SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM-8K/A
CURRENT REPORT
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Pursuant to Section 13 of 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) December 8, 1997
(September 12, 1997)
REGENT GROUP INC.
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(Exact name of Registrant as specified in its charter)
Delaware 0-3338 22-1558317
- -------------------------------- ----------------------- -------------------
(State or other jurisdiction (Commission File Number) (IRS Employer
of incorporation or organization) Identification No.)
477 Madison Avenue, Suite 701, New York, New York 10022
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (212) 207-4560
INTERNATIONAL MADISON HOLDINGS CORP.
-------------------------------------------------------------
(Former name or former address, if changed since last report)
<PAGE>
REGENT GROUP INC.
INDEX
Page No.
--------
Item 7. Financial Information 1
a. Financial Statement of Business Acquired 1 - 19
b. Pro Forma Financial Information 20 - 23
Signatures 24
<PAGE>
Item 7. Financial Information
a. Financial Statement of Business Acquired
1
<PAGE>
UNITED STATES LEAD TESTING & REMOVAL SERVICE, INC. AND SUBSIDIARY
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
number
------
Independent auditors' report 3
Consolidated balance sheet at December 31, 1996 4
Consolidated statement of operations for the year ended December 31, 1996 5
Consolidated statement of stockholders' deficiency for the year ended
December 31, 1996 6
Consolidated statement of cash flows for the year ended December 31, 1996 7
Notes to consolidated financial statements 8 - 20
2
<PAGE>
[LOGO] SCARANO & TOMARO, P.C.
Certified Public Accountants & Consultants
125 Michael Drive, Suite 1010
Syosett, New York 11791
516-364-0300 o Fax 516-464-3003
- --------------------------------------------------------------------------------
MEMBER OF THE SEC PRACTICE SECTION,
AICPA DIVISION FOR CPA FIRMS
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
United States Lead Testing & Removal Service, Inc. and subsidiary
We have audited the accompanying consolidated balance sheet of United States
Lead Testing & Removal Service, Inc. and subsidiary (the "Company") as of
December 31, 1996 and the related consolidated statements of operations,
stockholders' deficiency and cash flows for the year then ended. The
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the consolidated financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the consolidated financial statements.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall consolidated
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of the
Company as of December 31, 1996, and the consolidated results of operations and
cash flows for the year then ended in conformity with generally accepted
accounting principles.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 2 to the
consolidated financial statements, the Company has negative working capital, has
sustained losses and negative cash flows from operations for the year ended
December 31, 1996. These matters 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 2. The consolidated financial statements do
not include any adjustments relating to the recoverability and classification of
recorded asset amounts or the amounts or classifications of liabilities that
might be necessary should the Company be unable to continue as a going concern.
[SIGNATURE]
Scarano & Tomaro, P.C.
Syosset, New York
August 15, 1997, except for Note 13(a) as to which
the date is September 12, 1997
3
<PAGE>
UNITED STATES LEAD TESTING & REMOVAL SERVICE, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1996
ASSETS
------
Current assets:
Cash $ 2,429
Accounts receivable 14,627
Franchise fees receivable, net 26,068
---------
Total current assets 43,124
Furniture and equipment, net 40,624
Organization and licensing costs, net 21,612
Deferred offering costs 10,000
Other assets 15,200
----------
Total assets $ 130,560
==========
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
----------------------------------------
Current liabilities:
Accounts payable $ 405,752
Accrued expenses 547,827
Payroll taxes payable 29,189
Deferred revenue 25,000
Advances from officers and stockholders 268,475
----------
Total current liabilities 1,276,243
----------
Commitments and contingencies (Note 11)
Stockholders' deficiency:
Common stock, $.001 par value, authorized 10,000,000 shares,
issued and outstanding 4,836,001 shares 4,836
Additional paid-in capital 1,183,350
Accumulated deficit (2,333,869)
-----------
Total stockholders' deficiency (1,145,683)
-----------
Total liabilities and stockholders' deficiency $ 130,560
===========
See accompanying notes to consolidated financial statements.
4
<PAGE>
UNITED STATES LEAD TESTING & REMOVAL SERVICE, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
Sales $ 273,551
Cost of sales 7,332
-----------
Gross profit 266,219
-----------
Expenses:
Selling, general and administrative expenses 967,256
Issuance of common stock for services rendered 475,500
Bad debt expense 107,153
-----------
Total expenses 1,549,909
-----------
Loss from operations before other income (expense)
and provision for income taxes (1,283,690)
Other income (expense):
Offering costs (80,500)
Interest expense (4,637)
-----------
Total other income (expense) (85,137)
-----------
Loss from operations before provision for income taxes (1,368,827)
Provision for income taxes --
-----------
Loss $(1,368,827)
===========
Loss per common equivalent share:
Primary:
Net loss $ (.51)
===========
Weighted average number of shares outstanding:
Primary 2,666,501
===========
See accompanying notes to consolidated financial statements.
5
<PAGE>
UNITED STATES LEAD TESTING & REMOVAL SERVICE, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIENCY
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
Total
Additional stockholders'
Common Stock paid-in Accumulated equity
Shares Amount capital deficit (deficiency)
--------- ------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Balances at January 1, 1996 1,500,001 $ 1,500 $ 613,030 $ (940,042) $ (325,512)
Prior period adjustment (Note 3) - - - (25,000) (25,000)
--------- ------- ---------- ----------- -----------
Restated balances at January 1, 1996 1,500,001 1,500 613,030 (965,042) (350,512)
Sale of 800,000 shares of common
stock in connection with private
placement offering, net of costs of
$51,844 800,000 800 97,356 - 98,156
Issuance of 2,400,000 shares of common
stock as consideration for termination
of option agreements 2,400,000 2,400 447,600 - 450,000
Issuance of 131,000 shares of common
stock for services rendered the Company 131,000 131 24,431 - 24,562
Issuance of 5,000 shares of common stock
in partial settlement of litigation 5,000 5 933 - 938
Net loss for the year ended
December 31, 1996 - - - (1,368,827) (1,368,827)
--------- ------- ---------- ----------- -----------
Balances at December 31, 1996 4,836,001 $ 4,836 $1,183,350 $(2,333,869) $(1,145,683)
========= ======= ========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
6
<PAGE>
UNITED STATES LEAD TESTING & REMOVAL SERVICE, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1996
Cash flows from operating activities:
Net loss $(1,368,827)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 19,877
Issuance of common stock for services 475,500
Change in assets and liabilities:
Accounts receivable 12,998
Franchise fees receivable 169,161
Other assets (15,200)
Accounts payable 173,995
Accrued expenses 382,126
Payroll taxes payable (83,861)
-----------
Net cash used in operating activities (234,231)
-----------
Cash flows from financing activities:
Proceeds from sale of common stock in
connection with private placement offerings 150,000
Costs incurred related to private placement offerings (51,844)
Deferred offering costs (10,000)
Advances from officers and stockholders 148,504
-----------
Net cash provided by financing activities 236,660
-----------
Net (decrease) increase in cash 2,429
Cash at beginning of period --
-----------
Cash at end of period $ 2,429
===========
Supplemental cash flow disclosures:
Interest $ 545
===========
Income taxes $ --
===========
See accompanying notes to consolidated financial statements.
7
<PAGE>
UNITED STATES LEAD TESTING AND REMOVAL SERVICE, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1996
NOTE 1 - ORGANIZATION
United States Lead Testing & Removal Service, Inc. ("US Lead") was
incorporated in the State of New York on June 9, 1993. US Lead was
organized to take advantage of recently enacted Federal laws and
existing lead poisoning liability regulations that directly focus on
providing lead testing, hazard assessment, in-place management and
consulting services to the single and multi-family residential and
commercial real estate markets.
The Company offers franchises for single and multiple territories
throughout the United States through its wholly owned subsidiary
Pro-tect Franchising, Inc. ("Pro-tect"). The Company will be
refiling an application to offer and sell franchises with the New
York State Department of Law and with other applicable state
regulators. Pro-tect was incorporated on August 25, 1994 in the
State of New York to franchise and sub-license the lead testing and
consulting services of US Lead.
The consolidated financial statements represent the assets,
liabilities and operations of US Lead and Subsidiary (the "Company")
as of December 31, 1996 and the results of their operations and cash
flows for the year ended December 31, 1996. The Company has adopted
for financial reporting purposes a fiscal year that ends December
31.
Franchising
-----------
The Company's standard franchise program is subject to regulation by
the Federal Trade Commission ("FTC") with respect to the information
required to be disclosed to potential investors prior to their
investment in a franchise. In addition, the Company's franchise
program is subject to similar rules in a number of States in which
the Company will offer franchises. The Company's standard franchise
agreement provides for a franchisee to make a one-time payment of
$15,000 to the Company for the initial territory and $10,000 for
each additional territory purchased simultaneously and a 5% royalty
on gross sales (exclusive of taxes) and a 2.5% national advertising
fund contribution, each payable monthly. Purchasers of multiple
franchises sometimes receive payment plans to pay franchise fees.
The term of the franchise agreement is for five years with the
option to renew for additional five year terms for a renewal fee of
$3,000 per territory.
NOTE 2 - GOING CONCERN
The accompanying consolidated financial statements have been
prepared assuming that the Company will continue as a going concern.
At December 31, 1996, the Company had a working capital deficiency
of $1,233,119. For the year ended December 31, 1996, the Company had
a net loss of $1,368,827. Additionally, the Company generated
negative cash flows from operations of $234,231 for the year ended
December 31, 1996. Discussed below are the Company's and
management's plans to mitigate its financial problems.
8
<PAGE>
UNITED STATES LEAD TESTING AND REMOVAL SERVICE, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1996
NOTE 2 - GOING CONCERN (Cont'd)
The Company's ability to continue as a going concern is currently
dependent on its ability to successfully consummate the sale of 80%
of its common stock on August 31, 1997 (see note 13(a) for
additional information).
These factors raise substantial doubt about the Company's ability to
continue as a going concern. The financial statements do not include
adjustments relating to the recoverability and realization of assets
and classification of liabilities that might be necessary should the
Company be unable to continue in operation.
NOTE 3 - ADJUSTMENT OF FINANCIAL STATEMENTS PREVIOUSLY ISSUED
In the financial statements for the year ended December 31, 1995,
the Company recorded revenue associated with the sale of a franchise
which was not earned by the Company until the franchisee reached
certain sales levels.
The effect of this adjustment is as follows:
Accumulated
Revenue Deficit
--------- -----------
Balances at December 31, 1995 $ 512,114 $(940,042)
Effect of deferring revenues (25,000) (25,000)
--------- ---------
Restated balances at December 31, 1995 $ 487,114 $(965,042)
========= =========
NOTE 4 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a) Consolidated Statements
-----------------------
The consolidated financial statements at December 31, 1996 and for
the year then ended include the accounts of the Company and its
wholly-owned subsidiary, after elimination of all significant
intercompany transactions and accounts.
b) Use of estimates
----------------
In preparing financial statements in conformity with generally
accepted accounting principles, management is required to make
estimates and assumptions which affect the reported amounts of
assets and liabilities and the disclosure of contingent assets and
liabilities at the date of the financial statements and revenues and
expenses during the reporting period. Actual results could differ
from those estimates.
9
<PAGE>
UNITED STATES LEAD TESTING AND REMOVAL SERVICE, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1996
NOTE 4 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont'd)
c) Revenue recognition
-------------------
Revenues from lead testing and consulting services are recognized
when the test or services are performed. Revenue from franchise fees
are recognized when the Company has completed its obligations under
the franchise agreement. Direct costs associated with earned
franchise fees are deferred until the respective revenues are
recognized. The Company reports on the accrual basis of accounting
for both financial statement and income tax purposes.
d) Accounts receivable and franchise fees receivable
-------------------------------------------------
The Company utilizes the allowance method of recognizing
uncollectible receivables. The allowance method recognizes bad debt
expense based on a review of the individual accounts outstanding,
and the Company's prior history of uncollectible receivables.
e) Furniture and equipment
-----------------------
Furniture and equipment are recorded at cost. Depreciation is
computed using the straight line method over the estimated useful
lives of the respective assets which, is five (5) years. Maintenance
and repairs have been charged to operations as incurred.
f) Organization and licensing costs
--------------------------------
Organization and licensing costs consist of costs incurred in the
establishment of the Company and the initial costs of registering
with states to sell franchises. Organization and licensing costs are
being amortized on a straight-line basis over their estimated useful
lives of five years.
g) Deferred offering costs
-----------------------
Deferred offering costs consists of professional fees related to the
sale of the Company's common stock. (See Note 13(a)). Deferred
offering costs will be charged to additional paid-in capital upon
successful completion of the sale of its common stock or expensed if
such sale is not completed.
h) Income taxes
------------
The Company accounts for income taxes in accordance with Statement
of Financial Accounting Standards No. 109, "Accounting for Income
Taxes" which requires the use of the "liability method" of
accounting for income taxes. Accordingly, deferred tax liabilities
and assets are determined based on the difference between the
financial statement and tax bases of assets and liabilities using
enacted tax rates in effect for the year in which the differences
are expected to reverse. Current income taxes are based on the
respective periods taxable income for Federal and State income tax
reporting purposes.
10
<PAGE>
UNITED STATES LEAD TESTING AND REMOVAL SERVICE, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1996
NOTE 4 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont'd)
i) Net loss per share
------------------
In calculating primary loss per share, the Company uses the weighted
average number of shares of common stock outstanding during each
respective period. Common stock equivalents have been excluded from
the computation since the results would be anti-dilutive.
j) Statements of cash flows
------------------------
For purposes of the statements of cash flows, the Company considers
all highly liquid investments purchased with an original maturity of
three months or less to be cash equivalents.
k) Fair value disclosure
---------------------
The carrying value of cash, accounts receivable, franchise fee
receivables, accounts payable, accrued expenses, payroll taxes
payable and advances from officers and stockholders are a reasonable
estimate of their fair value due to the short term maturity of these
instruments.
l) Impact of recently issued accounting standards
----------------------------------------------
In March 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to Be
Disposed Of", which requires impairment losses to be recorded on
long-lived assets used in operations when indicators of impairment
are present and the undiscounted cash flows estimated to be
generated by those assets are less than the assets' carrying amount.
Statement 121 also addresses the accounting for long-lived assets
that are expected to be disposed of. The Company adopted Statement
121 January 1, 1996 and there was no effect to the Company.
m) Accounting for stock-based compensation
---------------------------------------
The Company has elected earlier adoption of Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based
Compensation", which requires the recognition of compensation
expense for stock-based awards based upon the fair value of the
award at the grant date. The Company elected adoption of Statement
123 effective January 1, 1996.
NOTE 5 - FRANCHISE FEES RECEIVABLE
During the year ended December 31, 1996, the Company entered into
three agreements to establish franchises. Initial franchise fees
earned, including payments for additional territories, for the year
ended December 31, 1996 were $230,000. The Company does not own or
operate any franchises.
11
<PAGE>
UNITED STATES LEAD TESTING AND REMOVAL SERVICE, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1996
NOTE 5 - FRANCHISE FEES RECEIVABLE (Cont'd)
Franchise receivables under existing franchise agreements consist of
the following at December 31, 1996:
Initial territory franchise fees $ 125,000
Royalties 1,068
---------
Sub total 126,068
Less: Allowance for doubtful accounts (100,000)
---------
$ 26,068
=========
Management has determined, based on anticipated collections, that an
allowance for doubtful accounts amounting to $100,000 was considered
necessary as of December 31, 1996.
NOTE 6 - FURNITURE AND EQUIPMENT
Furniture and equipment, net consisted of the following at December
31, 1996:
Furniture and fixtures $ 24,240
Equipment 35,916
---------
Total 60,156
Less: accumulated depreciation (19,532)
---------
$ 40,624
=========
NOTE 7 - ACCRUED EXPENSES
Accrued expenses consisted of the following at December 31, 1996:
State minimum franchise taxes $ 1,584
Interest 8,400
Officer salaries (Note 13(a)) 470,769
Salaries 54,574
Professional fees 12,500
---------
$ 547,827
=========
NOTE 8 - ADVANCES FROM OFFICERS AND STOCKHOLDERS
Certain of the Company's officers and stockholders have advanced
funds to the Company for operations. These advances are due on
demand and are unsecured, non-interest bearing and amounted to
$268,475 at December 31, 1996.
12
<PAGE>
UNITED STATES LEAD TESTING AND REMOVAL SERVICE, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1996
NOTE 9 - INCOME TAXES
The Company has adopted Statement of Financial Accounting Standards
(SFAS) No. 109, "Accounting for Income Taxes". Income taxes are
provided for the tax effects of transactions reported in the
financial statements and consist of taxes currently due plus
deferred taxes related primarily to differences between the
financial and tax basis of assets and liabilities. The deferred tax
assets and liabilities represent the future tax return consequences
of these temporary differences, which will either be taxable or
deductible when the assets and liabilities are recovered or settled.
The Company's significant items relate to net operating loss
carryforwards (NOL's) amounting approximately to $1,800,000 and
accrued salaries of $525,343 as of December 31, 1996. The tax
effects of the significant items comprising the Company's net
deferred tax assets as of December 31, 1996 are as follows:
Net operating loss carryforwards $ 612,000
Accrued salaries 179,000
Valuation allowance (791,000)
---------
Long-term portion of deferred tax asets $ --
=========
The Company provided for a 100% valuation allowance related to
deferred tax asset at December 31, 1996 pursuant to SFAS 109, since
management could not determine that it was "more likely than not"
that the deferred tax asset would be realized in the future. At
December 31, 1996, the Company has a net operating loss carryforward
of approximately $1,800,000 which will expire between the years 2009
and 2011.
The Company files consolidated income tax returns for federal income
tax purposes and separate income tax returns for state purposes.
NOTE 10 - STOCKHOLDERS' DEFICIENCY
a) Agent's warrant
---------------
Pursuant to a private placement offering completed during March
1995, the underwriter in such offering received warrants to purchase
up to 50,000 shares of the Company's common stock at a purchase
price of $1 per share. The warrants are exercisable for five years
after the closing of the offering. The agent's warrants contained an
anti-dilution clause whereby if additional shares were issued by the
Company, the number of shares purchasable under such warrant would
increase accordingly under a formula based on the consideration
received for the shares issued as of the date of closing of such
offering. Accordingly, as of December 31, 1996, the number of shares
purchasable pursuant to the agent's warrants amounted to 146,321.
13
<PAGE>
UNITED STATES LEAD TESTING AND REMOVAL SERVICE, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1996
NOTE 10 - STOCKHOLDERS' DEFICIENCY (Cont'd)
b) Private placement offering
--------------------------
On May 3, 1996, the Company privately offered, on a best efforts
basis, to sell 800,000 shares of the Company's common stock for a
total of $150,000. The Company also offered warrants to purchase up
to an aggregate of 3,000,000 shares of the Company's Common Stock
during a five (5) year period beginning upon the closing of an
initial public offering ("IPO") by the Company. The initial exercise
price of the warrants is equal to the greater of $6.00 per share or
the IPO price. The offering was completed on May 9, 1996 resulting
in gross proceeds of $150,000 to the Company. Costs related to this
private placement amounting to $51,844 were charged to additional
paid-in capital. (See Note 13(a) for additional information).
c) Amendment to certificate of incorporation
-----------------------------------------
On April 30, 1996 the Board of Directors amended the Certificate of
Incorporation to increase the aggregate number of common shares
authorized to 10,000,000.
d) Issuance of common stock
------------------------
i) During November, 1993 the Company entered into a two-year
agreement with Pathfinder International Group, Inc.
("Pathfinder") whereby Pathfinder would earn certain commissions
and stock options in exchange for obtaining lead testing
contracts for the Company. According to the Company, Pathfinder
obtained no contracts under this agreement. The Company elected
not to extend the term, however, Pathfinder sued the Company for
certain stock options and monetary amounts, alleging breach of
contract.
On October 23, 1996 Pathfinder proposed a settlement whereby US
Lead would pay Pathfinder $24,000 over two (2) years, and issue
Pathfinder 5,000 shares of stock. During December 1996, in
partial settlement of the case, the Company issued 5,000 shares
of common stock. Such shares have been valued at approximately
$938 which is based on the per share value of shares sold in the
Company's private placement offering completed during May 1996.
(See Note 10(b)).
ii) On September 25, 1996, the Board of Directors approved the
issuance of 800,000 shares of common stock to each of its three
officers as consideration for (a) termination of the stock option
agreements pursuant to employment agreements entered during 1995,
(b) the deferral of salaries, (c) advances of funds to the
Company to fund its operations, and (d) additional compensation
in recognition of services to the Company. Such services have
been valued at $450,000 by the Company which is based on the per
share value of shares sold in the Company's private placement
offering completed during May 1996. (See Note 10(b)).
iii) On September 25, 1996, the Board of Directors also approved the
issuance of 131,000 shares of common stock to two unrelated
parties as consideration for consulting services rendered to the
Company. Such shares have been valued at approximately $24,562
which is based on the per share value of shares sold in the
Company's private placement completed during May 1996. (See Note
10(b)).
14
<PAGE>
UNITED STATES LEAD TESTING AND REMOVAL SERVICE, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1996
NOTE 11 - COMMITMENTS AND CONTINGENCIES
a) Administrative office leases
----------------------------
The Company leases its office facilities under noncancellable three
year operating leases which commenced June 1993, March 1995, and
November 1995. The leases contain renewal options for two additional
years at a rental increase of 6%.
A schedule of future minimum rental payments are as follows:
Year ended December 31,
-----------------------
1997 $ 36,250
1998 28,000
---------
$ 64,250
=========
Rent expense associated with such operating leases amounted to
$64,500 for the year ended December 31, 1996.
b) Operating lease
---------------
The Company leases automobiles under noncancellable operating leases
commencing March and April, 1995 to February and March, 1998. A
schedule of future minimum rental payments are as follows:
Year ending December 31,
------------------------
1997 $ 12,600
1998 3,800
---------
$ 16,400
=========
Lease expense associated with such operating leases amounted to
$16,632 for the year ended December 31, 1996.
c) Purchase agreements
-------------------
In 1995 the Company and Scitec Corporation ("Scitec") entered into a
10-year agreement whereby Scitec would provide the Company with XRF
devices, technician training and validated test reports. The
agreement further provided that Scitec would not furnish these
services or XRF testing instruments to any other franchisor in the
U.S. or Canada. The Company was not required to pay Scitec a license
or royalty fee; but the Company was required to meet certain minimum
orders for equipment and report generation. During 1996, the Company
did not reach the minimum required orders in order to maintain its
exclusivity and as a result, its exclusivity under the agreement is
terminated and the Company considers such agreement canceled.
15
<PAGE>
UNITED STATES LEAD TESTING AND REMOVAL SERVICE, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1996
NOTE 11 - COMMITMENTS AND CONTINGENCIES (Cont'd)
d) Employment agreements
---------------------
On August 15, 1995, the Company entered into employment agreements
with its President, Chief Operating Officer and Chief Financial
Officer (the "Officers") for a term of approximately five (5) years
expiring on August 15, 2000. The employment agreements provided for
annual base salary of $80,000 with automatic increases based on the
number of franchise territories sold through Pro-tect. As of
September 1995, the annual salaries were increased to $125,000. The
Officers were also entitled to receive an annual bonus of 10% of the
Company's pre-tax profits and certain severance payments upon change
in control of the Company. $470,769 are accrued under these
agreements as of December 31, 1996. Pursuant to the employment
agreements, the Officers were granted an aggregate of 600,000 stock
options exercisable at $1.00 each. (See Note 13(a) for additional
information).
On July 22, 1996, the Company increased the Officer's 600,000 stock
options originally granted to 1,500,000 options to purchase common
stock at $1.00 per share. Said new options vest in the aggregate as
follows: 500,000 options when the Company has pre-tax earnings of
$750,000; 1,000,000 options less the number of stock options
previously vested when the Company has pre-tax earnings of
$3,000,000; and 1,500,000 options less the number of stock options
previously vested when the Company has pre-tax earnings at
$6,000,000. Effective September 25, 1996, these option agreements
were cancelled (See Note 10(d)(ii)).
e) Significant customers
---------------------
As of December 31, 1996, 77% of revenues and 96% of franchise fees
receivable are from two and one unrelated customers.
f) Litigation
----------
i) In November, 1993 the Company entered into a two-year agreement
with Pathfinder, whereby Pathfinder would earn certain
commissions and stock options in exchange for obtaining lead
testing contracts for the Company. According to the Company,
Pathfinder obtained no contracts under this agreement. The
Company elected not to extend the term, however, Pathfinder sued
the Company for certain stock options and monetary amounts,
alleging breach of contract. On October 23, 1996 Pathfinder
proposed a settlement whereby US Lead would pay Pathfinder
$24,000 over two (2) years, and give Pathfinder 5,000 shares of
stock. The Company does not believe that the ultimate outcome
will have an adverse material effect on the consolidated
financial statements. During December 1996, in partial settlement
of the case, the Company issued 5,000 shares of common stock.
16
<PAGE>
UNITED STATES LEAD TESTING AND REMOVAL SERVICE, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1996
NOTE 11 - COMMITMENTS AND CONTINGENCIES (Cont'd)
f) Litigation (Cont'd)
----------
ii) As of December 31, 1996, the Company is involved in various
claims and legal proceedings of a nature considered normal to
its business, principally allegations of violation of the New
York State Franchise Sales Act. In certain instances, the
Company has brought counter claims for breach of fiduciary
duty, breach of contract, including covenants not to compete,
and violations of confidentiality clauses. While it is not
feasible to predict or determine the initial outcome of these
proceedings, management does not believe that they should
result in a materially adverse effect on the Company's
financial position, results of operations or liquidity.
NOTE 12 - RELATED PARTY TRANSACTIONS
a) Licensing agreement
-------------------
On August 25, 1994, Pro-tect entered into a licensing agreement with
US Lead whereby Pro-tect is granted a non exclusive license to use
certain technology and copyrighted materials ("Licensed Products")
of US Lead. The license is effective for a period of twenty five
(25) years with Pro-tect having the option to renew the agreement
for an additional 25 years. The agreement requires Pro-tect to pay a
license fee of 15% of its net revenues derived from initial
franchise fees and royalty fees paid by its franchisees. Such
transactions have been eliminated in consolidations.
b) Advances from officers and stockholders
---------------------------------------
Certain of the Company's officers and stockholders have advanced
funds to the Company for operations. These advances are due on
demand and are unsecured, non-interest bearing and amounted to
$268,475 at December 31, 1996.
c) Accrued expenses
----------------
Included in accrued expenses as of December 31, 1996 is officer
salaries amounting to $470,769.
d) Consulting fees
---------------
Pursuant to a letter of agreement dated May 14, 1993 between
Business Development Resources, Inc. ("BDR") and an entity
wholly-owned by the former sole majority shareholder of the Company,
the Company assumed BDR's agreement whereby it agreed to pay $10,000
per month until the closing of any additional financing whereby such
monthly fee shall increase to $15,000. On May 1, 1995 such agreement
was mutually terminated since the shareholders of BDR began
receiving salary from the Company. As of December 31, 1996, the
Company has accrued an aggregate of $30,000 in connection with the
consulting services which has been classified as officer's loans
since during May 1995 BDR was dissolved and the amount payable was
transferred on a pro-rata basis to its shareholders.
17
<PAGE>
UNITED STATES LEAD TESTING AND REMOVAL SERVICE, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1996
NOTE 13 - SUBSEQUENT EVENTS
a) Sale of common stock
--------------------
On July 24, 1997, US Lead entered into a stock purchase agreement
(the "Agreement") dated June 30, 1997 with NMC Corp. ("NMC") whereby
NMC agreed to acquire the equivalent of 80% of the common stock
outstanding of US Lead for a total purchase price of $2,000,000. The
purchase price was to be paid as follows; $500,000 on the closing
date (August 31, 1997) and the balance of $1,500,000 was to be
placed in escrow pursuant to an escrow agreement and was to be
released as follows (a) $600,000 three months from closing date (b)
$500,000 six months from closing date and (c) $400,000 upon the
earlier of nine months from closing date or when such amount is
required to be advanced by US Lead pursuant to an agreement entered
into with HFS Incorporated ("HFS") (See Note 13(b)) provided that
the Company's results of operations were in accordance with the
Company's financial projections and US Lead's accounts payables did
not exceed $200,000 on the closing date. In connection with the sale
of the common stock, the Company's officers have agreed to waive any
accrued and unpaid salaries.
In the event the Company fails to meet the requirements or the
provision of the agreement, then the Company shall have the right to
redeem the shares from NMC at an equal amount to the purchase price
paid to the Company plus interest at the prime rate of Citibank,
N.A. plus 2% upon 10 days written notice for a period of one year
from closing date.
In connection with the stock purchase agreement, the Company's
President, Vice President and Secretary entered into three year
employment agreements for $125,000 per year which shall increase
based on the number of franchises sold.
Upon the signing of the agreement on July 24, 1997, NMC advanced the
Company $50,000 pursuant to a promissory note bearing interest at
the prime rate of Citibank, N.A. plus 2% and due on demand. Such
note is to be repaid on the closing date.
On September 12, 1997, the Company entered into an amendment to the
stock purchase agreement (the "Amendment") with International
Madison Holdings Corp. ("IMH"). F/K/A/ NMC Corp. The payment terms
of the purchase price have been amended as follows; $2,000,000, of
which $500,000 has been paid as of the date of the amendment, with
the balance payable as follows; $400,000 as soon as practicable,
$600,000 within three months of the closing date and $500,000 within
six months of the closing date.
Pursuant to the agreement, IMH granted each of the stockholders of
record of the Company on July 24, 1997 options to purchase shares of
its common stock. The number of options granted to the stockholders
of the Company shall be equal to 15% of the number of shares of
IMH's common stock outstanding immediately after the closing of a
private offering of IMH's securities pursuant to a letter of intent
dated August 22, 1997 between IMH and an underwriter. The options
shall be exercisable at a purchase price equal to 110% of the
closing bid price of IMH's common stock on the date of the final
closing of the private offering for a period of ten years.
18
<PAGE>
UNITED STATES LEAD TESTING AND REMOVAL SERVICE, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1996
NOTE 13 - SUBSEQUENT EVENTS (Cont'd)
a) Sale of common stock (Cont'd)
--------------------
The Options shall be exercisable one-third (1/3) commencing after
the close of the fiscal year ended in 1999, an additional one-third
(1/3) commencing after the close of the fiscal year ended in 2000,
and the balance commencing after the close of the fiscal year ended
in 2001, provided that the Company achieves certain pre-tax income.
IMH shall enter into an agreement with the three officers of the
Company which shall provide that each officers shall be entitled to
an annual bonus equal to 5% of the Company's pre-tax income,
provided that the Company's pre-tax income is equal to at least
$10,000,000 in any fiscal year of the Company from the date hereof
through a period of one year after the termination of their
employment by the Company. The bonus to such individual shall
terminate upon the death or disability of such individual.
Lastly, pursuant to the amendment, after the closing, the Company
intends to redeem 800,000 shares of common stock and warrants to
purchase 3,000,000 shares of common stock which were sold pursuant
to the private placement offering on May 6, 1996 (See Note 10b) for
$150,000. In the event the Company redeems such common stock, IMH
has agreed to return 3,200,000 shares of common stock in order to
maintain its ownership at 80% of the outstanding shares of the
Company. In addition, should any options or warrants outstanding as
of the closing date be exercised subsequently, the Company shall
issue to IMH four shares for each share issued upon such exercise.
b) Preferred Alliance Agreement
----------------------------
On August 15, 1997, the Company entered into an agreement expiring
August 14, 2000 with HFS. HFS is the parent company of the
franchisors of the Century 21(R), ERA(R) and Coldwell Banker(R) real
estate brokerage franchise systems. Pursuant to the agreement, the
Company will be the exclusive preferred alliance vendor of the
services recommended by HFS, which include primarily residential and
commercial lead based testing services. As consideration for
becoming the exclusive preferred alliance vendor for HFS, the
Company agreed to pay HFS an access fee totaling $400,000 by August
31, 1997. On August 15, 1997, NMC paid the Company $200,000 pursuant
to the stock purchase agreement discussed in Note 13(a) which in
turn the Company paid the initial $200,000 to HFS. The remaining
$200,000 is expected to be paid by the Company on the closing date
September 12, 1997.
In addition to the access fee, the Company shall pay HFS a marketing
fee amounting to $150,000 at the end of the first contract year,
$200,000 at the end of the second contract year, and $250,000 at the
end of the third and final year.
19
<PAGE>
b) Pro Forma Financial Information
Regent Group Inc. ("Regent" or the "Company"), formerly NMC Corp.,
purchased 80% of the capital stock of United States Lead Testing and
Removal Service, Inc. ("U.S. Lead") on September 12, 1997. The Pro
Forma financial statements present the pro forma balance sheet of
Regent and U.S. Lead as of July 31, 1997 and the pro forma statement
of operations of Regent and U.S. Lead for the year ended July 31,
1997 as if the transaction occurred at the beginning of the fiscal
year.
20
<PAGE>
REGENT GROUP INC. AND U.S. LEAD TESTING AND REMOVAL SERVICE INC.
Pro Forma Balance Sheet
July 31, 1997
<TABLE>
<CAPTION>
ASSETS
U.S. Lead
Testing and
Regent Group Removal Pro Forma Pro Forma
Inc. Service Inc. Adjustments Balance Sheet
------------ ------------ ----------- -------------
<S> <C> <C> <C> <C>
Current Assets:
Cash $ 76,441 $ 13,379 $ 6,000,000 $ 6,089,820
Accounts receivable -- 16,315 16,315
Prepaids 407,784 42,683 450,467
----------- ----------- -----------
Total Current Assets 484,225 72,377 6,556,602
----------- ----------- -----------
Property, plant and
equipment - net 8,687 34,613 43,300
----------- ----------- -----------
Unamortized excess of
cost over fair value
of assets acquired -- -- 784,295 784,295
Other assets 169,277 45,382 214,659
----------- ----------- -----------
TOTAL ASSETS $ 662,189 $ 152,372 $ 7,598,856
=========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
Current Liabilities:
Short-term debt $ 131,800 $ 393,438 $ $ 525,238
Accounts payable -- 426,296 426,296
Accrued expenses 118,158 174,077 292,235
Deferred revenue -- 25,000 25,000
Due to officer 100,000 -- 100,000
----------- ----------- -----------
Total Current Liabilities 349,958 1,018,811 1,368,769
Minority interests -- -- 5,744,856 5,744,856
Stockholders' Equity:
Preferred stock 195,045 -- 195,045
Common stock 99,682 4,856 (4,856) 99,682
Additional paid-in capital 8,224,858 1,187,080 (1,187,080) 8,224,858
Deficit (8,207,354) (2,058,375) (8,034,354)
----------- ----------- -----------
Total Stockholders' Equity
(Deficiency) 312,231 (866,439) 485,231
----------- ----------- -----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY
(DEFICIENCY) $ 662,189 $ 152,372 $ 7,598,856
=========== =========== ===========
</TABLE>
21
<PAGE>
ADJUSTMENTS
-----------
Debt Credit
---------- ----------
AJE 1
- -----
Cash $6,000,000
Common stock - U.S. Lead $6,000,000
(To refect IPO by U.S. Lead
@ $6.00 per share)
AJE 2
- -----
Investment in U.S. Lead 2,000,000
Due to U.S. Lead 2,000,000
(To reflect Regent investment in U.S. Lead)
AJE 3
- -----
Due from Regent 2,000,000
Common stck - U.S. Lead 2,000,000
(To reflect Regent investment on U.S. Books)
AJE 4
- -----
Due to U.S. Lead 2,000,000
Due from Regent 2,000,000
(To eliminate intercompany)
AJE 5
- -----
Common stock - U.S. Lead 8,004,856
Paid-in capital - U.S. Lead 1,187,080
Investment in U.S. Lead 2,000,000
Accumulated deficit 2,058,375
Goodwill 871,295
(To eliminate investment in U.S. Lead)
AJE 6
- -----
SG & A 87,000
Goodwill 87,000
(To amortize goodwill over ten years)
AJE 7
- -----
Minority interests 260,000
Minority interest in net loss 260,000
(To reflect minority interest share in net loss)
22
<PAGE>
REGENT GROUP INC. AND U.S. LEAD TESTING AND REMOVAL SERVICE INC.
Pro Forma Statement of Operations
Year Ended July 31, 1997
<TABLE>
<CAPTION>
U.S. Lead
Testing & Pro Forma
Regent Group Removal Pro Forma Statement of
Group Inc. Service Inc. Adjustments Operations
------------ ------------ ----------- -------------
<S> <C> <C> <C> <C>
Revenues:
Sales $1,079,808 $ 264,906 $ $1,344,714
Other income 19,668 -- 19,668
Gain on sale of subsidiary 620,529 -- 620,529
---------- --------- ----------
1,720,005 264,906 1,984,911
---------- --------- ----------
Costs and Expenses:
Cost of sales 413,722 2,738 416,460
Selling, general and
administrative 1,404,380 832,839 87,000 2,324,219
Interest expense 228,032 4,229 232,261
---------- --------- ----------
2,046,134 839,806 2,972,940
---------- --------- ----------
Loss before income tax
provision and minority
interest (326,129) (574,900) (988,029)
Minority interest in net
(income) loss (88,331) -- 260,000 171,669
---------- --------- ----------
Loss before income tax
provision (414,460) (574,900) (816,360)
Income tax provision -- -- --
---------- --------- ----------
Net loss $ (414,460) $(574,900) $ (816,360)
========== ========= ==========
Loss per common share $(.69)
=====
Weighted average number
of shares outstanding 1,177,644
=========
</TABLE>
23
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Dated: December 8, 1997
----------------
REGENT GROUP INC.
(Registrant)
By: /s/ MARVIN E. GREENFIELD
----------------------------------
Marvin E. Greenfield
President
24
