SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------
FORM 10-QSB/A
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
------------------
For Quarter Ended March 31, 2001
Commission File No. 0-08536
REGENT ENERGY CORPORATION
(Exact name of registrant as specified in charter)
Nevada 84-1034362
(State or other jurisdiction (IRS Employer Identification No.)
of incorporation)
650 North Sam Houston Parkway E., Suite 500
Houston, Texas 77060
(Address of principal (Postal Code)
executive offices)
Registrant's telephone number, including area code: (281) 931-3800
NPC Holdings, Inc.
(Former Name, Former Address and Former Fiscal Year,
if Changed Since Last Report)
As of April 16, 2001, there were 16,838,397 shares of the common stock, $0.001
par value, of the registrant issued and outstanding.
Transitional Small Business Disclosure Format (check one)
YES NO X
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REGENT ENERGY CORPORATION
March 31, 2001
INDEX
PART I. FINANCIAL INFORMATION Page No.
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Item 1. Financial Statements .................................................................. 1
------
Item 2. Management's Discussion and Analysis and Plan of Operation ............................. 6
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PART II. OTHER INFORMATION .............................................................................. 11
SIGNATURES .............................................................................................. 12
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
REGENT ENERGY CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEET
MARCH 31, DECEMBER 31,
2001 2000
(Unaudited)
----------- -----------
ASSETS
------
CURRENT ASSETS:
Cash and cash equivalents $ 75,544 $ 45,075
Accounts receivable:
Trade - production 361,094 988,680
Amounts due from working interest owners 1,890,575 1,695,460
Officers and stockholder 104,328 36,650
Other 180,000 50,410
Other current assets 333,751 300,374
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Total current assets 2,945,292 3,116,649
PROPERTY AND EQUIPMENT, (full cost method for oil and gas properties),
net of accumulated depletion, depreciation and amortization of $965,622
and $517,205 in 2001 and 2000 16,165,134 16,476,774
UNREALIZED GAIN ON DERIVATIVE INSTRUMENTS 168,332 -
OTHER ASSETS 478,781 255,274
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Total assets $19,757,539 $19,848,697
=========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Notes payable $ 196,393 $ 287,521
Current portion of long-term debt 6,433,637 6,855,145
Accounts payable:
Trade 1,713,241 1,575,348
Related parties and investors 517,500 647,700
Accrued liabilities 223,581 658,146
Royalties and revenues payable 97,694 196,405
----------- ------------
Total current liabilities 9,182,046 10,220,265
LONG-TERM DEBT, less current portion 2,853,270 3,237,214
GAS IMBALANCE LIABILITY 1,344,069 1,523,356
UNREALIZED LOSS ON DERIVATIVE INSTRUMENTS 216,727 -
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value; 5,000,000 shares authorized,
no shares issued and outstanding - -
Common stock, $0.001 par value; 100,000,000 shares authorized;
15,248,854 and 14,288,543 shares issued and outstanding at
2001 and 2000 15,249 14,289
Additional paid-in capital 15,689,091 14,423,099
Accumulated deficit (9,542,913) (9,569,526)
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Total stockholders' equity 6,161,427 4,867,862
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Total liabilities and stockholders' equity $19,757,539 $19,848,697
=========== ============
See accompanying notes to these financial statements.
1
REGENT ENERGY CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
THREE MONTHS ENDED
MARCH 31,
2001 2000
(Unaudited)
-------------------------------
OIL AND GAS REVENUES $1,831,216 $ 221,519
COST AND EXPENSES:
Lease operating expenses 652,260 207,847
Severance taxes 21,610 13,132
Depletion, depreciation and amortization 448,417 45,609
General and administrative 402,205 637,795
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Total cost and expenses 1,524,492 904,383
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INCOME (LOSS) FROM OPERATIONS 306,724 (682,664)
OTHER INCOME (EXPENSE):
Interest expense (259,791) (34,775)
Unrealized loss on derivative instrument (162,966) -
Other 28,075 24,821
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Total other income (expense) (394,682) (9,954)
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LOSS BEFORE CUMULATIVE EFFECT OF ACCOUNTING CHANGE (87,958) (692,818)
Cumulative effect of accounting change 114,571 -
NET INCOME (LOSS) $ 26,613 $ (692,818)
========== ==========
PRIMARY EARNINGS PER SHARE:
Income before cumulative effect of accounting change $ (0.006) $ (0.070)
Cumulative effect of accounting change $ 0.008 -
Net income $ 0.002 $ (0.070)
DILUTED EARNINGS PER SHARE:
Income before cumulative effect of accounting change $ (0.005) $ (0.068)
Cumulative effect of accounting change $ 0.007 -
Net income $ 0.002 $ (0.068)
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING
Primary 14,836,871 9,946,662
========== ==========
Fully diluted 16,883,715 10,173,307
========== ==========
See accompanying notes to these financial statements.
2
REGENT ENERGY CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
For the Three Months
Ended March 31,
2001 2000
--------------------------
(Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) 26,613 (692,818)
Adjustments to reconcile net income (loss) to net cash provided
by operating activities:
Depreciation, depletion and amortization 448,417 45,609
Gas imbalance make-up (179,287) -
Stock-based compensation and financing costs 42,705 -
Gain from derivative instruments 48,395 -
Changes in assets and liabilities:
(Increase) decrease in:
Trade receivables and amounts due from investors 235,203 304,336
Other current assets (33,377) 3,766
Increase (decrease) in:
Accounts payable - trade 7,693 (239,559)
Other current liabilities (533,275) (185,947)
Other, net (223,508) (108,557)
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Net cash provided by (used in) operating activities (160,421) (873,170)
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to oil and gas properties (136,777) (840,161)
Other - 25,000
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Net cash (used in) investing activities (136,777) (815,161)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from short-term notes payable - 1,590,847
Repayments of short-term notes payable (91,128) (510,044)
Proceeds from long-term debt - -
Repayments of long-term debt (805,452) -
Redemption of common stock - (150,000)
Proceeds from exercise of warrants 161,563 -
Proceeds from sale of common stock 1,062,684 652,519
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Net cash provided by financing activities 327,667 1,583,322
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS $ 30,469 (105,009)
CASH AND CASH EQUIVALENTs, beginning of period $ 45,075 241,573
CASH AND CASH EQUIVALENTS, end of period $ 75,544 136,564
See accompanying notes to these financial statements.
3
REGENT ENERGY CORPORATION
NOTES TO FINANCIAL STATEMENT
1. LINE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND
PROCEDURES
The condensed financial statements of March 31, 2001 and December 31, 2000
and for the three month periods ended March 31, 2001 and 2000 included herein
have been prepared by Regent Energy Corporation, without audit, pursuant to the
rules and regulations of the Securities and Exchange Commission. Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations. However, Regent
believes that the disclosures are adequate to make the information presented not
misleading. In Regent's opinion, the financial statements reflect all
adjustments, consisting only of normal recurring adjustments, necessary to
present fairly its financial position and the results of its operations and its
cash flows for the dates and periods presented. The results of the operations
for these interim periods are not necessarily indicative of the results for the
full year.
The Company adopted FASB 133 entitled "Accounting for Derivative
Instruments and Hedging Activities" on January 1, 2001. As of January 1, 2001,
the Company had both oil and gas swap contracts that had a net fair value of
$114,571. This gain was reflected as a change in accounting principle in the
accompanying financial statements. The Company has not fulfilled the
documentation requirements of FASB 133 to designate these contracts as hedging
activities. As a result, the change in the fair value of these contracts of
$162,966 during the first quarter was charged to income.
These financial statements and notes thereto should be read in conjunction
with the Company's report on Form 8-K/A financial statements for the year ended
December 31, 2000.
2. LONG-TERM DEBT
The following is a summary of long-term debt at March 31, 2001 and December
31, 2000:
2001 2000
---------------- ----------------
$6,000,000 note payable to bank generally due in 5,125,000 5,830,000
monthly payments of $175,000 plus interest at
Bank One's prime rate plus 1% (9.5% at March 31, 2001)
through September 2003.
$1,700,000 note payable to a financial institution due 1,605,858 1,700,000
in monthly installments of $58,893, including
interest at 14% through October 2003.
$2,500,000 note payable to a company due in monthly 2,500,000 2,500,000
payments of $70,000 with interest at 18%
Various notes payable to acquire vehicle due in 43,647 47,131
monthly installments of $372 to $497 with interest
rates ranging from 3.9% to 6.9%; collateralized by
vehicles.
Unsecured installment note payable to a stockholder 12,402 15,228
due in 45 monthly installments of $946, including ================ ===============
interest at 9% with a final maturity date of
April 1, 2002
9,286,907 10,092,359
Less current portion (6,433,637) (6,855,145)
$2,853,270 $3,237,214
================ ================
4
The $6,000,000 note payable to a bank is collateralized by oil and gas
properties with a borrowing base of $6,000,000 on the date the loan was funded.
The borrowing base is reduced by $175,000 each month and is generally subject to
redetermination semi-annually. At March 31, 2001 the borrowing base was
$5,125,000. If at any time the outstanding balance of the note exceeds the
borrowing base, the Company must either pay down the note to the amount of the
borrowing base and/or provide additional collateral. In addition to interest on
the note, the Company pays a facility fee on a quarterly basis equal to 1/2% of
the unused commitment under the agreement, which as of March 31, 2001 was zero.
The note agreement includes various covenants, the most significant of which are
to maintain a ratio of current assets to current liabilities, excluding current
maturities of long-term debt, of not less than 1.0 to 1.0 and to maintain a debt
coverage ratio, as defined, of not less than 1.0 to 1.0. The Company was in
violation of these covenants at December 31, 2000. This violation gives the bank
the right to accelerate the full amount due under the note. Therefore, all
amounts due this bank are included in current liabilities.
The $1,700,000 note to a financial institution is subordinate to the
$6,000,000 bank note and is collateralized by an assignment of proceeds from the
sale of oil and gas from certain oil and gas properties. The note agreement
includes various covenants, the most significant of which require the Company to
maintain a ratio of current assets to current liabilities of not less than 1.0
to 1.0 and a debt coverage ratio where EBITDA to interest will not be less than
1.1 to 1.0. The Company was in violation of the debt coverage covenant at
December 31, 2000. The Company received a waiver of such violation through
December 31, 2001.
The $2.5 million demand note to a company was renegotiated in March 2001 to
provide for interest only payments through April 30, 2001 computed based on a
rate of 18% for January 2001, and 12% from February 1, 2001 through April 30,
2001. Under the terms of the note, the interest rate reverted to 18% as of May
1, 2001, and as provided under the terms of the note, the Company is repaying
the note in 35 monthly installments of $70,000 plus interest with a final
installment of the remaining balance due in the 36th month. This note is
subordinate to the $6,000,000 note to the bank, is partially collateralized by
oil and gas properties, and is guaranteed by the Company's president. Under the
terms of an agreement with this lender, this lender is entitled to an assignment
of 10% of the Company's net cash flows/property, after deduction for debt and
interest payments, on related debt, of any oil and gas properties the Company
may acquire from January 4, 2000 through December 31, 2002 from certain
companies. As of December 31, 2000, one property has been acquired to which the
10% provision applies. Payments under this provision were minor in the first
quarter 2001.
Maturities of long-term debt are as follows:
Years ending December 31,
2001 $2,532,666
2002 3,526,941
2003 2,954,904
2004 267,200
2005 5,196
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$9,286,907
5
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
General
The first quarter of 2001 brought many changes for Regent Energy
Corporation ("Regent" or the "Company"). On March 9, shareholders approved a
transaction with NPC Holdings in which each share of Vulcan Minerals & Energy
common stock became the right to approximately three shares of NPC Holdings,
which had changed its name on this same day to Regent Energy Corporation. As a
result of this transaction, Vulcan became a wholly-owned subsidiary of NPC (now
Regent), a publicly traded company. Our stock is now traded on the OTC bulletin
board under the symbol RGEY. This is also the first quarter that we show
operational results from the recently acquired offshore properties. Revenues,
expenses, cash flow and production are all dramatically impacted by these
properties.
In June 1999 we purchased the Horseshoe Gallup Unit and the Northeast
Hogback Field (the New Mexico properties) for $1.2 million. We subsequently sold
58.5% of the interest to other parties. These fields consist of 26,000 acres in
the Four Corners Area of San Juan County, New Mexico. Since the time these
properties were acquired, production has increased to approximately 250 bopd of
oil from 106 wells up from only 50 bopd oil from 11 wells. The Company is the
operator of these properties.
During March 2001, the Company made a formal offer to buy back the 58.5%
working interests discussed above. The terms are generally that the Company will
reduce the amount offered on the working interests by the amount of the notes
receivable from each owner and the amount of the outstanding accounts receivable
for lease operating expense. The balance would be paid in cash. As of May 31,
2001, investors holding almost all of these working interests have signed a term
sheet indicating their intention to sell their interests to the Company.
On November 14, 2000, the Company acquired interests in certain producing
properties in the Gulf of Mexico from Marathon Oil Company, (the "Marathon
acquisition") for $11,528,000. The Marathon acquisition included property
interests in West Delta Blocks 79, 80, 85 and 86 and Vermilion Blocks 314 and
331 offshore Louisiana. When purchased, the Company assumed a gas imbalance
liability of $1,523,356. As of March 31, 2001, this liability was reduced by
$179,289 due to make-up by under-produced parties. The gas balancing agreement
allows for under-produced parties to take no more than 38% of the overproduced
party's share in any one month in order to achieve a balanced position. These
properties are subject to an assignment of 10% of the Company's cash
flow/property after deduction for debt and interest payments to Parawon
Corporation and a portion of the production is committed to certain swap
agreements as discussed below. Amerada Hess is the operator of these properties.
Our plan is to grow the Company aggressively through the acquisition of oil
and gas properties with proved reserves. We are currently evaluating and/or
negotiating several such opportunities which would have a significant impact on
the Company if consummated. We are also accelerating the development of our
proved non-producing reserves which will result in increased cash flow and the
reclassification of reserves to the proved developed producing category.
Since engaging in this strategy, five inactive wells have been restored to
production at West Delta 79 (Marathon acquisition). The Company's net production
increase at the field was 221 Mcf per day and 19 Bbls per day as a result of
this initial workover program at a net cost to the Company of $85,000. Three
recent workovers in the New Mexico properties have resulted in an estimated 30
Bbls per day net production increase at a total cost of $87,000. Thus, 86 Boe
per day net of production, and 11% production increase, was converted to the
proved producing category during the second quarter. The Company plans to
complete two of these type workovers per month at New Mexico properties and one
per month on the Marathon acquisition properties. Additionally, in the fourth
quarter, the Company intends to initiate a developmental drilling program on New
Mexico properties. Our current year budget includes $2,200,000 for capital
expenditures on these projects. We expect to spend $1,600,000 on drilling and
completion work on the New Mexico properties with the remainder designated for
Marathon acquisition projects.
6
The following table summarizes certain financial data, non-GAAP financial
data, production volumes, average realized prices and average expenses for the
Company's oil and natural gas operations for the periods shown:
For the Three Months
Ended March 31,
2001 2000
-----------------------
FINANCIAL DATA (IN THOUSANDS):
Revenues:
Oil and condensate $1,094,814 $ 221,519
Natural gas 736,402 -
---------- ----------
Total revenues $1,831,216 $ 221,519
Net cash provided by operating activities (160,421) (873,170)
Net cash provided (used) in investing activities (136,777) (815,161)
Net cash provided by financing activities $ 327,667 $1,583,322
NON-GAAP FINANCIAL DATA
EBITDA (1) $ 646,631 ($612,434)
AVERAGE DAILY PRODUCTION VOLUMES:
Oil and condensate (Bbls/day) 451 85
Natural gas (Mcf/day) 1,788 -
Total (Boe/day) 749 85
PRODUCTION VOLUMES:
Oil and condensate (MBbls) 40,583 7,644
Natural gas (Mcf) 160,930 -
Total Boe 67,405 7,644
AVERAGE REALIZED PRICES: (2)
Oil and condensate (per Bbl) $ 26.98 $ 28.98
Natural gas (per Mcf) 4.58 -
EXPENSES (PER BOE):
Lease operating $ 9.68 $ 27.18
Production and severance taxes .32 1.72
Depreciation, depletion and amortization 6.65 5.97
General and administrative 5.97 104.57
7
(1) EBITDA represents earnings before stock compensation expense,
unrealized gain or losses on derivative instruments, gas imbalance
make-up revenues, interest expense, income taxes, depreciation,
depletion and amortization. The Company believes that EBITDA may
provide additional information about the Company's ability to meet its
future requirements for debt service, capital expenditures and working
capital. EBITDA is a financial measure commonly used in the oil and
gas industry and should not be considered in isolation or as a
substitute for net income, operating income, net cash provided by
operating activities or any other measure of financial performance
presented in accordance with generally accepted accounting principles
or as a measure of a company's profitability or liquidy. Because
EBITDA excludes some, but not all, items that affect net income and
may vary among companies, the EBITDA calculation presented above may
not be comparable to similarly titled measures of other companies.
(2) Reflects the actual realized prices received by the Company, including
the results of the Company's commodity swap agreements.
THREE MONTHS ENDED MARCH 31, 2001 COMPARED TO THREE MONTHS ENDED MARCH 31, 2000
All significant increases in revenue, production volumes, lease operating
expenses and DD&A as discussed below are a result of the addition of the
Marathon properties.
Oil and natural gas revenues increased from $.2 million in the first
quarter of 2000 to $ 1.8 million in first quarter of 2001, an increase of $ 1.6
million, or 800%. Production volumes for oil and condensate increased from 7,644
Bbls in the first quarter of 2000 to 40,583 Bbls in the first quarter of 2001,
an increase of 32,939 Bbls, or 431%. Production volumes for natural gas
increased from zero in the first quarter of 2000 to 160,930 Mcf in the first
quarter of 2001. The increase in total production increased revenues by $1.6
million. This increase was partially offset by a 7% decrease in the average
realized price received for the Company's oil and condensate.
The Company realized an average oil price of $27.15 per Bbl and an average
gas price of $5.87 per Mcf during the first quarter of 2001. Net of commodity
swap results, the Company realized average prices of $26.98 per Bbl and $4.58
per Mcf. For the first quarter of 2000, the Company realized an average oil
price of $29.14 per Bbl, and had no natural gas production that period.
Lease operating expenses increased from $207,800 in the first quarter of
2000 to $652,260 in the first quarter of 2001, an increase of $444,413, or 214%.
On a per Boe basis, lease operating expenses decreased from $27.18 in the first
quarter of 2000 to $9.68 in the first quarter of 2001, a decrease of $17.50, or
64%. Lease operating expenses in the first quarter 2000 were 94% of revenues,
due to the necessity of restoring the recently purchased Horseshoe Gallup and NE
Hogback fields to a proper working condition.
Depreciation, depletion and amortization ("DD&A") expense increased from
$45,609 in the first quarter of 2000 to $448,417 in the first quarter of 2001,
an increase of $402,808, or 883%. This was the result of higher oil and gas
production volumes.
General and administrative expenses for the first quarter 2001 were
$402,206 as compared to $637,795 for the first quarter 2000, a decrease of
$235,589 or 37%. This decrease was primarily due to legal and consulting costs
attributable to the debt offerings that occurred during the first quarter of
2000.
Net income was $26,612 in the first quarter 2001 as opposed to a loss of
$692,818 in the first quarter of 2000 as a result of the factors described
above. Included in net income for 2001 is the impact of the Company's adoption
of FASB 133 on January 1, 2001.
8
MARKET RISK MANAGEMENT
Regent has entered into two separate swap agreements to limit its exposure
to fluctuations in commodity prices. The natural gas swap agreement is for
30,000 mbtu per month at a price of $4.775/mbtu for 2001, 20,000 mbtu per month
at a price of $4.11/mbtu for 2002. The oil swap agreement is for 10,500 barrels
per month at a price of $28.50/bbl for 2001, 9,500 barrels per month at a price
of $24.30 for 2002 and 6,000 barrels per day at a price of $22.29 for 2003. The
agreements account for 68% and 78% of production volumes for gas and oil
respectively for the first quarter 2001.
During the first quarter of 2001 the Company paid approximately $208,390 on
its natural gas swap contract and $7,092 on its oil swap contract. Based on
futures market prices at March 31, 2001, the Company would expect to pay
approximately $216,727 on the gas swap contract and receive approximately
$168,332 on the oil swap contract during the remainder of the contracts.
CAPITAL RESOURCES AND LIQUIDITY
In connection with our acquisition of the Marathon properties, in November
2000, we entered into a loan agreement with Bank One to provide us with a
secured reducing revolving credit facility of up to $25 million, subject to
borrowing base availability, for the acquisition and development of oil and gas
properties. The loan is secured by a mortgage on the properties acquired in the
Marathon acquisition and bears interest at the lender's prime rate of interest
plus 1.0%. We initially borrowed $6 million under the credit facility to close
our acquisition of the Marathon properties, however, such amount has been
amortized under the terms of the note at $175,000 per month with $5.1 million
outstanding at March 31, 2001. The initial borrowing base was $6.0 million and
under the terms of the agreement, has been reduced by $175,000 per month. There
is no additional borrowing base available at this time. At December 31, 2000 and
March 31, 2001, the Company was not in compliance with the current ratio or the
debt coverage ratio as defined in the credit agreement. The Company did not
receive a waiver of these covenants. We are, however, current on our loan
payments.
In connection with the acquisition of the Marathon Properties, we entered
into a loan agreement with Equiva Trading Company under which we borrowed $1.7
million for a three-year term at 14% interest per annum. As security for this
loan we assigned to Equiva payments from Giant Refining Company for our
production from the Horseshoe Gallup and NE Hogback Unit. Equiva will remit to
us the amount due from Giant after deducting monthly principal and interest of
$58,893 plus ten cents per net revenue interest barrel.
The Company renegotiated a $2.5 million demand note with Parawon
Corporation in March 2001 to provide for interest only payments through April
30, 2001, at a rate of 18% for January 2001 and 12% from February 1, 2001
through April 30, 2001. As set forth in the note, because the note was not
repaid by May 1, 2001, the interest rate reverted to 18% and the Company must
pay the note in 35 monthly installments of $70,000 plus interest with a final
installment of the remaining balance of $50,000 in the 36th month. The note is
subordinate to the $6,000,000 note to Bank One, is partially collateralized by
the New Mexico properties, and is guaranteed by the Company's president.
The Company executed a promissory note effective March 1, 2001, in the
original principal amount of $800,000, payable in full on or before August 28,
2001 at an interest rate of 6% annually with monthly interest payments to begin
April 2, 2001. The note is for the benefit of Generation Capital Associates
("GCA"), and is personnally guaranteed by John Ehrman. In conjunction with the
promissory note, the Company entered into collateral agreements which provide
for the following: (a) replacement of this note with convertible notes to be
issued to accredited investors in the same aggregate amount, (b) the issuance of
warrants for 360,000 shares as follows:(i) warrants for 200,000 shares to the
note holder(s), (ii) warrants for 80,000 shares to Bathgate McColley Capital
Group, LLC, the placement agent by GCA, (iii) warrants for 80,000 shares to GCA
for document preparation fees, (c) registration rights as to the warrants, the
convertible notes and the shares of common stock underlying the warrants and
convertible notes. The strike price of the warrants and the conversion price of
9
the notes is $1.50 per share (subject to reduction if the registration
statement, which has not yet been filed, is not filed by April 30, 2001). The
issuance of the warrants will give rise to a material charge to interest over
the term of the loan. The agreement provides that if the orginal promissory note
is not replaced by convertible notes by March 31, 2001 (which replacement has
not yet occurred) a 10% net profits interest in the properties that the Company
acquired from Marathon Oil Company ("NPI") is payable to GCA monthly from March
1, 2001 until the original promissory note is replaced by the $800,000
convertible notes or repaid. GCA has indicated its willingness to waive (a) this
10% NPI if the convertible notes are placed by June 15, 2001, and (b) some
portion of the penalty for late filing of the registration statement, although
there is no formal documentation of either waiver at this time. The Company is
currently negotiating with GCA regarding the replacement of the $800,000
promissory note with the convertible notes and the issuance of the warrants.
In April 2001, the Company issued $2,000,000 of convertible notes
(convertible to Regent common stock) due in 24 months at 6% per annum to foreign
investors. The note must be prepaid if the Company raises at least $5 million
aggregate gross proceeds from private or public equity offerings before the note
has been paid or converted to common stock. The debt is convertible at $3.00 per
share, however the Company may force conversion at $3.00 when and if the
Company's common stock price averages $5.00 or more for more than sixty days.
Additionally, 220,000 warrants exercisable at $1.00 per share until April 5,
2004 were issued in connection with the notes. All of these warrants have been
exercised. The issuance of these warrants will give rise to a material charge to
interest expense in the second quarter of 2001. The amount of such charge has
not been determined at this date.
The Company will need to spend approximately $1,089,500 during the second
quarter for principal payments of $842,000 and interest payments of
approximately $247,500 under currently existing debt. To date during the second
quarter, in addition to using cash flow from operations, the Company has been
using private convertible debt financing secured during the quarter (discussed
above) to make these payments. We estimate that in addition to funds needed for
capital expenditures on our properties (budgeted at $223,000 for the second
quarter and $746,000 for the third quarter), we will need approximately
$1,159,500 to pay $912,000 of principal and approximately $247,500 of interest
during the third quarter. We are actively pursuing our options to raise
additional capital through debt and/or equity to cover these payments. We are in
advanced negotiations with certain accredited investors with respect to a
private placements of equity, debt or a combination of both, although no such
arrangments have been finalized. We believe we will be successful in raising the
required capital and expect to have funds sufficient to cover our budgeted
capital expenditures through the third quarter in place by the end of the second
quarter of 2001. In addition, we are exploring the replacement of our Bank One
note in the original principal amount of $6 million and the $2.5 million Parawon
note described above with equity or convertible debt in the next several months.
INTEREST EXPENSE
Interest expense for the first quarter 2001 was $259,791 compared to
$34,775 for the first quarter 2000. This increase of $225,016 is due primarily
to financing activities related to borrowings for the Marathon acquisition.
Interest paid in the first quarter of 2001 was paid as follows: Bank One
$130,961; Equiva Trading Company $52,604; Parawon Corporation $71,712; other
$4,514. The interest paid in 2000 was primarily due to a previous loan from
Parawon.
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EBITDA
EBITDA increased significantly from ($612,434) in the first quarter 2000 to
$646,631 in the first quarter 2001. The increase of $1,259,065 enables the
Company to better meet its requirements for working capital. Improvements in
production in the NE Hogback and HGU Fields coupled with the addition of the
Marathon acquisition properties increased EBITDA for the Company.
FORWARD LOOKING INFORMATION
The statements contained in this Quarterly Report on Form 10-Q ("Quarterly
Report") that are not historical facts, including, but not limited to,
statements found in this Management's Discussion and Analysis of Financial
Condition and Results of Operations, are forward-looking statements, as that
term is defined in Section 21E of the Securities and Exchange Act of 1934, as
amended, that involve a number of risks and uncertainties. Such forward-looking
statements may be or may concern, among other things, capital expenditures,
drilling activity, acquisition plans and proposals and dispositions, development
activities, cost savings, production efforts and volumes, hydrocarbon reserves,
hydrocarbon prices, liquidity, regulatory matters and competition. Such
forward-looking statements generally are accompanied by words such as plan,
estimate, budgeted, expect, predict, anticipate, projected, should, assume,
believe or other words that convey the uncertainty of future events or outcomes.
Such forward-looking information is based upon management's current plans,
expectations, estimates and assumptions and is subject to a number of risks and
uncertainties that could significantly affect current plans, anticipated
actions, the timing of such actions and the Company's financial condition and
results of operations. As a consequence, actual results may differ materially
from expectations, estimates or assumptions expressed in or implied by any
forward-looking statements made by or on behalf of the Company. Among the
factors that could cause actual results to differ materially are: requirements
for capital, fluctuations of the prices received or demand for the Company's oil
and natural gas, the uncertainty of drilling results and reserve estimates,
operating hazards, acquisition risks, general economic conditions, competition
and government regulations, as well as the risks and uncertainties discussed in
this Quarterly Report, including, without limitation, the portions referenced
above, and the uncertainties set forth from time to time in the Company's other
public reports, filings and public statements.
PART II. OTHER INFORMATION
Items 1 through 6 previously reported
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the Registrant has duly caused this Quarterly Report to be signed on
its behalf by the undersigned thereunto duly authorized.
REGENT ENERGY CORPORATION
(Registrant)
Date: June 4, 2001 By: /s/ John N. Ehrman
------------------------------------------
John N. Ehrman
President and Chief Executive Officer
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