Item 1. Business.
The corporate headquarters of Regency Equities Corp. (the "Company") are located at 3660 Wilshire Boulevard, Suite 336, Los Angeles, California 90010. The Company shares this suite on a rent-free basis with the accounting firm of Engel & Kalvin, LLP. The Company's Chief Financial Officer, Morris Engel, is a partner in Engel & Kalvin, LLP. The Company has two employees: Mr. Engel and Allan L. Chapman, the Company's Chairman of the Board, Chief Executive Officer and President.
In February 1990, the Company acquired an $850,000 promissory note with a four-year term and an interest rate of 13% per annum. The note was secured by a second mortgage on a commercial building in Westchester County, New York. The obligor on the promissory note was Earl Reiss ("Reiss"), and the guarantor was Richard Siegal ("Siegal").
During 1993, Reiss ceased making interest payments on the mortgage loan, and the Company ceased accruing interest on the loan. The Company also commenced an action for collection against Reiss and Siegal. In November 1994, the court awarded a summary judgment against Reiss in the amount of $1,341,093. In July 1995, the court awarded a summary judgment against Siegal in the amount of $1,564,753. On October 3, 1995, the Company entered into a settlement agreement with Siegal whereby the Company received $900,000 in cash in full settlement of all amounts outstanding owed by Reiss and Siegal.
The Company owns a shopping center in Grand Rapids, Michigan. Two tenants lease space in the shopping center. Net operating income on this property was approximately $160,480 in 1995. 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 1995 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.
In September 1991, the Company learned that it had been named as a defendant in two amended complaints filed by the Federal Deposit Insurance Corporation (the "FDIC") and Columbia Savings and Loan Association ("Columbia Savings"), respectively, against Michael Milken and several hundred other defendants. A third complaint was filed in late 1991 by American Savings of Florida which contained essentially the same allegations as the FDIC and Columbia Savings actions. The three actions collectively are referred to herein as the "Milken Litigation."
During 1991 and 1992, the Company was forced to devote substantial time and effort to the Milken Litigation, which involved complaints of enormous complexity and which sought billions of dollars of damages. A Stipulation of Settlement dated as of March 9, 1992 (the "Stipulation") was approved by the U.S. District Court for the Southern District of New York. Among other things, the Stipulation effected in large part a global settlement of the Milken Litigation. Pursuant to the Stipulation, the Company contributed the amount of $1,000,000 in settlement of the claims against it. The Company made this payment into an escrow fund in March 1992. According to the Stipulation, ultimate consummation of the settlement was contingent upon several conditions the satisfaction of which was contemplated to take in excess of one year. For a period of approximately one and one-half years, such conditions remained unsatisfied and the Company did not know whether the actions against it might be revived. Effective September 29, 1993, the global settlement contemplated under the Stipulation became effective and the Company was dismissed with prejudice from the Milken Litigation on or about that date.
In view of the uncertainties posed by the Milken Litigation, it was extremely difficult for the Company to commit its efforts or resources to any potential business opportunities between September 1991 and September 1993. Following the effectiveness in September 1993 of the global settlement of the Milken Litigation, the Board of Directors established an acquisition committee to consider a suitable business venture or ventures in which the Company could employ its liquid assets. The committee members devoted a substantial amount of time in 1994 to the analysis and negotiation of such potential investments, although the Company did not consummate any business venture.
In December 1994, the Board of Directors scheduled an annual meeting of the Company's stockholders for January 16, 1995. On approximately December 28, 1994, the Company mailed to its stockholders a notice of the annual meeting and a proxy statement which solicited proxies with respect to six persons nominated for election as directors by the Board of Directors. The proxy statement advised stockholders that the Board of Directors had nominated four current directors -- William J. Adams, Allan L. Chapman, Ira L. Gottshall and Martin Oliner -- for reelection as directors. The proxy statement also provided that two new nominees -- Peter A. Glicklich and Richard M. Pachulski -- had been nominated for election by the Board of Directors, and that two incumbent directors -- Peter M. Graham and Ronald LaBow -- had not been nominated for reelection.
On or about January 9, 1995, a group called the Regency Shareholders Committee (the "Committee") began distributing to the Company's stockholders a proxy statement in which the Committee solicited proxies with respect to the election of an opposing slate of six director nominees. The Committee's proxy statement identified Messrs. Graham and LaBow as two of the nominees. The other nominees were Lawrence Butler, Jack Howard, Warren G. Lichtenstein and Steven Wolosky. The Committee's proxy statement disclosed that the Committee members were Messrs. Butler, Howard, LaBow and Lichtenstein, and that the costs of the Committee's proxy solicitation efforts would be borne by Mr. LaBow, Richard Sandler and Steel Partners II, L.P., a Delaware Limited Partnership ("Steel Partners"). Among other things, the Committee's proxy statement disclosed that the Committee's six nominees, if elected, would attempt to liquidate the Company, in whole or in part.
As a related action, on January 13, 1995 the Committee filed with the Securities and Exchange Commission a preliminary consent statement pursuant to which the Committee sought to solicit written consents from stockholders for the purpose of removing the Company's directors and electing the Committee's six nominees identified in the preceding paragraph.
On January 12, 1995, the Company filed a complaint for injunctive relief in the Delaware federal district court against the members of the Committee. Among other things, the complaint sought to enjoin the Committee from soliciting and voting proxies in connection with the January 16 meeting through the use of a proxy statement that the Company alleged was misleading. The Company dismissed its complaint several days later in light of the events described below.
On January 16, 1995, the Company's Board of Directors conducted a meeting prior to the scheduled meeting of the stockholders. The 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. At its meeting, the Board of Directors also postponed the January 16 annual meeting of stockholders and approved in principle the liquidation and distribution to stockholders of the Company's remaining assets.
During the period subsequent to January 16, 1995, the Company, the Committee and the Company's largest stockholder, First Lincoln Holdings, Inc. and its wholly owned subsidiary, Evergreen Acceptance Corporation, have discussed various proposals regarding the future of the Company. The parties currently are negotiating the terms of a transaction pursuant to which, among other things: (a) Evergreen Acceptance Corporation would purchase the shares of the Company's common stock that are owned by the Committee and its affiliates (including Steel Partners and Richard Sandler) and by various other persons, including EJ Associates and RA Partnership; (b) the sellers would agree not to attempt to gain control of the Company in the future; (c) the Company would reimburse the Committee for up to $150,000 of its costs incurred in connection with the proxy contest and related matters; and (d) the Company would deliver to the sellers, the other members of the Committee, First Lincoln Holdings, Inc., Evergreen Acceptance Corporation and Martin Oliner (the Chairman of the Board of First Lincoln Holdings, Inc. and a director of the Company) a general release of claims related to the proxy contest, and the Company would receive a general release of such claims from certain of such persons.
The proposed sellers collectively own approximately 52% of the Company's outstanding common stock, and each of the Committee, EJ Associates and RA Partnership owns more than 10% of the Company's common stock. See "Item 12. Security Ownership of Certain Beneficial Owners and Management." Because First Lincoln Holdings, Inc. and Evergreen Acceptance Corporation jointly own approximately 39% of the Company's outstanding common stock, the purchase by Evergreen Acceptance Corporation of the sellers' stock would give First Lincoln Holdings, Inc. and Evergreen Acceptance Corporation ownership of approximately 91% of the Company's outstanding common stock. It is not yet certain when, or if, this transaction will be consummated.
As a result of the cash dividend that was paid on February 7, 1995, the Company's total assets were reduced by almost 78%. The Company's Board of Directors has not yet determined the future direction of the Company, including whether or not all or part of the Company's remaining assets should be liquidated and distributed to stockholders. The Board's decision as to the future direction of the Company will depend in part upon the resolution of the negotiations described above among the Committee, First Lincoln Holdings, Inc. and Evergreen Acceptance Corporation.
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.
(a) Olshan v. Regency Equities Corp., No. 16/92 (Civ. Ct. N.Y. County). --------------------------------
In an action filed on January 2, 1992 by Marvin L. Olshan, a former President and director of the Company, Mr. Olshan sought $468,000 plus interest from December 31, 1989 for additional compensation over and above his salary, for services allegedly rendered during 1988 and 1989. Mr. Olshan asserted two causes of action, one for breach of contract and the other for implied contract/quantum meruit. In his complaint, Mr. Olshan alleged that, in addition to the salary which he was paid, there was an understanding and agreement between Mr. Olshan and certain members of the Company's Board of Directors that he would be "fairly compensated" for services performed during 1988 and 1989.
On December 8, 1994, the Company paid Mr. Olshan $10,000 in full settlement of the litigation commenced by him.
(b) Regency Equities Corp. v. Reiss and Siegal, 93 Civ. 8096 (S.D.N.Y) ------------------------------------------ (CSH).
Reference is made to "Item 1. Business" for a description of the Company's lawsuit against Reiss and Siegal and the settlement of the Company's judgment against them.
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, 1995.
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.
1995 High Low ---- ---- --- 1st quarter $0.030 $0.015 2nd quarter 0.025 0.015 3rd quarter 0.027 0.015 4th quarter 0.027 0.019
1994 High Low ---- ---- --- 1st quarter $0.156 $0.094 2nd quarter 0.125 0.125 3rd quarter 0.125 0.125 4th quarter 0.156 0.156
(b) Holders.
The approximate number of record holders of the Company's common stock on February 1, 1996 was 1,685.
(c) Dividends.
The Company paid no dividends during 1993 or 1994. 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 did not pay any other dividends during 1995.
Item 6.
Item 6. Selected Financial Data.
(In thousands except per share data)
Year ended December 31, ------------------------------------------------ 1995 1994 1993 1992 1991 -------- -------- -------- -------- --------- Total revenues $ 926 $ 773 $ 797 $ 900 $ 1,247 Income (loss) from continuing operations before income taxes 171 267 (260) 375 (615) Net income (loss) 292 (298) 277 368 (524) Income (loss) from continuing operations before income taxes per share .002 .003 (.003) .004 (.007) Income (loss) .003 (.003) .003 .004 (.006) per share Dividends per share .15 0 0 0 0 Total assets 4,240 16,893 17,181 16,925 17,585 Liabilities 213 66 56 77 1,104 Shareholders' equity 4,027 16,827 17,125 16,848 16,481 Book value per share .05 .19 .20 .19 .19 Weighted average shares 87,284 87,284 87,284 87,284 87,284 outstanding ______________________________
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, 1995 Compared with Year Ended December 31, 1994.
The Company recorded income (i) before income taxes (benefit) and (ii) the cumulative effect of a change in accounting of $170,849 in 1995 compared to $266,555 in 1994. The decrease resulted principally from (i) a decrease in interest income of $349,624 caused by the decrease in cash earning interest attributable to the $13,092,549 dividend (offset in part by an increase in interest rates of approximately 1.0%); (ii) an increase in administrative expenses of $70,127 primarily due to increases in stockholders' meeting costs and directors' fees attributable to a proxy contest between the Company and the Regency Shareholders Committee; and (iii) an increase in professional fees of $189,833 primarily attributable to legal fees incurred in connection with the proxy contest.
The decline in operating results was partially offset by a gain of $500,000, representing the recovery of amounts previously reserved, on the settlement of amounts due to the Company in connection with a mortgage note and related interest receivable. See "Item 1. Business."
The Company's net income of $292,281 in 1995 compared to its net loss of $297,980 in 1994 resulted primarily from an income tax benefit of $121,432 in 1995 as compared with income tax expense of $564,535 in 1994. The income tax benefit for 1995 results from the recognition for income tax purposes of bad debt expense in connection with the settlement of amounts owing to the Company on a mortgage note and related interest receivable and the related deferred tax asset of the loss carryforward. The Company has recognized deferred tax assets of $246,380 in 1995 as compared to $125,612 in 1994. 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 tax assets reflects management's estimate of the amount which will be realized from future profitability with reasonable certainty. The amount of the deferred tax asset considered realizable, however, could be reduced in the near term if estimates of future taxable income during the carryforward period are reduced. The net change in the total valuation allowance for the years ended December 31, 1995 and 1994 were ($630,603) and ($512,963), respectively. The decrease in 1995 results primarily from the expiration of loss carryforwards. The decrease in 1994 was due to the expiration of loss carryforwards and the anticipated reduction in estimated future taxable income resulting from the Company's payment in February 1995 of a $13,092,549 cash dividend.
(ii) Year Ended December 31, 1994 Compared with Year Ended December 31, 1993.
The Company recorded income before (i) income taxes (benefit) and (ii) the cumulative effect of a change in accounting, of $266,555 in 1994 compared to a loss of $259,598 in 1993. The principal reason for the increase in operating results was that the Company provided in 1993 for a reserve of $187,937 against accrued interest on its $850,000 promissory note and for a reserve of $450,000 against the principal balance of the note. See "Note C to the Company's Financial Statements."
This increase in income was offset in part by an increase in professional fees of $95,129 attributable to (i) expenses incurred in connection with the litigation involving the $850,000 promissory note and the litigation involving Marvin Olshan, as described above in "Item 3. Legal Proceedings," and (ii) fees incurred in the performance of a due diligence examination in connection with a proposed business acquisition by the Company. The proposed acquisition subsequently was abandoned, in part because of the decrease in available cash resulting from the Company's February 7, 1995 dividend to its stockholders.
The Company's net income of $276,527 in 1993 compared to its net loss of $297,980 in 1994 resulted primarily from (i) a provision for income taxes in 1994 of $564,535 and (ii) an income benefit of $446,982 in 1993. Included in the provision for income taxes for 1994 is a decrease in the valuation allowance for deferred tax assets of $512,963. This decrease was attributable to the expiration of loss carryforwards and to the Company's February 7, 1995 dividend to its stockholders, which changed the amount of future income expected to be realized by the Company.
(b) Liquidity, Capital Resources and Future Operations.
As of December 31, 1995, the Company had cash in the amount of $2,975,808 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 direction of the Company is uncertain, although the Company's Board of Directors is in the process of addressing this issue. See "Item 1. Business." 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) New Accounting Standard.
Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed of" (SFAS No. 121), issued by the Financial Accounting Standards Board (FASB) is effective for financial statements for fiscal years beginning after December 15, 1995. The new standard establishes guidelines regarding when impairment losses on long-lived assets, which include plant and equipment, and certain identifiable intangible assets should be recognized and how impairment losses should be measured. The Company does not expect adoption to have a material effect on its financial position or 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:
Name Age Position with the Company ____ ___ _________________________
William J. Adams 66 Director and Secretary
Allan L. Chapman 58 Chairman of the Board of Directors, Chief Executive Officer and President
Morris Engel 69 Chief Financial Officer and Treasurer
Ira L. Gottshall 38 Director
Peter M. Graham 41 Director
Ronald LaBow 61 Director
Martin Oliner 48 Director
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 also serves as a director of Combined Broadcasting, Inc. 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 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 and as President of The Southern Group, an insurance holding company, since October 1995. Mr. Gottshall served as Chief Operating Officer of Pierce Financial & Insurance Services from January 1994 until October 1995; as President and Chief Executive Officer of First Delaware Life Insurance Company from July 1991 until January 1994 and as manager of its life insurance operations from April 1986 through July 1991; as a Senior Vice President of First Landmark Life Insurance Company from late 1990 until January 1994; as a Vice President of Evergreen Acceptance Corporation from September 1992 until January 1994; as a Vice President of Rhodes Financial, Inc. from September 1992 until January 1994; as a Vice President of Flintridge Corporation from September 1992 until January 1994; as a Vice President of Lincoln Indemnity Company from January 1993 until January 1994; and as President and Chief Executive Officer of Lincoln Liberty Life Insurance Company from May 1993 until January 1994.
Peter M. Graham has served as a director of the Company since March 1991. Mr. Graham has served as Chairman of the Executive Committee of Ladenburg, Thalmann & Co. Inc., an investment banking firm, since 1990, as its Director of Corporate Finance since 1989, as its President since 1995 and as a director of the firm since 1982. He also serves as a director of Rudy's Restaurant Group, Suspension & Parts Industries, Ltd., Seventh Generation, Inc. and Prism Entertainment Corporation.
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. Mr. LaBow was employed by Neuberger & Berman, a stock brokerage firm, from 1978 through early 1990, and as a Vice President from 1979 to May 1985 of Liberty Fund, a public mutual fund, to which an affiliate of Neuberger & Berman serves as investment adviser. He also serves as a director of Teledyne, Inc.
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., an insurance holding company, and as a director and/or President of First Delaware Life Insurance Company, First Landmark Life Insurance Company, Evergreen Acceptance Corporation, Rhodes Financial, Inc., Flintridge Corporation, Lincoln Indemnity Company, Lincoln Liberty Life Insurance Company, NYRIB, Inc. and Hallworth Corporation, all of which are wholly owned subsidiaries of First Lincoln Holdings, Inc.
Approximately 39% of the outstanding shares of the Company's common stock are owned by First Lincoln Holdings, Inc., a privately held corporation, and its wholly owned subsidiary, Evergreen Acceptance Corporation. First Lincoln Holdings, Inc. was known formerly as First Executive Corporation. In May 1991, First Executive Corporation filed a petition under Chapter 11 of the Bankruptcy Code. First Executive Corporation was reorganized, effective September 11, 1992, as First Lincoln Holdings, Inc. In addition, Executive Life Insurance Company, a former subsidiary of First Lincoln Holdings, Inc., was placed into conservatorship by the California Insurance Commissioner in April 1991.
Messrs. Adams, Chapman, Gottshall and Oliner have served as executive officers and/or directors of First Lincoln Holdings, Inc. and/or one or more of its subsidiaries. Messrs. Adams, Chapman and Gottshall were appointed as directors of the Company in 1992 following a request made to the Company by First Lincoln Holdings, Inc. and Evergreen Acceptance Corporation that such persons be appointed as directors, and Mr. Oliner was appointed as a director in 1993 following a similar request made by First Lincoln Holdings, Inc. and Evergreen Acceptance Corporation. The Company's Board of Directors acquiesced to such requests in light of the relative size of the beneficial ownership of the Company's common stock by First Lincoln Holdings, Inc. and Evergreen Acceptance Corporation.
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.
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, 1995, December 31, 1994 and December 31, 1993 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.
_____________________________
(1) Represents Mr. Chapman's receipt of directors' fees.
(b) Compensation of Directors.
During 1995, 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 March 1, 1996 by each such person or group and the percentage of the outstanding shares of the Company's common stock beneficially owned as of March 1, 1996 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. The proposed transaction pursuant to which First Lincoln Holdings, Inc. and Evergreen Acceptance Corporation may acquire ownership of a majority of the Company's outstanding common stock is described above in "Item 1. Business."
Approximate Shares of Stock Percent Name of Beneficial Owner Beneficially Owned of Class - ----------------------- ------------------ ----------- Five Percent Shareholders
First Lincoln Holdings, Inc. 34,122,125 39.1% Evergreen Acceptance Corporation 3 Christina Center, Suite 1004 201 North Walnut Street Wilmington, Delaware 19801
Regency Shareholders Committee 9,666,500 11.1 Richard Sandler Robert Frome
RA Partnership 9,408,000 10.8 9560 Wilshire Boulevard Beverly Hills, CA 90210
EJ Associates 8,843,700 10.1 9560 Wilshire Boulevard Beverly Hills, CA 90210
Directors and Named Executive Officers
William J. Adams 20,000 *
Allan L. Chapman 235,000 *
Ira L. Gottshall 0 0
Peter M. Graham 0 0
Ronald LaBow 0 0
Martin Oliner 0 0
All Directors and Executive Officers as a Group (7 persons) 255,000 *
______________________________
* Owns less than 1% of the Company's outstanding shares of common stock.
Evergreen Acceptance Corporation is a wholly owned subsidiary of First Lincoln Holdings, Inc. Evergreen Acceptance Corporation is the record owner of 33,112,125 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.
As described above in "Item 1. Business," the Regency Shareholders Committee (the "Committee") engaged in a proxy contest with the Company in connection with the January 16, 1995 annual meeting of stockholders. The following information is based upon a Schedule 13D filed by the individuals and entities described below with the Securities and Exchange Commission on or about January 5, 1995, as amended by filings made on or about January 10, 13 and 17, 1995, respectively:
The Committee (through its members), Richard Sandler (individually and as trustee) and Robert Frome (individually and through his trust) beneficially own an aggregate of 9,666,500 shares of the Company's common stock, representing approximately 11.1% of the Company's outstanding common stock. Prior to January 1, 1995, such group owned less than 10% of the Company's outstanding common stock. The members of the Committee, which is not a formal legal entity, are Lawrence Butler, Jack Howard, Ronald LaBow and Warren G. Lichtenstein. Although the Schedule 13D, as amended, contains inconsistent statements, it appears that Messrs. Butler and Lichtenstein and Steel Partners II, L.P. ("Steel Partners"), a partnership with which they are affiliated, share voting and investment power with respect to 6,519,625 shares of the Company's common stock. Mr. LaBow is not listed as having voting or investment power with respect to any shares of the Company's common stock and Mr. Howard, the fourth Committee member, is listed as having sole voting and investment power with respect to 50,000 shares of the Company's common stock.
As described above in "Item 1. Business," Mr. Sandler agreed to bear a portion of the Committee's proxy solicitation expenses. Mr. Sandler is listed in the Schedule 13D, as amended, as having beneficial ownership of 2,996,875 shares of the Company's common stock; with respect to such shares, Mr. Sandler has sole voting and investment power over 346,875 shares; the M&L 1981 Trust, of which Mr. Sandler is trustee, has sole voting and investment power over 1,765,000 shares; and the L&S 1981 Trust, of which Mr. Sandler is also the trustee, has sole voting and investment power over 885,000 shares. The Schedule 13D, as amended, also states that Robert Frome, who agreed to participate in the Committee's effort to remove the Company's directors through written consents from stockholders, has beneficial ownership of 100,000 shares of the Company's common stock; with respect to such shares, Mr. Frome has sole voting and investment power over 85,000 shares, and Mr. Frome's pension and profit-sharing trust has sole voting and investment power over 15,000 shares.
The business address of the Committee, Steel Partners and Messrs. Butler and Lichtenstein is 750 Lexington Avenue, 27th Floor, New York, New York 10022. The business address of Mr. Howard is 2927 Montecito Avenue, Santa Rosa, California 95404. The business address of Mr. LaBow is 110 East 59th Street, New York, New York 10019. The business address of Mr. Sandler and his trusts is 844 Moraga Drive, Los Angeles, California 90049. The business address of Mr. Frome is 505 Park Avenue, New York, New York 10022.
The Company believes that the partners of this partnership are Michael Milken and a member of his immediate family.
The Company believes that the partners of this partnership are Lowell Milken and a member of his immediate family. Lowell Milken and Michael Milken are brothers.
Mr. LaBow is not the record owner of any shares of the Company's common stock. Mr. LaBow is a member of the Committee. Information presented for Mr. LaBow does not include any shares of the Company's common stock that are owned by the Committee or any of its members, and Mr. LaBow disclaims beneficial ownership of such shares.
Information presented for Mr. Oliner does not include any shares of the Company's common stock that are owned by First Lincoln Holdings, Inc. or 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 disclaims beneficial ownership of the shares of the Company's common stock that are owned by First Lincoln Holdings, Inc. and Evergreen Acceptance Corporation.
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 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, LLP. The Company paid fees of $27,946 to Engel & Kalvin in 1995 in consideration for accounting and tax services rendered by that firm.
Reference is made to "Item 1. Business" for a description of a proposed transaction between the Company and several stockholders who each own more than ten percent of the Company's outstanding common stock.
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.
Page No.
Report of BDO Seidman, LLP. . . . . . . . . . . . . . . .
Balance Sheets - December 31, 1995 and 1994 . . . . . . .
Statements of Operations - Years Ended December 31, 1995, 1994 and 1993 . . . . . .
Statements of Changes in Shareholders' Equity - Years Ended December 31, 1995, 1994 and 1993 . . . . . . . . . . . . . . . . . .
Statements of Cash Flows - Years Ended December 31, 1995, 1994 and 1993 . . . . . . . . .
Notes to Financial Statements . . . . . . . . . . . . . .
Report of BDO Seidman, LLP on Schedules . . . . . . . . .
Schedule II - Valuation and Qualifying Accounts . . . . .
Schedule III - Real Estate and Accumulated Depreciation . . . . . . . . . . . . . . . . . . .
Schedule IV - Mortgage Loan on Real Estate and Interest Earned on Mortgage . . . . . . . . . . . . . . . . . . . . .
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 Lease Agreement dated February 17, 1978 and amended by First Amendment of Lease dated September 1, 1984 and by Second Amendment of Lease dated as of June 1, 1990, 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, 1990.
10.4 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.
10.5 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.
10.6 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.
10.7 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.
10.8 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.
10.9 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.
10.10 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, 1995.
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 27, 1996 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 27, 1996 By /s/ ALLAN L. CHAPMAN ___________________________________________ Allan L. Chapman Chairman of the Board, Chief Executive Officer and President (Principal Executive Officer)
Date: March 27, 1996 By /s/ MORRIS ENGEL __________________________________________ Morris Engel Chief Financial Officer and Treasurer (Principal Financial and Accounting Officer)
Date: March 27, 1996 By /s/ WILLIAM J. ADAMS ___________________________________________ William J. Adams Secretary and Director
Date: March 27, 1996 By /s/ RONALD LaBOW ___________________________________________ Ronald LaBow Director
Date: March 27, 1996 By /s/ PETER M. GRAHAM ___________________________________________ Peter M. Graham Director
Date: March 27, 1996 By /s/ IRA L. GOTTSHALL ____________________________________________ Ira L. Gottshall Director
Date: March 27, 1996 By /s/ MARTIN OLINER ___________________________________________ Martin Oliner Director
REGENCY EQUITIES CORP.
ANNUAL REPORT ON FORM 10-K
ITEM 8 AND ITEM 14(a)(1) and 14(a)(2)
FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
YEAR ENDED DECEMBER 31, 1995
REPORT OF INDEPENDENT AUDITORS
Board of Directors Regency Equities Corp.
We have audited the accompanying balance sheets of Regency Equities Corp. as of December 31, 1995 and 1994 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, 1995. 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, 1995 and 1994 and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1995 in conformity with generally accepted accounting principles.
BDO SEIDMAN, LLP
Los Angeles, California February 9, 1996
REGENCY EQUITIES CORP.
BALANCE SHEETS DECEMBER 31, ------------------------------
1995 1994 ------------ ------------- ASSETS Cash (Note A and H) $ 2,975,808 $15,298,990 Rent receivable 100,989 105,441 Rental property owned, net of write down for possible loss of $215,000 and accumulated depreciation of $245,340 in 1995 and $196,272 in 1994 (Note B) 1,011,101 1,060,169 Deferred income taxes (Note D) 151,822 28,670 Mortgage receivable, net of reserve for collectibility of $450,000 in 1994 (Note C) 400,000 ----------- -----------
$ 4,239,720 $16,893,270 =========== =========== LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES Accounts payable and accrued expenses $ 211,778 $ 60,660 Income taxes payable (Note D) 1,320 5,720 ----------- -----------
213,098 66,380 ----------- ----------- CONTINGENCIES (NOTES A and G)
SHAREHOLDERS' EQUITY (Note H): Preferred stock, par value $.01 per share, authorized 5,000,000 shares; none issued Common stock, par value $.01 per share, authorized 125,000,000 shares; issued and outstanding 87,283,661 shares 872,836 872,836 Additional paid-in capital 47,660,331 47,660,331 Accumulated deficit ( 44,506,545) ( 31,706,277) ----------- -----------
4,026,622 16,826,890 ----------- -----------
$ 4,239,720 $16,893,270 =========== ===========
See accompanying notes to financial statements
REGENCY EQUITIES CORP.
STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31, ----------------------------------- 1 9 9 5 1 9 9 4 1 9 9 3 --------- --------- --------- REVENUES: Interest income (Note H) $ 160,946 $ 510,570 $ 516,863 Rental income 264,850 262,711 279,936 Recovery of reserve for collectibility of mortgage receivable (Note C) 500,000 ---------- ---------- ---------
TOTAL REVENUES 925,796 773,281 796,799 ---------- ---------- ---------
EXPENSES: Administrative expense 221,887 151,760 159,445 Professional fees (Note F) 428,690 238,857 143,727 Rental expense 104,370 106,031 115,185 Litigation settlement (Note G) 10,000 Provision for bad debts (Note C) 637,937 Other expenses 78 103 ---------- ---------- ----------
TOTAL EXPENSES 754,947 506,726 1,056,397 ---------- ---------- ----------
INCOME (LOSS) BEFORE INCOME TAXES (BENEFIT) 170,849 266,555 ( 259,598)
PROVISION (BENEFIT) FOR INCOME TAXES (NOTE D) ( 121,432) 564,535 ( 89,143) --------- --------- --------
INCOME (LOSS) BEFORE CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING 292,281 ( 297,980) ( 170,455)
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING: Tax benefit for change in accoun- ting for income taxes (NOTE D) 446,982 ---------- ---------- ---------- NET INCOME (LOSS) $ 292,281 ($ 297,980) $ 276,527 ========== =========== ==========
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING 87,283,661 87,283,661 87,283,661 ========== ========== ========== INCOME (LOSS)PER SHARE:
INCOME (LOSS) BEFORE CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING $ .003 ($ .003) ($ .002) ========== ========== ==========
NET INCOME (LOSS) $ .003 ($ .003) $ .003 ========== ========== ==========
See accompanying notes to financial statements
REGENCY EQUITIES CORP.
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
THREE YEARS ENDED DECEMBER 31, 1995
COMMON STOCK ADDITIONAL -------------------- NUMBER OF PAID-IN ACCUMULATED SHARES AMOUNT CAPITAL DEFICIT ---------- -------- --------- -----------
BALANCE AT January 1, 1993 87,283,661 $872,836 $47,660,331 ($31,684,824)
Net income 276,527 ---------- -------- ----------- ----------- BALANCE AT December 31, 1993 87,283,661 872,836 47,660,331 ( 31,408,297)
Net loss ( 297,980) ---------- -------- ----------- -----------
BALANCE AT December 31, 1994 87,283,661 872,836 47,660,331 ( 31,706,277)
Dividends paid (Note H) ( 13,092,549)
Net income 292,281 ---------- -------- ------------ -----------
BALANCE AT December 31, 1995 87,283,661 $872,836 $47,660,331 ($44,506,545) ========== ======== =========== ===========
See accompanying notes to financial statements
REGENCY EQUITIES CORP.
STATEMENTS OF CASH FLOWS YEAR ENDED DECEMBER 31, --------------------------------------- 1 9 9 5 1 9 9 4 1 9 9 3 ------------ ----------- ----------- INCREASE (DECREASE) IN CASH
OPERATING ACTIVITIES:
Net income (loss) 292,281 ($ 297,980) $ 276,527
Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation 49,068 49,069 49,068
Changes in operating assets and liabilities: Rent receivable 4,453 8,984 ( 141) Interest receivable, net 40,228 99,824 Accounts payable and accrued expenses 151,117 5,553 ( 20,270) Mortgage receivable 850,000 Reserve for collectibility of mortgage receivable ( 450,000) 450,000 Refundable income taxes 1,900 Deferred income taxes ( 123,152) 557,865 ( 541,938) Income taxes payable ( 4,400) 4,460 180 ---------- ----------- ---------- NET CASH PROVIDED BY OPERATING ACTIVITIES 769,367 368,179 315,150 ----------- ----------- ---------- FINANCING ACTIVITIES: Dividends paid ( 13,092,549) ----------- NET CASH USED IN FINANCING ACTIVITIES ( 13,092,549) ---------- ---------- ----------- INCREASE (DECREASE) IN CASH ( 12,323,182) 368,179 315,150
CASH BEGINNING OF YEAR 15,298,990 14,930,811 14,615,661 ----------- ----------- ----------- CASH END OF YEAR $ 2,975,808 $15,298,990 $14,930,811 =========== =========== =========== See accompanying notes to financial statements
NOTES TO FINANCIAL STATEMENTS
REGENCY EQUITIES CORP.
December 31, 1995
NOTE A - SIGNIFICANT ACCOUNTING POLICIES
BUSINESS: The Company is incorporated in Delaware. The Company's business activity has been the operation of a shopping center in Grand Rapids, Michigan. The Company settled in 1995 the collection of a mortgage note (see Note C). The Company is considering exploring new investment opportunities or possible liquidation.
CASH: Regency Equities Corp.'s (the "Company") cash at December 31, 1995 is deposited with two major U.S. banks. At December 31, 1995 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. Tenant improvements are amortized over the life of the lease using the straight-line method.
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: The Company provides for income taxes in accordance with the Financial Accounting Standards Board Statement of Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes" effective January 1, 1993. SFAS No. 109 requires the asset and liability method of accounting for income taxes. Under the asset and liability method, deferred income taxes are recognized for the tax consequences of "temporary differences" by applying enacted statutory tax rates applicable to future years to differences between the financial statement carrying amounts and the tax bases of existing assets and liabilities. In addition, the tax benefits from the future utilization of available "Net Operating Loss Carryovers" (computed at current enacted statutory tax rates) are treated as an asset. A valuation allowance is required for all or a portion of such asset based on the Company's determination of the amount of realization that is more likely than not to occur. Under SFAS No. 109, the effect on deferred taxes of a change in tax rates is recognized in the income statement in the period that includes the enactment date.
NOTES TO FINANCIAL STATEMENTS
REGENCY EQUITIES CORP.
December 31, 1995
NOTE A - SIGNIFICANT ACCOUNTING POLICIES (continued)
MORTGAGE AND INTEREST RECEIVABLE: Effective December 31, 1993, the Company adopted Financial Accounting Standards Board Statement of Financial Accounting Standards ("SFAS") No. 114, "Accounting by Creditors for Impairment of a Loan." In accordance with SFAS 114, the Company had provided an allowance for credit losses based upon the estimated fair value of the underlying collateral less estimated costs to sell. This allowance was reversed in 1995 (See Note C).
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.
NOTE B - RENTAL PROPERTY AND DEPRECIATION
Rental property consists of a shopping center in Grand Rapids, Michigan. Two tenants lease all of the space in the shopping center. The leases expire on July 10, 1997 and August 31, 1999. The future minimum rentals, excluding amounts contingent upon tenant sales levels, from these leases are as follows:
1996 $230,000 1997 225,000 1998 204,000 1999 136,000 -------- $795,000 ======== NOTE C - MORTGAGE RECEIVABLE
On February 12, 1990, the Company entered into a second mortgage agreement on a commercial building in New York state. The $850,000 mortgage earned interest at a rate of 13% per annum and was due on March 1, 1994. Interest originally was payable annually at the rate of 8.5% per annum with the balance of the interest and principal due upon the maturity of the loan.
NOTES TO FINANCIAL STATEMENTS
REGENCY EQUITIES CORP.
December 31, 1995
NOTE C - MORTGAGE RECEIVABLE (continued)
The note was amended effective as of June 1, 1992 to provide that (a) interest was currently payable at an annual rate of 3%, (b) the additional 5.5% of annual interest to be deferred was to bear interest at 6% per annum compounded monthly, and, (c) the balance of the interest was due with the principal upon the maturity of the loan.
During 1993, the borrower ceased making interest payments on the mortgage and the Company (a) ceased accruing interest on the mortgage, and (b) commenced an action for collection against the borrower and the guarantor of the mortgage. At December 31, 1994 the Company had provided a reserve of $187,937 against accrued interest and a reserve of $450,000 against the principal balance. The reserves totalling $637,937 were determined based upon management's estimate of the net realizable value of the underlying property.
In November 1994, the United States District Court for the Southern District of New York awarded a summary judgment against the borrower in the amount of $1,341,093, which included unpaid principal and accrued interest through October 28, 1994. In July 1995, the Court awarded a summary judgment against Siegal in the amount of $1,564,753. The Company vigorously pursued collection of the judgement and on October 3, 1995, entered into a settlement agreement whereby the Company received $900,000 in cash in full settlement of all amounts outstanding. The settlement resulted in a gain of $500,000 representing the recovery of amounts previously reserved.
NOTE D - INCOME TAXES (BENEFIT)
Effective January 1, 1993, the Company adopted Statement of Financial Accounting Standards No. 109 "Accounting for Income Taxes" (SFAS 109). SFAS 109 is an asset and liability approach that requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in the Company's financial statements or tax returns. If it is more likely than not that some portion or all of a deferred tax asset will not be realized, a valuation allowance is recognized. In accordance with SFAS 109, the cumulative effect of
NOTES TO FINANCIAL STATEMENTS
REGENCY EQUITIES CORP.
December 31, 1995
NOTE D - INCOME TAXES (BENEFIT) (continued)
adoption on prior years' results of operations totalling $446,982, has been shown in the Statement of Income for 1993, the year of change.
The provision (benefit) for income taxes consists of:
1995 1994 1993 -------- -------- -------- Federal: Current ($157,115) $ 90,641 $ 128,939 Deferred 213,173 ( 7,006) (216,748) State: Current ( 23,533) 20,728 29,508 Deferred 29,506 ( 158) ( 30,842)
Increase (decrease) in valuation allowance of deferred tax assets ( 183,463) 460,330 -------- -------- ---------
Total ($121,432) $564,535 ($ 89,143) ======== ======== ========
The current benefit for 1995 results primarily from the deduction for income tax purposes of a bad debt provision provided for in 1993. The deferred benefit for 1993 results primarily from a provision for bad debt and litigation settlement, respectively, deducted for financial reporting purposes but not for income tax purposes.
The reconciliation of the provision for income taxes and the amount computed by applying the statutory federal income tax rate to earnings (loss) before income taxes is as follows: 1995 1994 1993 ------ ------ ------ Federal tax (benefit) at statutory rate 34.0% 34.0% (34.0%) State income tax (benefit), net of federal income tax benefit 2.3 5.1 ( .3) Increase (decrease) in valuation allowance of deferred tax assets (110.9) 172.7 ------ ------ ------- Provision (benefit) for income taxes ( 74.6%) 211.8% (34.3%) ====== ====== ======
NOTES TO FINANCIAL STATEMENTS
REGENCY EQUITIES CORP.
December 31, 1995
NOTE D - INCOME TAXES (BENEFIT) (continued)
Deferred tax assets (liabilities) consist of:
1995 1994 ---------- ----------
Depreciation ($ 66,002) ($ 67,579) Rental income ( 28,556) ( 29,363) ---------- ----------
Gross deferred tax liabilities ( 94,558) ( 96,942) ---------- ----------
Bad debt provision 237,150 Rental property loss allowance 76,435 76,435 Loss carryforwards 6,752,704 7,025,389 ---------- ---------- Gross deferred tax assets 6,829,139 7,338,974
Valuation allowance ( 6,582,759) ( 7,213,362) ---------- ----------
Net deferred tax assets 246,380 125,612 ---------- ---------
Deferred taxes $ 151,822 $ 28,670 ========== ==========
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 amount of the deferred tax asset considered realizable, however, could be reduced in the near term if estimates of future taxable income during the carryforward period are reduced. The valuation allowance as of December 31, 1993, the year in which SFAS 109 was adopted, was $7,726,325. The net change in the total valuation allowance for the years ended December 31, 1995 and 1994 were ($630,603) and ($512,963), respectively. The decrease in 1995 results primarily from the expiration of loss carryforwards. The decrease in 1994 was due to the expiration of loss carryforwards and the anticipated reduction in estimated future taxable income resulting from the Company's payment in February 1995 of a $13,092,549 cash dividend.
NOTES TO FINANCIAL STATEMENTS
REGENCY EQUITIES CORP.
December 31, 1995
NOTE D - INCOME TAXES (BENEFIT) (concluded)
The Company had operating loss carryforwards at December 31, 1995 for federal tax purposes as follows:
EXPIRES IN: 1996 $ 1,000,000 1997 1,700,000 1999 6,490,000 2000 8,700,000 2007 620,000 2010 460,000 ----------- $18,970,000 ===========
The Company also had significant Michigan state operating loss carryforwards at December 31, 1995.
The Company made income tax payments of $6,120, $2,210, and $6,433 during 1995, 1994 and 1993, respectively.
NOTE E - 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 1993, 1994 or 1995. No options were outstanding at December 31, 1995; however, options were available to be granted for 5,450,000 shares.
NOTE F - 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 $27,946 in 1995, $56,238 in 1994 and $36,977 in 1993.
NOTES TO FINANCIAL STATEMENTS
REGENCY EQUITIES CORP.
December 31, 1995
NOTE G - LITIGATION SETTLEMENT
In an action commenced by Marvin L. Olshan, a former president and director of the Company, Mr. Olshan sought $468,000 plus interest from December 31, 1989 for additional compensation over and above his salary, for services allegedly rendered during 1988 and 1989. On December 8, 1994 the Company paid Mr. Olshan $10,000 in full settlement of the matter.
NOTE H - DIVIDENDS PAID
On January 16, 1995, the Board of Directors declared a $13,092,549 ($.15 per share) dividend which was paid February 7, 1995 to shareholders of record as of January 30, 1995. The dividend represented approximately 77.5% and 77.8% of total assets and shareholders' equity at December 31, 1994, respectively. Included in interest income for the years ended December 31, 1994 and 1993 is $442,698 and $372,365, respectively earned on the $13,092,549 cash.
The Company's Board of Directors has not yet determined the future direction of the Company, although the Board intends to give careful consideration to a liquidation and distribution to shareholders of all or substantially all of the Company's remaining assets.
REPORT OF INDEPENDENT AUDITORS ON FINANCIAL STATEMENT SCHEDULES
Board of Directors Regency Equities Corp.
The audits referred to in our report dated February 9, 1996 relating to the financial statements of Regency Equities Corp., which is contained in Item 8 of this Form 10-K included the audit of the financial statement schedules listed in the accompanying index. These financial statement schedules are the responsibility of the Company's management. Our responsibility is to express an opinion on the financial statement schedules based on our audits.
In our opinion such financial statement schedules present fairly, in all material respects, the information set forth therein.
BDO SEIDMAN, LLP
Los Angeles, California February 9, 1996
REGENCY EQUITIES CORP.
VALUATION AND QUALIFYING ACCOUNTS - SCHEDULE II
December 31, 1995
Additions Additions Balance at (deductions)(deductions)Balance beginning charged to from at end of year operations reserve of year ---------- ---------- --------- ---------
Allowance for credit losses: Year ended December 31, 1994$ 637,937 $ $ $ 637,937 ---------- ---------- --------- ---------- Year ended December 31, 1995$ 637,937 $ ($637,937) $ 0 ---------- ---------- -------- ----------
Deferred tax valuation allowance deducted from deferred tax assets: Year ended December 31, 1994$7,726,325 $ 460,330 ($973,293) $7,213,362 ---------- --------- -------- ---------- Year ended December 31, 1995$7,213,362 ($ 183,463)($447,140) $6,582,759 ---------- --------- -------- ----------
REGENCY EQUITIES CORP. REAL ESTATE AND ACCUMULATED DEPRECIATION - SCHEDULE III
Costs capitalized Gross amount subsequent to at which carried (4) Life (years) Initial Cost acquisition at close of period Accumu- on which -------------- ------------ ------------------------- (1) Bldg. & Bldg. & lated deprecia- Descrip- Improve- Improve- Improve- (5) Deprecia- Date tion is tion Land ments ments Land ments Total tion acquired computed - ---------- ------ -------- -------- ------ --------- ----- --------- --------- --------
December 31, 1995 $266,076 $794,337 $411,028 $266,076 $1,205,365 $1,471,441 $245,340 Oct 1976 25
(1) The property is a shopping arcade in Grand Rapids, Michigan.
(2) The property was not subject to encumbrance at December 31, 1995, 1994, or 1993.
(3) An allowance for possible losses of $215,000 has been provided at December 31, 1995, 1994, and 1993 to adjust the carrying value of the property to estimated net realizable value.
(4) Reconciliation of accumulated depreciation:
1995 1994 1993 -------- -------- -------- Balance at beginning of period$196,272$147,204$ 98,136 Additions during period 49,068 49,068 49,068 -------- -------- --------
Balance at close of period$245,340$196,272 $147,204
======== ======== ========
(5) The aggregate cost for federal income tax purposes of the property for each of the three years December 31, 1993, 1994 and 1995 was $1,297,309.
/TABLE
REGENCY EQUITIES CORP.
MORTGAGE LOAN ON REAL ESTATE AND INTEREST EARNED ON MORTGAGE
SCHEDULE - IV
Part 1 Part 2 Mortgage loan on Real Estate at close of period Interest earned on mortgage - ----------------------------------------------------------- ----------------------------
Amount of principal Amount of Interest Carrying unpaid at mortgage Interest due income earned Prior amount of close of being and accrued at applicable Description liens mortgage period foreclosed end of period to period - ----------- ----- -------- --------- ---------- -------------- -------------
December 31, 1995 $ 0 $ 0 $ 0 None $ 0 $ 0
The loan was a second mortgage on a commercial building in New York state.
Reconciliation of carrying amount of mortgage: 1995 1994 1993 -------- -------- -------- Balance at beginning of period$400,000$400,000$850,000 Deduction during period: Recovery (Reserve) for450,000 ( 450,000) uncollectibility Payment received( 850,000) -------- -------- --------
Balance at close of period$ 0$400,000$400,000 ======== ======== ========
Reconciliation of interest due and accrued: Balance at beginning of period$ 0$ 0$140,052 Additions during period: Interest earned 56,385 -------- -------- -------- 0 0 196,437 -------- -------- -------- Deductions during period: Collections of interest( 50,000) ( 8,500) Recovery (reserve) for50,000 ( 187,937) ------- -------- -------- uncollectibility 0 0( 196,487) ------- -------- -------- Balance at close of period$ 0$ 0$ 0 ======= ======== ========
/TABLE
REGENCY EQUITIES CORP.
ANNUAL REPORT ON FORM 10-K
INDEX TO EXHIBITS Exhibit Number Description Page - ------- ----------- ----
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 Lease Agreement dated February 17, 1978 and amended by First Amendment of Lease dated September 1, 1984 and by Second Amendment of Lease dated as of June 1, 1990, 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, 1990.
10.4 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.
10.5 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.
10.6 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.
10.7 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.
10.8 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.
10.9 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.
10.10 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)