SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31,1998
Commission File Number 0-9519
REGENT TECHNOLOGIES, INC.
(Exact name of Registrant as specified in its charter)
Colorado 84-0807913
(State of Incorporation) (I.R.S. Employer Identification No.)
2929 Elm Street, Dallas, Texas 75226
(Address of Principal Executive Officers) (Zip Code)
Registrant's telephone number, including area code: 214 741 9554
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Name of Each Exchange Title of Each Class On Which Registered
None Common Stock,$.01 Par Value
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
and (2) has been subject to such filing requirements for the
past 90 days. [X]
Indicate by check mark if disclosure of delinquent filers
pursuant to item 405 of Regulation S-K is not contained herein
and will not be contained, to the best of the Registrant's
Knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or
an amendment to this Form 10-KSB. [ ]
The aggregate market value of the Registrant's Common Stock
held by non-affiliates of the Registrant on June 30, 1999 was
approximately $370,000.
Number of shares outstanding of the Registrant's Common Stock
at June 30, 1999: 5,500,817 shares, par value $.01 per
share.
<PAGE>
REGENT TECHNOLOGIES, INC.
ANNUAL REPORT ON FROM 10-KSB
SECURITIES AND EXCHANGE COMMISSION
Item Number and Description Page
PART I
Item 1. Business.............................. 2
Item 2. Description of Properties............. 3
Item 3. Legal Proceedings....................... 3
Item 4. Submission of Matters to a Vote of
Security Holders....................... 3
PART II
Item 5. Market for the Registrant's Common Equity
and Related Matters..................... 3
Item 6. Management's Discussion and Analysis of
Fianancial Condition and Results of
Operations............................... 4
Item 7. Financial Statements and Supplemental
Data..................................... 6
Item 8. Changes in and Disagreements with
Accountants on Accounting and Financial
Disclosures.............................. 6
PART III
Item 9. Directors and Executive Officers of the
Registrant............................. 6
Item 10. Executive Compensation............... 7
Item 11. Security Ownership of Certain Beneficial
Owners and Management................. 8
Item 12. Certain Relationships and Related
Transactions......................... 9
PART IV
Item 13. Exhibits, Financial Statements Schedules
and Reports on Form 8-K................. 9
Signatures....................................... 10
<PAGE>
PART I
Item 1. Description of Business
General
The terms "Company" and "Regent" when used herein mean
Regent Technologies, Inc. and its subsidiaries. Regent
Technologies, Inc., formerly Regent Petroleum Corporation, was
incorporated under the laws of the State of Colorado on
January 18, 1980. In 1994, new management redirected the
Company's core business as an incubator for the development of
emerging technologies and the shareholders voted to rename the
Company at a shareholders meeting held on December 19, 1994.
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.
On December 19, 1994, the Board approved the acquisition
of SSB Environmental, Inc. ("SSBE") for restricted common
stock and incentives. SSBE was the Company's entry into the
landfill mining business in the State of New York. On
September 15, 1996, the Company announced it had initiated
highspeed Internet access for home and business using the
National Knowledge Networks, Inc. ("NKN") digital network
under a Technology License which licenses the hardware and the
software necessary for the Company to offer access to the
Internet. The License was obtained from NKN Technologies,
Inc. ("NKN") for 2,500,000 shares of common stock of the
Company, 600,000 registered shares and 1,900,000 restricted
shares. On December 7, 1996, the License was assigned to the
Company's wholly owned subsidiary, Regent Tel1 Communications,
Inc. ("TEL1"). Effective September 1, 1997, Regent acquired
ConnecTen, L.L.C. ("ConnecTen") for 100,000 shares of Regent
restricted common stock. The focus of ConnecTen was to
provide a wide range of Internet services for corporate
customers including high-speed access, web hosting, server co-
location and web page development. Effective January 1, 1998,
TEL1 initiated the offering of wireless products through
Regent's acquisition of Channel Services, L.C. which allowed
TEL1 to succeed to Channel's status as a preferred customer of
AT&T Wireless Services Corp. Channel Services was acquired
through the issuance of 1,281,667 shares of restricted common
stock and warrants which can be exercised for an additional
80,000 shares of Regent restricted common stock. 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. ("RDI"). RDI 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.
Recent Business Developments
Effective January 1, 1998, the aforementioned named
subsidiary companies have been divested to related parties.
See "Item 12. Certain Relationships and Related Transactions."
During the first quarter, 1999, the Company entered into
negotiations to develop businesses related to landfill
management and reclamation including the potential to enter
the waste hauling business.
Employees
At December 31, 1998, the Company had three employees.
Item 2. Description of Property
Offices
On September 1, 1997, the Company opened a new corporate
office located at 2929 Elm St., Dallas, Texas 75226 under a
five year lease which provides for rental payments of $3,500
per month.
2
<PAGE>
Item 3. Legal Proceedings
The Company is a party to a lawsuit to resolve a disputed
severance claim with a former employee in the amount of
approximately $23,000. No other litigation or legal
proceeding has been threatened against the Company.
Item 4. Submission of Matters To Vote of Security Holders
On March 4, 1998, the Company held its annual
shareholders meeting at which the security holders elected
four directors and voted to approve a one for six reverse
split of the common stock.
PART II
Item 5. Market for Regent's Common Equity and Related
Stockholder Matters
The Company's Common Stock is traded in the over-the-
counter market and currently listed on the electronic bulletin
board under the symbol "REGT." The following table sets forth
the high and low bid quotations for the Company's Common Stock
as reported by security dealers. The quotes represent inter-
dealer prices without adjustments or commissions and may not
represent actual transactions.
Bid Price
High Low
1996
1st Quarter .06 .06
2nd Quarter .06 .06
3rd Quarter .48 .06
4th Quarter .48 .30
1997
1st Quarter .36 .30
2nd Quarter .36 .30
3rd Quarter .72 .60
4th Quarter .72 .60
1998
1st Quarter .72 .60
2nd Quarter 1.25 .37
3rd Quarter 1.00 .56
4th Quarter .32 .25
The Company has not declared any cash dividends on its
Common Stock since its inception. The Company currently
intends to retain any future earnings to finance the growth of
the business and, therefore, does not anticipate paying any
cash dividends in the foreseeable future. As of June 30,
1999, the approximate number of record holders of the
Company's Common Stock was 2,210.
3
<PAGE>
Item 6. Management's Discussion and Analysis of Financial
Conditions and Results of Operation
General
The statements contained in this Annual Report on Form 10-
KSB 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 (the "SEC"), 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.
Acquisition Strategy
With the Company's decision to return to the landfill and
waste related businesses (see "Recent Business Developments"), the
Company will seek to expand this business with the acquisition of
companies in markets where consolidations are an appropriate method
for long-term growth. The Company expects to initiate operation
centers in four new markets before December 31, 1999 primarily by
the acquisition of existing companies.
Financial Condition
Liquidity and Capital Resources
At December 31, 1998, excluding amounts owed to officers
and affiliates, the Company had net working capital of
zero dollars ($0.00). The Company has no amortization requirements
under any term loan agreements. The Company is not current on
its trade payables including amounts owed to officers and
affiliates and continues to raise monies as needed through
proceeds from the sale of the Company's restricted Common Stock.
1998 versus 1997
The Company's net loss for the twelve months ending
December 31, 1998 was $666,000 or $.125 cents per common
share, compared with a net loss of $379,000 for the same
period in 1997. The difference was due to the loss on the
disposal of discontinued divisions through divestiture of the
Company's wholly owned subsidiaries.
4
<PAGE>
1997 versus 1996
The Company's net loss for the twelve months ending
December 31, 1997 was $379,000 or $.027 cents per common
share, compared with a net loss of $90,000 for the same period
in 1996. The difference was due to the increase of general
and administrative costs for the same periods which consists
primarily of deferred management compensation of $226,000.
For the twelve months ended December 31, 1997, general and
administrative expenses increased $278,000 from 1996 due
primarily to the increase of approxiamately $250,000 in
salaries to officers of the Company. Through December 31,
1997, ConnecTen added $63,000 of revenues from new customers
utilizing dedicated Internet access following the acquisition
of ConnecTen in July, 1997. TEL1's expansion of its marketing
through direct marketing channels resulted in the addition of
over 50 independent sales representatives who have sold
approximately 60 new service contracts for Internet access or
long distance services which added $13,000 to revenues. The
Technology License was modified to eliminate POP charges by
NKN for the first 12 months of the License or until September
1, 1997 at which date charges of $500 per month were initiated
and will continue for technical support utilized. For 1997,
amortization expense for goodwill and intangibles increased
$9,000 compared to the same period in 1996 due to the
amortization of the Technology License for twelve months.
1996 versus 1995
For the twelve months ending December 31, 1996, the
Company experienced a significant decrease in sales, current
assets and liabilities, all due to the sale of SSBE. Property
and equipment decreased due to the write-off of the Company's
remaining oil and gas assets which represented undrilled
overriding royalty interests. The Company's increase in Other
Assets of $270,000 was due to the acquisition of the
Technology License which was booked at $364,000 at September
30, 1996. The License is being amortized over ten (10) years
and experienced amortized cost of $9,104 for the three months
ending December 31, 1996. The Company experienced a gain of
$2,465 on the sale of 81% of the ownership of SSBE. The
remaining 19% has a book value of $13,496 and is included in
Other Assets. During the fourth quarter, the Company
initiated test-marketing dial-up services in the Dallas-Ft.
Worth area. The Company realized approximately $1,000 in sales
for the three months ending December 31, 1996. In addition,
for the same period, the Company earned nominal receipts for
commissions for reselling long distance services.
5
<PAGE>
Item 7. Financial Statements
The financial statements required to be filed pursuant to
this Item 7 are included in this Annual Report on Form 10-KSB.
A list of the financial statements filed wherewith is found at
"Item 13. Exhibits, List and Reports on Form 8-K."
Item 8. Changes in and Disagreements with Accounts on
Accounting and Financial Disclosure.
None.
PART III
Item 9. Directors, Executive Officers, Promoters and Control
Persons, Compliance with Section 16(a) of the Exchange Act
Directors and Executive Officers
Has Been A Position With
Name Age Director Since Company
Roy W. Mers 52 March, 1996 Director, Chairman
David A. Nelson 51 October, 1992 Director, President
Gordon M. Boyd 53 December, 1994 Director
William D. Bingham 45 December, 1994 Director
6
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Principal Occupations of Directors
Mr. Mers has served as a director and Chief Executive
Officer since March, 1997 and Chairman of the Company since
April, 1997. From May, 1996 to March, 1997, Mr. Mers was the
Chief Financial Officer and a Board member of National
Knowledge Networks, Inc., the leading wholesale Internet
provider in the Dallas/Ft. Worth metroplex. As the recent
past President of Electronic Transmission Corporation, Mr.
Mers directed the initial growth of the company which
successfully developed network integration of managed care
financial data. Mr. Mers was the founding stockholder of
Huntington Systems which was instrumental in the integration
of the Canon Color Laser technology as a computer output
device. Mr. Mers served as a consultant to JC Penny Company
and Sony Corporation to develop a viable digital photography.
Mr. Mers holds a B.S. degree from Southern Methodist
University and has completed graduate studies in economics and
finance.
Mr. Nelson has served as President and a Director of the
Company since October, 1992. From November, 1988 to
September, 1992, Mr. Nelson was President, Chief Executive
Officer of Intramerican Corporation, formerly Intramerican Oil
and Minerals, Inc., a public oil and gas corporation. Mr.
Nelson managed the rebuilding of Intramerican through the
addition of business segments related to gas gathering and
property management and by increasing proven oil and gas
reserves each year. The company moved from a negative
earnings position in 1988 to consecutive profitable years in
1989, 1990 and 1991. Mr. Nelson is an attorney and has over
ten years of banking experience. He holds a B.A. and J.D.
from Baylor University and from Texas A & M a Masters in
Computing Sciences. He was employed from 1971 to 1983 at
Republic National Bank and last served as a Vice President in
the commercial lending department.
Mr. Boyd has served as Director of the Company since
December, 1994. From 1988 to 1994, Mr. Boyd served as
President of Schillinger, Salerni and Boyd, Inc. Mr. Boyd
was an environmental policy aide to the State Assembly of New
York from 1979 to 1983, when he was appointed executive
director of the New York State Legislative Commission on Solid
Waste Management. In 1989, he was appointed by the Governor
to the State Solid Waste Management Board. He has a B.A. from
Hamilton College.
Mr. Bingham is CEO of Net Explorer, Inc., an internet
consulting company serving the Fortune 500 companies. From
1986 to 1994, Mr. Bingham was a Vice President of Browning
Ferris Industries where he helped launch BFI's medical waste
business. He currently consults in the computer operations
business with an emphasis on establishing intranet services.
His educational background includes studies at Stanford
University and UCLA.
Item 10. Executive Compensation
Compensation which the Company paid for services in all
capacities for the year ended December 31, 1997, to the
executive officers of the Company is set forth as follows:
Long Term Compensation
Annual Compensation Awards Payouts
(a) (b) (c) (d) (e) (f) (g) (h) (I)
Name Other
and Annual Restricted
Principal Compen- Stock Options/LTIP Other
Position Year Salary Bonus sation(1)Awards SARs(#) Payouts Comp.(3)
Roy W. Mers, 1998 $120,000 $6,000
CEO 1997 $90,000 $6,000
David A. Nelson, President
1998 $110,000 $6,000
1997 $87,000 $6,000
1996 $24,000 $6,000
Steve Hughes, CFO
1998 Terminated April, 1998
1997 $30,000
Elaine Boze, General Counsel
1998 $70,000
1997 $12,000
(1) Other Annual Compensation is an Automobile allowannce
(2) The CEO and President are compensated under Employment
Contracts initiated effective on April 1, 1997 and have
deferred all salary until the Company is capitalized.
(3) The Company paid, or otherwise incurred, a consulting fee
of $24,000 to the President in 1996 and 1995.
7
<PAGE>
Other Benefits
The Directors of the Company receive $250 each for
meetings attended and each director has agreed to convert the
Director's fee to newly issued restricted common stock at a
price of $.15 per share to conserve cash. Also, the Directors
voted to grant each Director stock options of 100,000 shares
with an exercise price of $.075 for a term of ten years or
ninety days after termination or resignation as a Director,
whichever comes first.
Item 11. Security Ownership of Certain Beneficial Owners and
Management
Principal Shareholders
The following table sets forth certain information
respecting the holdings of each shareholders who was known to
the Company to be the beneficial owner, as defined in Rule 13d-
3 of the Securities Exchange Act of 1934, as amended, of more
of more than 5% of the Common Stock of the Company. Each of
the persons or entities named below as beneficially owning the
shares set forth opposite his name has sole voting power and
sole investment power with respect to such shares, unless
indicated. The amounts include spousal ownership and the
grant of options.
Name and address of Amount and Nature of Beneficial
Beneficial Owner Beneficial Ownership Ownership
Roy W. Mers 858,780 Shares 19.76%
1074 Bells Chapel
Waxahachie, Texas 75165
David A. Nelson 944,960 Shares 21.75%
3212 Beverly Drive
Dallas, Texas 75205
William M. DeArman 500,000 Shares 11.51%
5420 Huckleberry Lane
Houston, Texas 77056
Jesse G. Edwards 285,346 Shares 6.57%
1890 Valley View Lane
Tyler, Texas 75703
NKN Technologies, Inc. 277,778 Shares 6.39%
400 N. St. Paul, Suite 500
Dallas, Texas 75201
Security Ownership of Management
The following table sets forth certain information with
respect to the Common Stock of the Company beneficially owned
by the directors and the directors and officers as a group and
include director options. The person named below as
beneficially owning the shares set forth opposite his name,
including options, has sole voting power and sole investment
power with respect to such shares, unless otherwise indicated.
Name and address of Amount and Nature of Beneficial
Beneficial Owner Beneficial Ownership Ownership
Roy W. Mers, Chairman 858,780 Shares 19.76%
David A. Nelson, President 944,960 Shares 21.75%
Gordon M. Boyd, Director 61,089 Shares 1.41%
William D. Bingham, Director 16,667 Shares .38%
Officers and Directors as a
Group 1,881,496 Shares 43.29%
8
<PAGE>
Item 12. Certain Relationships and Related Transactions
In April, 1997, the Directors approved the grant of stock
options to the Chairman in the amount of 333,333 shares and to
the President in the amount of 83,333 shares all with an
exercise price of $.30 with an expiration of December 31,
1998. During 1998, the Chairman exercised his stock options.
The Directors also approved in 1997 a resolution granting
8,333 shares each to the Chief Financial Officer and to the
General Counsel to vest upon completion of their employment
contracts.
During the third quarter, 1997, the Directors approved the
grant of stock options to the General Counsel and the Chief
Financial Officer in the amount of 75,000 shares and to the
Director of the Integration Services Division of the Company
in the amount of 66,667 shares each with an exercise price of
$.30 and currently with an expiration date of June 30, 2003.
In October, 1997, the Board of directors passed a resolution
giving all employees the election of taking restricted shares
of the Company common stock, at a value of $.05 per share, in
lieu of salaries owed through December 31, 1997, said election
to be made on or before March 31, 1998.
During the first quarter, 1998, the Directors approved the
grant of stock and stock options to subsidiary employees
totaling 250,000 shares at exercise prices ranging from $0.30
to $0.60 per share.
PART IV
Item 13. Exhibits, Financial Schedules and Reports on Form 8-K
(a) Listing of Documents
(1) Financial Statements
Reference is made to the Index to Financial
Statements on Page F-1.
(2) Financial Statement Schedules
None
(3) Exhibits
Reference is made to the Exhibit Index on Page 10.
(b) Reports of Form 8-K
On March 30, 1998, the Company filed a Current Report on
Form 8-K reporting the Company's entry into the prepress
and digital printing business through a newly formed
wholly owned subsidiary, Regent Digital Imaging, Inc.
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, in a transaction valued at about
$4,500,000.
On July 23, 1998, Regent announced its entry into the web
printing business through its subsidiary, Regent Digital,
Inc.'s entering into a marketing allianace with ColorGraphics
Corporation.
On March 9, 1999 Regent announced that it had sold all of
the assets of its wholly owned subsidiary, Regent Digital,
Inc. to The Color Place, Inc., a Texas cosrporation. The
corporate headquarters were moved to 2929 Elm Street, Dallas
Texas 75226.
On April 2, 1999 Regent announced the sale of all of the
assets of ConnecTen, L.L.C. to Internet Allegiance, Inc.
On July 19, 1999 Regent announced the changes to its Board
of Directors and officers, sale of restricted stock to the
Straza Family Limited Partnership and its plans to expand
into the landfill, waste management, and recycling areas.
9
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of
the Securities Exchange Act of 1934, the Registrant has duly
caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized this 30th day of June,
1999.
REGENT TECHNOLOGIES, INC.
By: /s/ Roy W. Mers
Roy W. Mers, Chairman and
Chief Executive Officer
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 following persons on
behalf of the Registrant and in the capacities and on the
dates indicated.
/s/Roy W. Mers Director and Chairman, July 20, 1999
Roy W. Mers the Principal Executive
Officer
/s/David A. Nelson Director and President, July 20, 1999
David A. Nelson the Principal Accounting Officer
10
<PAGE>
EXHIBIT INDEX
Exhibit Description of Exhibit
No.
3.1 Certificate of Incorporation. Incorporated by reference
to the Company's Registration Statement which became effective
November 18, 1980 (File number 2-69087).
3.2 Restated Articles of Incorporation of Regent
Technologies, Inc.; Incorporated by references to Regent
Petroleum Corporation Proxy Statement for Special Meeting of
Shareholders held January 26, 1988, dated December 30, 1987.
3.3 Bylaws of Regent Technologies, Inc. as amended;
Incorporated by references to Regent Petroleum Corporation
Proxy Statement for Special Meeting of Shareholders held
January 26, 1988, dated December 30, 1987.
9.1 License Agreements between Regent Technologies, NKN
Technologies, Inc. and National Knowledge Networks dated
August 16, 1996 and as modified under the Modification
Agreement dated September 30, 1996; said agreements
incorporated by reference to Exhibit 9.1 to the Registrant's
10-KSB for the period ended December 31, 1996.
22 List of subsidiaries - None
27 Financial Data Schedule (submitted electronically only)
11
<PAGE>
REGENT TECHNOLOGIES, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STTEMENTS
Reports of Independent Certified Public Accountants F-2
Balance Sheets - December 31, 1998 and 1997 F-3
Statements of Operations for the years ended
December 31, 1998, 1997, and 1996 F-4
Statements of Stockholders' Equity for the years
ended December 31, 1998, 1997, and 1996 F-5
Statements of Cash Flows for the years ended
December 31, 1998, 1997, and 1996 F-6
Notes to Financial Statements F-7
F-1
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Stockholders
of Regent Technologies, Inc.
We have audited the accompanying consolidiated balance sheets of Regent
Technologies, Inc. ( a Colorado corporation) and subsidiaries as of
December 31, 1998 and the related statements of operations, stockholders'
equity, and cash flows for the year then ended. We have also audited
the accompanying consolidate balance sheets of the Company and
subsidiaries as of December 31, 1997 and the consolidated statements of
operations, stockholders' equity, and cash flows for each of the two years
then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
Except as discussed in the following paragraph, we conducted our audit
in accordance with generally accepted auditing standards. Those standards
require that we plan and perform the audit to obtain reasonable assurance
about whether the consolidated financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable
basis for our opinion.
Because of the inadequacy of the accounting records for 1998, we were
unable to form an opinion regarding the amounts at which accounts
payable are recorded in the accompanying balance sheet at December 31, 1998
(stated at $48,000).
In our opinion, except for the effects of such adjustments, if any, as
might have been determined to be necessary had current year's accounting
records regarding accounts payable been adequate, the financial statements
referred to in the first paragraph present fairly, in all material respects,
the financial position of Regent Technologies, Inc. as of December 31, 1998
and 1997, and the results of their operations and their cash flows for each
of the three years in the period ended December 31, 1998 in conformity with
generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 9 to the
financial statements, the Company has suffered recurring losses from
operatons which raises substantial doubt about its ability to continue as a
going concern. Management's plans regarding those matters also are
described in Note 9. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
SALMON, BEACH & COMPANY, P.C.
Dallas, Texas
July 20, 1999
F-2
<PAGE>
<TABLE>
REGENT TECHNOLOGIES, INC AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31,
(Amounts in thousands)
<CAPTION>
1998 1997
______________ ______________
<S> <C> <C>
ASSETS
Current Assets
Cash $ -- $ 2
Notes receivable -- 46
Accounts receivable 48 12
______ ______
Total Current Assets 48 60
Property and Equipment - At Cost
Furniture and fixtures 8 7
Computer and electronic equipment 3 224
______ _____
11 231
Less accumulated depreciation
and amortization 7 14
______ _____
4 217
OTHER ASSETS 67 335
______ _____
$ 119 $612
</TABLE>
<TABLE>
<CAPTION>
LIABILITIES
<S> <C> <C>
Current Liabilities
Current portion of long
term obligation $ -- $ 20
Unearned revenues -- 5
Accounts Payable and
accrued liabilities $ 48 $ 178
Accrued Compensation 170 226
Notes payable to affiliates -- --
______ ______
Total Current Liabilities 218 429
Long Term Obligation -- 40
Stockholder's Equity
Common stock par value $.01 per share
Authorized 100,000,000 shares
Issued and outstanding shares for
1998 and 1997, respectively 36 154
Capital in excess of par value 3,149 2,671
Accumulated deficit (3,348) (2,682)
_______ _______
Total Stockholders' Equity $ (163) $ 143
_______ _______
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $ 119 $ 612
<FN>
The accompanying notes are an integral part of these statements.
</TABLE>
F-3
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<TABLE>
REGENT TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31,
(Amounts in thousands, except per share data)
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
REVENUES
Internet and telecommunication sales $ -- $ 4 $ 1
Investment income -- -- --
Gain on sale of assets -- -- 3
Interest income and other 2 -- --
_____ _______ ______
2 4 4
COST AND OTHER DEDUCTIONS
Cost of Internet sales and services -- -- --
Cost of investment income -- -- --
General and administrative 281 310 55
Depreciation and amortization 2 5 39
Interest expense -- 1 --
_____ _______ _____
283 316 94
NET EARNINGS (LOSS) $(281) (312) (90)
_____ _______ ______
DISCONTINUED OPERATIONS
Loss from operations of discontinued
divisions -- (67) --
Loss on disposal of divisions (385) -- --
NET EARNINGS (LOSS) APPLICABLE TO
COMMON STOCK (666) (379) (90)
EARNINGS (LOSS) PER COMMON SHARE $(.195) $ (0.160) (0.056)
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING 3,420 2,371 1,599
______ _______ _____
<FN>
The accompanying notes are an integral part of these statements.
F-4
</TABLE>
<PAGE>
<TABLE>
REGENT TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
<CAPTION>
Additional Total
Common Stock Paid-In Accumulated Treasury Stock Stockholders
Shares Amount Capital Deficit Shares Amount Equity
<C> <C> <C> <C> <C> <C> <C>
_________________________________________________________________
Balances,
01/01/1996 1,495,701 15 2,303 (2,212) - 106
Acquisition of Stock
in connection with
SSBE transaction 83,333 50
Exchange of
registered stock
for restricted stock 95,141
Issuance of
stock 582,164 6 318 (178,474) (50) 324
Net loss (91) (91)
----------------------------------------------------------------
Balances,
12/31/96 2,077,865 21 2,621 (2,303) 0 0 339
Issuance of
common stock 483,333 5 178 183
Net loss (379) (379)
----------------------------------------------------------------
Balances,
12/31/97 2,561,198 26 2,800 (2,682) 143
Issuance of
common stock 1,082,495 11 349 360
Net loss (666) (666)
----------------------------------------------------------------
Balances,
12/31/98 3,643,693 $36 $3,149 (3,348) $(163)
<FN>
The accompanying notes are an integral part of these statements.
F-5
</TABLE>
<PAGE>
<TABLE>
REGENT TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31,
(Amounts in thousands, except per share data)
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
Cash Flow From Operating Activities:
Net earnings (loss) $ (666) $ (379) $ (90)
Asjustments To Reconcile Net
Earnings (loss) to Net Cash
Provided (Used) by
Operating Activities:
Gain on sale of assets -- -- (3)
Depreciation and amortization 2 44 39
Loss on disposal of subsidiaries 385 -- --
Increase (Decrease) in
Accounts Receivable 58 (11) (1)
Other current assets -- -- 2
Other assets -- -- --
Increase (Decrease)in
Accounts payable and
Accrued liabilities (80) 167 12
Accrued compensation 165 212 14
_______ ______ ______
Net Cash Provided (Used)
In Operating Activities $(136) $ 33 $ (27)
____________________________
Cash Flow From Investing Activities:
Net collections on
Notes receivables -- 54 2
Proceeds (Costs) of investment
In Subsidiary -- -- 6
(Increase) Decrease of property
And equipment -- (167) --
_____________________________
Net Cash Provided (Used)In
Investing Activities $ 0 $(113) $ 8
_____________________________
Cash Flow From Financng Activities:
Issuance of common stock 134 83 9
Net proceeds from (repayment of)
Note to stockholder -- (2) 2
_____________________________
Net Cash Provided (Used) From
Financing Activities 134 81 11
_____________________________
Increase (Decrease) in Cash (2) 1 (8)
Cash at Beginning of Period 2 1 9
______________________________
Cash at End of Period $ 0 $ 2 $ 1
Supplemental Disclosures
Cash paid during the period for
interest and income taxes -- -- --
_______________________________
<FN>
</TABLE>
The accompanying notes are an integral part of these statements.
F-6
<PAGE>
REGENT TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996
(1) ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
Regent Technologies, Inc., 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 which included the formation of Earth
Minerals, Inc. in 1991, which was later renamed Regent
Industries, Inc. In 1992, the Company redirected its core
activities and acquired SSB Environmental, Inc. ("SSBE"),
which was organized for the purpose of obtaining waste and
landfill reclamation contracts and accounted for under the
purchase method of accounting. Effective January 1, 1996,
the Company sold 100% of Regent Industries and 81% of its
interest in SSBE, and the remaining 19% is accounted for on
the cost method of accounting. In September, 1996, the
Company entered into a license agreement for the
technologies necessary to offer dialup access to the
Internet (the "Technology License" or "License"). During the
fourth quarter of 1996, the Company organized Regent TEL1
Communications, Inc. ("TEL1") as a Nevada corporation and a
wholly owned subsidiary to market its Internet products and
services primarily to consumer markets. In the third
quarter of 1997, the Company acquired ConnecTen, L.L.C. as a
wholly owned subsidiary to market its dedicated Internet
access services to professionals and corporations.
Effective January 1, 1998, the Company acquired Channel
Services, LC, to expand its telecommunications products to
include wireless telephone services. The acquisitions of
ConnecTen and Channel Services were accounted for under the
purchase method of accounting. During the first quarter of
1998, the Company organized Regent Digital Imaging, Inc. to
offer digital printing and prepress services with access
available via the Internet. Effective January 1, 1998, the
Company divested 100% of its ownership in all subsidiary
companies.
Principles of Consolidation
The consolidated financials statements include the accounts
of the Company and it wholly-owned subsidiaries. TEL1 was
consolidated in the financial statements of the Company in
the fiscal year ended 1996 and TEL1 and ConnecTen were
consolidated in the financial statements of the Company in
the fiscal year ended 1997.
Use of Estimates
Management uses estimates and assumptions in preparing
financial statements. Those estimates and assumptions
affect the reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities, and
reported revenues and expenses. Actual results could differ
from these estimates.
Depreciation and AmortizationDepreciation of furniture and
fixtures is provided in amounts sufficient to relate the
cost of depreciable assets to operations over their
estimated services 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 the Technology License is provided in
amounts which reflect the anticipated minimum number of
years of the term of the license (10 years).
Stock Options and Awards
In 1995, the Directors approved a resolution granting each
Director stock options of 16,667 shares with an exercise
price of $.45 for a term of ten years or ninety days after
termination or resignation, whichever comes first.
<PAGE>
F-7
REGENT TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996
(1) ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUTNING
POLICIES - Continued
In April, 1997, the Directors approved the grant of stock
options to the Chairman in the amount of 333,333 shares and
to the President in the amount of 83,333 shares all with an
exercise price of $.30 with an expiration of December 31,
1998. During 1998, the Chairman exercised his stock
options.
The Directors also approved in 1997 a resolution granting
8,333 shares each to the Chief Financial Officer and to the
General Counsel to vest upon completion of their employment
contracts.
During the third quarter, 1997, the Directors approved the
grant of stock options to the General Counsel and the Chief
Financial Officer in the amount of 75,000 shares and to the
Director of the Integration Services Division of the Company
in the amount of 66,667 shares each with an exercise price
of $.30 and currently with an expiration date of June 30,
2003.
During the first quarter, 1998, the Directors approved the
grant of stock and stock options to subsidiary employees
totaling 250,000 shares at exercise prices ranging from
$0.30 to $0.60 per share.
Upon the successful 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 of restricted common stock with an exercise
price of $1.00 and an expiration date of June 30, 2003.
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.
Earnings Per Share
Earnings per share is based on the weighted average number
of common shares outstanding for each period presented.
Common stock equivalents are included if dilutive. In
February 1997, the Financial Accounting Standards Board
issued Statement No. 128, "Earnings per Share," which is
required to be adopted for years ending December 15, 1997.
Under the new requirements for calculating primary earnings
per share, the dilutive effect of stock options and warrants
will be excluded. Statement No. 128 is not expected to have
a material impact on the net income per share of the
Company.
Cash Equivalents
The Company does not consider any of its assets to meet the
definition of a cash equivalent.
F-8
<PAGE>
REGENT TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996
(2) DISPOSITION OF ASSETS/DISCONTINUED OPERATONS
Effective January 1, 1998, the Company sold 100% of the
stock and interest of Regent Digital Imaging, Inc. and
ConnecTen, L.L.C. respectively, to entities controlled by
the Chairman of the Company for the assumption of certain
debts and liabilities related to those entities, the
forgiveness of the outstanding line of credit to the Chairman
in the amount of $203,000, the receipt of a promissosry note
of $20,000 from the Chairman, and the payment of approximately
$28,000 of the Company's accounts payable in April 1999.
Effective January 1, 1998, the Company sold 100% of the
interest of Channel Services, LC, to the President of the
Company for the assumption of certain debts and liabilities.
Effective January 1, 1998, the Company sold 100% of the
interest of Regent TEL1 Communications, Inc. to WOODY INC.
for the assumption of certain debts and liabilities and a
non-recourse promissory note of $67,500.
During 1998, the Company's interest in SSBE, Inc. was written off
because in the opinion of management, no value remains in that entity.
Prior to 1998, these subsidiaries were consolidated as part of the
Company. The cumulative sales price received upon disposal of these
subsidiaries was approximately $116,000. However, the subsidiaries'
recorded assets exceeded recorded liabilities by approximately $385,000
and this amount has been charged to 1998 operations.
Accordingly, the disposal of these divisions constitutes discontinued
operations with prior years restated.
In addition, the Company and subsidiaries executed an agreement that
they would not look to each other for any further remuneration.
(3)OTHER ASSETS
1998 1997
Investment, minority ownership SSBE -- 13,496
Technology License, less accumulated amortization
of $36,029 in 1997 -- 321,139
Long term note receivable from WOODY Inc. 67,000 --
(4) TRANSACTIONS WITH RELATED PARTIES
In April, 1997, the Directors approved the grant of stock
options to the Chairman in the amount of 333,333 shares and
to the President in the amount of 83,333 shares all with an
exercise price of $.30 with an expiration of December 31,
1998. During 1998, the Chairman exercised his stock
options.
The Directors also approved in 1997 a resolution granting
8,333 shares each to the Chief Financial Officer and to the
General Counsel to vest upon completion of their employment
contracts.
During the third quarter, 1997, the Directors approved the
grant of stock options to the General Counsel and the Chief
Financial Officer in the amount of 75,000 shares and to the
Director of the Integration Services Division of the Company
in the amount of 66,667 shares each with an exercise price
of $.30 and currently with an expiration date of June 30,
2003.
In October, 1997, the Board of directors passed a resolution
giving all employees the election of taking restricted
shares of the Company common stock, at a value of $.05 per
share, in lieu of salaries owed through December 31, 1997,
said election to be made on or before March 31, 1998.
During the first quarter, 1998, the Directors approved the
grant of stock and stock options to subsidiary employees
totaling 250,000 shares at exercise prices ranging from
$0.30 to $0.60 per share.
Effective January 1, 1998, the Company sold 100% of the
stock and interest of Regent Digital Imaging, Inc. and
ConnecTen, L.L.C. respectively, to the Chairman of the
Company for the assumption of certain debts and liabilities
related to those entities and the forgiveness of the
outstanding line of credit to the Chairman in the amount of
$203,000 and the payment of $20,000 cash to the Company
Effective January 1, 1998, the Company sold 100% of the
interest of Channel Services, LC, to the President of the
Company for the assumption of certain debts and liabilities.
F-9
<PAGE>
REGENT TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996
(5) 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.
(6) INCOME TAXES
There is no provision for federal income taxes due to the
net operating loss. The Company has net operating loss
carryforwards for tax purposes totaling approximately
$2,257,000, which expire at various dates beginning in 1998
and expiring in 2012. The utilization of the net operating
loss carryforwards to offset future taxable income could be
significantly restricted under Section 382 of the Internal
Revenue Code due to a change of 50 percent or more of
ownership of the Company in the last three years.
(7) NOTES RECEIVABLE
In connection with the sale of Tel1 Communications, the Company
took back a non-recourse promissory note payable in annual
installments of interest only, computed at 6% per annum, with
principal and any remaining interest due December 2003.
(8) LONG TERM DEBT
The Company, as part of the disposition of Regent Digital Imaging, Inc.
executed a note payable to a vendor of Imaging in the amount of $64,000.
The note bears no interest and is payable on or before March 1, 2004.
The note is unsecured. There are no future minimum principal payments
before the note is due.
(9) GOING CONCERN
As shown in these financial statements, the Company has incurred
recurring net losses of approximately $666,000, $379,000, and $90,000 for
1998, 1997, and 1996, respectively. These recurring losses create an
uncertainty regarding the Company's ability to continue as a going concern.
As discussed in Note 2, the Company has sold or otherwise disposed of all
its subsidiaries. The financial statements do not include any adjustments
that might be necessary if the Company is unable to continue as a going
concern.
(10) STATEMENTS OF CASH FLOWS
Excluded from the consolidated statements of cash flows were
the effects of certain non-cash investing and financing
activities, as follows:
Year ended December 31,
1998 1997 1996
Sale of 81% of SSBE's net assets for
83,333 shares of common stock --- --- 47,535
Issuance of 523,615 shares of common
stock and 83,333 shares of Treasury stock
for the acquisition of the
Technology License --- --- 364,168
Issuance of 26,300 shares of common stock
for trade payable --- --- 526
Issuance of 333,333 shares of common stock
for note receivable --- 100,000 ---
Acquisition of equipment with capital
lease --- 60,110 ---
Disposition of equipment with capital lease 60,110 --- ---
Issuance of 709,543 shares of common
stock for deferred compensation 226,000 --- ---
(8) CONCENTRATION OF CREDIT RISK
The Company receives its revenues from various individual
and business accounts.
F-10
<PAGE>
