Attached files
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
-----------
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the quarterly period ended June 30, 2011
--------------------------------------------------------------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the transition period from __________ to __________
Commission File Number 000-9519
--------
REGENT TECHNOLOGIES, INC.
--------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
COLORADO 84-0807913
--------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5646 Milton, Suite 722
Dallas, Texas 75206
(Address of principal executive offices)
855-744-7449
(Issuer's telephone number)
Regent Petroleum Corporation
(Former name of Issuer)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 (the
"Exchange Act") during the preceding 12 months (or for such shorter period that
the Registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
------ ------
Indicate by check mark whether the Registrant is a large accelerated filer, an
accelerated filer or a non-accelerated filer. See definition of "accelerated
filer and large accelerated filer" in Rule 12b-2 of the Exchange Act.
Large accelerated filer Accelerated filer
--- ---
Non-accelerated filer Smaller reporting company X
--- ---
Indicate by check mark whether the Registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act).
Yes No X
------ ------
The number of outstanding shares of the issuer's only class of common stock as
of August 15, 2011 was 22,360,233.
REGENT TECHNOLOGIES, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
INDEX TO FORM 10-Q
June 30, 2011
Page Nos.
--------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets (Unaudited) 1
at June 30, 2011 and December 31, 2010 (Audited)
Consolidated Statements of Operations (Unaudited) 2
For the Three Months and Six Months Ended June 30, 2011 and 2010
For the Period from Inception (January 1, 1999) to
June 30, 2011
Consolidated Statements of Cash Flows (Unaudited) 3
For the Six Months Ended June 30, 2011 and 2010
For the Period from Inception (January 1, 1999) to
June 30, 2011
Notes to Consolidated Financial Statements 4
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 8
Item 3. Quantitative and Qualitative Disclosures About Market Risk 13
Item 4. Controls and Procedures 13
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 14
Item 1A. Risk Factors 14
Item 2. Changes in Securities 14
Item 3. Defaults Upon Senior Securities 14
Item 4. Submission of Matters to a Vote of Security Holders 14
Item 5. Other Information 14
Item 6. Exhibits 14
SIGNATURE 15
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
------- --------------------
REGENT TECHNOLOGIES, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEET
June 30, December 31,
2011 2010
------------------ ------------------
(Unaudited)
ASSETS
CURRENT ASSETS:
Cash in bank $ 441 $ 24,790
Accounts receivable 2,208 2,046
--------- ---------
Total Current Assets 2,649 26,836
PROPERTY AND EQUIPMENT (Net of Accumulated Depletion
and Depreciation):
Oil and natural gas properties, full cost accounting
Unproved properties 3,080 3,080
Proved properties 87,020 82,020
Net profits production interest 5,695 5,695
Equipment and other fixed assets 1,214 1,388
--------- ---------
Total property and equipment, net 97,009 92,183
Investment (Note 4) 575,992 575,992
--------- ---------
Total Assets $ 675,650 $ 695,011
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 4,708 $ 4,247
Notes payable - related parties 53,970 43,700
Accrued interest payable 407 718
--------- ---------
Total Current Liabilities 59,085 48,665
--------- ---------
Note payable - related parties, less current portion 23,950 40,950
Asset retirement obligation 5,200 5,200
--------- ---------
Total liabilities 88,235 94,815
COMMITMENTS AND CONTINGENCIES (Note 9)
STOCKHOLDERS' EQUITY:
Convertible Preferred stock, $.10 par value, 1,000,000
shares authorized, 99,500 shares issued
and outstanding, Regent Natural Resources Co. 9,950 9,950
Preferred stock, $.10 par value, 30,000,000
shares authorized, no shares issued and
outstanding, Registrant - -
Common stock, $.01 par value, 100,000,000
shares authorized, 22,360,233 shares
issued and outstanding 223,602 223,602
Paid-in capital in excess of par 3,629,141 3,629,141
Accumulated deficit (including $72,722 net income
accumulated since reentering the development stage) (3,275,278) (3,262,497)
--------- ---------
587,415 600,196
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 675,650 $ 695,011
========= =========
The accompanying notes are an integral part of the consolidated financial statements.
1
REGENT TECHNOLOGIES, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2011 AND 2010
AND FOR THE PERIOD JANUARY 1, 1999
THROUGH JUNE 30, 2011
(UNAUDITED)
For the For the For the For the
three three six six Cumulative
months months months months Since Re-entering
ended June ended June ended June ended June Development Stage
30, 2011 30, 2010 30, 2011 30, 2010 January 1, 1999
------------ ------------ ------------ ------------ ------------
Revenues $ 8,911 $ - $ 14,918 $ - $ 16,964
Operating expenses:
General and administrative 14,048 7,216 24,954 14,384 372,157
Depreciation expense 87 89 174 89 268
--------- --------- --------- --------- ---------
Operating loss ( 5,224) ( 7,305) ( 10,210) ( 14,473) (355,461)
--------- --------- --------- --------- ---------
Other income and (expense):
Gain on fair value measurement - - - ( 9,304) 262,760
Gain on extinguishment of debt - - - - 145,340
Gain on sale of investment - - - - 101,331
Stock grant expense - ( 2,194) - ( 2,194) ( 41,700)
Interest, net ( 1,664) ( 273) ( 2,571) 880 ( 39,548)
--------- --------- --------- --------- ---------
Total other income (expense) ( 1,664) ( 1,921) ( 2,571) ( 10,618) 428,183
--------- --------- --------- --------- ---------
Income (loss) from continuing operations
before income taxes ( 6,888) ( 9,226) ( 12,781) ( 25,091) 72,722
Provisions for income taxes - - - - -
--------- --------- --------- --------- ---------
Net income (loss) ( 6,888) ( 9,226) ( 12,781) ( 25,091) 72,722
========= ========= ========= ========= =========
Net income (loss) per common share
(basic and diluted) $( .00) $( .00) $( .00) $( .00)
========= ========= ========= =========
Weighted Average Shares Outstanding 22,360,233 8,523,628 22,360,233 8,505,642
The accompanying notes are an integral part of the consolidated financial statements.
2
REGENT TECHNOLOGIES, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2011 and 2010
AND FOR THE PERIOD JANUARY 1, 1999
THROUGH JUNE 30, 2011
(UNAUDITED)
Cumulative
Since Re-entering
For the Six Months Ended June 30, Development Stage
2011 2010 January 1, 1999
------------ ------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $( 12,781) $( 25,091) $ 72,721
Adjustments to reconcile net income (loss) to net
cash used in operating activities:
Depreciation 174 89 4,204
Gain (loss) from fair value measurement - - (307,726)
Change in fair value measurement - 9,304 44,966
Gain from extinguishment of debt - - (145,340)
Gain from sale of investment - - (101,331)
Note issued for settlement expenses - - 20,000
Common stock issued for services - 2,194 46,700
Common stock issued in legal settlement - - 14,000
Decrease in settlements and note receivable - - 4,800
Decrease in other assets - - 1,967
Increase in allowance for uncollectible settlements - - 79,892
(Increase) decrease in accounts receivable ( 162) - ( 2,208)
Increase (decrease) in accounts payable 461 ( 1,963) 36,038
Increase (decrease) in accrued interest payable ( 311) 328 25,144
--------- --------- ---------
Net Cash Provided (Used) In Operating Activities ( 12,619) ( 15,139) (206,173)
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in affiliates - - (350,000)
Capital expenditures for oil and gas interests ( 5,000) - ( 15,000)
Capital expenditures for equipment - ( 1,786) ( 1,656)
Proceeds from sale of investments - - 139,600
--------- --------- ---------
Net Cash Used In Investing Activities ( 5,000) ( 1,786) (227,056)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from note payable - related party 10,270 - 120,325
Proceeds from sale of Preferred Stock - 25,000 427,500
Proceeds from note payable - stockholder - - 20,000
Repayments of notes payable ( 17,000) ( 4,500) (134,155)
--------- --------- ---------
Net Cash Provided (Used) In Financing Activities ( 6,730) 20,500 433,670
--------- --------- ---------
Net Increase (Decrease) in Cash ( 24,349) 3,575 441
Cash At Beginning Of Period 24,790 5,297 -
--------- --------- ---------
Cash At End of Period $ 441 $ 8,872 $ 441
========= ========= =========
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES
--------------------------------------------------------------------
Issuance of common stock upon conversion
of notes payable $ - $ - $ 193,840
Common stock issued for oil and gas interests $ - $ - $ 135,000
Cancellation of note payable for oil and gas interests $ - $ - $( 70,000)
Note payable as partial consideration for oil and gas
interests $ - $ - $ 81,750
Oil and gas assets acquired $ - $ - $ 80,795
Asset retirement obligation $ - $ - $ 5,200
Note receivable as partial consideration for
purchase of preferred stock $ - $ - $ 70,000
Repayment of note payable transferred directly
to MacuCLEAR upon sale to GHI, Ltd. $ - $ - $( 150,000)
Partial sale of MacuCLEAR holdings to GHI, Ltd. $ - $ - $ 148,500
Issuance of common stock upon MacuCLEAR sale
to GHI, Ltd. $ - $ - $ 1,500
Common stock returned in failed consideration
and debt settlement $ - $ - $ 510,960
The accompanying notes are an integral part of the consolidated financial statements.
3
REGENT TECHNOLOGIES, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
Note 1. ORGANIZATION AND NATURE OF OPERATIONS
Regent Technologies, Inc. (the "Company" or "Regent"), formerly Regent Petroleum
Corporation, was incorporated under the laws of the State of Colorado on January
18, 1980. During 1999, the Company's subsidiary companies were divested in the
ordinary course of business and effective January 1, 1999, the Company had re-
entered the development stage. Accordingly, all of the Company's operating
results and cash flows reported in the accompanying consolidated financial
statements from that date are considered to be those related to development
stage activities and represent the 'cumulative from inception' amounts from
its development stage activities reported pursuant to ASC No. 915, "Deve-
lopment Stage Activities" ("ASC 915") of the "Financial Accounting Standards
Codification ("Codification" or "ASC") and the Hierarchy of Generally Accepted
Accounting Principles."
During the third quarter of 2010, Regent restructured its management team and
refocused its core business objectives and strategy. The Company's subsidiary
was approved for a name change on September 30, 2010 to Regent Natural Resources
Co. ("Regent NRCo"). We operate through two business divisions, the Energy Tech-
nology Division and the Natural Resources Division. Regent NRCo is a Texas based
independent exploration and production company engaged in the acquisition and
development of producing oil and natural gas properties.
Note 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation and Presentation
--------------------------------------------
The consolidated financial statements include the accounts of the Company and
our wholly-owned subsidiary, Regent NRCo. All significant intercompany balances
and transactions have been eliminated. Our financial statements are prepared in
accordance with accounting principles generally accepted in the United States of
America. The preparation of our financial statements requires management to make
estimates and assumptions that affect the reported assets, liabilities, revenues
and expenses. These estimates are based on information that is currently avail-
able to us and on various assumptions that we believe to be reasonable under the
circumstances. Actual results could differ from those estimates under different
assumptions and conditions.
The significant accounting policies of the Company are described in Note 2 to
the 2010 consolidated financial statements of the 2010 Form 10-K, and the criti-
cal accounting policies and estimates are described in Management's Discussion
and Analysis included in Item 7 of the 2010 Form 10-K and in Item 2 of this
quarterly report. In management's opinion, the accounting policies and estimates
presented in the 2010 Form 10-K have not changed and therefore the unaudited
consolidated financial statements herein should be read in conjunction with the
Company's audited report on Form 10-K for the period ended December 31, 2010,
which was previously filed with the Securities and Exchange Commission.
4
New Accounting Pronouncements
-----------------------------
In December 2010, the FASB issued ASU No. 2010-29, Business Combinations (Topic
805): Disclosure of Supplementary Pro Forma Information for Business Combina-
tions. ASU No. 2010-29 amends ASC Topic 805 and reflects the decision reached in
Emerging Issues Task Force ("EITF") Issue No. 10-G. The amendments in this ASU
specify that if a public entity presents comparative financial statements, the
entity should disclose revenue and earnings of the combined entity as though the
business combination(s) that occurred during the current year had occurred as of
the beginning of the comparable prior annual reporting period only. The amend-
ments expand the supplemental pro forma disclosures to include a description of
the nature and amount of material, nonrecurring pro forma adjustments directly
attributable to the business combination included in the pro forma revenue and
earnings. ASU No. 2010-29 became effective prospectively for the Company with
the reporting period beginning April 1, 2011. The adoption of this new guidance
did not have a material impact on our financial statements for the current and
prior periods.
There were other accounting standards and interpretations issued in 2010, all of
which have been determined to not be applicable or significant by management and
are not expected to have a material impact on the financial position, operations
or cash flows.
Note 3. GOING CONCERN UNCERTAINTIES
As of the date of this quarterly report, there is substantial doubt regarding
our ability to continue as a going concern as we have not generated sufficient
cash flow to fund our business operations and material commitments. Our future
success and viability, therefore, are dependent upon our ability to generate
capital financing. We are optimistic that we will be successful in our new
business operations and capital raising efforts; however, there can be no
assurance that we will be successful in generating revenue or raising additional
capital. The failure to generate sufficient revenues or raise additional capital
may have a material and adverse effect upon the Company and our shareholders.
These consolidated financial statements do not give effect to any adjustments
which would be necessary should the Company be unable to continue as a going
concern and therefore be required to realize its assets and discharge its
liabilities in other than the normal course of business and at amounts different
from those reflected in the accompanying consolidated financial statements.
Note 4. FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company has adopted ASC 820 which defines fair value and the framework for
using fair value to measure assets and liabilities, and expands disclosures
about fair value measurements. The statement applies whenever other statements
require or permit assets or liabilities to be measured at fair value. ASC 820
established the following fair value hierarchy that prioritizes the inputs used
to measure fair value:
o Level 1 -- Unadjusted quoted prices in active markets for identical,
unrestricted assets or liabilities that are accessible at the
measurement date;
o Level 2 -- Quoted prices which are not active, or inputs that are
observable (either directly or indirectly) for substantially the full
term of the asset or liability; and
o Level 3 -- Significant unobservable inputs that reflect the Company's
own assumptions about the assumptions that market participants would
use in pricing an asset or liability.
5
The Company is responsible for the valuation process and as part of this process
may use data from outside sources in establishing fair value. The Company
performs due diligence to understand the inputs used or how the data was
calculated or derived. The Company corroborates the reasonableness of external
inputs in the valuation process. Cash, accounts payable, and other current lia-
bilities are carried at book value amounts which approximate fair value to the
short-term maturity of these instruments.
We used the following fair value measurements for certain of our assets and lia-
bilities during the current period and for the year ended December 31, 2010:
Level 3 Classification: Investment - MacuCLEAR Preferred Stock
---------------------------------------------------------------
As of this quarterly filing, the Company's subsidiary, Regent NRCo, held 123,128
shares of MacuCLEAR Preferred Stock, of which 95,858 shares are beneficially
held for the holders of subsidiary Preferred Stock. Under the process defined
for Level 3 assets, the Company has determined the fair value for the MacuCLEAR
Preferred Stock held directly changed to $12.00 per share at December 31, 2010
based on new sales of MacuCLEAR Series A-1 Preferred Stock for $12.00 per share
during October 2010. The Series A-1 Preferred Stock has the same designations
as the Series A Preferred Stock held by the Company. The Company's beneficial
holdings have not been increased beyond the original cost of $2.595 per share.
The following tables present the fair value measurement of the holdings of Macu-
CLEAR Preferred Stock, beneficial and direct, as of June 30, 2011 and December
31, 2010:
Fair Value Measurements Using
--------------------------------------
June 30, 2011 Level 1 Level 2 Level 3
-------------- ----------- ---------- -----------
MacuCLEAR Preferred Stock at fair value ........... $ - $ - $ 575,992
December 31, 2010
-----------------
MacuCLEAR Preferred Stock at fair value ........... $ - $ - $ 575,992
Note 5. OIL AND GAS ASSETS
Property and Equipment
----------------------
Property and equipment, net are comprised for the periods indicated as follows:
June 30, 2011 December 31,2010
-------------- ----------------
Unproved Oil and Gas Properties (1) 3,080 3,080
Proved Oil and Gas Properties (1) (2) (3) 87,020 82,020
Net Profits Production Interest (1) 5,695 5,695
Furniture and Equipment 12,649 12,649
--------------- ---------------
108,444 103,444
Accumulated Depreciation, Depletion ( 11,435) ( 11,261)
and Amortization --------------- ---------------
$ 97,009 92,183
=============== ===============
(1) Because the oil and gas assets and the net profits interest were acquired
from related parties (Note 8), the properties were recorded at the the basis of
the related parties in the amount of $85,595 as the capitalized costs.
(2) The capitalized costs for 2011 were increased by $5,000 for an oil and gas
easement acquired for the construction of a flow line.
(3) The capitalized costs include $5,200 for asset retirement obligation.
6
Eastern Shelf Asset Acquisition
-------------------------------
Effective April 5,2011, Regent NRCo acquired a .17% overriding royalty interest
in 153 acres in Coke County, Texas. In addition, Regent NRCo received a $2,000
payment, all as part of the agreement assigned to Regent NRCo in the acquisition
executed with Signature Investor Group, LC, dated September 29, 2010, and incor-
porated herein by reference to the Company's Report on Form 10-K for the period
ended December 31, 2010.
Asset Retirement Obligation
---------------------------
The Company accounts for asset retirement obligations based on the guidance of
ASC 410 which addresses accounting and reporting for obligations associated with
the retirement of tangible long-lived assets and the associated asset retirement
costs. ASC 410 requires that the fair value of a liability for a retirement ob-
ligation be recorded in the period in which it is incurred and the corresponding
cost capitalized by increasing the carrying amount of the related long-lived
asset. The liability is accreted to its then present value each period, and the
capitalized cost is depreciated over the estimated useful life of the related
asset. We have included estimated future costs of abandonment and dismantlement
in our amortization base and amortize these costs as a component of our depreci-
ation, depletion, and accretion expense. There was no change to the Company's
asset retirement obligaton for the current period.
Note 6. NOTES PAYABLE
Beginning in 2005, the Company borrowed various amounts for general corporate
purposes under promissory notes to NR Partners. In January 2011, the outstanding
amounts owed to NR Partners was paid. During May 2011, NR Partners loaned $8,170
under a demand note at 5% interest per annum. The monies were borrowed to pay
certain general and administrative costs primarily related to audit expenses.
In connection with the net profits production interest acquisition in December
2010, the Company's subsidiary executed a promissory note for $81,750 to SIG
Partners, LC. The interest rate on the note is 7% plus principal payments of
$3,400 per month beginning February 2011. The promissory note is secured by the
oil and gas interest conveyed and is current at the date of this report.
Note 7. SHAREHOLDERS EQUITY
Common and Preferred Stock
--------------------------
The Company's capital structure is complex and consists of preferred stock and
a general class of common stock. The Company is authorized to issue 130,000,000
shares of stock, of which 30,000,000 have been designated as preferred shares
with a par value per share of $.10, and 100,000,000 have been designated as
common shares with a par value per share of $.01. As of the date of this filing,
there is no preferred stock outstanding and there are 22,360,233 shares of com-
mon stock outstanding.
Holders of Regent's common stock are entitled to one vote for each share on all
matters submitted to a stockholder vote. Holders of common stock do not have
cumulative voting rights. Therefore, holders of a majority of the shares of
common stock voting for the election of directors can elect all of the direc-
tors. Holders of the Regent's common stock representing a majority of the vot-
ing power of Regent's capital stock issued, outstanding and entitled to vote,
represented in person or by proxy, are necessary to constitute a quorum at any
meeting of stockholders. A vote by the holders of a majority of Regent's out-
standing shares is required to effectuate certain fundamental corporate changes
such as liquidation, merger or an amendment to Regent's articles of incorpo-
ration.
Holders of Regent's common stock are entitled to share in all dividends that
the board of directors, in its discretion, declares from legally available
funds. In the event of liquidation, dissolution or winding up, each outstand-
ing share entitles its holder to participate pro rata in all assets that remain
after payment of liabilities and after providing for each class of stock, if
any, having preference over the common stock. Regent's common stock has no
pre-emptive rights, no conversion rights and there are no redemption provisions
applicable to the Regent's common stock.
7
Stock Options
-------------
No options, warrants or similar rights are outstanding as of this report date.
Subsidiary Preferred Stock
--------------------------
On April 18, 2007, our subsidiary accepted purchase agreements in a total amount
of $150,000 received from four purchasers of a private offering of shares of
of Series A Convertible Preferred Stock at $5.00 per share. The stock was sold
under a private placement offering to sell $50,000 units convertible into 10,000
shares of common stock of the subsidiary plus 4,800 shares of common stock of
MacuCLEAR common stock. Including the initial sales, our subsidiary has accepted
purchase agreements from additional investors for $497,500. If all of the uncon-
verted shares of the Series A Preferred Stock were to be converted to common
stock of the subsidiary, the Company's ownership of the subsidiary would be di-
luted to approximately 90%.
Note 8. RELATED PARTY TRANSACTIONS
NR Partners, a partnership comprised of the CEO and director David L. Ramsour as
partners have loaned various amounts under promissory notes to the Company since
2005 (see Note 6). Also, pursuant to an acquisition in December 2010, a note
payable to SIG Partners, LC, a company controlled by the CEO, was executed (see
Note 6).
Under the 2010 acquisition, the seller, Signature Investor Group, LC, dba SIG
Partners, LC, is the operator of the oil and gas interests acquired. Also, the
operator acquired an easement for $5,000 as development cost for the oil and gas
interests acquired which amount was recorded as a trade payable for the current
period (see Note 5).
Note 9. COMMITMENTS AND CONTINGENCIES
There were no changes to our commitments and contingencies for the three and six
month periods ended June 30, 2011.
Note 10. SUBSEQUENT EVENTS
During July 2011, Regent NRCo completed the sale of 3,000 shares of its direct
holdings of MacuCLEAR stock at $12 per share. The sale was made to a qualified
fund controlled by the spouse of the CEO. The per share price was based on sales
of comparable securities by MacuCLEAR to new investors.
Item 2. Management's Discussion and Analysis of Financial Condition
------- -----------------------------------------------------------
and Results of Operations
-------------------------
The following discussion is intended to assist in understanding our results of
operations and our financial condition. This item should be read in conjunction
with management's discussion and analysis contained in our Annual Report on Form
10-K for the year ended December 31, 2010 filed with the Securities and Exchange
Commission ("SEC") on March 31, 2011. Our consolidated financial statements and
the accompanying notes included elsewhere in this Quarterly Report on Form 10-Q
contain additional information that should be referred to when reviewing this
material.
8
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Form 10-Q and other reports filed by Regent Technologies, Inc. ("Regent")
from time to time with the Securities and Exchange Commission (collectively the
"Filings") contain or may contain forward looking statements and information
that is based upon beliefs of, and information currently available to, Regent's
management as well as estimates and assumptions made by Regent's management.
The Private Securities Litigation Reform Act of 1995 (the "Act") provides a safe
harbor for forward-looking statements made by or on behalf of the Company. The
Company and its representatives may from time to time make written or oral
statements that are "forward-looking," including statements contained in this
report and other filings with the Securities and Exchange Commission, reports to
the Company's shareholders and news releases. All statements that express
expectations, estimates, forecasts or projections are forward-looking statements
within the meaning of the Act. In addition, other written or oral statements,
which constitute forward-looking statements, may be made by or on behalf of the
Company. Words such as "expects", "anticipates", "intends", "plans", "believes",
"seeks", "estimates", "projects", "forecasts", "may", "should", variations of
such words and similar expressions are intended to identify such forward-looking
statements.
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
Management cautions that these forward-looking statements are subject to many
risks and uncertainties that could cause our actual results to differ materially
from projections in such forward-looking statements. The risks, uncertainties
and other important factors that may cause our results to differ materially from
those projected in such forward-looking statements are detailed under the "Risk
Factors". We undertake no obligation to update a forward-looking statement to
reflect subsequent events, changed circumstances, or the occurrence of unantici-
pated events which included, among others, the following:
-- difficult and adverse conditions in the domestic and global economies;
-- changes in domestic and global demand for oil and natural gas;
-- volatility in the prices we receive for our oil and natural gas;
-- the effects of government regulation, permitting and other legalities;
-- future developments with respect to the reserves on our properties;
-- uncertainties about the estimates of our oil and natural gas reserves;
-- our ability to increase our production through development;
-- drilling and operating risks;
-- the availability of equipment, such as drilling rigs and pipelines;
-- changes in our drilling plans, related budgets and liquidity;
-- other factors discussed under "Risk Factors" in Item 1A of the Company's
Form 10-K filed with the SEC for the period ended December 31, 2010.
9
Other unknown or unpredictable factors may cause actual results to differ mater-
ially from those projected by the forward-looking statements. Unless otherwise
required by law, we undertake no obligation to publicly update or revise any
forward-looking statements, whether as a result of new information, future
events or otherwise. We urge readers to review and consider disclosures we make
in this and other reports. See in particular our reports on Forms 10-K, 10-Q and
8-K subsequently filed from time to time with the SEC.
In this Form 10-Q, references to "we," "our," "us," the "Company," or "Regent"
refer to Regent Technologies, Inc., a Colorado corporation, and Regent's wholly
owned subsidiary, Regent Natural Resources Co., a Texas corporation, is referred
to as "Regent NRCo."
General and Business Overview
-----------------------------
Regent Technologies, Inc., a Colorado corporation, is listed on the Pink Sheets
under the symbol "REGT". We are an energy technology-focused company and we
have rights to proprietary technologies which we believe provide us an advantage
in the industry. Our business strategy is to exploit these advantages and gene-
rate long-term value for our shareholders and partners. We operate through two
business divisions: Energy Technology Division and Natural Resources Division.
Our Mission is to accomplish our business strategy while maintaining the highest
standards of integrity and professionalism wherever we operate and promoting re-
sponsible energy now and in the future. Our Vision is to employ new technologies
to maximize the production of petroleum resources in an efficient and environ-
mentally safe manner while exploring new technologies for the increased use of
renewable energy.
Oil and Gas Strategy
--------------------
Our long term oil and gas development strategy is to increase profit margins and
concentrate on obtaining producing properties with low cost operations and with
the potential for long-lived production. We also focus on the acquisition of
royalties in areas with exploration and development potential.
Reserves
There are numerous uncertainties inherent in estimating quantities of proved oil
and gas reserves and estimates of reserve quantities and values must be viewed
as being subject to significant change as more data about the properties become
available. The independent engineering firm RCM Engineering, Inc. of Dallas,
Texas ("RCM"), has estimated our oil and gas reserves and the present value of
future net revenues therefrom as of December 31, 2010. Those estimates were
determined based on prices and costs as of or for the twelve month period ended
December 31, 2010. The following table sets forth our estimated proved reserves
based on the new SEC rules as defined in Rule 4.10(a) of Regulation S-X and Item
1200 of Regulation S-K. Please read "Item 1A. Risk Factors -- Our estimates are
based on assumptions that may turn out to be inaccurate. Any significant inaccu-
racies in these reserve estimates or underlying assumptions may materially
affect the quantities and present value of our reserves". You should also read
the notes following consolidated financial statements for the year ended Decem-
ber 31, 2010 in conjunction with the reserve estimates.
10
Category Net Reserves (SEC Prices at 12/31/10)
-------------------------------------
Oil NGL Gas PV-10
------- ------- ------- ---------
(Bbls) (Bbls) (Mcf) ($m)
Proved developed--Producing 4,235 -- -- $ 135.1
Proved developed--Non-producing 4,630 -- -- 58.5
Proved undeveloped 61,530 -- -- 1,840.8
------- ------- ------- ---------
Total Proved (1)(2) 70,390 -- -- $2,034.4
(1) The estimates of reserves in the table above conform to the guidelines of
the SEC. These calculations were prepared using standard geological and engi-
neering methods generally accepted by the petroleum industry. The reserve infor-
mation shown is estimated. The certainty of any reserve estimate is a function
of the quality of available geological, geophysical, engineering and economic
data, and the precision of the engineering and geological interpretation and
judgment. The estimates of reserves, future cash flows and present value are
based on various assumptions, and are inherently imprecise. Although we believe
these estimates are reasonable, actual future production, cash flows, taxes,
development expenditures, operating expenses and quantities of recoverable oil
and natural gas reserves may vary substantially from these estimates.
(2) The dollar amount is the present value, discounted at 10% per annum of the
estimated future cash flows before income tax of our estimated proved reserves.
The estimated future cash flows above were determined by using the reserve
quantities of proved reserves and the periods in which they are expected to be
developed and produced based on prevailing economic conditions. The estimated
future production is priced based on the 12-month unweighted arithmatic average
of the first-day-of-the-month price for the period from January through December
2010, using $71.58 per bbl as adjusted by lease for transportation fees and re-
gional price differentials from a benchmark price of $71.70 per bbl. Management
believes that the presentation of the non-GAAP financial measure of PV-10 pro-
vides useful information to investors because it is widely used by professional
analysts and sophisticated investors in evaluating oil and gas companies.
Please read "Item 1A. Risk Factors -- The Company's estimated reserves are based
on many assumptions that may turn out to be inaccurate. Any significant inaccu-
racies in these reserve estimates or underlying assumptions may materially
the notes following consolidated financial statements for the year ended Decem-
ber 31, 2010 in conjunction with the reserve estimates.
Hill County, Texas
Pursuant to the Regent NRCo oil and gas property acquisitions from SIG Partners,
LC ("SIG") during the third and fourth quarters of 2010, we acquired 3 leases
which total 66 acres. We are pursuing an additional 975 acres in Hill, Limestone
and Van Zandt Counties with plans to drill 5 wells in the next 12 months. We are
planning to test the Austin Chalk formation in the wellbore on the 16 acre lease
acquired. If the well is not capable of commercial profitability, we plan to
deepen the well and test the Woodbine formation. Both formations are productive
within the area and the well acquired has produced 16,000 barrels of oil from
the Austin Chalk. Regent NRCo has a 100% working interest and a 75% net revenue
interest in the lease. The operator of the lease and the operator of the net
profits interest acquired by Regent NRCo on an adjacent lease is SIG (see Note 8
herein, Notes to Interim Consolidated Financial Statements).
11
Coke County, Texas -- Projected New Discovery
Effective April 5, 2011, Regent NRCo acquired a .17% overriding royalty interest
in 153 acres in Coke County, Texas. The initial well on the acreage was drilled
during the second quarter to 6,800 feet and was successful in finding oil in the
Strawn sandstone and Strawn reef formations. The gross oil and gas potential of
the lease is 500,000 barrels of oil and 1.5 billion cubic feet of gas assuming a
recovery factor based on nearby fields. The well is expected to begin production
in the third quarter.
We are continuing to review projects in which we may participate. The cost of
such projects would be funded through borrowings and, if appropriate, sales of
common or preferred stock of the Company or our subsidiary or partial sales of
our investment in MacuClear Preferred Stock.
Financing and Liquidity
-----------------------
Regent has funded operations through short-term borrowings and equity investment
sales in order to meet obligations. Our future operations are dependent upon
external funding and our ability to increase revenues and reduce expenses.
There is no assurance that sufficient funding will be available from additional
related party borrowings and private placements to meet our business objectives
including anticipated cash needs for working capital.
Crude oil and natural gas prices have fluctuated significantly in recent years.
The effect of declining prices on the oil business can be significant. Lower
product prices will reduce our cash flow from operations and diminish the pre-
sent value of our oil and gas reserves. Lower product prices also offer less
incentive to assume the development risks that are inherent in our business. The
volatility of the energy markets makes it extremely difficult to predict future
oil and natural gas price movements with any certainty. During the first quar-
ter, the average oil price for the production under our net profits interest
agreement was $87.76 and for the second quarter, the average price received was
$92.93.
During the current six month period, cash used from operating activities was
$12,619 compared to $15,139 for the same period in 2010. This improvement was
due to the new oil revenues. Also, during the current period, we used funds from
financing activities of $6,730 primarily due to new debt service related to the
acquisition in 2010. This compares to funds provided of $15,139 from financing
activities for the same period in 2010 due to partial sales of our holdings of
MacuCLEAR Preferred Stock. As of June 30, 2011, the Company had total assets of
$675,650 and total liabilities of $88,235, of which $64,750 is a promissory note
for the 2010 net profit interest acquisition. Management is of the opinion that
cash flow from operations and funds available from financing will be sufficient
to provide needed liquidity through this fiscal year.
The Company is not performing any product research and development at this time
and it is not expected to incur significant changes in the number of employees.
12
Results of Operations
---------------------
Revenues
The Company had oil and gas sales for the quarterly and six month periods ended
June 30, 2011 of $6,911 and $12,918, respectively, compared to no revenues for
the same periods ended June 30, 2010. Net loss from operations for the six month
periods ended June 30, 2011 and 2010 was $10,210 and $14,473, respectively. The
improvement was due to the Company's new oil and gas operations which was offset
by new expense of $5,808 related to directors and officers liability insurance
which was not an expense in 2010.
Operating Expenses
General and administrative expenses were $24,954 for the six months ended
June 30, 2011 compared to $14,384 for the six months ended June 30, 2010.
The increase in administrative expenses was primarily the result of more audit
expense and costs for directors and officers liability insurance.
Interest expense was $2,571 for the six months ended June 30, 2010 compared to
$328 during the six months ended June 30, 2010 due to new short term borrowings
and the note payable related to the 2010 net profits interest acquisition. The
depreciation expense for the period was $174 compared to $89 for the same period
in 2010.
Off-Balance Sheet Arrangements
As of the date of this report, we do not have any off-balance sheet arrangements
that have or are reasonably likely to have a current or future effect on our
financial condition, changes in financial condition, revenues or expenses,
results of operations, liquidity, capital expenditures or capital resources that
are material to investors. The term "off-balance sheet arrangement" generally
means any transaction, agreement or other contractual arrangement to which an
entity unconsolidated with us is a party, under which we have: (i) any
obligation arising under a guarantee contract, derivative instrument or variable
interest; or (ii) a retained or contingent interest in assets transferred to
such entity or similar arrangement that serves as credit, liquidity or market
risk support for such assets.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
------- ----------------------------------------------------------
There have been no material changes in market risk from the information provided
in our Annual Report on Form 10-K as of December 31, 2010.
Item 4. Controls and Procedures
------- -----------------------
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures to ensure that the information we
must disclose in our filings with the SEC is recorded, processed, summarized and
reported on a timely basis. At the end of the period covered by this report, our
principal executive and principal financial officers reviewed and evaluated the
effectiveness of our disclosure controls and procedures, as defined in Exchange
Act Rules 13a-15(e) and 15d-15(e). Based on such evaluation, such officers con-
cluded that, as of March 31, 2010, our disclosure controls and procedures were
effective to ensure that information we are required to disclose in the reports
that we file under the Act is disclosed within the time periods specified in the
rules and forms of the SEC and are effective to ensure that information required
to be disclosed by us is accumulated and communicated to them to allow timely
decisions regarding required disclosure.
13
Changes in Internal Control over Financial Reporting
No changes in the Company's system of internal control over financial reporting
occurred during the most recent fiscal quarter that have materially affected, or
are reasonably likely to materially affect, internal control over financial
reporting.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
------- ------------------
The Company is not aware of any pending claims or assessments, that may have a
material adverse impact on Regent's financial position or operations.
Item 1A. Risk Factors.
-------- -------------
The discussion in Part I, "Item 1A. Risk Factors." in the Company's 2010 Form
10-K, of the risk factors which could materially affect the Company's business,
or future results, should be carefully considered. The risks described in the
Form 10-K are not the only risks facing the Company. Additional risks and
uncertainties not currently known to the Company or that currently are deemed to
be immaterial also may materially adversely affect the Company's business,
financial condition or operating results.
Item 2. Changes in Securities
------ ---------------------
None.
Item 3. Defaults Upon Senior Securities
------- -------------------------------
None.
Item 4. Removed and Reserved
------- --------------------
Item 5. Other Information.
------- ------------------
None.
Item 6. Exhibits
------- --------
The exhibits listed below are filed herewith.
Exhibit
Number Description of Exhibit
------ ----------------------
31.1 Certification of C.E.O. and Principal Accounting Officer Pursuant to
Rule 13a-14(a) of the Securities Exchange Act of 1934
32.1 Certification of C.E.O. and Principal Accounting Officer Pursuant to
18 U.S.C. Section 1350
14
SIGNATURE
In accordance with the requirements of the Exchange Act of 1934, the Registrant
has duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
Date: August 15, 2010 REGENT TECHNOLOGIES, INC.
(Registrant)
By: /s/ David A. Nelson
---------------------------------------
David A. Nelson, Chief Executive Officer
(Principal Financial and Accounting Officer)
15