SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
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(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the annual period ended December 31, 2010
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the transition period from __________ to __________
Commission File Number 000-9519
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REGENT TECHNOLOGIES, INC.
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(Exact name of registrant as specified in its charter)
COLORADO 84-0807913
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5646 Milton, Suite 722
Dallas, Texas 75206
(Address of principal executive offices)
214-694-2227
(Issuer's telephone number)
Regent Petroleum Corporation
(Former Name or Former Address of Principal Executive Offices)
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to section 12(g) of the Act:
Common Stock, $.01 par value
Indicate by check mark whether the Registrant is a well-known seasoned issuer,
as defined in Rule 405 of the Securities Act.
Yes No X
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Indicate by check mark if the Registrant is not required to file reports
pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 (the
"Act").
Yes No X
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Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Act during the preceding 12 months (or
for such shorter period that the Registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.
Yes X No
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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-K or any
amendment to this Form 10-K. [X]
Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of "large accelerated filer," "accelerated filer" and "smaller
reporting company" in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer [ ] Accelerated filer [ ]
Non-accelerated filer [ ] Smaller reporting company [X]
(do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). Yes [ ] No [X]
As of March 30, 2011, the registrant had 22,360,233 shares of common stock
issued and outstanding. No market value has been computed based upon the fact
that no active trading market had been established as of December 31, 2010.
REGENT TECHNOLOGIES, INC.
TABLE OF CONTENTS
Page No.
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Glossary of Oil and Natural Gas Terms 4
Item 1. Business 7
Item 1A. Risk Factors 11
Item 1B. Unresolved Staff Comments 19
Item 2. Properties 19
Item 3. Legal Proceedings 24
Item 4. [Removed and Reserved] 24
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters
and Issuer Purchases of Equity Securities 24
Item 6. Selected Financial Data 25
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations 25
Item 8. Financial Statements and Supplementary Data 33
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure 54
Item 9A. Controls and Procedures 54
Item 9B. Other Information 55
Item 10. Directors and Executive Officers 55
Item 11. Executive Compensation 57
Item 12. Security Ownership of Certain Beneficial Owners and Management
and Related Stockholder Matters 58
Item 13. Certain Relationships and Related Transactions 59
Item 14. Principal Accounting Fees and Services 59
Item 15. Exhibits 59
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Form 10-K and other reports filed by Regent Technologies, Inc. ("Regent")
from time to time with the Securities and Exchange Commission (collectively the
"Filings") contain or may contain forward looking statements and information
that are based upon beliefs of, and information currently available to, Regent's
management as well as estimates and assumptions made by Regent's management.
The Private Securities Litigation Reform Act of 1995 (the "Act") provides a safe
harbor for forward-looking statements made by or on behalf of the Company. The
Company and its representatives may from time to time make written or oral
statements that are "forward-looking," including statements contained in this
report and other filings with the Securities and Exchange Commission, reports to
the Company's shareholders and news releases. All statements that express
expectations, estimates, forecasts or projections are forward-looking statements
within the meaning of the Act. In addition, other written or oral statements,
which constitute forward-looking statements, may be made by or on behalf of the
Company. Words such as "expects", "anticipates", "intends", "plans", "believes",
"seeks", "estimates", "projects", "forecasts", "may", "should", variations of
such words and similar expressions are intended to identify such forward-looking
statements.
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
Management cautions that these forward-looking statements are subject to many
risks and uncertainties that could cause our actual results to differ materially
from projections in such forward-looking statements. The risks, uncertainties
and other important factors that may cause our results to differ materially from
those projected in such forward-looking statements are detailed under the "Risk
Factors". We undertake no obligation to update a forward-looking statement to
reflect subsequent events, changed circumstances, or the occurrence of unantici-
pated events which included, among others, the following:
- difficult and adverse conditions in the domestic and global economies;
- changes in domestic and global demand for oil and natural gas;
- volatility in the prices we receive for our oil and natural gas;
- the effects of government regulation, permitting and other legalities;
- future developments with respect to the reserves on our properties;
- uncertainties about the estimates of our oil and natural gas reserves;
- our ability to increase our production through development;
- drilling and operating risks;
- the availability of equipment, such as drilling rigs and pipelines;
- changes in our drilling plans, related budgets and liquidity;
- other factors discussed under "Risk Factors" in Item 1A of this report.
Other unknown or unpredictable factors may cause actual results to differ mater-
ially from those projected by the forward-looking statements. Unless otherwise
required by law, we undertake no obligation to publicly update or revise any
forward-looking statements, whether as a result of new information, future
events or otherwise. We urge readers to review and consider disclosures we make
in this and other reports. See in particular our reports on Forms 10-K, 10-Q and
8-K subsequently filed from time to time with the SEC.
In this Form 10-K, references to "we," "our," "us," the "Company," or "Regent"
refer to Regent Technologies, Inc., a Colorado corporation, and Regent's wholly
owned subsidiary, Regent Natural Resources Co., a Texas corporation, is referred
to as "Regent NRCo."
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GLOSSARY OF OIL AND NATURAL GAS TERMS
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The following are description of some of the terms as used herein regarding the
oil and gas industry:
"Acquisition of properties" are the costs incurred to obtain rights to
production of oil and gas. These costs include the costs of acquiring oil and
gas leases and other interests. These costs include lease costs, finder's fees,
brokerage fees, title costs, legal costs, recording costs, options to purchase
or lease interests and any other costs associated with the acquisitions of an
interest in current or possible production.
"Area of mutual interest" means, generally, an agreed upon area of land,
varying in size, included and described in an oil and gas exploration agreement
which participants agree will be subject to rights of first refusal as among
themselves, such that any participant acquiring any minerals, royalty,
overriding royalty, oil and gas leasehold estates or similar interests in the
designated area, is obligated to offer the other participants the opportunity to
purchase their agreed upon percentage share of the interest so acquired on the
same basis and cost as purchased by the acquiring participant. If the other
participants, after a specific time period, elect not to acquire their pro-rata
share, the acquiring participant is typically then free to retain or sell such
interests.
"Back-in interests" involve the transfer of interest in a property, with
provision to the transferor to receive a reversionary interest in the property
after the occurrence of certain events.
"Bbl" means barrel, 42 U.S. gallons liquid volume, used in this report in
reference to crude oil or other liquid hydrocarbons.
"Bcf" means billion cubic feet, used in this report in reference to gas or
gaseous hydrocarbons.
"Bcfe" means billions of cubic feet of gas equivalent, determined using
the ratio of six thousand cubic feet of gas to one barrel of oil, condensate or
gas liquids.
"Boe" means barrels of crude oil equivalent, determined using the ratio of
six mcf of natural gas to a bbl of crude oil, condensate or natural gas liquids.
"Carried interests" means, generally, a working interest which does not
bear its share of the exploration costs until a designated well has been drilled
and completed to the casing point or to the tanks, depending on the agreement,
after which point the carried interest must bear its share of the costs of pro-
duction.
"Casing Point" means the point in time at which an election is made by
participants in a well whether to proceed with an attempt to complete the well
as a producer or to plug and abandon the well as a non-commercial dry hole. The
election is generally made after a well has been drilled to its objective depth
and an evaluation has been made from drill cutting samples, well logs, cores,
drill stem tests and other methods. If an affirmative election is made to
complete the well for production, production casing is then generally cemented
in the hole and completion operations are then commenced.
4
"Completion" means the process of treating a drilled well followed by the
installation of permanent equipment for the production of natural gas or oil.
"Development costs" are costs incurred to drill, equip, or obtain access
to proved reserves. They include costs of drilling and equipment necessary to
get products to the point of sale and may entail on-site processing.
"Exploration costs" are costs incurred, either before or after the
acquisition of a property, to identify areas that may have potential reserves,
to examine specific areas considered to have potential reserves, to drill test
wells, and drill exploratory wells. Exploratory wells are wells drilled in
unproven areas. The identification of properties and examination of specific
areas will typically include geological and geophysical costs, also referred to
as G&G, which include topological studies, geographical and geophysical studies,
and costs to obtain access to properties under study. Depreciation of support
equipment, and the costs of carrying unproved acreage, delay rentals, ad valorem
property taxes, title defense costs, and lease or land record maintenance are
also classified as exploratory costs.
"Farmout" involves an entity's assignment of all or a part of its interest
in a property in exchange for the assignee's obligation to expend all or part of
the funds to drill and equip the property.
"Future net revenues, before income taxes" means an estimate of future net
revenues from a property at a specified date, after deducting production and ad
valorem taxes, future capital costs and operating expenses, before deducting
income taxes. Future net revenues, before income taxes, should not be construed
as being the fair market value of the property.
"Future net revenues, net of income taxes" means an estimate of future net
revenues from a property at a specified date, after deducting production and ad
valorem taxes, future capital costs and operating expenses, net of income taxes.
Future net revenues, net of income taxes, should not be construed as being the
fair market value of the property.
"Mcf" means thousand cubic feet, used in this report to refer to gas or
gaseous hydrocarbons.
"MMcf" means million cubic feet, used in this report to refer to gas or
gaseous hydrocarbons.
"MBbl" means thousand barrels, used in this report to refer to crude
oil or other liquid hydrocarbons.
"mD" means One-thousandth of a darcy.
"Gross" oil and gas wells or "gross" acres is the total number of wells or
acres in which Regent has an interest.
"Net" oil and gas wells or "net" acres are determined by multiplying
"gross" wells or acres by Regent's interest in such wells or acres.
"Oil and gas lease" or "Lease" means an agreement between a mineral owner,
the lessor, and a lessee which conveys the right to the lessee to explore for
and produce oil and gas from the leased lands. Oil and gas leases usually have a
primary term during which the lessee must establish production of oil and or
gas. If production is established within the primary term, the term of the lease
generally continues in effect so long as production occurs on the lease. Leases
generally provide for a royalty to be paid to the lessor from the gross proceeds
from the sale of production.
5
"Overpressured reservoir" are reservoirs subject to abnormally high
pressure as a result of certain types of subsurface conditions.
"Present value of future net revenues, before income taxes" means future
net revenues, before income taxes, discounted at an annual rate of 10% to
determine their "present value." The present value is shown to indicate the
effect of time on the value of the revenue stream and should not be construed as
being the fair market value of the properties.
"Present value of future net revenues, net of income taxes" means future
net revenues, net of income taxes discounted at an annual rate of 10% to
determine their "present value." The present value is shown to indicate the
effect of time on the value of the revenue stream and should not be construed as
being the fair market value of the properties.
"Production costs" means operating expenses and severance and ad valorem
taxes on oil and gas production.
"Prospect" means a geologic anomaly which may contain hydrocarbons that has
been identified through the use of 3-D and/or 2-D seismic surveys and/or other
methods.
"Proved oil and gas reserves" are the estimated quantities of crude oil,
natural gas and natural gas liquids which geological and engineering data
demonstrate with reasonable certainty to be recoverable in future years from
known reservoirs under existing economic and operating conditions, i.e. prices
and costs as of the date the estimate is made. Prices include consideration of
changes in existing prices provided only by contractual arrangements, but not on
escalations based upon future conditions. Reservoirs are considered proved if
economic producibility is supported by either actual production or conclusive
formation test. The area of a reservoir considered proved includes (A) that
portion delineated by drilling and defined by gas-oil and/or oil-water contacts,
if any, and (B) the immediately adjoining portions not yet drilled, but which
can reasonably be judged as economically productive on the basis of available
geological and engineering data. In the absence of information on fluid contacts
the lowest known structural occurrence of hydrocarbons controls the lower proved
limit of the reservoir.
"Proved developed oil and gas reserves" are reserves that can be expected
to be recovered through existing wells with existing equipment and operating
methods. Additional oil and gas reserves expected to be obtained through the
application of fluid injection or other improved recovery techniques for
supplementing the natural forces and mechanisms of primary recovery should be
included as "proved developed reserves" only after testing by a pilot project or
after the operation of an installed program has confirmed through production
response that increased recovery will be achieved.
"Proved undeveloped oil and gas reserves" are reserves that are expected to
be recovered from new wells on undrilled acreage, or from existing wells where a
relatively major expenditure is required for recompletion. Reserves on undrilled
acreage shall be limited to those drilling units offsetting productive units
that are reasonably certain of production when drilled. Proved reserves for
other undrilled units can be claimed only where it can be demonstrated with
certainty that there is continuity of production from the existing productive
formation. Under no circumstances should estimates for proved undeveloped
reserves be attributable to any acreage for which an application of fluid
injection or other improved recovery technique is contemplated, unless such
techniques have been proved effective by actual tests in the area and in the
same reservoir.
6
"Reserve target" means a geologic anomaly which may contain hydrocarbons
that has been identified through the use of 3-D and 2-D seismic surveys and
or other methods.
"Royalty interest" is a right to oil, gas, or other minerals that is not
burdened by the costs to develop or operate the related property. The basic
royalty interest is retained by the owner of mineral rights when his property is
leased for purposes of development.
"Trend" means a geographical area where similar geological, geophysical, or
oil and gas reservoir and production characteristics may exist.
"Seismic option" generally means an agreement in which the mineral owner
grants the right to acquire seismic data on the subject lands and grants an
option to acquire an oil and gas lease on the lands at a predetermined price.
"2-D Seismic" means an advanced technology method by which a cross-section
of the earth's subsurface is created through the interpretation of reflecting
seismic data collected along a single source profile.
"3-D Seismic" means an advanced technology method by which a three dimen-
sional image of the earth's subsurface is created through the interpretation of
reflection seismic data collected over a surface grid. 3-D seismic surveys
allow for a more detailed understanding of the subsurface than do conventional
surveys and contribute significantly to a field's appraisal, development and
production.
"Water flood" is a method of secondary recovery in which water is injected
into the reservoir formation to displace residual oil and enhance hydrocarbon
recovery.
"Working interest" is an interest in an oil and gas property that is
burdened with the costs of development and operation of the property.
"Workover" means operations on a producing well or an abandoned well to re-
store or increase production.
Item 1. Business
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General
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The terms "Company" and "Regent" when used herein mean Regent Technologies, Inc.
and its subsidiary. 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 toward the development of emerging technologies and the shareholders
voted to rename the Company. During 1999, the Company's subsidiary companies
were divested in the ordinary course of business including the sale of its com-
munication assets to Allegiance Telecom, a NYSE company. Effective January 1,
1999, the Company re-entered the development state.
During 2005, the current President received the necessary information for
auditing the books and records of the Company in order to file delinquent SEC
reports. The Company has been current in its SEC filings since 2005 including
the filing of the delinquent reports for the quarterly and annual periods from
1999 to 2004.
7
The Company has one subsidiary that was incorporated in March 2007 and was
formed to develop operations related to the life sciences. The subsidiary's
initial entry into life sciences was as the management team for MacuCLEAR, Inc.
("MacuCLEAR"), a company organized for the development of a treatment for an eye
disease known as dry age-related macular degeneration. Our initial 10% ownership
of MacuCLEAR was financed through the sale of subsidiary preferred stock. Mr.
Philip Ralston served as President of the subsidiary until he resigned effective
September 29,2010 to give full time to MacuCLEAR's Phase II clinical trials. He
had served as President of our subsidiary since April 2007 and has served as CEO
and President of MacuCLEAR since December 2006.
Description of Business
-----------------------
Beginning in the third quarter, the Company restructured its management team and
refocused its core business objectives and strategy. The Company's subsidiary
was approved for a name change on September 30, 2010 to Regent Natural Resources
Co. ("Regent NRCo"). We operate through two business divisions, the Energy Tech-
nology Division and the Natural Resources Division. Regent NRCo is a Texas based
independent exploration and production company engaged in the acquisition and
development of producing oil and natural gas properties. During the third and
fourth quarters of 2010, the Company's subsidiary acquired oil and gas assets,
consisting of both producing and proven undeveloped reserves. We have rights to
proprietary technologies which we believe provide Regent an advantage in the
energy industry. Our business strategy is to exploit these advantages and to
generate long-term value for our shareholders and partners. We have funded and
intend to continue to fund operations from the sale of corporate securities, in-
cluding debt and equity.
Energy Technology Division
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Our Energy Technology Division is involved in identifying and developing emerg-
ing technologies which impact energy production. We are currently focused on
the development of a distinctive gearbox designed for petroleum valve actuators
and large wind energy generators. Known as the Epi-Cloyd gearbox (the "E-C Gear-
box"), the E-C Gearbox we are developing for the wind energy industry is con-
structed to provide a minimum of 10 years of continuous service. The primary
market of the E-C Gearboxes will be replacement of short-lived and repeatedly
failed conventional gearboxes currently in 1-3 megawatt wind generators around
the U.S., although these gearboxes can also be used in the installation of new
wind generators with application to direct drive turbines.
We are also working to apply the unique performance of the E-C Gearbox to the
control of valve actuators. Because of its durability and ability to function
for many years in remote locales beyond the reach of normal maintenance service,
the E-C Gearbox is able to bring reliable performance and financial benefit to
its users in the petroleum industry and beyond.
Natural Resources Division
--------------------------
During the third quarter, Regent RNCo acquired oil and gas leases in North Cen-
tral Texas on which it intends to explore for crude oil and natural gas through
drilling activities and to ultimately produce oil and natural gas. Our Natural
Resources Division also has initiatives for acquiring additional oil and gas
leases for which it can explore through drilling, and for acquiring existing
producing properties that it has identified in the same general region of Texas.
8
By identifying oil and gas fields with Proven Reserves in relative close prox-
imity, we believe we can successfully and significantly increase the reserves
and the production through our proprietary enhancement technologies. Our core
technology involves restoring or increasing the productivity of wells which have
insufficient reservoir drive due to formation damage.
Business Growth Strategy
------------------------
The objective of our Energy Technology Division is to apply the E-C Gearbox to a
wide variety of applications throughout the global energy industry to both
diversify and increase revenues for the Company.
The objective of our Natural Resources Division is to explore and develop exist-
ing oil and gas leases and to selectively acquire additional prospects where
reserves can be identified with confidence, can be economically produced and
where levels of production can be raised quickly and sustained for the highest
return on investment. The Natural Resources Division will also pursue the
acquisition of existing producing properties that provide the best opportunity
for near term positive cash flow and that have additional development potential.
The key elements of our strategy to accomplish the named objectives include:
- Selectively pursuing strategic partnerships with industry partners that may
expand or complement our energy technology development operations.
- Entering into joint ventures with oil and gas operators who have extensive
experience and expertise in the areas selected for exploration to allow us
to obtain working interests in a number of prospects with minimal overhead.
- Focus on shallow oil exploration and production which will allow us to grow
our reserves and production with reasonable risk-reward potential.
- Acquire existing producing properties that provide the best opportunity for
positive cash and that have additional development potential.
Our property acquisition efforts are and will be focused on pursuing opportuni-
ties that fit well within existing Company properties, in areas where we are
establishing new operations or in areas where we believe that a base of existing
production will produce an adequate foundation for economies of scale.
Marketing and Major Customer
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We derive revenue principally from the sale of oil and natural gas. As a result,
our revenues are determined, to a large degree, by prevailing prices for crude
oil and natural gas. The market price for oil and natural gas is dictated by
supply and demand, and we cannot accurately predict or control the price we may
receive for our oil and natural gas. We currently sell our product to Plains
Marketing
9
Competition
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The oil and gas industry is highly competitive. We encounter strong competition
from other independent and major oil and gas companies in acquiring properties
and securing trained personnel. Many of these competitors have financial and
technical resources and staffs substantially larger than ours. As a result, our
competitors may be able to pay more for desirable oil and gas properties, or to
evaluate, bid for and purchase a greater number of properties than our financial
or personnel resources will permit. Furthermore, these companies may also be
better able to withstand the financial pressures of failed drilling attempts,
sustained periods of volatility and generally adverse global and industry-wide
economic conditions, and may be better able to absorb the burdens resulting from
changes in relevant laws and regulations, which would adversely affect our com-
petitive position.
We are also affected by competition for drilling rigs and the availability of
related equipment. To the extent that in the future we acquire and develop unde-
veloped properties, higher commodity prices generally increase the demand for
drilling rigs, supplies, services, equipment and crews, and can lead to short-
ages of, and increasing costs for, drilling equipment, services and personnel.
Competition is also strong for attractive oil and gas producing properties,
undeveloped leases and drilling rights, and we cannot provide assurance that
we will be able to compete satisfactorily when attempting to make further
acquisitions.
Principal Office
----------------
Our principal office is located at 5646 Milton, Suite 722, Dallas, Texas 75206.
The rent is $580 per month and the lease expires in June, 2013. The rent expense
is shared with two other tenants.
Employees
---------
Other than our directors and officers, as of December 31, 2010, we do not have
employees. We anticipate that we will be conducting most of our business through
our management and consultants.
Transfer Agent
--------------
On December 28, 2007, the Company appointed Securities Transfer Corporation as
the Transfer Agent to handle securities transactions for the Company. The
address for Securities Transfer Corporation is 2591 Dallas Parkway, Suite 102,
Frisco, Texas 75034.
Company Financial Information
-----------------------------
The public may read and copy any materials the Company files with the SEC at
the SEC's Public Reference Room at 100 F Street, NE, Washington, D.C. 20549, on
official business days during the hours of 10 a.m. to 3 p.m. The public may
obtain information on the operation of the Public Reference Room by calling the
Commission at 1-800-SEC-0330 or through internet access via the Edgar reporting
system.
10
Item 1A. Risk Factors
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RISKS RELATED DIRECTLY TO OUR COMPANY ARE NUMEROUS.
---------------------------------------------------
One should carefully consider the following risk factors, in addition to the
other information set forth in this Report, before investing in shares of our
common stock. Each of these risk factors could adversely affect our business,
operating results and financial condition, as well as adversely affect the
value of an investment in our common stock. Some information in this report
may contain "forward-looking" statements that discuss future expectations of
our financial condition and results of operation. The risk factors noted in
this section and other factors could cause our actual results to differ from
those contained in any forward-looking statements.
OUR COMPANY HAS A LIMITED OPERATING HISTORY.
Our limited operating history makes it difficult for us to evaluate our future
business prospects and make decisions based on those estimates of our future
performance. Although our management team has been engaged in technology deve-
lopment for an extended period of time, we did not begin operations of our
current business concept until recently. Therefore, it is difficult to forecast
our future results based upon our historical data. Reliance on the historical
results of our acquisition targets may not be representative of the results we
will achieve, particularly in our combined form. Because of the uncertainties
related to our lack of historical operations, we may be hindered in our ability
to anticipate and timely adapt to increases or decreases in income or expenses.
If we make poor budgetary decisions as a result of unreliable historical data,
we could be less profitable or incur losses, which may result in a decline in
our stock price.
COMPETITION FOR RENEWABLE ENERGY TECHNOLOGY AND NATURAL RESOURCES ARE FIERCE.
The worldwide energy industry is highly fragmented and we are competing with
numerous companies looking for renewable energy technologies and capital related
thereto. We are one of the smallest energy technology development companies and
are an infinitely small participant in the oil and gas exploration business.
The presence of competing technology development companies will impact our
ability to raise additional capital in order to fund our technology programs if
investors are of the view that investments in competitors are more attractive.
We will also be competing with other technology companies for available
resources, including, but not limited to, qualified personnel, properties
suitable for exploration and development, and green energy technologies.
WE COULD BE IN AN EXTENDED GLOBAL ECONOMIC RECESSION.
The current global economic and financial crisis could lead to an extended
national or global economic recession. A slowdown in economic activity caused
by a recession would likely reduce national and worldwide demand for oil and
natural gas and result in lower commodity prices for long periods of time.
Prices for oil and natural gas have decreased significantly from highs in 2008.
In the last eighteen months, oil prices have decreased by up to one half their
highest prices and natural gas prices have decreased by more than two thirds
during this time period. Costs of exploration, development and production have
not yet adjusted to current economic conditions or in proportion to the reduced
product prices. Prolonged, substantial decreases in oil and natural gas prices
would likely have a material adverse effect on Regent's business, financial
condition and results of operations, could further limit the Company's access
to credit and could hinder its ability to satisfy its capital requirements.
11
CAPITAL AND CREDIT MARKETS VOLATILITY MAKE FUNDING UNCERTAIN.
Capital and credit markets have experienced unprecedented volatility and
disruption during the last half of 2008 and continued to be unpredictable
through 2009 and into 2010. Given the current levels of market volatility and
disruption, the availability of funds from those markets has diminished very
substantially. Further, arising from concerns about the stability of financial
markets generally and the solvency of borrowers specifically, the cost of
accessing the credit markets has increased as many lenders have raised interest
rates, enacted tighter lending standards or have altogether ceased to provide
funding to borrowers. Accordingly, we are evaluating numerous and various
alternatives, such as joint ventures with third parties, or sales of interest
in one or more of its properties. Such transactions if undertaken, could result
in a reduction in the Company's operating interests or require the Company to
relinquish the right to operate the property. There can be no assurance that
any such transactions can be completed or that such transactions will satisfy
the Company's operating capital requirements.
Our Company has no commitments to obtain any additional financing and there
can be no assurance that additional financing will be available, when required,
on favorable terms to us. The inability to obtain additional financing could
have a material adverse effect on us, including requiring us to curtail our oil
and gas acquisition and development plans of our properties and technology
development of our emerging energy technologies. Any additional financing may
involve substantial dilution to the interests of our shareholders at that time.
A MAJORITY OF OUR OUTSTANDING COMMON STOCK IS CLOSELY HELD AND ILLIQUID.
Our directors and executive officers collectively own most of our outstanding
voting stock. Accordingly, these stockholders, as a group, will be able to
control the outcome of stockholder votes, including votes concerning the
election of directors, the adoption or amendment of provisions in our Articles
of Incorporation and our Bylaws, and the approval of mergers and other
significant corporate transactions. These factors may also have the effect of
delaying or preventing a change in our management or our voting control. Our
Articles of Incorporation do not provide for cumulative voting.
The liquidity of our common stock may be adversely affected, and purchasers of
our common stock may have difficulty selling our common stock, if our common
stock does not trade in a suitable trading market. There is presently a limited
public market for our common stock, and there is no assurance that a market for
our securities will develop. It is likely that any market for our common stock
will be highly volatile and that trading in any such market will be limited.
The trading price of our common stock could be subject to wide fluctuations in
response to quarter-to-quarter variations in our operating results, notices of
our drilling results and other events or factors.
WE DO NOT INTEND TO DECLARE DIVIDENDS IN THE FORESEEABLE FUTURE.
We have not paid any cash dividends on our common stock since our inception and
we do not anticipate paying cash dividends in the foreseeable future. We intend
to retain our earnings, if any, to provide funds for reinvestment in our
acquisition and exploration activities. Therefore, we do not anticipate
declaring or paying dividends in the foreseeable future. Further, payment of
dividends, if any, in the future is within the discretion of the board of
directors and will depend on our earnings, if any, our capital requirements and
financial condition and other relevant factors.
12
RISKS RELATED TO OIL AND GAS EXPLORATION AND DEVELOPMENT ARE SUBSTANTIAL.
-------------------------------------------------------------------------
OUR PLANS TO RE-ENTER OIL AND GAS PROPERTIES HAS INHERENT RISKS.
We will own or lease properties that for many years have produced oil and gas.
It is not uncommon for such properties to be contaminated with hydrocarbons.
Although we or previous owners of these interests may have used operating and
disposal practices that were standard in the industry at the time, hydrocarbons
or other wastes may have been disposed of or released on or under the properties
or on or under other locations where such wastes have been taken for disposal.
These properties may be subject to federal or state requirements that could
require us to remove any the wastes or to remediate the resulting contamination.
In addition to properties that we operate, we have interests in many properties
which are operated by third parties over whom we have limited control. Notwith-
standing our lack of control over properties operated by others, the failure of
the previous owners or operators to comply with applicable environmental regula-
tions may, in certain circumstances, adversely impact us.
EXPLORATORY DRILLING IS A SPECULATIVE ACTIVITY THAT MAY FAIL COMMERCIALLY.
Drilling activities are subject to many risks, including the risk that no
commercially productive oil or gas reservoirs will be encountered. There can
be no assurance that new wells drilled by us will be productive or that we will
recover all or any portion of our investment. Drilling for oil and gas may
involve unprofitable efforts, not only from dry wells, but also from wells that
are productive but do not produce sufficient net revenues to return a profit
after drilling, operating and other costs. The cost of drilling, completing and
operating wells is often uncertain. Our drilling operations may be curtailed,
delayed or canceled as a result of a variety of factors, many of which are
beyond our control, including economic conditions, mechanical problems, high
pressure or irregularities in formations, title problems, weather conditions,
compliance with governmental requirements and shortages in or delays in the
delivery of equipment and services. In today's environment, shortages make
drilling rigs, labor and services difficult to obtain and could cause delays or
inability to proceed with our drilling and development plans. Such equipment
shortages and delays sometimes involve drilling rigs where inclement weather
prohibits the movement of land rigs causing a high demand for rigs by a large
number of companies during a relatively short period of time. Regent's future
drilling activities may not be successful. Lack of drilling success could have
a material adverse effect on our financial condition and results of operations.
OIL AND GAS OPERATIONS ARE SUBJECT TO HAZARDS.
Our operations are also subject to all the hazards and risks normally incident
to the development, exploitation, production and transportation of, and the
exploration for, oil and natural gas, including unusual or unexpected geologic
formations, pressures, down hole fires, mechanical failures, blowouts, leaks,
explosions, uncontrollable flows of oil, gas or well fluids and pollution and
other environmental risks. These hazards could result in substantial losses to
us due to injury and loss of life, severe damage to and destruction of property
and equipment, pollution and other environmental damage and suspension of
operations. We participate in insurance coverage maintained by the operator of
its wells, although there can be no assurances that such coverage will be
sufficient to prevent a material adverse effect to us in such events.
13
WE NEED CAPITAL TO DEVELOP OUR PROVED RESERVES AND TO PURSUE THE ACQUISITION OF
PRODUCING OIL AND GAS PROPERTIES AND LEASES.
The vast majority of our oil and natural gas reserves are classified as proved
reserves. Recovery of the Company's future proved undeveloped reserves will
require significant capital expenditures as will the pursuit of the acquisition
of producing oil and gas properties and leases. Regent's management estimates,
but can make no guarantee, that our financing sources will be sufficient to fund
our planned development activities or that development activities will be either
successful or in accordance with our schedule. Additionally, any significant
decrease in oil and gas prices or any significant increase in the cost of
development could result in a significant reduction in the number of wells
reworked and/or drilled. No assurance can be given that any wells will produce
oil or gas in commercially profitable quantities.
WE ARE SUBJECT TO RISKS UNDER THE CURRENT GOVERNMENT PROPOSED BUDGET.
The Obama administration has recently set forth budget proposals which if
passed, would significantly curtail our ability to attract investors and raise
capital. Proposed changes in the federal income tax laws which would eliminate
or reduce the percentage depletion deduction and the deduction for intangible
drilling and development costs for small independent producers, will greatly
reduce the investment capital available to those in the industry as well as our
Company. An extended time to expense seismic costs will also have an adverse
effect on our ability to explore and find new reserves.
WE ARE SUBJECT TO VARIOUS OPERATING AND OTHER CASUALTY RISKS.
Our oil and gas business involves a variety of operating risks, including, but
not limited to, unexpected formations or pressures, uncontrollable flows of
oil, gas, brine or well fluids into the environment (including groundwater
contamination), blowouts, fires, explosions, pollution and other risks, any of
which could result in personal injuries, loss of life, damage to properties and
substantial losses. Although we carry insurance at levels that we believe are
reasonable, we are not fully insured against all risks. We do not carry
business interruption insurance. Losses and liabilities arising from uninsured
or under-insured events could have a material adverse effect on our financial
condition and operations.
We plan to increase to some extent our development and, to a lesser extent, our
exploration activities. Drilling of oil and gas reserves involve a high degree
of risk that no commercial production will be found and/or that production will
be insufficient to recover drilling and completion costs. The cost of drilling,
completing and operating wells is often uncertain. Our drilling operations may
be curtailed, delayed or canceled as a result of numerous factors, including
title problems, weather conditions, compliance with governmental requirements
and shortages or delays in the delivery of equipment. Furthermore, completion
of a well does not assure a profit on the investment or a recovery of drilling,
completion and operating costs.
WE ARE SUBJECT TO CERTAIN TITLE RISKS.
Our Company employees and contract land professionals have reviewed title
records or other title review materials relating to substantially all of our
producing properties. The title investigation performed by us prior to
acquiring undeveloped properties is thorough, but less rigorous than that
conducted prior to drilling, consistent with industry standards. We believe we
have satisfactory title to all our producing properties in accordance with
standards generally accepted in the oil and gas industry. Our properties are
subject to customary royalty interests, liens incident to operating agreements,
liens for current taxes and other burdens, which we believe do not materially
interfere with the use of or affect the value of such properties.
14
OIL AND NATURAL GAS PRICES FLUCTUATION MAY ADVERSELY IMPACT OUR RESULTS.
Our revenues, profitability, and the book value of our oil and gas properties
are substantially dependent upon prevailing prices of, and demand for, oil and
gas and the costs of acquiring, finding, developing, and producing reserves.
Our ability to obtain borrowing capacity, to repay future indebtedness, and to
obtain additional capital on favorable terms is also primarily dependent upon
oil and gas prices which historically have been subject to wide fluctuations in
response to: (i) relatively minor changes in the supply of, and demand for, oil
and gas; (ii) market uncertainty; and (iii) a variety of additional factors,
all of which are beyond our control. These factors include domestic and foreign
political conditions, the price and availability of domestic and imported oil
and gas, the level of consumer and industrial demand, weather, domestic, and
foreign government relations, the price and availability of alternative fuels
and overall economic conditions. Also, the marketability of our production
depends in part upon the availability, proximity and capacity of gathering sys-
tems, regulated pipelines and processing facilities.
WE MAY BE RESPONSIBLE FOR ABANDONMENT COSTS OF OIL AND GAS PROPERTIES.
We are responsible for payment of plugging and abandonment costs on our oil and
gas properties pro rata to our working interest. Based on our experience, we
anticipate that in most cases, the ultimate aggregate salvage value of lease
and well equipment located on our properties should be equal to the costs of
abandoning such properties. There can be no assurance, however, that we will be
successful in avoiding additional expenses in connection with the abandonment
of any of our properties. In addition, abandonment costs and their timing may
change due to many factors, including actual production results, inflation
rates and changes in environmental laws and regulations.
GENERAL RISKS THAT IMPACT THE OIL AND GAS INDUSTRY.
---------------------------------------------------
WE ARE SUBJECT TO VARIOUS GOVERNMENTAL REGULATIONS.
Our operations are affected from time to time in varying degrees by political
developments and federal, state and local laws and regulations. In particular,
oil and gas production related operations are or have been subject to price
controls, taxes and other laws and regulations relating to the oil and gas
industry. Failure to comply with such laws and regulations can result in
substantial penalties. The regulatory burden on the oil and natural gas industry
increases our cost of doing business and affects our profitability. Although
we believe we will work in substantial compliance with all applicable laws and
regulations, because such laws and regulations are frequently amended or rein-
terpreted, we are unable to predict the future cost or impact of complying with
such laws and regulations.
FEDERAL REGULATION OF NATURAL GAS IS SIGNIFICANT AND COMPLEX.
Sales of natural gas by us are not regulated and are generally made at market
prices. However, the Federal Energy Regulatory Commission ("FERC") regulates
interstate natural gas transportation rates and service conditions, which will
affect the marketing of natural gas produced by us, as well as the revenues
received by us for sales of such production.
15
Since the mid-1980's, the FERC has issued a series of orders, culminating in
Order Nos. 636, 636-A and 636-B ("Order 636"), that have significantly altered
the marketing and transportation of natural gas. FERC Order 636 mandated a
fundamental restructuring of interstate pipeline sales and transportation
service, including the unbundling by the interstate pipelines of the sale,
transportation, storage and other components of the city-gate sales services
that such pipelines previously performed. One of the FERC's purposes in issuing
orders was to increase competition. While any additional FERC action on these
matters would affect us only indirectly, these policy statements and proposed
rules and new changes are intended to further enhance competition in natural gas
markets. We cannot predict what direction the FERC will take on these matters,
nor can we predict whether the FERC's actions will achieve its stated goal of
increasing competition in natural gas markets. However, we do not believe that
we will be treated materially differently than other natural gas producers and
marketers with which we will compete.
FEDERAL REGULATION OF OIL AND PRODUCT TRANSPORTATION CAN IMPACT PRICES.
The price we receive from the sale of oil is affected by the cost of transport-
ing such products to market. Effective January 1, 1995, the FERC implemented
regulations establishing an indexing system for transportation rates for oil
pipelines which would index such rates to inflation. These regulations could
increase the cost of transporting oil by interstate pipelines or reduce wellhead
prices for oil.
COMPLIANCE WITH THE TEXAS RAILROAD COMMISSION REGULATIONS IS COSTLY.
The State of Texas and many other states regulate oil and gas operations includ-
ing permits for drilling, field operations, bonds and reports concerning opera-
tions and impose other requirements relating to the exploration for and produc-
tion of oil and gas. Texas also has statutes or regulations addressing conser-
vation matters, including provisions for the unitization or pooling of oil and
gas properties, the establishment of maximum rates of production from wells and
the regulation of spacing, and abandonment.
ESTIMATED RESERVES ARE BASED ON MANY ASSUMPTIONS THAT MAY BE INACCURATE.
Estimates of oil and natural gas reserves are inherently imprecise. The process
of estimating oil and natural gas reserves is complex. It requires interpreta-
tions of available technical data and many assumptions, including assumptions
relating to economic factors. Any significant inaccuracies in these interpreta-
tions or assumptions could materially affect the estimated quantities and pre-
sent value of reserves. To prepare our estimates, we must project production
rates and the timing of development expenditures. We must also analyze avail-
able geological, geophysical, production and engineering data. The extent,
quality and reliability of this data can vary. The process also requires econo-
mic assumptions about matters such as oil and natural gas prices, drilling and
operating expenses, capital expenditures, taxes and availability of funds for
capital expenditures.
The present value of future net cash flows from our proved reserves may not be
necessarily the same as the current market value of the Company's estimated oil
and natural gas reserves. We base the estimated discounted future net cash flows
from our proved reserves on prices and costs in effect on the day of estimate
which may change suddenly and significantly.
16
WE ARE SUBJECT TO VARIOUS ENVIRONMENTAL RISKS AND COSTS.
-------------------------------------------------------
ENVIRONMENTAL REGULATION SERIOUSLY IMPACTS OIL AND GAS OOPERATOINS.
Our operations and properties will be subject to extensive and changing federal,
state and local laws and regulations relating to environmental protection,
including the generation, storage, handling and transportation of oil and gas
and the discharge of materials into the environment, and relating to safety and
health. The recent trend in environmental legislation and regulation generally
is toward stricter standards, and this trend will likely continue. These laws
and regulations may require the acquisition of a permit or other authorization
before construction or drilling commences and for certain other activities;
limit or prohibit construction, drilling and other activities on certain lands
lying within wilderness and other protected areas; and impose substantial
liabilities for pollution resulting from our operations. The permits required
for our various operations are subject to revocation, modification and renewal
by issuing authorities. Governmental authorities have the power to enforce
compliance with their regulations, and violations are subject to fines,
penalties or injunctions. In the opinion of management, we are in substantial
compliance with current applicable environmental laws and regulations, and we
have no material commitments for capital expenditures to comply with existing
environmental requirements. Nevertheless, changes in existing environmental
laws and regulations or in interpretations thereof could have a significant
impact on us. The impact of such changes, however, would not likely be any
more burdensome to us than to any other similarly situated oil and gas company.
THE SUPERFUND LAWS REMAIN ONEROUS.
The federal Comprehensive Environmental Response, Compensation, and Liability
Act ("CERCLA"), also known as the "Superfund" law, and similar state laws impose
liability, without regard to fault or the legality of the original conduct, on
certain classes of persons that are considered to have contributed to the
release of a "hazardous substance" into the environment. These persons include
the owner or operator of the disposal site or sites where the release occurred
and companies that disposed or arranged for the disposal of the hazardous waste
and substances found at the site. Persons who are or were responsible for re-
leases of hazardous substances under CERCLA may be subject to joint and several
liability for the costs of cleaning up the hazardous substances that have been
released into the environment and for damages to natural resources. Furthermore,
neighboring landowners and other third parties may file claims for personal
injury and property damage allegedly caused by the hazardous substances released
into the environment.
THE EPA IS INCREASING REGULATION OF OIL AND GAS OPERATIONS.
We will generate typical oil and gas field wastes, including hazardous wastes
that are subject to the Federal Resources Conservation and Recovery Act and
comparable state statutes. The United States Environmental Protection Agency
and various state agencies have limited the approved methods of disposal for
certain hazardous and non-hazardous wastes. Furthermore, some wastes generated
by our oil and gas operations that are currently exempt from regulation may in
the future be designated as "hazardous wastes", and therefore be subject to more
rigorous and costly operating and disposal requirements.
17
Also, the Oil Pollution Act ("OPA") imposes a variety of requirements on respon-
sible parties for onshore and offshore production facilities and vessels related
to the prevention of oil spills and liability for damages resulting from such
spills in waters of the United States. The "responsible party" includes the
owner or operator of an onshore facility or vessel or the lessee or permittee
of, or the holder of a right of use and easement for, the area where an onshore
facility is located. OPA assigns liability to each responsible party for oil
spill removal costs and a variety of public and private damages from oil spills.
Few defenses exist to the liability for oil spills imposed by OPA. OPA also
imposes financial responsibility requirements. Failure to comply with ongoing
requirements or inadequate cooperation in a spill event may subject a responsi-
ble party to civil or criminal enforcement actions.
OTHER BUSINESS RISKS
--------------------
FAILURE TO OBTAIN FINANCING ON ACCEPTABLE TERMS
The Company's operations depend on its ability to obtain financing for its
working capital and capital expenditure requirements and for making future
acquisitions. If the Company is not able to obtain suitable financing, its costs
could increase and its revenues could decrease, or the Company could be
precluded from continuing its operations at current or desired levels, or from
making future acquisitions. Increases in interest rates can make it more
difficult and expensive to obtain the funds needed to operate the Company's
businesses. The applicable interest rates on the revolving bank credit
facilities that the Company has in place fluctuate based on changes in
short-term interest rates. Increases in interest rates would increase the
Company's interest expense and adversely affect the Company's results of
operations and its ability to make acquisitions.
INADEQUATE MANAGEMENT AND INTERNAL SYSTEMS FOR GROWTH
To manage the Company's future growth, the Company's management must continue to
improve operational and financial systems. As the Company continues to grow,
it will also need to recruit and retain additional qualified management
personnel, and its ability to do so will depend upon a number of factors,
including the Company's results of operations and prospects and the level of
competition then prevailing in the market for qualified personnel. At the same
time, the Company will likely be required to manage an increasing number of
relationships with various customers and other parties. If the Company's
management personnel, systems, procedures and controls are inadequate to support
its operations, expansion could be slowed or halted and the opportunity to gain
significant additional market share could be impaired or lost. Any inability on
the part of the Company's management to manage the Company's growth effectively
may adversely affect its results of operations.
FAILURE OF THE COMPANY'S ACCOUNTING CONTROLS AND PROCEDURES
Although the Company evaluates its internal controls over financial reporting
and the Company's disclosure controls and procedures at the end of each quarter,
any system of controls, however well designed and operated, is based in part on
certain assumptions and can provide only reasonable, not absolute, assurances
that the objectives of the system are met. Any failure or circumvention of the
controls and procedures or failure to comply with regulations related to
controls and procedures could have a material adverse effect on the Company's
results of operations.
18
Item 1B. Unresolved Staff Comments
-------- -------------------------
None.
Item 2. Properties
------- ----------
All of our properties and near term prospects are located in the Mexia-Talco
Fault Zone of the East Texas Basin and the Eastern Shelf of the Midland Basin,
both mature producing oil and gas horizons located in Texas.
Mexia-Talco geologic overview
-----------------------------
The East Texas Basin is a structural embayment of the Gulf Coast Basin. While it
is bounded on the east by the Sabine Uplift and the East Texas Oil Field, it is
bounded on the north and west by the Mexia-Talco Fault Zone and what are called
the Woodbine Fault-Line fields. In its deepest part, the basin is filled with
more than 13,000 feet (>3960 m) of Mesozoic and Tertiary strata (Wood and Gue-
vara, 1981) that were structurally modified by mobilization of the Middle Juras-
sic Louann Salt (Lahee, 1929). This salt movement included the development of
the Van salt dome which is overlain by the massive Woodbine Van Oil Field in Van
Zandt County in north central Texas. The Woodbine Fault-Line fields run through
Milam, Falls, Limestone, Freestone, Navarro, Henderson, and Kaufman counties in
east central Texas with related production in Hill and Ellis counties. The six
oil and gas fields on the west faults are Mexia (Limestone County, discovered
1920), Currie (Navarro County, 1921), North Currie (Navarro County 1922), Powell
(Navarro County, 1923), Richland (Navarro County, 1924), and Wortham (Freestone
County, 1924). Powell, Mexia, and Wortham are the most productive of the fields.
The first field to be discovered was Mexia in northwestern Limestone County, and
it introduced the concept of fault-line production in the Woodbine sands which
has continued through today. By January 1, 1993, the reporting fault-line fields
yielded annual production of 292,250 barrels of oil and 13,553,000 cubic feet of
casinghead gas. Combined cumulative production for all of the fields climbed to
280,948,170 barrels of oil by 1993, after more than seventy years of operation
(Railroad Commission of Texas, Annual Report of the Oil and Gas Division, Austin
1992). Since 1993, all of the fault-line fields have continued to produce with
new drilling and production, some of which included original pressures in the
Woodbine formation and enhanced production from zones above the Woodbine forma-
tion, primarily the Austin Chalk. The Company has three tracts in Hill County,
two of which have all of our Proved Undeveloped Reserves which are proven in the
Austin Chalk and Woodbine formations at less than 1,500 feet. We are working on
an area of mutual interest in a multi-county area for future exploration.
Eastern Shelf geologic overview
-------------------------------
The depositional and tectonic history of the Eastern Shelf of the Midland Basin
reveals reservoir rocks consisting of porous limestone, dolomite, dolomitized
mudstone and wackestone, and lesser amounts of fine-grained clastics frequently
associated with evaporites, redbeds and sabkha facies. These rocks appear to
have been deposited in platform edge, open-shelf, intertidal, supratidal, and
restricted-shelf environments associated with platform growth. The Pennsylvanian
rests directly upon the eroded Ordovician Ellenburger over much of the area, al-
though in places a thin remnant of Mississippian lies between the Pennsylvanian
19
and Ordovician. The lower Pennsylvanian was deposited upon a gently undulating
eroded surface, with the exception of some narrow grabens that formed along the
east side of the Eastern Shelf as part of the north trending flexure that lies
between the deeper Midland Basin to the west, and the Bend Arch to the east. The
recurring gentle uplift of many of the eroded pre-Pennsylvanian structures took
place during the Pennsylvanian and influenced the deposition of cleaner carbo-
nates or the growth of reefs in association with the slightly shallower waters.
This is the reason for the occurrence of minor oil accumulations in the Ordovi-
cian Ellenburger dolomites beneath or near many of the producing Pennsylvanian
reef fields.
Reservoir rocks consist of porous limestone, dolomite, dolomitized mudstone and
wackestone, and lesser amounts of fine-grained clastics frequently associated
with evaporites, redbeds and sabkha facies. These rocks appear to have been
deposited in platform edge, open-shelf, intertidal, supratidal, and restricted-
shelf environments associated with platform growth. Reservoirs are contained in
Permian Wolfcampian, Leonardian Clear Fork Formations, and Guadalupian San
Andres, Grayburg, Queen, Seven Rivers and Yates Formations. Gross reservoir
thicknesses range up to 1,000 feet, porosities average 10 percent, and permeabi-
lities average 6 mD. The drilling depths vary from 3,000 to 10,000 feet. The
Company has a small carried working interest in the first well drilled on a 153
acre tract in Coke County.
Reserves
--------
There are numerous uncertainties inherent in estimating quantities of proved oil
and gas reserves and estimates of reserve quantities and values must be viewed
as being subject to significant change as more data about the properties become
available. The independent engineering firm RCM Engineering, Inc. of Dallas,
Texas ("RCM"), has estimated our oil and gas reserves and the present value of
future net revenues therefrom as of December 31, 2010. Those estimates were
determined based on prices and costs as of or for the twelve month period ended
December 31, 2010. Since January 1, 2010, we have not filed, nor was it neces-
sary to file, any reports concerning our oil and gas reserves with any federal
authority or agency, other than the SEC.
There are numerous uncertainties inherent in estimating quantities of proved oil
and gas reserves and estimates of reserve quantities and values must be viewed
as being subject to significant change as more data about the properties become
available.
Proved Reserves
---------------
In December 2008, the SEC released its finalized rule for "Modernization of Oil
and Gas Reporting." The new rule requires disclosure of oil and gas proved re-
serves by significant geographic area, using the arithmatic 12-month average
beginning-of-the-month price for the year, as opposed to using year-end prices
as was practiced in all previous years. The rule also allows for the use of
reliable technologies to estimate proved reserves, contingent on demonstrated
reliability in conclusions about reserve volumes. Under the new rules, companies
are required to report on the independence and qualifications of their reserve
preparers or auditors, and file reports when a third-party is relied upon to
prepare reserve estimates or conduct a reserve audit. The following table sets
forth our estimated proved reserves based on the new SEC rules as defined in
Rule 4.10(a) of Regulation S-X and Item 1200 of Regulation S-K.
20
Category Net Reserves (SEC Prices at 12/31/10)
-------- -------------------------------------
Oil NGL Gas PV-10
------- ------- ------- ---------
(Bbls) (Bbls) (Mcf) ($m)
Proved developed--Producing 4,235 -- -- $ 135.1
Proved developed--Non-producing 4,630 -- -- 58.5
Proved undeveloped 61,530 -- -- 1,840.8
------- ------- ------- ---------
Total Proved (1)(2) 70,390 -- -- $2,034.4
(1) The estimates of reserves in the table above conform to the guidelines of
the SEC. Estimated recoverable proved reserves have been determined without
regard to any economic impact that may result from our financial derivative
activities. These calculations were prepared using standard geological and engi-
neering methods generally accepted by the petroleum industry. The reserve infor-
mation shown is estimated. The certainty of any reserve estimate is a function
of the quality of available geological, geophysical, engineering and economic
data, and the precision of the engineering and geological interpretation and
judgment. The estimates of reserves, future cash flows and present value are
based on various assumptions, and are inherently imprecise. Although we believe
these estimates are reasonable, actual future production, cash flows, taxes,
development expenditures, operating expenses and quantities of recoverable oil
and natural gas reserves may vary substantially from these estimates.
(2) The dollar amount is the present value, discounted at 10% per annum of the
estimated future cash flows before income tax of our estimated proved reserves.
The estimated future cash flows above were determined by using the reserve
quantities of proved reserves and the periods in which they are expected to be
developed and produced based on prevailing economic conditions. The estimated
future production is priced based on the 12-month unweighted arithmatic average
of the first-day-of-the-month price for the period from January through December
2010, using $71.58 per bbl as adjusted by lease for transportation fees and re-
gional price differentials from a benchmark price of $71.70 per bbl. Management
believes that the presentation of the non-GAAP financial measure of PV-10 pro-
vides useful information to investors because it is widely used by professional
analysts and sophisticated investors in evaluating oil and gas companies.
The Company is not aware of any major discovery or other favorable or adverse
event that is believed to have caused a significant change in the estimated
proved reserves since December 31, 2010. Reserve estimates are inherently impre-
cise and remain subject to revisions based on production history, results of
additional exploration and development, prices of oil and natural gas and other
factors. Please read "Item 1A. Risk Factors -- Our estimated reserves are based
on many assumptions that may turn out to be inaccurate. Any significant inaccu-
racies in these reserve estimates or underlying assumptions may materially
affect the quantities and present value of our reserves." You should also read
the notes following consolidated financial statements for the year ended Decem-
ber 31, 2010 in conjunction with the reserve estimates.
21
ecent SEC Activity
-------------------
In December 2008, the SEC announced that it had approved revisions designed to
modernize the oil and gas company reserves reporting requirements. The most sig-
nificant amendments to the requirements included the following:
- Commodity Prices: Commercial producibility of reserves and discounted cash
flows are now based on a 12-month average commodity price unless contractual
arrangements designate the price to be used.
- Disclosure of Unproved Reserves: Probable and possible reserves may be dis-
closed separately on a voluntary basis.
- Proved Undeveloped Reserve Guidelines: Reserves may be classified as proved
undeveloped if there is a high degree of confidence that the quantities will
be recovered and they are scheduled to be drilled within the next five years,
unless the specific circumstances justify a longer time.
- Reserves Estimation Using New Technologies: Reserves may be estimated through
the use of reliable technology in addition to flow tests and history.
- Reserves Personnel and Estimation Process: Additional disclosure is required
regarding the qualifications of the chief technical person who oversees the
reserves estimation process. We are also required to provide a general dis-
cussion of the Company's internal controls used to assure the objectivity of
the reserves estimate.
- Non-Traditional Resources: The definition of oil and gas producing activities
has expanded and focuses on the marketable product rather than the method of
extraction.
Reserve Estimation
------------------
In accordance with the new guidelines, the average prices used in computing re-
serves at December 31, 2010 were $71.58 per bbl of oil, based on the 12-month
average market prices for sales of oil and natural gas on the first calendar day
of each month during fiscal 2010. The benchmark price of $71.70 per bbl of oil
was adjusted by lease for gravity, transportation fees and regional price diffe-
rentials.
RCM evaluated our oil and gas reserves as of December 31, 2010. RCM meets the
requirements with regard to qualifications, independence, objectivity and confi-
dentiality set forth in the Standards Pertaining to the Estimating and Auditing
of Oil and Gas Reserves Information promulgated by the Society of Petroleum
Engineers. RCM does not own an interest in any of our properties and is not
employed by us on a contingent basis. We provide historical information to RCM
for our properties such as ownership interest; oil and gas production; well test
data; commodity prices; and operating and development costs. The technologies
used in the estimation of our proved reserves are commonly employed in the oil
and gas industry.
22
Acreage
-------
The table below sets forth our undeveloped and developed gross and net leasehold
acreage acquired in the Transfer Agreement. Undeveloped acreage includes leased
acres on which wells have not been drilled or completed to a point that would
permit the commercial production, regardless of whether or not such acreage con-
tains proved reserves. Undeveloped acreage held by production under the terms
of a lease is included in the Developed Acreage category total shown below.
Undeveloped Acreage Developed Acreage Total Acreage
---------------------- --------------------- ---------------------
Gross Net Gross Net Gross Net
---------- ---------- ---------- ---------- ---------- ----------
169 17 50 50 219 67
Undeveloped acreage includes leased acres on which wells have not been drilled
or completed to a point that would permit the production of commercial quanti-
ties of oil and gas, regardless of whether or not such acreage contains proved
reserves. A gross acre is an acre in which an interest is owned. A net acre is
deemed to exist when the sum of fractional ownership interests in gross acres
equals one. The number of net acres is the sum of the fractional interests owned
in gross acres. Our developed acreage is in Hill County, Texas and the undeve-
loped acreage is in Coke County, Texas under a leasehold which if undrilled will
expire in 2011.
Title to Properties
-------------------
All the leases for the undeveloped acreage summarized in the preceding table
will expire at the end of their respective primary terms unless prior to that
date, the existing leases are renewed or production has been obtained from the
acreage subject to the lease, in which event the lease will remain in effect
until the cessation of production. As is customary in the industry, we generally
acquire oil and gas acreage without any warranty of title except as to claims
made by, through or under the transferor. Although we have title to developed
acreage examined prior to the acquisition in those cases in which the economic
significance of the acreage justifies the cost, there can be no assurance that
losses will not result from title defect or defects in the assignment of lease-
hold rights.
Proprietary Rights
------------------
Effective August 1, 2010, we entered into a rights agreement with Epi-Cloyd,
Ltd. and Epi-Energy, Ltd. (E-C) for the exclusive rights to develop an E-C Gear-
box for the valve actuator and wind energy applications. Following a period of
eight months for the development of a gearbox prototype, Regent has the right to
enter into a license agreement for exclusive rights for the valve actuator and
wind energy generation fields of use. Upon entering into the license agreement,
Regent will pay a minimum royalty payment of $12,500 per quarter for the first
twelve months and $25,000 per quarter thereafter.
23
Item 3. Legal Proceedings
------- -----------------
We have no litigation and no known pending litigation.
Item 4. [REMOVED AND RESERVED]
------- ----------------------
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and
------- -----------------------------------------------------------------------
Issuer Purchases of Equity
--------------------------
Regent's Common Stock is listed on the Over-the-Counter Bulletin Board under the
symbol "REGT." For the period ended December 31, 2010, security dealers did
not report high and low bid quotations.
Shares Available Under Rule 144
-------------------------------
There are currently 20,441,439 shares of common stock that are considered
restricted securities under Rule 144 of the Securities Act of 1933 (the "Act").
Most of the restricted shares are held by affiliates, as that term is defined
in Rule 144(a)(1). In general, under Rule 144 as amended, a person who has
beneficially owned and held restricted securities for at least a year, including
affiliates, may sell publicly without registration under the Act, within any
three-month period, assuming compliance with other provisions of the Act. In
general, under Rule 144, as currently in effect, a person who has beneficially
owned shares of a company's common stock for at least six months is entitled to
sell within any three month period a number of shares that does not exceed the
greater of:
1. 1% of the number of shares of the company's common stock then
outstanding; or
2. The average weekly trading volume of the company's common stock during
the four calendar weeks preceding the filing of a notice on Form 144
with respect to the sale.
Sales under Rule 144 are also subject to manner of sale provisions and notice
requirements and to the availability of current public information about the
company.
Under Rule 144(k), a person who is not one of the company's affiliates at any
time during the three months preceding a sale, and who has beneficially owned
the shares proposed to be sold for at least two years, is entitled to sell
shares without complying with the manner of sale, public information, volume
limitation or notice provisions of Rule 144.
Holders
-------
As for December 31, 2010, based on information provided by our transfer agent,
Securities Transfer Corporation, the number of holders or record of our common
stock was 2,022.
24
Dividends
---------
We have not declared any dividends, and we do not plan to declare any dividends
in the foreseeable future.
Other Shares Which May Be Issued
--------------------------------
The Company's final tranche of the Director Stock Awards in the amount of 33,333
shares of restricted common stock vested on December 31, 2010. The Company has
no further commitments to issue common stock as of the date of this filing.
Item 6. Selected Financial Data
------- -----------------------
Not Applicable
Item 7. Management's Discussion and Analysis of Financial Condition
------- -----------------------------------------------------------
and Results of Operations
-------------------------
The following discussion is intended to assist you in understanding our business
strategy, our results of operations and our financial condition. Our consolida-
ted financial statements and the accompanying notes included elsewhere in this
report contain additional information that should be referred to when reviewing
this material. Statements in this discussion may be forward-looking.
These forward-looking statements involve risks and uncertainties, which could
cause actual results to differ from those expressed. See the "Cautionary Note"
at the beginning of this report and "Risk Factors" in Item 1.A for an additional
discussion of some of these factors and risks. Factors that may cause our actual
results, our performance or achievements, or industry results, to differ mater-
ially from those contemplated by such forward-looking statements include without
limitation:
|_| Our ability to generate additional capital to complete our planned
energy technology development and oil and gas activities
|_| Risks inherent in oil and gas acquisitions, exploration, drilling,
development and production; price volatility of oil and gas
|_| Competition from other technology and oil and gas companies
|_| Shortages of equipment, services and supplies
|_| Government regulation
|_| Environmental matters
These forward looking statements include statements regarding:
|_| Regent's financial position
|_| Proved or possible reserve quantities and net present values of those
reserves
|_| Business strategy
|_| Plans and objectives of management of Regent for future operations and
capital expenditures
|_| Revenue and cash flow projections
25
General and Business Overview
-----------------------------
Regent Technologies, Inc., a Colorado corporation, is listed on the Pink Sheets
under the symbol "REGT". We are a technology-focused company that utilizes
emerging proprietary technologies for our involvement in the energy industry. We
have rights to proprietary technologies which we believe provide us an advantage
in the industry. Our business strategy is to exploit these advantages and gene-
rate long-term value for our shareholders and partners. We operate through two
business divisions:
-Energy Technology Division
-Natural Resources Division
Our Mission is to accomplish our business strategy while maintaining the highest
standards of integrity and professionalism wherever we operate and promoting re-
sponsible energy now and in the future. Our Vision is to employ new technologies
to maximize the production of petroleum resources in an efficient and environ-
mentally safe manner while developing new technologies for the increased use of
renewable energy.
ENERGY TECHNOLOGY DIVISION
--------------------------
Technology
----------
On August 14, 2010, the Company entered into a rights agreement with Epi-Cloyd,
Ltd. and Epi-Energy, Ltd. (E-C) for the exclusive rights to develop an E-C Gear-
box for the valve actuator and wind energy applications. Following a period of
eight months for the development of a gearbox prototype, Regent has the right to
enter into a licensee agreement for exclusive rights for the valve actuator and
wind energy generation fields of use. Epi-Cloyd, Ltd. and Epi-Energy, Ltd. are
related technology companies engaged in the commercialization of their numerous
patents covering a revolutionary cyclic reduction invention. Their invention
increases torque as a plurality of driver discs rotate about a central shaft
member and engage an output member via a low-friction, roller means. The first
of seven related patents was issued in March, 2007 and all are within the scope
of the Company's rights agreement.
Our Energy Technology Division is involved in identifying and developing emerg-
ing technologies which impact energy production. We are currently focused on
the development of a distinctive gearbox designed for petroleum valve actuators
and large wind energy generators. Known as the Epi-Cloyd (E-C) transmission,
the E-C Gearbox that we are developing for wind energy usage will be constructed
to provide a minimum of a decade of continuous service. Though these are appro-
priate for installation of new large wind generators, the primary market of the
gearboxes will be replacement of short-lived and repeatedly-failed conventional
gearboxes currently in 1 to 3 megawatt wind generators located around the US.
We are also working to apply the unique performance of the E-C Gearbox to the
control of valve actuators. Because of its durability and ability to function
for many years in locales beyond the reach of normal maintenance services, the
E-C gearbox is able to bring reliable performance and financial benefit to its
users in the petroleum industry and beyond. Specific attributes that place the
E-C Gearbox above competitors are:
- Greatly reduced number of bearings and bearing failures
- Elimination of tooth failure and destructive metal shavings
- Great reduction in lubrication requirements
- Low generation of heat
- Extended durability, lower and simpler maintenance requirements
- Scalable to virtually all size applications
26
Epi-Cloyd Application To Wind Energy
------------------------------------
Although the Company will be able to provide Epi-Cloyd transmissions for a great
variety of applications, it has focused its energies for the foreseeable future
on meeting the most serious problems confronting wind energy providers today.
These problems currently revolve around the repeated and destructive failure of
conventional transmissions and the high cost of removing and replacing such gear
boxes in the field.
The combination of a lower price of an Epi-Cloyd transmission, the savings of
timely orders, the lower maintenance requirements, and the savings from doubling
the life of a tower transmission produces a significant saving to the customer.
The Company expects to be able to sell its transmissions in a range of 75% of
the "aftermarket" price currently charged for conventional transmissions. That,
combined with an expected doubling of unit life, results in a unit cost that is
less than 50 percent of current conventional unit costs over a 10-year period.
In addition, the reduction in unit maintenance and costly in-field replacement
charges as well as lengthy down time, moves the E-C Gearbox replacement and ope-
rating cost lower to the range of 30 percent of current gearbox unit/operating
costs. Under these conditions, the Company could consider higher unit prices to
cover contingencies and extended warranties and still create a healthy profit.
Epi-Cloyd Wind Energy Market
----------------------------
We are estimating that there will be 4,000 gearboxes going out of warranty every
year for the next few years in the United States only. This includes the current
installed base of GE's most widely used turbine, the 1.5 MW, which is reported
at 13.5K units. While we believe the Epi-Cloyd should be supplied as the initial
OEM transmission, overly conservative wind farm financing entities will push
back against this new device for at least the first five years of use. So the
initial customer base will be the wind farm operators who have 4,000 OEM trans-
missions with expiring warranties and thus have the most to gain from using our
less expensive and longer lasting product. Primary efforts will focus on part-
nering with generator providers operating under power purchase agreements for
equipment integrity.
Epi-Cloyd Outlook
-----------------
On the very conservative presumption that in the first five years of operation
the Company can grow market share from 2 to 15 percent while developing a brand
name in the market, we expect to generate over $100 million in profits in that
time frame on a conservative gross margin of 25% in the US 1.5 MW turbine re-
placement transmission market. Prospects for new installation sales and other
size turbine replacement are expected to generate additional revenue and pro-
fits based on an estimated superior profit margin. $300K is being sought from
angel investors to initiate critical prototype work that confirms proof of
principle previously demonstrated in an independent testing laboratory. We will
seek to develop the prototype under an agreement with a strategic partner cur-
rently in the wind turbine business.
27
NATURAL RESOURCES DIVISION
--------------------------
Properties
----------
During the third and fourth quarters of 2010, we acquired oil and gas assets,
consisting of both producing and proven undeveloped reserves. The assignment was
for a 100% working interest and 75% net revenue interest in proved reserves in
Hill County, Texas and for certain mineral interests in a 153 acre prospect in
Coke County, Texas. We also acquired a 50% net profits production interest that
covers production from certain oil and gas leases with production from the Wood-
bine formation in Hill County, Texas. The net profits interest has provided our
initial revenue from oil and gas production. For more information regarding
our properties, see Item 2. "Properties -- Proved Reserves" and Note 14 to our
consolidated financial statements.
Our Natural Resources Division has initiatives for identifying oil and gas
fields with proven reserves that can be significantly increased and developed
with conservative strategies of proximity and our proprietary enhancement tech-
nologies. Our core technology involves restoring or increasing the productivity
of oil wells which have insufficient reservoir drive due to formation damage.
The objective of our Natural Resources Division is to selectively acquire pros-
pects where reserves can be identified with confidence, can be economically pro-
duced and where levels of production can be raised quickly and sustained for the
highest return on investment.
Prospective Exploration and Production Activities
-------------------------------------------------
We intend to grow reserves and production economically, primarily by: (1) major
workover of an existing wellbore on a leasehold with Proved Undeveloped Reserves
including the possibility of deepening said wellbore to test the Woodbine Forma-
tion; (2) acquiring properties with reasonable risk-reward potential and by par-
ticipating in and or actively conducting drilling operations in order to further
exploit the existing properties; and (3) selectively pursuing strategic acqui-
sitions that can be improved with our production enhancement technologies.
Exploration activities will normally be conducted with the Company acquiring
undeveloped oil and gas leases under prospects, and carrying out exploratory
drilling on the prospective leasehold with the Company retaining a majority
interest in the prospect. Interests in the property will sometimes be sold to
key employees and associated companies at cost. Also, interests may be sold to
third parties with the Company retaining an overriding royalty interest, carried
working interest, or a reversionary interest.
Regent intends to rely on joint ventures with qualified operating oil and gas
companies to operate its projects through the exploratory and production phases.
This will reduce general and administrative costs necessary to conduct
operations. As of the date of this filing, Regent is not operating any of the
oil and gas wells or prospects in which it owns an interest but instead relies
on third party companies to operate the wells and properties at this time.
28
Oil and Gas Outlook for 2010 and 2011
-------------------------------------
The following summarizes our goals and objectives for 2010 and 2011:
- Participate in the rework or deepening of the existing wellbore on the
acreage in Hill County to test the Woodbine formation;
- Pursue additional oil and gas asset and project acquisitions in common areas;
- Maintain liquidity through increases in cash flow provided by operations
and through a new credit facility borrowing base; and
- Continue to build our operating staff and related capabilities.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
------------------------------------------
Management's discussion and analysis of financial condition and results of
operations is based on the accounting policies used and disclosed in this
report and notes that were prepared in accordance with accounting principles
generally accepted in the United States. The preparation of the referenced
consolidated financial statements required management to make estimates and
assumptions that affected the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the dates of the consolidated
financial statements and the reported amounts of expenses during the reporting
periods. There are critical assumptions that may influence accounting estimates
in these and other areas. Management bases its critical assumptions on
historical experience, third-party data and various other estimates that it
believes to be reasonable under the circumstances. Actual amounts could differ
from those estimates. The significant accounting policies of the Company are
described in the audited financial statements included herein. See Note 2 -
"Summary of Significant Accounting Policies" to our consolidated financial
statements for additional information.
Oil and Gas Activities -- Full-cost Accounting
----------------------------------------------
The Company follows the full-cost method of accounting under which all costs
associated with property acquisition, exploration and development activities are
capitalized. We capitalize internal costs that can be directly identified with
our acquisition, exploration and development activities and do not include any
costs related to production, general corporate overhead or similar activities.
Capitalized costs are amortized on a composite unit-of-production method based
on proved oil and gas reserves. Estimates of our proved reserves as of December
31, 2010 were prepared by a third party engineering firm. In addition, a third
party engineering firm reviews and updates our reserves on a quarterly basis.
Proceeds from the sale of properties are accounted for as reductions of capita-
lized costs unless such sales involve a significant change in the relationship
between costs and the value of proved reserves or the underlying value of
unproved properties, in which case a gain or loss is recognized.
29
Proved Reserves
---------------
Estimates of oil and gas reserves, by necessity, are projections based on geolo-
gic and engineering data, and there are uncertainties inherent in the interpre-
tation of such data as well as the projection of future rates of production and
the timing of development expenditures. Reserve engineering is a subjective pro-
cess of estimating underground accumulations of oil and gas that are difficult
to measure. The accuracy of any reserve estimate is a function of the quality of
available data, engineering and geological interpretation and judgment. Esti-
mates of economically recoverable oil and natural gas reserves and future net
cash flows necessarily depend upon a number of variable factors and assumptions,
such as historical production from the area compared with production from other
producing areas, the assumed effects of regulations by governmental agencies and
assumptions governing future oil and natural gas prices, future operating costs,
severance taxes, development costs and workover costs, all of which may in fact
vary considerably from actual results. For these reasons, estimates of the eco-
nomically recoverable quantities of oil and natural gas attributable to any par-
ticular group of properties, classifications of such reserves based on risk of
recovery, and estimates of the future net cash flows expected therefrom may
vary substantially. Any significant variance in the assumptions could materially
affect the estimated quantity and value of the reserves, which could affect the
carrying value of oil and gas properties and/or the rate of depletion of the oil
and gas properties. Actual production, revenues and expenditures with respect to
our reserves will likely vary from estimates and such variances may be material.
On December 31, 2008, the SEC released a Final Rule, Modernization of Oil and
Gas Reporting, approving revisions designed to modernize oil and gas reserve
reporting requirements. For more information regarding proved reserves and
critical accounting policies, including "Recently Issued Accounting Pronounce-
ments," see Items 1. -- "Business" and 2. "Properties - Proved Reserves" and
Note 14 to our consolidated financial statements.
RESULTS OF OPERATIONS
---------------------
Regent has funded operations through short-term borrowings and equity investment
sales in order to meet obligations. Our future operations are dependent upon
external funding and our ability to increase revenues and reduce expenses.
There is no assurance that sufficient funding will be available from additional
related party borrowings and private placements to meet our business objectives
including anticipated cash needs for working capital.
Year Ended December 31, 2010 Compared to Year Ended December 31, 2009
---------------------------------------------------------------------
For the period ended December 31, 2010, net income was $188,427 compared to
net loss of $70,868 for the same period ended 2009. The net income for fiscal
2010 was the result of total year-to-date unrealized gains of $204,525 due to
the fair value measurement of the MacuCLEAR Preferred Stock acquisition, plus a
$24,750 gain from the sale of a portion the Company's holdings of MacuCLEAR
Preferred Stock. In addition, the Company realized operating revenue of $2,046
for December 2010 from the net profits production interest.
Operating expenses primarily include administrative and accounting expenses,
litigation settlement expense and acquisition expense related to the MacuCLEAR
Preferred Stock. General and administrative expenses were $30,618 for the
period ended December 31, 2010 compared to $19,237 for the period ended December
31, 2009. The increase was the result of a fee increase by the stock transfer
agent and higher accounting and audit expense.
30
Year Ended December 31, 2009 Compared to Year Ended December 31, 2008
---------------------------------------------------------------------
For the period ended December 31, 2009, the Company experienced a net loss of
$70,868 compared to net income of $109,335 for the period ended December 31,
2008. The difference was primarily the result of net transfers out of $35,662
in fiscal 2009 related to the fair value measurement of the MacuCLEAR Preferred
Stock acquisition as compared to unrealized gains of $103,201 for fiscal 2008
related to the fair value measurement of the MacuCLEAR holdings. See Note 6,
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
General and administrative expenses were $19,237 for the period ended December
31, 2009 compared to $35,125 for the same period in 2008. The decrease was due
to less accounting expense as the result of completing the MacuCLEAR fair value
dispositions and fair value measurements. Interest expense decreased to $1,469
for the period ended 2008 from $1,868 for the period ended 2007 due to a con-
tinued reduction in notes payable.
LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
The Company finances its operations from internally generated funds from stock
sales, proceeds from sales of acquisitions and from borrowings under its various
agreements. As of December 31, 2010, the Company had total assets of $695,011
and total liabilities of $94,815. The increase was due primarily to the note
payable addition of $81,750 for the acquisition of the net profits production
interest. The Company does not have any delivery commitments to provide a fixed
and determinable quantity of its oil and gas under any existing agreement.
Cash Flows
----------
Net cash flows used in operating activities was $27,501, for the fiscal period
ending December 31, 2010, compared to net cash flows used of $18,420 for the
same period in 2009, primarily due to the increase in general and administrative
costs. For the month of December 2010, the Company recorded accrued income of
$2,046 attributable to its net profits production interest.
Net cash flows from investing activities was $27,944 in 2010 compared to zero in
2009 due to the sale of a portion of the Company's investment in MacuCLEAR stock
for $39,600 which was partially offset by a $10,000 payment for the acquisition
of the net profits production interest.
Net cash provided by financing activities was $19,050 for 2010 compared to
$22,830 for the 2009 fiscal period. The Company sold subsidiary preferred stock
in the amounts of $25,000 and $27,500 for the periods ending 2010 and 2009, res-
pectively.
2011 Capital Expenditures Budget
--------------------------------
We intend to fund 2011 capital expenditures, excluding any acquisitions, primar-
ily out of internally-generated cash flows and, as necessary, borrowings from
NR Partners and public issuance of equity securities.
31
Related Party Transactions
--------------------------
The Company acquired certain oil and gas interests through Mr. Nelson and has
borrowings from NR Partners. See Note 12, NOTES TO CONSOLIDATED FINANCIAL STATE-
MENTS.
Future Payments Under Contractual Obligations
---------------------------------------------
Neither the Company nor its subsidiary have incurred future payment obligations.
The Company is not expected to purchase equipment or incur significant changes
in the number of employees. The Company is currently performing product research
on the E-C Gearbox. See Note 13, NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
Off-Balance Sheet Arrangements
------------------------------
As of the date of this report, we do not have any off-balance sheet arrangements
that have or are reasonably likely to have a current or future effect on our
financial condition, changes in financial condition, revenues or expenses,
results of operations, liquidity, capital expenditures or capital resources that
are material to investors. The term "off-balance sheet arrangement" generally
means any transaction, agreement or other contractual arrangement to which an
entity unconsolidated with us is a party, under which we have: (i) any
obligation arising under a guarantee contract, derivative instrument or variable
interest; or (ii) a retained or contingent interest in assets transferred to
such entity or similar arrangement that serves as credit, liquidity or market
risk support for such assets.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
-------- ----------------------------------------------------------
Not applicable
32
Item 8. Financial Statements and Supplementary Data
------- -------------------------------------------
TURNER, STONE & COMPANY, L.L.P
12700 Park Central Drive, Suite 1400
Dallas, Texas 75251
Report of Independent Registered Public Accounting Firm
Board of Directors and Stockholders
Regent Technologies, Inc. and Subsidiary
Dallas, Texas
We have audited the accompanying consolidated balance sheets of Regent
Technologies, Inc. and Subsidiary, (the Company) (a development stage company)
as of December 31, 2010 and 2009, and the related consolidated statements of
operations, stockholders' equity (deficit), and cash flows for the years ended
December 31, 2010 and 2009, and for the period January 1, 1999 through December
31, 2010. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
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 audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of Regent Technologies, Inc. and Subsidiary at December 31, 2010 and 2009, and
the results of their operations and cash flows for the years ended December 31,
2010 and 2009, and for the period January 1, 1999 through December 31, 2010 in
conformity with accounting principles generally accepted in the United States
of America.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 1 to
the consolidated financial statements, the Company has no business operations
and has a working capital deficiency, both of which raise substantial doubt
about its ability to continue as a going concern. Management's plans in regard
to these matters are also described in Note 1. The consolidated financial
statements do not include any adjustments that might result from the outcome
of this uncertainty.
/s/ Turner, Stone & Company, L.L.P.
----------------------------------
March 30, 2011
33
REGENT TECHNOLOGIES, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEETS
December 31, December 31,
2010 2009
------------------ ------------------
ASSETS
CURRENT ASSETS:
Cash in bank $ 24,790 $ 5,297
Accounts receivable 2,046 -
--------- ---------
Total Current Assets 26,836 5,297
Long-term note receivable, stockholder - 70,000
PROPERTY AND EQUIPMENT:
Oil and gas properties, full cost accounting 90,795 -
Furniture and equipment, net 1,388 -
--------- ---------
Total property and equipment (Note 4) 92,183 -
Investment (Note 6) 575,992 395,621
--------- ---------
Total Assets $ 695,011 $ 470,918
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 4,247 $ 2,606
Notes payable - related parties 43,700 8,850
Accrued interest payable 718 265
--------- ---------
Total Current Liabilities 48,665 11,721
--------- ---------
Note payable - related parties, less current portion 40,950 -
Asset retirement obligation 5,200 -
--------- ---------
Total liabilities 94,815 11,721
COMMITMENTS AND CONTINGENCIES (Note 13)
STOCKHOLDERS' EQUITY:
Convertible Preferred stock, $.10 par value, 1,000,000
shares authorized, 99,500 and 94,500 shares issued
and outstanding, Regent Natural Resources Co. 9,950 9,450
Preferred stock, $.10 par value, 30,000,000
shares authorized, no shares issued and
outstanding, Registrant - -
Common stock, $.01 par value, 100,000,000
shares authorized, 22,360,233 and 8,847,456
shares issued and outstanding 223,602 84,875
Paid-in capital in excess of par 3,629,141 3,815,796
Accumulated deficit (including $85,836 net income
accumulated since reentering the development stage) (3,262,497) (3,450,924)
--------- ---------
600,196 459,197
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 695,011 $ 470,918
========= =========
The accompanying notes are an integral part of the consolidated financial statements.
34
REGENT TECHNOLOGIES, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009
AND THE PERIOD JANUARY 1, 1999
THROUGH DECEMBER 31, 2010
Cumulative
Since Re-entering
Development Stage
2010 2009 January 1, 1999
------------ ------------ ------------
Revenues $ 2,046 $ - $ 2,046
Operating expenses:
General and administrative 30,618 19,237 347,296
--------- --------- ---------
Operating loss ( 28,572) ( 19,237) (345,250)
--------- --------- ---------
Other income and (expense):
Gain on fair value measurement 204,525 - 307,726
Transfer on fair value measurement ( 9,304) ( 35,662) ( 44,966)
Gain on extinguishment of debt - - 145,340
Gain on sale of investment 24,750 - 101,331
Stock grant expense ( 3,728) ( 14,500) ( 41,700)
Interest, net 756 ( 1,469) ( 36,978)
--------- --------- ---------
Total other income (expense) 216,999 ( 51,631) 430,753
Income (loss) before income taxes 188,427 ( 70,868) 85,502
Provisions for income taxes - - -
--------- --------- ---------
Net income (loss) $ 188,427 $ ( 70,868) $ 85,502
========= ========= =========
Net income (loss) per common share
(basic and diluted) $ .02 ( .01)
========= =========
Weighted Average Shares Outstanding 12,562,754 7,212,593
The accompanying notes are an integral part of the consolidated financial statements.
35
REGENT TECHNOLOGIES, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE PERIOD JANUARY 1, 1999 THROUGH DECEMBER 31, 2010
Preferred Stock Common Stock Total
----------------------- ----------------------- Additional Stockholders'
Issued Issued Paid-In Accumulated Equity
Shares Par Value Shares Par Value Capital Deficit (Deficit)
------ --------- ------ --------- ------- -------- ---------
Balance at January 1, 1999 - $ - 3,643,693 $ 36,437 $3,148,871 $( 3,347,999) $( 162,691)
Issuance of common stock in
exchange for services
at $.10 per share - - 50,000 500 4,500 - 5,000
Issuance of common stock upon
conversion of notes payable
at $.11 per share - - 1,800,000 18,000 172,000 - 190,000
Issuance of common stock with
failed consideration - - 50,877,713 508,777 ( 508,777) - -
Net loss for 1999 - - - - - ( 125,005) ( 125,005)
Issuance of common stock for
settlement of lawsuit
at $.10 per share - - 140,000 1,400 12,600 - 14,000
Issuance of common stock with
failed consideration returned
and cancelled - - (36,046,209) (360,462) 360,462 - -
Net loss for 2000 - - - - - ( 19,938) ( 19,938)
Net loss for 2001, 2002 and 2003 - - - - - - -
--------- ----------- ----------- -------- --------- ---------- ----------
Balance at December 31, 2003 - - 20,465,197 $ 204,652 $3,189,656 $( 3,492,942) $( 98,634)
Net loss for 2004 - - - - - ( 7,936) ( 7,936)
--------- ----------- ---------- -------- --------- ---------- ----------
Balance at December 31, 2004 - - 20,465,197 $ 204,652 $3,189,656 $( 3,500,878) $( 106,570)
Issuance of common stock with
failed consideration returned
and cancelled - - ( 750,000) ( 7,500) 7,500 - -
Cancellation of Treasury Stock - - ( 42,876) ( 429) 429 - -
Net loss for 2005 - - - - - ( 48,946) ( 48,946)
--------- ----------- ----------- -------- --------- ---------- ----------
Balance at December 31, 2005 - - 19,672,321 $ 196,723 $3,197,585 $( 3,549,824) $( 155,516)
Issuance of common stock for debt
settlement at $.06 per share - - 64,000 640 3,200 3,840
Net income for 2006 - - - - - 52,990 52,990
--------- ----------- ----------- -------- --------- ---------- ----------
Balance at December 31, 2006 - - 19,736,321 $ 197,363 $3,200,785 $( 3,496,834) $( 98,686)
Issuance of subsidiary
preferred stock 65,000 6,500 - - 318,500 - 325,000
Issuance of common stock as partial
consideration under GHI, Ltd.
sale at $.40 per share - - 3,750 38 1,462 - 1,500
Common stock issued with failed
consideration cancelled - - (14,929,838) (149,298) 149,298 - -
Issuance of restricted common stock
awards to directors - - 847,223 8,472 - - 8,472
Net income for 2007 - - - - - 7,443 7,443
---------- ---------- ----------- -------- --------- ---------- ---------
Balance at December 31, 2007 65,000 $ 6,500 5,657,456 $ 56,575 $3,670,045 $( 3,489,391) $ 243,729
Issuance of subsidiary
preferred stock 10,000 1,000 - - 49,000 - 50,000
Common stock issued with failed
consideration cancelled - - ( 120,000) ( 1,200) 1,200 - -
Issuance of restricted common stock
awards and bonus - - 1,500,000 15,000 - - 15,000
Net income for 2008 - - - - - 109,335 109,335
---------- --------- ----------- -------- --------- ---------- ---------
Balance at December 31, 2008 75,000 $ 7,500 7,037,456 $ 70,375 $3,720,245 $( 3,380,056) $ 418,064
Issuance of subsidiary
preferred stock 19,500 1,950 - - 95,550 - 97,500
Issuance of restricted common stock
awards and bonus - - 1,450,000 14,500 - - 14,500
Net loss for 2009 - - - - - ( 70,868) ( 70,868)
---------- --------- ----------- -------- --------- ---------- ---------
Balance at December 31, 2009 94,500 $ 9,450 8,487,456 $ 84,875 $3,815,795 $( 3,450,924) $ 459,196
Issuance of subsidiary
preferred stock 5,000 500 - - 24,500 - 25,000
Issuance of restricted common stock
awards to directors - - 252,777 2,527 - - 2,527
Issuance of restricted common stock
for services - - 120,000 1,200 - - 1,200
Issuance of restricted common stock
for oil and gas interests, reduced
to related party basis - - 13,500,000 135,000 ( 125,100) - 9,900
Reduction to paid-in-capital for
difference between net profit interest
consideration and related party basis ( 86,054) - ( 86,054)
)
Net income for 2010 - - - - - 188,427 188,427
---------- --------- ----------- -------- --------- ---------- ---------
Balance at December 31, 2010 99,500 $ 9,950 22,360,233 $ 223,602 $3,629,141 $( 3,262,497) $ 600,196
========== ========= =========== ======== ========= ========== ==========
The accompanying notes are an integral part of the consolidated financial statements.
36
REGENT TECHNOLOGIES, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009
AND FOR THE PERIOD JANUARY 1, 1999
THROUGH DECEMBER 31, 2010
Cumulative
Since Re-entering
Development Stage
2010 2009 January 1, 1999
------------ ------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 188,427 ( 70,868) $ 85,502
Adjustments to reconcile net income (loss) to net
cash used in operating activities:
Depreciation 268 - 4,030
Gain (loss) from fair value measurement (204,525) - (307,726)
Change in fair value measurement 9,304 35,662 44,966
Gain from extinguishment of debt - - (145,340)
Gain from sale of investment ( 24,750) - (101,331)
Note issued for settlement expenses - - 20,000
Common stock issued for services 3,728 14,500 46,700
Common stock issued in legal settlement - - 14,000
Decrease in settlements and note receivable - - 4,800
Decrease in other assets - - 1,967
Increase in allowance for uncollectible settlements - - 79,892
(Increase) decrease in accounts receivable ( 2,046) - ( 2,046)
Increase (decrease) in accounts payable, trade 1,640 2,392 35,577
Increase (decrease) in accrued interest payable 453 ( 106) 25,455
--------- --------- ---------
Net Cash Used In Operating Activities ( 27,501) ( 18,420) (193,554)
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures for oil and gas interests ( 10,000) - ( 10,000)
Capital expenditures for equipment ( 1,656) - ( 1,656)
Investments - - (350,000)
Proceeds from sale of investments 39,600 - 139,600
--------- --------- ---------
Net Cash Provided By (Used In) Investing Activities 27,944 - (222,056)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from note payable - related party - 15,255 110,055
Proceeds from sale of Preferred Stock 25,000 27,500 427,500
Proceeds from note payable - stockholder - - 20,000
Repayments of notes payable ( 5,950) ( 19,925) (117,155)
--------- --------- ---------
Net Cash Provided By (Used In) Financing Activities 19,050 22,830 440,400
--------- --------- ---------
Net Increase (Decrease) in Cash 19,493 4,410 24,790
Cash At Beginning Of Period 5,297 887 -
--------- --------- ---------
Cash At End of Period $ 24,790 $ 5,297 $ 24,790
========= ========= =========
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES
--------------------------------------------------------------------
Issuance of common stock upon conversion
of notes payable $ - $ - $ 193,840
Common stock issued for oil and gas interests $ 135,000 $ - $ 135,000
Cancellation of note payable for oil and gas interests $( 70,000) $ - $( 70,000)
Note payable as partial consideration for oil and gas
interests $ 81,750 $ - $ 81,750
Oil and gas assets acquired $ 80,795 $ - $ 80,795
Asset retirement obligation $ 5,200 $ - $ 5,200
Note receivable as partial consideration for
purchase of preferred stock $ - $ 70,000 $ 70,000
Repayment of note payable transferred directly
to MacuCLEAR upon sale to GHI, Ltd. $ - $ - $( 150,000)
Partial sale of MacuCLEAR holdings to GHI, Ltd. $ - $ - $ 148,500
Issuance of common stock upon MacuCLEAR sale
to GHI, Ltd. $ - $ - $ 1,500
Common stock returned in failed consideration
and debt settlement $ - $ - $ 510,960
The accompanying notes are an integral part of the consolidated financial statements.
37
REGENT TECHNOLOGIES, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. ORGANIZATION AND NATURE OF OPERATIONS
Organization and Development Stage Activities
---------------------------------------------
Regent Technologies, Inc. (the "Company" or "Regent"), formerly Regent Petroleum
Corporation, was incorporated under the laws of the State of Colorado on January
18, 1980. During 1999, the Company's subsidiary companies were divested in the
ordinary course of business and effective January 1, 1999, the Company had re-
entered the development stage. Accordingly, all of the Company's operating
results and cash flows reported in the accompanying consolidated financial
statements from that date are considered to be those related to development
stage activities and represent the 'cumulative from inception' amounts from
its development stage activities reported pursuant to ASC No. 915, "Deve-
lopment Stage Activities" ("ASC 915") of the "Financial Accounting Standards
Codification ("Codification" or "ASC") and the Hierarchy of Generally Accepted
Accounting Principles."
Recent Events and Business Overview
-----------------------------------
During the first quarter of 2010, the Company's subsidiary entered into negotia-
tions for the sale of its ownership of MacuCLEAR, Inc. Preferred Stock. At that
time, our subsidiary discontinued involvement with the operations of MacuCLEAR,
Inc. and discussions with acquisition candidates for the Company were initiated.
On May 4, 2010, we entered into a stock purchase agreement with Healthcare of
Today, Inc. for the sale of our MacuCLEAR holdings. The scheduled closing for
June 30, 2010 was delayed by the purchaser and the agreement was terminated on
September 24, 2010.
Beginning in the third quarter, the Company restructured its management team and
refocused its core business objectives and strategy. The Company's subsidiary
was approved for a name change on September 30, 2010 to Regent Natural Resources
Co. ("Regent NRCo"). We operate through two business divisions, the Energy Tech-
nology Division and the Natural Resources Division. Regent NRCo is a Texas based
independent exploration and production company engaged in the acquisition and
development of producing oil and natural gas properties. During the third and
fourth quarters of 2010, the Company's subsidiary acquired oil and gas assets,
consisting of both producing and proven undeveloped reserves (see Note 5).
Note 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
---------------------
The consolidated financial statements contained in this Annual Report were
prepared in accordance with accounting principles generally accepted in the
United States of America ("GAAP") for all periods presented. The preparation of
our financial statements requires management to make estimates and assumptions
that affect the reported amounts of assets, liabilities, revenues and expenses.
These estimates are based on information that is currently available to us and
on various other assumptions that we believe to be reasonable under the known
circumstances. Actual results could differ from those estimates under different
assumptions and conditions. Significant estimates are required for proved oil
and gas reserves which, as described in Note 2 - Estimates of Oil and Gas Proved
Reserves, may have a material impact on the carrying value of the Company's oil
and gas property.
38
Significant accounting policies are defined as those accounting policies which
are most critical to the understanding of a company's financial condition and
results of operation. We consider an accounting estimate or judgment to be cri-
tical if (i) it requires assumptions to be made that were uncertain at the time
the estimate was made, and (ii) changes in the estimate or different estimates
that could have been selected and could have a material impact on our results of
operations or financial condition.
A summary of the significant accounting policies consistently applied by the
Company in preparation of the accompanying consolidated financial statements
follows:
Consolidation Principles
------------------------
The consolidated financial statements have been prepared in accordance with US
generally accepted accounting principles for all periods presented and include
the accounts of the Company and its subsidiary. All significant intercompany
accounts and transactions have been eliminated in consolidation.
Fiscal Year
-----------
The Company's fiscal year ends on December 31. All references to 2010 and 2009
mean the fiscal years ended December 31, 2010 and 2009 unless the context
otherwise indicates.
Cash in Bank
------------
Cash equivalents consist of short-term, highly liquid investments that have an
original maturity of ninety days or less and are readily convertible into cash.
Use of Estimates
----------------
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of contin-
gent assets and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period. Signifi-
cant estimates include: estimated fair value of our investment in MacuCLEAR;
estimates of proved reserves as key components of the Company's depletion rate
for oil properties; and calculating asset retirement obligations. Because there
are numerous uncertainties inherent in the estimation process, actual results
could differ materially from these estimates.
Dependence on Oil and Gas Prices
--------------------------------
Under our business plans as an independent oil and gas producer, our revenue,
profitability and future rate of growth are substantially dependent on prevail-
ing prices for oil and gas. Historically, the energy markets have been very
volatile, and there can be no assurance that oil and gas prices will not be sub-
ject to wide fluctuations in the future. A substantial or extended decline in
oil or gas prices could have material adverse effects on our financial position,
results of operations, cash flows and access to capital and on the quantities of
oil and gas reserves that we can economically produce.
39
Oil and Gas Properties
----------------------
The Company follows the full-cost method of accounting under which all costs
associated with property acquisition, exploration and development activities are
capitalized. We capitalize internal costs that can be directly identified with
our acquisition, exploration and development activities and do not include any
costs related to production, general corporate overhead or similar activities.
Capitalized costs are amortized on a composite unit-of-production method based
on proved oil and gas reserves. Estimates of our proved reserves as of December
31, 2010 were prepared by a third party engineering firm.
Proceeds from the sale of properties are accounted for as reductions of capita-
lized costs unless such sales involve a significant change in the relationship
between costs and the value of proved reserves or the underlying value of
unproved properties, in which case a gain or loss is recognized. The costs of
unproved properties are excluded from amortization until the properties are
evaluated. We review all of our unevaluated properties quarterly to determine
whether or not and to what extent proved reserves have been assigned to the
properties and otherwise if impairment has occurred. Unevaluated properties are
grouped by major prospect area where individual property costs are not signifi-
cant and are assessed individually when individual costs are significant. We
review the carrying value of our properties under the full-cost accounting rules
of the Securities and Exchange Commission on a quarterly basis. This quarterly
review is referred to as a ceiling test. Under the ceiling test, capitalized
costs, less accumulated amortization and related deferred income taxes, may not
exceed an amount equal to the sum of the present value of estimated future net
revenues (adjusted for cash flow hedges) less estimated future expenditures to
be incurred in developing and producing the proved reserves, less any related
income tax effects.
In calculating future net revenues, current prices are calculated as the average
prices during the preceding 12-month period prior to the end of the current
period, determined as the un-weighted arithmatic average of prices on the
first day of each month within the 12-month period and costs used are those as
of the end of the appropriate quarterly period. Such prices are utilized except
where different prices are fixed and determinable from applicable contracts for
the remaining term of those contracts, including the effects of derivatives
qualifying as cash flow hedges. Two primary factors impacting the ceiling test
are reserve levels and oil and gas prices, and their associated impact on the
present value of estimated future net revenues. Revisions to estimates of oil
and gas reserves and/or an increase or decrease in prices can have a material
impact on the present value of estimated future net revenues. Any excess of the
net book value, less deferred income taxes, is generally written off as an
expense. We account for all exploration costs (including seismic) in accordance
with Regulation S-X. Specifically, Rule 4-10 requires all companies that use the
full-cost method to capitalize exploration costs as part of their oil and gas
properties (i.e., the full-cost pool). Exploration costs may be incurred both
before acquiring the related property and after acquiring the property. Further,
these costs include, among other things, geological and geophysical studies and
salaries and other expenses of geologists, geophysical crews and others conduct-
ing those studies. Such costs are capitalized as incurred. Seismic costs
directly associated with the acquisition and evaluation of unproved properties
are excluded from the amortization computation until it is determined whether or
not proved reserves can be assigned to the properties. The Company reviews its
unproved properties and associated seismic costs quarterly in order to ascertain
whether impairment has occurred. To the extent that seismic costs cannot be
directly associated with specific unevaluated properties, they are included in
the amortization base as incurred.
40
Estimates of Proved Oil and Gas Reserves
----------------------------------------
Estimates of oil and gas reserves, by necessity, are projections based on geolo-
gic and engineering data, and there are uncertainties inherent in the interpre-
tation of such data as well as the projection of future rates of production and
the timing of development expenditures. Reserve engineering is a subjective pro-
cess of estimating underground accumulations of oil and gas that are difficult
to measure. The accuracy of any reserve estimate is a function of the quality of
available data, engineering and geological interpretation and judgment. Esti-
mates of economically recoverable oil and natural gas reserves and future net
cash flows necessarily depend upon a number of variable factors and assumptions,
such as historical production from the area compared with production from other
producing areas, the assumed effects of regulations by governmental agencies and
assumptions governing future oil and natural gas prices, future operating costs,
severance taxes, development costs and workover costs, all of which may in fact
vary considerably from actual results. For these reasons, estimates of the eco-
nominally recoverable quantities of oil and natural gas attributable to any par-
ticular group of properties, classifications of such reserves based on risk of
recovery, and estimates of the future net cash flows expected therefrom may
vary substantially. Any significant variance in the assumptions could materially
affect the estimated quantity and value of the reserves, which could affect the
carrying value of oil and gas properties and/or the rate of depletion of the oil
and gas properties. Actual production, revenues and expenditures with respect to
our reserves will likely vary from estimates and such variances may be material.
Revenue Recognition
-------------------
Revenues associated with sales of crude oil, natural gas, natural gas liquids
and petroleum products, and other items are recognized when title passes to the
customer, which is when the risk of ownership passes to the purchaser and physi-
cal delivery of goods occurs, either immediately or within a fixed delivery
schedule that is reasonable and customary in the industry. Regent NRCo's net
profit production interest is accrued monthly as reported by the operator.
Accounts Receivable
-------------------
We recognize revenue for our production when the quantities are delivered to or
collected by the respective purchaser. Prices for such production are defined in
sales contracts and are readily determinable based on certain publicly available
indices. All transportation costs are included in marketing expense. Accrued
revenue is reported under accounts receivable.
Impairment
----------
We review the carrying value of our long-lived assets whenever events or changes
in circumstances indicate that such carrying values may not be recoverable. If,
upon review, the sum of the undiscounted pretax cash flows is less than the
carrying value of the asset group, the carrying value is written down to esti-
mated fair value. Individual assets are grouped for impairment purposes at the
lowest level for which there are identifiable cash flows that are largely inde-
pendent of the cash flows of other groups of assets, generally on a field-by-
field basis. The fair value of impaired assets is determined based on quoted
market prices in active markets, if available, or upon the present values of
expected future cash flows using discount rates commensurate with the risks
involved in the asset group. The long-lived assets of the Company, which are
subject to periodic evaluation, consist primarily of oil and gas properties
and undeveloped leaseholds.
41
Furniture and Equipment
-----------------------
Furniture and equipment are stated at cost. Depreciation and amortization is
provided using the straight-line method over estimated useful lives ranging
from 3 to 5 years for office furniture and other equipment.
Asset Retirement Obligation
---------------------------
Our asset retirement obligation primarily represents the estimated present value
of the amount we will incur to plug, abandon and remediate our producing proper-
ties at the end of their productive lives, in accordance with federal, state and
local laws. We account for asset retirement obligations based on the guidance of
ASC No. 410, "Asset Retirement and Environmental Obligations" ("ASC 410"), which
addresses the required accounting and reporting for obligations associated with
the retirement of tangible long-lived assets and the associated asset retirement
costs. ASC 410 requires that the fair value of an asset's retirement obligation
be recorded as a liability in the period in which it is incurred and the corre-
sponding cost capitalized by increasing the carrying amount of the related long-
lived asset. We determined our asset retirement obligation by calculating the
present value of estimated cash flows related to the liability. The retirement
obligation is recorded as a liability at its estimated present value as of the
asset's inception, with an offsetting increase to proved properties. Periodic
accretion of discount of the estimated liability is treated as accretion expense
in the consolidated statements of operations.
Income Taxes
------------
Deferred tax assets and liabilities are determined based on differences between
financial reporting and tax bases of assets and liabilities, and are measured by
using currently enacted tax rates expected to apply to taxable income in the
years in which those differences are expected to reverse.
Fair Value of Financial Instruments
-----------------------------------
In accordance with the requirements of ASC No. 820, "Fair Value Measurements
and Disclosures" ("ASC 820"), the Company calculates the fair value of its
assets and liabilities which qualify as financial instruments under ASC 820 and
includes this additional information in the notes to the financial statements
when the fair value is different than the carrying value of those financial
instruments. The estimated fair value of cash and accounts payable approximate
their carrying value due to the short term nature of these instruments. The
carrying value of the notes payable and note receivable also approximate fair
value based on the terms of these instruments. The carrying value of our invest-
ment in MacuCLEAR Preferred Stock receives Level 3 Fair Value Measurement under
ASC 820. None of these financial instruments are held for trading purposes (see
Note 6).
42
Stock-Based Compensation
------------------------
We account for equity based compensation under the provisions of ASC No. 718,
"Compensation - Stock Compensation" ("ASC 718"). ASC 718 requires the recogni-
tion of the fair value of equity-based compensation in operations. The fair
value of our stock option awards are estimated using a Black-Scholes option
valuation model. This model requires the input of subjective assumptions and
elections including expected stock price volatility and the estimated life of
each award. In addition, the calculation of equity-based compensation costs
requires that we estimate the number of awards that will be forfeited during
the vesting period. The fair value of equity-based awards is amortized over the
vesting period of the award and we elected to use the straight-line method for
awards granted after the adoption of ASC 718 with no forfeitures.
Earnings (Loss) per Share
-------------------------
Earnings (loss) per common share is calculated under the provisions of ASC
No. 260, "Earnings per Share" ("ASC 260"), which requires the Company to report
both basic earnings per share, which is based on the weighted-average number
of common shares outstanding, and diluted earnings per share, which is based
on the weighted-average number of the common shares outstanding plus all
potentially dilutive shares outstanding. At December 31, 2010 and 2009, there
are no exercisable common stock equivalents. Accordingly, no common stock
equivalents are included in the earnings per share calculations and basic
and diluted earnings per share are the same for all periods presented.
Recently Issued Accounting Pronouncements
-----------------------------------------
FASB Accounting Standards Update ("ASU") 2010-03 was issued in January 2010,
and aligns the current oil and natural gas reserve estimation and disclosure
requirements of ASC Topic 932 with those in the SEC Final Rule Modernization of
Oil and Gas Reporting issued December 31, 2008. Specifically, ASU No. 2010-03
(1) introduces additional terms and re-defines others, (2) expands the defini-
tion of the term oil and gas producing activities, (3) requires a reporting en-
tity to take into account its equity method investments in determining whether
it engages in significant oil and gas producing activities, (4) requires that an
unweighted average of prices for the previous twelve (12) months to be used to
determine whether proved reserves are economically producible, and (5) requires
separate disclosure of information for reserve quantities and financial state-
ment amounts for geographic areas representing 15% or more of proved reserves.
ASU No.2010-03 is effective for entities with annual reporting periods ending
on or after December 31, 2009. The Company adopted both the FASB and SEC rules
as of December 31, 2010.
In January 2010, the FASB issued ASC 2010-06, "Improving Disclosures about Fair
Value Measurements" ("ASC 820-10"). These disclosures require entities to sepa-
rately disclose amounts of significant transfers in and out of Level 1 and Level
2 fair value measurements and the reasons for the transfers. In addition, in the
reconciliation for fair value measurements for Level 3, entities should present
separate information about purchases, sales, issuances, and settlements. This
guidance is effective for interim and annual reporting periods beginning after
December 15, 2009, except for the disclosures about purchases, sales, issuances
and settlements in the roll forward of activity in Level 3 fair value measure-
ments. Those disclosures are effective for fiscal years beginning after December
15, 2010 and for interim periods within those fiscal years. Our adoption of the
disclosures, excluding the Level 3 activity disclosures, did not have a material
impact on our notes to the consolidated financial statements (see Note 6).
43
In February 2010, the FASB issued ASC 2010-09, "Amendments to Certain Recogni-
tion and Disclosure Requirements," related to subsequent events under ASC 855,
Subsequent Events. This guidance states that if an entity is an SEC filer,
it is required to evaluate subsequent events for disclosure through the date
that the financial statements are issued. The Company adopted this guidance as
of February 2010.
Note 3. GOING CONCERN UNCERTAINTIES
As of the date of this 2010 annual report, there is substantial doubt regarding
our ability to continue as a going concern as we have not generated sufficient
cash flow to fund our business operations and material commitments. Our future
success and viability, therefore, are dependent upon our ability to generate
capital financing. We are optimistic that we will be successful in our new
business operations and capital raising efforts; however, there can be no
assurance that we will be successful in generating revenue or raising additional
capital. The failure to generate sufficient revenues or raise additional capital
may have a material and adverse effect upon the Company and our shareholders.
These consolidated financial statements do not give effect to any adjustments
which would be necessary should the Company be unable to continue as a going
concern and therefore be required to realize its assets and discharge its
liabilities in other than the normal course of business and at amounts different
from those reflected in the accompanying consolidated financial statements.
Note 4. PROPERTY AND EQUIPMENT
Property and equipment, net are comprised of the following for the periods ended
December 31, 2010 and 2009.
2010 2009
-------------- ---------------
Unproved Oil and Gas Properties (1) 3,080 -
Proved Oil and Gas Properties (1) (2) 82,020 -
Net Profits Production Interest (1) 5,695 -
Furniture and Equipment 12,649 10,993
--------------- ---------------
103,444 10,993
Accumulated Depreciation, Depletion ( 11,261) ( 10,993)
and Amortization --------------- ---------------
$ 92,183 -
=============== ===============
(1) Because the oil and gas assets and the net profits interest were acquired
from related parties (Note 12), the properties were recorded at the the basis of
the related parties in the amount of $85,595 as the capitalized costs.
(2) The capitalized costs include $5,200 for asset retirement obligation.
44
Note 5. ACQUISITIONS
Oil and Gas Properties
----------------------
On September 29, 2010, Signature Investor Group, LC dba SIG Partners ("SIG"), a
related party of the CEO of the Company, executed a property transfer agreement
for the conveyance of certain oil and gas interests to the Company's subsidiary,
Regent Natural Resources Co. ("Regent RNCo"). The assignments under the agree-
ment conveyed a 100% working interest and 75% net revenue interest in proved
undeveloped oil and gas reserves located in Hill County, Texas under the opera-
tion of SIG. In connection with the acquisition, the Registrant issued new
shares of restricted common stock in the amount of 13,500,000 shares and granted
forgiveness of a $70,000 note receivable from Mr. Nelson. The oil and gas pro-
perties were recorded at the basis of SIG at $79,900 plus $5,200 for the
abandonment obligation. SIG has the right to take back certain leasehold rights
for failure to satisfy development commitments under the agreement for 2011 (see
Note 13).
Net Profits Production Interest
-------------------------------
On December 30, 2010, Regent NRCo acquired a 50% net profits production interest
("NPI") from SIG with an effective date of December 1, 2010. The NPI covers
leaseholds that are operated by SIG. Regent NRCo does not participate in the
additional expenses of the property including liability for asset retirement
costs. The acquisition covers the net profits from proved developed reserves in
Hill County, Texas. The engineered estimated reserves to our NPI interest is
approximately 9,000 barrels of oil. The consideration was $91,750 with $10,000
paid at closing and the balance paid under a promissory note (see Note 8). The
acquisition of the NPI has provided our initial revenue from oil and gas produc-
tion in the amount of $2,046 reported for the month of December 2010. The NPI
was recorded at the basis of SIG at $5,695. The promissory note is secured by
the interest conveyed. The purchase agreement includes an option for the subsi-
diary to acquire operations and the related equipment and disposal well for the
market value of the tangible equipment of the operations. The option expires at
the final payment of the promissory note.
Note 6. FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company has adopted ASC 820 which defines fair value and the framework for
using fair value to measure assets and liabilities, and expands disclosures
about fair value measurements. The statement applies whenever other statements
require or permit assets or liabilities to be measured at fair value. ASC 820
established the following fair value hierarchy that prioritizes the inputs used
to measure fair value:
o Level 1 -- Unadjusted quoted prices in active markets for identical,
unrestricted assets or liabilities that are accessible at the
measurement date;
o Level 2 -- Quoted prices which are not active, or inputs that are
observable (either directly or indirectly) for substantially the full
term of the asset or liability; and
o Level 3 -- Significant unobservable inputs that reflect the Company's
own assumptions about the assumptions that market participants would
use in pricing an asset or liability.
45
The Company is responsible for the valuation process and as part of this process
may use data from outside sources in establishing fair value. The Company
performs due diligence to understand the inputs used or how the data was
calculated or derived. The Company corroborates the reasonableness of external
inputs in the valuation process. Cash, accounts payable, and other current lia-
bilities are carried at book value amounts which approximate fair value to the
short-term maturity of these instruments.
We used the following fair value measurements for certain of our assets and lia-
bilities during the years ended December 31, 2010 and 2009:
Level 3 Classification: MacuCLEAR Preferred Stock
--------------------------------------------------
As of December 31, 2010, the Company's subsidiary, Regent NRCo, held 123,128
shares of MacuCLEAR Preferred Stock, of which 95,858 shares are beneficially
held for the holders of subsidiary Preferred Stock. Under the process defined
for Level 3 assets, the Company has determined the fair value for the MacuCLEAR
Preferred Stock held directly changed to $12.00 per share at December 31, 2010
based on new sales of MacuCLEAR Series A-1 Preferred Stock for $12.00 per share
during October 2010. The Series A-1 Preferred Stock has the same designations
as the Series A Preferred Stock held by the Company. The Company's beneficial
holdings have not been increased beyond the original cost of $2.595 per share.
The following tables present the fair value measurement of the holdings of Macu-
CLEAR Preferred Stock, beneficial and direct, as of December 31, 2010 and 2009:
Fair Value Measurements Using
--------------------------------------
December 31, 2010 Level 1 Level 2 Level 3
----------------- ----------- ---------- -----------
MacuCLEAR Preferred Stock at fair value ........... $ - $ - $ 575,992
December 31, 2009
-----------------
MacuCLEAR Preferred Stock at fair value ........... $ - $ - $ 395,621
Due to the sale in January 2010 of 5,000 shares of subsidiary preferred stock,
the number of shares beneficially owned by the Company was reduced from 35,454
to 30,570. As a result of our reduced ownership, the amount of $9,304 was a
transfer out of the Level 3 valuation for the first quarter and was treated as
a net loss for this annual period. During December 2010, the Company converted
3,300 shares of MacuCLEAR Preferred Stock to MacuCLEAR common stock which was
sold to a related party for $12.00 per share resulting in a realized gain of
$24,750.
The following table sets forth a reconciliation of changes in the fair value of
the financial assets attributable to the subsidiary's direct ownership of Macu-
CLEAR Preferred Stock classified as Level 3 in the fair value hierarchy for the
twelve months ended December 31, 2010 and 2009:
46
2010 2009
--------------- ---------------
Balance at beginning of period $ 395,621 $ 431,283
Realized gain/(loss) 24,750 -
Change in unrealized
appreciation/(depreciation) 204,525 -
Net purchase/sales ( 39,600) -
Net transfers in and/or out of Level 3 ( 9,304) $ ( 35,662)
-------------- ---------------
Balance at end of period $ 575,992 $ 395,621
============== ===============
Note 7. ASSET RETIREMENT OBLIGATIONS
The Company accounts for asset retirement obligations based on the guidance of
ASC 410 which addresses accounting and reporting for obligations associated with
the retirement of tangible long-lived assets and the associated asset retirement
costs. ASC 410 requires that the fair value of a liability for a retirement ob-
ligation be recorded in the period in which it is incurred and the corresponding
cost capitalized by increasing the carrying amount of the related long-lived
asset. The liability is accreted to its then present value each period, and the
capitalized cost is depreciated over the estimated useful life of the related
asset. We have included estimated future costs of abandonment and dismantlement
in our amortization base and amortize these costs as a component of our depreci-
ation, depletion, and accretion expense. The amount of $5,200 was estimated as
the retirement obligation associated with the oil and gas property transfer on
September 29, 2010. There is no retirement obligation under the ownership of the
net profits production interest.
Note 8. NOTES PAYABLE
Pursuant to the net profits production interest acquisition in December 2010,
Regent NRCo executed a promissory note for $81,750 payable to SIG Partners, LC,
a related party. The interest rate on the note is 7% with principal payments of
$3,400 per month due beginning February 2011. As of the filing of this report,
the payments for February and March 2011 have been paid as scheduled. The pro-
missory note is secured by the interest conveyed.
As of December 31, 2010, the Company owes $2,900 principal plus interest to NR
Partners, a related party. The demand promissory note bears interest at a rate
of 8.5% per annum. All amounts due to NR Partners were paid during January 2011.
Note 9. STOCK-BASED COMPENSATION
In December 2007, Regent entered into restricted common stock award agreements
with its directors under which it may be required to issue up to 2,000,000
shares of common stock, 500,000 shares to four directors. The restricted stock
awards vested over 36 months from the date of first service as a Director which
resulted in the grant of 500,000 shares to the President in 2007 and the same
amount to the remaining Directors through 2010. We have valued all grants at par
value for book purposes and market value for tax purposes. We elected not to use
market value for book purposes since the market value was less than par. In
addition, for the periods ended 2009 and 2008, the President was awarded stock
grant awards for merit at 1,000,000 restricted common shares each year. During
2010, we granted 120,000 restricted common shares for accounting services to a
third party. The Company recognized the amounts of $3,727 and $14,500 as stock-
based compensation expense for the fiscal periods ended 2010 and 2009, respec-
tively, all recorded at the par value of the amount of stock issued.
47
Note 10. CAPITAL STRUCTURE DISCLOSURES
Common and Preferred Stock
--------------------------
The Company's capital structure is complex and consists of preferred stock and
a general class of common stock. The Company is authorized to issue 130,000,000
shares of stock, of which 30,000,000 have been designated as preferred shares
with a par value per share of $.10, and 100,000,000 have been designated as
common shares with a par value per share of $.01. As of the date of this filing,
there is no preferred stock outstanding and there are 22,360,233 shares of com-
mon stock outstanding. This compares to 8,847,456 shares for the same period in
2009 with the difference due to the 13,500,000 shares of common shares issued
under the Transfer Agreement (see Note 12) and the stock issuances under stock-
based compensation (see Note 9).
Holders of Regent's common stock are entitled to one vote for each share on all
matters submitted to a stockholder vote. Holders of common stock do not have
cumulative voting rights. Therefore, holders of a majority of the shares of
common stock voting for the election of directors can elect all of the direc-
tors. Holders of the Regent's common stock representing a majority of the vot-
ing power of Regent's capital stock issued, outstanding and entitled to vote,
represented in person or by proxy, are necessary to constitute a quorum at any
meeting of stockholders. A vote by the holders of a majority of Regent's out-
standing shares is required to effectuate certain fundamental corporate changes
such as liquidation, merger or an amendment to Regent's articles of incorpo-
ration.
Holders of Regent's common stock are entitled to share in all dividends that
the board of directors, in its discretion, declares from legally available
funds. In the event of liquidation, dissolution or winding up, each outstand-
ing share entitles its holder to participate pro rata in all assets that remain
after payment of liabilities and after providing for each class of stock, if
any, having preference over the common stock. Regent's common stock has no
pre-emptive rights, no conversion rights and there are no redemption provisions
applicable to the Regent's common stock.
Stock Options
-------------
No options, warrants or similar rights are outstanding as of this report date.
Subsidiary Preferred Stock
--------------------------
On April 18, 2007, our subsidiary accepted purchase agreements in a total amount
of $150,000 received from four purchasers of a private offering of shares of
of Series A Convertible Preferred Stock at $5.00 per share. The stock was sold
under a private placement offering to sell $50,000 units convertible into 10,000
shares of common stock of the subsidiary plus 4,800 shares of common stock of
MacuCLEAR common stock. Including the initial sales, our subsidiary has accepted
purchase agreements from additional investors for $497,500. If all of the uncon-
verted shares of the Series A Preferred Stock were to be converted to common
stock of the subsidiary, the Company's ownership of the subsidiary would be di-
luted to approximately 90%.
48
Note 11. INCOME TAXES
The Company recognizes deferred tax assets and liabilities based on estimated
future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases. In addition, future tax benefits, such as those from net
operating loss carry forwards, are recognized to the extent that realization of
such benefits is more likely than not. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a change in tax
rates is recognized in income in the period that includes the enactment date. At
December 31, 2010 the Company had a deferred tax asset totaling approximately
$330,000, which relates to the Company's cumulative net operating loss carry
forward totaling approximately $967,280 which will expire through 2030. This
deferred tax asset has been fully offset by a valuation reserve. The Company
does not have any other deferred tax assets or liabilities.
The Tax Reform Act of 1986 imposed substantial restrictions of the utilization
of net operating loss and tax credit carry forwards in the event of an
"ownership change" as defined by the Section 382 of the Internal Revenue Code of
1986. If the Company has an "ownership change" as defined by the Internal Reve-
nue Code of 1986, the Company's ability to utilize the net operating losses
could be reduced.
A reconciliation of income tax expense at the statutory federal rate of 34% to
income tax expense at the Company's effective tax rate for the years ended
December 31, 2010 and 2009 and for the period January 1, 1999 through December
31, 2010 is as follows:
Year Ended Year Ended
12/31/10 12/31/09
---------------- -----------------
Tax benefit (expense) computed
at statutory rate $ ( 64,065) $ 24,095
State income taxes -
Expiration of NOL Carryforward ( 17,935) ( 25,648)
Increase (decrease) in valuation allowance 82,000 1,553
---------------- ----------------
$ - $ -
================ ================
The Company uses the accrual method of accounting for income tax reporting
purposes. At December 31, 2010, the significant components of the Company's
deferred tax assets (benefits) and liabilities are summarized as follows:
Year Ended Year Ended
12/31/10 12/31/09
---------------- ----------------
Deferred tax assets:
Net operating loss carry forward $ 333,243 $ 350,009
Less valuation allowance (245,046) (327,046)
---------------- ----------------
88,197 22,963
Deferred tax liabilities:
Unrealized gain on investments 88,197 22,963
---------------- ----------------
Net deferred tax assets $ - $ -
================ ================
49
Note 12. RELATED PARTY TRANSACTIONS
Property Acquisitions
---------------------
On September 29, 2010, Regent RNCo executed a Property Transfer Agreement with
Signature Investor Group, LC ("SIG") and Mr. Nelson, Chairman of the Registrant
(see Note 5). The consideration for the transfer of oil and gas interests was
the forgiveness of a $70,000 note payable and 13,500,000 shares of restricted
common stock of the Company. After the consummation of the agreement, Mr. Nelson
controlled approximately 80% of the outstanding common stock of the Registrant.
On December 30, 2010, Regent RNCo purchased a 50% net profits interest from SIG
Partners, a related party of Mr. Nelson, in producing leaseholds located in Hill
County, Texas. The consideration was $91,750, with $10,000 paid upon execution
and the balance payable under a promissory note for $81,750.
Stock Sales
-----------
During December 2009, the Company's subsidiary sold 15,000 shares of its Series
Preferred Stock to Mr. Nelson for $5.00 per share. The acquisition required a
payment of $5,000 plus the execution of a promissory note in the amount of
$70,000, which was forgiven as partial consideration.
During January 2010, the Company's subsidiary completed the sale of 5,000 shares
of its Series Preferred Stock for $5.00 per share to the spouse of Mr. Nelson.
During December 2010, the Company's subsidiary sold 3,300 shares of MacuCLEAR
common stock to the spouse of Mr. Nelson at $12.00 per share. The sale followed
the conversion of 3,300 shares of MacuCLEAR Preferred Stock to common stock to
facilitate the sale under the designations for the MacuCLEAR Preferred Stock.
Notes Payable
-------------
Beginning in 2005, the Company borrowed various amounts for general corporate
purposes under a note payable to NR Partners, a partnership comprised of Mr.
Nelson as a partner and director Dr. David Ramsour as a partner. The total NR
Partners amount due and payable totaled $2,900, $8,850 and $13,520 for the year
ended December 31, 2010, 2009 and 2008, respectively. The promissory note is a
demand note and pays interest at 8.5% per annum. As of the date of this filing,
all amounts due to NR Partners have been paid.
In connection with the net profits production interest acquisition in December
2010, the Company's subsidiary executed a promissory note for $81,750 to SIG
Partners, LC. The interest rate on the note is 7% with principal payments of
$3,400 per month beginning February 2011. The promissory note is secured by the
interest conveyed. As of the date of this filing, the monthly payments have
been paid when due.
50
Note 13. COMMITMENTS AND CONTINGENCIES
On August 14, 2010, the Company entered into a rights agreement with Epi-Cloyd,
Ltd. and Epi-Energy, Ltd. (E-C) for the exclusive rights to develop an E-C Gear-
box for the valve actuator and wind energy applications. Following a period of
eight months for the development of a gearbox prototype, we have the option to
enter into a licensee agreement for exclusive rights for the valve actuator and
wind energy generation fields of use. Upon entering into the license agreement,
Regent will pay a minimum royalty payment of $12,500 per quarter for the first
twelve months and $25,000 per quarter thereafter. If the Company exercises its
option, the first payment for $12,500 will be due in July 2011.
The capital commitments to undertake the drilling activities necessary to ful-
fill the development of the proved undeveloped reserves required to maintain the
acquired mineral leaseholds were assessed and estimated by management to be in
the range of $25,000 for 2011 and $175,000 for 2012. Unless we are able to raise
sufficient capital, we will not be able to meet our leasehold obligations and
may not be able to continue as a going concern.
There is no known or pending litigation.
Note 14. OTHER INFORMATION
Supplemental Oil and Gas Reserve Disclosures (Unaudited)
--------------------------------------------------------
The following table sets forth the costs incurred in oil and gas property
acquisition, exploration and development activities:
Year Ended
12/31/10
------------
Purchase of non-producing leases (1) $ 79,900
Purchase of producing properties (2) 91,750
Exploration costs -
Development costs -
Asset retirement obligation 5,200
------------
$ 176,850
============
(1) This amount does not include a cost figure for the 13,500,000 shares of new
restricted common stock issued as
(2) This amount does not reflect the reduced book value of $5,695 due to the
basis of the related party.
Oil and Gas Reserve Information
-------------------------------
The Company's net proved oil and natural gas reserves as of December 31, 2010
have been estimated by RCM Engineering Inc. of Dallas, Texas. All estimates are
in accordance with guidelines established by the SEC. The following reserve
estimates were based on existing economic and operating conditions and only
represent estimates that should not be construed as being exact:
51
Changes in Estimated Quantities of Proved Oil and Gas Reserves (Unaudited):
---------------------------------------------------------------------------
Crude Oil Natural Gas
Bbls Mcf
------------ ------------
Quantities of Proved Reserves:
------------------------------
Balance December 31, 2009 - -
Sales of reserves in place - -
Acquired properties 70,446 -
Extensions and discoveries - -
Revisions of previous estimates - -
Production ( 51) -
------------ ------------
Balance December 31, 2010 70,395 -
============ ============
Proved Developed Reserves, Included Above:
------------------------------------------
Balance December 31, 2010 8,865 -
============ ============
Standardized Measure of Discounted Future Net Cash Flows Relating to Proved
Reserves (Unaudited):
---------------------------------------------------------------------------
The Standardized Measure of Discounted Future Net Cash Flows and Changes There-
in Relating to Proved Oil and Gas Reserves ("Standardized Measures") does not
purport to present the fair market value of a company's oil and gas properties.
An estimate of such value should consider, among other factors, anticipated oil
and gas future prices, the probability of recoveries in excess of the existing
proved reserves, the value of probable reserves and acreage prospects, and per-
haps different discount rates. It should be noted that estimates of reserve
quantities, especially from new discoveries, are inherently imprecise and sub-
ject to substantial revision.
The standardized measure of discounted future net cash flows relating to proved
oil and natural gas reserves and the changes in the standardized measure of dis-
counted future net cash flows relating to proved oil and natural gas reserves
were determined in accordance with the then current provisions of ASC 932. The
estimates of the reserves in the tables below conform to the guidelines of the
SEC. These calculations were prepared using standard geological and engineer-
ing methods generally accepted by the petroleum industry. The reserve informa-
mation shown is estimated. The certainty of any reserve estimate is a function
of the quality of available geological, geophysical, engineering and economic
data, and the precision of the engineering and geological interpretation and
judgment. The estimates of reserves, future cash flows and present value are
based on various assumptions, and are inherently imprecise. Although we believe
these estimates are reasonable, actual future production, cash flows, taxes,
development expenditures, operating expenses and quantities of recoverable oil
and natural gas reserves may vary substantially from these estimates.
The dollar amount is the net present value as discounted at 10% per annum of the
estimated future cash flows before income tax of our estimated proved reserves.
52
The estimated future cash flows above were determined by using the reserve
quantities of proved reserves and the periods in which they are expected to be
developed and produced based on prevailing economic conditions. The estimated
future production is priced based on the 12-month unweighted arithmatic average
of the first-day-of-the-month price for the period from January through December
2010, as adjusted by lease for transportation fees and regional price differen-
tials. Future income tax expenses are calculated by applying appropriate year-
end tax rates to future pretax net cash flows relating to proved oil and natural
gas reserves, less the tax basis of properties involved. The future income tax
costs give effect to permanent differences, tax credits and loss carryforwards
relating to the proved oil and natural gas reserves. Management believes that
the presentation of the PV-10 non-GAAP financial measure provides useful infor-
mation to investors because it is widely used by professional analysts and in
evaluating oil and natural gas companies.
The standardized measure of discounted future net cash flows relating to proved
reserves are as follows:
Year Ended
12/31/10
------------
Future production revenue $ 4,639,000
Future development costs ( 203,000)
Future production costs ( 826,000)
------------
Future net cash flow before
Federal income tax 3,610,000
Future income taxes ( 618,000)
------------
Future net cash flows 2,992,000
Effect of 10% annual discounting ( 1,275,000)
------------
Standardized measure of
Discounted net cash flows $ 1,717,000
============
The changes in standardized measure of discounted future net cash flows relating
to proved reserves are as follows:
Year Ended
12/31/10
------------
Beginning of the year $ -
Oil and gas sales, net of
production costs ( 2,000)
Sales of reserves in place -
Net change in prices, net of
production costs -
Extensions, discoveries and additions 1,719,000
Changes in production rates,
timing and other -
Revisions of quantity estimate -
Effect of income tax -
Accretion of discount -
------------
End of year $ 1,717,000
============
The commodity price for oil was $71.58 per barrel inclusive of adjustments for
quality and location used in determining future net revenues related to the
standardized measure calculation.
53
Item 9. Changes in and Disagreements with Accountants on Accounting and
------- ---------------------------------------------------------------
Financial Disclosure
--------------------
None
Item 9A. Controls and Procedures
-------- -----------------------
Evaluation of Disclosure Controls and Procedures
------------------------------------------------
Regent is a development stage company with nominal revenues and during the per-
iod covered by this annual report, our senior management had responsibility for
our internal controls and procedures over our financial reporting. Regent's
senior management, has evaluated the effectiveness of the Company's disclosure
controls and procedures (as defined in Rule 13a-15(e) under the Act of 1934)
as of the end of the period covered by this report. As a result, the chief
financial officer has concluded that the evaluation of such controls and proce-
dures are effective to provide reasonable assurance that the information
required to be disclosed in the reports the Company files or submits under the
Securities Exchange Act of 1934 is (i) recorded, processed, summarized and
reported within the time periods specified in the Securities and Exchange
Commission's rules and forms, and (ii) accumulated and communicated to
management, including the Company's principal executive and principal financial
officers or persons performing such functions, as appropriate, to allow timely
decisions regarding disclosure. The Company believes that a control system, no
matter how well designed and operated, cannot provide absolute assurance that
the objectives of the control system are met, and no evaluation of controls can
provide absolute assurance that all control issues and instances of fraud, if
any, within a company have been detected.
Management's report on Internal Control over financial reporting
----------------------------------------------------------------
Our management is responsible for establishing and maintaining adequate internal
control over financial reporting as defined in Rule 13a-15(f) and 15d-15f under
the Securities Exchange Act of 1934. Regent's internal control over financial
reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements
for external purposes in accordance with accounting principles generally
accepted in the United States of America. Because of its inherent limitations,
internal control over financial reporting may not prevent or detect misstate-
ments. Also, projections of any evaluation of effectiveness to future periods
are subject to the risk that controls may become inadequate because of changes
in conditions or because the degree of compliance with policies or procedures
may deteriorate.
Under the supervision and with the participation of our management, including
our executives, we conducted an assessment of the effectiveness of our internal
control over financial reporting as of December 31, 2010. The assessment was
based on criteria established in the framework Internal Control-Integrated
54
Framework, issued by the Committee of Sponsoring Organizations of the Treadway
Commission. Based on this assessment, management concluded that our internal
control over financial reporting was effective as of December 31, 2010. This
annual report does not include an attestation report of the Company's registered
public accounting firm regarding internal control over financial reporting.
Management's report was not subject to attestation by the Company's independent
registered public accounting firm pursuant to temporary rules of the Securities
and Exchange Commission that permit the Company to provide only management's
report in this annual report.
Changes in internal control over financial reporting
----------------------------------------------------
There were no changes in our internal control over financial reporting which
were identified in connection with the evaluation required by Rule 13a-15(d) and
Rule 15d-15(d) of the Exchange Act that occurred during the period covered by
this report that has materially affected, or reasonably likely to materially
affect, the Company's internal control over financial reporting.
Item 9B. Other Information
-------- -----------------
None
Item 10. Directors, Executive Officers and Corporate Governance
-------- ------------------------------------------------------
The Executive Officers and Directors of the Company and their respective ages as
of December 31, 2010 are as follows:
Name Age Director Since Position
----------------- ---- -------------- ------------------------
David A. Nelson 62 June, 2003 Chairman, CEO
Philip G. Ralston 65 June, 2007 Director
David L. Ramsour 70 June, 2007 Secretary
David A. Nelson, has been a licensed attorney in Texas since 1978. He started
his professional career with Republic National Bank of Dallas in 1971. In 1983,
he became Corporate Counsel for Richardson Energy Corporation and in 1984 formed
his own oil and gas company with the primary focus on natural gas production and
gas gathering. From 1989 to 1992, he was the Chairman and CEO of Intramerican
Oil and Minerals, a public oil and gas company. He presided over the expansion
of oil and gas proven reserves for 4 consecutive years, and the company's first
three years of profitability in ten years of previous operations. Acquisitions
included oil and gas production and gas gathering systems in Texas, Oklahoma and
Louisiana. Intramerican became the predecessor company to a NYSE company. From
1992 through 1998, Mr. Nelson was President of Regent Technologies, Inc., also a
publicly traded company. During his tenure, Regent was active in the internet
services and connectivity business. In 1998, Regent's internet assets were
acquired by Allegiance Telecom, a NYSE company and Mr. Nelson returned to the
financial services business. From January 1999 to September 2001, Mr. Nelson was
President, CEO and Chairman of Concord Trust Company, a Texas regulated trust
company. He holds various investment fiduciary designations and NASD licenses.
He is a graduate of Baylor University with BA and JD degrees and a Master of
Computing Sciences from Texas A & M University.
55
Philip G. Ralston has spent thirty plus years in the life science industry as a
senior executive, inventor, company founder, venture capitalist, and business
coach. Phil received a solid foundation in product development and technology
commercialization at Baxter Healthcare, as Director of Biomedical Engineering,
a corporate level group focused on strategic projects that advanced the state-
of-the-art. Since leaving Baxter, Mr. Ralston has started four companies, has
been the senior operating executive of two mid-size medical device companies,
and for the last decade has been a business coach for several Fortune 500, mid-
size and start-up clients. Mr. Ralston has a Master of Business Administration
from the Kellogg School of Management at Northwestern University, and a Bachelor
of Science Degree in Chemistry from Brigham Young University. He is a charter
board member of the Medical Device Manufacturers Association and currently
serves on the advisory board of the Houston Technology Center and Medici
Biomedical Development Center.
David L. Ramsour, PhD, has served as a financial and economic strategist for the
past 35 years. He began his career as Vice President and International Economist
with First National Bank of Dallas and its holding company, First International
Bancshares. Dr. Ramsour subsequently joined Bank of Hawaii as Senior Vice
President and Chief Economist. At the Bank of Hawaii, Dr. Ramsour headed the
Bank's division assessing Fed policy, rates and credit and investment conditions
in the US, Europe, Asia and the Pacific, and provided portfolio, market and
project feasibility counsel for the Bank and its clients. Dr. Ramsour left
Bancorp Hawaii in 1995 to begin work on behalf of the Governor of Guam in the
development of an extensive industrial restructuring. Over the ensuing years, he
has worked as a consultant to a great number of US, Pacific and Asian corporate
and government enterprises and has spoken to international conferences there
and in Europe. Dr. Ramsour also served on various task forces and policy
committees including three-terms as a member of the American Bankers Association
Council of Economic Advisors in Washington, DC. Dr. Ramsour is a graduate of
Baylor University with a Bachelor and Master's degree and received his PhD in
international finance from the University of Texas at Dallas.
Section 16(A) Beneficial Ownership Reporting Compliance
-------------------------------------------------------
During the 2010 fiscal year there were no individuals who were required to
comply with the reporting requirements under Rule 16A-3 of the Exchange Act and
failed to do so.
Effective March 1, 2006, the Board of Directors adopted a Code of Ethics that
will apply to its principal executive officer, principal financial officer,
principal accounting officer and controller, or persons performing similar
functions.
At present, Regent does not maintain an audit committee, instead the Company's
management and board of directors is responsible to review all audit matters.
With respect to nominations to the Board, compensation, financial planning,
strategies, and business alternatives, the Company does not have separate
committees as the Board is small and all members of the Board participate in
making recommendations and decisions on these matters.
56
Item 11. Executive Compensation
-------- ----------------------
The table below summarizes all compensation awarded to, earned by, or paid to
the executive officers of Regent by any person for all services rendered in any
capacity to Regent for the present fiscal year, reported at book value.
Currently, our officers and/or directors are not being compensated for their
services during the development stage of our business operations except through
Restricted Stock Awards. See Note 9 to the NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS.
The officers and directors are reimbursed for any out-of-pocket expenses they
incur on our behalf. In addition, in the future, we may approve payment of
salaries for our officers and directors, but currently, no such plans have been
approved. We also do not currently have any benefits, such as health insurance,
life insurance or any other benefits available to our employees.
In addition, none of our officers, directors or employees are party to any
employment agreements.
OFFICER SUMMARY COMPENSATION TABLE
----------------------------------
Change
in Pension
Value and
Nonqualified
Non-Equity Deferred
Stock Option Incentive Plan Compensation All Other
Salary Bonus Awards Awards Compensation Earnings Compensation Total
Name and Principal Position Year ($) ($) ($)(1) ($) ($) ($) ($) ($)
-----------------------------------------------------------------------------------------------------------------------------------
David A. Nelson
Chairman and Chief 2010 -- -- -- -- -- -- -- --
Executive Officer 2009 -- -- 10,000 -- -- -- -- 10,000
-----------------------------------------------------------------------------------------------------------------------------------
David L. Ramsour
Secretary 2010 -- -- -- -- -- -- -- --
2009 -- -- -- -- -- -- -- --
-----------------------------------------------------------------------------------------------------------------------------------
DIRECTORS' COMPENSATION TABLE
-----------------------------
Non-equity
Name and Fees earned or Stock Option Incentive plan All other
Principal paid in cash Awards Awards Compensation Compensation Total
Position Year ($) ($)(1) ($) ($) ($) ($)
------------------------------------------------------------------------------------------------------------------------------
David A. Nelson 2010 -0- -0- N/A N/A N/A N/A
2009 -0- -0- N/A N/A N/A N/A
------------------------------------------------------------------------------------------------------------------------------
David L. Ramsour 2010 -0- 833 N/A N/A N/A 833
2009 -0- 1,500 N/A N/A N/A 1,500
------------------------------------------------------------------------------------------------------------------------------
Philip G. Ralston 2010 -0- 694 N/A N/A N/A 694
2009 -0- 1,500 N/A N/A N/A 1,500
------------------------------------------------------------------------------------------------------------------------------
Douglas R. Baum 2010 -0- 1,000 N/A N/A N/A 1,000
2009 -0- 1,500 N/A N/A N/A 1,500
------------------------------------------------------------------------------------------------------------------------------
----------
(1) The common stock grants were valued at $.01 per share. See Note 9 in NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS.
57
Item 12. Security Ownership of Certain Beneficial Owners and Management and
-------- ----------------------------------------------------------------------
Related Stockholder Matters
---------------------------
As of December 31, 2010, there are 22,360,333 shares of Common Stock issued and
outstanding. The following table utilizes the outstanding number as the
denominator in setting forth information as of the date of this Annual Report
concerning: (i) each person who is known by us to own beneficially more than
5% of our outstanding Common Stock; (ii) each of our executive officers,
directors and key employees; and (iii) all executive officers and directors
as a group. Common Stock not outstanding but deemed beneficially owned by
virtue of the right of an individual to acquire shares within sixty (60) days
is treated as outstanding only when determining the amount and percentage of
Common Stock owned by such individual. Except as noted, each person or entity
has sole voting and sole investment power with respect to the shares of Common
Stock shown. Beneficial ownership is used as defined in Item 403 of Regulation
S-B under the Securities Exchange Act of 1934.
Title Beneficial Ownership Percent
Name of beneficial owner(1) Number of shares(2) of Class
------------------------- ------------------------- --------------------- ---------
Chairman/CEO David A. Nelson 17,965,798 80.4
Director Philip G. Ralston 500,000 2.2
Secretary/Director David L. Ramsour 500,000 2.2
Director-Subsidiary Douglas R. Baum 500,000 2.2
All Officers and Directors
As a group (3) 22,360,233 87.0(4)
----------
(1) Unless otherwise indicated, the Company has been advised that each person
above has sole investment and voting power over the shares indicated above.
(2) This figure includes the shares of the officers and directors. There are no
outstanding options or warrants as of the date of the filing of this report.
(3) Total number of shares and percent ownership includes all directors and
officers as of March 15, 2011.
(4) No Director, executive officer, affiliate or any owner of record or benefi-
cial owner of more than 5% of any class of voting securities of the Company is a
party adverse to the Company or has a material interest adverse to the Company.
Changes in control
------------------
The Company is not aware of any arrangements or pledges with respect to its
securities that may result in a change in control of the Company.
58
Item 13. Certain Relationships and Related Transactions, and Director
--------- ---------------------------------------------------------------------
Independence
------------
During the third quarter of the period ended December 31, 2010, the Company com-
pleted two acquisition transactions with the President. See Note 12 in NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS.
Item 14. Principal Accounting Fees and Services
-------- --------------------------------------
The following information concerns the aggregate fees billed for each of the
last two fiscal years for professional services rendered by Turner, Stone &
Company, L.L.P., the principal accountants for Regent.
2010 2009
---- ----
1. Audit Fees $17,965 $18,662
2. Audit-Related Fees 0 0
3. Tax Fees 0 0
4. All Other Fees* 0 0
----------
* There were no other fees billed to Regent by its principal accountant for
the last two fiscal years for any products or services not covered in items
1, 2 or 3 above.
Although Regent has three directors, the Company does not maintain a standing
audit committee. Although the Company does not maintain an audit committee, all
professional services are pre-approved by the Board of Directors, including
the audit fees listed in item 1. The balance of the services described in
items 2 or 3 above are pre-approved only to the extent that discussions are held
with the principal independent accountant for Regent prior to the commencement
of any services by the accountant, during which time services to be performed by
the accountant on behalf of Regent were outlined.
Item 15. Exhibits and Financial Statement Schedules
-------- ------------------------------------------
(a) 1. Financial Statements. The following consolidated financial statements
---------------------
and supplementary financial information are filed as part of this report:
Regent Technologies, Inc. and Subsidiary
Management's Report on Internal Control Over Financial Reporting
Report of Independent Registered Public Accounting Firm dated
March 30, 2011 - Turner Stone & Company, LLP
Consolidated Balance Sheets - December 31, 2010 and 2009
Consolidated Statements of Income for the Years Ended December 31, 2010
and 2009
Consolidated Statements of Shareholders' Equity for the Years Ended
December 31, 2010 and 2009
Consolidated Statements of Cash Flows for the Years Ended December 31,
2010 and 2009
Notes to Consolidated Financial Statements
59
2. Financial Statement Schedules. The following financial statement
------------------------------
schedule is filed as part of this report:
Financial statement schedules not included in this annual report on
Form 10-K have been omitted because they are not applicable or the required
information is shown in the financial statements or notes thereto.
3. Exhibits.
---------
The exhibits listed below are filed or incorporated by reference as part
of the annual report.
Exhibit
Number Description of Exhibit
------ ----------------------
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 reference
to Regent Petroleum Corporation Proxy Statement for Special Meeting of
Shareholders held January 26, 1988, dated December 30, 1987.
10.1 Restricted Stock Agreement for Directors approved on November 26, 2007 by
the Registrant; incorporated by reference from the Registrant's current
report on Form 8-K filed on December 11, 2007.
10.2 Property Transfer Agreement between Regent Natural Resources Co. and
SIG Partners, LC dated September 29, 2010; incorporated by reference from
the Registrant's current report on Form 8-K filed on October 8, 2010.
10.3 NPI Agreement between Regent Natural Resources Co. and SIG Partners, LC,
dated December 30, 2010.#
21.1 List of subsidiaries - Regent Natural Resources Co.
23.1 Consent of RCM Engineering, Inc.#
31.1 Certification of Chief Executive Officer and Principal Accounting Officer#
32.1 Certification of Chief Executive Officer and Principal Accounting Officer#
99.1 Independent Engineer Reserve Report for the year ended December 31, 2010
prepared by RCM Engineering, Inc.#
# - Filed Herewith
60
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
REGENT TECHNOLOGIES, INC.
By: /s/ DAVID A. NELSON
--------------------------------
David A. Nelson, President,
CEO and Principal Accounting
Officer
Date: March 30, 2011
--------------------------------
61