Attached files
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act
Date of Report: October 4, 2010
(Date of Earliest Event Reported)
REGENT TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
Colorado 000-09519 84-0807913
(State or other jurisdiction (Commission File No.) (IRS Employer or ID #)
of incorporation)
5646 Milton Street, Suite 722
Dallas, Texas 75206
(Address of principal executive offices)
(214) 694 2227
(Registrant's telephone number, including area code)
Check the appropriate box below if the Form 8-K filing is intended to
simultaneously satisfy the filing obligation of the registrant under any of
the following provisions:
[ ] Written communications pursuant to rule 425 under the Securities
Act (17 CFR 230.425)
[ ] Soliciting material pursuant to Rule 14a-12 under the Exchange
Act (17 CFR 240.14a-12)
[ ] Pre-commencement communications pursuant to Rule 14d-2(b) under
the Exchange Act (17 CFR 240.14d-2(b))
[ ] Pre-commencement communications pursuant to Rule 13e-4(c) under
the Exchange Act (17 CFR 240.13e-4(c))
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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Form 8-K and other reports filed by Regent Technologies, Inc. ("Regent")
from time to time with the Securities and Exchange Commission (collectively the
"Filings") contain or may contain forward looking statements and information
that are based upon beliefs of, and information currently available to, Regent's
management as well as estimates and assumptions made by Regent's management.
The Private Securities Litigation Reform Act of 1995 (the "Act") provides a safe
harbor for forward-looking statements made by or on behalf of the Company. The
Company and its representatives may from time to time make written or oral
statements that are "forward-looking," including statements contained in this
report and other filings with the Securities and Exchange Commission, reports to
the Company's shareholders and news releases. All statements that express
expectations, estimates, forecasts or projections are forward-looking statements
within the meaning of the Act. In addition, other written or oral statements,
which constitute forward-looking statements, may be made by or on behalf of the
Company. Words such as "expects", "anticipates", "intends", "plans", "believes",
"seeks", "estimates", "projects", "forecasts", "may", "should", variations of
such words and similar expressions are intended to identify such forward-looking
statements. Management cautions that forward-looking statements are subject to
risks and uncertainties that could cause our actual results to differ materially
from projections in such forward-looking statements. The risks, uncertainties
and other important factors that may cause our results to differ materially from
those projected in such forward-looking statements are detailed under the "Risk
Factors". We undertake no obligation to update a forward-looking statement to
reflect subsequent events, changed circumstances, or the occurrence of unantici-
pated events.
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
All forward looking statements contained in this Form 8-K are based on assump-
tions believed to be reasonable. These statements are included in the following
sections:
|_| Description of the Company's Business
|_| Objectives and Strategy
|_| Property
|_| Risk Factors
In this Form 8-K, references to "we," "our," "us," the "Company," or "Regent"
refer to Regent Technologies, Inc., a Colorado corporation, and Regent's wholly
owned subsidiary, Regent GLSC Technologies, Inc., a Texas corporation, is
referred to as "Regent GLSC."
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Item 2.01 Completion of Acquisition or Disposition of Assets.
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On October 4, 2010, Signature Investor Group, LC dba SIG Partners, LC and David
Nelson (the "Transferors") executed the assignments necessary to complete the
conveyances under the Property Transfer Agreement (the "Transfer Agreement") to
the Company's subsidiary, Regent GLSC Technologies, Inc. (the "Transferee"), as
announced on Form 8-K dated September 16, 2010. Pursuant to the terms and con-
ditions of the Transfer Agreement, the principal provisions of the transfer (the
"Transfer") are:
- The valuation of the transaction was based primarily on 50% of the
discounted net cash flow (PV-10) amount of $2,015,700 for the
Proved Undeveloped Reserves transferred to the Company;
- The Transferor assigned a 100% working interest and 75% net revenue
interest in 66.574 gross acres in Hill County, Texas, which contain
engineered Proved Undeveloped Reserves of 70.54M barrels;
- The Transferor also conveyed undeveloped oil and gas interests in a
153 acre lease in Coke County, Texas;
- The conveyance included certain oil and gas production equipment;
- The Transferor received 13.5 million shares of new Company stock;
- Each of the parties provided customary representations and warran-
ties in the Transfer Agreement.
The foregoing description of the Transfer does not purport to be complete and is
qualified in its entirety by reference to the complete text of the Transfer
Agreement, which is filed as Exhibit 2.1 hereto and incorporated herein by
reference.
Following the consummation of the Transfer, there are 22,326,900 shares of the
Company's Common Stock issued and outstanding and the Transferors hold approxi-
mately 80.5% of such issued and outstanding shares.
The shares of our common stock issued to Mr. Nelson and related parties in con-
nection with the Transfer, are not registered under the Securities Act in
reliance upon the exemption from registration provided by Section 4(2) of the
Securities Act and "Regulation D" promulgated under that section, which exempt
transactions by an issuer not involving any public offering. These securities
may not be offered or sold in the United States absent registration or an appli-
cable exemption from the registration requirements. Certificates representing
these shares contain a legend stating the same or, if such shares are uncertifi-
cated, an appropriate notation to such effect has been made in our stock record.
The Company will continue to be a "small business issuer" and a "development
stage company" as defined under the Securities Transfer Act of 1934, as amended
(the "Transfer Act"), following the Transfer.
In connection with the Transfer, Mr. Philip G. Ralston resigned as President of
Regent GLSC, and the boards of the Company and Regent GLSC voted to change the
name of Regent GLSC Technologies, Inc to Regent Natural Resources Co. ("RNRCo").
Mr. Ralston is succeeded by David A. Nelson, who had been serving and will
continue to serve as Chairman and CEO of RNRCo and the Company. Mr. Ralston has
agreed to remain as a Director of the Company and of RNRCo. With these changes,
the Company is focused as a technology development and energy production company
with rights to emerging proprietary technologies.
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DESCRIPTION OF THE COMPANY'S BUSINESS
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Background
----------
The Company has one subsidiary that previously operated under the name Regent
GLSC Technologies, Inc. ("Regent GLSC"), and was approved for a name change on
September 30, 2010 to Regent Natural Resources Co. ("RNRCo"). Regent GLSC was
formed to develop operations related to the life sciences commercialization pro-
cess by working with inventors and research teams. Regent GLSC's initial entry
into life sciences was as the management team for MacuCLEAR, Inc. ("MacuCLEAR"),
a company organized for the development of a treatment of the eye disease known
as dry age-related macular degeneration. Regent GLSC's 6.85% ownership of Macu-
CLEAR was financed through the sale of preferred stock in Regent GLSC. Two
directors of Regent, David Nelson and Philip Ralston, comprise forty percent of
the voting board of MacuCLEAR. Mr. Ralston has resigned as President of Regent
GLSC to give full time to MacuCLEAR's Phase II clinical trials.
As of the filing of this Form 8-K, the Company has restructured its management
team and refocused its business strategy. The Company's management team includes
David A. Nelson as Chief Executive Officer, John L. Clutter, General Manager
of the Energy Technology Division, Anton L. Prodanovic, General Manager of the
Natural Resources Division, and David L. Ramsour as Secretary. We have rights to
proprietary technologies which we believe provide Regent an advantage in the
energy industry. Our business strategy is to exploit these advantages and gene-
rate long-term value for our shareholders and partners. We operate through two
business segments -- the Energy Technology Division and the Natural Resources
Division. We intend to fund operations initially from the sale of corporate
securities, including debt and equity.
Energy Technology Division
--------------------------
Our Energy Technology Division is involved in identifying and developing emerg-
ing technologies which impact energy production. We are currently focused on
the development of a distinctive gearbox designed for petroleum valve actuators
and large wind energy generators. Known as the Epicloyd gearbox (the "E-C Gear-
box") the E-C Gearbox we are developing for the wind energy industry is con-
structed to provide a minimum of 10 years of continuous service. The primary
market of the E-C Gearboxes will be replacement of short-lived and repeatedly
failed conventional gearboxes currently in 1-3 megawatt wind generators around
the U.S., although these gearboxes can also be used in the installation of new
wind generators.
We are also working to apply the unique performance of the E-C Gearbox to the
control of valve actuators. Because of its durability and ability to function
for many years in remote locales beyond the reach of normal maintenance service,
the E-C Gearbox is able to bring reliable performance and financial benefit to
its users in the petroleum industry and beyond.
Natural Resources Division
--------------------------
Pursuant to the Transfer, the Company now owns oil and gas leases in North Cen-
tral Texas on which it intends to explore for crude oil and natural gas through
drilling activities and to ultimately produce oil and natural gas. Our Natural
Resources Division also has initiatives for acquiring additional oil and gas
leases for which it can explore through drilling, and for acquiring existing
producing properties that it has identified in the same general region of Texas.
By identifying oil and gas fields with Proven Reserves in relative close prox-
imity, we believe we can successfully and significantly increase the reserves
and the production through our proprietary enhancement technologies. Our core
technology involves restoring or increasing the productivity of wells which have
insufficient reservoir drive due to formation damage.
In addition, for confirming the presence of abandoned reserves as well as iden-
tifying exploratory prospects, we use a proprietary passive survey technology
which provides a high degree of accuracy in the determination of commercial oil
and gas fields. When combined with other measures of potential reserves, our
risk reduction processes have provided a high level of precision for mapping the
aerial extent of geological closures and hydrocarbon trapping geometries.
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OBJECTIVES AND STRATEGY
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The objective of our Energy Technology Division is to apply the E-C Gearbox to a
wide variety of applications throughout the global energy industry to both
diversify and increase revenues for the Company.
The objective of our Natural Resources Division is to explore and develop exist-
ing oil and gas leases and to selectively acquire additional prospects where
reserves can be identified with confidence, can be economically produced and
where levels of production can be raised quickly and sustained for the highest
return on investment. The Natural Resources Division will also pursue the
acquisition of existing producing properties that provide the best opportunity
for near term positive cash flow and that have additional development potential.
The key elements of our strategy to accomplish the named objectives include:
- Selectively pursuing strategic partnerships with industry partners that may
expand or complement our energy technology development operations.
- Entering into joint ventures with oil and gas operators who have extensive
experience and expertise in the areas selected for exploration to allow us
to obtain working interests in a number of prospects with minimal overhead.
- Focus on shallow oil exploration and production which will allow us to grow
our reserves and production with reasonable risk-reward potential.
- Acquire existing producing properties that provide the best opportunity for
positive cash and that have additional development potential.
Our property acquisition efforts are and will be focused on pursuing opportuni-
ties that fit well within existing Company properties, in areas where we are
establishing new operations or in areas where we believe that a base of existing
production will produce an adequate foundation for economies of scale.
COMPETITION
The oil and gas industry is highly competitive. We encounter strong competition
from other independent and major oil and gas companies in acquiring properties
and securing trained personnel. Many of these competitors have financial and
technical resources and staffs substantially larger than ours. As a result, our
competitors may be able to pay more for desirable oil and gas properties, or to
evaluate, bid for and purchase a greater number of properties than our financial
or personnel resources will permit. Furthermore, these companies may also be
better able to withstand the financial pressures of failed drilling attempts,
sustained periods of volatility and generally adverse global and industry-wide
economic conditions, and may be better able to absorb the burdens resulting from
changes in relevant laws and regulations, which would adversely affect our com-
petitive position.
We are also affected by competition for drilling rigs and the availability of
related equipment. To the extent that in the future we acquire and develop unde-
veloped properties, higher commodity prices generally increase the demand for
drilling rigs, supplies, services, equipment and crews, and can lead to short-
ages of, and increasing costs for, drilling equipment, services and personnel.
Competition is also strong for attractive oil and gas producing properties,
undeveloped leases and drilling rights, and we cannot provide assurance that
we will be able to compete satisfactorily when attempting to make further
acquisitions.
EMPLOYEES
Other than our directors and officers, we presently have no employees. We anti-
cipate that we will be conducting most of our business through our management
and consultants.
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PROPERTY
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Our principal office is located at 5646 Milton, Suite 722, Dallas, Texas 75206.
The rent is $580 per month and the lease expires in June, 2013. The rent expense
is shared with two other tenants.
Patent Rights
-------------
Effective August 1, 2010, we entered into a rights agreement with Epi-Cloyd,
Ltd. and Epi-Energy, Ltd. (E-C) for the exclusive rights to develop an E-C Gear-
box for the valve actuator and wind energy applications. Following a period of
eight months for the development of a gearbox prototype, Regent has the right to
enter into a license agreement for exclusive rights for the valve actuator and
wind energy generation fields of use. Upon entering into the license agreement,
Regent will pay a minimum royalty payment of $12,500 per quarter for the first
twelve months and $25,000 per quarter thereafter.
Acreage
-------
The table below sets forth our undeveloped and developed gross and net leasehold
acreage acquired in the Transfer Agreement. Undeveloped acreage includes leased
acres on which wells have not been drilled or completed to a point that would
permit the commercial production, regardless of whether or not such acreage con-
tains proved reserves. Undeveloped acreage held by production under the terms
of a lease is included in the Developed Acreage category total shown below.
Undeveloped Acreage Developed Acreage Total Acreage
---------------------- --------------------- ---------------------
Gross Net Gross Net Gross Net
---------- ---------- ---------- ---------- ---------- ----------
169 17 50 50 219 67
Title to Properties
-------------------
All the leases for the undeveloped acreage summarized in the preceding table
will expire at the end of their respective primary terms unless prior to that
date, the existing leases are renewed or production has been obtained from the
acreage subject to the lease, in which event the lease will remain in effect
until the cessation of production. As is customary in the industry, we generally
acquire oil and gas acreage without any warranty of title except as to claims
made by, through or under the transferor. Although we have title to developed
acreage examined prior to the acquisition in those cases in which the economic
significance of the acreage justifies the cost, there can be no assurance that
losses will not result from title defect or defects in the assignment of lease-
hold rights.
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Reserves
--------
All of our reserves and near term prospects are located in the Texas Mexia-Talco
Fault Zone of the East Texas Basin and the Eastern Shelf of the Midland Basin,
both mature producing oil and gas horizons located in Texas. On behalf of the
Transferor, the independent engineering firm RCM Engineering, Inc. of Dallas,
Texas, evaluated the reserves acquired pursuant to the Transfer and issued an
appraisal report on oil and gas reserve estimates as of December 31, 2009, and
updated as of December 31, 2010 which are included in the following table:
Gas and Oil Properties, net (1):
Proved Developed Crude Oil and
Condensate reserves-Bbls 0
Proved Undeveloped crude oil and
Condensate reserves-Bbls (2) 70,540
-----------
Total proved crude oil and condensate
Reserves-Bbls 70,540
===========
Present value of estimated future net cash flows
before income taxes, discounted at 10% (3) $2,015,700
(1) Reflects the estimate of the net proved oil reserves, future net revenues,
and the present value of future net revenues (PV-10). The only Proved Reserves
the Company has are Proved Undeveloped Reserves.
(2) "Proved Undeveloped Reserves" are reserves that are expected to be recovered
from new wells on undrilled acreage, or from existing wells where an expenditure
is required for recompletion.
(3) Standardized measure is the present value of estimated future net revenue to
be generated from the production of proved reserves, determined in accordance
with the rules and regulations of the SEC (using prices and costs in effect as
of the date of estimation), less future development, production and income tax
expenses, and discounted at 10% per annum to reflect the timing of future net
revenues. The standardized measure does not reflect any future income tax
expenses because it was not subject to income taxes. The standardized measure
shown should not be construed as the current market value of the reserves. The
10% discount factor used to calculate present value, which is required by FASB
pronouncements, is not necessarily the most appropriate discount rate. The
present value, no matter what discount rate is used, is materially affected by
assumptions as to timing of future production, which may prove to be inaccurate.
The Company is not aware of any major discovery or other favorable or adverse
event that is believed to have caused a significant change in the estimated
proved reserves since December 31, 2009.
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Mexia-Talco geologic overview
-----------------------------
The East Texas Basin is a structural embayment of the Gulf Coast Basin. While it
is bounded on the east by the Sabine Uplift and the East Texas Oil Field, it is
bounded on the north and west by the Mexia-Talco Fault Zone and what are called
the Woodbine Fault-Line fields. In its deepest part, the basin is filled with
more than 13,000 feet (>3960 m) of Mesozoic and Tertiary strata (Wood and Gue-
vara, 1981) that were structurally modified by mobilization of the Middle Juras-
sic Louann Salt (Lahee, 1929). This salt movement included the development of
the Van salt dome which is overlain by the massive Woodbine Van Oil Field in Van
Zandt County in north central Texas. The Woodbine Fault-Line fields run through
Milam, Falls, Limestone, Freestone, Navarro, Henderson, and Kaufman counties in
east central Texas with related production in Hill and Ellis counties. The six
oil and gas fields on the west faults are Mexia (Limestone County, discovered
1920), Currie (Navarro County, 1921), North Currie (Navarro County 1922), Powell
(Navarro County, 1923), Richland (Navarro County, 1924), and Wortham (Freestone
County, 1924). Powell, Mexia, and Wortham are the most productive of the fields.
The first field to be discovered was Mexia in northwestern Limestone County, and
it introduced the concept of fault-line production in the Woodbine sands which
has continued through today. By January 1, 1993, the reporting fault-line fields
yielded annual production of 292,250 barrels of oil and 13,553,000 cubic feet of
casinghead gas. Combined cumulative production for all of the fields climbed to
280,948,170 barrels of oil by 1993, after more than seventy years of operation
(Railroad Commission of Texas, Annual Report of the Oil and Gas Division, Austin
1992). Since 1993, all of the fault-line fields have continued to produce with
new drilling and production, some of which included original pressures in the
Woodbine formation and enhanced production from zones above the Woodbine forma-
tion, primarily the Austin Chalk. The Company has three tracts in Hill County,
two of which have all of our Proved Undeveloped Reserves which are proven in the
Austin Chalk and Woodbine formations at less than 1,500 feet. We are working on
an area of mutual interest in a multi-county area for future exploration.
Eastern Shelf geologic overview
-------------------------------
The depositional and tectonic history of the Eastern Shelf of the Midland Basin
reveals reservoir rocks consisting of porous limestone, dolomite, dolomitized
mudstone and wackestone, and lesser amounts of fine-grained clastics frequently
associated with evaporites, redbeds and sabkha facies. These rocks appear to
have been deposited in platform edge, open-shelf, intertidal, supratidal, and
restricted-shelf environments associated with platform growth. The Pennsylvanian
rests directly upon the eroded Ordovician Ellenburger over much of the area, al-
though in places a thin remnant of Mississippian lies between the Pennsylvanian
and Ordovician. The lower Pennsylvanian was deposited upon a gently undulating
eroded surface, with the exception of some narrow grabens that formed along the
east side of the Eastern Shelf as part of the north trending flexure that lies
between the deeper Midland Basin to the west, and the Bend Arch to the east. The
recurring gentle uplift of many of the eroded pre-Pennsylvanian structures took
place during the Pennsylvanian and influenced the deposition of cleaner carbo-
nates or the growth of reefs in association with the slightly shallower waters.
This is the reason for the occurrence of minor oil accumulations in the Ordovi-
cian Ellenburger dolomites beneath or near many of the producing Pennsylvanian
reef fields.
Reservoir rocks consist of porous limestone, dolomite, dolomitized mudstone and
wackestone, and lesser amounts of fine-grained clastics frequently associated
with evaporites, redbeds and sabkha facies. These rocks appear to have been
deposited in platform edge, open-shelf, intertidal, supratidal, and restricted-
shelf environments associated with platform growth. Reservoirs are contained in
Permian Wolfcampian, Leonardian Clear Fork Formations, and Guadalupian San
Andres, Grayburg, Queen, Seven Rivers and Yates Formations. Gross reservoir
thicknesses range up to 1,000 feet, porosities average 10 percent, and permeabi-
lities average 6 mD. The drilling depths vary from 3,000 to 10,000 feet. The
Company has a small carried working interest in the first well drilled on a 153
acre tract in Coke County.
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GLOSSARY
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As used herein regarding the oil and gas industry:
"Acquisition of properties" are the costs incurred to obtain rights to
production of oil and gas. These costs include the costs of acquiring oil and
gas leases and other interests. These costs include lease costs, finder's fees,
brokerage fees, title costs, legal costs, recording costs, options to purchase
or lease interests and any other costs associated with the acquisitions of an
interest in current or possible production.
"Area of mutual interest" means, generally, an agreed upon area of land,
varying in size, included and described in an oil and gas exploration agreement
which participants agree will be subject to rights of first refusal as among
themselves, such that any participant acquiring any minerals, royalty,
overriding royalty, oil and gas leasehold estates or similar interests in the
designated area, is obligated to offer the other participants the opportunity to
purchase their agreed upon percentage share of the interest so acquired on the
same basis and cost as purchased by the acquiring participant. If the other
participants, after a specific time period, elect not to acquire their pro-rata
share, the acquiring participant is typically then free to retain or sell such
interests.
"Back-in interests" involve the transfer of interest in a property, with
provision to the transferor to receive a reversionary interest in the property
after the occurrence of certain events.
"Bbl" means barrel, 42 U.S. gallons liquid volume, used in this report in
reference to crude oil or other liquid hydrocarbons.
"Bcf" means billion cubic feet, used in this report in reference to gas or
gaseous hydrocarbons.
"Bcfe" means billions of cubic feet of gas equivalent, determined using
the ratio of six thousand cubic feet of gas to one barrel of oil, condensate or
gas liquids.
"Carried interests" means, generally, a working interest which does not
bear its share of the exploration costs until a designated well has been drilled
and completed to the casing point or to the tanks, depending on the agreement,
after which point the carried interest must bear its share of the costs of pro-
duction.
"Casing Point" means the point in time at which an election is made by
participants in a well whether to proceed with an attempt to complete the well
as a producer or to plug and abandon the well as a non-commercial dry hole. The
election is generally made after a well has been drilled to its objective depth
and an evaluation has been made from drill cutting samples, well logs, cores,
drill stem tests and other methods. If an affirmative election is made to
complete the well for production, production casing is then generally cemented
in the hole and completion operations are then commenced.
"Development costs" are costs incurred to drill, equip, or obtain access
to proved reserves. They include costs of drilling and equipment necessary to
get products to the point of sale and may entail on-site processing.
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"Exploration costs" are costs incurred, either before or after the
acquisition of a property, to identify areas that may have potential reserves,
to examine specific areas considered to have potential reserves, to drill test
wells, and drill exploratory wells. Exploratory wells are wells drilled in
unproven areas. The identification of properties and examination of specific
areas will typically include geological and geophysical costs, also referred to
as G&G, which include topological studies, geographical and geophysical studies,
and costs to obtain access to properties under study. Depreciation of support
equipment, and the costs of carrying unproved acreage, delay rentals, ad valorem
property taxes, title defense costs, and lease or land record maintenance are
also classified as exploratory costs.
"Farmout" involves an entity's assignment of all or a part of its interest
in a property in exchange for the assignee's obligation to expend all or part of
the funds to drill and equip the property.
"Future net revenues, before income taxes" means an estimate of future net
revenues from a property at a specified date, after deducting production and ad
valorem taxes, future capital costs and operating expenses, before deducting
income taxes. Future net revenues, before income taxes, should not be construed
as being the fair market value of the property.
"Future net revenues, net of income taxes" means an estimate of future net
revenues from a property at a specified date, after deducting production and ad
valorem taxes, future capital costs and operating expenses, net of income taxes.
Future net revenues, net of income taxes, should not be construed as being the
fair market value of the property.
"Mcf" means thousand cubic feet, used in this report to refer to gas or
gaseous hydrocarbons.
"MMcf" means million cubic feet, used in this report to refer to gas or
gaseous hydrocarbons.
"MBbl" means thousand barrels, used in this report to refer to crude
oil or other liquid hydrocarbons.
"Gross" oil and gas wells or "gross" acres is the total number of wells or
acres in which Regent has an interest.
"Net" oil and gas wells or "net" acres are determined by multiplying
"gross" wells or acres by Regent's interest in such wells or acres.
"Oil and gas lease" or "Lease" means an agreement between a mineral owner,
the lessor, and a lessee which conveys the right to the lessee to explore for
and produce oil and gas from the leased lands. Oil and gas leases usually have a
primary term during which the lessee must establish production of oil and or
gas. If production is established within the primary term, the term of the lease
generally continues in effect so long as production occurs on the lease. Leases
generally provide for a royalty to be paid to the lessor from the gross proceeds
from the sale of production.
"Overpressured reservoir" are reservoirs subject to abnormally high
pressure as a result of certain types of subsurface conditions.
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"Present value of future net revenues, before income taxes" means future
net revenues, before income taxes, discounted at an annual rate of 10% to
determine their "present value." The present value is shown to indicate the
effect of time on the value of the revenue stream and should not be construed as
being the fair market value of the properties.
"Present value of future net revenues, net of income taxes" means future
net revenues, net of income taxes discounted at an annual rate of 10% to
determine their "present value." The present value is shown to indicate the
effect of time on the value of the revenue stream and should not be construed as
being the fair market value of the properties.
"Production costs" means operating expenses and severance and ad valorem
taxes on oil and gas production.
"Prospect" means a geologic anomaly which may contain hydrocarbons that has
been identified through the use of 3-D and/or 2-D seismic surveys and/or other
methods.
"Proved oil and gas reserves" are the estimated quantities of crude oil,
natural gas and natural gas liquids which geological and engineering data
demonstrate with reasonable certainty to be recoverable in future years from
known reservoirs under existing economic and operating conditions, i.e. prices
and costs as of the date the estimate is made. Prices include consideration of
changes in existing prices provided only by contractual arrangements, but not on
escalations based upon future conditions. Reservoirs are considered proved if
economic producibility is supported by either actual production or conclusive
formation test. The area of a reservoir considered proved includes (A) that
portion delineated by drilling and defined by gas-oil and/or oil-water contacts,
if any, and (B) the immediately adjoining portions not yet drilled, but which
can reasonably be judged as economically productive on the basis of available
geological and engineering data. In the absence of information on fluid contacts
the lowest known structural occurrence of hydrocarbons controls the lower proved
limit of the reservoir.
"Proved developed oil and gas reserves" are reserves that can be expected
to be recovered through existing wells with existing equipment and operating
methods. Additional oil and gas reserves expected to be obtained through the
application of fluid injection or other improved recovery techniques for
supplementing the natural forces and mechanisms of primary recovery should be
included as "proved developed reserves" only after testing by a pilot project or
after the operation of an installed program has confirmed through production
response that increased recovery will be achieved.
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"Proved undeveloped oil and gas reserves" are reserves that are expected to
be recovered from new wells on undrilled acreage, or from existing wells where a
relatively major expenditure is required for recompletion. Reserves on undrilled
acreage shall be limited to those drilling units offsetting productive units
that are reasonably certain of production when drilled. Proved reserves for
other undrilled units can be claimed only where it can be demonstrated with
certainty that there is continuity of production from the existing productive
formation. Under no circumstances should estimates for proved undeveloped
reserves be attributable to any acreage for which an application of fluid
injection or other improved recovery technique is contemplated, unless such
techniques have been proved effective by actual tests in the area and in the
same reservoir.
"Reserve target" means a geologic anomaly which may contain hydrocarbons
that has been identified through the use of 3-D and 2-D seismic surveys and
or other methods.
"Royalty interest" is a right to oil, gas, or other minerals that is not
burdened by the costs to develop or operate the related property. The basic
royalty interest is retained by the owner of mineral rights when his property is
leased for purposes of development.
"Trend" means a geographical area where similar geological, geophysical, or
oil and gas reservoir and production characteristics may exist.
"Seismic option" generally means an agreement in which the mineral owner
grants the right to acquire seismic data on the subject lands and grants an
option to acquire an oil and gas lease on the lands at a predetermined price.
"2-D Seismic" means an advanced technology method by which a cross-section
of the earth's subsurface is created through the interpretation of reflecting
seismic data collected along a single source profile.
"3-D Seismic" means an advanced technology method by which a three dimen-
sional image of the earth's subsurface is created through the interpretation of
reflection seismic data collected over a surface grid. 3-D seismic surveys
allow for a more detailed understanding of the subsurface than do conventional
surveys and contribute significantly to a field's appraisal, development and
production.
"Working interest" is an interest in an oil and gas property that is
burdened with the costs of development and operation of the property.
"Workover" means operations on a producing well or an abandoned well to re-
store or increase production.
11
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RISK FACTORS
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RISKS RELATED DIRECTLY TO OUR COMPANY ARE NUMEROUS.
---------------------------------------------------
One should carefully consider the following risk factors, in addition to the
other information set forth in this Report, before investing in shares of our
common stock. Each of these risk factors could adversely affect our business,
operating results and financial condition, as well as adversely affect the
value of an investment in our common stock. Some information in this report
may contain "forward-looking" statements that discuss future expectations of
our financial condition and results of operation. The risk factors noted in
this section and other factors could cause our actual results to differ from
those contained in any forward-looking statements.
OUR COMPANY HAS A LIMITED OPERATING HISTORY.
Our limited operating history makes it difficult for us to evaluate our future
business prospects and make decisions based on those estimates of our future
performance. Although our management team has been engaged in technology deve-
lopment for an extended period of time, we did not begin operations of our
current business concept until recently. Therefore, it is difficult to forecast
our future results based upon our historical data. Reliance on the historical
results of our acquisition targets may not be representative of the results we
will achieve, particularly in our combined form. Because of the uncertainties
related to our lack of historical operations, we may be hindered in our ability
to anticipate and timely adapt to increases or decreases in income or expenses.
If we make poor budgetary decisions as a result of unreliable historical data,
we could be less profitable or incur losses, which may result in a decline in
our stock price.
COMPETITION FOR RENEWABLE ENERGY TECHNOLOGY AND NATURAL RESOURCES ARE FIERCE.
The worldwide energy industry is highly fragmented and we are competing with
numerous companies looking for renewable energy technologies and capital related
thereto. We are one of the smallest energy technology development companies and
are an infinitely small participant in the oil and gas exploration business.
The presence of competing technology development companies will impact our
ability to raise additional capital in order to fund our technology programs if
investors are of the view that investments in competitors are more attractive.
We will also be competing with other technology companies for available
resources, including, but not limited to, qualified personnel, properties
suitable for exploration and development, and green energy technologies.
12
WE COULD BE IN AN EXTENDED GLOBAL ECONOMIC RECESSION.
The current global economic and financial crisis could lead to an extended
national or global economic recession. A slowdown in economic activity caused
by a recession would likely reduce national and worldwide demand for oil and
natural gas and result in lower commodity prices for long periods of time.
Prices for oil and natural gas have decreased significantly from highs in 2008.
In the last eighteen months, oil prices have decreased by up to one half their
highest prices and natural gas prices have decreased by more than two thirds
during this time period. Costs of exploration, development and production have
not yet adjusted to current economic conditions or in proportion to the reduced
product prices. Prolonged, substantial decreases in oil and natural gas prices
would likely have a material adverse effect on Regent's business, financial
condition and results of operations, could further limit the Company's access
to credit and could hinder its ability to satisfy its capital requirements.
CAPITAL AND CREDIT MARKETS VOLATILITY MAKE FUNDING UNCERTAIN.
Capital and credit markets have experienced unprecedented volatility and
disruption during the last half of 2008 and continued to be unpredictable
through 2009 and into 2010. Given the current levels of market volatility and
disruption, the availability of funds from those markets has diminished very
substantially. Further, arising from concerns about the stability of financial
markets generally and the solvency of borrowers specifically, the cost of
accessing the credit markets has increased as many lenders have raised interest
rates, enacted tighter lending standards or have altogether ceased to provide
funding to borrowers. Accordingly, we are evaluating numerous and various
alternatives, such as joint ventures with third parties, or sales of interest
in one or more of its properties. Such transactions if undertaken, could result
in a reduction in the Company's operating interests or require the Company to
relinquish the right to operate the property. There can be no assurance that
any such transactions can be completed or that such transactions will satisfy
the Company's operating capital requirements.
Our Company has no commitments to obtain any additional financing and there
can be no assurance that additional financing will be available, when required,
on favorable terms to us. The inability to obtain additional financing could
have a material adverse effect on us, including requiring us to curtail our oil
and gas acquisition and development plans of our properties and technology
development of our emerging energy technologies. Any additional financing may
involve substantial dilution to the interests of our shareholders at that time.
13
A MAJORITY OF OUR OUTSTANDING COMMON STOCK IS CLOSELY HELD AND ILLIQUID.
Our directors and executive officers collectively own most of our outstanding
voting stock. Accordingly, these stockholders, as a group, will be able to
control the outcome of stockholder votes, including votes concerning the
election of directors, the adoption or amendment of provisions in our Articles
of Incorporation and our Bylaws, and the approval of mergers and other
significant corporate transactions. These factors may also have the effect of
delaying or preventing a change in our management or our voting control. Our
Articles of Incorporation do not provide for cumulative voting.
The liquidity of our common stock may be adversely affected, and purchasers of
our common stock may have difficulty selling our common stock, if our common
stock does not trade in a suitable trading market. There is presently a limited
public market for our common stock, and there is no assurance that a market for
our securities will develop. It is likely that any market for our common stock
will be highly volatile and that trading in any such market will be limited.
The trading price of our common stock could be subject to wide fluctuations in
response to quarter-to-quarter variations in our operating results, notices of
our drilling results and other events or factors.
WE DO NOT INTEND TO DECLARE DIVIDENDS IN THE FORESEEABLE FUTURE.
We have not paid any cash dividends on our common stock since our inception and
we do not anticipate paying cash dividends in the foreseeable future. We intend
to retain our earnings, if any, to provide funds for reinvestment in our
acquisition and exploration activities. Therefore, we do not anticipate
declaring or paying dividends in the foreseeable future. Further, payment of
dividends, if any, in the future is within the discretion of the board of
directors and will depend on our earnings, if any, our capital requirements and
financial condition and other relevant factors.
RISKS RELATED TO OIL AND GAS EXPLORATION AND DEVELOPMENT ARE SUBSTANTIAL.
-------------------------------------------------------------------------
OUR PLANS TO RE-ENTER OIL AND GAS PROPERTIES HAS INHERENT RISKS.
We will own or lease properties that for many years have produced oil and gas.
It is not uncommon for such properties to be contaminated with hydrocarbons.
Although we or previous owners of these interests may have used operating and
disposal practices that were standard in the industry at the time, hydrocarbons
or other wastes may have been disposed of or released on or under the properties
or on or under other locations where such wastes have been taken for disposal.
These properties may be subject to federal or state requirements that could
require us to remove any the wastes or to remediate the resulting contamination.
In addition to properties that we operate, we have interests in many properties
which are operated by third parties over whom we have limited control. Notwith-
standing our lack of control over properties operated by others, the failure of
the previous owners or operators to comply with applicable environmental regula-
tions may, in certain circumstances, adversely impact us.
14
EXPLORATORY DRILLING IS A SPECULATIVE ACTIVITY THAT MAY FAIL COMMERCIALLY.
Drilling activities are subject to many risks, including the risk that no
commercially productive oil or gas reservoirs will be encountered. There can
be no assurance that new wells drilled by us will be productive or that we will
recover all or any portion of our investment. Drilling for oil and gas may
involve unprofitable efforts, not only from dry wells, but also from wells that
are productive but do not produce sufficient net revenues to return a profit
after drilling, operating and other costs. The cost of drilling, completing and
operating wells is often uncertain. Our drilling operations may be curtailed,
delayed or canceled as a result of a variety of factors, many of which are
beyond our control, including economic conditions, mechanical problems, high
pressure or irregularities in formations, title problems, weather conditions,
compliance with governmental requirements and shortages in or delays in the
delivery of equipment and services. In today's environment, shortages make
drilling rigs, labor and services difficult to obtain and could cause delays or
inability to proceed with our drilling and development plans. Such equipment
shortages and delays sometimes involve drilling rigs where inclement weather
prohibits the movement of land rigs causing a high demand for rigs by a large
number of companies during a relatively short period of time. Regent's future
drilling activities may not be successful. Lack of drilling success could have
a material adverse effect on our financial condition and results of operations.
OIL AND GAS OPERATIONS ARE SUBJECT TO HAZARDS.
Our operations are also subject to all the hazards and risks normally incident
to the development, exploitation, production and transportation of, and the
exploration for, oil and natural gas, including unusual or unexpected geologic
formations, pressures, down hole fires, mechanical failures, blowouts, leaks,
explosions, uncontrollable flows of oil, gas or well fluids and pollution and
other environmental risks. These hazards could result in substantial losses to
us due to injury and loss of life, severe damage to and destruction of property
and equipment, pollution and other environmental damage and suspension of
operations. We participate in insurance coverage maintained by the operator of
its wells, although there can be no assurances that such coverage will be
sufficient to prevent a material adverse effect to us in such events.
15
WE NEED CAPITAL TO DEVELOP OUR PROVED RESERVES AND TO PURSUE THE ACQUISITION OF
PRODUCING OIL AND GAS PROPERTIES AND LEASES.
The vast majority of our oil and natural gas reserves are classified as proved
reserves. Recovery of the Company's future proved undeveloped reserves will
require significant capital expenditures as will the pursuit of the acquisition
of producing oil and gas properties and leases. Regent's management estimates,
but can make no guarantee, that our financing sources will be sufficient to fund
our planned development activities or that development activities will be either
successful or in accordance with our schedule. Additionally, any significant
decrease in oil and gas prices or any significant increase in the cost of
development could result in a significant reduction in the number of wells
reworked and/or drilled. No assurance can be given that any wells will produce
oil or gas in commercially profitable quantities.
WE ARE SUBJECT TO RISKS UNDER THE CURRENT GOVERNMENT PROPOSED BUDGET.
The Obama administration has recently set forth budget proposals which if
passed, would significantly curtail our ability to attract investors and raise
capital. Proposed changes in the federal income tax laws which would eliminate
or reduce the percentage depletion deduction and the deduction for intangible
drilling and development costs for small independent producers, will greatly
reduce the investment capital available to those in the industry as well as our
Company. An extended time to expense seismic costs will also have an adverse
effect on our ability to explore and find new reserves.
WE ARE SUBJECT TO VARIOUS OPERATING AND OTHER CASUALTY RISKS.
Our oil and gas business involves a variety of operating risks, including, but
not limited to, unexpected formations or pressures, uncontrollable flows of
oil, gas, brine or well fluids into the environment (including groundwater
contamination), blowouts, fires, explosions, pollution and other risks, any of
which could result in personal injuries, loss of life, damage to properties and
substantial losses. Although we carry insurance at levels that we believe are
reasonable, we are not fully insured against all risks. We do not carry
business interruption insurance. Losses and liabilities arising from uninsured
or under-insured events could have a material adverse effect on our financial
condition and operations.
We plan to increase to some extent our development and, to a lesser extent, our
exploration activities. Drilling of oil and gas reserves involve a high degree
of risk that no commercial production will be found and/or that production will
be insufficient to recover drilling and completion costs. The cost of drilling,
completing and operating wells is often uncertain. Our drilling operations may
be curtailed, delayed or canceled as a result of numerous factors, including
title problems, weather conditions, compliance with governmental requirements
and shortages or delays in the delivery of equipment. Furthermore, completion
of a well does not assure a profit on the investment or a recovery of drilling,
completion and operating costs.
16
WE ARE SUBJECT TO CERTAIN TITLE RISKS.
Our Company employees and contract land professionals have reviewed title
records or other title review materials relating to substantially all of our
producing properties. The title investigation performed by us prior to
acquiring undeveloped properties is thorough, but less rigorous than that
conducted prior to drilling, consistent with industry standards. We believe we
have satisfactory title to all our producing properties in accordance with
standards generally accepted in the oil and gas industry. Our properties are
subject to customary royalty interests, liens incident to operating agreements,
liens for current taxes and other burdens, which we believe do not materially
interfere with the use of or affect the value of such properties.
OIL AND NATURAL GAS PRICES FLUCTUATION MAY ADVERSELY IMPACT OUR RESULTS.
Our revenues, profitability, and the book value of our oil and gas properties
are substantially dependent upon prevailing prices of, and demand for, oil and
gas and the costs of acquiring, finding, developing, and producing reserves.
Our ability to obtain borrowing capacity, to repay future indebtedness, and to
obtain additional capital on favorable terms is also primarily dependent upon
oil and gas prices which historically have been subject to wide fluctuations in
response to: (i) relatively minor changes in the supply of, and demand for, oil
and gas; (ii) market uncertainty; and (iii) a variety of additional factors,
all of which are beyond our control. These factors include domestic and foreign
political conditions, the price and availability of domestic and imported oil
and gas, the level of consumer and industrial demand, weather, domestic, and
foreign government relations, the price and availability of alternative fuels
and overall economic conditions. Also, the marketability of our production
depends in part upon the availability, proximity and capacity of gathering sys-
tems, regulated pipelines and processing facilities.
WE MAY BE RESPONSIBLE FOR ABANDONMENT COSTS OF OIL AND GAS PROPERTIES.
We are responsible for payment of plugging and abandonment costs on its oil and
gas properties pro rata to our working interest. Based on our experience, we
anticipate that in most cases, the ultimate aggregate salvage value of lease
and well equipment located on our properties should equal to the costs of
abandoning such properties. There can be no assurance, however, that we will be
successful in avoiding additional expenses in connection with the abandonment
of any of our properties. In addition, abandonment costs and their timing may
change due to many factors, including actual production results, inflation
rates and changes in environmental laws and regulations.
17
GENERAL RISKS THAT IMPACT THE OIL AND GAS INDUSTRY.
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WE ARE SUBJECT TO VARIOUS GOVERNMENTAL REGULATIONS.
Our operations are affected from time to time in varying degrees by political
developments and federal, state and local laws and regulations. In particular,
oil and gas production related operations are or have been subject to price
controls, taxes and other laws and regulations relating to the oil and gas
industry. Failure to comply with such laws and regulations can result in
substantial penalties. The regulatory burden on the oil and natural gas industry
increases our cost of doing business and affects our profitability. Although
we believe we will work in substantial compliance with all applicable laws and
regulations, because such laws and regulations are frequently amended or rein-
terpreted, we are unable to predict the future cost or impact of complying with
such laws and regulations.
FEDERAL REGULATION OF NATURAL GAS IS SIGNIFICANT AND COMPLEX.
Sales of natural gas by us are not regulated and are generally made at market
prices. However, the Federal Energy Regulatory Commission ("FERC") regulates
interstate natural gas transportation rates and service conditions, which will
affect the marketing of natural gas produced by us, as well as the revenues
received by us for sales of such production.
Since the mid-1980's, the FERC has issued a series of orders, culminating in
Order Nos. 636, 636-A and 636-B ("Order 636"), that have significantly altered
the marketing and transportation of natural gas. FERC Order 636 mandated a
fundamental restructuring of interstate pipeline sales and transportation
service, including the unbundling by the interstate pipelines of the sale,
transportation, storage and other components of the city-gate sales services
that such pipelines previously performed. One of the FERC's purposes in issuing
orders was to increase competition. While any additional FERC action on these
matters would affect us only indirectly, these policy statements and proposed
rules and new changes are intended to further enhance competition in natural gas
markets. We cannot predict what direction the FERC will take on these matters,
nor can we predict whether the FERC's actions will achieve its stated goal of
increasing competition in natural gas markets. However, we do not believe that
we will be treated materially differently than other natural gas producers and
marketers with which we will compete.
FEDERAL REGULATION OF OIL AND PRODUCT TRANSPORTATION CAN IMPACT PRICES.
The price we receive from the sale of oil is affected by the cost of transport-
ing such products to market. Effective January 1, 1995, the FERC implemented
regulations establishing an indexing system for transportation rates for oil
pipelines which would index such rates to inflation. These regulations could
increase the cost of transporting oil by interstate pipelines or reduce wellhead
prices for oil.
COMPLIANCE WITH THE TEXAS RAILROAD COMMISSION REGULATIONS IS COSTLY.
The State of Texas and many other states regulate oil and gas operations includ-
ing permits for drilling, field operations, bonds and reports concerning opera-
tions and impose other requirements relating to the exploration for and produc-
tion of oil and gas. Texas also has statutes or regulations addressing conser-
vation matters, including provisions for the unitization or pooling of oil and
gas properties, the establishment of maximum rates of production from wells and
the regulation of spacing, and abandonment of such wells.
18
WE ARE SUBJECT TO VARIOUS ENVIRONMENTAL RISKS AND COSTS.
-------------------------------------------------------
ENVIRONMENTAL REGULATION SERIOUSLY IMPACTS OIL AND GAS OOPERATOINS.
Our operations and properties will be subject to extensive and changing federal,
state and local laws and regulations relating to environmental protection,
including the generation, storage, handling and transportation of oil and gas
and the discharge of materials into the environment, and relating to safety and
health. The recent trend in environmental legislation and regulation generally
is toward stricter standards, and this trend will likely continue. These laws
and regulations may require the acquisition of a permit or other authorization
before construction or drilling commences and for certain other activities;
limit or prohibit construction, drilling and other activities on certain lands
lying within wilderness and other protected areas; and impose substantial
liabilities for pollution resulting from our operations. The permits required
for our various operations are subject to revocation, modification and renewal
by issuing authorities. Governmental authorities have the power to enforce
compliance with their regulations, and violations are subject to fines,
penalties or injunctions. In the opinion of management, we are in substantial
compliance with current applicable environmental laws and regulations, and we
have no material commitments for capital expenditures to comply with existing
environmental requirements. Nevertheless, changes in existing environmental
laws and regulations or in interpretations thereof could have a significant
impact on us. The impact of such changes, however, would not likely be any
more burdensome to us than to any other similarly situated oil and gas company.
THE SUPERFUND LAWS REMAIN ONEROUS.
The federal Comprehensive Environmental Response, Compensation, and Liability
Act ("CERCLA"), also known as the "Superfund" law, and similar state laws impose
liability, without regard to fault or the legality of the original conduct, on
certain classes of persons that are considered to have contributed to the
release of a "hazardous substance" into the environment. These persons include
the owner or operator of the disposal site or sites where the release occurred
and companies that disposed or arranged for the disposal of the hazardous waste
and substances found at the site. Persons who are or were responsible for re-
leases of hazardous substances under CERCLA may be subject to joint and several
liability for the costs of cleaning up the hazardous substances that have been
released into the environment and for damages to natural resources. Furthermore,
neighboring landowners and other third parties may file claims for personal
injury and property damage allegedly caused by the hazardous substances released
into the environment.
THE EPA IS INCREASING REGULATION OF OIL AND GAS OPERATIONS.
We will generate typical oil and gas field wastes, including hazardous wastes
that are subject to the Federal Resources Conservation and Recovery Act and
comparable state statutes. The United States Environmental Protection Agency
and various state agencies have limited the approved methods of disposal for
certain hazardous and non-hazardous wastes. Furthermore, some wastes generated
by our oil and gas operations that are currently exempt from regulation may in
the future be designated as "hazardous wastes", and therefore be subject to more
rigorous and costly operating and disposal requirements.
Also, the Oil Pollution Act ("OPA") imposes a variety of requirements on respon-
sible parties for onshore and offshore production facilities and vessels related
to the prevention of oil spills and liability for damages resulting from such
spills in waters of the United States. The "responsible party" includes the
owner or operator of an onshore facility or vessel or the lessee or permittee
of, or the holder of a right of use and easement for, the area where an onshore
facility is located. OPA assigns liability to each responsible party for oil
spill removal costs and a variety of public and private damages from oil spills.
Few defenses exist to the liability for oil spills imposed by OPA. OPA also
imposes financial responsibility requirements. Failure to comply with ongoing
requirements or inadequate cooperation in a spill event may subject a responsi-
ble party to civil or criminal enforcement actions.
19
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MANAGEMENT'S DISCUSSION AND ANALYSIS
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FORWARD LOOKING STATEMENTS
Some of the statements contained in this Form 8-K that are not historical facts
are "forward-looking statements" which can be identified by the use of termino-
logy such as "estimates," "projects," "plans," "believes," "expects," "antici-
pates," "intends," or the negative or by discussions of strategy that involve
risks and uncertainties. We urge you to be cautious of the forward-looking
statements, that such statements, which are contained in this Form 8-K, reflect
our current beliefs with respect to future events and involve known and unknown
risks, uncertainties and other factors affecting our operations, market growth,
services, products and licenses. No assurances can be given regarding the poten-
tial of future results, as actual results may differ materially as a result of
the risks we face, and actual events may differ from the assumptions underlying
the statements that have been made regarding anticipated events. Factors that
may cause actual results, our performance or achievements, or industry results,
to differ materially from those contemplated by such forward-looking statements
include without limitation:
|_| Our ability to generate additional capital to complete our planned
energy technology development and oil and gas activities
|_| Risks inherent in oil and gas acquisitions, exploration, drilling,
development and production; price volatility of oil and gas
|_| Competition from other technology and oil and gas companies
|_| Shortages of equipment, services and supplies
|_| Government regulation
|_| Environmental matters
These forward looking statements include statements regarding:
|_| Regent's financial position
|_| Proved or possible reserve quantities and net present values of those
reserves
|_| Business strategy
|_| Plans and objectives of management of Regent for future operations and
capital expenditures
|_| Revenue and cash flow projections
Our Management's Discussion and Analysis should be read in conjunction with our
consolidated financial statements and related notes to the financial statements
as of December 31, 2008 and 2009 and June 30, 2010 as well as for the results
of operations for the period from inception (January 1, 1999) through December
31, 2009, and the six months ended June 30, 2010.
20
OVERVIEW
Regent Technologies, Inc., a Colorado corporation, is listed on the Pink Sheets
under the symbol "REGT". We are a technology-focused company that utilizes
emerging proprietary technologies for our involvement in the energy industry. We
have rights to proprietary technologies which we believe provide us an advantage
in the industry. Our business strategy is to exploit these advantages and gene-
rate long-term value for our shareholders and partners. We operate through two
business segments:
-Energy Technology Division
-Natural Resources Division
Our Mission is to accomplish our business strategy while maintaining the highest
standards of integrity and professionalism wherever we operate and promoting re-
sponsible energy now and in the future. Our Vision is to employ new technologies
to maximize the production of petroleum resources in an efficient and environ-
mentally safe manner while developing new technologies for the increased use of
renewable energy.
ENERGY TECHNOLOGY DIVISION
Our Energy Technology Division is involved in identifying and developing emerg-
ing technologies which impact energy production. We are currently focused on
the development of a distinctive gearbox designed for petroleum valve actuators
and large wind energy generators. Known as the Epicloyd ("E-C") transmission,
the E-C Gearbox that we are developing for wind energy usage will be constructed
to provide a minimum of a decade of continuous service. Though these are appro-
priate for installation of new large wind generators, the primary market of the
gearboxes will be replacement of short-lived and repeatedly-failed conventional
gearboxes currently in 1 to 3 megawatt wind generators located around the US.
We are also working to apply the unique performance of the E-C Gearbox to the
control of valve actuators. Because of its durability and ability to function
for many years in locales beyond the reach of normal maintenance services, the
E-C gearbox is able to bring reliable performance and financial benefit to its
users in the petroleum industry and beyond.
The objective of Regent's Energy Technology Division is to apply the E-C Gearbox
to a wide variety of global energy industries to both diversify and increase re-
venues for the Company. Specific attributes that place the E-C Gearbox above
competitors are:
- Greatly reduced number of bearings and bearing failures
- Elimination of tooth failure and destructive metal shavings
- Great reduction in lubrication requirements
- Low generation of heat
- Extended durability, lower and simpler maintenance requirements
- Scalable to virtually all size applications
21
Technology
----------
On August 14, 2010, the Company entered into a rights agreement with Epi-Cloyd,
Ltd. and Epi-Energy, Ltd. (E-C) for the exclusive rights to develop an E-C Gear-
box for the valve actuator and wind energy applications. Following a period of
eight months for the development of a gearbox prototype, Regent has the right to
enter into a licensee agreement for exclusive rights for the valve actuator and
wind energy generation fields of use. Upon entering into the license agreement,
Regent will pay a minimum royalty payment of $12,500 per quarter for the first
twelve months and $25,000 per quarter thereafter.
Epi-Cloyd, Ltd. and Epi-Energy, Ltd. are related private technology companies
operating in Dallas, Texas and focused on the utilization of their numerous
patents covering a revolutionary cyclic reduction invention. Their invention
increases torque as a plurality of driver discs rotate about a central shaft
member and engage an output member via a low-friction, roller means. The first
of seven related patents was issued in March, 2007 and all are within the scope
of the Company's rights agreement.
Epi-Cloyd Application To Wind Energy
------------------------------------
Although the Company will be able to provide Epi-Cloyd transmissions for a great
variety of applications, it has focused its energies for the foreseeable future
on meeting the most serious problems confronting wind energy providers today.
These problems currently revolve around the repeated and destructive failure of
conventional transmissions and the high cost of removing and replacing such gear
boxes in the field.
The combination of a lower price of an Epi-Cloyd transmission, the savings of
timely orders, the lower maintenance requirements, and the savings from doubling
the life of a tower transmission produces a significant saving to the customer.
The Company expects to be able to sell its transmissions in a range of 75% of
the "aftermarket" price currently charged for conventional transmissions. That,
combined with an expected doubling of unit life, results in a unit cost that is
less than 50 percent of current conventional unit costs over a 10-year period.
In addition, the reduction in unit maintenance and costly in-field replacement
charges as well as lengthy down time, moves the E-C Gearbox replacement and ope-
rating cost lower to the range of 30 percent of current gearbox unit/operating
costs. Under these conditions, the Company could consider higher unit prices to
cover contingencies and extended warranties and still create a healthy profit.
22
Epi-Cloyd Wind Energy Market
----------------------------
We are estimating that there will be 4,000 gearboxes going out of warranty every
year for the next few years in the United States only. This includes the current
installed base of GE's most widely used turbine, the 1.5 MW, which is reported
at 13.5K units. While we believe the Epi-Cloyd should be supplied as the initial
OEM transmission, overly conservative wind farm financing entities will push
back against this new device for at least the first five years of use. So the
initial customer base will be the wind farm operators who have 4,000 OEM trans-
missions with expiring warranties and thus have the most to gain from using our
less expensive and longer lasting product. Primary efforts will focus on part-
nering with generator providers operating under power purchase agreements for
equipment integrity.
Revenue Outlook
---------------
On the very conservative presumption that in the first five years of operation
the Company can grow market share from 2 to 15 percent while developing a brand
name in the market, we expect to generate over $100 million in profits in that
time frame on a conservative gross margin of 25% in the US 1.5 MW turbine re-
placement transmission market. Prospects for new installation sales and other
size turbine replacement are expected to generate additional revenue and pro-
fits based on an estimated superior profit margin.
Near-Term Milestones
--------------------
We are seeking $1.5 million in external funding to effectively position our E-C
effort for maximum return on investment in the shortest period of time. An ini-
tial $300K is being sought from private investors and the balance will be raised
through non-dilutive licensing. $300K is being sought from angel investors to
initiate critical prototype work that confirms proof of principle previously
demonstrated in an independent testing laboratory. We will seek to develop the
prototype under an agreement with a strategic partner currently in the wind tur-
bine business.
NATURAL RESOURCES DIVISION
Our Natural Resources Division has initiatives for identifying oil and gas
fields with proven reserves that can be significantly increased and developed
with conservative strategies of proximity and our proprietary enhancement tech-
nologies. Our core technology involves restoring or increasing the productivity
of oil wells which have insufficient reservoir drive due to formation damage.
In addition, for confirming the presence of abandoned reserves as well as iden-
tifying exploratory prospects, we use a proprietary passive survey technology
which provides a high degree of accuracy in the determination of commercial oil
and gas fields. When combined with other measures of potential reserves, our
risk reduction processes have provided a high level of precision for mapping the
aerial extent of geological closures and hydrocarbon trapping geometries.
The objective of our Natural Resources Division is to selectively acquire pros-
pects where reserves can be identified with confidence, can be economically pro-
duced and where levels of production can be raised quickly and sustained for the
highest return on investment.
23
Prospective Exploration and Production Activities
-------------------------------------------------
We intend to grow reserves and production economically, primarily by: (1) major
workover of an existing wellbore on a leasehold with Proved Undeveloped Reserves
including the possibility of deepening said wellbore to test the Woodbine Forma-
tion; (2) acquiring properties with reasonable risk-reward potential and by par-
ticipating in and or actively conducting drilling operations in order to further
exploit the existing properties; and (3) selectively pursuing strategic acqui-
sitions that can be improved with our production enhancement technologies.
Exploration activities will normally be conducted with the Company acquiring
undeveloped oil and gas leases under prospects, and carrying out exploratory
drilling on the prospective leasehold with the Company retaining a majority
interest in the prospect. Interests in the property will sometimes be sold to
key employees and associated companies at cost. Also, interests may be sold to
third parties with the Company retaining an overriding royalty interest, carried
working interest, or a reversionary interest.
Regent intends to rely on joint ventures with qualified operating oil and gas
companies to operate its projects through the exploratory and production phases.
This will reduce general and administrative costs necessary to conduct
operations. As of the date of this filing, Regent is not operating any of the
oil and gas wells or prospects in which it owns an interest but instead relies
on third party companies to operate the wells and properties at this time.
Technology
----------
We will participate in projects utilizing economically feasible and advanced
technology in the exploration and development activities to reduce risks,
lower costs, and more efficiently produce oil and gas. Regent believes that the
availability of cost effective 3-D seismic surveys makes its use in exploration
and development activities attractive from a risk management perspective in
certain areas. In certain instances, 3-D seismic surveys more accurately inform
management in evaluating drilling prospects than do conventional 2-D seismic
and traditional evaluation methods.
Briefly, a seismic survey sends pulses of sound from the surface, down into the
earth, and records the echoes reflected back to the surface. By calculating
the speed at which sound travels through the various layers of rock, it is
possible to estimate the depth to the reflecting surface. In evaluating
certain exploratory prospects, management will also use a third-party passive
seismic survey which has proven effective through low frequency passive seismic
data analysis to find the so-called direct hydrocarbon indicator. This third-
party consulting group's passive survey approach has resulted in an exploratory
success rate of 6 out of 10 tries instead of the industry 1 in 9.
Regent may supplement its exploration efforts with acquisitions of producing oil
and gas properties. We will seek to acquire producing properties that either
are underperforming relative to their potential or possess Proven Undeveloped
Reserves for drilling and development.
24
Oil and Gas Outlook for 2010 and 2011
-------------------------------------
The following summarizes our goals and objectives for 2010 and 2011:
- Participate in the rework or deepening of the existing wellbore on the
acreage in Hill County to test the Woodbine formation;
- Continue the development of the interest on the acreage in Coke County;
- Pursue additional oil and gas asset and project acquisitions in common areas;
- Maintain liquidity through increases in cash flow provided by operations
and through a new credit facility borrowing base; and
- Continue to build our operating staff and related capabilities.
LIQUIDITY AND CAPITAL RESOURCES
Historically, our primary sources of liquidity have been cash provided by key
shareholders. In the past, these sources have been sufficient to meet the needs
of the business. As a result of our developmental drilling program plans, we
expect that cash flow from operating activities will also contribute to our cash
requirements during 2011 and for the foreseeable future thereafter. We can give
no assurances that the historical sources of liquidity and capital resources, or
cash flow from operating activities, will be available for future development
projects, and we may be required to seek additional or alternative financing
sources. Product prices and volumes, as well as the timely collection of recei-
vables and the availability of oil field services and supplies such as pipe and
compression equipment are all expected to have a significant influence on our
future net cash provided by operating activities. Additionally, our future
growth will be dependent upon the success and timing of our exploration and
production activities, new project development, efficient operation of our faci-
lities and our ability to obtain financing at favorable terms.
CREDIT FACILITY
Presently we have no credit facility established, but may arrange a credit faci-
lity in the future once the Company has been successful in establishing produc-
tion from drilling on its oil and gas leases. Also, a credit facility may be
established in connection with the acquisition of existing oil and gas proper-
ties. The borrowing base for such a credit facility at any time will be the
loan value assigned to the proved reserves attributable to the Company's oil and
gas interests. The borrowing base will be re-determined on a semi-annual basis,
based upon an engineering report delivered by us from an approved petroleum en-
gineer. Such a credit facility based on proved oil and gas reserves would ordi-
narily be used for working capital requirements, capital expenditures, acquisi-
tions, general corporate purposes and to support letters of credit.
25
CASH FLOWS AND CAPITAL EXPENDITURES
Our operating budget for 2010 and 2011 is currently estimated at $100K for our
E-C Gearbox prototype development and $150K for the workover and drilling
operations in Hill County and Coke County, Texas. The budget for general and
administrative expenses for 2010 and 2011 is $150K. The Company will finance
these expenditures from the sales of corporate securities, either debt, equity
or both.
CONTRACTUAL OBLIGATIONS
The Company has no contractual obligations, other than the development of the
E-C Gearbox prototype under the agreement executed on August 14, 2010 with
Epi-Cloyd, Ltd. and Epi-Energy, Ltd. ("E-C"). The E-C contract has contingent
cash payments due beginning in the second quarter of 2011. The payments are con-
tingent on our election to license the E-C technology. We have no hedging policy
currently related to oil and gas production but may develop such a policy in the
future. Collared hedges have the effect of providing a protective floor while
allowing us to share in upward pricing movements to a fixed point. Consequently,
while these hedges are designed to decrease our exposure to price decreases,
they also have the effect of limiting the benefit of price increases beyond the
ceiling. We may pursue hedging to protect a portion of our future production
against future pricing fluctuations, or enter into derivative contracts to
decrease exposure to commodity price volatility.
OFF-BALANCE SHEET ARRANGEMENTS
As of the date of this report, we do not have any off-balance sheet arrangements
that have or are reasonably likely to have a current or future effect on our
financial condition, changes in financial condition, revenues or expenses,
results of operations, liquidity, capital expenditures or capital resources that
are material to investors. The term "off-balance sheet arrangement" generally
means any transaction, agreement or other contractual arrangement to which an
entity unconsolidated with us is a party, under which we have: (i) any
obligation arising under a guarantee contract, derivative instrument or variable
interest; or (ii) a retained or contingent interest in assets transferred to
such entity or similar arrangement that serves as credit, liquidity or market
risk support for such assets.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The significant accounting policies of the Company are described in the notes
to the Consolidated Financial Statements in our last filed Annual Report on Form
10-K filed for the period ending December 31, 2009 and in the Form 10-Q filed
for June 30, 2010. There have been no changes in the critical accounting
policies. Information concerning the implementation and the impact of new
accounting standards issued by the Financial Accounting Standards Board
("FASB") are included in the financial statement notes to the 2009 Consolidated
Financial Statements and are incorporated herein by reference.
26
OIL AND GAS PROPERTIES
The Company follows the full-cost method of accounting under which all costs
associated with property acquisition, exploration and development activities are
capitalized. We capitalize internal costs that can be directly identified with
our acquisition, exploration and development activities and do not include any
costs related to production, general corporate overhead or similar activities.
Capitalized costs are amortized on a composite unit-of-production method based
on proved oil and gas reserves. Estimates of our proved reserves as of December
31, 2009 were prepared by a third party engineering firm. In addition, a third
party engineering firm reviews and updates our reserves on a quarterly basis.
Proceeds from the sale of properties are accounted for as reductions of capita-
lized costs unless such sales involve a significant change in the relationship
between costs and the value of proved reserves or the underlying value of
unproved properties, in which case a gain or loss is recognized. The costs of
unproved properties are excluded from amortization until the properties are
evaluated. We review all of our unevaluated properties quarterly to determine
whether or not and to what extent proved reserves have been assigned to the
properties and otherwise if impairment has occurred. Unevaluated properties are
grouped by major prospect area where individual property costs are not signifi-
cant and are assessed individually when individual costs are significant. We
review the carrying value of our properties under the full-cost accounting rules
of the Securities and Exchange Commission on a quarterly basis. This quarterly
review is referred to as a ceiling test. Under the ceiling test, capitalized
costs, less accumulated amortization and related deferred income taxes, may not
exceed an amount equal to the sum of the present value of estimated future net
revenues (adjusted for cash flow hedges) less estimated future expenditures to
be incurred in developing and producing the proved reserves, less any related
income tax effects. In calculating future net revenues, effective December 31,
2009, current prices are calculated as the average natural gas and oil prices
during the preceding 12-month period prior to the end of the current reporting
period, determined as the un-weighted arithmetical average of prices on the
first day of each month within the 12-month period and costs used are those as
of the end of the appropriate quarterly period. Such prices are utilized except
where different prices are fixed and determinable from applicable contracts for
the remaining term of those contracts, including the effects of derivatives
qualifying as cash flow hedges. Two primary factors impacting the ceiling test
are reserve levels and oil and gas prices, and their associated impact on the
present value of estimated future net revenues. Revisions to estimates of oil
and gas reserves and/or an increase or decrease in prices can have a material
impact on the present value of estimated future net revenues. Any excess of the
net book value, less deferred income taxes, is generally written off as an
expense. We account for all exploration costs (including seismic) in accordance
with Regulation S-X. Specifically, Rule 4-10 requires all companies that use the
full-cost method to capitalize exploration costs as part of their oil and gas
properties (i.e., the full-cost pool). Exploration costs may be incurred both
before acquiring the related property and after acquiring the property. Further,
these costs include, among other things, geological and geophysical studies and
salaries and other expenses of geologists, geophysical crews and others conduct-
ing those studies. Such costs are capitalized as incurred. Seismic costs
directly associated with the acquisition and evaluation of unproved properties
are excluded from the amortization computation until it is determined whether or
not proved reserves can be assigned to the properties. The Company reviews its
unproved properties and associated seismic costs quarterly in order to ascertain
whether impairment has occurred. To the extent that seismic costs cannot be
directly associated with specific unevaluated properties, they are included in
the amortization base as incurred.
27
RESERVE ESTIMATES
Estimates of oil and gas reserves, by necessity, are projections based on geolo-
gic and engineering data, and there are uncertainties inherent in the interpre-
tation of such data as well as the projection of future rates of production and
the timing of development expenditures. Reserve engineering is a subjective pro-
cess of estimating underground accumulations of oil and gas that are difficult
to measure. The accuracy of any reserve estimate is a function of the quality of
available data, engineering and geological interpretation and judgment. Esti-
mates of economically recoverable oil and natural gas reserves and future net
cash flows necessarily depend upon a number of variable factors and assumptions,
such as historical production from the area compared with production from other
producing areas, the assumed effects of regulations by governmental agencies and
assumptions governing future oil and natural gas prices, future operating costs,
severance taxes, development costs and workover costs, all of which may in fact
vary considerably from actual results. For these reasons, estimates of the eco-
nomically recoverable quantities of oil and natural gas attributable to any par-
ticular group of properties, classifications of such reserves based on risk of
recovery, and estimates of the future net cash flows expected therefrom may
vary substantially. Any significant variance in the assumptions could materially
affect the estimated quantity and value of the reserves, which could affect the
carrying value of oil and gas properties and/or the rate of depletion of the oil
and gas properties. Actual production, revenues and expenditures with respect to
our reserves will likely vary from estimates and such variances may be material.
IMPAIRMENT OF OIL AND GAS PROPERTIES
We review the carrying value of our long-lived assets whenever events or changes
in circumstances indicate that such carrying values may not be recoverable. If,
upon review, the sum of the undiscounted pretax cash flows is less than the
carrying value of the asset group, the carrying value is written down to esti-
mated fair value. Individual assets are grouped for impairment purposes at the
lowest level for which there are identifiable cash flows that are largely inde-
pendent of the cash flows of other groups of assets, generally on a field-by-
field basis. The fair value of impaired assets is determined based on quoted
market prices in active markets, if available, or upon the present values of
expected future cash flows using discount rates commensurate with the risks in-
volved in the asset group. The long-lived assets of the Company, which are sub-
ject to periodic evaluation, consist primarily of oil and gas properties and
undeveloped leaseholds .
LITIGATION
There is no litigation currently pending or threatened against the Company.
28
STOCK-BASED COMPENSATION
In December 2007, Regent entered into restricted common stock award agreements
with its directors under which it may be required to issue up to 2,000,000
shares of common stock, 500,000 shares to four directors. The restricted stock
awards vest over 36 months from the date of first service as a Director which
resulted in the grant of 500,000 shares to the President in 2007 and 347,223 and
450,000 shares to the remaining Directors in 2007 and 2008, respectively. The
grant was valued at $2,000 for tax purposes, being the value of the shares on
the day the agreement was completed. The Company has valued the shares at
$20,000 for book purposes, being the stock par value. The total cost of the
restricted stock grant will be recognized in the consolidated statement of
operations at the dates of vesting over an estimated period of three years. We
recognized the amounts of $4,500 and $5,000 as stock-based director compensation
expense for the fiscal periods ended 2009 and 2008, respectively, based on the
par value of the stock issued. As of October 1, 2010, 33,333 shares remain
unissued and unvested under the director award agreements.
ASSET RETIREMENT OBLIGATIONS
The Company has no asset retirement obligations at the date of this report.
RECENT ACCOUNTING PRONOUNCEMENTS
The accounting pronouncements affecting the Company are described in the notes
to the Consolidated Financial Statements in our last filed Annual Report on Form
10-K filed for the period ending December 31, 2009 and in the Form 10-Q filed
for June 30, 2010. The discussion in said reports is incorporated herein by
reference.
EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
Under the supervision and with the participation of our management, including
our Principal Executive Officer and Principal Financial and Accounting Officer,
we conducted an evaluation of the effectiveness of our disclosure controls and
procedures (as defined in Rule 13a-15(e)) of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), which are designed to ensure that
information required to be disclosed by us in the reports that we file or
submit under the Exchange Act is recorded, processed, summarized and reported
within the time periods specified by the SEC's rules and forms. Disclosure
controls and procedures include, without limitation, controls and procedures
designed to ensure that information required to be disclosed by us in the
reports that we file or submit under the Exchange Act is accumulated and
communicated to our management, including our Principal Executive Officer and
Principal Financial and Accounting Officer, as appropriate to allow timely
decisions regarding the required disclosures. Based on this evaluation, our
Principal Executive Officer and Principal Financial and Accounting Officer
concluded that our disclosure controls and procedures were effective as of the
of the period ended December 31, 2009 and through the end of the period covered
by this Report.
29
--------------------------------------------------------------------------------
MANAGEMENT
--------------------------------------------------------------------------------
Below are the names and certain information regarding the Company's executive
officers, managers and directors.
Name Age Position
----------------- ---- --------------------------------------------
David A. Nelson 62 President, CEO and Director
Dr. Anton Prodanovic 66 General Manager, Natural Resources Division
John A. Clutter 63 General Manager, Energy Technology Division
Dr. David L. Ramsour 69 Secretary and Director
Philip G. Ralston 66 Director
Douglas R. Baum 43 Director, Regent GLSC
Officers are elected annually by the Board of Directors at its annual meeting,
to hold such office until an officer's successor has been duly appointed and
qualified, unless an officer sooner dies, resigns or is removed by the Board.
Background of Officers, Managers and Directors
----------------------------------------------
David A. Nelson is the Chairman, President and CEO of the Company. Mr. Nelson is
a member of the Texas Alliance of Energy Producers, the Independent Petroleum
Association of America, and the Texas Bar Association. Following graduation from
law school, Mr. Nelson was an officer in the trust department of Republic Natio-
nal Bank of Dallas before serving as Corporate Counsel for Richardson Energy
Corporation, a private oil and natural gas production company. In 1984, he
formed his own oil and gas company with the primary focus on natural gas produc-
tion and gas gathering in Oklahoma. From 1989 to 1992, Mr. Nelson was the
Chairman and CEO of Intramerican Oil and Minerals, a public oil and natural gas
company and presided over the expansion of proven reserves for four consecutive
years, and the company's first three years of profitability in ten previous
years. Acquisitions included oil and gas producing properties and gas gathering
systems in Texas, Oklahoma and Louisiana. Intramerican became the predecessor
company to a NYSE oil and gas exploration and production company. From 1992 to
1998, Mr. Nelson was CEO of the Registrant and resumed control in 2005. During
his first tenure, Regent was active in the internet services business. In 1998,
Regent's internet assets were acquired by Allegiance Telecom, a NYSE company.
From 1999 to 2002, Mr. Nelson was President, CEO and Chairman of Concord Trust,
a Texas regulated trust company. He holds various investment NASD licenses
He is a graduate of Baylor University with BA and JD degrees and a Master of
Computing Sciences from Texas A & M University.
Dr. Anton Prodanovic has been focused during his career on the evaluation, plan-
ning, permitting, construction and management of various global energy projects.
From 2000 until joining our company, Dr. Prodanovic has served as a consultant
to various oil and gas projects, renewable energy sources and emerging alterna-
tive fuel projects. Between 1984 and 2000, Dr. Prodanovic served in numerous
capacities with Mobil Corporation as an officer or senior executive with various
divisions and projects within Mobil Corporation, and from 1976 until 1984 he was
a Senior Research Associate with Exxon Production Research Co., a division of
Exxon Corporation. Dr. Prodanovic is a member of the American Society of Civil
Engineers and the American Society of Mechanical Engineers. He was co-founder or
organizer of Offshore Mechanics and Arctic Engineering, Polar Offshore Arctic
Conferences, Offshore Technology Conferences and Russian Arctic Offshore Con-
ferences. A Fulbright scholar (1973), Dr. Prodanovic also served as Assistant
Professor at the University of Sarajevo, Yugoslavia and was a Research Assistant
at Rice University. Dr. Prodanovic holds a Ph.D. in Structural Engineering from
Rice University, an M.A. in International Business from the University of Texas
and a B.S. in Civil Engineering from the University of Sarajevo.
John A. Clutter has over 35 years of domestic and international business and
management experience in operations/manufacturing, engineering, procurement,
human resource/administration, labor relations, strategic planning and sales and
marketing. He has held vice president level positions for over 20 of these years
in operations/manufacturing, human resource/administration, sales and marketing,
and engineering including the Vice President/General Manager of a Division of
Letourneau Technologies, Inc. for over 14 years. Mr. Clutter has extensive
experience in advanced drive technology, hardware and software, products and
businesses such as aviation batteries, power supplies and electronics, digital
monitoring/control/managements systems, mechanical systems and power generation.
John is a 1970 graduate of Ohio State University with a degree in Industrial
Engineering.
30
Dr. David L. Ramsour has served as a financial and economic strategist for the
past 35 years. He began his career as Vice President and International Economist
with First National Bank of Dallas and its holding company, First International
Bancshares. Dr. Ramsour subsequently joined Bank of Hawaii as Senior Vice
President and Chief Economist. At the Bank of Hawaii, Dr. Ramsour headed the
Bank's division assessing Fed policy, rates and credit and investment conditions
in the US, Europe, Asia and the Pacific, and provided portfolio, market and
project feasibility counsel for the Bank and its clients. Dr. Ramsour left
Bancorp Hawaii in 1995 to begin work on behalf of the Governor of Guam in the
development of an extensive industrial restructuring. Over the ensuing years, he
has worked as a consultant to a great number of US, Pacific and Asian corporate
and government enterprises and has spoken to international conferences there
and in Europe. Dr. Ramsour also served on various task forces and policy com-
mittees including several terms as a member of the American Bankers Association
Council of Economic Advisors in Washington, DC. Dr. Ramsour is a graduate of
Baylor University with a Bachelor and Master's degree and received his Ph.D.
in international finance from the University of Texas at Dallas. He holds an
NASD Series 65 license.
Philip G. Ralston has spent thirty plus years in the life science industry as a
senior executive, inventor, company founder, venture capitalist, and business
coach, including serving as the President and CEO of MacuCLEAR, Inc. for the
past four years. Phil received a solid foundation in product development and
commercialization at Baxter Healthcare, as Director of Biomedical Engineering,
a corporate level group focused on strategic projects that advanced the state-
of-the-art. Since leaving Baxter, Mr. Ralston has started four companies, has
been the senior operating executive of two mid-size medical device companies,
and for the last decade has been a business coach for several Fortune 500, mid-
size and start-up clients. Mr. Ralston has a Master of Business Administration
from the Kellogg School of Management at Northwestern University, and a Bachelor
of Science Degree in Chemistry from Brigham Young University. He is a charter
board member of the Medical Device Manufacturers Association and currently
serves on the advisory board of the Houston Technology Center and Medici
Biomedical Development Center.
Executive Compensation
----------------------
Regent has not paid their executive officers compensation during the last five
fiscal years and has no outstanding employment agreements. Until cash flows are
available, the executives and managers will defer cash compensation.
Director Compensation and Committees
------------------------------------
We have paid and are now considering payment of compensation to our directors
for acting in such capacity in the form of the grant of shares of common stock
and reimbursement for reasonable out-of-pocket expenses in attending meetings.
We intend to appoint an audit committee and will designate a director as an
"audit committee financial expert", as that term is defined in the rules of the
Securities and Exchange Commission.
The Board of Directors does not have a standing nominating committee. Nomina-
tions for election to the Board of Directors may be made by the Board or by any
shareholder entitled to vote for the election of directors under our bylaws and
Colorado law. Meetings may be held from time to time to consider matters for
which approval of our Board of Directors is desirable or is required by law.
31
Employees
---------
In order to effectively utilize our resources, we employ and will continue to
employ the services of independent consultants and contractors to perform a
variety of professional and technical services, including in the areas of lease
acquisition, land-related documentation and contracts, drilling and completion
work, pumping, inspection, testing, maintenance and specialized services. We
believe it can be more cost effective to utilize the services of consultants and
independent contractors for some of these services.
We depend to a large extent on the services of certain key management personnel
and officers, and the loss of any these individuals could have a material
adverse effect on our operations. The Company does not maintain key-man life
insurance policies on its employees.
Termination of Employment and Change of Control Arrangement
-----------------------------------------------------------
There are no plans or arrangements for payment to officers or directors upon
resignation or a change in control of the Registrant.
--------------------------------------------------------------------------------
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
--------------------------------------------------------------------------------
Transfer Agreement
------------------
Pursuant to the Transfer Agreement, the Company granted related parties David A.
Nelson and Signature Investor Group, LC a total of 13.5 million shares of the
Regent's restricted common stock and the forgiveness of a promissory note for
$70,000 in exchange for certain oil and gas interests, including proved undeve-
loped reserves.
Notes receivable
----------------
Effective December 30, 2009, the Board of the Company and the Board of Regent
GLSC Technologies, Inc. approved the sale of 15,000 shares of Regent GLSC
Series A Preferred Stock to the Chairman and CEO of Regent and Regent GLSC for
$5.00 per share. The acquisition required a payment of $5,000 plus the execution
of a promissory note in the amount of $70,000, which note was forgiven under
the Transfer.
Notes payable
-------------
Beginning in 2005, the Company borrowed various amounts for general corporate
purposes under a note payable to NR Partners, a partnership comprised of the
President as a partner and director David Ramsour as a partner. The total NR
Partners amount due and payable at October 1, 2010 was $4,350. The promissory
note is a demand note and pays interest at 8.5 percent per annum.
32
--------------------------------------------------------------------------------
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
--------------------------------------------------------------------------------
Including the shares issued under the Transfer Agreement, there are 22,326,900
shares of Common Stock issued and outstanding. The following table utilizes the
outstanding number as the denominator in setting forth information as of this
8-K 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.
Title of Class Name and Address of Amount and Percent of
Beneficial Owner Nature of Class
beneficial
Ownership
Common Stock David A. Nelson (1) 17,964,798 80.5%
18 St. Laurent Place
Dallas, Texas 75225
Common Stock Philip G. Ralston, Jr. (2) 500,000 2.2%
7101 Lake Mead Court
Frisco, Texas 75034
Common Stock David L. Ramsour (3) 491,667 2.2%
6807 Hyde Park
Dallas, Texas 75231
Common Stock Douglas R. Baum (4) 475,000 2.1%
5000 Raffee Cove
Austin, Texas 78731
Common Stock All officers and directors (5) 19,431,465 87.0%
as a group
(1) David A. Nelson is the President, Chief Executive Officer, Chief Financial
Officer and a director of Regent. He is also the CEO and a director of Regent
GLSC. At the date of the filing of this report. This figure includes:
(i) 17,488,834 restricted shares and 213,281 unrestricted shares held of record
or beneficially by David A. Nelson; (ii) 16,667 restricted shares and 70,835
unrestricted shares held of record by spouse Elaine E. Nelson; and (iii) 176,181
held directly or beneficially in brokerage accounts. Mr. Nelson also holds a
voting agreement with the right to vote an additional 150,000 shares.
(2) Philip G. Ralston is a director of Regent and the President and a director
of Regent GLSC. All shares are restricted and held directly.
(3) David L. Ramsour is a director and the Secretary of Regent. All shares are
restricted and held directly.
(4) Douglas R. Baum is a director of Regent GLSC, a subsidiary of Registrant.
All shares are restricted and held directly.
(5) 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.
33
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DESCRITION OF SECURITIES
--------------------------------------------------------------------------------
Common and preferred stock
--------------------------
The Company's capital structure is complex and consists of preferred stock and
a single class of common stock. The Company is authorized to issue 130,000,000
shares of stock, of which 30,000,000 have been designated as preferred shares
with a par value per share of $.10, and 100,000,000 have been designated as
common shares with a par value per share of $.01. As of the date of this report,
22,326,300 shares of common stock are outstanding. This compares to 8,487,456
shares at December 31, 2009 with the difference due to issuances under stock-
based compensation and the Transfer Agreement. No shares of the Company's pre-
ferred stock have been issued.
Holders of Regent's common stock are entitled to one vote for each share on all
matters submitted to a stockholder vote. Holders of common stock do not have
cumulative voting rights. Therefore, holders of a majority of the shares of
common stock voting for the election of directors can elect all of the direc-
tors. Holders of the Regent's common stock representing a majority of the vot-
ing power of Regent's capital stock issued, outstanding and entitled to vote,
represented in person or by proxy, are necessary to constitute a quorum at any
meeting of stockholders. A vote by the holders of a majority of Regent's out-
standing shares is required to effectuate certain fundamental corporate changes
such as liquidation, merger or an amendment to Regent's articles of incorpo-
ration.
Holders of Regent's common stock are entitled to share in all dividends that
the board of directors, in its discretion, declares from legally available
funds. In the event of liquidation, dissolution or winding up, each outstand-
ing share entitles its holder to participate pro rata in all assets that remain
after payment of liabilities and after providing for each class of stock, if
any, having preference over the common stock. Regent's common stock has no
pre-emptive rights, no conversion rights and there are no redemption provisions
applicable to the Regent's common stock.
Stock options
-------------
No options, warrants or similar rights are outstanding as of this report date.
Subsidiary preferred stock
--------------------------
On April 18, 2007, Regent GLSC accepted purchase agreements in a total amount
of $150,000 received from four purchasers of a private offering of shares of
of Series A Convertible Preferred Stock ("Regent GLSC Preferred Stock"). Under
the accepted purchase agreements, the subscribers purchased through a Preferred
Stock Purchase Agreement 30,000 shares of Regent GLSC's Series A Convertible
Preferred Stock at $5.00 per share. The stock was sold under a private placement
offering to sell 25% of the equity of Regent GLSC for $1,250,000 in $50,000
units. Each unit is convertible into 10,000 shares of common stock of Regent
GLSC plus 4,800 shares of common stock of MacuCLEAR. Including the initial sales
on April 18, 2007, Regent GLSC has accepted Preferred Stock purchase agreements
from additional investors in the total amount of $472,500. If all of the uncon-
verted shares of the Series A Preferred Stock were to be converted to common
stock of Regent GLSC, the Company's ownership of Regent GLSC would be diluted
to approximately 90%.
34
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MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
--------------------------------------------------------------------------------
Market Information
------------------
Regent's Common Stock is listed on the Pink Sheets under the symbol "REGT." For
the period ended December 31, 2009 and through the date of this report, security
dealers did not report high and low bid quotations.
Dividends
---------
We have not declared any dividends, and we do not plan to declare any dividends
in the foreseeable future.
Other Shares Which May Be Issued
--------------------------------
The following table lists additional shares of the Company's common stock which
may be issued as equity compensation.
Number of Note
Shares Reference
--------- ---------
Shares subject to semi-annual vesting pursuant to
a restricted stock grant award to the Directors 33,333 A
A - See STOCK-BASED COMPENSATION above.
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INDEMNIFICATION OF DIRECTORS AND OFFICERS
--------------------------------------------------------------------------------
Regent's directors and executive officers are indemnified as provided by its
Bylaws and by the Colorado General Corporation law. These provisions state that
our directors may cause the Company to indemnify a director or former director
against all costs, charges and expenses, including an amount paid to settle an
action or satisfy a judgment, actually and reasonably incurred by the director
as a result of him acting as a director. The indemnification of costs can
include an amount paid to settle an action or satisfy a judgment. Such indem-
nification is at the discretion of Regent's board of directors and is subject to
the Securities and Exchange Commission's policy regarding indemnification.
35
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Item 3.02 Unregistered Sales of Equity Securities.
--------------------------------------------------------------------------------
The information set forth above under Item 2.01, Completion of Acquisition of
Assets, is hereby incorporated by reference into this Item 3.02.
--------------------------------------------------------------------------------
Item 5.02 Departure of Directors or Principal Officers; Election of Directors;
Appointment of Principal Officers.
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The information set forth above under Item 2.01, Completion of Acquisition of
Assets, is hereby incorporated by reference into this Item 5.02.
--------------------------------------------------------------------------------
Item 8.01 Other Events
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Name Change
-----------
In connection with the Transfer, the Board of Directors of the Company voted to
change the name of the Company's subsidiary, Regent GLSC Technologies, Inc., to
Regent Natural Resources Co., which name change was approved by the Board of
Directors of Regent GLSC on September 30, 2010.
--------------------------------------------------------------------------------
Item 9.01 Financial Statements and Exhibits
--------------------------------------------------------------------------------
(d) Exhibits.
Exhibit
Number Description
------- -----------
2.1 Property Transfer Agreement executed September 30, 2010 between
the Company and David A. Nelson and Signature Investor Group, LC
36
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Regis-
trant has duly caused this Current Report on Form 8-K to be signed on its behalf
by the undersigned thereunto duly authorized.
Date: October 7, 2010
REGENT TECHNOLOGIES, INC.
By: /s/ David L. Ramsour
---------------------------------------------
David L. Ramsour
Secretary and Director
37
EXHIBIT INDEX
Exhibit
Number Description
------- -----------
2.1 Property Transfer Agreement executed September 30, 2010 between
the Company and David A. Nelson and Signature Investor Group, LC
38
