FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended October 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.
(Exact name of registrant as specified in its charter)
Delaware 22-1558317
(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
(Address and telephone number, including area code, of
registrant's principal executive office)
________________________________________________________________________________
(Former name, former address and former fiscal year, if changed
since last report)
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
--- ---
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
At December 1, 1997 there were 1,824,493 shares of Common Stock, $.06 2/3
par value, outstanding.
<PAGE>
REGENT GROUP INC.
INDEX
Page No.
--------
Part I - Financial Information 1
Item 1. Financial Statements
Consolidated Balance Sheets as of
October 31, 1997 (unaudited) and
July 31, 1997 2 - 3
Consolidated Statements of Operations
for the Three Months Ended October 31,
1997 and 1996 (unaudited) 4
Consolidated Statements of Cash Flows
for the Three Months Ended October 31,
1997 and 1996 (unaudited) 5 - 6
Notes to Consolidated Financial
Statements (unaudited) 7 - 10
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 11 - 12
Part II - Other Information
Item 1. Legal Proceedings 13
Item 6. Exhibits and Reports on Form 8-K 13
Signatures 14
<PAGE>
PART I. Financial Information
Item 1. Financial Statements
--------------------
Certain information and footnote disclosures required under generally
accepted accounting principles have been condensed or omitted from the following
consolidated financial statements pursuant to the rules and regulations of the
Securities and Exchange Commission. It is suggested that the following
consolidated financial statements be read in conjunction with the year-end
consolidated financial statements and notes thereto included in the Company's
Annual Report on Form 10-K for the year ended July 31, 1997.
The results of operations for the three month period ended October 31,
1997, are not necessarily indicative of the results to be expected for the
entire fiscal year or for any other period.
-1-
<PAGE>
REGENT GROUP INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
ASSETS
October 31, July 31,
1997 1997
----------- ---------
Current Assets:
Cash $ 111,954 $ 76,441
Accounts receivable 23,553 --
Prepaid marketing fees 400,000 --
Prepaid expenses and other current
assets 276,570 407,784
---------- --------
Total Current Assets 812,077 484,225
---------- --------
Property, plant and equipment--net 40,345 8,687
Unamortized excess of cost over fair
value of assets acquired 1,552,825 --
Other assets 250,406 169,277
---------- --------
TOTAL ASSETS $2,655,653 $662,189
========== ========
See notes to consolidated financial statements.
-2-
<PAGE>
REGENT GROUP INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
October 31, July 31,
1997 1997
----------- -----------
Current Liabilities:
Short-term debt $ 1,034,130 $ 131,800
Accounts payable 504,435 --
Accrued expenses 361,996 118,158
Deferred revenue 25,000 --
Due to officer 162,500 100,000
----------- -----------
Total Current Liabilities 2,088,061 349,958
----------- -----------
Commitments and Contingent Liabilities
Stockholders' Equity:
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 1,824,493 and 1,494,493
shares 121,693 99,682
Additional paid-in capital 8,948,597 8,224,858
Deficit (8,697,743) (8,207,354)
----------- -----------
Total Stockholders' Equity 567,592 312,231
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $ 2,655,653 $ 662,189
=========== ===========
See notes to consolidated financial statements.
-3-
<PAGE>
REGENT GROUP INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended
October 31,
------------------------------
1997 1996
---------- ----------
Revenues:
Sales $ 3,726 $ 541,670
---------- ----------
Costs and Expenses:
Cost of sales 1,700 233,793
Selling, general and administrative
expenses 469,571 392,432
Interest expense 22,844 42,991
---------- ----------
494,115 669,216
---------- ----------
(Loss) before income tax
provision (490,389) (127,546)
Minority interest in net
income of consolidated
subsidiary -- 11,468
---------- ----------
(Loss) before income tax
provision (490,389) (139,014)
Income tax provision -- --
---------- ---------
Net (loss) $ (490,389) $(139,014)
========== =========
(Loss) per common share $(.30) $(.14)
===== =====
Weighted average number of
common shares outstanding 1,645,145 987,764
========== =========
See notes to consolidated financial statements.
-4-
<PAGE>
REGENT GROUP INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended
October 31,
--------------------------
1997 1996
---------- ----------
Cash flows from operating activities:
Net (loss) $(490,389) $ (139,014)
Adjustments to reconcile net (loss)
to net cash provided from operating
activities:
Depreciation and amortization 20,004 106,110
Reserve for bad debts -- 10,440
Minority interest in income of
consolidated subsidiary -- 11,468
Unpaid executive compensation 62,500 37,500
Disposal of fixed assets 3,737 --
Common stock issued in lieu of
payment of expenses 70,750 --
Changes in operating assets and
liabilities--net of acquisition 208,991 132,439
--------- ----------
Net Cash Provided by (Used in)
Operating Activities (124,407) 158,493
--------- ----------
Cash flows from investing activities:
Purchase of property, plant and
equipment (775) (158,422)
Acquisition of business assets--net
of cash acquired (698,197) --
--------- ----------
Net Cash (Used in) Investing
Activities (698,972) (158,422)
--------- ----------
Cash flows from financing activities:
Proceeds from borrowings 867,840 317,500
Repayments of borrowings (9,308) (421,151)
Proceeds from sale of common stock -- 100,000
--------- ----------
Net Cash Provided by (Used in)
Financing Activities 858,532 (3,651)
--------- ----------
Foreign currency translation
adjustment -- 12,015
--------- ----------
Net increase in cash and cash
equivalents 35,153 8,885
Cash and cash equivalents--beginning
of year 76,441 15,592
--------- ----------
Cash and Cash Equivalents--end of
year $ 111,594 $ 24,477
========= ==========
(Continued)
See notes to consolidated financial statements.
-5-
<PAGE>
REGENT GROUP INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Continued)
Three Months Ended
October 31,
--------------------------
1997 1996
---------- ----------
Changes in operating assets and
liabilities--net of acquisition:
Decrease (increase) in accounts receivable $ (3,828) $ 11,770
Decrease in inventories -- 2,269
Decrease in prepaid expenses and
sundry receivables 173,897 53,412
(Increase) in deferred costs (85,747) (3,415)
Increase (decrease) in accounts
payable 60,829 (33,647)
Increase in accrued expenses 63,840 74,913
Increase in deferred revenue -- 13,546
Increase in customer deposits -- 13,591
----------- -----------
$ 208,991 $ 132,439
=========== ===========
Supplementary information:
Cash paid during the year for:
Interest $ 22,844 $ 16,626
=========== ===========
Income taxes $ -- $ --
=========== ===========
Details of Acquistion:
Fair value of assets $ 594,561
Liabilities 1,492,042
-----------
Net liabilities assumed $ 897,481
===========
Cash paid $ 750,000
Less cash acquired 51,803
-----------
Net Cash Paid for Acquisition $ 698,197
===========
See notes to consolidated financial statements.
-6-
<PAGE>
REGENT GROUP INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Organization
------------
The consolidated balance sheet as of October 31, 1997, the consolidated
statement of operations for the three months ended October 31, 1997 and 1996,
and the consolidated statement of cash flows for the periods then ended have
been prepared by Regent Group Inc. and Subsidiary ("The Company" or "Regent")
and are unaudited. In the opinion of management, all adjustments (consisting
solely of normal recurring adjustments) necessary to present fairly the
financial position, results of operations and cash flows for all periods
presented have been made. Certain items in the October 31, 1996 financial
statements have been reclassified to conform to October 31, 1997
classifications. The information for July 31, 1997 was derived from audited
financial statements.
2. Recent Developments
-------------------
a) On September 12, 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 December 13, 1997, the Company has
advanced U.S. Lead $760,000 toward the purchase price. The balance of $1,240,000
is payable by the Company upon the successful completion of financing.
b) 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.
3. 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.
The Company has experienced recurring losses and negative cash flows from
operations through October 31, 1997. In addition, losses and negative cash flows
from operations have continued throughout the period subsequent to October 31,
1997.
-7-
<PAGE>
REGENT GROUP INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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.
4. Acquisition
-----------
On September 12, 1997, the Company acquired eighty (80%) percent of the
common stock of U.S. Lead for $2 million. The Company incurred approximately
$675,000 in expenses in connection with the acquisition. 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 their fair values at the date of acquisition. The fair value of the
assets of U.S. Lead acquired was $594,561 and the liabilities assumed totalled
$1,492,042 resulting in goodwill of approximately $1,600,000, which will be
amortized principally over ten (10) 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 three months ended October
31, 1997 and 1996 of Regent and U.S. Lead assuming the business combination had
occurred at the beginning of the respective year in which U.S. Lead was acquired
as well as at the beginning of the immediate preceding year is as follows:
Three Months Ended
October 31,
--------------------------
1997 1996
--------- ---------
Net sales $ 6,943 $ 777,396
Net (loss) (521,433) (543,941)
Net (loss) per share $(.32) $(.55)
-8-
<PAGE>
REGENT GROUP INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
5. Debt
----
Short-term debt is as follows:
October 31, July 31,
1997 1997
---------- --------
Unsecured note, due on demand,
interest at 12% per annum (1) $ 342,500 $131,800
Secured note, due March 28, 1998,
interest at 6.0% per annum (2) 100,000 --
Secured note, due September
30, 1998, interest at 12%
per annum (3) 200,000 --
Unsecured note, due on demand,
interest at 12% per annum (4) 50,000 --
Unsecured note, due on demand,
non-interest bearing (5) 341,630 --
---------- --------
$1,034,130 $131,800
========== ========
(1) The unsecured note is payable to Mrs. Barbara Greenfield
("Mrs. Greenfield"), wife of Mr. Marvin E. Greenfield ("Greenfield") the
Company's President and Chief Executive Officer.
(2) The note payable to Republic Bank is collateralized by a certificate of
deposit owned by an affiliate of Mrs. Greenfield.
(3) The secured note to a shareholder of the Company is collateralized by common
stock of Fix Corp Inc., owned by BSM Inc., a major shareholder of Regent. In
connection with this note, the secured shareholder received 25,000 shares of
Regent common stock as additional consideration.
(4) The unsecured note is payable to BSM, Inc., a major shareholder of Regent.
(5) The unsecured note is payable to certain officers of the Company's U.S. Lead
subsidiary.
6. Recently Issued Accounting Standards
------------------------------------
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.
-9-
<PAGE>
REGENT GROUP INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
6. Recently Issued Accounting Standards (Continued)
------------------------------------
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.
-10-
<PAGE>
Item 2. 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 ("Krystal"). 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
---------------------
On September 27, 1997 Regent acquired eighty (80%) percent of the common
stock of U.S. Lead. The Company currently operates its business through U.S.
Lead. The consolidated financial statements for 1997 include the accounts of the
Company and its eighty (80%) percent owned subsidiary from the date of
acquisition.
The Company previously 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. On
February 21, 1997, Regent sold its investment in Krystal. The consolidated
financial statements for 1996 include the accounts of the Company and its
subsidiary through the sale date.
-11-
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations (Continued)
-----------------------------------------------------------
Sales
- -----
Sales decreased from $541,670 for the three months ended October 31, 1996
to $3,726 for the three months ended October 31, 1997. The Company attributes
the decrease primarily to the sale of its only operating subsidiary in February
1997. U.S. Lead, the Company's recent acquisition, will commence operations in
January 1998 and very few sales will be generated until that time.
Cost of Sales
- -------------
Cost of sales decreased from $233,793 for the three months ended October
31, 1996 to $1,700 for the three months ended October 31, 1997. The Company
attributes the decrease primarily to the reasons described above.
Selling, General and Administrative Expenses
- --------------------------------------------
Selling, general and administrative expenses increased from $392,432 for
the three months ended October 31, 1996 to $496,571 for the three months ended
October 31, 1997. The Company attributes the increase primarily to increases in
professional fees and consulting fees in pursuing new acquisitions and increases
in marketing expenses to launch the new program for U.S. Lead in January 1998.
Interest Expense
- ----------------
Interest expense decreased from $42,991 for the three months ended October
31, 1996 to $22,844 for the three months ended October 31, 1997. The Company
attributes the decrease to the reduction of debt the Company was able to
liquidate following the sale of its operating subsidiary in February 1997. The
Company has recently incurred debt to finance the investment in U.S. Lead.
This report contains forward-looking statements that involve substantial
risks and uncertainties. The Company's actual results could differ materially
from those discussed herein. Factors that could cause or contribute to such
differences include, but are not limited to, those discussed under the
"Business", "Management's Discussion and Analysis of Financial Condition and
Results of Operations", and "Risks and Uncertainties" captions in the Company's
Form 10-K for the year ended July 31, 1997.
-12-
<PAGE>
PART II. Other Information
Item 1. Legal Proceedings
-----------------
See Item 3 of the Company's Form 10-K for the year ended
July 31, 1997.
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits: Exhibit 27.1 Financial Data Schedule.
(b) On September 26, 1997 the Registrant filed a Current Report on
Form 8-K describing the acquisition of eighty (80%) percent of
the common stock of United States Lead Testing and Removal
Service Inc. ("U.S. Lead"). The Registrant paid $2 million in
connection with the acquisition. 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.
-13-
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed in its behalf by the
undersigned thereunto duly authorized.
Regent Group Inc.
-----------------------------------
(Registrant)
Date: December 12, 1997 By: /s/ Marvin Greenfield
-----------------------------------
Marvin Greenfield, President and
Treasurer, Duly Authorized Officer
of the Registrant (Principal
Financial Officer)
-14-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM REGENT
GROUP INC. AND SUBSIDIARY FINANCIAL STATEMENTS AT OCTOBER 31, 1997 AND THE
THREE MONTHS THEN ENDED AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUL-31-1998
<PERIOD-END> OCT-31-1997
<CASH> 111,954
<SECURITIES> 0
<RECEIVABLES> 23,553
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 812,077
<PP&E> 80,914
<DEPRECIATION> 40,569
<TOTAL-ASSETS> 2,655,653
<CURRENT-LIABILITIES> 2,088,061
<BONDS> 0
0
195,045
<COMMON> 121,693
<OTHER-SE> 250,854
<TOTAL-LIABILITY-AND-EQUITY> 2,655,653
<SALES> 3,726
<TOTAL-REVENUES> 3,726
<CGS> 1,700
<TOTAL-COSTS> 471,271
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 22,844
<INCOME-PRETAX> (490,389)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (490,389)
<EPS-PRIMARY> (.30)
<EPS-DILUTED> 0
</TABLE>
