SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(X) QUARTERLY REPORT PURSUANT SECTION 13 OF 15(d) OF THE
SECURITIES ACT OF 1934
For the quartery period ended June 30, 1995
( ) TRANSITION REPORT PURSUANT SECTION 13 OF 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____ to ____
Commission file number 1-8334
REGAL INTERNTIONAL, INC.
(Exact name of small business as specified in its charter)
Delaware 75-1071589
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification
No.)
P.O. Box 1237
Corsicana, Texas 75151
(Address of principal executive offices)
903 872-3091
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required
to be filed by Section 13 of 15(d) of the Securities
Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to fie
such reports) and (2) has been subject to such filing
requirements for the past 90 days. Yes X No __
State the number of shares outstanding of each of the
issuer's classes of common equity, as of the latest
practicable date: July 31, 1995, 81,806,198 shares.
Trasnsitional Small Business Disclsure Format (check
one): Yes ___ No X
<PAGE>
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
PAGE
ITEM l - FINANCIAL STATEMENTS
Consolidated Balance Sheets at
June 30, 1995 and December 31, 1994 1
Consolidated Statements of Operations
for the three and six month periods
ended June 30, 1995 and June 30, 1994 2
Consolidated Statements of Cash Flows
for the six months ended
June 30, 1995 and June 30, 1994 3-4
Notes to Consolidated Financial Statements 5-9
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS
OR PLAN OF OPERATION 10
PART II - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS 11
ITEM 2 - CHANGE IN SECURITIES 11
ITEM 3 - DEFAULTS UPON SENIOR SECURITIES 11
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE
OF SECURITY HOLDERS 11
ITEM 5 - OTHER INFORMATION 11
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K 11
<PAGE>
<TABLE>
REGAL INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(in thousands, except share data)
<CAPTION> <C> <C>
June 30, December 31,
1995 1994
<S>
ASSETS
CURRENT ASSETS:
Cash $ 28 200
Restricted Cash 3 15
Accounts Receivable, less
allowance for doubtful accounts
of $52 and $74, respectively 1113 907
Inventories 2614 2426
Prepaid expenses 114 69
Total Current Assets 3873 3617
PROPERTY PLANT AND EQUIPMENT, less
accumulated depreciation of $8,215 and
$8,446 respectively 2126 2229
OTHER ASSETS 27 36
TOTAL ASSETS $ 6026 5882
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt, including
$401 and $248 due to related parties,
respectively. $ 708 541
Accounts payable 573 508
Accrued Interest 13 35
Other accrued expenses 528 415
Total Current Liabilities 1823 1499
LONG-TERM DEBT, including $995 and $1,036
due to related parties, respectively 1587 1773
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock - $.01 par value: 150,000,000
shares authorized; 81,806,198 shares issued
and outstanding 818 818
Additional paid-in capital 20307 20307
Deficit -18509 -18515
Total Stockholders' Equity 2616 2610
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 6026 5882
<FN>
The accompanying notes are an integral part of these financial
statements.
</TABLE>
<PAGE>
<TABLE>
REGAL INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except share data)
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
1995 1994 1995 1994
<S> <C> <C> <C> <C>
REVENUES $ 1802 1968 3439 3705
COSTS AND EXPENSES:
Cost of Sales 1227 1341 2340 2495
Selling and marketing 334 314 652 626
General and administrative 317 391 630 761
1878 2046 3622 3882
OPERATING LOSS -76 -78 -182 -177
OTHER INCOME (EXPENSES)
Interest Expense, including $33 and
$47 to related parties for the three
months and $64 and $94 for the
six months ended June 30, 1995
and June 30, 1994, respectively -81 -99 -159 -188
Other Income
Gain on sale of fixed assets 301 -7 301 4
Gains on settlements of liabil 5 50 6 50
Other 24 13 41 47
NET INCOME (LOSS) $ 172 -121 6 -264
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING 81806 53331 81806 53331
INCOME (LOSS) PER COMMON SHARE $ 0.002 -0.002 0 -0.005
<FN>
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
<TABLE>
REGAL INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands, except share data)
<CAPTION>
Six Months Ended June 30,
1995 1994
<S> <C> <C>
Cash flows from operating activities:
Net Income (Loss): 6 -264
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operations:
Depreciation 166 183
Provision for losses on
accounts receivable 18 31
Gain on sale of assets -301 -12
Gain on debt restructures -
Changes in assets and liabilities:
Decrease in accounts receivable 375 541
Decrease (increase) in restricted cash 12 -26
Increase in inventories -488 -81
Increase in prepaid expenses -45 -47
Decrease (increase) in other assets 9 -70
Increase in accounts payable 65 -
Increase in accrued interest and
other current liabilities 93 99
Net cash provided by (used in) operating activities -90 354
Cash flows from investing activities:
Proceeds from the sale of fixed assets -
Capital expenditures -63 -99
Net cash used in investing activities -63 -99
Cash flows from financing activities:
Proceeds from borrowing 208 16
Principal payment on debt -227 -114
Net cash used in investing activities -19 -98
Net increase (decrease) in cash -172 157
Cash at January 1 200 28
Cash at June 30 28 185
<FN>
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
REGAL INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In Thousands)
Supplemental Disclosure of Noncash Investing and Financing
Activities:
Certain holders of Series B Preferred Stock converted
165 shares into 1,172 shares of Common Stock for the six
months ended June 30, 1994. All the Company's Series B
Preferred Stock were converted to the Company's Common
Stock at December 31, 1994 and accordingly no such
transactions occurred in the first or second quarters of
1995 or will occur in the future relating to these
Preferred B shares.
[FN]
The accompanying notes are an integral part of these financial
statements.
<PAGE>
REGAL INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(1) CONTINUING OPERATIONS AND BASIS OF PRESENTATION
The consolidated financial statements include the accounts of Regal
International, Inc. ("Regal") and its wholly-owned subsidiaries
(collectively, the "Company") which are Regal Rubber Products, Inc.
("Regal Rubber"), and Bell Petroleum Services, Inc. ("Bell"). All
significant intercompany balances and transactions are eliminated
in consolidation.
The Company's consolidated financial statements have been prepared
using accounting principals applicable to a going concern which
contemplates the realization of assets and liquidation of
liabilities in the ordinary course of business. The consolidated
financial statements do not include any adjustments relating to the
recoverability and classification of recorded assets or liabilities
that might be necessary should the Company be unable to continue in
existence.
During the years ended Decmeber 31, 1994, the Company incurred a net loss of
$532,000. Substantially all of the Company's debt was restructured effective
December 31, 1994 including the conversion of $1,002,604 of notes
by the Company's majority shareholder, Harlequin Investment
Holdings Limited. As a result of the restructuring, the Company's
working capital position improved, allowing for flexibility in
financing and investing activities. Separately, the Company is
strengthening its sales efforts to penetrate international markets.
The Company's certification by International Standards Organization
(ISO 9001) for its quality program will assist in this process.
During the Second Quarter of 1995 the Company sold the equipment of
a certain product line. The product line had sales of $104,000 and
$179,000 for the years ended December 31, 1994 and 1993, respectively.
This sale resulted in a gain of $300,000.
which was recognized as Other Income in the Second Quarter of 1995.
The Agreement provided for inventory credit, an immediate cash
payment of $50,000, and the opportunity to distribute a generic
line of the buyer's products. The company estimates that the sales
of this product line will be $300,000 in the first year.
The amount of inventory credit is
dependent upon the attainment of a specified level of purchased
products.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Cash Equivalents
The Company considers all highly liquid investments with a maturity
of three months or less at the time of purchase, to be cash
equivalents.
<PAGE>
Inventories
Inventories are valued at the lower of cost or market determined on
a first-in, first-out basis. The Company periodically evaluates
its inventory to determine if any unsalable or obsolete inventory
exists and adjusts its reserves as management determines necessary.
These evaluations are performed, at a minimum, on an annual basis.
Property, Plant and Equipment
Property, plant and equipment are carried at cost. Depreciation is
computed using the straight-line method over the estimated useful
lives for financial reporting purposes and by accelerated methods
for income tax reporting purposes. As assets are retired or
otherwise disposed of, the cost and related accumulated
depreciation are removed from the accounts and the resulting gain
or loss is reflected in operations. The cost of maintenance and
repairs is charged to operations as incurred; significant renewals
and betterments are capitalized.
Financial Instruments and Concentrations of Credit Risk
Financial instruments that potentially subject the Company to
concentrations of credit risk consist principally of cash and
accounts receivable. The Company maintains its cash with major
domestic banks. The terms of these deposits are on demand to
minimize risk. The Company also has Certificates of Deposit which
mature in various dates through 1998 totaling $25,000 and $46,000
at June 30, 1995 and at December 31, 1994, respectively, classified
as is appropriate as either restricted cash or other noncurrent
assets. These Certificates of Deposit represent collateral for
outstanding Letters of Credit. The Company has not incurred losses
related to these cash deposits.
Accounts receivable consist of unsecured receivables from domestic
and international customers in the oil and gas industry. To
minimize the risk associated with international transactions, all
sales are in U.S. currency. The Company routinely assesses the
financial strength of its customers. The Company establishes an
allowance for doubtful accounts based upon factors surrounding the
risk of specific customers, historical trends and other
information.
The carrying value of the Company's financial instruments
approximates the fair value at June 30, 1995 and December 31, 1994.
Income Taxes
The Company adopted Statement of Financial Accounting Standards No.
109 as of January 1, 1993. SFAS 109 superseded substantially all
existing authoritative literature for accounting for income taxes
and requires the use of an asset and liability approach for
financial accounting and reporting purposes. The statement also
requires deferred tax balances to be adjusted to reflect the tax
rates in effect at the time when the deferred amounts are expected
to be payable or refundable.
<PAGE>
Deferred incomes taxes are provided for differences in timing of
reporting certain expenses for financial statement and tax
purposes. Deferred tax liabilities result primarily from the use
of accelerated depreciation for tax reporting and straight-line
depreciation for financial statement reporting. Deferred tax
assets relate to (i) expenses recorded for financial statement
purposes that are not currently deductible for tax purposes and
(ii) net operating loss carryforwards and tax credits remaining at
December 31, 1994. If it is likely that some portion or all of a
deferred tax asset will not be realized, a valuation allowance is
recognized.
(3) ACCOUNTS RECEIVABLE
On September 23, 1992 the Company entered into a renewable
financing agreement with a third party lender. The agreement
provides for advances on selected accounts receivable of Regal not
to exceed an aggregate outstanding balance of $1,200,000. The net
amounts due on such financing was $426,000 and $283,000 at June 30,
1995 and December 31, 1994, respectively. (Total advances for the
six month periods ended June 30, 1995 and June 30, 1994 were
$1,260,000 and $1,035,000, respectively). Advances are limited to
80% of the selected accounts balances and recorded as a reduction
of accounts receivable and the related fees are included in
interest expense. The fees charged range from 2.25% to 6.25% of
the face value of such invoices and is calculated based on the
period outstanding. The minimum fee is $2,500 per month. This
agreement is collateralized by all Regal and Bell accounts
receivable, inventory, machinery and equipment, and intangibles.
The credit for inventory purchases in connection with the sale of
assets has been included in miscellaneous accounts receivable.
(4) INVENTORIES
Inventories consist of:
June 30, December 31,
1995 1994
Raw materials, net of allowance
for obsolescence of $25 in 1995
and 1994 $ 193 $ 188
Work in process, net of allowance
for obsolescence of $25 in 1995
and 1994 566 626
Finished goods, net of allowance
for obsolescence of $365 and
$423 in 1995 and 1994, respectively 1,855 1,612
$2,614 $ 2,426
<PAGE>
(5) PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of:
Estimated June 30, December 31,
Useful Life 1995 1994
Land $ 216 $ 216
Building and improvements 5-25 years 1,521 1,521
Manufacturing equipment 4-10 years 7,724 8,074
Other property & equipment 3-5 years 880 865
10,341 10,675
Less: Accumulated depreciation (8,215) (8,446)
$2,126 $2,229
(6) INCOME TAXES:
The Company files a consolidated federal income tax return. At
December 31, 1994 the Company had available unused operating loss
carryforwards and tax credit carryforwards that expire as follows:
Net Operating Percentage Percentage
Expiring Loss Depletion Contribution Combined
December 31, Carryforwards Carryforward Carryforward Carryforwards
1997 - $ 12,000 $ 2,000 $ 14,000
1998 1,163,000 11,000 1,174,000
1999 3,671,000 8,000 3,679,000
2000 2,609,000 6,000 2,615,000
2001 6,392,000 4,000 6,396,000
2002 - - -
2003 4,039,000 4,039,000
2004 2,423,000 2,423,000
2005 2,050,000 2,050,000
2006 3,430,000 2,000 3,430,000
2007 562,000 562,000
2009 455,000 455,000
TOTALS $26,327,000 $ 41,000 $ 2,000 $ 26,837,000
Research and
Development Employee Stock Investment Combined
Expiring Tax Credit Ownership Plan Tax Credit Tax Credit
December 31, Carryforwards Tax Credit Carryforwards Carryforwards
1996 $ 3,000 $ $ 179,000 $ 182,000
1997 5,000 28,000 76,000 109,000
1998 8,000 13,000 99,000 120,000
1999 4,000 16,000 74,000 94,000
2000 - 16,000 - 16,000
2001 10,000 10,000
TOTALS $ 20,000 $ 83,000 $ 428,000 $ 531,000
<PAGE>
The utilization of these credits and carryforwards is subject to
certain limitations imposed by the 1986 Tax Reform Act and are
significantly restricted by Section 308 of the Internal Revenue
Code due to ownership changes. The above amounts may be subject to
separate return limitation rules.
The Company adopted Statement of Financial Accounting Standards No.
109 as of January l, 1993. Due to the Company's continuing net
operating losses, the Company recorded a valuation allowance to
offset all deferred tax assets. As a result, there was no effect
on the Company's financial position or results of operations from
the adoption of SFAS 109.
Total deferred tax assets and liabilities are $9,668,000 and
$257,000, respectively, at December 31, 1994 and $9,541,000 and
$284,000, respectively, at December 31, 1993.
The current and non-current deferred tax assets and liabilities are
composed of the following components:
Current Non-Current
Deferred tax liability:
Depreciation $ (257,000)
Deferred tax assets:
Loss Carryforwards 9,105,000
Percentage Depletion and
Contribution Carryforwards 15,000
Tax Credit Carryforwards 531,000
Warranty $ 2,000
Allowance for Doubtful Accounts 15,000 -
17,000 $ 9,394,000
Less Valuation Allowance (17,000) (9,394,000)
Net Deferred Tax Assets $ -0- $ -0-
The valuation allowance increased by approximately $154,000 from
January 1, 1994 to December 31, 1994 as a result of net operating
losses incurred in 1994.
The following reconciles the expected tax provision by applying
statutory rates to 1993 pre-tax income:
Expected tax provision $ 45,170
Excess book depreciation 27,393
Excess bad debt expense 3,197
Nondeductible warranty expense 1,658
Surtax exemption (5,364)
Tax Benefit of NOL Carryforwards (72,054)
$ -
The 1994 Federal Income Tax return is in the process of being filed and the
appropriate numbers will be included in the Third Quarter Form 10-QSB.
<PAGE>
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
(1) Liquidity -
The Company's working capital at June 30, 1995 was $2,050,000, a
decrease of $68,000 from the December 31, 1994 balance of
$2,118,000. Cash decreased by $172,000 from $200,000 at December
31, 1994. Accounts Receivable increased by $206,000 primarily as
a result of a $300,000 inventory credit received in connection with
the sale of assets. Inventories increased by $188,000 due to an
increase in the supply of products principally sold to
international customers. Current maturities of long-term debt
increased due to the amortization of notes restructured in
December, 1994. Other accrued expenses increased by $113,000 for
the period due to certain liabilities that arose relating to the
settlement of pending litigation and the restructuring of the
Company's debt.
The Company continued to utilize the line of credit obtained in
September of 1992 to meet on-going working capital requirements.
(2) - Capital Resources -
The Company's working capital comes from operations, the sale of
surplus or under-utilized plants and equipment and from financing.
(3) - Results of Operations-
Revenues from continuing operations for the three months ended June
30, 1995 were $1,802,000, a decrease of $166,000 from the same
period in 1994. The decrease is largely due to a delay in the
timing of marine products.
The outlook for the remainder of 1995 for oilfield rubber products
and marine products is positive based on initial indications and
projections of oil prices and rig activity.
Cost of Sales as a percentage of revenue were 1% higher than in
1994. This was largely the result of the decrease in sales as
compared to 1994.
General and Administrative expenses for the six-month period
decreased by $131,000 from $761,000 in 1994. The main component of
this decrease related to a decrease in costs associated with
litigation due to the settlement of substantially all pending
lawsuits in connection with the restructuring.
<PAGE>
PART II - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
NONE
ITEM 2 - CHANGES IN SECURITIES
None
ITEM 3 - DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS
NONE
ITEM 5 - OTHER INFORMATION
NONE
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
NONE
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
REGAL INTERNATIONAL, INC.
(Registrant)
Date: August 14, 1995
Janak N, Desai, President
& Chief Executive Officer
Gary M. Kohlschmidt
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
THE JUNE 30, 1995 FORM 10-QSB AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> MAR-31-1995
<PERIOD-END> JUN-30-1995
<CASH> 28000
<SECURITIES> 0
<RECEIVABLES> 1113000
<ALLOWANCES> (52000)
<INVENTORY> 2614000
<CURRENT-ASSETS> 3872000
<PP&E> 2126000
<DEPRECIATION> 8215000
<TOTAL-ASSETS> 6025000
<CURRENT-LIABILITIES> 1822000
<BONDS> 0
<COMMON> 818000
0
0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 6025000
<SALES> 3439000
<TOTAL-REVENUES> 3439000
<CGS> 2340000
<TOTAL-COSTS> 3622000
<OTHER-EXPENSES> 3622000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 159000
<INCOME-PRETAX> 6000
<INCOME-TAX> 0
<INCOME-CONTINUING> 6000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6000
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
