SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT SECTION 13 OF 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the quarterly period ended September 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 INTERNATIONAL, 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)
903-872-309l
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange
Act during the past 12 months (or for such shorter period that
the registrant was required to file such reports) and
(2) has been subject to such filing requirements for the past 90 days.
Yes X No
State the number of shares outstanding of each of the issuer's
classes of common equity, as of the latest practicable
date: October 31, 1995, 81,806,198 shares.
Transitional Small Business Disclosure Format (check one): Yes No X
<PAGE>
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
PAGE
ITEM l - FINANCIAL STATEMENTS
Consolidated Balance Sheets at
September 30, 1995 and December 31, 1994 1
Consolidated Statements of Operations
for the three and six month periods
ended September 30, 1995
and September 30, 1994 2
Consolidated Statements of Cash Flows
for the six months ended
September 30, 1995 and
September 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>
September 30, December 31,
1995 1994
<S>
ASSETS
CURRENT ASSETS:
Cash $ 3 200
Restricted Cash 3 15
Accounts Receivable, less
allowance for doubtful accounts
of $59 and $74, respectively 1,203 907
Inventories 2,395 2,426
Prepaid expenses 55 69
Total Current Assets 3,659 3,617
PROPERTY PLANT AND EQUIPMENT, less
accumulated depreciation of $8,293 and
$8,446 respectively 2,052 2,229
OTHER ASSETS 27 36
TOTAL ASSETS $ 5,738 5,882
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt, including
$488 and $248 due to related parties,
respectively. $ 785 541
Accounts payable 401 508
Accrued Interest 19 35
Other accrued expenses 562 415
Total Current Liabilities 1,767 1,499
LONG-TERM DEBT, including $995 and $1,036
due to related parties, respectively 1,444 1,773
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 20,307 20,307
Deficit (18,598) (18,515)
Total Stockholders' Equity 2,527 2,610
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 5,738 5,882
<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 September 30, Nine Months Ended September 30,
1995 1994 1995 1994
<S> <C> <C> <C> <C>
REVENUES $ 1,917 1,686 5,356 5,391
COSTS AND EXPENSES:
Cost of Sales 1,359 1,099 3,699 3,594
Selling and marketing 327 312 980 938
General and administrative 314 347 945 1,108
2,000 1,758 5,624 5,640
OPERATING LOSS (83) (72) (268) (249)
OTHER INCOME (EXPENSES)
Interest Expense, including $33 and
$47 to related parties for the three
months and $64 and $94 for the
nine months ended September 30, 1995
and September 30, 1994, respective (91) (104) (250) (292)
Other Income
Gain on sale of fixed assets 66 4 368 8
Gains on settlements of liabilities - 25 6 75
Other 19 23 61 70
NET LOSS $ (89) (124) (83) (388)
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING 81,806 53,331 81,806 53,331
LOSS PER COMMON SHARE $ (0.001) (0.002) (0.001) (0.007)
<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>
Nine Months Ended September 30,
1995 1994
<S> <C> <C>
Cash flows from operating activities:
Net Loss: $ (83) (388)
Adjustments to reconcile net loss to net cash
provided by (used in) operations:
Depreciation 249 246
Provision for losses on accounts receivable (27) 13
Gain on sale of assets (368) (8)
Gain on debt restructures - (12)
Changes in assets and liabilities:
Decrease (increase) in accounts receivable (27) 669
Decrease (increase) in restricted cash 12 (9)
Decrease (increase) in inventories 31 (64)
Decrease (increase) in prepaid expenses 14 (29)
Decrease (increase) in other assets 9 (2)
Increase in accounts payable (107) (319)
Increase in accrued interest and
other current liabilities 131 155
Net cash provided by (used in) operating activities (166) 252
Cash flows from investing activities:
Proceeds from the sale of fixed assets 126 8
Capital expenditures (72) (171)
Net cash used in investing activities 54 (163)
Cash flows from financing activities:
Proceeds from borrowing 214 26
Principal payment on debt (299) (135)
Net cash used in investing activities (85) (109)
Net increase decrease in cash (197) (20)
Cash at January 1 200 28
Cash at September 30 $ 3 8
<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
430 shares into 3,054 shares of Common Stock for the nine
months ended September 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 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 STATEMENT
(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 year ended December 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 and is
penetrating international markets. The Company's certification by
International Standards Organization (ISO 9001) for its quality
program is assisting 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 September 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 $250,000 and $283,000 at
September 30, 1995 and December 31, 1994, respectively. (Total
advances for the nine month periods ended September 30, 1995 and
September 30, 1994 were $1,827,000 and $1,576,000, 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:
September 30, December 31,
1995 1994
Raw materials, net of allowance
for obsolescence of $14 in 1995
and 1994, respectively $ 208 $ 188
Work in process, net of allowance
for obsolescence of $25 in 1995
and 1994 521 626
Finished goods, net of allowance
for obsolescence of $340 and
$423 in 1995 and 1994, respectively 1,666 1,612
$2,395 $ 2,426
<PAGE>
(5) PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of:
Estimated September 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 7,721 8,074
Other property & equipment 3-5 years 887 865
10,345 10,675
Less: Accumulated depreciation (8,293) (8,446)
$2,052 $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)
$ -
Filing of the 1994 Federal Income Tax is complete and the
appropriate numbers will be reflected in the Form 10K-SB for the
year ended December 31, 1995.
<PAGE>
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
(1) Liquidity -
The Company's working capital at September 30, 1995 was $1,892,000,
a decrease of $226,000 from the December 31, 1994 balance of
$2,118,000. Cash decreased by $197,000 from $200,000 at December
31, 1994. Accounts Receivable increased by $296,000 primarily as
a result of a $300,000 inventory credit received in connection with
the sale of assets. Current maturities of long-term debt increased
due to the amortization of notes restructured in December, 1994.
Other accrued expenses increased by $146,000 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
September 30, 1995 were $1,917,000, an increase of $231,000 from
the same period in 1994. The increase is largely due to
improvements in the sale of oilfield products internationally.
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 for the nine months ended
September 30, 1995 were 2% higher than in 1994. This was largely
the result of an increase in labor and material costs.
General and Administrative expenses for the nine-month period
decreased by $163,000 from $1,108,000 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: November 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 SEPTEMBER 30, 1995 FORM 10-QSB AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-1-1995
<PERIOD-END> SEP-30-1995
<CASH> 3000
<SECURITIES> 0
<RECEIVABLES> 1203000
<ALLOWANCES> (59000)
<INVENTORY> 2395000
<CURRENT-ASSETS> 3659000
<PP&E> 2052000
<DEPRECIATION> 8293000
<TOTAL-ASSETS> 5738000
<CURRENT-LIABILITIES> 1767000
<BONDS> 0
<COMMON> 818000
0
0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 5738000
<SALES> 5356000
<TOTAL-REVENUES> 5356000
<CGS> 3699000
<TOTAL-COSTS> 5623000
<OTHER-EXPENSES> 5623000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 250000
<INCOME-PRETAX> (830000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (83000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (83000)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
