PINX:REGT Regent Technologies Inc Quarterly Report 10-Q Filing - 6/30/2012

Effective Date 6/30/2012

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UNITED STATES
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, 2012

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 001-13621
___________________________

REGENT TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
___________________________

Colorado
84-0807913
  (State or other jurisdiction of incorporation or organization) 
(I.R.S. Employer Identification No.)

5646 Milton, Suite 722, Dallas, Texas 75206
(Address of principal executive offices)

855-744-7449
(Registrant's telephone number)
___________________________

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 during the preceding 12 months (or for such shorter period that the registrant was required to file reports), and (2) has been subject to such filing requirements for the past 90 days.    x YES      ¨ NO   

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).     YES  x     NO  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer    ¨

Accelerated filer    ¨

Non-accelerated filer    ¨
(Do not check if a smaller reporting company)

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 14, 2012 was 22,360,233.



REGENT TECHNOLOGIES, INC.
TABLE OF CONTENTS

PART I. FINANCIAL INFORMATION

Page No.

Item 1. Financial Statements:

 

  

  

        Consolidated Balance Sheets (Unaudited) at June 30, 2012 and December 31, 2011 (Audited)

2

  

  

        Consolidated Statements of Operations (Unaudited) for the Three and Six Months Ended June 30, 2012 and 2011
         and for the Period from Inception (January 1, 1999) through June 30, 2012

3

  

  

        Consolidated Statements of Cash Flows (Unaudited) for the Six Months ended June 30, 2012 and 2011
         and for the Period from Inception (January 1, 1999) through June 30, 2012

4

  

  

        Notes to Consolidated Financial Statements

6

  

  

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

11

  

  

Item 3. Quantitative and Qualitative Disclosures About Market Risk

15

  

  

Item 4. Controls and Procedures

15

  

  

PART II. OTHER INFORMATION

 

  

  

Item 1. Legal Proceedings

16

  

  

Item 1A. Risk Factors

16

  

  

Item 2. Changes in Securities

16

  

  

Item 3. Defaults Under Senior Securities

16

   

Item 4. Mine Safety Disclosures

16

   

Item 5. Other Information

16

  

  

Item 6. Exhibits

17

  

  

SIGNATURE

18

1


PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

REGENT TECHNOLOGIES, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEET

          June 30,         December 31,
      2012     2011
      (Unaudited)      
ASSETS            
CURRENT ASSETS:            
     Cash in bank   $ 27,217    $ 9,300 
     Oil and gas revenue receivable     4,050      2,085 
     Investments (Note 5)     145,536     
Total current assets     176,803      11,385 
             
PROPERTY AND EQUIPMENT (Net of Accumulated Depletion and Depreciation):            
     Oil and natural gas properties, accounted for using full cost method of accounting            
     Evaluated property     192,905      114,634 
     Unevaluated property     3,080      3,080 
     Net profits production interest     4,583      4,940 
     Equipment and other fixed assets     867      1,041 
Total property and equipment, net     201,435      123,695 
             
Investments (Note 5)     248,751      497,992 
TOTAL ASSETS   $ 626,989    $ 633,072 
             
LIABILITIES AND STOCKHOLDERS' EQUITY            
             
CURRENT LIABILITIES:            
     Accounts payable   $ 531    $ 2,637 
     Notes payable - related parties     25,400      45,800 
     Accrued interest payable     479      352 
     Accrued liabilities - related parties     44,713      9,444 
Total current liabilities     71,123      58,233 
             
Note payable - related parties, less current portion     3,550      3,550 
Asset retirement obligation     10,400      5,200 
Total liabilities     85,073      66,983 
             
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 $27,222 and $51,395, respectively, of earnings            
          accumulated since reentering the development stage)     (3,320,777)     (3,296,604)
      541,916      566,089 
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY   $ 626,989    $ 633,072 

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 OPERATIONS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2012 AND 2011
AND FOR THE PERIOD JANUARY 1, 1999 THROUGH JUNE 30, 2012
(UNAUDITED)

                              Cumulative
      For the     For the     For the     For the     Since
      Three     Three     Six     Six     Re-enterimg
      Months     Months     Months     Months     Development
      Ended     Ended     Ended     Ended     Stage
      June 30,     June 30,     June 30,     June 30,     January 1,
      2012     2011     2012     2011     1999
                               
Revenues   $ 2,550    $ 8,911    $ 7,755    $ 14,918    $ 35,490 
                               
Operating expenses:                              
     General and administrative     24,920      14,048      29,903      24,954      431,023 
     Depletion expense     179          358          1,112 
     Depreciation expense     87      87      174      174      790 
                               
Operating loss     (22,636)     (5,224)     (22,680)     (10,210)     (397,435)
                               
Other income and (expense):                              
     Net change in fair value measurement                     262,760 
     Gain on extinguishment of debt                     145,340 
     Gain on sale of investment                     101,331 
     Stock grant expense                     (41,700)
     Interest, net     (785)     (1,664)     (1,493)     (2,571)     (43,074)
                               
Total other income (expense)     (785)     (1,664)     (1,493)     (2,571)     424,657 
                               
Income (loss) from continuing operations                              
     before income taxes     (23,421)     (6,888)     (24,173)     (12,781)     27,222 
                               
Provisions for income taxes                    
                               
Net income (loss)   $ (23,421)   $ (6,888)   $ (24,173)   $ (12,781)   $ 27,222 
                               
Net income (loss) per common share                              
     (basic and diluted)   $ (0.00)   $ (0.00)   $ (0.00)   $ (0.00)      
                               
Weighted Average Shares Outstanding     22,360,233      22,360,233      22,360,233      22,360,233       

The accompanying notes are an integral part of the consolidated financial statements.

3


REGENT TECHNOLOGIES, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2012 and 2011
AND FOR THE PERIOD JANUARY 1, 1999 THROUGH JUNE 30, 2012
(UNAUDITED)

                  Cumulative
                  Since
                  Re-enterimg
                  Development
      For the Six Months     Stage
      Ended June 30,     January 1,
      2012     2011     1999
CASH FLOWS FROM OPERATING ACTIVITIES:                  
     Net income (loss)   $ (24,173)   $ (12,781)   $ 27,222 
     Adjustments to reconcile net income (loss) to net                  
          cash used in operating activities:                  
               Depreciation     174      174      4,552 
               Depletion     357          1,111 
               Gain (loss) from fair value measurement             (307,726)
               Change in fair value measurement             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             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     (1,965)     (162)     (4,050)
               Increase (decrease) in accounts payable     (2,106)     461      31,861 
               Increase (decrease) in accrued liabilities     35,269          44,713 
               Increase (decrease) in accrued interest payable     127      (311)     25,216 
                    Net Cash Provided (Used) In Operating Activities     7,683      (12,619)     (211,447)
                   
CASH FLOWS FROM INVESTING ACTIVITIES:                  
     Investment in affiliates             (350,000)
     Capital expenditures for oil and gas interests     (73,071)     (5,000)     (115,685)
     Capital expenditures for equipment             (1,656)
     Proceeds from sale of investments     103,705          321,305 
                    Net Cash Used In Investing Activities     30,634      (5,000)     (146,036)
                   
CASH FLOWS FROM FINANCING ACTIVITIES:                  
     Proceeds from note payable - related party         10,270      123,225 
     Proceeds from sale of Preferred Stock             427,500 
     Proceeds from note payable - stockholder             20,000 
     Repayments of notes payable     (20,400)     (17,000)     (186,025)
                    Net Cash Provided (Used) In Financing Activities     (20,400)     (6,730)     384,700 
                   
Net Increase (Decrease) in Cash     17,917      (24,349)     27,217 
Cash At Beginning Of Period     9,300      24,790     
Cash At End of Period   $ 27,217    $ 441    $ 27,217 

The accompanying notes are an integral part of the consolidated financial statements.

4


REGENT TECHNOLOGIES, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2012 and 2011
AND FOR THE PERIOD JANUARY 1, 1999 THROUGH JUNE 30, 2012 - (Continued)
(UNAUDITED)

SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES

                  Cumulative
                  Since
                  Re-enterimg
                  Development
      For the Six Months     Stage
      Ended June 30,     January 1,
      2012     2011     1999
     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    $   $ 10,400 
                   
     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.

5


REGENT TECHNOLOGIES, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS

Note 1. ORGANIZATION AND NATURE OF OPERATIONS

Organization and Development Stage Activities

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, "Development Stage Activities" ("ASC 915") of the "Financial Accounting Standards Codification ("Codification" or "ASC") and the Hierarchy of Generally Accepted Accounting Principles."

Nature of Operations

During the third quarter of 2010, Regent restructured its management team and focused its core business objectives and strategy on energy development. The Company's subsidiary (the "Subsidiary") was approved for a name change on September 30, 2010 to Regent Natural Resources Co. ("Regent NRCo"). Regent NRCo is a Texas based independent exploration and production company engaged in the acquisition and development of producing oil and natural gas properties. Our results of operations and capital resources are highly dependent upon prevailing market prices of, and demand for, oil and natural gas. These commodity prices are subject to wide fluctuations and market uncertainties due to a variety of factors that are beyond our control. These factors include the level of global supply and demand for oil and natural gas, market uncertainties, weather conditions, domestic governmental regulations and taxes, political and economic conditions in oil producing countries, price and availability of alternative fuels, and overall domestic and foreign economic conditions.

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 available 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. Unless otherwise specified or the context otherwise requires, all references in these notes to "Regent," "we," "us" or "our" are to Regent Technologies, Inc. and its Subsidiary.

These unaudited consolidated financial statements reflect, in the opinion of our management, all adjustments, consisting only of normal and recurring adjustments, necessary to state fairly our financial position as of, and results of operations for, the periods presented. These financial statements have been prepared in accordance with the instructions to Form 10-Q and, therefore, do not include all disclosures required for financial statements prepared in conformity with accounting principles generally accepted in the United States of America. Interim period results are not necessarily indicative of results of operations or cash flows for a full year. Notes to the consolidated financial statements that would substantially duplicate the disclosure contained in the audited consolidated financial statements as reported in the 2011 Form 10-K have been omitted.

Critical accounting policies are defined as those significant accounting policies that are most critical to an understanding of a company's financial condition and results of operations. We consider an accounting estimate or judgment to be critical if (i) it requires assumptions to be made that were uncertain at the time the estimate was made, and (ii) changes in the estimate or different estimates that could have been selected, could have a material impact on our results of operations or financial condition.

6


REGENT TECHNOLOGIES, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

Revenue Recognition

Oil and gas revenue is recorded when production is sold. The Company accrues revenue for oil and gas production sold but not paid. See Receivables below.

Oil and Gas Revenue Receivable

Receivables consist of accrued oil and gas receivables due from either purchasers of oil and gas or operators in oil and natural gas wells for which the Company owns an interest. Oil and natural gas sales are generally unsecured and such amounts are generally due within 30 days after the month of sale.

Dependence on Oil and Gas Prices

As an independent oil and gas producer, our revenue, profitability and future rate of growth are substantially dependent on prevailing prices for oil and gas. Historically, the energy markets have been very volatile, and there can be no assurance that oil and gas prices will not be subject to wide fluctuations in the future. A substantial or extended decline in oil or gas prices could have a material adverse effect on our financial position, results of operations, cash flows and access to capital and on the quantities of oil and gas reserves that we can economically produce.

Oil and Gas Properties

We use the full cost method of accounting for our oil and gas producing activities. Under this method, all costs incurred in the acquisition, exploration and development of oil and gas properties, including salaries, benefits and other internal costs directly attributable to these activities, are capitalized into cost centers that are established on a property basis. Interest expense related to unproved properties is also capitalized into oil and gas properties. No interest expense has been capitalized through the current period because the amount is nominal.

Other Accounting Policies

The remaining significant accounting policies of the Company are described in Note 2 to the consolidated financial statements of the 2011 Form 10-K. In management's opinion, the accounting policies and estimates presented in the 2011 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, 2011, which was previously filed with the Securities and Exchange Commission. There were other accounting standards and interpretations issued in 2010 and 2011, 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 these consolidated financial statements.

7


REGENT TECHNOLOGIES, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

Note 4. OIL AND GAS PROPERTIES

Property and Equipment

Property and equipment, net are comprised for the periods indicated as follows:

          June 30, 2012         December 31, 2011
Evaluated Oil and Gas Properties (1) (2) (3)   $ 192,905    $ 114,634 
Unevaluated Oil and Gas Properties (1)     3,080      3,080 
Net Profits Production Interest (1)      5,695      5,695 
Furniture and Equipment      12,649      12,649 
      214,329      136,058 
Accumulated Depreciation, Depletion and Amortization     (12,894)     (12,363)
    $ 201,435    $ 123,695 

(1) Because the oil and gas assets and the net profits interest were acquired from related parties (see Note 8), the properties were recorded at the basis of the related parties in the amount of $85,595 as the capitalized costs.

(2) The full cost capitalized costs for 2012 and 2011 were increased by $78,271 and $32,614, respectively, for the construction of oil and gas flow line and the acquisition and installation of oil production equipment related to the oil interests acquired in 2010. In the current period, the increase includes $31,153 for the acquisition of a disposal well and related pump equipment (see Note 8).

(3) The capitalized costs include $10,400 for asset retirement obligation.

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 obligation 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 depreciation, depletion, and accretion expense. The Company increased the amount of our asset retirement obligations by $5,200 to account for the disposal well acquired during the current period. There was no amortization to the Company's asset retirement obligation for the current period because the amount is nominal.

Note 5. 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 fair value statement applies whenever other statements require or permit assets or liabilities to be measured at fair value.

Fair value is the amount that would be received from the sale of an asset or paid for the transfer of a liability in an orderly transaction between market participants. A liability is quantified at the price it would take to transfer the liability to a new obligor, not at the amount that would be paid to settle the liability with the creditor. ASC 820 established the following fair value hierarchy that prioritizes the inputs used to measure fair value:

8


REGENT TECHNOLOGIES, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

  • Level 1 -- Unadjusted quoted prices in active markets for identical, unrestricted assets or liabilities that are accessible at the measurement date;
  • 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
  • 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.

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 liabilities are carried at book value amounts which approximate fair value due to the short-term maturity of these instruments.

We used the following fair value measurements for certain of our assets and liabilities during the current period and for the year ended December 31, 2011:

Level 3 Classification: Investment - MacuCLEAR Preferred Stock

As of this quarterly filing, the Company's Subsidiary held 107,986 shares of MacuCLEAR Preferred Stock, of which 95,858 shares are beneficially held for the holders of the Subsidiary's Preferred Stock and 12,128 shares are available for sale. During the six months ended June 30, 2012, the Company's Subsidiary sold 8,642 shares of its holdings for $12.00 per share. Under the process defined for Level 3 assets, the Company has determined the fair value for the MacuCLEAR Preferred Stock to be $12.00 per share based on new sales by MacuCLEAR of Series A-1 Preferred Stock for $12.00 per share throughout 2011 and 2012. 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 which are not available for sale 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 MacuCLEAR Preferred Stock, beneficial and direct, as of June 30, 2012 and December 31, 2011:

      Fair Value Measurements Using
June 30, 2012     Level 1     Level 2     Level 3
MacuCLEAR Preferred Stock at fair value   $   $   $ 394,288 
                   
December 31, 2011                  
MacuCLEAR Preferred Stock at fair value    $   $   $ 497,992 

Note 6. NOTES PAYABLE

Pursuant to the net profits production interest acquisition in December 2010, Regent NRCo executed a promissory note for $81,750 payable to SIG Partners, LC, a related party (see Note 8). The interest rate on the note is 7% with principal payments of $3,400 per month due beginning February 2011. At June 30, 2012, the payment schedule is current and the principal balance outstanding is $23,950. The promissory note is secured by the oil and gas property interest conveyed.

Beginning in 2005, the Company has borrowed various amounts for general corporate purposes under promissory notes to NR Partners, a related party (see Note 8). The outstanding amount of $5,000 owed to NR Partners at the end of the current period bears interest at the rate of 5% per annum and is due upon demand. All amounts owed to NR Partners were paid in July 2012.

9


REGENT TECHNOLOGIES, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

Note 7. STOCKHOLDERS' 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 common 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 directors. Holders of the Regent's common stock representing a majority of the voting 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 outstanding shares is required to effectuate certain fundamental corporate changes such as liquidation, merger or an amendment to Regent's articles of incorporation.

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 outstanding 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 Regent's common stock.

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 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 investors for $497,500. If all of the unconverted 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 diluted to approximately 90%.

Note 8. RELATED PARTY TRANSACTIONS

Property Acquisitions

On September 29, 2010, Regent RNCo executed a Property Transfer Agreement (the "Transfer Agreement") with related party SIG Partners, LC ("SIG") and Mr. Nelson, CEO and Chairman of the Registrant. The consideration for the transfer of oil and gas interests was the forgiveness of a $70,000 note payable and 13,500,000 shares of restricted common stock of the Company. After the consummation of the agreement, Mr. Nelson controlled approximately 80% of the outstanding common stock of the Registrant.

On December 30, 2010, Regent RNCo purchased a 50% net profits interest from SIG in producing leaseholds located in Hill County, Texas. The consideration was $91,750, with $10,000 paid upon execution and the balance payable under a promissory note for $81,750. The Transfer Agreement includes an option to acquire operations from SIG and the related equipment and disposal well for the market value of the equipment and well. During the current period, Regent RNCo acquired from SIG the disposal well and related disposal pump equipment plus various oilfield equipment including a submersible pump for the total consideration of $31,153.

10


REGENT TECHNOLOGIES, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

Stock Sales

During 2011, the Subsidiary completed three sales of MacuCLEAR common stock at $12 per share. Two sales for a total of 3,500 shares were made to a qualified fund controlled by the spouse of the CEO. The sale of 3,000 shares was made to a preferred shareholder of the Subsidiary. The share price for each sale was based on sales of comparable securities to new investors in MacuCLEAR Preferred Stock during 2011. During the first quarter, the Subsidiary completed a sale of 1,725 shares of MacuCLEAR common stock at $12 per share to a qualified fund controlled by the CEO.

Notes Payable and Accrued Liabilities

Beginning in 2005, the Company borrowed various amounts for general corporate purposes under a note payable to NR Partners, a partnership comprised of the CEO and director Dr. David Ramsour. For the current period, the promissory note is an unsecured demand note in the principal amount of $5,000 and pays interest at 5% per annum. As of the date of this filing, the NR Partners promissory note plus interest has been paid.

In connection with the net profits production interest acquisition in December 2010, the Subsidiary executed a promissory note for $81,750 to SIG Partners, LC. The interest rate on the note is 7% per annum. The promissory note is secured by the interest conveyed. As of the date of this filing, the monthly payments have been paid when due and the outstanding principal balance is $23,950.

In addition, as of June 30, 2012, the Subsidiary has accrued liabilities of $44,713 to SIG, the operator of our oil and gas interests, for capital expenditures attributable to our oil and gas interests. This amount includes $3,000 for SIG consulting services for the current period.

Note 9. COMMITMENTS AND CONTINGENCIES

None

Note 10. SUBSEQUENT EVENTS

We have evaluated events and transactions that occurred after the balance sheet date of June 30, 2012 and have determined that there is no event or transaction which has occurred that would require recognition beyond the disclosures herein.

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, 2011 filed with the Securities and Exchange Commission ("SEC"). Our consolidated financial statements and the accompanying notes included elsewhere in this Quarterly Report on Form 10-Q contains additional information that should be referred to when reviewing this material.

The information in this Form 10-Q includes "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. All statements, other than statements of historical or current facts, that address activities, events, outcomes and other matters that we plan, expect, intend, assume, believe, budget, predict, forecast, project, estimate or anticipate (and other similar expressions) will, should, could or may occur in the future are forward-looking statements. These forward-looking statements are based on management's current expectations and belief, based on currently available information, as to the outcome and timing of future events and their effect on us. While management believes that these forward-looking statements are reasonable as and when made, there can be no assurance that future developments affecting us will be those that we anticipate. All statements concerning our expectations for future operating results are based on our forecasts for our existing operations and do not include the potential impact of any future acquisitions. Our forward-looking statements involve significant risks and uncertainties, many of which are beyond our control, and assumptions that could cause actual results to differ materially from our historical experience and our present expectations or projections. Important factors that could cause actual results to differ materially from those in the forward-looking statements include, but are not limited to, those described in (1) Part I, "Item 1A - Risk Factors" and other cautionary statements in our Form 10-K for 2011, (2) our

11


reports and registration statements filed from time to time with the Securities and Exchange Commission ("SEC"), and (3) other announcements we make from time to time. We undertake no obligation to update a forward-looking statement to reflect subsequent events, changed circumstances, or the occurrence of unanticipated 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 other operating risks;
  • the availability of equipment, such as drilling rigs and pipelines; and
  • changes in our drilling plans, related budgets and liquidity.

We caution you that these forward-looking statements are subject to all of the risks and uncertainties incident to the exploration for and development, production and marketing of oil and gas. These risks include, but are not limited to:

  • the possibility of unsuccessful exploration and development drilling activities;
  • our ability to replace and sustain production;
  • the availability of capital on economic terms to fund our capital expenditures and acquisitions;
  • our level of indebtedness;
  • the impact of the past or future economic recessions on our business operations, financial condition and ability to raise capital;
  • the ability of financial counterparties to perform or fulfill their obligations under existing agreements;
  • the uncertainty inherent in estimating proved oil and gas reserves and in projecting future rates of production and timing of development expenditures;
  • hurricanes and other weather conditions;
  • lack of availability of goods and services;
  • regulatory and environmental risks associated with drilling and production activities; and
  • the other risks described in this Form 10-Q and in our Form-K for 2011.

Reserve engineering is a subjective process of estimating underground accumulations of oil and gas that cannot be measured in an exact way. The accuracy of any reserve estimate depends on the quality of available data and the interpretation of that data by petroleum engineers. In addition, the results of drilling, testing and production activities may justify revisions of estimates that were made previously. If significant, these revisions would change the schedule of any further production and development drilling. Accordingly, reserve estimates are generally different from the quantities of oil and gas that are ultimately recovered.

Other unknown or unpredictable factors may cause actual results to differ materially 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

Our revenues, profitability and future growth depend on our ability to find, develop and acquire oil and gas reserves that are economically recoverable. The preparation of our financial statements in conformity with generally accepted accounting principles requires us to make estimates and assumptions that affect our reported results of operations and the amount of our reported assets, liabilities and proved oil and gas reserves. We use the full cost method of accounting for our oil and gas activities.

12


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 there from as of December 31, 2011. Those estimates were determined based on prices and costs as of or for the twelve month period ended December 31, 2011. 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 inaccuracies 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 December 31, 2011 in conjunction with the reserve estimates.

Category   Net Reserves (SEC Prices at 12/31/12)
    Oil   NGL   Gas     PV-10
    (Bbls)   (Bbls)   (Mcf)     ($m)
Proved developed--Producing   3,250        $ 134.6 
Proved developed--Non-producing    4,790          85.7 
Proved undeveloped   62,530          2,340.9 
     Total Proved (1)(2)   70,570        $ 2,561.2 

(1) The estimates of reserves in the table above conform to the guidelines of the SEC. These calculations were prepared using standard geological and engineering methods generally accepted by the petroleum industry. The reserve information 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 arithmetic average of the first-day-of-the-month price for the period from January through December 2011, using $88.06 per bbl as adjusted for transportation fees and regional price differentials. Management believes that the presentation of the non-GAAP financial measure of PV-10 provides 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 inaccuracies in these reserve estimates or underlying assumptions may materially affect the quantities and present value of our reserves" and please read the notes following the consolidated financial statements for the year ended December 31, 2011 in conjunction with the reserve estimates, both incorporated herein from the Registrant's Form 10-K for the period ended December 31, 2011.

13


Production. Pursuant to the Regent NRCo oil and gas property acquisitions during the third and fourth quarters of 2010, we acquired 3 leases which cover 66 gross acres. We also acquired a 50% net profits interest which is the source of our oil and gas revenues for the current period. We are currently negotiating the acquisition of an additional 1,200 acres in Hill, Limestone and Van Zandt Counties with plans to participate in the drilling of 5 wells during 2012 and 2013. We continue to test the Austin Chalk formation in the wellbore on a lease acquired from SIG and during the second quarter, the operator made improvements to the well pumping equipment and re-drilled the open hole portion of the producing formation. The well was placed back on pump during April 2012 and pumped about 30 barrels of oil during testing in the first quarter. Currently, this well is in production and we are reviewing a proposal to stimulate the Austin Chalk with a solvent for the removal of scale, paraffin, asphaltenes, and other deposits from the formation near the well bore.

Salt Water Disposal Operations. Pursuant to the Regent NRCo oil and gas property acquisitions during the third and fourth quarters of 2010, we executed our right to purchase the salt water disposal equipment from SIG including related contract rights and permits plus additional production equipment. Our wells produce a significant amount of water which is very costly to remove in trucks for proper disposal in approved facilities. The disposal well is necessary to reduce the significant operating burden and costs of water disposal. The disposal operation consists of a disposal well permitted through the Railroad Commission of Texas, high- pressure injection pump and flow line with storage facilities.

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 operator has plans to continue exploration with the next phase of drilling in the shallower Cisco horizons based on significant shows during the drilling of the initial well. The operator has also proposed a horizontal lateral from the existing wellbore to tap a well defined Palo Pinto reef buildup with better porosity. The current production is 3-7 net barrels of oil per day from the Strawn sandstone formation.

We are continuing to review projects for acquisition or participation primarily in our core areas. 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 present 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. The average oil price received in 2011 for the production under our net profits interest agreement has ranged from a high in April of $100.90 to a low in August of $79.97. The average oil price received July 2012 was $91.16.

During the first and second quarters of 2012, the Company generated new cash of $20,611 and $83,094, respectively, from the sale of shares of its direct preferred stock holdings in MacuCLEAR, Inc. The bulk of these monies were used to re-enter and re-equip one of the wells acquired in 2010 and to acquire the salt water disposal well and refurbish injection pumping equipment. As of June 30, 2012, the Company had total assets of $626,989 and total liabilities of $85,073, of which $23,950 is a promissory note for the 2010 net profits interest acquisition. Accrued liabilities reflect an increase for the period ended June 30, 2012 from December 2011 by $35,269 due to the acquisition of the salt water disposal operations and additional oil and gas production equipment. We believe 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.

14


Results of Operations

The Company had lower revenues for the six month periods ended June 30, 2012 and 2011 due to production downtime from power shortages and parts delays related to maintenance. We also received an extraordinary consulting fee of $2,000 in 2011. General and administrative expenses were up $4,949 for the period ended June 30, 2012 compared to the same period in 2011 due to third party consulting and increased travel, both related to prospect evaluation costs. Interest expense was $1,493 for the six months in 2012 compared to interest expense of $2,571 for the same period in 2011 and the decrease was due to lower debt in 2012. The depreciation expense for the period was $87 and the depletion expense was $179 which are comparable to prior periods.

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, 2011.

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 concluded that, as of the current period, 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.

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.

 

 

 

 

15


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 2011 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. Mine Safety Disclosures

Not applicable.

Item 5. Other Information.

None.

16


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

101.INS*  (1)

XBRL Instance Document 

101.SCH*  (1)

XBRL Taxonomy Extension Schema 

101.CAL*  (1)

XBRL Taxonomy Extension Calculation Linkbase 

101.DEF*  (1)

XBRL Taxonomy Extension Definition Linkbase 

101.LAB*  (1)

XBRL Taxonomy Extension Label Linkbase 

101.PRE*  (1)

XBRL Taxonomy Extension Presentation Linkbase 

Pursuant to Rule 406T of Regulation S-T, these interactive data files are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933 or Section 18 of the Securities Exchange Act of 1934 and otherwise are not subject to liability. 

(1)

XBRL Interactive Data files with detailed tagging will be filed by amendment to this Quarterly Report on Form 10-Q within 30 days of the filing date of this Quarterly Report on Form 10-Q, as permitted by Rule 405(a)(2)(ii) of Regulation S-T.

17


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 hereunto duly authorized.

   

 

REGENT TECHNOLOGIES, INC.          
      (Registrant) 

Dated: August 14, 2012

   

 

By: /s/ DAVID A. NELSON          
David A. Nelson
Chief Executive Officer
(Principal Executive Officer and Principal Financial and Accounting Officer)
 

 

 

 

 

 

18


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