<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K-A/1
PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT: November 23, 1999 COMMISSION FILE NO. 1-7949
REGENCY AFFILIATES, INC.
------------------------
(Exact name of registrant as specified in its charter)
Delaware 72-0888772
-------- ----------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification Number)
729 South Federal Hwy., Suite 307, Stuart, Fl. 34994
---------------------------------------------- -----
(Address of principal executive offices) (Zip Code)
10842 Old Mill Road, # 5B, Omaha, NE 68154
------------------------------------ -----
(Address of administrative offices) (Zip Code)
Registrant's Telephone Number (executive office), including Area Code:
(561-220-7662)
Registrant's Telephone Number (administrative office), including Area Code:
(402-330-7460)
(Former name or former address, if changed since last report)
N/A
<PAGE> 2
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
The following audited financial statements of Glas-Aire Industries
Group, Ltd. ("Glas-Aire") and pro forma financial information are furnished by
Regency Affiliates, Inc. (the "Company") in connection with its acquisition of
51.3% of the common stock of Glas-Aire. The transactions which comprised this
acquisition were fully described in the Company's Form 8-K, dated October 5,
1999.
a) Financial statements of business acquired (Glas-Aire).
i) Audited Consolidated Balance Sheets as of January 31,
1999 and 1998.
ii) Audited Consolidated Statements of Income for the
Years Ended January 31, 1999, 1998 and 1997.
iii) Audited Consolidated Statements of Shareholders'
Equity and Comprehensive Income for the Years Ended
January 31, 1999, 1998 and 1997.
iv) Audited Consolidated Statements of Cash Flows for the
Years Ended January 31, 1999, 1998 and 1997.
b) Pro forma financial information.
i) Regency Affiliates, Inc. Pro Forma Consolidated
Balance Sheet as of December 31, 1998.
ii) Explanation of Pro Forma Adjusting Entries - Balance
Sheet.
iii) Regency Affiliates, Inc. Unaudited Consolidated
Balance Sheet as of September 30, 1999 incorporated
herein by reference from Form 10-Q as of September
30, 1999.
iv) Regency Affiliates, Inc. Pro Forma Consolidated
Statement of Operations for the Year Ended December
31, 1998.
v) Regency Affiliates, Inc. Pro Forma Consolidated
Statement of Operations for the Nine Months Ended
September 30, 1999.
vi) Explanation of Pro Form Adjusting Entries - Statement
of Operations.
2
<PAGE> 3
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
REGENCY AFFILIATES, INC.
(Registrant)
November 23, 1999 By: /s/ Eunice M. Antosh
- --------------------------- -------------------------------
Date Eunice M. Antosh, Secretary
3
<PAGE> 4
[BDO Logo] BDO Dunwoody LLP Fraser Valley Region
Chartered Accountants 220, 19916-64th Avenue
and Consultants Langley BC Canada V2Y IA2
Telephone: (604) 534-8691
Telefax: (604) 534-8900
www.bc.bdo.ca
================================================================================
AUDITORS' REPORT
- --------------------------------------------------------------------------------
TO THE SHAREHOLDERS OF
GLAS-AIRE INDUSTRIES GROUP LTD.
We have audited the consolidated balance sheets of Glas-Aire Industries Group
Ltd. and subsidiaries as at January 31, 1999 and 1998 and the related
consolidated statements of income, shareholders' equity and comprehensive
income, and cash flows for each of the years in the three year period ended
January 31, 1999. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards in the United States. Those standards require that we plan and
perform an audit to obtain reasonable assurance whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements described above present
fairly, in all material respects, the financial position of the Company and its
subsidiaries as at January 31, 1999 and 1998 and the results of their
operations and their cash flows for each of the years in the three year period
ended January 31, 1999, in conformity with generally accepted accounting
principles in the United States.
/s/ BDO Dunwoody LLP
Chartered Accountants
Langley, British Columbia
March 18, 1999, except for note 1,
as to which the date is April 19, 1999
BDO Dunwoody LLP is a Limited Liability Partnership registered in Ontario
F-2
<PAGE> 5
<TABLE>
- --------------------------------------------------------------------------------
GLAS-AIRE INDUSTRIES GROUP LTD.
CONSOLIDATED BALANCE SHEETS
(STATED IN U.S. DOLLARS)
<CAPTION>
JANUARY 31 1999 1998
- --------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
CURRENT
Cash and equivalents $2,110,535 $1,645,953
Accounts receivable, net of allowance
for doubtful accounts 953,289 1,200,451
Note receivable from related party (Note 1) 506,806 -
Inventories (Note 2) 673,688 772,780
Prepaid expenses 33,460 19,095
---------- ----------
4,277,778 3,638,279
FIXED ASSETS, net (Note 3) 1,607,557 1,408,816
---------- ----------
$5,885,335 $5,047,095
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT
Accounts payable and accrued liabilities $ 733,512 $ 460,680
Income taxes payable 94,712 92,464
Current portion of obligation under capital lease 49,055 -
---------- ----------
877,279 553,144
OBLIGATION UNDER CAPITAL LEASE (Note 4) 68,722 -
DEFERRED INCOME TAXES (Note 6) 358,504 281,327
---------- ----------
1,304,505 834,471
---------- ----------
SHAREHOLDERS' EQUITY
Common stock (Note 5(a)) 15,935 15,875
Additional paid-in capital 3,475,695 3,462,334
Retained earnings 1,546,730 1,045,962
Accumulated other comprehensive income (117,957) (75,384)
Treasury stock (Note 5(b)) (339,573) (236,163)
---------- ----------
4,580,830 4,212,624
---------- ----------
$5,885,335 $5,047,095
========== ==========
</TABLE>
On behalf of the Board:
- -------------------------------------------------------- Director
- -------------------------------------------------------- Director
The accompanying summary of significant accounting policies and notes are an
integral part of these financial statements.
<PAGE> 6
<TABLE>
- --------------------------------------------------------------------------------
GLAS-AIRE INDUSTRIES GROUP LTD.
CONSOLIDATED STATEMENTS OF INCOME
(STATED IN U.S. DOLLARS)
- --------------------------------------------------------------------------------
<CAPTION>
Years ended January 31,
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
SALES (Note 8) $6,639,219 $6,409,954 $4,316,372
COST OF SALES 4,497,280 4,505,889 3,027,968
---------- ---------- ----------
GROSS PROFIT 2,141,939 1,904,065 1,288,404
---------- ---------- ----------
EXPENSES
Research and development 415,751 393,182 395,099
Selling and distribution 403,381 386,098 281,669
General and administrative 513,385 527,552 414,174
Provision for profit sharing 89,496 68,504 23,498
Interest income (79,903) (74,256) (61,354)
---------- ---------- ----------
1,342,110 1,301,080 1,053,086
---------- ---------- ----------
INCOME BEFORE INCOME TAXES 799,829 602,985 235,318
INCOME TAXES (Note 6) 299,061 256,657 125,518
---------- ---------- ----------
NET INCOME FOR THE YEAR $ 500,768 $ 346,328 $ 109,800
========== ========== ==========
EARNINGS PER SHARE - BASIC AND DILUTED $ 0.34 $ 0.23 $ 0.08
========== ========== ==========
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING 1,470,129 1,519,405 1,426,038
========== ========== ==========
</TABLE>
The accompanying summary of significant accounting policies and notes are an
integral part of these financial statements.
<PAGE> 7
<TABLE>
- ------------------------------------------------------------------------------------------------------------------------------
GLAS-AIRE INDUSTRIES GROUP LTD.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY AND COMPREHENSIVE INCOME
YEARS ENDED JANUARY 31, 1999, 1998 AND 1997
(STATED IN U.S. DOLLARS)
- ------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Accumulated
Additional Other Total
Common Stock Paid-in Retained Treasury Comprehensive Shareholders'
Shares Amount Capital Earnings Stock Income Equity
-------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance -
January 31, 1996 923,813 $ 9,238 $ 911,148 $ 589,834 $ (17,010) $ (29,052) $1,464,158
Net income 109,800 109,800
Shares issued 692,800 6,928 2,645,771 2,652,699
Shares repurchased (147,476) (147,476)
Shares retired (4,192) (42) (16,968) 17,010 -
Foreign currency
translation adjustment 13,203 13,203
---------------------------------------------------------------------------------------
Balance -
January 31, 1997 1,612,421 16,124 3,539,951 699,634 (147,476) (15,849) 4,092,384
Net income 346,328 346,328
Shares repurchased (Note 5(b)) (166,553) (166,553)
Shares retired (Note 5(b)) (24,917) (249) (77,617) 77,866 -
Foreign currency
translation adjustment (59,535) (59,535)
---------------------------------------------------------------------------------------
Balance -
January 31, 1998 1,587,504 $15,875 $3,462,334 $1,045,962 $(236,163) $ (75,384) $4,212,624
Net income 500,768 500,768
Shares issued (Note 5(c)) 5,965 60 13,361 13,421
Shares repurchased (Note 5(b)) (103,410) (103,410)
Foreign currency
translation adjustment (42,573) (42,573)
---------------------------------------------------------------------------------------
Balance -
January 31, 1999 1,593,469 $15,935 $3,475,695 $1,546,730 $(339,573) $(117,957) $4,580,830
- -------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Comprehensive income and its components consist of the following:
1999 1998 1997
------------------------------------
<S> <C> <C> <C>
Net income $ 500,768 $ 346,328 $ 109,800
Foreign currency translation adjustment (42,573) (59,535) 13,203
------------------------------------
Comprehensive income $ 458,195 $ 286,793 $ 123,003
------------------------------------
</TABLE>
The accompanying summary of significant accounting policies and notes are an
integral part of these financial statements.
<PAGE> 8
<TABLE>
- ---------------------------------------------------------------------------------------------
GLAS-AIRE INDUSTRIES GROUP LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(STATED IN U.S. DOLLARS)
- ---------------------------------------------------------------------------------------------
<CAPTION>
Years ended January 31,
1999 1998 1997
---------- ---------- -----------
<S> <C> <C> <C>
INCREASE (DECREASE) IN CASH
CASH FLOWS FROM:
OPERATING ACTIVITIES
Net income for the year $ 500,768 $ 346,328 $ 109,800
Depreciation 186,664 159,310 110,480
Deferred income taxes 77,177 93,829 56,927
Loss (gain) on sale of fixed assets (3,992) 17,438 1,017
Net change in non-cash working capital 606,969 610,337 (1,162,587)
---------- ---------- -----------
Net cash (used in) provided by
operating activities 1,367,586 1,227,242 (884,363)
---------- ---------- -----------
FINANCING ACTIVITIES
Increase in obligation under
capital lease 156,108 - -
Repayment of obligation
under capital lease (38,331) - (97,246)
Repayment of long-term debt - - (27,304)
Issuance of shares 13,421 - 2,652,699
Repurchase of shares (103,410) (166,553) (147,476)
Decrease in bank indebtedness - (110,100) (145,827)
---------- ---------- -----------
Net cash provided by (used in)
financing activities 27,788 (276,653) 2,234,846
---------- ---------- -----------
INVESTING ACTIVITIES
Issuance of note receivable (506,806) - -
Proceeds from sale of fixed assets 16,821 77,888 12,444
Purchase of fixed assets (398,234) (442,921) (586,305)
---------- ---------- -----------
Net cash used in investing activities (888,219) (365,033) (573,861)
---------- ---------- -----------
FOREIGN CURRENCY TRANSLATION ADJUSTMENT (42,573) (59,535) 13,203
---------- ---------- -----------
INCREASE IN CASH AND EQUIVALENTS DURING THE YEAR 464,582 526,021 789,825
CASH AND EQUIVALENTS, beginning of year 1,645,953 1,119,932 330,107
---------- ---------- -----------
CASH AND EQUIVALENTS, end of year $2,110,535 $1,645,953 $ 1,119,932
========== ========== ===========
</TABLE>
The accompanying summary of significant accounting policies and notes are an
integral part of these financial statements.
<PAGE> 9
<TABLE>
- ------------------------------------------------------------------------------------
GLAS-AIRE INDUSTRIES GROUP LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(STATED IN U.S. DOLLARS)
- ------------------------------------------------------------------------------------
<CAPTION>
Years ended January 31,
1999 1998 1997
-------- ---------- -----------
<S> <C> <C> <C>
CHANGES IN NON-CASH WORKING CAPITAL
Term deposit $ - $1,000,000 $(1,000,000)
Accounts receivable, net 247,162 (462,864) (64,916)
Inventories 99,092 (144,357) 61,435
Prepaid expenses (14,365) 139,414 15,357
Accounts payable and accrued liabilities 272,832 942 (51,268)
Income taxes payable 2,248 77,202 (123,195)
-------- ---------- -----------
$606,969 $ 610,337 $(1,162,587)
======== ========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
RELATING TO:
Interest income $ 54,956 $ 75,264 $ 74,591
Income taxes 206,701 69,453 194,936
======== ========== ===========
</TABLE>
The accompanying summary of significant accounting policies and notes are an
integral part of these financial statements.
<PAGE> 10
- --------------------------------------------------------------------------------
GLAS-AIRE INDUSTRIES GROUP LTD.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(STATED IN U.S. DOLLARS)
- --------------------------------------------------------------------------------
NATURE OF BUSINESS The Company is a Nevada, USA corporation
and was incorporated on September 29, 1992. The
Company manufactures and distributes wind deflector
products to automobile manufacturers in the United
States, Canada and Japan. The Company's corporate
office and manufacturing facility are located in
Vancouver, Canada.
BASIS OF CONSOLIDATION These financial statements include
the accounts of the Company and its wholly-owned
subsidiaries, Multicorp Holdings Inc., Glas-Aire
Industries Ltd., Glas-Aire Industries Inc., and
326362 B.C. Ltd. All inter-company transactions and
accounts are eliminated.
These financial statements have been prepared in
accordance with accounting principles generally
accepted in the United States.
COMPARATIVE FIGURES Certain comparative figures from the prior
year have been reclassified to conform with the
current year's presentation.
INVENTORIES Inventories are recorded at the lower of cost, on a
first-in, first-out basis, or market value. Market
value for raw materials is defined as replacement
cost and for work-in-progress and finished goods as
net realizable value.
FIXED ASSETS Fixed assets are recorded at cost less
accumulated depreciation. Depreciation is calculated
using the declining-balance method, except for
leasehold improvements where the straight-line
method is used, at the following annual rates:
Office equipment - 10%
Manufacturing equipment - 10%
Computer equipment - 15%
Dies and molds - 10%
Automotive - 30%
Leasehold improvements - 10%
Equipment under capital lease - 10%
<PAGE> 11
- --------------------------------------------------------------------------------
GLAS-AIRE INDUSTRIES GROUP LTD.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(STATED IN U.S. DOLLARS)
- --------------------------------------------------------------------------------
PER SHARE INFORMATION The Company has adopted Financial Accounting
Standards Board ("FASB") issued Statement of
Financial Accounting Standards ("SFAS") No. 128,
Earnings Per Share ("EPS") which requires dual
presentation of basic EPS and diluted EPS on the
face of all income statements. Basic EPS is
computed as net income divided by the weighted
average number of shares of common stock
outstanding during the period. Diluted EPS
reflects potential dilution that could occur if
securities or other contracts, which, for the
Company, consists of warrants to purchase 68,000
shares of the Company's common stock, are
exercised. These warrants were anti-dilutive in
1999, 1998 and 1997 and as such, dilutive EPS
amounts are the same as basic EPS for all
periods presented. Treasury stock held by the
Company is not included in the number of shares
outstanding.
CASH EQUIVALENTS Cash equivalents consist of short term
deposits with maturity of ninety days or less.
RESEARCH AND
DEVELOPMENT Research and development costs are expensed as
incurred.
INCOME TAXES The Company accounts for income taxes in
accordance with SFAS No. 109, which requires the
asset and liability method of accounting for
income taxes. The asset and liability method
requires the recognition of deferred tax assets
and liabilities for the future tax consequences
of temporary differences between the financial
statement basis and the tax basis of assets and
liabilities.
<PAGE> 12
- --------------------------------------------------------------------------------
GLAS-AIRE INDUSTRIES GROUP LTD.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(STATED IN U.S. DOLLARS)
- --------------------------------------------------------------------------------
FOREIGN CURRENCY
TRANSLATION The functional currency of the companies' operations
is the Canadian dollar. These financial statements
have been translated into United States currency
using SFAS No. 52. Under this method assets and
liabilities are translated at the rate of exchange at
the balance sheet date and revenues and expenses are
translated at the rate of exchange in effect when
those items are recognized in the financial
statements. The resulting exchange gains and losses
are deferred and are shown as a separate component of
shareholders' equity.
All figures are reported in U.S. dollars. Exchange
rates between the U.S. and Canadian dollar for each
of the applicable years reported in these financial
statements, with bracketed figures reflecting the
average exchange rate for the year, are:
<TABLE>
<S> <C> <C>
January 31, 1999 - 1 U.S. $:1.5110 Cdn. $ (1.4861 Cdn. $)
January 31, 1998 - 1 U.S. $:1.4556 Cdn. $ (1.4267 Cdn. $)
January 31, 1997 - 1 U.S. $:1.3470 Cdn. $ (1.3625 Cdn. $)
</TABLE>
ACCOUNTING ESTIMATES The preparation of financial statements in conformity
with generally accepted accounting principles
requires management to make estimates and assumptions
that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements
and the reported amounts of revenues and expenses
during the reporting period. Actual results could
differ from those estimates.
FINANCIAL INSTRUMENTS The Company's financial instruments consist of cash
and equivalents, accounts receivable, note
receivable, accounts payable and obligation under
capital lease. Unless otherwise noted, it is
management's opinion that the company is not exposed
to significant interest, currency or credit risks
arising from these financial instruments. The fair
value of these financial instruments approximate
their carrying values, unless otherwise stated.
<PAGE> 13
- --------------------------------------------------------------------------------
GLAS-AIRE INDUSTRIES GROUP LTD.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(STATED IN U.S. DOLLARS)
- --------------------------------------------------------------------------------
NEW ACCOUNTING
STANDARDS SFAS No. 130, "Reporting Comprehensive Income",
issued by the FASB is effective for financial
statements with fiscal years beginning after December
15, 1997. SFAS No. 130 establishes standards for
reporting and displaying of comprehensive income and
its components in a full set of general purpose
financial statements. Adoption of SFAS No. 130 did
not have an impact on the Company's financial
position or results of operations. The other
disclosures required by this statement are presented.
SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information", issued by the
FASB is effective for financial statements with
fiscal years beginning after December 15, 1997. SFAS
No. 131 requires that public companies report certain
information about operating segments, products,
services, and geographical areas in which they
operate and their major customers. The Company
operates in only one business segment. The other
disclosures required by this statement are presented.
SFAS No. 133, "Accounting for Derivative Instruments
and Hedging Activities" is effective for all fiscal
quarters of fiscal years beginning after June 15,
1999. SFAS No. 133 requires companies to recognize
all derivative contracts as either assets or
liabilities in the balance sheet and to measure them
at fair value. If certain conditions are met, a
derivative may be specifically designated as a hedge,
the objective of which is to match the timing of gain
or loss recognition on the hedging derivative with
the recognition of (i) the changes in the fair value
of the hedged asset or liability that are
attributable to the hedged risk or (ii) the earnings
effect of the hedged forecasted transaction. For a
derivative not designated as a hedging instrument,
the gain or loss is recognized in income in the
period of change. Historically, the Company has not
entered into derivative contracts either to hedge
existing risks or for speculative purposes.
Accordingly, the Company does not expect adoption of
the new standard to have any affect on its financial
statements.
<PAGE> 14
- --------------------------------------------------------------------------------
GLAS-AIRE INDUSTRIES GROUP LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(STATED IN U.S. DOLLARS)
- --------------------------------------------------------------------------------
1. NOTE RECEIVABLE
<TABLE>
<CAPTION>
JANUARY 31, January 31,
1999 1998
-------- --------
<S> <C> <C>
Promissory note, due on demand, interest
at 10.0%, matures March 25, 1999.
Secured by first priority in 513,915
common shares of Glas-Aire Industries
Group Ltd., owned by a director (Note 9) $506,806 $ -
======== ========
</TABLE>
The promissory note was repaid on April 19, 1999
- --------------------------------------------------------------------------------
2. INVENTORIES
<TABLE>
<CAPTION>
JANUARY 31, January 31,
1999 1998
-------- --------
<S> <C> <C>
Raw materials $410,051 $568,444
Work-in-progress 88,956 65,166
Finished goods 153,811 120,217
Supplies 20,870 18,953
-------- --------
$673,688 $772,780
======== ========
</TABLE>
- --------------------------------------------------------------------------------
3. FIXED ASSETS
<TABLE>
<CAPTION>
JANUARY 31, 1999 JANUARY 31, 1998
---------------- ----------------
ACCUMULATED ACCUMULATED
COST DEPRECIATION COST DEPRECIATION
<S> <C> <C> <C> <C>
Office equipment $ 111,646 $ 48,471 $ 110,475 $ 43,200
Manufacturing
equipment 1,126,788 464,823 1,134,426 414,376
Computer equipment 164,805 85,027 111,874 67,073
Dies and molds 777,576 234,959 635,756 182,278
Automotive 18,035 902 27,720 10,256
Leasehold improvements 147,171 43,481 133,828 28,080
Equipment under
capital lease 151,853 12,654 - -
---------- ---------- ---------- ----------
$2,497,874 $ 890,317 $2,154,079 $ 745,263
========== ========== ========== ==========
Net book value $1,607,557 $1,408,816
========== ==========
</TABLE>
<PAGE> 15
- --------------------------------------------------------------------------------
GLAS-AIRE INDUSTRIES GROUP LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(STATED IN U.S. DOLLARS)
- --------------------------------------------------------------------------------
4. OBLIGATION UNDER CAPITAL LEASE
The minimum lease payments required under the capital lease of
manufacturing equipment expiring together with the balance of the
obligation are as follows:
<TABLE>
<S> <C>
1999 $ 57,459
2000 57,459
2001 9,577
--------
Total minimum lease payments 124,495
Option to purchase 3,902
--------
128,397
Less amounts representing interest
at 6.5% per annum 10,620
--------
117,777
Less current portion 49,055
--------
$ 68,722
========
</TABLE>
- --------------------------------------------------------------------------------
5. SHARE CAPITAL
(a) Authorized
3,000,000 Common stock with a par value
of $0.01 each
1,000,000 Preferred stock with a par value
of $0.01 each
<TABLE>
<CAPTION>
JANUARY 31, JANUARY 31,
1999 1998
------- -------
<S> <C> <C>
Issued
1,593,469 Common stock (1998 - 1,587,504) $15,935 $15,875
======= =======
</TABLE>
In connection with a public offering in 1996, the Company issued
warrants to the underwriters to purchase shares as follows:
Shares Price Expiry Date
------ ----- -----------
68,000 $6.00 April 2001
<PAGE> 16
- --------------------------------------------------------------------------------
GLAS-AIRE INDUSTRIES GROUP LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(STATED IN U.S. DOLLARS)
- --------------------------------------------------------------------------------
5. SHARE CAPITAL (continued)
(b) During the year ended January 31, 1999, the Company repurchased
55,472 common stock, at share prices between $1.50 and $1.97 per
share, amounting to $103,410. In fiscal 1998, the Company repurchased
78,317 common stock at share prices between $1.56 and $3.12 per share
amounting to $166,553. These shares are accounted for as treasury
stock until reissued or retired. The purchase of the shares reduced
shareholders' equity. In fiscal 1998 the Company retired 24,917
common stock amounting to $77,866.
(c) On May 29, 1998, the Company issued shares to certain employees as
part of their compensation. The total number of common stock issued
was 5,965. At May 29, 1998, the common stock was trading at $2.25 per
share.
- --------------------------------------------------------------------------------
6. INCOME TAXES
The provision for income taxes in the consolidated statements of income
consists of:
<TABLE>
<CAPTION>
JANUARY 31, JANUARY 31, JANUARY 31,
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Current $210,103 $146,655 $ 71,741
Deferred 88,958 110,002 53,777
-------- -------- --------
$299,061 $256,657 $125,518
======== ======== ========
</TABLE>
The effective income tax rate on earnings consists of the following:
<TABLE>
<CAPTION>
JANUARY 31, JANUARY 31, JANUARY 31,
1999 1998 1997
% % %
-------- -------- --------
<S> <C> <C> <C>
General combined federal and
provincial rate 45.6 45.3 45.3
Manufacturing reduction (7.0) (7.0) (7.0)
Under (over) accrual of prior year taxes (1.2) 4.2 14.7
-------- -------- --------
Effective rate 37.4 42.5 53.0
======== ======== ========
</TABLE>
<PAGE> 17
- --------------------------------------------------------------------------------
GLAS-AIRE INDUSTRIES GROUP LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(STATED IN U.S. DOLLARS)
- --------------------------------------------------------------------------------
6. INCOME TAXES (continued)
The components of deferred taxes are as follows:
<TABLE>
JANUARY 31, January 31,
1999 1998
TEMPORARY Temporary
DIFFERENCE TAX EFFECT Difference Tax Effect
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Deferred tax
liabilities
Depreciation $943,643 $358,504 $734,615 $281,327
======== ======== ======== ========
</TABLE>
- --------------------------------------------------------------------------------
7. RENT
The Company operates in its facilities on a month to month basis. Rent
expense was $106,312, $117,072 and $121,252 for the years ended January 31,
1999, 1998 and 1997 respectively.
- --------------------------------------------------------------------------------
8. SALES INFORMATION
(a) Sales figures include sales to the following countries:
<TABLE>
<CAPTION>
JANUARY 31, JANUARY 31, JANUARY 31,
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
United States $5,481,000 $4,915,000 $3,121,000
Japan 242,000 586,000 491,000
Canada and other 916,000 908,000 704,000
</TABLE>
(b) Sales to customers who each accounted for more than 10% of the
Company's sales are as follows:
<TABLE>
<CAPTION>
JANUARY 31, JANUARY 31, JANUARY 31,
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Customer 1 $2,094,000 $2,128,000 $1,341,000
Customer 2 1,404,000 1,334,000 828,000
Customer 3 1,637,000 912,000 839,000
Customer 4 - - 491,000
</TABLE>
<PAGE> 18
- --------------------------------------------------------------------------------
GLAS-AIRE INDUSTRIES GROUP LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(STATED IN U.S. DOLLARS)
- --------------------------------------------------------------------------------
9. RELATED PARTY TRANSACTIONS
The Company had the following transactions with related parties:
<TABLE>
<CAPTION>
JANUARY 31, JANUARY 31, JANUARY 31,
1999 1998 1997
----------- -----------------------
<S> <C> <C> <C>
Fees paid to
directors/shareholders for
ongoing consulting services $ 68,000 $60,000 $60,000
Promissory note receivable
from a company controlled
by a director (Note 1) 500,000 - -
Interest earned on promissory note (Note 1) 6,806 - -
</TABLE>
<PAGE> 19
<TABLE>
REGENCY AFFILIATES, INC.
PRO FORMA CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1998
<CAPTION>
Pro Forma Adjustments
Regency Glas-Aire --------------------- Consolidation Pro Forma
Affiliates, Inc Industries Grp Combined Debit Credit Pro Forma Entries Consolidated
--------------- -------------- -------- ----- ------ --------- ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
- ------
CURRENT ASSETS
Cash
and cash
equivalents $ 2,168,541 $ 2,110,535 $ 4,279,076(1) $1,213,000(2) $1,213,000 $ 4,159,457 $ 4,159,457
(4) 1,968,000(3) 119,619
(6) 1,968,000
Accounts
receivable,
net of allowance 752,861 953,289 1,706,150 1,706,150 1,706,150
Notes receivable,
related party 506,806 506,806 506,806 506,806
Inventory 806,006 673,688 1,479,694 1,479,694 1,479,694
Other
current assets 130,375 33,460 163,835 - - 163,835 163,835
----------- ----------- ----------- ----------- ---------- ----------- ----------- -----------
Total
current assets 3,857,783 4,277,778 8,135,561 3,181,000 3,300,619 8,015,942 8,015,942
PROPERTY, PLANT
AND EQUIPMENT, NET 1,980,063 1,607,557 3,587,620 3,587,620 3,587,620
INVESTMENTS
Investment
in partnership 15,799,631 15,799,631 15,799,631 15,799,631
Investment
in Glas-Aire
Industries Group - (2) 1,863,000 3,341,959 (3,347,719) (5,760)
(3) 119,619 -
(4) 313,900 -
(5) 1,045,440 -
Investment in
Regency
Affiliates, Inc (6) 2,281,900 3,327,340 (3,327,340) -
(7) 1,045,440
Rental
Property, net 108,512 - 108,512 - - 108,512 - 108,512
----------- ----------- ----------- ----------- ---------- ----------- ----------- -----------
Total
investments 15,908,143 - 15,908,143 6,669,299 - 22,577,442 (6,675,059) 15,902,383
OTHER ASSETS
Aggregate
inventory 843,049 843,049 843,049 843,049
Goodwill, net of
amortization 631,788 631,788 631,788 300,400 932,188
Debt issuance
costs, net of
amortization 869,643 869,643 869,643 869,643
Other 36,947 - 36,947 - - 36,947 - 36,947
----------- ----------- ----------- ----------- ---------- ----------- ----------- -----------
Total
other assets 2,381,427 - 2,381,427 - - 2,381,427 300,400 2,681,827
----------- ----------- ----------- ----------- ---------- ----------- ----------- -----------
Total
Assets $24,127,416 $ 5,885,335 $30,012,751 $ 9,850,299 $3,300,619 $36,562,431 $(6,374,659) $30,187,772
=========== =========== =========== =========== ========== =========== =========== ===========
</TABLE>
<PAGE> 20
<TABLE>
REGENCY AFFILIATES, INC.
PRO FORMA CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1998
<CAPTION>
Pro Forma Adjustments
Regency Glas-Aire --------------------- Consolidation Pro Forma
Affiliates, Inc Industries Grp Combined Debit Credit Pro Forma Entries Consolidated
--------------- -------------- -------- ----- ------ --------- ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CURRENT
LIABILITIES
Current portion
of long-term debt $ 38,300 $ - $ 38,300 $ 38,300 $ 38,300
Current mandatory
redeemable
preferred stk. 163,600 163,600 163,600 163,600
Notes payable 464,200 464,200 (1) 1,213,000 2,327,200 2,327,200
(2) 650,000 -
Accounts payable
and accrued
liabilities 559,110 733,512 1,292,622 1,292,622 1,292,622
Income taxes
payable 94,712 94,712 94,712 94,712
Current portion
of capital leases - 49,055 49,055 - - 49,055 - 49,055
----------- ----------- ----------- ----------- ---------- ----------- ----------- -----------
Total current
liabilities 1,225,210 877,279 2,102,489 - 1,863,000 3,965,489 - 3,965,489
LONG-TERM DEBT,
net of current
portion 11,519,930 - 11,519,930 11,519,930 11,519,930
OBLIGATION UNDER
CAPITAL LEASE 68,722 68,722 68,722 68,722
DEFERRED INCOME
TAXES 358,504 358,504 358,504 358,504
MINORITY INTEREST
IN CONSOLIDATED
SUBSIDIARIES 89,576 89,576 89,576 2,892,851 2,982,427
SERIAL PREFERRED
STOCK 73,650 73,650 73,650 73,650
SHAREHOLDERS'
EQUITY
Serial preferred
stock 1,052,988 1,052,988 1,052,988 1,052,988
Common stock 5,047,129 15,935 5,063,064 (4) 1,140,950 6,682,954 (19,675) 6,663,279
(5) 475,200
(6) 860
(7) 2,880
Additional
paid-in capital 270,510 3,475,695 3,746,205 (4) 1,140,950 6,812,995 (4,831,295) 1,981,700
(5) 570,240
(6) 313,040
(7) 1,042,560
Quasi-
reorganization
adjustment (1,670,596) (1,670,596) (1,670,596) (1,670,596)
Retained earnings 6,519,019 1,546,730 8,065,749 8,065,749 (1,546,730) 6,519,019
Accumulated other
comprehensive income (117,957) (117,957) (117,957) 117,957 -
Treasury stock (339,573) (339,573) (339,573) 339,573 (3,327,340)
- - - - - - (3,327,340) -
----------- ----------- ----------- ----------- ---------- ----------- ----------- -----------
Total
shareholders'
equity 11,219,050 4,580,830 15,799,880 - 4,686,680 20,486,560 (9,267,510) 11,219,050
----------- ----------- ----------- ----------- ---------- ----------- ----------- -----------
Total Liabilities
and Shareholders'
Equity $24,127,416 $5,885,335 $30,012,751 $ - $6,549,680 $36,562,431 $(6,374,659) $30,187,772
=========== =========== =========== =========== ========== =========== =========== ===========
</TABLE>
<PAGE> 21
Regency Affiliates, Inc.
Form 8-K
Explanation of Pro Forma Adjusting Entries
Balance Sheet
FOR REGENCY AFFILIATES, INC.
(1)
Cash and cash equivalents 1,213,000
Promissory Notes 1,213,000
To record the issuance of the promissory note in exchange for
cash to acquire shares of Glas-Aire.
(2)
Investment in Glas-Aire 1,863,000
Promissory Note 650,000
Cash and cash equivalents 1,213,000
To record the purchase of 516,915 shares of Glas-Aire common
stock on April 22, 1999, in a private transaction with a
Glas-Aire shareholder.
(3)
Investment in Glas-Aire 119,619
Cash and cash equivalents 119,619
To record the purchase of 41,600 shares of Glas-Aire common
stock on the open market on August 2, 1999.
(4)
Investment in Glas-Aire 313,900
Cash and cash equivalents 1,968,000
Common stock 1,140,950
Paid-in capital 1,140,950
To record the issuance of 2,852,375 Regency common shares in
exchange for 86,000 shares of Glas-Aire common stock and
$1,968,000.
(5)
Investment in Glas-Aire 1,045,440
Common stock 475,200
Paid-in capital 570,240
To record the exchange of 1,188,000 Regency common shares for
288,000 common shares of Glas-Aire from certain shareholders
of Glas-Aire.
<PAGE> 22
Regency Affiliates, Inc.
Form 8-K
Explanation of Pro Forma Adjusting Entries
Balance Sheet
FOR GLAS-AIRE INDUSTRIES GROUP LTD.
(6)
Investment in Regency Affiliates, Inc. 2,281,900
Cash and cash equivalents 1,968,000
Common stock 860
Paid-in capital 313,040
To record Glas-Aire's purchase of Regency Affiliates, Inc.
common stock for cash and 86,000 shares of Glas-Aire common
stock.
(7)
Investment in Regency Affiliates, Inc. 1,045,440
Common stock 2,880
Paid-in capital 1,042,560
To record the exchange of 288,000 shares of Glas-Aire common
stock at $3.63 per share for 1,188,000 shares of Regency
Affiliates, Inc. common stock at $.88 per share.
<PAGE> 23
<TABLE>
REGENCY AFFILIATES, INC
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
<CAPTION>
Regency Glas-Aire
Affiliates, Inc Industries Grp Total Adjustments Pro Forma
--------------- -------------- ----- ----------- ---------
<S> <C> <C> <C> <C> <C>
NET SALES $ 3,789,839 $6,639,219 $10,429,058 $10,429,058
COST AND EXPENSES
Cost of goods sold 2,621,363 4,497,280 7,118,643 7,118,643
Selling and administrative 2,042,871 1,422,013 3,464,884(1) 20,025 3,484,909
----------- ---------- ----------- ---------- -----------
4,664,234 5,919,293 10,583,527 20,025 10,603,552
----------- ---------- ----------- ---------- -----------
INCOME (LOSS) FROM OPERATIONS (874,395) 719,926 (154,469) (20,025) (174,494)
INCOME FROM EQUITY INVESTMENT
IN PARTNERSHIP 3,950,090 - 3,950,090 3,950,090
OTHER INCOME, NET 141,220 79,903 221,123 221,123
INTEREST EXPENSE (1,314,351) - (1,314,351)(2) (48,750) (1,363,101)
----------- ---------- ----------- ---------- -----------
INCOME BEFORE INCOME TAX AND
MINORITY INTEREST 1,902,564 799,829 2,702,393 (68,775) 2,633,618
INCOME TAX EXPENSE (98,583) (299,061) (397,644) (397,644)
MINORITY INTERESTS (9,421) - (9,421)(3) (243,874) (253,295)
----------- ---------- ----------- ---------- -----------
NET INCOME $ 1,794,560 $ 500,768 $ 2,295,328 $ (312,649) $ 1,982,679
=========== ========== =========== ========== ===========
NET INCOME ATTRIBUTABLE TO $ 1,915,165
COMMON SHARESHOLDERS ===========
NET INCOME PER COMMON SHARE
Basic $ 0.15
===========
Diluted $ 0.13
===========
</TABLE>
<PAGE> 24
<TABLE>
REGENCY AFFILIATES, INC
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
<CAPTION>
Regency Glas-Aire
Affiliates, Inc Industries Grp Total Adjustments Pro Forma
--------------- -------------- ----- ----------- ---------
<S> <C> <C> <C> <C> <C>
NET SALES $ 3,041,117 $6,563,297 $9,604,414 $ - $9,604,414
COST AND EXPENSES
Cost of goods sold 2,150,587 4,461,348 $6,611,935 6,611,935
Selling and administrative 1,835,020 1,410,145 3,245,165(4) (15,000) 3,230,165
----------- ---------- ---------- --------- ----------
3,985,607 5,871,493 9,857,100 (15,000) 9,842,100
----------- ---------- ---------- --------- ----------
INCOME (LOSS) FROM OPERATIONS (944,490) 691,804 (252,686) (15,000) (237,686)
INCOME FROM EQUITY INVESTMENT
IN PARTNERSHIP 3,156,470 - 3,156,470 3,156,470
OTHER INCOME, NET 210,139 49,292 259,431 259,431
INTEREST EXPENSE (922,658) (922,658)(5) (36,562) (959,220)
----------- ---------- ---------- --------- ----------
INCOME BEFORE INCOME TAX
AND MINORITY INTEREST 1,499,461 741,096 2,240,557 (51,562) 2,218,995
INCOME TAX EXPENSE (77,599) (263,532) (341,131) (341,131)
MINORITY INTERESTS (11,218) - (11,218)(6) (232,574) (243,792)
----------- ---------- ---------- --------- ----------
Net income $ 1,410,644 $ 477,564 $1,888,208 $(284,136) $1,634,072
=========== ========== ========== ========= ----------
NET INCOME ATTRIBUTABLE TO
COMMON SHAREHOLDERS $1,594,558
==========
NET INCOME PER COMMON SHARE
Basic $ 0.13
==========
Diluted $ 0.11
==========
</TABLE>
<PAGE> 25
<TABLE>
Regency Affiliates, Inc.
Form 8-K
Explanation of Pro Forma Adjusting Entries
Statement of Operations
<CAPTION>
Increase
(Decrease)
Net Income
----------
<S> <C>
FOR THE YEAR ENDED DECEMBER 31, 1998
(1) Amortize $300,400 of Goodwill resulting
from the transaction over a 15 year period (20,025)
(2) Adjust interest expense for interest on the promissory
note issued to Glas-Aire shareholder in connection with
the acquisition of Glas-Aire common stock (48,750)
(3) Adjust minority interest for the minority interest in the
earnings of Glas-Aire for the year ended December 31, 1998 (243,874)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999
(4) Amortize $300,400 of Goodwill resulting
from the transaction over a 15-year period (15,018)
(5) Adjust interest expense for interest on the promissory
note issued to a Glas-Aire shareholder in connection with
the acquisition of Glas-Aire common stock (36,562)
(6) Adjust minority interest for the minority interest in the
earnings of Glas-Aire for the nine months ended September
30, 1999 (232,574)
</TABLE>
