Item 1. Business
General
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 business toward the development of emerging technologies and the shareholders voted to rename the Company. Beginning in the third quarter of 2010, the Company focused its core business objectives and strategy on energy development. The Company's subsidiary was approved for a name change on September 30, 2010 to Regent Natural Resources Co. ("Regent NRCo"). Regent NRCo is a Texas based independent exploration and production company engaged in the acquisition and development of producing oil and natural gas properties. During the third and fourth quarters of 2010, the Company's subsidiary acquired oil and natural gas assets, consisting of both producing and proven undeveloped reserves. 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, including debt and equity.
Oil and Natural Gas Growth Strategy
Our growth strategy is to explore and develop existing oil and natural 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 key elements of our strategy 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 natural 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.
See "Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations" in this Annual Report on Form 10-K for additional information on our recent operations and plans for 2013.
Marketing and Major Customer
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 and Bargas.
Competition and Markets
The oil and natural gas industry is highly competitive. We encounter strong competition from other independent and major oil and natural 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 natural 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 competitive 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 undeveloped properties, higher commodity prices generally increase the demand for drilling rigs, supplies, services, equipment and crews, and can lead to shortages of, and increasing costs for, drilling equipment, services and personnel. Competition is also strong for attractive oil and natural 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.
The market for our oil, gas and natural gas liquids production depends on factors beyond our control, including domestic and foreign political conditions, the overall level of supply of and demand for oil, gas and natural gas liquids, the price of imports of oil and natural gas, weather conditions, the price and availability of alternative fuels, the proximity and capacity of gas pipelines and other transportation facilities and overall economic conditions.
Regulation
Oil and natural gas exploration, production and related operations and activities are subject to extensive rules and regulations promulgated by federal, state and local governmental agencies. Failure to comply with such rules and regulations can result in substantial penalties. Because such rules and regulations are frequently amended or reinterpreted, we are unable to predict the future cost or impact of complying with such laws. Although the regulatory burden on the oil and natural gas industry increases our cost of doing business and, consequently, affects our profitability, these burdens generally do not affect us any differently or to any greater or lesser extent than they affect others in our industry with similar types, quantities and locations of production.
Operational Hazards and Insurance
Oil and natural gas operations are subject to the usual hazards incident to the drilling and production of oil and natural gas, such as blowouts, cratering, explosions, uncontrollable flows of oil, gas or well fluids, fires, pollution and other environmental risks. These hazards can cause personal injury and loss of life, severe damage to and destruction of property and equipment, pollution or environmental damage and suspension of operation. In addition, the presence of unanticipated pressures or irregularities in formations, miscalculations, or accidents may cause our drilling activities to be unsuccessful and result in a total loss of our investment.
We maintain insurance through our operators of various types to cover our operations with policy limits and retention liability customary in the industry. We believe the coverage and types of insurance are adequate. The occurrence of a significant adverse event, the risks of which are not fully covered by insurance, could have a material adverse effect on our financial condition and results of operations. We cannot give any assurances that we will be able to maintain adequate insurance in the future at rates we consider reasonable.
Title to Properties
As is customary in the oil and natural gas industry, we perform a minimal title investigation before acquiring undeveloped properties. A title opinion is obtained prior to the commencement of drilling operations on such properties. These title investigations and title opinions, while consistent with industry standards, may not reveal existing or potential title defects, encumbrances or adverse claims as we are subject from time to time to claims or disputes regarding title to properties. 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 leasehold rights. Our properties are subject to customary royalty interests, liens incident to operating agreements, liens for current taxes and other burdens that we believe do not materially interfere with the use of or affect the value of such properties.
Employees
Other than our directors and officers, as of December 31, 2012, we do not have employees.
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. Additional information is available at our website at www.regt.co.
Item 1A.
Item 1A. Risk Factors
There are many factors that affect our business, some of which are beyond our control. Our business, financial condition and results of operations could be materially adversely affected by any of these risks. The nature of our business activities further subjects us to certain hazards and risks. 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. We undertake no obligation to update a forward-looking statement to reflect subsequent events, changed circumstances, or the occurrence of unanticipated events which included, among others, the following:
difficult and adverse conditions in the domestic and global economies;
changes in domestic and global demand for oil and natural gas;
volatility in the prices we receive for our oil and natural gas;
the effects of government regulation, permitting and other legalities;
future developments with respect to the reserves on our properties;
uncertainties about the estimates of our oil and natural gas reserves;
our ability to increase our production through development;
drilling and other operating risks;
the availability of equipment, such as drilling rigs and pipelines; and
changes in our drilling plans, related budgets and liquidity.
We caution you that these forward-looking statements are subject to all of the risks and uncertainties incident to the exploration for and development, production and marketing of oil and natural gas. These risks include, but are not limited to:
the possibility of unsuccessful exploration and development drilling activities;
our ability to replace and sustain production;
the availability of capital on economic terms to fund our capital expenditures and acquisitions;
our level of indebtedness;
the impact of the past or future economic recessions on our business operations, financial condition and ability to raise capital;
the ability of financial counterparties to perform or fulfill their obligations under existing agreements;
the uncertainty inherent in estimating proved oil and natural gas reserves and in projecting future rates of production and timing of development expenditures;
hurricanes and other weather conditions;
lack of availability of goods and services;
regulatory and environmental risks associated with drilling and production activities; and
the other risks described in this Form 10-K.
Reserve engineering is a subjective process of estimating underground accumulations of oil and natural gas that cannot be measured in an exact way. The accuracy of any reserve estimate depends on the quality of available data and the interpretation of that data by petroleum engineers. In addition, the results of drilling, testing and production activities may justify revisions of estimates that were made previously. If significant, these revisions would change the schedule of any further production and development drilling. Accordingly, reserve estimates are generally different from the quantities of oil and natural gas that are ultimately recovered. Other unknown or unpredictable factors may cause actual results to differ materially from those projected by the forward-looking statements. Unless otherwise required by law, we undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. We urge readers to review and consider disclosures we make in this and other reports. See in particular our reports on Forms 10-K, 10-Q and 8-K subsequently filed from time to time with the SEC.
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 development 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 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 natural 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.
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 natural 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.
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.
RISKS RELATED TO EXPLORATION AND DEVELOPMENT ARE SUBSTANTIAL.
OUR PLANS TO RE-ENTER OIL AND NATURAL GAS PROPERTIES HAS INHERENT RISKS.
We will own or lease properties that for many years have produced oil and natural 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. Notwithstanding our lack of control over properties operated by others, the failure of the previous owners or operators to comply with applicable environmental regulations 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 natural 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 NATURAL 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.
WE NEED CAPITAL TO DEVELOP OUR PROVED RESERVES AND TO PURSUE THE ACQUISITION OF PRODUCING OIL AND NATURAL 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 natural 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 natural 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 natural 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 natural 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 natural 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.
OIL AND NATURAL GAS PRICES FLUCTUATION MAY ADVERSELY IMPACT OUR RESULTS.
Our revenues, profitability, and the book value of our oil and natural gas properties are substantially dependent upon prevailing prices of, and demand for, oil and natural 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 natural 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 natural 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 natural 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 systems, regulated pipelines and processing facilities.
WE MAY BE RESPONSIBLE FOR ABANDONMENT COSTS.
We are responsible for payment of plugging and abandonment costs on our oil and natural 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 NATURAL 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 natural gas production related operations are or have been subject to price controls, taxes and other laws and regulations relating to the oil and natural 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 reinterpreted, 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.
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 transporting 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 natural gas operations including permits for drilling, field operations, bonds and reports concerning operations and impose other requirements relating to the exploration for and production of oil and natural gas. Texas also has statutes or regulations addressing conservation matters, including provisions for the unitization or pooling of oil and natural 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 interpretations of available technical data and many assumptions, including assumptions relating to economic factors. Any significant inaccuracies in these interpretations or assumptions could materially affect the estimated quantities and present value of reserves. To prepare our estimates, we must project production rates and the timing of development expenditures. We must also analyze available geological, geophysical, production and engineering data. The extent, quality and reliability of this data can vary. The process also requires economic 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.
WE ARE SUBJECT TO VARIOUS ENVIRONMENTAL RISKS AND COSTS.
ENVIRONMENTAL REGULATION SERIOUSLY IMPACTS OIL AND NATURAL GAS OPERATOINS.
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 natural 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 natural 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 releases 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 NATURAL GAS OPERATIONS.
We will generate typical oil and natural 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 natural 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.
Also, the Oil Pollution Act ("OPA") imposes a variety of requirements on responsible 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 responsible party to civil or criminal enforcement actions.
On July 28, 2011, the EPA proposed rules that would establish new air emission controls for oil and natural gas production and natural gas processing operations. Specifically, the EPA's proposed rule package includes New Source Performance Standards to address emissions of sulfur dioxide and volatile organic compounds ("VOCs") and a separate set of emission standards to address hazardous air pollutants frequently associated with oil and natural gas production and processing activities. The EPA's proposal would require the reduction of VOC emissions from oil and natural gas production facilities by mandating the use of "green completions" for hydraulic fracturing, which requires the operator to recover rather than vent the gas and natural gas liquids that come to the surface during completion of the fracturing process. The proposed rules also would establish specific requirements regarding emissions from compressors, dehydrators, storage tanks, and other production equipment. In addition, the rules would establish new leak detection requirements for natural gas processing plants. The EPA is currently considering public comments submitted on the proposed rules and has indicated that it expects to take final action on the proposed rules by April 3, 2012. If finalized, these rules could require a number of modifications to our operations including the installation of new equipment. Compliance with such rules could result in significant costs, including increased capital expenditures and operating costs, and could adversely affect our business.
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.
OPERATIONS ARE SUBSTANTIALLY DEPENDENT ON THE AVAILABILITY OF WATER
Water is an essential component of both the drilling and hydraulic fracturing processes. Historically, we have been able to purchase water from various sources for use in our operations. During 2011 and 2012, East and Central Texas experienced the lowest inflows of water in recent history. As a result of this severe drought, some local water districts may begin restricting the use of water subject to their jurisdiction for drilling and hydraulic fracturing in order to protect the local water supply. If we are unable to obtain water to use in our operations from local sources, we may be unable to economically produce oil and natural gas, which could have an adverse effect on our financial condition, results of operations and cash flows.
Item 1B.
Item 1B. Unresolved Staff Comments
None.
Item 2.
Item 2. Properties
Our properties consist primarily of oil and natural gas wells and our ownership in leasehold acreage, both developed and undeveloped. Our property acquisition efforts are and will be focused on pursuing opportunities 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. Since the third quarter of 2010, we have been primarily committed to investing in developmental oil wells in the Mexia-Talco Fault Zone of the East Texas Basin. We continue to review prospects in the Midland Basin and the Gulf Coast Basin, both mature producing oil and natural gas horizons.
Oil and Natural Gas Reserves
The following table sets forth our estimated proved reserves, as of December 31, 2012, based on the new SEC rules as defined in Rule 4.10(a) of Regulation S-X and Item 1200 of Regulation S-K:
(1)
The present value of future net cash flows from proved reserves, before deductions for estimated future income taxes and asset retirement obligations, discounted at 10% ("PV-10 Value"), totaled $2.64 million at December 31, 2012. The commodity prices used to estimate proved reserves and their related PV-10 Value at December 31, 2012 were based on the 12-month unweighted arithmetic benchmark average of the first-day-of-the-month price for the period from January 2012 through December 2012. These benchmark average prices were further adjusted for quality, energy content, transportation fees and other price differentials specific to our properties, resulting in an average adjusted price of $89.19 per barrel of over the remaining life of our proved reserves. Operating costs were not escalated.
(2)
None of our oil reserves are derived from non-traditional sources.
Reserve Estimation Procedures
Overview
. Under current SEC standards, proved reserves are those quantities of oil and natural gas, which, by analysis of geosciences and engineering data, can be estimated with reasonable certainty to be economically producible from a given date forward, from known reservoirs, and under existing economic conditions, operating methods, and government regulations. The term "reasonable certainty" implies a high degree of confidence that the quantities of oil and/or natural gas actually recovered will equal or exceed the estimate. Reasonable certainty can be established using techniques that have been proved effective by actual production from projects in the same reservoir or an analogous reservoir or by other evidence using reliable technology that establishes reasonable certainty. Reliable technology is a grouping of one or more technologies (including computational methods) that has been field tested and has been demonstrated to provide reasonably certain results with consistency and repeatability in the formation being evaluated or in an analogous formation.
In December 2008, the SEC released its finalized rule for "Modernization of Oil and Gas Reporting." The new rule requires disclosure of oil and natural gas proved reserves 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.
Processes and Controls.
There are numerous uncertainties inherent in estimating quantities of proved oil and natural 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 natural gas reserves and the present value of future net revenues therefrom as of December 31, 2012. Those estimates were determined based on prices and costs as of or for the twelve month period ended December 31, 2012. RCM meets the requirements with regard to qualifications, independence, objectivity and confidentiality 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 natural gas production; well test data; commodity prices; and operating and development costs.
RCM's estimates of our reserves conform to the guidelines of the SEC and the 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 engineering methods generally accepted by the petroleum industry. The reserve information shown is estimated. The certainty of any reserve estimate is a function of the quality of available geological, geophysical, engineering and economic data, and the precision of the
engineering and geological interpretation and judgment. The estimates of reserves, future cash flows and present value are based on various assumptions, and are inherently imprecise. Although we believe these estimates are reasonable, actual future production, cash flows, taxes, development expenditures, operating expenses and quantities of recoverable oil and natural gas reserves may vary substantially from these estimates.
Other Information Concerning our Proved Reserves
. The accuracy of any reserve estimate is a function of the quality of available geological, geophysical, engineering and economic data, the precision of the engineering and geological interpretation and judgment. The estimates of reserves, future cash flows and PV-10 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. Also, the use of a 10% discount factor for reporting purposes may not necessarily represent the most appropriate discount factor, given actual interest rates and risks to which our business or the oil and natural gas industry in general are subject.
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, 2012. Please read "Item 1A. Risk Factors -- Our estimated reserves are based on many assumptions that may turn out to be inaccurate. Any significant inaccuracies in these reserve estimates or underlying assumptions may materially affect the quantities and present value of our reserves." You should also read the notes following consolidated financial statements for the year ended December 31, 2012 in conjunction with the reserve estimates. Since January 1, 2010, we have not filed an estimate of our net proved oil and natural gas reserves with any federal authority or agency other than the SEC.
Acreage
Undeveloped acreage includes leased acres on which wells have not been drilled or completed to a point that would permit the production of commercial quantities of oil and natural 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 table below sets forth our undeveloped and developed gross and net leasehold acreage as of December 31, 2012.
Principal Office
Our principal office is located at 5646 Milton, Suite 722, Dallas, Texas 75206.
Item 3.
Item 3. Legal Proceedings
We have no litigation and no known pending litigation.
Item 4.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5.
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, 2012, 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% of the number of shares of the company's common stock then outstanding; or
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, 2012, based on information provided by our transfer agent, Securities Transfer Corporation, the number of holders or record of our common stock was 2,022.
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
Other than the stock grants under the consulting agreement executed by the Company effective December 1, 2012, the Company has no further commitments to issue common stock as of the date of this filing. See Note 4 - "Share- Based Compensation" to our consolidated financial statements for additional information.
Item 6.
Item 6. Selected Financial Data
Not Applicable.
Item 7.
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 consolidated 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 and 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 to differ materially from those contemplated by such forward-looking statements include without limitation:
Our ability to generate additional capital to complete our oil and natural gas activities
Risks inherent in oil and natural gas acquisitions, exploration, drilling, development and production; price volatility of oil and natural gas
Competition from other technology and oil and natural gas companies
Shortages of equipment, services and supplies
Government regulation and environmental matters
These forward looking statements include statements regarding:
Regent's financial position and business strategy
Proved or possible reserve quantities and net present values of those reserves
Plans and objectives of management of Regent for future operations and capital expenditures
Revenue and cash flow projections
General and Business Overview
Regent Technologies, Inc. is a technology-focused energy company that utilizes emerging proprietary technologies for our involvement in the energy industry. We have access to proprietary technologies which we believe provide us an advantage in the industry. Our business strategy is to exploit these advantages and generate long-term value for our shareholders and partners. Our Vision is to employ new technologies to maximize the production of petroleum resources in an efficient and environmentally safe manner while developing new technologies for the increased use of renewable energy. Our Mission is to accomplish our business strategy while maintaining the highest standards of integrity and professionalism wherever we operate and promoting responsible energy now and in the future.
Oil and Natural Gas Activities
Strategy. Our long term oil and natural gas development strategy is to increase profit margins and concentrate on obtaining producing and developmental properties with low cost operations and with the potential for long-lived production. We will also focus on the acquisition of minerals and royalties in areas with exploration and development potential. We intend to grow reserves and production economically, primarily by: (1) selectively acquiring prospects where levels of production can be raised quickly and sustained for the highest return on investment; (2) participating in and or actively conducting drilling operations in order to further exploit the existing properties; and (3) pursuing strategic acquisitions that can be improved with our production enhancement technologies.
Exploration activities will normally be conducted with the Company acquiring undeveloped oil and natural 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 natural 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 natural gas wells in which it owns an interest but instead relies on third party companies to operate its oil and natural gas activities at this time. The cost of future oil and natural gas projects would be funded through borrowings and, if appropriate, sales of common or preferred stock of the Company or our subsidiary or sales of our investment in MacuCLEAR Preferred Stock.
Production. Pursuant to the Regent NRCo oil and natural gas property transaction agreement (PTA) during the third and fourth quarters of 2010, we acquired 3 leases which cover 66 gross acres in the Hill County, Texas. We also acquired a 50% net profits interest in a one well lease. We currently derive revenue from 2 productive wells with one well producing from the Woodbine formation and one well producing from the Austin Chalk formation. The 2 wells average combined production of 3-5 barrels per day. We have utilized 2 proprietary chemicals to treat formation damage and are reviewing a proposal to further stimulate the producing zones with the expectation that production may be increased 30-50%. The primary objective of owning and operating these wells is to gain experience with technologies that can significantly improve production in wells that have been abandoned or have remained dormant for a lengthy period of time.
Salt Water Operations. During 2012, we executed our right under the PTA to purchase the salt water injection equipment including related contract rights and permits plus additional production equipment. We produce a significant amount of water which is very costly to remove in trucks for proper disposal in approved facilities. The injection well is necessary to reduce the significant operating burden and costs of water disposal. Our system consists of a well permitted through the Railroad Commission of Texas, high-pressure injection pump and flow line with storage facilities. During the third and fourth quarters, significant downtime resulted due to high pressures from formation blockage following a procedure to remove wellbore scale. Currently, the injection well is being re-permitted to increase capacity by adding another formation horizon for injection.
Financing and Liquidity
Regent has funded operations through short-term borrowings and equity investment sales in order to meet obligations. Our future operations are dependent upon external funding and our ability to increase revenues and reduce expenses. There is no assurance that sufficient funding will be available from additional related party borrowings and private placements to meet our business objectives including anticipated cash needs for working capital.
Crude oil and natural gas prices have fluctuated significantly in recent years. The effect of declining prices on the oil business can be significant. Lower product prices will reduce our cash flow from operations and diminish the present value of our oil and natural gas reserves. Lower product prices also offer less incentive to assume the development risks that are inherent in our business. The volatility of the energy markets makes it extremely difficult to predict future oil and natural gas price movements with any certainty. The average oil price received in 2011 for the production under our net profits interest agreement has ranged from a high in April of $100.90 to a low in August of $79.97. The average oil price received in 2012 has ranged from a low of $74.50 in June to a high of $98.73 in April.
During the first and second quarters of 2012, the Company generated new cash of $20,610 and $83,094, respectively, from the sale of shares of its direct preferred stock holdings in MacuCLEAR, Inc. The bulk of these monies were used to re-enter and re-equip one of the wells acquired in 2010 and to acquire the salt water disposal well and refurbish injection pumping equipment. As of December 31, 2012, the Company had total assets of $625,287 and total liabilities of $116,021, of which $10,400 is the balance of the promissory note for the 2010 net profits interest acquisition. Accrued liabilities reflect an increase for the period ended December 31, 2012 from December 31, 2011 by $45,215 due to the acquisition of the salt water operations and additional oil and natural gas production equipment. We believe that cash flow from operations and funds available from financing will be sufficient to provide needed liquidity through this fiscal year.
The Company is not performing any product research and development at this time and it is not expected to incur significant changes in the number of employees
.
SUMMARY OF CRITICAL ACCOUNTING POLICIES
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 notes to the audited financial statements included herein. See Note 2 - "Summary of Significant Accounting Policies" to our consolidated financial statements for additional information.
Oil and Natural 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 natural gas reserves. Estimates of our proved reserves as of each year-end are prepared by a third party engineering firm. In addition, upon significant changes, 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 capitalized 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.
Proved Oil and Natural Gas Reserves
Estimates of oil and natural gas reserves, by necessity, are projections based on geologic and engineering data, and there are uncertainties inherent in the interpretation of such data as well as the projection of future rates of production and the timing of development expenditures. Reserve engineering is a subjective process of estimating underground accumulations of oil and natural 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. Estimates 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 economically recoverable quantities of oil and natural gas attributable to any particular 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 natural gas properties and/or the rate of depletion of the oil and natural gas properties. Actual production, revenues and expenditures with respect to our reserves will likely vary from estimates and such variances may be material.
While the estimates of our proved reserves at December 31, 2012 included in this report have been prepared based on what we and our independent reserve engineers believe to be reasonable interpretations of the new SEC rules, those estimates could differ materially from our actual results.
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, 2012 Compared to Year Ended December 31, 2011
The Company had lower revenues for the period ended December 31, 2012 as compared to 2011 due to production downtime from power shortages and parts delays related to disposal operation repairs and maintenance. General and administrative expenses were up $11,120 for the period ended December 31, 2012 compared to the same period in 2011 due to third party consulting and increased travel, both related to prospect evaluation costs. Also, accounting support expense increased in the second and third quarters due to costs for the implementation of expanded XBRL reporting regulations under new SEC guidelines. Interest expense was $2,072 for 2012 compared to interest expense of $4,603 for 2011 and the decrease was due to lower interest bearing debt in 2012.
Oil and natural gas operating expenses added $1,594 for 2012 due to the new expenses related to the salt water disposal operations and the one producing well. The depreciation, depletion and amortization expense was comparable for both periods.
Year Ended December 31, 2011 Compared to Year Ended December 31, 2010
For the period ended December 31, 2011, the Company had a net loss of $34,107 compared to net income of $188,427 for the same period ended 2010. In addition, the Company realized operating revenue of $25,689 for 2011 from the net profits production interest compared to none in 2010. We also received an extraordinary consulting fee of $2,000 in 2010. The net income for fiscal 2010 was primarily the result of unrealized gains of $195,221 due to the fair value measurement of the MacuCLEAR Preferred Stock acquisition and the gain of $24,750 from investment sales. The loss was greater in 2011 due to higher administrative and interest expense and no gains from investment sales.
General and administrative expenses were $54,091 for the period ended December 31, 2011 compared to $30,300 for the period ended December 31, 2010. The increase was the result of higher accounting and audit expense, plus new expenses of $11,000 for director liability insurance. Interest expense was $4,603 for 2011 compared to net interest income of $756 for 2010. The increase in interest expense was due to new short term borrowings and the note payable related to the 2010 net profits interest acquisition. The depreciation, depletion and amortization expense for the period was $1,102 compared to $268 for the same period in 2010. The increase was due to $754 of depletion expense for 2011 compared to none for 2010.
LIQUIDITY AND CAPITAL RESOURCES
The Company finances its operations from internally generated funds from stock sales, proceeds from sales of its investments and from borrowings under its various agreements. The Company had total assets of $625,287 and total liabilities of $116,021 as of December 31, 2012 compared to total assets of $633,072 and total liabilities of $66,983 as of December 31, 2011. The decrease in assets was due primarily to net investment sales after higher accounting and insurance expenses and the new debt from the increase of accrued liabilities for the asset acquisitions. The Company does not have any delivery commitments to provide a fixed and determinable quantity of its oil and natural gas under any existing agreement.
Cash Flows
Net cash flows provided from operating activities was $9,171, for the fiscal period ending December 31, 2012, compared to net cash flows used of $25,576 for the same period in 2011, primarily due to the increase in accrued expenses and in accounting and insurance expense. Revenues from the Company's oil and gas activities was $14,902 in 2012 compared to $25,689 in 2011 which decreased primarily due to salt water disposal system downtime.
Net cash flows from investing activities was $22,899 in 2012 compared to $45,386 in 2011 due to the sale of a portion of the Company's investment in MacuCLEAR stock for $102,114 in 2012 and $78,000 in 2011. In addition, the Company incurred capital expenditures of $79,215 in 2012 compared to $32,614 in 2011, all for oil and natural gas activities.
Net cash flows used by financing activities was $8,002 for 2012 and was $35,300 for 2011. Cash used in 2012 was primarily the total of $38,950 for long-term note payable reduction offset by short term borrowings of $30,948 for primarily due to the referenced increase in general and administrative expenses. Cash used in 2011 included the payment of $37,400 for debt reduction related to the oil and natural gas property acquisitions in 2010.
The Company is not performing any product research and development at this time and it is not expected to incur significant changes in the number of employees.
2013 Capital Expenditures Budget
Our capital expenditures budget is focused on acquisitions which we intend to fund through the issuance of common and preferred stock.
Related Party Transactions
The Company acquired certain oil and natural gas interests through the CEO and has borrowings from NR Partners. Also, the Company has sold a portion of its investment in securities of MacuCLEAR to the CEO and his spouse. See Note 11 - "Related Party Transactions" to our consolidated financial statements for additional information.
Future Payments Under Contractual Obligations
Neither the Company nor the Subsidiary have incurred contractual payment obligations. The Company is not expected to purchase equipment or incur significant changes in the number of employees in 2013.
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.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Not applicable
Item 8.
Item 8. Financial Statements and Supplementary Data
Page
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets at December 31, 2012 and 2011
Consolidated Statements of Operations for each of the two years in the period ended December 31, 2012 and the period from January 1, 1999 through December 31, 2012
Consolidated Statements of Stockholders' Equity (Deficit) for the period from January 1, 1999 through December 31, 2012
Consolidated Statements of Cash Flows for each of the two years in the period ended December 31, 2012 and the period from January 1, 1999 through December 31, 2012
Notes to Consolidated Financial Statements
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, 2012 and 2011, and the related consolidated statements of operations, stockholders' equity (deficit), and cash flows for the years ended December 31, 2012 and 2011, and for the period January 1, 1999 through December 31, 2012. 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 audits 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, 2012 and 2011, and the results of their operations and cash flows for the years ended December 31, 2012 and 2011, and for the period January 1, 1999 through December 31, 2012 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 3 to the consolidated financial statements, the Company has no significant 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 3. 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.
April 15, 2013
REGENT TECHNOLOGIES, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEETS
December 31,
December 31,
ASSETS
CURRENT ASSETS:
Cash in bank
$
15,026
$
9,300
Accrued oil and natural gas revenue
5,900
2,085
Prepaid expenses and other
2,950
-
Investments (Note 7)
145,536
-
Total current assets
169,412
11,385
PROPERTY AND EQUIPMENT (net of accumulated depletion and depreciation):
Oil and natural gas properties, full cost accounting
Unproved properties
3,080
3,080
Proved properties
199,049
114,634
Net profits production interest
4,561
4,940
Equipment and other fixed assets
1,041
Total property and equipment, net
207,383
123,695
Investments (Note 7)
248,752
497,992
TOTAL ASSETS
$
625,547
$
633,072
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable
$
19,391
$
2,637
Notes payable - stockholder
10,000
Notes payable - related parties
31,348
45,800
Accrued interest payable
Accrued liabilities - related parties
44,259
9,444
Total current liabilities
105,621
58,233
Note payable - related parties, less current portion
-
3,550
Asset retirement obligation
10,660
5,200
Total liabilities
116,281
66,983
STOCKHOLDERS' EQUITY:
Convertible Preferred stock, $.10 par value, 1,000,000 shares authorized,
99,500 shares issued and outstanding, Regent Natural Resources Co.
9,950
9,950
Preferred stock, $.10 par value, 30,000,000 shares authorized, no shares issued
and outstanding, Registrant
-
-
Common stock, $.01 par value, 100,000,000 shares authorized, 22,610,233
and 22,360,233 shares issued and outstanding, respectively
226,102
223,602
Paid-in capital in excess of par
3,629,141
3,629,141
Accumulated deficit (including $7,928 accumulated since reentering
the development stage)
(3,355,927)
(3,296,604)
509,266
566,089
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
$
625,547
$
633,072
The accompanying notes are an integral part of the consolidated financial statements.
REGENT TECHNOLOGIES, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 2012
AND 2011 AND THE PERIOD JANUARY 1, 1999 THROUGH DECEMBER 31, 2012
The accompanying notes are an integral part of the consolidated financial statements.
REGENT TECHNOLOGIES, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE PERIOD JANUARY 1, 1999 THROUGH DECEMBER 31, 2012
The accompanying notes are an integral part of the consolidated financial statements.
REGENT TECHNOLOGIES, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE PERIOD JANUARY 1, 1999 THROUGH DECEMBER 31, 2012 - (Continued)
The accompanying notes are an integral part of the consolidated financial statements.
REGENT TECHNOLOGIES, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2011
AND FOR THE PERIOD JANUARY 1, 1999 THROUGH DECEMBER 31, 2012
The accompanying notes are an integral part of the consolidated financial statements.
REGENT TECHNOLOGIES, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2011
AND FOR THE PERIOD JANUARY 1, 1999 THROUGH DECEMBER 31, 2012 - (Continued)
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES
The accompanying notes are an integral part of the consolidated financial statements.
REGENT TECHNOLOGIES, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. Organization and Nature of Operations
Regent Technologies, Inc. (the "Company" or "Regent"), formerly Regent Petroleum Corporation, was incorporated under the laws of the State of Colorado on January 18, 1980. During 1999, the Company's subsidiary companies were divested in the ordinary course of business and effective January 1, 1999, the Company had re-entered the development stage. Accordingly, all of the Company's operating results and cash flows reported in the accompanying consolidated financial statements from that date are considered to be those related to development stage activities and represent the 'cumulative from inception' amounts from its development stage activities reported pursuant to ASC No. 915, "Development Stage Activities" ("ASC 915") of the "Financial Accounting Standards Codification ("Codification" or "ASC") and the Hierarchy of Generally Accepted Accounting Principles."
During the third quarter of 2010, Regent restructured its management team and focused its core business objectives and strategy on energy development. The Company's subsidiary was approved for a name change on September 30, 2010 to Regent Natural Resources Co. ("Regent NRCo"). Regent NRCo is a Texas based independent exploration and production company engaged in the acquisition and development of producing oil and natural gas properties. Our results of operations and capital resources are highly dependent upon prevailing market prices of, and demand for, oil and natural gas. These commodity prices are subject to wide fluctuations and market uncertainties due to a variety of factors that are beyond our control. These factors include the level of global supply and demand for oil and natural gas, market uncertainties, weather conditions, domestic governmental regulations and taxes, political and economic conditions in oil producing countries, price and availability of alternative fuels, and overall domestic and foreign economic conditions.
NOTE 2. Summary of Significant Accounting Policies
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 critical if (i) it requires assumptions to be made that were uncertain at the time the estimate was made, and (ii) changes in the estimate or different estimates that could have been selected 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 are as follows:
Consolidation Principles
The consolidated financial statements of the Company included in this Annual Report on Form 10-K have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the "SEC") and in accordance with accounting principles generally accepted in the United States (US GAAP). The consolidated financial statements include the financial statements of the Company and its wholly-owned subsidiary. Intercompany balances and transactions have been eliminated in consolidation. Certain data in prior periods' financial statements have been adjusted to conform to the presentation of the current period.
Estimates and Assumptions
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 financial statements in conformity with accounting principles generally accepted in the United States requires our management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ materially from those estimates. The accounting policies most affected by management's estimates and assumptions are provisions for depreciation, depletion and amortization, estimates of proved reserves, impairment of long-lived assets based on estimates of future net cash flows, and asset retirement obligation based on estimates regarding timing and cost of future asset retirements.
REGENT TECHNOLOGIES, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Cash and Cash Equivalents
We consider all cash and highly liquid investments with original maturities of three months or less at the time of purchase to be cash equivalents.
Fiscal Year
The Company's fiscal year ends on December 31. All references to 2012 and 2011 mean the fiscal years ended December 31, 2012 and 2011 unless the context otherwise indicates.
Oil and Natural 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 natural gas reserves. Estimates of our proved reserves as of December 31, 2012 were prepared by a third party engineering firm.
Proceeds from the sale of properties are accounted for as reductions of capitalized 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 significant 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.
Valuation of Property and Equipment
Our long-lived assets, including proved oil and natural gas properties and equipment, are assessed for potential impairment in their carrying values whenever events or changes in circumstances indicate such impairment may have occurred. Estimates of oil and natural gas reserves, by necessity, are projections based on geologic and engineering data, and there are uncertainties inherent in the interpretation of such data as well as the projection of future rates of production and the timing of development expenditures. Reserve engineering is a subjective process of estimating underground accumulations of oil and natural 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. Estimates 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 economically recoverable quantities of oil and natural gas attributable to any particular 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.
REGENT TECHNOLOGIES, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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.
Revenue Recognition
Oil and natural gas revenues are recognized when production is sold to a purchaser at a fixed or determinable price, when delivery has occurred and title has transferred, and if collectability of the revenue is probable. Revenues from the production of crude oil and natural gas properties in which we have an interest with other producers are recognized using the entitlements method. Differences between actual production and net working interest volumes are routinely adjusted.
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 properties 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 corresponding cost capitalized by increasing the carrying amount of the related long-lived asset. Periodic accretion of discount of the estimated liability is treated as accretion expense in the consolidated statements of operations.
Income Taxes
We utilize the asset and liability method to account for 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 currently enacted tax rates expected to apply to taxable income in the years in which those differences are expected to reverse.
Share-Based Compensation
We account for equity based compensation under the provisions of ASC No. 718, "Compensation - Stock Compensation" ("ASC 718"). ASC 718 requires the recognition 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. For the years ended December 31, 2012 and 2011, we have no stock option awards outstanding.
Fair Value Measurements
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 also approximate fair value based on the terms of these instruments. Hierarchical levels directly related to the amount of subjectivity associated with the inputs to fair valuation of these assets and liabilities are as follows:
REGENT TECHNOLOGIES, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Level 1 -
Inputs are unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date.
Level 2 -
Inputs (other than quoted prices included in Level 1) are either directly or indirectly observable for the asset or liability through correlation with market data at the measurement date and for the duration of the instrument's anticipated life.
Level 3 -
Inputs reflect management's best estimate of what market participants would use in pricing the asset or liability at the measurement date. Consideration is given to the risk inherent in the valuation technique and the risk inherent in the inputs to the model. The carrying value of our investment 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 7).
Loss per Common Share
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, 2012 and 2011, 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
In May 2011, the Financial Accounting Standards Board (the "FASB") issued ASU No. 2011-04 "Fair Value Measurement: Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRS." This ASU provides additional guidance intended to result in convergence between US GAAP and International Financial Reporting Standards ("IFRS") requirements for measurement of and disclosures about fair value. The amendments are not expected to have a significant impact on companies applying US GAAP. Principal provisions of the amendments include: (i) application of the `highest and best use' is relevant only when measuring fair value for non-financial assets and liabilities; (ii) a prohibition on grouping financial instruments for purposes of determining fair value, except when an entity manages market and credit risks on the basis of the entity's net exposure to the group; (iii) an extension of the prohibition against the use of a blockage factor to all fair value measurements (that prohibition currently applies only to financial instruments with quoted prices in active markets); (iv) guidance that fair value measurement of equity instruments should be made from the perspective of a market participant that holds that instrument as an asset; and (v) a requirement that for recurring Level 3 fair value measurements, entities disclose quantitative information about unobservable inputs, a description of the valuation process used and qualitative details about the sensitivity of the measurements. In addition, for Balance Sheet items not carried at fair value but for which fair value is disclosed, entities will be required to disclose the Level within the fair value hierarchy that applies to the fair value measurement disclosed. This guidance is effective for interim and annual periods beginning after December 15, 2011. We have adopted this guidance effective January 1, 2012. The adoption of this guidance did not have an impact on the Company's fair value measurements, financial condition, results of operations or cash flows.
REGENT TECHNOLOGIES, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In June 2011, the FASB issued ASU No. 2011-05, "Comprehensive Income (Topic 220): Presentation of Comprehensive Income" ("ASU 2011-05"). This ASU requires entities to report items of other comprehensive income on either part of a single contiguous statement of comprehensive income or in a separate statement of comprehensive income immediately following the statement of income. In December, 2011, the FASB issued an update to this pronouncement, ASU No. 2011-12, "Comprehensive Income (Topic 220): Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05." The update defers the specific requirement to present items that are reclassified from accumulated other comprehensive income to net income separately with their respective components of net income and other comprehensive income. While early adoption is permitted, the amendments are effective for fiscal years, and interim periods within those years, beginning after December 15, 2011 and must be applied retrospectively. Presently, we do not have any transactions which require the reporting of comprehensive income; therefore, we do not anticipate any immediate impact from this pronouncement.
In December 2011 the FASB issued ASU No. 2011-11, "Balance Sheet (Topic 210), Disclosures about Offsetting Assets and Liabilities" ("ASU 2011-11"). ASU 2011-11 will require entities to disclose both gross information and net information about both instruments and transactions eligible for offset in the statement of financial position and instruments and transactions subject to an agreement similar to a master netting arrangement. Application of the ASU is required for annual reporting periods beginning on or after January 1, 2013 and interim periods within those annual periods. Entities should provide the disclosures required by this ASU retrospectively for all comparative periods presented. We will adopt this guidance effective January 1, 2013. The adoption of this guidance is not expected to have an impact on the Company's financial condition, results of operations or cash flows.
During the year ended December 31, 2012, there were several new accounting pronouncements issued by the Financial Accounting Standards Board. Each of these pronouncements, as applicable, has been or will be adopted by the Company. Management does not believe the adoption of any of these accounting pronouncements has had or will have a material impact on the Company's financial position or operating results. The Company will monitor these emerging issues to assess any potential future impact on its consolidated financial statements.
NOTE 3. Going Concern Uncertainties
As of the date of this 2012 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. Share-Based Compensation
Stock grants are intended to promote the interests of the Company by providing a means by which employees, consultants and directors may acquire or increase their equity interest in the Company and may develop a sense of proprietorship and personal involvement in the development and financial success of the Company, and to encourage them to remain with and devote their best efforts to the business of the Company, thereby advancing the interests of the Company and its stockholders. In 2007, we began granting a series of restricted stock awards with varying vesting periods. During the vesting period, ownership of the shares cannot be transferred and the shares are subject to forfeiture if employment ends before the end of the vesting period. Restricted shares are not considered to be currently issued and outstanding until the restrictions lapse and/or they vest.
REGENT TECHNOLOGIES, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In December 2007, Regent entered into agreements for restricted shares of common stock awards with its directors under which it issued 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. 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. Effective October 1, 2012, the Company granted 150,000 restricted common shares for consulting services to Basin Partners LLC. The consulting agreement includes the grant of an additional 500,000 restricted common shares, vesting and issued quarterly beginning December 31, 2012. Pursuant to the relationship under the Basin agreement, the Company advanced $2,900 to Basin for expense coverage. If a transaction is not consummated to cover the advance, the owner of Basin has personally guaranteed the repayment of the $2,900. The Company recognized the amounts of $2,500 and $0 as share-based compensation expense for the fiscal periods ended 2012 and 2011, respectively, all recorded at the par value of the amount of stock issued. 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.
NOTE 5. Acquisitions
During 2010, we acquired 3 oil and natural gas leases covering 66 gross acres (49.5 net acres) in Hill County, Texas including rights to oil and natural gas equipment, proved reserves and a 50% net profits production interest ("NPI"). Also included was the assignment of a .17% overriding royalty interest in 153 acres in Coke County, Texas. The acquisitions were pursuant to two agreements with SIG Partners, LC ("SIG"), a related party of the CEO of the Company and operator of the transferred interests (see Note 11). The combined consideration was stock and $91,750 with $10,000 paid at closing and the balance paid under a promissory note (see Note 6).
The agreements included an option to acquire operations from SIG and the related equipment and disposal well for the market value of the well and equipment. During 2012, Regent NRCo exercised its rights and acquired the salt water disposal well and ownership of all equipment related to the operations of two producing wells and the disposal operations (see Note 11). SIG has remained as the operator of record for all acquired interests.
NOTE 6. Debt
Pursuant to the net profits production interest acquisition (see Note 5) in December 2010, Regent NRCo executed a promissory note for $81,750 payable to SIG Partners, LC, a related party (see Note 11). 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, there was a principal balance outstanding of $10,400 and $44,350 at December 31, 2012 and 2011, respectively. The promissory note is secured by the oil and natural gas interest conveyed. SIG Partners, LC extended the maturity until June 30, 2013.
During 2012, Regent NRCo acquired certain oil and natural gas equipment (see Note 5) for $31,153 from a related party (see Note 11). Following the acquisition, we invested $30,148 to deepen the producing well and we incurred capital expenditures of $17,914 for improvements to the salt water injection well. As of December 31, 2012, the Company has outstanding accrued liabilities for oil and natural gas operations of $44,259. Also during the fourth quarter, the Company borrowed $10,000 from a stockholder under a promissory bearing interest at 10%. The loan to the stockholder plus interest was paid on January 2, 2013.
Beginning in 2005, the Company has borrowed various amounts for general corporate purposes under promissory notes to NR Partners, a related party (see Note 11). During 2012, the Company repaid the outstanding principal at December 31, 2011 of $5,000 plus interest. The outstanding amount as of December 31, 2012 was $20,948 of which $5,000 bears interest at the rate of 5% per annum. The remaining balance is due upon demand of which $15,000 was repaid in January 2013.
REGENT TECHNOLOGIES, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7. Investments
As of December 31, 2012, the Company's subsidiary, Regent NRCo, held 107,986 shares of MacuCLEAR Preferred Stock, of which 95,858 shares are beneficially held for the holders of subsidiary Preferred Stock and 12,128 shares are currently being marketed for capital reallocation. Under the process defined for the fair value of 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, 2012 based on new sales of MacuCLEAR Series A-1 Preferred Stock for $12.00 per share in October 2010 and throughout 2011 and 2012 under new issuances by MacuCLEAR. The Series A-1 Preferred Stock has the same designations as the Series A Preferred Stock held by the Company. The fair value of 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 MacuCLEAR Preferred Stock, beneficial and direct, as of December 31, 2012 and 2011:
The Company disposed of 8,642 shares in 2012 and 6,500 shares in 2011 of its holdings of MacuCLEAR Preferred Stock at the price of $12.00 per share less a processing cost of $1,590. Sales of 6,917 shares were made to unrelated third-parties in 2012. 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 MacuCLEAR Preferred Stock classified as Level 3 in the fair value hierarchy for the twelve months ended December 31, 2012 and 2011:
Balance at beginning of year
$
497,992
$
575,992
Realized gain/(loss)
79,688
61,132
Change in unrealized appreciation/(depreciation)
(81,278)
(61,132)
Net purchase/sales
(102,114)
(78,000)
Net transfers in and/or out of Level 3
-
-
Balance at end of year
$
394,288
$
497,992
NOTE 8. Asset Retirement Obligation
The Company accounts for asset retirement obligations based on the guidance of ASC 410 which addresses accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. ASC 410 requires that the fair value of a liability for a retirement obligation be recorded in the period in which it is incurred and the corresponding cost capitalized by increasing the carrying amount of the related long-lived asset. The liability is accreted to its then present value each period, and the capitalized cost is depreciated over the estimated useful life of the related asset.
We have included estimated future costs of abandonment and dismantlement in our amortization base and amortize these costs as a component of our depreciation, depletion, and accretion expense. The Company increased the amount of our asset retirement obligations by $5,200 to account for the acquisition of the disposal well. The Company incurred accretion expense of $260 based on the utilization of the assets acquired beginning in the fourth quarter of 2012.
REGENT TECHNOLOGIES, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9. Stockholders' Equity
Common and Preferred Stock
The Company's capital structure is complex and consists of preferred stock and a general class of common stock. The Company is authorized to issue 130,000,000 shares of stock, of which 30,000,000 have been designated as preferred shares with a par value per share of $.10, and 100,000,000 have been designated as common shares with a par value per share of $.01. As of the date of this filing, there is no preferred stock outstanding and there are 22,610,233 shares of common stock outstanding which amount represents a change from the period ended December 31, 2011 due to the issuance of 250,000 shares as share-based compensation (see Note 4).
Holders of Regent's common stock are entitled to one vote for each share on all matters submitted to a stockholder vote. Holders of common stock do not have cumulative voting rights. Therefore, holders of a majority of the shares of common stock voting for the election of directors can elect all of the directors. Holders of the Regent's common stock representing a majority of the voting power of Regent's capital stock issued, outstanding and entitled to vote, represented in person or by proxy, are necessary to constitute a quorum at any meeting of stockholders. A vote by the holders of a majority of Regent's outstanding shares is required to effectuate certain fundamental corporate changes such as liquidation, merger or an amendment to Regent's articles of incorporation.
Holders of Regent's common stock are entitled to share in all dividends that the board of directors, in its discretion, declares from legally available funds. In the event of liquidation, dissolution or winding up, each outstanding share entitles its holder to participate pro rata in all assets that remain after payment of liabilities and after providing for each class of stock, if any, having preference over the common stock. Regent's common stock has no pre-emptive rights, no conversion rights and there are no redemption provisions applicable to Regent's common stock.
Stock Options
No options, warrants or similar rights are outstanding as of this report date.
Subsidiary Preferred Stock
On April 18, 2007, our subsidiary accepted purchase agreements in a total amount of $150,000 received from four purchasers of a private offering of shares of Series A Convertible Preferred Stock at $5.00 per share. The stock was sold under a private placement offering to sell $50,000 units convertible into 10,000 shares of common stock of the subsidiary plus 4,800 shares of common stock of MacuCLEAR common stock. Including the initial sales, our subsidiary has accepted purchase agreements from investors for $497,500. If all of the unconverted shares of the Series A Preferred Stock were to be converted to common stock of the subsidiary, the Company's ownership of the subsidiary would be diluted to approximately 90%.
NOTE 10. 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, 2012 and 2011, the Company had a deferred tax asset totaling approximately $181,115 and $307,176, respectively, which relates to the Company's cumulative net operating loss carry forward totaling approximately $682,190 which will expire through 2031. This deferred tax asset has been fully offset by a valuation reserve. The Company does not have any other deferred tax assets or liabilities.
REGENT TECHNOLOGIES, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 Revenue 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, 2012 and 2011 is as follows:
The Company uses the accrual method of accounting for income tax reporting purposes. At December 31, 2012 and 2011, the significant components of the Company's deferred tax assets (benefits) and liabilities are summarized as follows:
NOTE 11. Related Party Transactions
Acquisitions
On September 29, 2010, Regent RNCo executed a Property Transfer Agreement (the "Transfer Agreement") with related party SIG Partners, LC ("SIG") and Mr. Nelson, CEO and Chairman of the Registrant. The consideration for the transfer of oil and natural gas interests was the forgiveness of a $70,000 note payable and 13,500,000 shares of restricted common stock of the Company. After the consummation of the agreement, Mr. Nelson controlled approximately 80% of the outstanding common stock of the Registrant.
On December 30, 2010, Regent RNCo purchased a 50% net profits interest from SIG in producing leaseholds located in Hill County, Texas. The consideration was $91,750, with $10,000 paid upon execution and the balance payable under a promissory note for $81,750. The Transfer Agreement includes an option to acquire operations from SIG and the related equipment and injection well for the market value of the equipment and well. During the second quarter 2012, Regent RNCo acquired from SIG the disposal well and related disposal pump equipment plus various oilfield equipment including a submersible pump for the total consideration of $31,153.
REGENT TECHNOLOGIES, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MacuCLEAR Stock Sales
During 2011, the Subsidiary completed three sales of its MacuCLEAR holdings at $12 per share. Two sales for a total of 3,500 shares were made to a qualified fund controlled by the spouse of the CEO. The sale of 3,000 shares was made to a preferred shareholder of the Subsidiary. The share price for each sale was based on sales of comparable securities to new investors in MacuCLEAR Preferred Stock during 2011. During the first quarter of 2012, the Subsidiary completed a sale of 1,725 shares at $12 per share to a qualified fund controlled by the CEO.
Notes Payable and Accrued Liabilities
Beginning in 2005, the Company borrowed various amounts for general corporate purposes under a note payable to NR Partners, a partnership comprised of the CEO and director Dr. David Ramsour. As of December 31, 2012, NR Partners has an unsecured demand note in the principal amount of $20,948 of which $5,000 bears interest at the rate of 5% per annum. The remaining balance is due upon demand of which $15,000 was repaid in January 2013.
In connection with the net profits production interest acquisition in December 2010, the Subsidiary executed a promissory note for $81,750 to SIG Partners, LC. The interest rate on the note is 7% per annum. The promissory note is secured by the interest conveyed. As of the date of this filing, the outstanding principal balance is $10,400 and the maturity of the note has been extended June 30, 2013.
In addition, as of December 31, 2012, the Subsidiary has accrued liabilities of $44,259 to SIG, the operator of our oil and natural gas interests, for expenditures attributable to our oil and natural gas interests. This amount included $3,000 for SIG consulting services for the second quarter 2012.
NOTE 12. Commitments and Contingencies
None.
NOTE 13. Subsequent Events
We have evaluated events and transactions that occurred after the balance sheet date of December 31, 2012 and have determined that the only event or transaction which has occurred that would require disclosure is the sale of 2,600 shares of our subsidiary's investment holdings of MacuCLEAR Series A Preferred Stock to two unrelated third-parties. The sales occurred in January and February 2013 and the shares were sold for $12.00 per share to raise funds for general corporate purposes. A portion of the sale was used to repay debt to NR Partners, a related party.
REGENT TECHNOLOGIES, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
SUPPLEMENTAL INFORMATION
Oil and Natural Gas Producing Activities (Unaudited)
The estimates of proved oil and natural gas reserves utilized in the preparation of the consolidated financial statements were prepared by an independent petroleum engineer as of December 31, 2012. Such estimates are in accordance with guidelines established by the SEC and the FASB. All of our reserves are located in Texas. The reserves estimation is part of our internal controls process subject to management's annual review and approval. A copy of the reserve report for 2012 is furnished as exhibit 99.1 to this Annual Report on Form 10-K.
Many assumptions and judgmental decisions are required to estimate reserves. Quantities reported are considered reasonable but are subject to future revisions, some of which may be substantial, as additional information becomes available. Such additional knowledge may be gained as the result of reservoir performance, new geological and geophysical data, additional drilling, technological advancements, price changes, and other factors.
Regulations published by the SEC define proved oil and natural gas reserves as those quantities of oil and natural gas which, by analysis of geosciences and engineering data can be estimated with reasonable certainty to be economically producible from a given date forward, from known reservoirs, and under existing economic conditions, operating methods, and government regulation before the time at which contracts providing the right to operate expire, unless evidence indicates that renewal is reasonably certain, regardless of whether the estimate is a deterministic estimate or probabilistic estimate. Proved developed oil and natural gas reserves are proved reserves that can be expected to be recovered through existing wells with existing equipment and operating methods or in which the cost of the required equipment is relatively minor compared with the cost of a new well or through installed extraction equipment and infrastructure operational at the time of the reserves estimates if the extraction is by means not involving a well.
The following table sets forth estimated proved oil and natural gas reserves together with the changes therein for the years ended December 31, 2012 and 2011.
Crude Oil
Natural Gas
Bbls
Mcf
Quantities of Proved Reserves:
Balance December 31, 2010
70,395
-
Acquired properties
-
-
Revisions of previous estimates
1,540
-
Production
(1,365)
-
Balance December 31, 2011
70,570
-
Acquired properties (1)
2,500
-
Revisions of previous estimates (2)
7,979
-
Production (3)
(649)
-
Balance December 31, 2012
80,400
-
Proved Developed Reserves, Included Above:
Balance December 31, 2011
8,040
-
Balance December 31, 2012
12,700
-
(1)
Estimates for acquired properties in 2012 were positive reflecting the successful re-entry of an acquired well in the 2010 acquisition transaction.
(2)
Revisions of previous estimates in 2012 were positive due to the addition of a location for the development of an Austin Chalk well.
(3)
Reduction of production reflects the downtime due to changes to the salt water injection system.
REGENT TECHNOLOGIES, INC. AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
SUPPLEMENTAL INFORMATION - Continued
Standardized Measure of Discounted Future Net Cash Flows Relating to Proved Reserves (Unaudited):
The Standardized Measure of Discounted Future Net Cash Flows and Changes Therein Relating to Proved Oil and Natural Gas Reserves ("Standardized Measures") do not purport to present the fair market value of a company's oil and natural gas properties. An estimate of such value should consider, among other factors, anticipated oil and natural gas future prices, the probability of recoveries in excess of the existing proved reserves, the value of probable reserves and acreage prospects, and perhaps different discount rates. It should be noted that estimates of reserve quantities, especially from new discoveries, are inherently imprecise and subject to substantial revision. 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 periods presented, as adjusted by lease for transportation fees and regional price differentials. 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. The estimated present value of future cash flows relating to estimated proved reserves is extremely sensitive to prices used at any measurement period. Prices we used to value our reserves are based on the twelve-month un-weighted arithmetic average of the first-day-of-the-month price for the period January through December 2012. The prices used for oil for the years ended December 31, 2012 and 2011 were $89.19 and $88.06, respectively per barrel, adjusted by lease for quality, transportation fees, and regional price differentials.
The standardized measure of discounted future net cash flows relating to estimated proved reserves as of December 31, 2012 and 2011 was as follows:
Future revenues
$
5,980,000
$
5,002,000
Future development costs
(228,000)
(228,000)
Future production costs
(858,000)
(825,000)
Future net cash flow before Federal income tax
4,894,000
3,949,000
Future income taxes
(652,000)
(667,000)
Future net cash flows
4,242,000
3,283,000
Effect of 10% annual discounting
(2,050,000)
(1,444,000)
Standardized measure of discounted net cash flows
$
2,192,000
$
1,839,000
The changes in standardized measure of discounted future net cash flows relating to estimated proved reserves as of December 31, 2012 and 2011 were as follows:
Balance, beginning of the year
$
1,839,000
$
1,717,000
Net changes in prices and production costs related to future production
23,000
73,600
Sales and transfers, net of production costs
(14,900)
(25,600)
Net change due to revisions of quantity estimates
-
-
Net change due to extensions, discoveries and improved recovery
201,200
-
Net change due to purchases and sales of minerals in place
-
-
Changes in future development costs
-
25,000
Previously estimated development cost incurred in period
-
-
Net change in income taxes
(15,000)
49,000
Accretion of discount
235,000
-
Change in production rates (timing) and other
(76,300)
-
Net increase (decrease) in standardized measures
353,000
122,000
Balance, end of year
$
2,192,000
$
1,839,000
Item 9.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None
Item 9A.
Item 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Regent is a development stage company with nominal revenues and during the period covered by this annual report, our senior management had responsibility for our disclosure 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 procedures were 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 misstatements. 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, 2012. The assessment was based on criteria established in the framework Internal Control-Integrated. Based on the framework issued by the Committee of Sponsoring Organizations of the Treadway Commission on this assessment, management concluded that our internal control over financial reporting was not effective as of December 31, 2012.
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 have materially affected, or reasonably likely to materially affect, the Company's internal control over financial reporting.
Inherent Limitations of Internal Controls
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Management is aware that there is a lack of accounting personnel at the Company due to the small number of employees dealing with general administrative and financial matters. While this constitutes a material weakness in the internal controls, management periodically reevaluates this situation and upon an increase of significant activity, the Company intends to increase staffing to mitigate the current lack of accounting personnel and resulting segregation of duties within the general administrative and financial functions.
Item 9B.
Item 9B. Other Information
None
Item 10.
Item 10. Directors, Executive Officers and Corporate Governance
The Executive Officers and Directors of the Company and their respective ages as of December 31, 2011 are as follows:
Name
Age
Director Since
Position
David A. Nelson
June, 2003
Chairman, CEO
Philip G. Ralston
June, 2007
Director
David L. Ramsour
June, 2007
Secretary, Director
David A. Nelson, Chairman, President and CEO, is a member of the Texas Alliance of Energy Producers, the Oilfield Christian Fellowship, the Texas Bar Association, and has been a licensed attorney in Texas since 1978. His 25 years of oil and natural gas experience includes managing oil and natural gas production and gas gathering systems in Texas, Oklahoma and Louisiana and serving as President of two publicly traded oil and natural gas companies. He started his professional career with Republic National Bank of Dallas in 1971 where he served as a Vice President in the Metropolitan Lending Division. In 1983, he became Corporate Counsel for Richardson Energy Corporation and in 1984 formed a private oil and natural gas company. From January 1999 to September 2001, Mr. Nelson was Sr. Vice President of Baptist Foundation of Texas and President, CEO and Chairman of Concord Trust Company, a Texas regulated trust company. In 2002, he initiated management of private equity investments including oil and natural gas operations. In 2011, he was recognized for his work as the Founding Director of MacuCLEAR, Inc., an ophthalmic drug development company. Mr. Nelson 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.
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 corporateand 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 2011 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.
Item 11.
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 prior Restricted Stock Awards. See Note 4 - "Share-Based Compensation" to our consolidated financial statements for additional information.
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.
_______
(1) The common stock grants were valued at $.01 per share. See Note 4 - "Share-Based Compensation" to our consolidated financial statements for additional information.
Item 12.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
As of December 31, 2011, 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.
Name of
Beneficial Ownership
Percent
Title
Beneficial Owner (1)
Number of shares (2)
of Class
Chairman/CEO
David A. Nelson
17,965,798
80.3%
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)
19,465,798
87.1%
(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 29, 2011.
(4) No Director, executive officer, affiliate or any owner of record or beneficial owner of more than 5% of any class of voting securities of the Company is a party adverse to the Company or as 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.
Item 13.
Item 13. Certain Relationships and Related Transactions, and Director Independence
During the third quarter of the period ended December 31, 2010, the Company and the Subsidiary completed two acquisition transactions with the CEO. See . See Note 11 - "Related Party Transactions" to our consolidated financial statements for additional information.
During 2011 and 2012, the Subsidiary completed the sales shares of stock of its investment in MacuCLEAR, Inc. to the CEO and the spouse of the CEO. See Note 11 - "Related Party Transactions" to our consolidated financial statements for additional information.
Item 14.
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.
1. Audit fees
$
23,465
$
18,000
2. Audit-related fees
14,632
-
3. Tax fees
-
-
4. All other fees
-
-
_________
* 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.
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:
Management's Report on Internal Control Over Financial Reporting
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets at December 31, 2012 and 2011
Consolidated Statements of Operations for each of the two years in the period ended December 31, 2012 and the period from January 1, 1999 through December 31, 2012
Consolidated Statements of Stockholders' Equity (Deficit) for the period from January 1, 1999 through December 31, 2012
Consolidated Statements of Cash Flows for each of the two years in the period ended December 31, 2012 and the period from January 1, 1999 through December 31, 2012
Notes to Consolidated Financial Statements
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; incorporated by reference from the Registrant's report on Form 10-K filed on March 30, 2011.
21.1
List of subsidiaries - Regent Natural Resources Co.
23.1
Consent of RCM Engineering, Inc.#
31.1
Certification of C.E.O. and Principal Accounting Officer Pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934 #
32.1
Certification of C.E.O. and Principal Accounting Officer Pursuant to 18 U.S.C. Section 1350 #
99.1
Independent Engineer Reserve Report for the year ended December 31, 2012 prepared by RCM Engineering, Inc.#
101.INS*
XBRL Instance Document
101.SCH*
XBRL Taxonomy Extension Schema
101.CAL*
XBRL Taxonomy Extension Calculation Linkbase
101.DEF*
XBRL Taxonomy Extension Definition Linkbase
101.LAB*
XBRL Taxonomy Extension Label Linkbase
101.PRE*
XBRL Taxonomy Extension Presentation Linkbase
______
#
Filed Herewith
*
Pursuant to Rule 406T of Regulation S-T, these interactive data files are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933 or Section 18 of the Securities Exchange Act of 1934 and otherwise are not subject to liability.
SIGNATURES
In accordance with the requirements of the Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
R
EGENT TECHNOLOGIES, INC.
(Registrant)
Dated: April 15, 2013
By: /s/ D
AVID A. NELSON
David A. Nelson
Chief Executive Officer
(Principal Executive Officer and Principal Financial and Accounting Officer)