Item 1. Business
Company Overview
REGENT TECHNOLOGIES, INC., formerly Regent Petroleum Corporation, was incorporated under the laws of the State of Colorado on January 18, 1980. Beginning in the third quarter of 2010, the Company refocused its core business objectives and strategy to energy development. We provide energy solutions through our two subsidiaries: Regent Renewable Energy Co. (“Regent RECo” or “RREC”) and Regent SPV LLC (“RSPV”). In 2013, the Company organized RSPV and it will operate as an unregulated company that invests in, owns and operates distributed solar power ventures, including commercial and residential solar installation. The plans for RSPV are based on the development of the assets of Solar Logic Inc. (“Solar Logic”) acquired in December 2015. RSPV is doing business under the name Solar Logic LLC.
Regent’s commitment is to create long-term shareholder value and generate returns on invested capital in excess of its weighted average cost of capital over that time horizon. We are focusing on markets and energy applications in which renewable energy can be a least-cost solution, particularly in regions with high solar resources, significant current or projected electricity demand, and/or relatively high existing electricity prices. We differentiate our product offerings by geographic market and localize the solution, as needed. We will also enter into joint ventures or strategic arrangements with customers or other entities to maximize the value of particular projects. Some of these arrangements involve, and are expected in the future to involve, significant investments or other allocations of capital. Depending on the market opportunity, our sales offerings may range from module-only sales, to module sales with a range of development to full turn-key system sales. We expect these offerings to continue to evolve over time as we work with our customers to optimize how our solar and clean energy solutions can best meet our customers’ energy and economic needs.
Business Segments
We plan to operate our business in two segments. We plan to manufacture and market our turbine driven distributed CSP electric power generation systems with natural gas (NG) as a supplemental (optional) heat source. We have a target electrical power output of 10 kW, which is above the typical household use of photovoltaic (PV) but toward the lower end of commercial use. However, our Solar Logic systems can be installed in multiples, facilitating larger and scalable output from 10 - 150 kW for industry applications. This segment is our fully integrated systems business (“systems segment”), through which we provide complete turn-key solar thermal power systems, or solar solutions, that draw upon our project development and service capabilities. The flexibility of our solar thermal capability allows our solar system to be combined with any heat source for maximum efficiency within the DG Solar environment for the generation of electricity using exclusively stranded natural gas or other heat sources such as biomass or geothermal. Our newest segment is proposing for installation under a PPA solar PV for warehouses and communities also referred to as small utility. Our first installation is scheduled for June 2016 at an indoor soccer facility. We are also developing standby - backup electricity systems for residential and light industrial.
Our competitive strengths
Concentrated Solar Power (CSP). We are developing a complete turn-key distributed Concentrated Solar Power (CSP) solution using parabolic troughs with the ability to operate as a steady-state system through supplemental firing of natural gas when solar thermal energy is not adequate. Our Solar Logic patented turbine works with our parabolic trough system in a single-loop design which passes the solar heated Heat Transfer Fluid (HTF) directly through the power turbine. The electric power output is estimated to be 10 kilowatts (kWe) operating via solar heat over 90% of the time during acceptable daylight hours and is dry cooled during all times of operation. The installed cost of the system is estimated to be $20,000. This system will have a solar power only Levelized Cost of Energy (LCOE) at 5.7¢ per kWh over a 25-year period, when run during normal operating hours, or a solar/natural gas mix LCOE at 5.13¢ per kWh using extended operating hours. The system could become a high impact solution for both CSP and the overall solar market due to the low lifetime cost as well as the ability to operate predictably regardless of cloud cover or other types of weather. The beneficiaries of this technology will be small businesses and light commercial facilities that would otherwise not install photovoltaic (PV) panels due to the unpredictability of using solar power alone. The primary benefit of the system is its ability to leverage low-quality heat produced within a small solar heating loop. Creating a small, turn-key CSP system which operates on low-quality heat requires many novel solutions. While some of the unique design solutions may not be viewed as substantial risks, they are all required to meet the objective of a distributed CSP solution for less than 6¢ per kWh.
Our Solar Logic CSP system is intended for rooftop or ground mount installations. The anticipated weight of the complete system is less than 1,000 lbs and will require less than 800 ft2 of space, making it a viable solar solution for some applications where PV is too heavy or too large for the given rooftop. The general operational environment for the system is defined as full or partial sun from sunrise to sunset. The ideal solar conditions for this system are found in the Sunbelt states of the U.S., although its operational abilities are not limited to this geographic zone. Unlike a conventional steam turbine, Solar Logic’s patented turbine is an innovative boundary layer turbine which can accept HTF in wet, dry, or two-phase flow conditions. Our turbine can extract energy from very low vapor quality working fluid without internal damage. Our bladeless design facilitates high volume manufacturing at a low cost, thereby bringing down the cost-per-watt of our energy solution while maintaining robust use. In addition, our turbine has the flexibility to serve as a pump. We are currently making changes to allow the turbine the advantage of having the HTF heated with a natural gas burner. This would allow a unit to operate with or without solar thermal heat through the parabolic trough system.
Multi-Scale Photovoltaic (PV) Solar Power. Through the REGENT-EDDS team, we have the capability to provide a full-service solution for any PV solar panel application including commercial, industrial and residential. Regent-EDDS provides an experienced team with disciplines to cover legal, design, engineering, permitting, and installation plus service and repairs. The professionals at REGENT-EDDS have installed over 10 Mw of solar PV and have been recognized annually by Solar Power World for their high level of performance for quantity and quality. The REGENT-EDDS vision is to partner with all parties involved in bringing solar energy to the environment. This has ranged from developers, installers, state and local governments, and educational institutions to landowners (urban and rural) who are solely interested in making a statement about improving the environment. A typical installation of 150kW solar power will generate 200 MWh annually and displace 180 tons of carbon dioxide annually which is equivalent to 18,500 gallons of gasoline.
Standby Power Units Residential and Industrial. While we believe the SL-10 Power Unit has a future disruptive capability to the 10kW- 100kW market, our REGENT -EDDS team has the capability to bring standby power options to residential and industrial applications. Our solutions include diesel and natural gas standby units as well our ongoing development of our patented solar CSP options. Our standby solution ensures superior quality in its unique design and assembly by choosing engines, generators and other key components that have been proven in residential, light and heavy-duty industrial applications under adverse conditions. Combined with our state-of-the-art electronic control system, our generator sets reliably and consistently provide the prime and standby power required in low kilowatt applications for residential, oilfield and industrial operations. With a wide variety of options and configurations, we can provide users with generators to suit their unique requirements. We are committed to ensuring that training and support to our customers continues long after their generator acquisition.
Intellectual property
Solar Logic holds several U.S. and foreign patents related to our system and turbine technologies, including a turbine patent issued in the fourth quarter 2017. The Company believes that patent protection is important to its business. There can be no assurance as to the breadth or degree of protection that patents may afford the Company, that any patent applications will result in issued patents or that patents will not be circumvented or invalidated. Although the Company believes that its existing patents and the Company's equipment do not and will not infringe upon existing patents or violate proprietary rights of others, it is possible that the Company's existing patent rights may not be valid or that infringement of existing or future patents or violations of proprietary rights of others may occur. In the event the Company's equipment or processes infringe, or are alleged to infringe, patents or other proprietary rights of others, the Company may be required to modify the design of its equipment or processes, obtain a license or defend a possible patent infringement action. There can be no assurance that the Company will have the financial or other resources necessary to enforce or defend a patent infringement or proprietary rights violation action or that the Company will not become liable for damages.
The Company also relies on trade secrets and proprietary know-how and employs various methods to protect its technology. However, such methods may not afford complete protection and there can be no assurance that others will not independently develop such know-how or obtain access to the Company's know-how, concepts, ideas and documentation. Failure to protect its trade secrets could have a material adverse effect on the Company. We will file additional patent applications to protect inventions arising from our research and development. Our patent applications and any future patent applications might not result in a patent being issued with the scope of the claims we seek, or at all, and any patents we may receive may be challenged, invalidated, or declared unenforceable. In addition, we have registered and/or have applied to register trademarks and service marks in the U.S. and a number of foreign countries for “Solar Logic.”
Legislated incentive programs
Tax incentive programs exist in the U.S. at both the federal and state level and can take the form of investment and production tax credits, accelerated depreciation, and sales and property tax exemptions and abatements. At the federal level, investment tax credits for business and residential solar systems have gone through several cycles of enactment and expiration since the 1980’s. In December 2015, the U.S. Congress extended the 30% federal energy investment tax credit (“ITC”) for both residential and commercial solar installations through December 31, 2019. The credit will step down to 26% in 2020, 22% in 2021, and remain at 10% permanently beginning in 2022. The ITC has been an important economic driver of solar installations in the U.S., and its extension is expected to contribute to greater medium-term demand visibility in the U.S. The positive impact of the ITC has depended to a large degree on the availability of tax equity for project financing, and any significant reduction in the availability of tax equity in the future could make it more difficult to develop and construct projects requiring financing. The eventual step-down of the ITC to 10% underscores the need for the LCOE from solar systems to continue to decline and remain competitive with other sources of energy generation.
Section 25D of the IRC allows a taxpayer to claim a credit for a residential solar energy system that is owned by the homeowner. This credit is available at 30% for systems that are placed in service by December 31, 2019, at 26% for systems placed in service in 2020, and at 22% for systems placed in service in 2021. The credit is scheduled to expire effective January 1, 2022. Approximately half of U.S. states offer a personal and/or corporate investment or production tax credit for solar, which are additive to the Federal ITC. Further, more than half of U.S. states, and many local jurisdictions, have established property tax incentives for renewable energy systems, which include exemptions, exclusions, abatements and credits.
Forty-one states, Washington, D.C. and Puerto Rico have a form of regulatory policy known as net energy metering, or net metering, available to new solar customers. Net metering typically allows solar customers to interconnect their on-site solar energy systems to the utility grid and offset their utility electricity purchases by receiving a bill credit at the utility’s retail rate for energy generated by their solar energy system that is exported to the grid in excess of electric load used by customers. Each of the states where we currently serve customers have adopted a net metering policy except for Texas, where certain individual utilities have adopted net metering or a policy similar to net metering. Typically, at the end of the billing period, the customer simply pays for the net energy used or receives a credit at the retail rate if more energy is produced than consumed.
The majority of states in the U.S. have enacted legislation adopting Renewable Portfolio Standard (“RPS”) mechanisms. Under an RPS, regulated utilities and other load serving entities are required to procure a specified percentage of their total electricity sales to end-user customers from eligible renewable resources, such as solar generating facilities, by a specified date. Some programs may further require that a specified portion of the total percentage of renewable energy must come from solar generating facilities. RPS legislation and implementing regulations vary significantly from state to state, particularly with respect to the percentage of renewable energy required to achieve the state’s RPS, the definition of eligible renewable energy resources, and the extent to which renewable energy credits (certificates representing the generation of renewable energy) qualify for RPS compliance. To prove compliance with such mandates, utilities typically must surrender renewable energy certificates. A solar renewable energy certificate, or SREC, is a tradable credit that represents all of the clean energy benefits of electricity generated from a solar energy system. Every time a solar energy system generates 1,000 kWh of electricity, one SREC is issued or minted by a government agency. The SREC can then be sold or traded separately from the energy produced, generally through brokers and dealers facilitating individually negotiated bilateral arrangements. SRECs are primarily valuable because they help utilities and other energy suppliers comply with RPS standards.
Our strategic imperatives for 2017-18
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Pursue strategic partnerships with industry partners that may expand or complement our renewable power technology development plans.
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Initiate operations with our renewable energy assets, including a combination of residential and commercial net-metered and grid-connected solar systems.
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Offer a variety of renewable energy solutions including solar thermal CSP, solar photovoltaic (PV solar panels), and wind energy or a combination of the aforementioned to bring the customer the optimal and most efficient solution.
Regulation
Our operations may be subject to federal, state and local laws and regulations governing the occupational health and safety of our employees, wage regulations and environmental regulations. This includes the requirements of the federal Occupational Safety and Health Act, as amended, or OSHA, and comparable state laws that protect and regulate employee health and safety. We are not a regulated utility but for certain projects we expect to receive public funds for installations of our systems on government facilities. There are wage requirements enforced by regulatory agencies for publicly funded projects which may impact our operations. In certain situations, interconnection agreements may be required from the local utility which utilize a standard agreement without the need for additional regulatory approvals.
Market and Competition
We believe we have over 3.6 million light commercial candidates for our solar thermal business just within the US Sunbelt states with the expressed need and desire to reduce their high energy consumption costs via clean energy technologies. Solar energy is a growing form of renewable energy domestically and internationally with numerous economic and environmental benefits that make it an attractive complement to, and/or substitute for, traditional forms of electricity generation. The solar industry continues to be characterized by pricing competition and we believe manufacturers of solar energy solutions have significant installed production capacity and the ability for additional capacity expansion. Intense competition at the systems level can result in a rapid decline in prices and further increase the demand for solar energy solutions. Most of our existing or future competitors may be part of larger corporations that have greater financial resources and greater brand name recognition than we do and, as a result, may be better positioned to adapt to changes in the industry or the economy as a whole. Certain competitors may have direct or indirect access to significant capital, which could enable such competitors to operate at minimal or negative operating margins for sustained periods of time.
Employees and Principal Office
Other than our directors and officers, as of December 31, 2017, we do not have employees. We currently rent space at 5646 Milton, Dallas, Texas 75206 as our principal office.
Transfer Agent
During December 2007, the Company appointed Securities Transfer Corporation as the Transfer Agent to handle securities transactions for the Company. In December 2016, the Company took this function in-house.
Available Information
The public may read and copy any materials that we file with the SEC at the SEC’s Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC also maintains a website at http://www.sec.gov that contains reports and other information regarding issuers, such as First Solar, that file electronically with the SEC. Additional information is available at our website at www.regent-tec.com.
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:
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difficult and adverse conditions in the domestic and global economies;
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changes in domestic and global demand for solar energy;
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the effects of government regulation, permitting and other legalities;
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the availability of capital on economic terms to fund our capital expenditures and acquisitions;
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our level of indebtedness;
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the impact of the past or future economic recessions on our business operations, financial condition and ability to raise capital;
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the ability of financial counterparties to perform or fulfill their obligations under existing agreements;
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hurricanes and other weather conditions;
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lack of availability of goods and services;
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regulatory and environmental risks; and
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the other risks described in this Form 10-K.
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.
Risks Related to Our Renewable Energy Ventures
Renewable energy development or construction activities may not be successful.
The development and construction of renewable energy electric generation facilities and other energy infrastructure projects involve numerous risks. If we are unable to complete the development of a renewable energy project, we may write-down or write-off some or all of these assets, which would have an adverse impact on our net income in the period in which the loss is recognized.
Developing renewable energy ventures may require significant upfront investment which could adversely affect our business and results of operations.
Our liquidity may be adversely affected to the extent project sales market weakens and we are unable to sell our solar projects on pricing, timing, and other terms commercially acceptable to us which may require us to terminate the investment at a loss, or to operate certain solar projects for a period of time at a loss or sell the projects to third parties.
We may not be able to obtain long-term contracts for the sale of power produced by certain projects at prices and on other terms favorable to attract financing and other investments.
The electricity from certain of our anticipated projects will be sold on an open-contract basis for a period of time rather than under a PPA. If prevailing spot electricity prices relating to any such project were to decline in an unexpected manner, such project may decline in value and our results of operations could otherwise be adversely affected.
We may be subject to unforeseen costs, liabilities, or obligations when providing O&M services.
We may provide ongoing O&M services to system owners under separate service agreements. Our costs to perform these services will be estimated at the time of entering into the O&M agreement for a particular project, and these are reflected in the price we charge our customers. We have limited experience in performing O&M services and the adverse impacts on our results of operations could be significant, particularly if our costs are not capped under the terms of the agreements.
The ongoing O&M services that we anticipate providing for system owners may subject us to regulation by the North American Electric Reliability Corporation (“NERC”), or its designated regional representative, as a “generator operator,” or “GOP,” under electric reliability rules filed with FERC. Our failure to comply with the reliability rules applicable to GOPs could subject us to substantial fines by NERC, subject to FERC’s review. In addition, the system owners that receive our O&M services may be regulated by NERC as “generator owners,” or “GOs” and we may incur liability for GO violations and fines levied by NERC, subject to FERC’s review, based on the terms of our O&M agreements.
Lower retail prices for electricity from other sources could significantly affect our profitability.
If the retail price of energy available from utilities were to significantly decrease for any reason, we would be at a competitive disadvantage. As a result of these or similar events impacting the economics of our customer agreements, we may be unable to attract new customers and we may experience an increased rate of defaults under our existing customer agreements. In addition, we may be unable to sell our systems in commercial markets that produce electricity at rates that are competitive with the unsubsidized price of retail electricity.
Environmental risks may become too onerous to continue as a competitive energy concern.
Power companies are and will be subject to stringent and complex federal, state and local laws and regulations governing the discharge of materials into the environment or otherwise relating to environmental protection. Compliance with these laws and regulations may require the acquisition of permits before drilling commences, restrict the type, quantities and concentration of various substances that can be released into the environment in connection with drilling and production activities, limit or prohibit drilling and production activities on certain lands lying within wilderness, wetlands and other protected areas and require remedial measures to mitigate pollution from former and ongoing operations. Failure to comply with these laws and regulations may result in the assessment of administrative, civil and criminal penalties, the imposition of remedial obligations, and the issuance of injunctions that may limit or prohibit some or all of our operations.
Other Risks
We are a relatively new business.
Our operations are subject to all of the risks inherent in establishing a new business enterprise. Our potential for success must be considered in light of the problems, expenses, difficulties, complications and delays frequently encountered in connection with a new business. We cannot warrant or provide any assurance that our business objectives will be accomplished.
Our financial condition is limited.
We have limited resources and will be unable to undertake our energy programs unless we are able to raise additional capital.
We will experience competition from numerous entities.
There are other individuals, partnerships, and major and independent energy companies which are in competition with the Company, some of which have greater financial and technical resources than those available to the Company.
Voting control is vested in the current holders of Common Stock.
Voting control is vested in the current holders of Common Stock before and after this Offering.
Cash dividends may not be paid to shareholders.
You may receive little or no cash or stock dividends on your shares of common stock. The board of directors has not directed the payment of any dividends, does not anticipate paying dividends on the shares for the foreseeable future and intends to retain any future earnings to finance our growth. Payment of cash dividends, if any, will depend, among other factors, on our earnings, capital requirements, and the general operating and financial condition, and will be subject to legal limitations on the payment of dividends out of paid-in capital.
The loss of key individuals could adversely impact our business.
We are highly dependent on the services of key individuals. The loss of certain of key individuals would likely have a material adverse impact on the development of our business. We currently do not maintain key employee insurance policies.
The majority of our outstanding common stock is closely held and does not trade in an open market.
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.
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 may not be able to improve operational and financial systems for growth.
As the Company grows, we 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.
Internal controls may be inadequate.
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.
Item 1B.
Item 1B. Unresolved Staff Comments
We have received no written SEC staff comments regarding our periodic or current reports under the Exchange Act that were issued 180 days or more preceding the end of our 2017 fiscal year and remain unresolved.
Item 2.
Item 2. Properties
The location and general character of our business properties has been described under Item 1. Business. See Note 5 - "Property, Plant and Equipment" to our consolidated financial statements for additional information. For additional financial information and discussion of our 2017 plans, see Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
Item 3.
Item 3. Legal Proceedings
We have no litigation and no known pending litigation.
Item 4.
Item 4. Mine Safety Disclosures
Not applicable.
PART II
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, 2017, security dealers did not report high and low bid quotations.
Shares Available Under Rule 144
There are currently 20,641,439 shares of common stock that are considered restricted securities under Rule 144 of the Securities Act of 1933 (the "Act"). Most of the restricted shares are held by affiliates, as that term is defined in Rule 144(a)(1). In general, under Rule 144 as amended, a person who has beneficially owned and held restricted securities for at least a year, including affiliates, may sell publicly without registration under the Act, within any three-month period, assuming compliance with other provisions of the Act. In general, under Rule 144, as currently in effect, a person who has beneficially owned shares of a company's common stock for at least six months is entitled to sell within any three month period a number of shares that does not exceed the greater of:
1.
1% of the number of shares of the company's common stock then outstanding; or
2.
The average weekly trading volume of the company's common stock during the four calendar weeks preceding the filing of a notice on Form 144 with respect to the sale.
Sales under Rule 144 are also subject to manner of sale provisions and notice requirements and to the availability of current public information about the company. Under Rule 144(k), a person who is not one of the company's affiliates at any time during the three months preceding a sale, and who has beneficially owned the shares proposed to be sold for at least two years, is entitled to sell shares without complying with the manner of sale, public information, volume limitation or notice provisions of Rule 144.
Holders
As of December 31, 2017, partially based on information provided by our former transfer agent, the number of holders of record of our common stock was 2,033.
Dividends
We have not declared any dividends, and we do not plan to declare any dividends in the foreseeable future except the dividends declared pursuant to the Company’s Series A Convertible Preferred Stock. See Note 8 - "Stockholders’ Equity.”
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 materially from those contemplated. 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.
Executive Overview
We are focused on being a provider of comprehensive energy solutions for medium and small users through our solar thermal technology, natural gas or a combination of solar thermal and natural gas. Effective December 1, 2015, Regent Technologies, Inc. entered into the Regent-Solar Logic IP Rights Agreement (the “SL Agreement”) with Solar Logic Incorporated (“Solar Logic”) which includes an exclusive license of Solar Logic’s intellectual property (the “SL Intellectual Property License” of “License”) to the Company. Under the Agreement and License, Solar Logic transferred all of its equipment to Regent and granted the exclusive rights to all intellectual property which includes two issued patents and its trade secrets, technology, business and technical information and know-how, databases, and other confidential and proprietary information as well as solar manufacturing processes and protocols. REGENT SPV LLC (“RSPV”), do business as Solar Logic LLC, will operate as an unregulated company that invests in, owns and operates distributed solar power ventures, including commercial and residential solar installations. Through our Solar Logic acquisition, we have the ability to create a distributed concentrated solar power system with supplemental use of natural gas to achieve a continuous electrical output.
Results of Operations
2017 Compared to 2016
For the year ended December 31, 2017, the Company had a net loss of $112,704 compared to a net loss of $185,995 for the year ended 2016. Under the Company’s review for impairment of its holdings of MacuCLEAR stock, the Company recorded non-cash impairment charges of $81,769 for 2017. General and administrative expenses were $52,612 for the period ended December 31, 2017 compared to $75,267 for the period ended December 31, 2016. The decrease in our general and administrative expenses were primarily due to no compensation payments to management in 2017. Interest expense was $3,005 for 2017 compared to $2,556 for 2016.
Liquidity and Capital Resources
We finance our operations, including the costs of acquisition and installation of solar energy systems, mainly through a variety of financing fund arrangements that we have formed with fund investors, recourse and non-recourse credit facilities, and other corporate borrowing. As of December 31, 2017, the Company had total assets of $4,888,519 and total liabilities of $135,079, compared to total assets of $4,963,843 and total liabilities of $117,699 as of December 31, 2016. The increase in liabilities was due to the increase of accounts payable and accrued liabilities to related parties. Regent has funded operations through short-term borrowings and sales of common and preferred stock.
Cash Flows
Net cash flows used in operating activities was $11,055 for the year ended December 31, 2017, compared to net cash flows used of $63,188 for the same period in 2016. Net cash flows used by investing activities was $12,319 in 2017 compared to $28,744 of net cash provided in 2016. This was due to legal expenses for patent related costs in 2017 compared to the sale of a portion of the Company's investment in MacuCLEAR preferred stock in 2016. Net cash flows provided by financing activities in 2017 was $20,000 from a Company common stock sale compared to cash flows provided of $35,000 for 2016 from the sale of Company preferred stock in the amount of $25,000 plus borrowings of $10,000.
Off-Balance Sheet Arrangements
We have no off-balance sheet debt or similar obligations.
Recent Accounting Pronouncements
See Note 1 “Recent Accounting Pronouncements” to our consolidated financial statements for the year ended December 31, 2017 included in this Annual Report on Form 10-K for a summary of recent accounting pronouncements.
Critical Accounting Estimates
In preparing our financial statements in conformity with generally accepted accounting principles in the United States, we make estimates and assumptions that affect the amounts of reported assets, liabilities, revenues, and expenses, as well as the disclosure of contingent liabilities in our consolidated financial statements and the related notes thereto. Some of our accounting policies require the application of significant judgment by management in the selection of the appropriate assumptions for making these estimates. Our significant accounting policies are described in Note 1 “Summary of Significant Accounting Policies” to our consolidated financial statements for the year ended December 31, 2017 included in this Annual Report on Form 10-K. Our critical accounting estimates, which require the most significant management estimates and judgment in determining the amounts reported in our consolidated financial statements included in this Annual Report on Form 10-K, are as follows:
Accounting for Income Taxes. We are subject to the income tax laws of the United States, and its states and municipalities, and those of the foreign jurisdictions in which we have significant business operations. These tax laws are complex and subject to different interpretations by the taxpayer and the relevant governmental taxing authorities. We establish liabilities for potential additional taxes based on our assessment of the outcome of our tax positions. Once established, we adjust the liabilities when additional information becomes available or when an event occurs requiring an adjustment. Significant judgment is required in making these estimates and the actual cost of a tax assessment, fine, or penalty may ultimately be materially different from our recorded liabilities, if any.
Long-Lived Asset Impairment. We are required to assess the recoverability of the carrying value of long-lived assets including property, plant and equipment, and intangibles when an indicator of impairment has been identified. We review our long-lived assets each reporting period to assess whether impairment indicators are present, and we must exercise judgment in assessing whether an event indicating potential impairment has occurred. For purposes of recognition and measurement of an impairment loss, a long-lived asset is grouped with other assets and liabilities at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities, and we must exercise judgment in assessing such groupings and levels.
For long-lived assets, when impairment indicators are present, we compare undiscounted future cash flows, including the eventual disposition of the asset group at market value, to the asset group’s carrying value to determine if the asset group is recoverable. This assessment requires the exercise of judgment in assessing the future use of and projected value to be derived from the assets to be held and used. We also utilize third-party valuations and information available regarding the current market for similar assets. If there is impairment, a loss is recorded to reflect the difference between the asset group’s fair value and carrying value prior to impairment. This may require judgment in estimating future cash flows, relevant discount rates, and residual values applied in the income approach used in estimating the current fair value of the impaired assets to be held and used.
Related Party Transactions
See Note 9 - "Related Party Transactions" to our consolidated financial statements for additional information.
Item 7A.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Not applicable
Item 8.
Item 8. Consolidated Financial Statements and Supplementary Data
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of Regent Technologies, Inc. and subsidiary
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Regent Technologies, Inc. and subsidiary (the “Company”) as of December 31, 2017 and 2016 and the related consolidated statements of operations, stockholders’ equity and cash flows for the years then ended, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Company as of December 31, 2017 and 2016, and the results of its consolidated operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.
Explanatory Paragraph - Going Concern
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the consolidated financial statements, the Company has suffered recurring losses from operations since inception 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 2. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures include examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ Turner, Stone & Company, L.L.P.
Dallas, Texas
April 17, 2018
We have served as the Company’s auditor since 2005.
REGENT TECHNOLOGIES, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
The accompanying notes are an integral part of the consolidated financial statements.
REGENT TECHNOLOGIES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
The accompanying notes are an integral part of the consolidated financial statements.
REGENT TECHNOLOGIES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
The accompanying notes are an integral part of the consolidated financial statements.
REGENT TECHNOLOGIES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
The accompanying notes are an integral part of the consolidated financial statements.
REGENT TECHNOLOGIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. Description of Business and Significant Accounting Policies
Regent Technologies, Inc., formerly Regent Petroleum Corporation, was incorporated under the laws of the State of Colorado on January 18, 1980. The Company operates through two subsidiaries and has focused since 2015 on developing and deploying renewable energy technologies. We provide energy solutions through our two subsidiaries: Regent Natural Resources Co. (“Regent RECo” or “RREC”) and Regent SPV LLC (“RSPV”). In 2013, the Company organized RSPV and it will operate as an unregulated company that invests in, owns and operates distributed solar power ventures, including commercial and residential solar installation. The plans for our subsidiaries include the development of the assets of Solar Logic Inc. (“Solar Logic”) acquired in December 2015.
Consolidation Principles
The consolidated financial statements of the Company included in this report 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 and include all adjustments (consisting only of normal recurring adjustments) that are, in the opinion of management, necessary for a fair presentation. Intercompany balances and transactions have been eliminated in consolidation.
Estimates and Assumptions
The preparation of financial statements in conformity with US GAAP 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 and amortization, impairment of long-lived assets based on estimates of future net cash flows, and asset retirement obligations based on estimates regarding timing and cost of future asset retirements.
Property, Plant and Equipment
The Company reviews its equipment and other operating assets for impairment in accordance with ASC 360, Property, Plant, and Equipment (“ASC 360”). ASC 360 requires the Company to evaluate equipment and other operating assets for impairment as events occur or circumstances change that would more likely than not reduce the fair value below the carrying amount. If the carrying amount is not recoverable from its undiscounted cash flows, then the Company would recognize an impairment loss for the difference between the carrying amount and the current fair value. Further, the Company evaluates the remaining useful lives of its equipment and other operating assets at each reporting period to determine whether events and circumstances warrant a revision to the remaining depreciation periods.
Depreciation, Depletion and Amortization
Depreciation of furniture, fixtures and equipment, consisting of office furniture, computer hardware and software, leasehold improvements, and solar power equipment is computed using the straight-line method over their estimated useful lives, which vary from three to ten years.
Business Acquisitions
We account for business acquisitions using the acquisition method of accounting and record intangible assets separate from goodwill. Intangible assets are recorded at fair value based on estimates as of the date of acquisition. Goodwill is recorded as the residual amount of the purchase price consideration less the fair value assigned to the individual assets acquired and liabilities assumed as of the date of acquisition. We charge acquisition related costs that are not part of the purchase price consideration to general and administrative expense as they are incurred. These costs typically include transaction and integration costs, such as legal, accounting, and other professional fees. Contingent consideration, which represents an obligation of the acquirer to transfer additional assets or equity interests to the former owner as part of the exchange if specified future events occur or conditions are met, is accounted for at fair value either as a liability or as equity depending on the terms of the acquisition agreement.
Intangibles - Goodwill and Other
Acquired intangible assets are amortized over their estimated useful lives. We evaluate the recoverability of our intangible assets for possible impairment whenever events or circumstances indicate that the carrying amount of such assets may not be recoverable. If such review indicates that the carrying amount of property and equipment and intangible assets is not recoverable, the carrying amount of such assets is reduced to fair value as impairment. We would record any impairment in accordance with ASC No. 350, “Intangibles - Goodwill and Other” (“ASC 350”). Pursuant to ASC 350, we perform impairment tests between scheduled annual tests in the fourth quarter if facts and circumstances indicate that it is more likely than not that the fair value of a reporting unit is less than its carrying value.
Revenue Recognition
The energy sales revenue of the Company will be recognized when the electrical power generated by the Company’s power production units is delivered to the customer who is reasonably assured to be able to pay under the terms defined by the PPAs. Additional revenue may be derived from installation and other operations and maintenance activities which revenue will be recognized upon receipt.
Asset Retirement Obligation
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 the discount of the estimated liability is treated as accretion expense included in depreciation, depletion and amortization on our 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.
Fair Value Measurements
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value of an asset should reflect its highest and best use by market participants, whether in-use or an in-exchange valuation premise. The fair value of a liability should reflect the risk of nonperformance, which includes, among other things, the Company’s credit risk. In accordance with the requirements of ASC No. 820, "Fair Value Measurement" ("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 carrying value of the notes payable 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:
•
Level 1 Inputs-unadjusted quoted market prices in active markets for identical assets or liabilities;
•
Level 2 Inputs-quotes which are derived principally from or corroborated by observable market data. Included in this level are interest rate information and commodity pricing data obtained from third party pricing sources and our creditworthiness; and
•
Level 3 Inputs-unobservable inputs for the asset or liability, such as discounted cash flow models or valuations, based on the Company’s various assumptions and future commodity prices. Included in this level is the carrying value of our investment in MacuCLEAR Preferred Stock (See Note 4). None of our investments are held for trading purposes.
Earnings per Common Share
Earnings per common share are determined 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, 2017 and 2016, there are no exercisable common stock equivalents that are potentially dilutive. 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.
Recent Accounting Pronouncements
Revenue Recognition
In May 2014, FASB issued Accounting Standards Update No. 2014-09 (“Update 2014-09”), Revenue from Contracts with Customers (Topic 606). Update 2014-09 amends the revenue recognition guidance and requires more detailed disclosures to enable financial statement users to understand the nature, amount, timing and uncertainties of revenue and cash flows arising from contracts with customers. In April 2016, FASB issued Accounting Standards Update No. 2016-10 (“Update 2016-10”), Revenue from Contracts with Customers (Topic 606), Identify Performance Obligations and Licensing. In March 2016, FASB issued Accounting Standards Update No. 2016-08 (“Update 2016-08”), Revenue from Contracts with Customers (Topic 606), Principal versus Agent Considerations (Reporting Revenue Gross versus Net). In May 2016, FASB issued Accounting Standards Update No. 2016-12 (“Updated 2016-12”), Revenue from Contracts with Customers (Topic 606), Narrow-Scope Improvements and Practical Expedients. Both Update 2016-10 and 2016-08 provide additional guidance on how an entity should recognize revenue when depicting the transfer of promised goods or services. These Updates provide more guidance on identifying performance obligations and licensing. Update 2016-12 provides additional clarification to the steps an entity should follow to achieve the core principle of Topic 606. The guidance, as amended, is effective for annual and interim reporting periods beginning after December 15, 2017. The Company did not elect early adoption of these Updates. Management has reviewed the essential provisions of all of our major revenue contracts and our revenue recognition practices. As a result of this review, Management does not expect a material impact on the consolidated statement of income. The Company has elected to adopt these pronouncements using the modified retrospective method effective January 1, 2018.
During the year ended December 31, 2017 and through April 17, 2018, there were several new accounting pronouncements issued by the Financial Accounting Standards Board ( FASB). 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 2. Going Concern Uncertainties
As of the date of this 2017 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 3. Intangible Assets and Solar Logic Acquisition
Effective December 1, 2015, Regent Technologies, Inc. entered into the Regent-Solar Logic IP Rights Agreement (the “SL Agreement”) with Solar Logic Incorporated (“Solar Logic”) which includes an exclusive license of Solar Logic’s intellectual property (the “SL Intellectual Property License” or “License”) to the Company. Under the Agreement and License, Solar Logic transferred all of its equipment to Regent and granted the exclusive rights to all intellectual property which includes two issued patents and its trade secrets, technology, business and technical information and know-how, databases, and other confidential and proprietary information as well as solar manufacturing processes and protocols. All acquired assets were appraised with a combined tangible and intangible asset valuation of $4.8 million by a third-party appraiser engaged by Solar Logic. In connection with applying the acquisition method of accounting, the asset value acquired by Regent resulted in $4,614,220 assigned to intangible assets, and $185,780 assigned to property, plant and equipment. During 2017, the Company incurred expense of $12,320 for legal fees related to the issuance of a new patent. This amount has been capitalized and has increased the intangible asset total to $4,626,539. Substantially all the intangible assets recorded for this acquisition are deductible for tax purposes.
Intangible assets currently are composed of those assets acquired as part of our Solar Logic Acquisition described above. In the future, this will include our internally-generated intangible assets, which will represent patents on technologies related to our products and production processes. We record an asset for patents, after the patent has been issued, based on the legal, filing, and other costs incurred to secure them. We amortize intangible assets on a straight-line basis over their estimated useful lives beginning with the use of the asset. Due to the continued development and patent work and the issuance of the third patent, Patent No. 9,835,142, on November 27, 2017, the amortization will begin in 2019. We estimate the useful life of our intangible assets to be 15 years and the estimated amortization expense to be approximately $308,435 per year. Also, due to the continued patent work, the SL Agreement was amended July 1,2017, to begin the $50,000 annual advance payment on royalties to begin on January 1, 2018 and the Company’s commitment to raise $500,000 in capital was extended to June 30, 2018. The first two years of advance payment on royalties may be paid in cash or stock at the rate of $.10 per share at the election of the Company. The SL Agreement amendment is attached hereto as Exhibit 10.5.
NOTE 4. Investments
MacuCLEAR Inc. discontinued Phase 2 clinical trials in February 2017 following indications that the new drug had the potential to positively effect visual acuity. MacuCLEAR engaged a national merger and acquisition firm to help market the assets of MacuCLEAR but during the fourth quarter of 2107, the management of MacuCLEAR announced that efforts to sell the assets had received no interest. Accordingly, we are marking these assets as having no value and taking a loss of $81,769 for the remaining book value. There were no sales of MacuCLEAR preferred or common stock in 2017. MacuCLEAR management indicated that for purposes of public valuation the MacuCLEAR Preferred Stock has no value even though the MacuCLEAR assets are continuing to be marketed for salvage value. This value reduction is consistent with the Company’s previous application of the requirements of ASC No. 820, "Fair Value Measurement.” The remaining 4,361 shares of MacuCLEAR Preferred Stock were transferred in an agreement with a related party effective December 31, 2017. See Note 9.
On March 1, 2017, the Company entered into a Memorandum of Understanding with Genesis Energy LLC (“Genesis”) for the exchange of certain engineering and environmental data plus 100,000 shares of restricted common stock of the Company for 5% ownership of Genesis. During the fourth quarter, the principals of Genesis paid $2,500 to cover a portion of the prepaid expenses which reduced the amount advanced toward a business acquisition to $68,231. The Company has continued the negotiation for this acquisition with the expectation of a closing in 2018.
NOTE 5. Property, Plant and Equipment
Pursuant to the Solar Logic Acquisition described in Note 3, $185,780 was assigned to property, plant and equipment effective December 1, 2015.
NOTE 6. Asset Retirement Obligation
We have included estimated future costs of abandonment and dismantlement in our amortization as a component of our depreciation, depletion, and accretion expense related to previously owned oil and gas assets. Effective December 31, 2017, this obligation has been assigned to a related party in an exchange agreement which includes the remaining Subsidiary oil and gas assets. See Note 9.
NOTE 7. 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, 2016, the Company had net deferred tax assets which relate to the Company's net operating loss carry forwards less deferred tax liabilities related to unrealized gains on its MacuCLEAR investment shares. At December 31, 2017, the deferred tax liabilities related to unrealized gains on its MacuCLEAR investment shares has been eliminated due to the full impairment of the MacuCLEAR investment. At December 31, 2017, the remaining net operating loss totaled approximately $567,028 which will expire through 2037.
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. The Tax Cuts and Jobs Act was enacted on December 22, 2017. The Act reduces the corporate tax rate from 34% to 21% beginning in 2018. The Company’s evaluation of the accounting elements of the Tax Act has been determined as not material at this time and the resulting reconciliation of income tax expense as not material at this time.
NOTE 8. 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. The Board of Directors has established a Series A Preferred Stock and a Series B Preferred Stock as series of Company preferred stock. As of the date of this filing, there are outstanding 175,000 shares of Series A Preferred Stock, 1,500,000 shares of Series B Preferred Stock, and 24,114,610 shares of common stock outstanding. Effective December 31, 2017, the Company cancelled the BE-WIND LLC Managing Distributor and License Agreement dated August 29, 2017. The effect of the termination included the cancellation of the common stock grant in the Agreement and the understanding that both parties had no liabilities or obligations related thereto.
Common Stock
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.
The Company’s common stock increased this year was due to the sale of 200,000 shares of common stock pursuant to the Private Placement Memorandum described below. The common outstanding increased 376,707 shares effective September 30, 2016, with the redemption of the Subsidiary Preferred Stock (see Subsidiary Preferred Stock). Also, effective January 1, 2016, the Company’s common stock outstanding increased 200,000 shares with the acquisition of the 40% net profits interest. Since one of the three sellers was a related party, there was no increase in the asset value and the stock was booked at par value of $2,000 with an equivalent offset to paid-in capital in excess of par due to the related party (see Note 9). In addition, the Company’s common stock was increased 88,548 shares in 2016 from common stock dividends for the Series A Preferred Stock (see description below).
Series A Preferred Stock
The Series A Preferred Stock ranks in priority to any other preferred stock currently issued or to be issued. Our common stock and any other class or series of preferred stock issued hereafter is or will be junior to the Series A Preferred Stock, in each case as to distributions upon liquidation, dissolution or winding up of the Company and payment of dividends on shares of equity securities. We have completed the sale of three and one-half units of Series A Preferred Stock for $50,000 per unit. Each Unit consists of 50,000 shares of Series A Preferred Stock and 50,000 Warrants. Each share of the Series A Preferred Stock bears an eight percent (8%) dividend (the “Dividend”) payable upon the declaration of a dividend by the Board. Dividends may be paid in cash or in common stock at issuer’s option for the first two years following closing, thereafter the issuer shall pay the Dividend in cash. Dividends paid in common stock shall be paid based on the previous 90 day moving average price but not less than $.10 per share. Dividends paid in 2016 totaled 88,548 shares of common stock valued at $885.
Every share of the Series A Convertible Preferred Stock purchased possesses one warrant to purchase one share each of the Company’s common stock at a fixed exercise price of $1.50 per share which may be exercised by the holder any time during the three years from the date of issue. The holders of the Series A Preferred Stock have the right, at any time, to convert each Series A Preferred Share into ten (10) shares of common stock. Each share of Series A Preferred Stock shall be converted into ten (10) fully paid and nonassessable shares of common stock at the request of the Corporation. This automatic conversion is conditioned upon the passing of a minimum of two years from the date of issuance and subject to the previous 30 day moving average price of the Company’s common stock be at least $1.50 per share and a previous 30 day average volume of 50,000 common shares or more per day. No transfer of Series A Preferred Shares may be made to any holder who, at the time of the transfer, would not be an “Accredited Investor” pursuant to Rules promulgated under the Securities Act of 1933. In the event of the death of an Investor whose beneficiaries would not qualify, the estate of the investor may remain the holder until conversion, or elect to convert the Preferred Stock to common stock. Unless otherwise approved by the Company a holder may not transfer a portion of his holding to more than one person who is not already a holder of common stock or preferred stock or all of his holdings to more than two persons who are so situated.
Series B Preferred Stock
In December 2015, the Board of Directors established the Series B Convertible Preferred Stock as a series of Company preferred stock designating 1,500,000 shares with a par value of $.10 per share. The Series B Preferred Stock is junior to the Company’s Series A Preferred Stock but ranks ahead of our common stock and any other class or series of preferred stock issued hereafter as to distributions upon liquidation, dissolution or winding up or the Company. The Series B Preferred Stock was issued as partial consideration in conjunction with the Solar Logic Incorporated acquisition (see Note 3) and $150,000 was added to Convertible Preferred Stock on the Company’s balance sheet plus $4,620,000 of paid-in capital in excess of par. The Series B Preferred Stock does not possess dividend rights or warrants. The shares may be redeemed by the Company at any time, in whole or in part, for $1.00 per share and the stockholder may convert each preferred share at any time into one (1) fully paid and nonassessable share of common stock of the Company. Each share of Series B Preferred Stock shall be converted into one (1) fully paid and nonassessable share of common stock, as provided herein at the request of the Corporation conditioned upon one of two events, either (1) the passing of a minimum of two years from the date of issuance of the Series B Preferred Stock shares subject to the previous 30 day moving average price of the Company's common stock be at least $1.50 per share and a previous 30 day average volume of 50,000 common shares or more per day, or (2) the election by Solar Logic to terminate the Patent License Agreement (see Note 3).
The above summary of the Series A Preferred Stock and Series B Preferred Stock designations is not complete and is qualified in its entirety by reference to the copy of the Certificate of Designation for each series which is incorporated by reference herein and available upon request. The Company is not obligated to register any shares under the preferred series or any shares of common stock into which the preferred shares may be converted except upon a secondary offering.
Private Placement Memorandum
Regent Technologies, Inc. is offering to sell up to 50 units (“Units”), each Unit initially consisting of 100,000 shares of common stock, par value $0.01 per share (“Common Stock” or “Common Shares”), at the price of $10,000 per Unit or $0.10 per share) to investors within the United States. The minimum investment per participant is one Unit; however, we may, at our sole discretion and as permitted by applicable securities laws, elect to accept subscriptions for fractional Units. For each Unit, the holder will receive warrants to purchase up to 50,000 shares of the Company’s Common Stock at a fixed exercise price of $0.25 per share at any time during the five years from the date of issue. The minimum offering is 2 units. If the minimum is not met, all tendered funds will be returned without interest. The Units will be offered on our behalf by licensed broker-dealers (“the Placement Agents”) who are members of the Financial Industry Regulatory Authority (“FINRA”) on a best-efforts basis and by certain of our officers and directors. Placement Agents may receive sales commissions of up to 10% of the purchase price of the Units they sell. No compensation will be paid to our officers and directors for the sale of Units. The offering will terminate on the earliest to occur of: (i) acceptance by the Company of subscriptions for a maximum of $500,000, (ii) December 31, 2018 (which date may be extended at our sole discretion); or (iii) such earlier date as we may deem to be in the best interests of Regent.
Stock Options
No options, warrants or similar rights are outstanding as of the date of this report except the warrants attached to the outstanding Series A Preferred Shares.
Subsidiary Preferred Stock
Effective September 30, 2016, our subsidiary redeemed all 99,950 shares of its Series A Convertible Preferred Stock outstanding (“Subsidiary Preferred Stock”). The Subsidiary Preferred Stock was sold under a private placement offering for $50,000 per unit of 10,000 shares each and were convertible into 10,000 shares of common stock of the Subsidiary plus 4,800 shares of common stock of MacuCLEAR common stock. Under a special redemption agreement, the Subsidiary Preferred Stock was converted into restricted common stock of the Parent and MacuCLEAR stock. Since several of the parties participating in the redemption were related parties, the book value of the MacuCLEAR stock of $207,422 was deducted from the Subsidiary’s capitalization and the total par value of $3,767 was deducted from the Company’s Paid-in capital in excess of par value. Concurrent with the redemption, the 99,500 shares of Subsidiary preferred stock were cancelled.
NOTE 9. Related Party Transactions
As of December 31, 2017, the Company has two promissory notes outstanding in the amounts of $8,000 and $10,000 due and payable to directors of the Company and the Subsidiary. The $8,000 note is interest free and the $10,000 note has interest payable of $1,622 which accrues at a rate of 10% per annum. The Company borrows from time to time various amounts for general corporate purposes under an agreement with NR Partners, a partnership comprised of the President and a director. As of December 31, 2017, the amount owed to NR Partners is $20,187. Also, the amount owed to the President for operating expense advances is $40,291. During the third quarter of 2016, the President, a director and several Company shareholders participated in the Subsidiary preferred stock redemption. For fiscal 2017 and 2016, the Company paid the President $1,000 and $4,800, respectively as compensation for negotiations and meetings during travel based on $400 per diem. Also for fiscal 2016, we paid $6,355 to SIG Operating Company for lease operating costs consisting primarily of operator and leasehold overhead and maintenance.
Effective July 1, 2017, the Company negotiated an amendment to extend the Patent License with Solar Logic Incorporated (SLI) due to delays from patent claims asserted against SLI by former contract employees. The patent claims were settled and the amendment to the License was executed which extended the terms of the original milestones by 12 months each and the original payment schedule for legal fees was modified. The legal fee modification and subsequent payment schedule resulted in the forgiveness by SLI of $15,700 of legal fees primarily due to services rendered by the Company in settling the patent claims. Effective December 31, 2017, the Company entered into an agreement with SIG Operating Company (SIG) whereby SIG agreed to assume the $10,660 Subsidiary’s asset retirement obligation and any plugging liability in exchange for the salvage of the oil and gas equipment and the transfer of the Company’s remaining shares of MacuCLEAR Preferred Stock to SIG. The terms of the SIG agreement include the understanding that if the MacuCLEAR stock is sold or transferred for an amount in excess of the $10,660, that the excess proceeds will be applied to the monies owed to the President and to NR Partners, if any, or paid to the Company, net of any applicable taxes. The current oil and gas equipment subject to the SIG agreement consisted of one salt water tank, one pump jack, one separator and two transfer pumps, all of which are in need of repair. SIG Operating Company is controlled by the President of the Company.
NOTE 10. Convertible Debentures
On December 5, 2014, we issued a convertible debenture for monies totaling $25,000 with interest at 8% per annum. The debenture is convertible into shares of the Company’s Series A Preferred Stock at the conversion rate of $25,000 for 25,000 shares of preferred stock. During 2017 and 2016, the Company incurred $2,016 and $2,000 respectively of debenture interest expense. At December 31, 2017, the debenture has accrued interest of $2,006.
NOTE 11. Subsequent Event
During the first quarter 2018, the Company entered into three Restricted Stock Agreements in the form attached hereto as Exhibit 10.6. . The Agreements are for the grant of newly issued restricted common stock of Regent Technologies, Inc. to parties consulting with the Company related to new business. The result of the agreements was the immediate grant of 225,000 shares of restricted common stock and the potential grant of an additional 1,650,000 shares based on various new business milestones.
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 not 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, 2017. 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, 2017.
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 the 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
Based on our inherent limitations, internal control over our 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
PART III
Item 10.
Item 10. Directors, Executive Officers and Corporate Governance
The Executive Officers and Directors of the Registrant and their respective ages as of the date of this filing are reflected below.
David A. Nelson, President, CEO and Chairman, has served as President of two publicly traded companies, an oil and natural gas company and a telecommunications company, both of which were merged into larger public entities on favorable terms to the stockholders. 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. 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 founded NR Capital Partners for the management of private equity investments including energy and life sciences. He is a graduate of Baylor University with a BA degree in math and JD degree, and a Master of Computing Sciences from Texas A&M University.
David L. Ramsour, Ph.D., Acting CFO and Director, 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 U.S., Europe, Asia and the Pacific, and provided portfolio market and project feasibility counsel for the Bank and its clients. 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.
Douglas R. Baum, Subsidiary Director, has over twenty-five years of experience serving in executive management and business development positions within the drug development and life sciences industries. Most recently, he was the President and CEO (2012-2017) of Xeris Pharmaceuticals, Inc. an Austin, TX based clinical stage specialty pharmaceutical company focused on developing drugs for diabetes and related metabolic diseases. He has previously served on the boards of Xeris, MacuCLEAR, Halsa Pharmaceuticals, Inc. and the Texas Medical Device Alliance. He obtained his Bachelor of BA degree as well as a Master’s of Science in Technology Commercialization degree from the University of Texas at Austin.
Section 16(A) Beneficial Ownership Reporting Compliance
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. During the 2016 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.
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.
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 a party to any employment agreements.
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Item 12.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
As of December 31, 2017, there are 24,914,610 shares of common stock issued and outstanding. The following table utilizes the outstanding number plus the number of shares that may issue under the outstanding Preferred Stock and the current offering 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.
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(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.
(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 has a material interest adverse to the Company.
Changes in control
The Company is not aware of any arrangements or pledges with respect to its securities that may result in a change in control of the Company.
Item 13.
Item 13. Certain Relationships and Related Transactions, and Director Independence
During 2017 and 2016, the Subsidiary completed a series of financing transactions between NR Partners, SIG Operating, LC, the CEO and a director. See Note 9 - "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.
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* 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.
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 item 2 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.
PART IV
Item 15.
Item 15. Exhibits and Financial Statement Schedules
Exhibits.
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#
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.
Financial Statement Schedules
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.
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.
Regent Technologies, Inc.
(Registrant)
Dated: April 17, 2018
By: /s/ David A. Nelson
David A. Nelson
Chief Executive Officer
(Principal Executive Officer and Principal Financial
and Accounting Officer)