Company, for acting as a consultant in connection
with the acquisition of Water Express. Mr. Poliskin subsequently transferred
200,000 shares of Common Stock to BSM. In November 1996, the Company issued to
Mr. Poliskin, options to purchase 200,000 shares of Common Stock at a purchase
price of $2.50 per share, which are exercisable until November 1, 2000. In
December 1996, the Company issued 50,000 shares of Common Stock to BSM pursuant
to a consulting agreement. In November 1996, the Company issued to BSM options
to purchase up to 220,000 shares of Common Stock at a purchase price of $1.00
per share, which are exercisable until November 1, 2000. BSM has assigned such
warrants to various individuals. In October 1997, the Company issued 500,000
shares of Common Stock to BSM in connection with the Hickory Acquisition.
The Company subleases office space. The Company received $6,000 in sublease
income from Mast for the year ended July 31, 1997. Mr. Greenfield is also the
President of Mast. The Company believes the terms of the sublease of Mast are at
least as favorable to the Company as rent which could have been obtained from
unaffiliated third parties. See Note 10 of Notes to Consolidated Financial
Statements.
In November 1996 and April 1997, the Company granted to Mr. Greenfield
options to purchase an aggregate of 475,000 shares of Common Stock. See Note 8
of Notes to Consolidated Financial Statements.
On March 14, 1995, the Company borrowed $200,000 from Ira Russack, a
principal stockholder of the Company, and issued warrants to purchase up to
100,000 shares of Common Stock at a price of $1.00 per share in connection
therewith. In March 1997, the Company repaid such loan, plus interest thereon at
the rate of 10% per annum, of which $100,000 was utilized to purchase 100,000
shares of Common Stock upon the exercise of the warrants. In September 1997, Mr.
Russack loaned the Company an additional $200,000 bearing interest at the rate
of 10% per annum and the Company issued 25,000 shares of Common Stock to Mr.
Russack in connection therewith. The note is due in September 1998.
23
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
Page
----
(a)
1. Financial statements filed as part of this report:
Independent Auditors' Report ........................ F-1 - F-2
Consolidated Balance Sheets as of
July 31, 1996 and 1995 ............................ F-3 - F-4
Consolidated Statements of Operations
for the Years Ended July 31, 1996,
1995 and 1994 ..................................... F-5
Consolidated Statements of Stockholders'
Equity for the Years Ended July 31,
1996, 1995 and 1994 ............................... F-6 - F-7
Consolidated Statements of Cash Flows
for the Years Ended July 31, 1996,
1995 and 1994 ..................................... F-8 - F-9
Notes to Consolidated Financial
Statements ........................................ F-10 - F-24
2. Financial statement schedules filed as part of this report:
Schedule II: Valuation and Qualifying
Accounts .......................................... S-1
All other schedules are omitted because they are
inapplicable, not required or the information is included in
the financial statements or notes thereto.
(b)
3. Exhibits filed as part of this report
Exhibit No.:
- ------------
3.1 Certificate of Incorporation and Bylaws of the Registrant --
Incorporated by reference to Exhibit 3 of the Company's Annual
Report on Form 10-K for the year ended July 31, 1981.
10.1 Employment agreement between Registrant and Maxwell Friedberg --
Incorporated by reference to Exhibit C of the Company's Annual
Report on Form 10-K for the year ended July 31, 1988.
10.2 Lease covering Registrant's office -- Incorporated by reference to
Exhibit No. 1 of the Company's Annual Report on Form 10-K for the
year ended July 31, 1990.
24
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(Continued)
Exhibit No.:
10.3 Agreement dated August 5, 1991 between Regent Group Inc. Maxwell
Friedberg and Estate of Jesse Selter ("Estate") for the Sale of
Registrant's Stock by the Estate to Maxwell Friedberg --
Incorporated by reference to Exhibit No. 1 of the Company's Annual
Report on Form 10-K for the year ended July 31, 1991.
10.4 Stock purchase agreement between Maxwell Friedberg and the Krystal
Group dated June 11, 1992 -- Incorporated by reference to Exhibit
No. 1 of the Company's Annual Report on Form 10-K for the year ended
July 31, 1993.
10.5 Stock purchase agreement dated October 15, 1993 between Regent Group
Inc. and Krystal Fountain Water Company Limited -- Incorporated by
reference to Exhibit 10.5 of the Company's Annual Report on Form
10-K for the year ended July 31, 1994.
10.6 Report of Gerald Edelman, Registered Auditor and Chartered
Accountants, on the financial statements of Krystal Fountain Water
Company Limited for the year ended July 31, 1995, dated September
27, 1995 -- Incorporated by reference to Exhibit 10.6 of the
Company's Annual Report on Form 10-K for the year ended July 31,
1994.
10.7 Asset Sale Agreement dated March 29, 1995 between Krystal Fountain
Water Company Limited ("Purchaser") and Matthew Richard Mitchison
and Catherine Mitchison ("Seller") -- Incorporated by reference to
Exhibit A of the Company's Quarterly Form 10-Q for the quarterly
period ended April 30, 1995.
10.8 Asset Sale Agreement dated February 17, 1997 between Matthew Richard
Mitchison, Catherine Jane Mitchison and Krystal Fountain Water
Company Limited ("Purchasers") and NMC Corporation ("Seller") --
Incorporated by reference to Exhibit A of the Company's Form 8-K
filed on March 17, 1997.
10.9 Stock Purchase Agreement dated September 12, 1997 between
International Madison Holdings Corp. F/K/A NMC Corp.
("Purchaser") and United States Lead Testing & Removal Service
Inc. ("Seller") -- Incorporated by reference to Exhibit A of the
Company's Form 8-K filed on September 26, 1997.
11.1 A statement regarding the computation of earnings per share is
omitted because such computation can be clearly determined from the
material contained in this Annual Report on Form 10-K.
22.1 Subsidiaries of the Registrant.
27.1 Financial Data Schedule.
(b) Reports on Form 8-K
No reports on Form 8-K have been filed during the last quarter of
the period covered by this report.
25
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.
REGENT GROUP INC.
By: /s/ MARVIN E. GREENFIELD
---------------------------------------
Marvin E. Greenfield, President
Date: November 13, 1997
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
/s/ MARVIN E. GREENFIELD November 13, 1997
- ------------------------------------
Marvin E. Greenfield, President,
Treasurer and Director
November __, 1997
- ------------------------------------
Paul Rosen, Director
/s/ PAUL WOOLFORD November 13, 1997
- ------------------------------------
Paul Woolford, Director
/s/ JUDITH KARDOS November 13, 1997
- ------------------------------------
Judith Kardos, Secretary and
Director
26
REGENT GROUP INC. AND SUBSIDIARY
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
Column A Column B Column C Column D Column E Column F
-------- -------- -------- -------- -------- --------
Additions
-----------------------
(1) (2)
Charged Charged
Balance at to profit to other Balance
Beginning and loss accounts Deductions at close
Description of period or income (describe) (describe) of period
----------- ---------- --------- ---------- ----------- ---------
Year ended July 31, 1997
Allowance for doubtful
accounts .............................. $ 9,000 $ -- $ -- (a) $ (9,000) $ --
========= ========= ======== ========= =========
Year ended July 31, 1996
Allowance for doubtful
accounts .............................. $ -- $ 9,000 $ -- $ -- $ 9,000
========= ========= ======== ========= =========
Year ended July 31, 1995
Allowance for doubtful
accounts .............................. $ -- $ -- $ -- $ -- $ --
========= ========= ======== ========= =========
a) Amount transferred as part of sale agreement with Krystal Fountain Water
Company Limited.
S-1