ITEM 1. BUSINESS.
The corporate headquarters of Regency Equities Corp. (the "Company") are located at 11845 West Olympic Boulevard, Suite 900, Los Angeles, California 90064. The Company shares this suite on a rent-free basis with the accounting firm of Engel, Kalvin, McMillan & Kipper, LLP. The Company's Chief Financial Officer, Morris Engel, is a partner in Engel, Kalvin, McMillan & Kipper, LLP. The Company has two employees: Mr. Engel and Allan L. Chapman, the Company's Chairman of the Board, Chief Executive Officer and President.
The Company owns a shopping center in Grand Rapids, Michigan. Approximately 12% of the shopping center's space is leased to a tenant. The balance of the shopping center's space has been vacant since July 1997. The Company sustained a net operating loss of $72,220 from this property in 1999. For further information regarding the Grand Rapids property, see the Company's financial statements and notes thereto that are included in this Annual Report on Form 10-K.
During 1999 and the preceding several years, substantially all of the Company's remaining assets have consisted of cash which has been deposited with several major United States banks. For further information regarding the amount of revenue, operating profit or loss and identifiable assets attributable to the Company's various operations, reference is made to the Company's financial statements and notes thereto that are included in this Annual Report on Form 10-K.
On January 16, 1995, the Company's Board of Directors approved a cash dividend of $.15 per share to stockholders of record as of January 30, 1995 and payable on February 7, 1995. The aggregate amount of the dividend was $13,092,549, which represented approximately 77.5% and 77.8% of the Company's total assets and stockholders' equity, respectively, as of December 31, 1994.
First Lincoln Holdings, Inc., a Delaware corporation, beneficially owns 72,867,965 shares of the Company's common stock, which represents 83.48% of the Company's outstanding common stock. Of that aggregate number of shares, First Lincoln Holdings, Inc. is the record owner of 1,010,000 shares and Evergreen Acceptance Corporation, a Delaware corporation and a wholly owned subsidiary of First Lincoln Holdings, Inc., is the record owner of 71,857,965 shares. Martin Oliner, who is a director of the Company, is the Chairman of the Board of Directors, President, Chief Executive Officer and sole stockholder of First Lincoln Holdings, Inc.
The nature and direction of the future business and operations of the Company are uncertain. The Company intends to consider suitable business ventures in which it can employ its liquid assets. During 1999, the Company conducted preliminary negotiations with First Lincoln Holdings, Inc. regarding a cash merger transaction which, if consummated, would have resulted in all stockholders other than First Lincoln Holdings, Inc. and Evergreen Acceptance Corporation receiving cash in exchange for their shares of the Company's common stock. No specific transaction of the type described in the preceding sentence was proposed or agreed upon by the parties, and it is uncertain whether or when such a transaction will be considered again by the parties.
ITEM 2.
ITEM 2. PROPERTIES.
See "Item 1. Business." The Company does not own any real property other than the Grand Rapids shopping center described above.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS.
REGENCY EQUITIES CORP. V. WITMARK, INC., NO. 97-06049-CK (COUNTY OF KENT, MICH.).
During 1997, the Company was advised that Witmark, Inc., which occupied approximately 88% of the Grand Rapids shopping center, had commenced liquidation proceedings. The Company filed an action against Witmark, Inc. for amounts due under its lease. On September 8, 1997, the Company settled this lawsuit for a cash payment from Witmark, Inc. of $120,000 and the return of the premises to the Company.
ITEM 4.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to the Company's stockholders during the quarter ended December 31, 1999.
PART II
ITEM 5.
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS.
(a) MARKET INFORMATION.
Until February 8, 1995, the principal market for the Company's common stock was the Nasdaq National Market System. On that date, primarily as a result of the Company's February 7, 1995 cash dividend which represented approximately 77.5% of its total assets, the Company's stock was delisted from the Nasdaq National Market System. The common stock is now traded over-the-counter, and there is not an active market for such stock.
The following table reflects the highest and lowest per share prices for the Company's common stock as quoted for the periods indicated. Because there is no longer an established, active public trading market for the Company's common stock, the following prices may not be an accurate indication of the value of such stock.
(b) HOLDERS.
The number of record holders of the Company's common stock on March 13, 2000 was 1,552.
(c) DIVIDENDS.
The Company has not historically paid regular dividends on its common stock and does not presently intend to do so in the future. On February 7, 1995, the Company paid an extraordinary cash dividend of $.15 per share to stockholders of record as of January 30, 1995. The Company has not paid any other dividends since February 7, 1995.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA.(a)
- ------------------------------
(a) The selected financial data should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the Company's financial statements and notes thereto that are included elsewhere in this Annual Report on Form 10-K. On February 7, 1995, the Company paid a cash dividend of $.15 per share to stockholders of record as of January 30, 1995. The aggregate amount of the dividend was $13,092,549, which represented approximately 77.5% and 77.8% of the Company's total assets and stockholders' equity, respectively, as of December 31, 1994. The nature and direction of the future business plans and operations of the Company are uncertain. See "Item 1. Business." As a result of these factors, the selected financial data are not necessarily indicative of the Company's future financial condition or results of operations.
ITEM 7.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
The following discussion should be read in conjunction with the Company's financial statements and notes thereto that are included elsewhere in this Annual Report on Form 10-K. See "Item 1. Business" for a description of recent developments affecting the Company and the future direction of the Company.
(a) RESULTS OF OPERATIONS.
(i) YEAR ENDED DECEMBER 31, 1999 COMPARED WITH YEAR ENDED DECEMBER 31, 1998.
The Company recorded a loss before income taxes of $84,933 in 1999 compared to a loss before income taxes of $81,864 in 1998. The increase in loss resulted principally from (i) a reduction in interest income of $12,659 and (ii) an increase in directors' and committee fees of $7,000. The decline in operating results was partially offset by (i) receipt of a one-time fee of $3,150 for use of vacant space in the Company's rental property and (ii) decreases in stockholders' reports of $4,465, professional fees of $5,436 and depreciation expense of $3,862.
The Company recorded a net loss of $86,753 in 1999 compared to a net loss of $84,084 in 1998. The increase in net loss was principally due to the same items that are described in the immediately preceding paragraph. The net loss is after adjustments in the valuation allowance against deferred assets. A valuation allowance is provided to reduce the deferred tax assets to a value which, more likely than not, will be realized. The valuation allowance against deferred tax assets is determined by management based on its estimate of the amount which will be realized from future profitability with reasonable certainty. In view of the fact that the Company has not yet completed a definitive business plan, the amount of deferred tax benefits expected to be realized for the determination of the valuation allowance was based upon an assumption of two years of future operations and the sale of the rental property at the end of the two-year period.
(ii) YEAR ENDED DECEMBER 31, 1998 COMPARED WITH YEAR ENDED DECEMBER 31, 1997.
The Company recorded a loss before income taxes of $81,864 in 1998 compared to income before income taxes of $27,907 in 1997. The decrease resulted principally from (i) a decrease in rental income of $138,574 attributable to the termination of the lease of the Michigan shopping center with Witmark, Inc. and (ii) an increase in rental operating expenses of $11,229. The decline in operating results was partially offset by a decrease in legal fees of $35,791 primarily attributable to the settlement of litigation with Witmark, Inc. See "Item 3. Legal Proceedings."
The Company recorded a net loss of $84,084 in 1998 compared to a net loss of $395,177 in 1997. The decrease in net loss resulted principally from a decrease of $447,844 in the valuation allowance against deferred tax assets. In view of the fact that the Company has not yet completed a definitive business plan, the amount of deferred tax benefits expected to be realized for the determination of the valuation allowance was based upon an assumption of two years of future operations and the sale of the rental property at the end of the two-year period.
(b) LIQUIDITY, CAPITAL RESOURCES AND FUTURE OPERATIONS.
As of December 31, 1999, the Company had cash in the amount of $3,068,600 invested in interest-bearing demand deposit accounts with two major United States banks. The Company has sufficient cash for its current operating needs; the Company does not currently have any material commitments for capital expenditures; and it has no present plans to incur any indebtedness.
The business direction of the Company is uncertain. As a result, the reported financial information contained in this Annual Report on Form 10-K is not necessarily indicative of future operating results or of future financial condition.
(c) IMPACT OF YEAR 2000.
The Year 2000 issue affects computer applications that may not properly recognize and process data for the Year 2000 and beyond because of the use of two digits rather than four to define an applicable year. To date, the Company has not experienced any problems as a result of the commencement of the Year 2000. Although the Company does not anticipate any such problems, there is no assurance that problems related to the Year 2000 issue will not arise in the future.
ITEM 7A.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The Company has exposure to interest rate changes as a result of interest rate changes relating to the cash and cash equivalent balances that it maintains with two banks. However, the Company believes that any such reasonably anticipated changes in interest rates are unlikely to have a material effect on the Company's financial position and results of operations.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The information with respect to this item is set forth in the Company's financial statements and notes thereto included in this Annual Report on Form 10-K and listed in the Index to Financial Statements and Financial Statement Schedules set forth in Item 14 herein.
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
Not applicable.
PART III
ITEM 10.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The directors and executive officers of the Company are as follows:
William J. Adams has served as Secretary and a director of the Company since June 1992 and is presently engaged in the private practice of law. Mr. Adams served as Vice President, Secretary and General Counsel of First Lincoln Holdings, Inc., an insurance holding company which was formerly called First Executive Corporation, from 1982 through May 1993, and as a director and as Secretary and General Counsel of Evergreen Acceptance Corporation, a subsidiary of First Lincoln Holdings, Inc., from 1982 through May 1993.
Allan L. Chapman has served as Chairman of the Board of Directors, Chief Executive Officer and President of the Company since June 30, 1992. He has also served as President of the Sterling Group, an actuarial consulting firm, since March 1991. He served as a Senior Vice President and a director of Executive Life Insurance Company from 1980 until February 1991 and as a Vice President of First
Executive Corporation (now called First Lincoln Holdings, Inc.), an insurance holding company, from 1980 until February 1991.
Morris Engel has served as Chief Financial Officer of the Company since May 1991 and as Treasurer since March 1993. He has also been a partner in the accounting firm of Engel, Kalvin, McMillan & Kipper, LLP since November 1990. Mr. Engel was a partner in the accounting firm of Laventhol & Horwath from 1969 to 1990.
Ira L. Gottshall has served as a director of the Company since August 1992. Mr. Gottshall is a consultant in the life insurance industry. Mr. Gottshall served as President of National Affiliated Corp., an insurance holding company, from January 1997 until January 1998. Prior to 1997, Mr. Gottshall served as an executive officer of several other insurance companies, including as President and Chief Executive Officer of First Delaware Life Insurance Company from July 1991 until January 1994 and as a Vice President of Evergreen Acceptance Corporation from September 1992 until January 1994.
Peter M. Graham has served as a director of the Company since March 1991. Mr. Graham is a principal of Ladenburg, Thalmann & Co. Inc., an investment banking firm. Mr. Graham served as Director of Corporate Finance of Ladenburg, Thalmann & Co. Inc. from 1989 until 1995, as its President from 1995 until 1998, as its Vice Chairman from 1998 until June 1999 and as a director of the firm from 1982 until June 1999. He also serves as a director of Alloy Online, Inc.
Ronald LaBow has served as a director of the Company since May 1985. Mr. LaBow has served as Chairman of the Board of Directors of WHX Corp., a steel manufacturing company, since January 1991.
Martin Oliner has served as a director of the Company since November 1993 and has been engaged in the private practice of law since 1972. Mr. Oliner serves as Chairman of the Board of Directors, President and Chief Executive Officer of First Lincoln Holdings, Inc., which is an insurance holding company.
Directors are elected at the annual meeting of stockholders to serve during the ensuing year and until a successor is duly elected and qualified. Officers serve at the pleasure of the Board of Directors. There are no family relationships between or among any of the directors and executive officers of the Company.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 and regulations adopted thereunder require the Company's directors and officers and persons who own more than ten percent of the outstanding shares of the Company's common stock (collectively, the "Reporting Persons") to file with the Securities and Exchange Commission and the Company initial reports of ownership and reports of changes in ownership of the Company's common stock and other equity securities. Based solely upon (i) the Company's review of the Forms 3, 4 and 5 that were furnished by the Reporting Persons to the Company pursuant to Section 16(a) and applicable regulations during and with respect to the Company's most recent fiscal year and (ii) written representations received by the Company from its directors and officers, the Company believes that all applicable Section 16(a) filing requirements were complied with
on a timely basis by the Reporting Persons during and with respect to the Company's most recent fiscal year.
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION.
(a) SUMMARY COMPENSATION TABLE.
The following table sets forth all compensation paid or awarded by the Company for services rendered during the fiscal years ended December 31, 1999, December 31, 1998 and December 31, 1997 to its Chief Executive Officer. No executive officer or other employee of the Company had aggregate compensation for salary and bonus in excess of $100,000 during the most recently completed fiscal year.
SUMMARY COMPENSATION TABLE
- ------------------------------ (1) Represents Mr. Chapman's receipt of directors' fees.
(b) COMPENSATION OF DIRECTORS.
During 1999, the Company's directors received $1,000 per Board meeting and $500 per committee meeting, and their expenses incurred in attending such meetings were reimbursed by the Company.
(c) INDEMNIFICATION AGREEMENTS.
The Company has entered into an indemnification agreement with each of its current directors and executive officers. The indemnification agreements provide for the mandatory indemnification of each director and executive officer by the Company with respect to proceedings arising out of or related to actions taken or omitted to be taken by the individuals as directors, officers, employees or agents of the Company. Under the agreements, the Company is obligated to indemnify each of these individuals to the fullest extent permitted by Delaware law and, if requested, is obligated to advance the reasonable expenses of any such individual with respect to a proceeding, unless independent legal counsel determines that such payments are not permitted. The Company's obligations under these agreements continue notwithstanding the cessation of the individuals' tenure as directors and officers of the Company.
(d) COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION.
The members of the Company's Stock Option/Compensation Committee are William J. Adams and Ronald LaBow. Mr. Adams is the Company's Secretary, which is not a salaried position.
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
With respect to each person known by the Company to be the beneficial owner of more than five percent of its common stock, each director of the Company, each of the Company's executive officers named in the Summary Compensation Table presented above and all directors and executive officers of the Company as a group, the following table sets forth the number of shares of common stock beneficially owned as of February 15, 2000 by each such person or group and the percentage of the outstanding shares of the Company's common stock beneficially owned as of February 15, 2000 by each such person or group. Unless otherwise indicated, each of the following stockholders has, to the Company's knowledge, sole voting and investment power with respect to the shares beneficially owned, except to the extent that such authority is shared by spouses under applicable law or otherwise noted herein. Information presented below with respect to persons or groups owning more than five percent of the Company's common stock is based upon Schedule 13D or 13G filings made by such persons or groups with the Securities and Exchange Commission.
* Owns less than 1% of the Company's outstanding shares of common stock.
(1) Evergreen Acceptance Corporation is a wholly owned subsidiary of First Lincoln Holdings, Inc. Evergreen Acceptance Corporation is the record owner of 71,857,965 shares of the Company's common stock; Evergreen Acceptance Corporation and First Lincoln Holdings, Inc. share voting and investment power with respect to such shares. First Lincoln Holdings, Inc. is the record owner of 1,010,000 shares of the Company's common stock, as to which it has sole voting and investment power.
(2) Information presented for Mr. Oliner includes shares of the Company's common stock that are owned by First Lincoln Holdings, Inc. and its wholly owned subsidiary, Evergreen Acceptance Corporation. Mr. Oliner serves as Chairman of the Board, Chief Executive Officer and President of First Lincoln Holdings, Inc. Mr. Oliner and trusts for the benefit of his family are the beneficial owners of all of the outstanding capital stock of First Lincoln Holdings, Inc. Mr. Oliner does not have direct ownership of any shares of the Company's common stock.
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Morris Engel, the Company's Chief Financial Officer and Treasurer, is a partner in the accounting firm of Engel, Kalvin, McMillan & Kipper, LLP. The Company paid fees of $12,286 to Engel, Kalvin, McMillan & Kipper, LLP in 1999 in consideration for accounting and tax services rendered by that firm.
PART IV
ITEM 14.
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES.
Schedules not listed above are omitted because they are inapplicable or the information required is presented in the financial statements or the footnotes thereto.
EXHIBITS.
3.1 Certificate of Incorporation of the Company as amended and restated to date, incorporated herein by this reference to Exhibit 3.1 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1991.
3.2 By-laws of the Company, incorporated herein by this reference to Exhibit 3.2 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1990.
10.1 1986 Stock Option Plan, incorporated herein by this reference to Exhibit 10.1 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1991.
10.2 Incentive Stock Option Plan, incorporated herein by this reference to Exhibit 10.2 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1991.
10.3 Indemnification Agreement dated February 7, 1995, between the Company and William J. Adams, incorporated herein by this reference to Exhibit 10.4 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1994.
10.4 Indemnification Agreement dated February 7, 1995, between the Company and Allan L. Chapman, incorporated herein by this reference to Exhibit 10.5 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1994.
10.5 Indemnification Agreement dated February 7, 1995, between the Company and Morris Engel, incorporated herein by this reference to Exhibit 10.6 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1994.
10.6 Indemnification Agreement dated February 7, 1995, between the Company and Ira L. Gottshall, incorporated herein by this reference to Exhibit 10.7 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1994.
10.7 Indemnification Agreement dated February 7, 1995, between the Company and Peter M. Graham, incorporated herein by this reference to Exhibit 10.8 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1994.
10.8 Indemnification Agreement dated February 14, 1995, between the Company and Ronald LaBow, incorporated herein by this reference to Exhibit 10.9 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1994.
10.9 Indemnification Agreement dated February 7, 1995, between the Company and Martin Oliner, incorporated herein by this reference to Exhibit 10.10 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1994.
27.1 Financial Data Schedule (included only in the electronic filing)
REPORTS ON FORM 8-K.
No Current Reports on Form 8-K were filed by the Company during the quarter ended December 31, 1999.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Date: March 28, 2000 REGENCY EQUITIES CORP.
By /s/ ALLAN L. CHAPMAN --------------------------------- Allan L. Chapman, Chairman of the Board, Chief Executive Officer and President
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated:
Date: March 28, 2000 By /s/ ALLAN L. CHAPMAN ---------------------------------------- Allan L. Chapman Chairman of the Board, Chief Executive Officer and President (Principal Executive Officer)
Date: March 28, 2000 By /s/ MORRIS ENGEL ---------------------------------------- Morris Engel Chief Financial Officer and Treasurer (Principal Financial and Accounting Officer)
Date: March 28, 2000 By /s/ WILLIAM J. ADAMS ---------------------------------------- William J. Adams Secretary and Director
Date: March 28, 2000 By /s/ RONALD LABOW ---------------------------------------- Ronald LaBow Director
Date: March 28, 2000 By /s/ PETER M. GRAHAM ---------------------------------------- Peter M. Graham Director
Date: By ---------------------------------------- Ira L. Gottshall Director
Date: By ---------------------------------------- Martin Oliner Director
REGENCY EQUITIES CORP.
ANNUAL REPORT ON FORM 10-K
ITEM 8, ITEM 14(a)(1) and 14(a)(2)
FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
YEAR ENDED DECEMBER 31, 1999
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors Regency Equities Corp.
We have audited the accompanying balance sheets of Regency Equities Corp. as of December 31, 1999 and 1998 and the related statements of operations, changes in shareholders' equity and cash flows for each of the three years in the period ended December 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. Those standards require that we plan and perform the audit to obtain reasonable assurance about 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 financial statements referred to above present fairly, in all material respects, the financial position of Regency Equities Corp. at December 31, 1999 and 1998 and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1999 in conformity with generally accepted accounting principles.
BDO SEIDMAN, LLP
Los Angeles, California February 21, 2000
REGENCY EQUITIES CORP.
BALANCE SHEETS
See accompanying notes to financial statements.
REGENCY EQUITIES CORP.
STATEMENTS OF OPERATIONS
See accompanying notes to financial statements.
REGENCY EQUITIES CORP.
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
THREE YEARS ENDED DECEMBER 31, 1999
See accompanying notes to financial statements.
REGENCY EQUITIES CORP.
STATEMENTS OF CASH FLOWS
See accompanying notes to financial statements.
NOTES TO FINANCIAL STATEMENTS
REGENCY EQUITIES CORP.
NOTE A - SIGNIFICANT ACCOUNTING POLICIES
BUSINESS: Regency Equities Corp. (the "Company") is incorporated in the state of Delaware. The Company owns and leases to third parties a shopping center in Grand Rapids, Michigan.
CASH: Cash at December 31, 1999 is deposited with two major U.S. banks. At December 31, 1999 and throughout the year the Company has maintained balances in its bank accounts in excess of the federally insured limit.
DEPRECIATION: Rental property is depreciated over its estimated useful life of 25 years using the straight-line method.
LONG-LIVED ASSETS: The Company periodically reviews long-lived assets for impairment to determine whether any events or circumstances indicate that the carrying amount of the assets may not be recoverable. In determining if an impairment exists, management estimates the future undiscounted cash flows expected to be received, including the eventual disposition of the asset, less the related estimated cash out-flows expected to be incurred. If an impairment is indicated based upon the above, a determination is made of the assets estimated fair value based upon recent appraisals. If the estimated fair value is less than the assets net book value, an impairment is recognized.
RENTAL INCOME: The Company recognizes minimum rents from leases on a straight-line basis over the lease term. Overage rentals are recognized in the period earned.
INCOME TAXES: Deferred tax assets and liabilities are determined based on the differences 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. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. Income tax expense is the tax payable for the period and the change during the period in deferred tax assets and liabilities.
(continued)
NOTES TO FINANCIAL STATEMENTS
REGENCY EQUITIES CORP.
NOTE A - SIGNIFICANT ACCOUNTING POLICIES (continued)
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 disclosures 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.
EARNINGS PER SHARE: In February 1997, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards (SFAS) No 128 Earnings Per Share ("EPS"). SFAS No. 128 requires dual presentation of basic EPS and diluted EPS on the face of all income statements issued after December 15, 1997 for all entities with complex capital structures. Basic EPS is computed as net income (loss) divided by the weighted average number of common shares outstanding for the period. Diluted EPS reflects the potential dilution that could occur from common shares issuable through stock options, warrants and other convertible securities. As the Company does not have any stock options, warrants or other convertible securities outstanding, basic and diluted EPS are the same, and only basic EPS is presented.
NOTE B - RENTAL ACTIVITY
The Company, as lessor, leases space in a shopping center (the Center) located in Grand Rapids, Michigan.
During 1997, the Company was advised that one tenant which occupied approximately 87.5% of the Center had commenced liquidation proceedings. The Company then filed an action against the tenant for all amounts due in connection with the lease. In September 1997, the Company settled its lawsuit with the tenant for a cash payment of $120,000 and the return of the leased premises.
In July 1997, the lease for the remaining approximately 12.5% of the Center expired. The tenant continues to occupy the space on a month-to-month basis. Minimum rent in connection with this tenant is $3,500 per month.
(continued)
NOTES TO FINANCIAL STATEMENTS
REGENCY EQUITIES CORP.
NOTE C - INCOME TAXES
The provision for income taxes consists of:
The reconciliation of the provision for income taxes and the amount computed by applying the statutory federal income tax rate to earnings before income taxes is as follows:
(continued)
NOTES TO FINANCIAL STATEMENTS
REGENCY EQUITIES CORP.
NOTE C - INCOME TAXES (continued)
Deferred tax assets (liabilities) consist of:
A valuation allowance is provided to reduce the deferred tax assets to a level which, more likely than not, will be realized. The net deferred assets reflects management's estimate of the amount which will be realized from future profitability with reasonable certainty. The net change in the total valuation allowance for the years ended December 31, 1999, 1998, and 1997 were $3,062,143, $2,328,949 and ($447,844), respectively. The decreases in 1999 and 1998 resulted primarily from the expiration of loss carryforwards and the increase in 1997 was due to the decrease in rental income.
(continued)
NOTES TO FINANCIAL STATEMENTS
REGENCY EQUITIES CORP.
NOTE C - INCOME TAXES (concluded)
The Company had operating loss carryforwards at December 31, 1999 for federal tax purposes as follows:
The Company also had significant Michigan state operating loss carryforwards at December 31, 1999.
The Company made income tax payments of $3,620, $2,020 and $1,420 during 1999, 1998 and 1997, respectively.
NOTE D - INCENTIVE STOCK OPTION PLANS
The Company has incentive stock option plans for certain officers that provide for options to be granted at a price equal to fair market value at the date of the grant. Options cannot be exercised after ten years from the date of the grant or more than three months after the termination of an optionee's employment with the Company. No stock options were granted or exercised in 1997, 1998 or 1999. No options were outstanding at December 31, 1999; however, options were available to be granted for 5,450,000 shares.
NOTE E - RELATED PARTY TRANSACTIONS
The current Chief Financial Officer is a partner in a certified public accounting firm which provides accounting and tax services to the Company. Fees paid by the Company to that firm were $12,286 in 1999, $13,535 in 1998 and $17,167 in 1997.
(continued)
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULES
Board of Directors Regency Equities Corp.
The audits referred to in our report dated February 21, 2000 relating to the financial statements of Regency Equities Corp., which is contained in Item 8 of this Form 10K included the audit of the financial statement schedules listed in the accompanying index. These financial statement schedules are the responsibility of the Company's management. Our responsibility is to express an opinion on the financial statement schedules based on our audits.
In our opinion such financial statement schedules present fairly, in all material respects, the information set forth therein.
BDO SEIDMAN, LLP
Los Angeles, California February 21, 2000
REGENCY EQUITIES CORP.
VALUATION AND QUALIFYING ACCOUNTS - SCHEDULE II
REGENCY EQUITIES CORP. REAL ESTATE AND ACCUMULATED DEPRECIATION - SCHEDULE III
(1) The property is a shopping arcade in Grand Rapids, Michigan.
(2) The property was not subject to encumbrance at December 31, 1999, 1998, or 1997
(3) An allowance for possible losses of $215,000 has been provided at December 31, 1999 1998, and 1997 to adjust the carrying value of the property to estimated net realizable value.
(4) Reconciliation of accumulated depreciation:
(5) The aggregate cost for federal income tax purposes of the property for each of the three years December 31, 1997, 1998 and 1999 was $1,471,441.
REGENCY EQUITIES CORP.
ANNUAL REPORT ON FORM 10-K
INDEX TO EXHIBITS