UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended June 30, 1998
Commission file Number 0-9519
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.)
16415 Addison Road, Suite 150, Dallas, Texas 75248
(Address of principal executive offices (Zip Code)
Registrant's telephone number, including area code:
(972) 732-9585
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 such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES [X] NO [ ]
Indicate the number of shares outstanding of each of the
issuer's classes of common stock, as of the latest practical
date:
Common Stock, $.01 Par Value - 3,553,693 shares as of
June 30, 1998.
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<TABLE>
<CAPTION>
PART I. - FINANCIAL INFORMATION
REGENT TECHNOLOGIES, INC.
STATEMENTS OF LOSS AND ACCUMULATED DEFICIT
FOR THE THREE MONTHS AND SIX MONTHS
ENDED JUNE 30, 1998 AND 1997
(Unaudited)
(Amounts in thousands, except per share data)
Three months ended Six months ended
June 30 June 30
__________________ _________________
1998 1997 1998 1997
REVENUES
<S> <C> <C> <C> <C>
Digital prepress and
printing sales $ 163 -- 213 --
Internet sales and service 84 3 131 5
Interest income and other 8 -- 13 --
------ --- ----- ---
255 3 357 5
COSTS OF SALES
Cost of prepress and
printing sales 88 -- 117 --
Cost of Internet sales
and services 33 -- 76 --
------ ---- ---- ---
GROSS PROFIT $ 134 3 164 5
OTHER DEDUCTIONS
General and administrative 281 69 537 82
Depreciation and
amortization 43 9 95 18
Interest expense and other 13 -- 25 --
____ ___ ____ _____
NET EARNINGS (LOSS) (203) (75) (493) (95)
----- ---- ----- -----
NET EARNINGS (LOSS)
APPLICABLE TO COMMON STOCK $ (203) (75) (493) (95)
------- ---- ----- ----
EARNINGS (LOSS) PER COMMON
SHARE - basic and diluted $(0.057) (0.036) (0.149) (0.045)
-------- ------- ------- -------
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING - basic and
diluted 3,544 2,111 3,316 2,106
</TABLE>
The accompanying notes are an integral part of these statements.
2
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REGENT TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(unaudited)
(Amounts in thousands)
<TABLE>
<CAPTION>
June 30, 1998 December 31, 1997
______________ _______________
ASSETS
<S> <C> <C>
Current Assets
Cash $ 4 $ 2
Accounts receivable 126 12
Notes receivable 0 46
Inventory 15 --
Other current assets 1 --
______ ______
Total Current Assets 146 60
Property and Equipment - At Cost
Furniture and fixtures 15 7
Printing equipment 745 --
Computer and electronic equipment 173 224
______ ______
933 231
Less accumulated depreciation and
amortization 108 14
______ ______
825 217
OTHER ASSETS 437 335
------ ------
TOTAL ASSETS $ 1,408 $ 612
LIABILITIES
Current Liabilities
Current portion of long term debt $ 93 $ 20
Unearned revenues -- 5
Accounts payable and accrued
liabilities 271 178
Accrued compensation 141 226
Notes payable to affiliates 5 --
______ ______
Total Current Liabilities 510 429
Long Term Debt 888 40
Stockholder's Equity
Common stock, par value $.01 per share;
authorized 100,000,000 shares
issued and outstanding -
3,553,693 and 2,561,198 shares 35 26
Capital in excess of par value 3,150 2,799
Accumulated deficit (3,175) (2,682)
_______ _______
Total Stockholders' Equity $ 10 $ 143
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $1,408 $ 612
</TABLE>
The accompanying notes are an integral part of these statements.
3
<PAGE>
REGENT TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1997
(Unaudited)
(Amounts in thousands)
<TABLE>
1998 1997
---- ----
<S> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES:
Net earnings (loss) $ (493) $ (95)
Adjustments To Reconcile Net
Earnings (loss) to Net Cash Provided
(Used) by Operating Activities:
Depreciation and amortization 95 18
(Increase) Decrease in
Accounts receivable (114) (1)
Other current (16)
Increase (Decrease) in
Accounts payable and
accrued liabilities 166
Accrued compensation 141 62
_______ _______
Net Cash Used In Operating Activities $ (221) $ (16)
_______ _______
CASH FLOW FROM INVESTING ACTIVITIES:
Net collections on notes receivable $ 46 --
(Inc) Dec of property and equipment $ 51 (1)
Proceeds (Costs) of investments in
subsidiary (2) --
(Inc) Dec in other assets (28) --
_______ _______
Net Cash Provided (Used) In
Investing Activities $ 67 $ (1)
CASH FLOW FROM FINANCING ACTIVITIES:
Issuance of common stock 40 25
(Increase) Dec of equipment under
capital leases (66) --
Net proceeds from (repayment of)
note to stockholder 182 (2)
_______ _______
Net Cash Provided (Used) From
Financing Activities $ 156 $ 23
_______ _______
Increase (Decrease) in Cash 2 6
Cash at Beginning of Period 2 1
_______ _______
Cash at End of Period $ 4 $ 7
SUPPLEMENT DISCLOSURES
Cash paid for interest and
income taxes 25 --
</TABLE>
The accompanying notes are an integral part of these statements.
4
<PAGE>
NOTES TO FINANCIAL STATEMENTS
June 30, 1998 (unaudited) and December 31, 1997
(1) BASIS OF PRESENTATION
The accompanying financial statements, which should be read in conjunction
with the financial statements of Regent Technologies, Inc. (the "Company")
included in the 1997 Annual Report filed on Form 10-KSB, are unaudited but
have been prepared in the ordinary course of business for the purpose of
providing information with respect to the interim period. The Company
believes that all adjustments (none of which were other than normal
recurring accruals) necessary for a fair presentation of the Company's
financial position as of June 30, 1998 and the results of its operations
and its cash flows for the six month period ended June 30, 1998 have been
included.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Business
Regent Technologies, Inc. (the "Company"), formerly Regent Petroleum
Corporation, was incorporated on January 18, 1980, for the purpose of
exploration and development of oil and gas properties in the United States.
Activities of the Company up to 1992 were primarily organization, issuance
of equity capital and acquisition of developed and undeveloped oil and gas
properties. In 1992, the Company redirected its core business to
environmental technologies and the joint-venture of water filtration systems.
In 1994, the Company acquired SSB Environmental, Inc., which was organized for
the purpose of providing environmental services. In 1996, the Company
divested its environmental interests and licensed propriety technology for the
purpose of offering Internet access and related products and services (the
"Technology License"). In January, 1998, the Company announced its entry into
the digital prepress and printing business through a new subsidiary company,
Regent Digital Imaging, Inc. ("Regent Digital"). Regent Digital engages in
on-demand print and digital prepress business in the Dallas - Ft. Worth
markets. At the shareholders meeting held on March 4, 1998, the shareholders
approved a 1 for 6 reverse split of the Common Stock of the Company. The
Company conducts its operations through four wholly owned subsidiaries:
(i) Regent Digital Imaging, Inc.; (ii) ConnecTen, L.L.C.; (iii) Regent Tel1
Communications, Inc.; and (iv) Channel Services, L.C. Regent's executive
offices are located at 16415 Addison Road, Suite 150, Dallas, Texas 75248
and its telephone number is (972) 732 9585.
Depreciation and Amortization
Depreciation of furniture and fixtures is provided in amounts sufficient
to relate the cost of depreciable assets to operations over their estimated
service lives (5 years). The straight-line method of depreciation is used
for financial reporting purposes, while accelerated methods are used for tax
purposes. Amortization of all licenses is provided in amounts which reflect
the anticipated minimum number of years of the term of the license (10 years).
Income Taxes
The Company utilizes the method of accounting for income taxes set forth in
Statement of Financial Accounting Standards No. 109 "Accounting for Income
Taxes" (SFAS 109). SFAS 109 requires the recognition of deferred tax
liabilities and assets for the expected future tax consequences of events
that have been recognized in the Company's financial statements or tax
returns. Under this method, deferred tax liabilities and assets are
determined based on the difference between the financial statement carrying
amounts and tax bases of assets and liabilities, using enacted tax rates
in effect in the years which the differences are expected to reverse.
These temporary differences primarily relate to depreciation, depletion and
amortization. The Company has not recognized the benefit of any net
operating loss carryforwards as the result of adopting SFAS 109, and no
deferred tax assets have been recorded in the books of the Company due to
uncertainty as to the Company's ability to utilize the loss carryforwards.
5
<PAGE>
NOTES TO FINANCIAL STATEMENTS
June 30, 1998 (unaudited) and December 31, 1997
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--continued
Consolidated Statements of Cash Flows
The Company does not consider any of its assets to meet the definition of a
cash equivalent.
Loss Per Share
Loss per share is presented in accordance with the provisions of Statement
of Financial Accounting Standards No. 128, Earnings Per Share, (SFAS 128).
SFAS 128 replaced the presentation of primary and fully diluted earnings
(loss) per share (EPS), with a presentation of basic EPS and diluted EPS.
Under SFAS 128, basic EPS excludes dilution for common stock equivilents
and is computed by dividing income or loss available to common shareholders
by the weighted average number of common shares outstanding for the period.
Diluted EPS reflects the potential dilution that could occur if securities or
other contracts to issue common stock were exercised or converted into common
stock and resulted in the issuance of common stock. Basic and diluted
EPS are the same for the periods presented, and all common stock equivalents
are antidilutive.
(3) STOCKHOLDERS' EQUITY
Common Stock: As of June 30, 1998, the Company has 100,000 shares
authorized and 3,553,693 shares of Common Stock were issued and outstanding.
Preferred Stock: As of June 30, 1998, the Company has 30,000,000 shares
authorized and there were no shares of Preferred Stock issued or approved
for issuance.
(4) STOCK OPTION PLANS AND WARRANTS
Pursuant to certain director and employment agreements, the following stock
options have been granted: 325,000 shares at an exercise price of $0.30 per
share, 66,668 shares at an exercise price of $0.45 per share and 130,000
shares at an exercise price of $0.60 per share. Upon the placement of 166,667
shares of restricted common stock for $0.60 per share, an additional 333,333
warrants were issued for the purchase of the same number of shares for $1.00
per share. The exercise date for all of the aforementioned options and warrants
has been extended to on or before June 30, 2003. With the acquisition of
Channel Services, 13,334 warrants were issued to purchase the same number of
shares for $1.80 per share with an exercise date of on or before December 31,
1998. All options and warrants are for the purchase of newly issued,
restricted shares of Common Stock of the Company.
(5) CREDIT FACILITIES
At June 30, 1998, the Company's debt consisted of the following:
Capital lease with Cisco Systems, Inc. dated 2/3/98 in the amount of
$24,594 payable in 36 monthly installments of $760.05 plus tax;
Capital lease with Cisco Systems, Inc. dated 12/18/97 in the amount of
$60,110 payable in 36 monthly installments of $1,857.72 plus tax;
Capital lease with Ascend Communications, Inc. dated 6/15/98 in the
amount of $64,571 payable in 24 monthly installments of $2,972
plus tax;
Three capital leases with Eagle Leasing dated 2/1/98 in the amount of
$725,000 payable in 36 monthly installments of $16,526 plus tax;
Less current portion:
Capital lease current portion of $114,863 outstanding at June 30, 1998, and
Line of Credit for $250,000, dated January 1, 1998; interest at 8% with
maturity at December 31, 1998; $182,000 outstanding at June 30, 1998.
(6) OTHER ASSETS
June 30, December 31,
1998 1997
Investment, minority
ownership SSBE 13,496 13,496
Deposits 4,065 -
Technology License, less
accumulated amortization
of $63,842 and $45,004 in
1998 and 1997, respectively 300,326 318,520
Goodwill, less accumulated
amortization of$5,977 in 1998 116,362 -
Organization Costs 2,828 -
(7) TRANSACTIONS WITH RELATED PARTIES
On January 1, 1998, the Company entered into a borrowing line of credit
agreement with its Chairman under which the Company may borrow up to
$250,000 for the Company's working capital needs. The line matures at
December 31, 1998 and bears interest at a rate of 8 per cent per annum.
At June 30, 1998, the amounts borrowed under the line of credit totaled
$182,000.
On January 22, 1998, Regent Digital entered into an exclusive marketing
agreement with Regent Digital Marketing, Inc., a company owned wholly by
the wife of the Chairman. The owner has over 15 years' experience in the
sales and marketing of printing products and services, including extensive
marketing of on-demand printing services for the past five years. The
marketing agreement provides for a commission to be paid to Regent Digital
Marketing, Inc. equal to 12% of all sales of Regent Digital in the Dallas-
Ft. Worth market.
On February 1, 1998, Regent Digital executed an equipment lease with Eagle
Leasing Unlimited, L.L.C., covering the computer and printing equipment
in the Dallas facility. Robert D. Nash, who upon completion of the DPI
Merger will become a significant stockholder and executive officer of the
Company, owns a majority interest of the leasing company. See Recent
Developments in "Management's Disscussion and Analysis" for additional
details.
On June 1, 1998, Regent entered into a Consulting Services Agreement with
Jason Wirtzer whereby he will serve as a conduit of information between
Regent and the investment community. The consideration agreed to was 50,000
shares of newly issued restricted Common Stock of the Company and an option
to purchase 50,000 shares of newly issued restricted Common Stock of the
Company for $1.00 per share.
(8) COMMITMENTS
On September 1, 1997, the Company opened a new office located at 2929
Elm St., Dallas, Texas 75226 under a five year lease which provides for
rental payments of $3,500 per month. The Company entered into a lease for
Regent Digital Imaging, Inc. at 16415 Addison Road, Suite 150, Dallas,
Texas, 75248 which provides for rental payments of $5,983 through
February 17, 2000.
(9) OPERATIONS FOR SALE
On September 15, 1996, the Company announced it had initiated high-speed
Internet access for home and business in the Dallas metroplex through a new
wholly owned subsidiary, Regent Tel1 Communications, Inc. ("Regent TEL1").
The Internet access is provided through the National Knowledge Networks, Inc.
digital network under a Technology License which licenses the hardware and
the software necessary for the Company to offer dial-up access to the
Internet. The License was obtained for Common Stock of the Company from
NKN Technologies, Inc. which is under license from National Knowledge
Networks, Inc., the latter company being recently acquired by VERIO, Inc.,
a NASDQ public company. On January 1, 1998, Regent acquired Channel Services,
L.C. for Common Stock and warrants. The acquisition of Channel Services,
L.C. allowed Regent TEL1 to succeed to Channel's status as a preferred
customer of AT&T Wireless Services Corp. Regent TEL1 markets the AT&T
wireless products to its Internet customers along with other
telecommunication services and products. With the emphasis the Company
is placing on the digital print business and networks, the Company has
made plans to divest its dialup Internet operations and its offering of
telecommunications products and services. This divestiture of these
operations when and if the divestiture takes place will have a positive
of reducing net losses primarily due to the elimination of the depreciation
and amortization associated with the assets. These operations have had
cumulative losses through June 30, 1998 of $19,318. The Company does not
expect to realize a loss upon the sale of the related assets.
(10) SUBSEQUENT EVENTS
On July 16, 1998, the Company announced that Regent Digital, Inc., a wholly
owned subsidiary of the Company, had initiated sales and service to the web
printing markets through a strategisc alliance with ColorGraphics
Corporation. Regent Digital entered into a marketing agreement with
ColorGraphics and will be the principal marketing company for ColorGraphics
with regard to its web printing business in all Texas markets.
On July 22, 1998, the Company announced that Regent Digital, Inc. had
initiated a new service called "Regent Digital Direct" for its digital
print customers. The new service will allow Regent Digital's clients to
transmit all of their digital work over the Internet or through direct,
high-speed wide-area network connections directly to a Regent Digital
secure server where it can be routed to a print facility and stored for
client access at anytime. See Recent Developments in "Management's
Discussion and Analysis" for additional details.
6
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Conditions and
Results of Operations
General
The statements contained in this Form 10-QSB that are not historical facts
are forward-looking statements (as such term is defined in the Private
Securities Litigation Reform Act of 1995) that involve risks and
uncertainties. Such forward-looking statements may be identified by, among
other things, the use of forward-looking terminology such as "believes,"
"expects," "may," "will," should" or "anticipates" or the negative thereof
or other variations thereon or comparable terminology, or by discussions of
strategy that involve risks and uncertainties. From time to time, the
Company or its representatives have made or may make forward-looking
statements, orally or in writing. Such forward-looking statements may be
included in various filings made by the Company with the Securities and
Exchange Commission, or press releases or oral statements made by or with
the approval of an authorized executive officer of the Company. These
forward-looking statements, such as statements regarding anticipated
future revenues, capital expenditures and other statements regarding matters
that are not historical facts, involve predictions. The Company's actual
results, performance or achievements could differ materially from the
results expressed in, or implied by, these forward-looking statements.
Potential risks and uncertainties that could affect the Company's future
operating results include, but are not limited to: (i) economic conditions,
including economic conditions related to the Internet business and the digital
print industry; (ii) the availability of equipment from the Company's
vendors at current prices and levels; (iii) the intense competition in the
markets for the Company's products and services; (iv) the Company's ability
to integrate acquired companies and businesses in a cost-effective manner;
(v) the Company's ability to effectively implement its branding strategy;
(vi) the Company's ability to develop, market, provide and achieve market
acceptance of new service offerings to new and existing clients; (vii)
governmental regulations related to the Internet and (viii) governmental
regulations for environmental safeguards related to the printing business.
Business
Regent Technologies, through its subsidiaries, provides a broad range of
digital prepress and digital short run color printing services for the
printing, publishing and packing marketplace. In addition, the Company
offers Internet access to the professional and corporate marketplace with
an emphasis on Internet access for digital printing operations. Digital
prepress involves the creation and manipulation of a combination of text,
graphics, or photographs to be used on a printed page. The process can
range from scanning into computer networks to downloading customer created
files for processing to various digital output devices. The prepress
services afford customers the ability to modify or enhance a digital image
throughout the design and approval process with faster turnaround and at a
lower price than traditional or non-digital prepress process. Digital
printing is made up of "on demand" high quality, "short run" (1 to 1,000
pieces), full color digital printing through the use of state-of-the-art
digital printing equipment. Regent's key digital printing devices are
the Indigo E-Print 1000 digital sheetfed printing press and the Heidelburg
DI printing press for longer runs. A long-term objective for Regent is
to build a "digital information distribution network" with archiving and
network capabilities. This network would have an open architecture that
could service its users in a variety of ways, including access over the
Internet through Regent's "on net" facility in downtown Dallas, Texas,
operated through the Company's wholly owned subsidiary, ConnecTen, L.L.C.
Operations for Sale
On September 15, 1996, the Company announced it had initiated high-speed
Internet access for home and business in the Dallas metroplex through a
new wholly owned subsidiary, Regent Tel1 Communications, Inc. ("Regent
TEL1"). The Internet access is provided through National Knowledge
Networks, Inc. digital network under a Technology License which licenses
the hardware and the software necessary for the Company to offer dial-up
access to the Internet. The License was obtained for Common Stock of the
Company from NKN Technologies, Inc. which is under license from National
Knowledge Networks, Inc., the latter company being recently acquired by VERIO,
Inc., a NASDQ public company. On January 1, 1998, Regent acquired Channel
Services, L.C. for Common Stock and warrants. The acquisition of Channel
Services, L.C. allowed Regent TEL1 to succeed to Channel's status as a
preferred customer of AT&T Wireless Services Corp. Regent TEL1 markets the
wireless products to its Internet customers along with other
telecommunication services and products. With the emphasis the Company
is placing on the digital print business and networks, the Company has
made plans to divest its dialup Internet operations and its offering of
telecommunications products and services. This divestiture of these
operatons when and if the divesture takes place will have the positive effect
of reducing net losses primarily due to the elimination of the depreciation
and amortization associated with the assets. These operations have had
cumulative losses through June 30, 1998 of $19,316. The Company does not
expect to realize a loss upon the sale of the related assets.
Recent Developments
On March 20, 1998, the Company announced its entry into the digital printing
and prepress business through its new subsidiary company, Regent Digital
Imaging, Inc. ("Regent Digital"). Regent Digital was incorporated as a
Texas corporation and was initiated because of the Company's knowledge of
and access to the technologies related to this industry and the Company's
belief that the digital printing business can be enhanced through
utilization of the Internet.
On April 24, 1998, the Company signed a letter of intent to merge the
operations of Digital Press & Imaging, L.L.C. ("DPI") into Regent Digital
which will add three digital printing operating offices (the "DPI Merger").
Following the closing, DPI will change its name and operate under the
auspices of Regent Digital. Following the DPI Merger, the Company will have
an operating presence in five major markets, including Dallas, Ft. Worth,
Austin, San Antonio and Tulsa, Oklahoma. The Company anticipates a
closing of the merger on or before September 30, 1998.
On July 16, 1998, the Company announced that Regent Digital, Inc., a wholly
owned subsidiary of the Company, had initiated sales and service to the web
printing markets through a strategic alliance with ColorGraphics Corporation.
Regent Digital entered into a marketing agreement with ColorGraphics and will
be the principal marketing company for ColorGraphics with regard to its web
printing business in all Texas markets.
On July 22, 1998, the Company announced that Regent Digital, Inc. had
initiated a new service called "Regent Digital Direct" for its digital
print customers. The new service will Allow Regent Digital's clients to
transmit all of their digital work over the Internet or through direct,
high-speed wide-area network connections directly to a Regent Digital secure
server where it can be routed to a print facility and stored for client
access at anytime. The new service is offered in conjunction with the
Regent Technologies fiber hub facility in downtown Dallas operated by
ConnecTen, LLC, also a subsidiary of Regent Technologies. The ConnecTen
facility is an"on-net" fiber hub which served as the founding operating
facility of broadcast.com. The facility is equipped with fiber from
AT&T/TCG, WorldCom/MFS and Southwestern Bell and with Internet access
through the Savvis National Network. The focus of ConnecTen is to provide
a wide range of Internet services for corporate and professional
customers including high-speed access, web hosting, server co-location
and web page development. As part of the scope of the services provided
to a corporate account, ConnecTen optimizes a customer's Internet needs at
the least cost available. The service will provide secure access for
Regent Digital's clients over the Internet or via direct, high-speed
connections including ISDN and T-1 access speeds to facilitate the transfer,
storage and printing of digital print files.
Acquisition Strategy
With its entry into digital printing, the Company will seek to expand
this business with the acquisition of companies in markets with
concentrations of graphic artists and marketing professionals which have
the potential to utilize digital prepress and digital printing operations
as well as digital distribution networks. The Company believes it will be
regarded by acquisition candidates as an attractive acquiror because of:
(1) the Company's plans for creating a national presence of comprehensive
and professionally managed digital prepress and printing operation centers
that emphasize the development of long-term customer relationships at the
local, regional and national levels; (2) the Company's decentralized
operating philosophy; (3) the potential for owners of the acquired
businesses to participate in the Company's planned growth while realizing
liquidity; (4) the Company's increased name recognition and its access to
financial resources as a public company; and (5) the potential for increased
profitability of the acquired company due to purchasing economics and the
centralization of certain administrative functions.
7
<PAGE>
Results of Operations
The Company increased sales from $102,000 for the period ended March 31,
1998 to $357,000 for the period ended June 30, 1998 and gross profits for
the same periods from $30,000 to $164,000. This represents a positive growth
trend in sales and gross profits of 250% and 446% respectively as compared
to the period ended March 31, 1998. The Company's net loss for the period
ended June 30,1998 was $493,000, or $.149 cents per common share, compared
compared with a net loss of $95,000, for the same period in 1997.
The difference was due to the increase of costs associated with expanded
Internet operations and the startup expenses of the new Regent Digital
Imaging, Inc. prepress and printing business. The Internet operations are
centered on building recurring revenue through new subscriptions for dedicated
Internet access. Recurring revenue for the three months ended June 30, 1998
averaged approximately $26,000 per month.
COMPARISON OF THE THREE MONTHS ENDED JUNE 30, 1998 TO THE THREE MONTHS
ENDED JUNE 30, 1997.
Net Sales. Net sales from operations for the three months ended
June 30, 1998 were $255,000, an increase of $252,000 or 8,400%, compared
to $3,000 for the three months ended June 30, 1997. The increase in net
sales was primarily attributable to new sales of $163,000 from the
Company's entry into the prepress and digital printing business which
commenced operatons in February, 1998, plus continued growth in the Internet
and telecommunications revenues of $84,000.
Cost of Sales. Costs of sales for the three months ended June 30, 1998
was $121,000, an increase of $121,000 compared to the same period in 1997.
The increase was due to the new printing operations with cost of sales of
$88,000 and Internet access fees of $33,000.
Gross Profit. The Company had gross profits of $134,000 compared to
$3,000 for the three months ended June 30, 1997. The 1998 gross profits
were primarily attributable to the prepress and digital
printing with gross profits of $75,000 and the Internet and
telecommunications with gross profits of $51,000.
Other Deductions. For the three months ended June 30, 1998, general and
administrative expenses increased $212,000 from 1997 due to the increase of
operating costs associated with digital imaging and Internet activities
related primarily to salary expense for increased management and operations
personnel. These expenses include salaries of $78,000 to executive officers
of the Company which have been deferred to preserve sach. Depreciation
and amortization increased $34,000 due to the new print equipment and
additional Internet and computer equipment. This amount includes $9,419
of amortization related to the Operations for Sale.
COMPARISON OF THE SIX MONTHS ENDED JUNE 30, 1998 TO THE SIX MONTHS ENDED
JUNE 30, 1997.
Net Sales. Net sales from operations for the six months ended June 30,
1998 were $357,000, an increase of $352,000 or 7,040%, compared to $5,000
for the six months ended June 30, 1997. The increase in net sales was
primarily attributable to new sales of $213,000 from the Company's
entry into the prepress and digital printing business which commenced
operations in February, 1998, plus continued growth in the
Internet and telecommunications revenues of $131,000 compared to $5,000
for the same period in 1997.
Cost of Sales. Costs of sales for the six months ended June 30, 1998
was $193,000, an increase of $188,000 compared to the same period in 1997.
The increase was due to the new printing operations and Internet access with
cost of sales of $117,000 and $76,000, respectively.
Gross Profit. The Company had gross profits of $164,000 compared to $5,000
for the three months ended June 30, 1997. The 1998 gross profits were
primarily attributable to the prepress and digital printing operations with
gross profits of $96,000 and the Internet and telecommunications with
gross profits of $55,000.
Other Deductions. For the six months ended June 30, 1998, general and
administrative expenses increased $455,000 from 1997 due to the increase
of operating costs associated with digital imaging and Internet activities
related primarily to salary expense for increased management and operations
personnel. These expenses include salaries of $141,000 to executive officers
of the Company which have been deferred to perserve cash. Depreciation
and amortization increased $77,000 due to the new print equipment and
additional Internet and computer equipment. This amount includes $18,838
of amortization related to the Operations for Sale.
Liquidity and Capital Resources
At June 30, 1998, excluding amounts owed to officers and affiliates, the
Company had a negative working capital of $364,000 compared to negative
working capital of $83,000 for the same period in 1997. This amount includes
$141.000 of salaries owed to employees of the Company.
Net cash used by operating activities totaled $221,000 for the six
months ended June 30, 1998. This amount would have been greater except
for the Chairman and the President deferring all compensation
under their employment contracts and other partial deferrals totaling
$141,000. Cash provided from investing activities was due to the collection
of a note receivable from the Chairman of $46,000 and the return of equipment
to Ascend Communications, Inc. which had been received under an evaluation
program. Cash provided of $156,000 from financing activities was principally
from $40,000 for the sale of new restricted previously unissued common
stock and $182,000 from the line of credit with the Chairman. The net
effect of cash flows from operating activities, investing activities and
financing activities was an increase to cash of $2,000. The Company
believes that current cash balances, available borrowing capacity on its
line of credit and cash generated from operations will provide sufficient
cash to meet its operating requirements.
Other Matters
The Company believes that its management information systems are able to
process all transactions including those relating to the year 2000 and
beyond. Additionally, the Company uses an independent service bureau for
the processing for payroll and payroll tax related operations and has been
notified by the service bureau that all of its systems will be fully
compliant with year 2000 requirements. Although the Company believes that
the information systems of its major customers and vendors (insofar as they
relate to the Company's business) comply with year 2000 requirements, there
can be no assurance that the year 2000 issue will not effect the information
systems of such customers and vendors as they relate to the Company's
business or that any such impact would not have a material adverse effect on
the Company's business, financial condition or results of operations.
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PART II-OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds.
Pursuant to an option approved by the Board of Directors effective April 1,
1997, certain employees elected to convert earned but unpaid salaries at
December 31, 1998 in the amount of $226,363 to 709,543 shares of newly
issued restricted Common Stock of the Company.
Pursuant to the annual shareholders meeting held on March 4, 1998, the
Company reversed its stock 1 for 6 effective April 1, 1998. The amounts of
stock reflected in this Form 10-QSB reflect this stock reverse.
Item 4. Submission of Matters To a Vote of Security Holders.
The Company did not submit any matter to the stockholders during the three
months ended June 30, 1998.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27 Financial data schedule for the quarter ended June 30, 1998
(included only in the copy of this report filed electronically with
the Commission).
(b) Reports of Form 8-K
On May 12, 1998, the Company filed a Current Report on Form 8-K reporting
a letter of intent to acquire Digital Press & Imaging, LLC.
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SIGNATURES
Pursuant to the requirement of the Securities Exchange Act of 1934, the
registrant has duly cause this report to be signed on its behalf by the
undersigned thereunto duly authorized.
REGENT TECHNOLOGIES, INC.
(Registrant)
Date: August 19, 1998 By: Roy W. Mers
Roy W. Mers
Principal Executive Officer
Date: August 19, 1998 By: David A. Nelson
David A. Nelson
Principal Financial Officer
10
