<PAGE> 1
As filed with the Securities and Exchange Commission on June 6, 1996
REGISTRATION STATEMENT NO. 33-96974
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------------------------------
Amendment No. 2
to
FORM SB-2
Registration Statement
under
THE SECURITIES ACT OF 1933
-----------------------------------------
REGI U.S., INC.
(Name of small business issuer in its charter)
<TABLE>
<S> <C> <C>
OREGON 3519 91-1580146
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer Identification
incorporation or organization) Classification Code Number) Number)
</TABLE>
10751 SHELLBRIDGE WAY, SUITE 185
RICHMOND, BRITISH COLUMBIA V6X 2W8, CANADA
604-278-5996
(Address and telephone number of principal executive offices and
principal place of business)
-----------------------------------------
James L. Vandeberg, Esq.
GRAHAM & DUNN
1420 Fifth Avenue, 33rd Floor
Seattle, Washington 98101-2390
(206) 624-8300
(Name address and telephone number of agent for service)
-----------------------------------------
Approximate date of proposed sale to the public: AS SOON AS PRACTICABLE AFTER
THIS REGISTRATION STATEMENT BECOMES EFFECTIVE.
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box [ X ]
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
- -----------------------------------------------------------------------------------------------------------
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE PER AGGREGATE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED SHARE (1) PRICE REGISTRATION FEE(2)
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SHARES OF COMMON STOCK 492,500 $3.50 $1,723,750 $586.21
</TABLE>
(1) Based Upon The Price At Which Shares Were Traded On May 24, 1996.
(2) Previously Paid.
The Registrant Hereby Amends This Registration Statement On Such Date
Or Dates As May Be Necessary To Delay Its Effective Date Until The Registrant
Shall File A Further Amendment Which Specifically States That The Registration
Statement Shall Thereafter Become Effective In Accordance With Section 8(a) Of
The Securities Act Of 1933 Or Until This Registration Statement Shall Become
Effective On Such Date As The Commission, Acting Pursuit To Said Section 8(a)
May Determine.
<PAGE> 2
CROSS-REFERENCE OF ITEM NUMBERS IN PART I OF FORM SB-2
<TABLE>
<S> <C>
1. Front of Registration Statement and
Outside Front Cover of Prospectus............................. Outside Front Cover Page
2. Inside Front and Outside Back Cover Pages of Prospectus....... Inside Front and Outside Back Cover
Pages of Prospectus
3. Summary Information and Risk Factors.......................... Summary: Company; Risk Factors
4. Use of Proceeds............................................... Use of Proceeds
5. Determination of Offering Price............................... Risk Factors: Offering Risks
6. Dilution...................................................... Dilution
7. Selling Security Holders...................................... Sales by Selling Shareholders
8. Plan of Distribution.......................................... Plan of Distribution
9. Legal Proceedings............................................. Business: Legal Proceedings
10. Directors, Executive Officers,
Promoters and Control Persons................................. Management
11. Security Ownership of Certain
Beneficial Owners and Management.............................. Principal Shareholders
12. Description of Securities..................................... Description of Securities
13. Interest of Named Experts and Counsel......................... Legal Matters; Experts
14. Disclosure of Commission Position on Indemnification
For Securities Act Liabilities................................ Management: Indemnification
15. Organization within Last Five Years........................... N/A
16. Description of Business....................................... Business
17. Management Discussion and
Analysis or Plan of Operation................................. Management's Discussion and
Analysis of Results of Operations and
Financial Condition
18. Description of Property....................................... Business: Properties
19. Certain Relationships and Related Transactions................ Certain Relationships and Related
Transactions
20. Market For Common Equity and
Related Stockholders Matters.................................. Dividend Policy; Description of
Securities
21. Executive Compensation........................................ Management
22. Financial Statements.......................................... Selected Financial Data
23. Changes in and Disagreements With Accountants
on Accounting and Financial Disclosure........................ N/A
</TABLE>
<PAGE> 3
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
24. Indemnification of Directors and Officers.......... Page II-2
25. Other Expenses of Issuance and Distribution........ Page II-2
26. Recent Sales of Unregistered Securities............ Page II-3
27. Exhibits........................................... Page II-4
28. Undertakings....................................... Page II-5
2
<PAGE> 4
PROSPECTUS
REGI U.S., INC.
492,500 SHARES OF COMMON STOCK, NO PAR VALUE ("COMMON STOCK"), TO BE SOLD BY
CERTAIN SHAREHOLDERS
Certain shareholders of REGI U.S., Inc., an Oregon corporation (the
"Company"), hereby offer for sale 492,500 shares of Common Stock (the "Shares").
The Shares were issued or will be issued to holders of warrants (the "Warrants")
who elected to exercise those Warrants at $1.25 per share or will exercise
Warrants and purchase Shares at $1.50 per share (the "Selling Shareholders").
The Warrants were issued by the Company as part of a private placement of units
consisting of one share of Common Stock and one Warrant to purchase one
additional Share. The period to exercise the Warrants has since been extended by
the Company pending the effectiveness of a registration statement allowing
holders of the Warrants to resell the Shares issued upon exercise of the
Warrants..
THESE SECURITIES INVOLVE A HIGH DEGREE OF RISK AND SHOULD NOT BE PURCHASED BY
ANY INVESTOR WHO CANNOT AFFORD TO SUSTAIN THE LOSS OF THEIR ENTIRE INVESTMENT.
PLEASE REFER TO SECTION TITLED "RISK FACTORS" ON PAGES 8-10 INFRA.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THE INFORMATION CONTAINED IN THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------
PROCEEDS TO PROCEEDS TO
PRICE TO SALES THE THE SELLING
PUBLIC COMMISSION COMPANY(1) SHAREHOLDERS(2)
- ----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
PER SHARE $ 3.50(1) 0 0 $ 3.50
TOTAL $1,723,500 0 0 $1,723,500
- ----------------------------------------------------------------------------
</TABLE>
(1) Based upon the market price of the Common Stock on May 24, 1996.
(2) The Company will pay the expenses of the selling shareholders estimated at
$35,000.
THE DATE OF THIS PROSPECTUS IS JUNE ___, 1996
3
<PAGE> 5
PROSPECTUS
REGI U.S., INC.
THE COMPANY INTENDS TO FURNISH ITS SHAREHOLDERS ANNUAL REPORTS
CONTAINING AUDITED FINANCIAL STATEMENTS WITH A REPORT THEREON BY ITS INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS AS WELL AS QUARTERLY REPORTS FOR THE FIRST THREE
QUARTERS OF EACH FISCAL YEAR CONTAINING UNAUDITED FINANCIAL INFORMATION.
UNTIL SEPTEMBER ____,1996 (NINETY DAYS AFTER THE EFFECTIVE DATE OF THIS
PROSPECTUS) ALL DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES OR
NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
4
<PAGE> 6
SUMMARY
The following summary is qualified in its entirety by the information
and financial statements appearing elsewhere in this Prospectus.
THE COMPANY
GENERAL
REGI U.S. Inc., an Oregon corporation (the "Company") is engaged
principally in the business of developing and seeking to commercially exploit an
improved axial vane-type rotary engine known as the Rand Cam/Direct Charge
Engine (the "RC/DC Engine"), a variation of the Rand Cam Engine (the "Original
Engine"). A patent has been received on certain features of the RC/DC Engine.
The worldwide intellectual and marketing rights to the RC/DC Engine are held by
Rand Energy Group Inc. ("REGI"). The Company holds the rights to develop, build
and market the engine design in the U.S. under a project cost sharing agreement
entered into with REGI effective May 1, 1993. Under the terms of this agreement
each company will fund 50% of the continuing development cost of the RC/DC
Engine.
The Company was organized under the laws of the State of Oregon on July
27, 1992. The Company is controlled by REGI, a privately held British Columbia
corporation which owns 74.6% of its shares of Common Stock and which, in turn,
is controlled 51% by Reg Technologies Inc., a publicly held British Columbia
corporation ("Reg Tech").
The RC/DC Engine is based upon the Original Engine which was patented
in 1983. Brian Cherry, an officer and director of the Company, has done
additional development work on the Original Engine which resulted in significant
changes and improvements for which a patent was issued and assigned to the
Company. It is believed that RC/DC Engine offers important simplification from
the Original Engine, which will make it easier to manufacture and will also
allow it to operate more efficiently. The Company believes that the RC/DC Engine
holds significant potential in a number of applications ranging from small
stationary equipment to automobiles and aircraft.
The Company intends to pursue the commercial development of the RC/DC
Engine by entering into licensing and/or joint venture arrangements with other
larger companies which would have the financial resources to maximize the
potential of the engine. At the present time no such licensing or joint venture
arrangements have been concluded and there is no assurance that any will be in
the foreseeable future. There are no plans at present for the Company to become
actively involved in either manufacturing or marketing any engine which it may
ultimately develop to the point of becoming a commercial product.
At the present time, several prototype models of the RC/DC Engine have
been tested and additional development and testing work is continuing. The
Company believes that such development and testing will continue for at least
another year before a more or less "final" design is achieved, and it may take
several years before a commercially feasible design is perfected. There is no
assurance at this time, however, that such a commercially feasible design will
ever be perfected, or if it is, that it will become profitable to the Company.
If a commercially feasible design is perfected, the Company does, however,
expect to derive revenues from licensing the technology relating to the RC/DC
Engine regardless of whether actual commercial production is ever achieved.
There is no assurance at this time, however, that revenues will ever be received
from licensing the technology even if it does prove to be commercially feasible.
The Company's principal offices are located at 10751 Shellbridge Way,
Suite 185, Richmond, British Columbia V6X 2W8, Canada. Its telephone number is
(604) 278-5996 and its telefacsimile number is (604) 278-3409.
In order to fully effect its intended plan of operation, the Company
will likely need to raise additional capital in the future beyond any amount
currently on hand and which may become available as a result of the exercise of
Warrants and options which are currently outstanding.
5
<PAGE> 7
THE OFFERING
<TABLE>
<S> <C>
SECURITIES OFFERED: Shares of unregistered restricted Common Stock
issued or to be issued upon the exercise of the
Warrants by the Selling Shareholders.
COMMON STOCK
OUTSTANDING: 7,635,900
TO BE OUTSTANDING
AFTER EXERCISE
OF ALL WARRANTS: 7,833,500
MARKET FOR SHARES: All Shares offered pursuant to this prospectus will
be freely tradeable when issued, on the NASD OTC
Bulletin Board.
RISK FACTORS: The Company has generated no revenues since
incorporation, and there are substantial risks
involved in any investment in the Company at this
time. See "Risk Factors."
</TABLE>
SELECTED FINANCIAL DATA
(IN DOLLARS)
The selected financial data set forth below is derived from the
financial statements of the Company included in this Prospectus and should be
read in conjunction with such financial statements, including the notes thereto.
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS DATA:
- --------------------------------------------------------------------------------------------
Years Ended 9 months
July 27, 1992 April 30 Ended
(inception) to -------------------- January 31,
April 30,1993 1994 1995 1996
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net Sales -- -- -- --
Net Income (Loss) $ (23,492) $ (394,263) $(1,225,743) $ (603,330)
Net Income (Loss) per Share (1) $ (0.01) $ (0.06) $ (0.18) $ (0.08)
Cash Dividends Paid per Share -- -- -- --
Weighted Averages Shares used in 6,000,000 6,500,000 6,710,275 7,375,610
per share calculations
</TABLE>
<TABLE>
<CAPTION>
BALANCE SHEET DATA:
- --------------------------------------------------------------------------------------
April 30
-------------------------------
1993 1994 1995 January 31, 1996
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Current Assets $29,708 $ 170,860 $ 100,878 $ 61,003
Current Liabilities 15,000 295,307 644,745 103,170
Working Capital 14,708 (124,447) (543,867) (42,167)
Total Assets 86,708 437,552 337,747 103,192
Long Term Debt -- -- -- --
Stockholder's Equity 71,708 142,245 (306,998) 22
</TABLE>
(1) Based on the average weighted number of shares outstanding during the
respective periods.
RISK FACTORS
The Shares of Common Stock being registered hereby involve a high
degree of risk and, therefore, should be considered extremely speculative. THESE
SHARES SHOULD NOT BE PURCHASED BY ANYONE WHO CANNOT AFFORD THE POSSIBLE LOSS OF
THEIR ENTIRE INVESTMENT. Prospective investors should read the entire Prospectus
and carefully consider among the other factors and financial data described
herein, the following risk factors related to the business of the Company:
6
<PAGE> 8
BUSINESS RISKS
1. LIMITED OPERATING HISTORY. The Company was incorporated on July 27, 1992.
It has conducted only limited business and has a very short operating
history. The Company is still in the developmental stage and does not
expect to receive any revenues from either licensing or production of the
RC/DC Engine for a minimum of 12 to 18 months.
2. NEGATIVE SHAREHOLDERS' EQUITY. The Company had a negative shareholders'
equity at April 30, 1995 and continues to have a negative shareholders
equity as of the date of this prospectus. The Company's ability to continue
as a going business will be dependent upon its ability to raise additional
capital and/or generate revenues from operations.
3. NEED FOR ADDITIONAL CAPITAL. Even if the all of the Warrants outstanding
are exercised, the proceeds available to the Company along with other
possible sources of financing may not be adequate for it to achieve its
business objectives. The Company intends to use the proceeds from the
exercise of Warrants for working capital and for further research and
development work. The ultimate success of the Company will depend upon its
ability to raise additional capital or to have other parties bear a portion
of the required costs to further develop or exploit the potential market
for its products. There is no assurance that funds will be available from
any source, and if not available, it will be necessary for the Company to
limit its operations to those which can be financed from the proceeds of
the exercise of outstanding Warrants. (See "Business".)
4. DEPENDENCE ON CONSULTANTS AND OUTSIDE MANUFACTURING FACILITIES. Since the
Company's present plans do not provide for a significant technical staff or
the establishment of manufacturing facilities, the Company will be
primarily dependent on others to perform these functions and to provide the
requisite expertise and quality control. There is no assurance that such
persons or institutions will be available when needed at affordable prices.
It will likely cost more to have independent companies do research and
manufacturing than for the Company to handle these functions if it had
these resources.
5. PRODUCT ACCEPTANCE. The profitability and survival of the Company will
depend upon its ability to develop a technically and commercially feasible
product which will be accepted by end users. The RC/DC Engine which the
Company is developing must be technologically superior or at least equal to
other engines which competitors offer and must have a competitive
price/performance ratio to adequately penetrate its potential markets. If
it is not able to achieve this condition or if it does not remain
technologically competitive, the Company may be unprofitable and investors
could lose their entire investment. There can be no assurance that the
Company or potential licensees will be able to achieve and maintain end
user acceptance of its engine.
6. COMPETITION. While not a highly competitive business in terms of numbers of
competitors, the business of developing engines of a new design and
attempting to either license or produce them is nonetheless difficult
because most existing engine producers are large, well financed companies
which are very concerned about maintaining their market position. There is
no assurance that the Company will be successful in meeting or overcoming
competition which currently exists or may develop in the future.
7. MANAGEMENT AND CONFLICTS OF INTEREST. The present officers and directors of
the Company have other full- time positions or part time employment which
is unrelated to the Company. Some officers and directors will be available
to participate in management decisions on a part time or as needed basis
only. (See "Management"). Management of the Company may devote time to
other companies or projects which may compete directly or indirectly with
the Company.
8. CONTROL BY CURRENT SHAREHOLDERS. If the currently exercisable outstanding
Warrants are exercised and the Shares sold to the public pursuant to this
prospectus, there will be 7,833,500 shares of Common Stock outstanding of
which at least 7,341,000 will be owned by current shareholders representing
control of approximately 93.7% of the total. Accordingly, the present
shareholders will continue to elect all of the Company's directors and
generally control the affairs of the Company. (See "Principal Shareholders"
and "Description of Securities.")
9. GENERAL FACTORS. The Company's areas of business may be affected from time
to time by such matters as changes in general economic conditions, changes
in laws and regulations, taxes, tax laws, prices and costs, and other
factors of a general nature which may have an adverse effect on the
Company's business.
OFFERING RISKS
1. LIMITED PUBLIC MARKET FOR COMMON STOCK. At present, only a limited market
exists for the Company's Common Stock on the over the counter bulletin
board and there is no assurance that a more active trading
7
<PAGE> 9
market will develop, or, if developed, that it will be sustained. A
purchaser of Shares may, therefore, find it difficult to resell the
securities offered herein should he or she desire to do so. Furthermore, it
is unlikely that a lending institution will accept the Company's Common
Stock as pledged collateral for loans.
2. ISSUANCE OF ADDITIONAL SHARES. The substantial portion of the 20,000,000
authorized shares of Common Stock of the Company will remain unissued even
if all outstanding Warrants are exercised. The Board of Directors has,
however, the power to issue such shares without shareholder approval.
Although the Company presently has no firm commitments or contracts to
issue any additional shares, it fully intends to do so if necessary in
order to acquire products, properties, capital, or for any other corporate
purposes. Following this offering, any additional issuances by the Company
from its authorized but unissued shares would have the effect of further
diluting the percentage interest of investors in this offering.
3. CUMULATIVE VOTING AND PREEMPTIVE RIGHTS. There are no preemptive rights in
connection with the Company's Common Stock. The investors purchasing Shares
in this offering may be diluted in their percentage ownership of the
Company in the event additional shares are issued by the Company in the
future. Cumulative voting in the election of directors is not permitted.
Accordingly, the holders of a majority of the shares of Common Stock,
present in person or by proxy, will be able to elect all of the Company's
Board of Directors. (See "Description of Securities.")
4. SHARES AVAILABLE FOR RESALE. All but 617,500 of the Company's presently
outstanding 7,635,900 shares, are "restricted" securities and could be sold
in compliance with Rule 144 adopted under the Securities Act of 1933, as
amended, if certain additional requirements are met. Assuming the exercise
of all of the Warrants and the registration of the 492,500 Shares, the
Company will then have issued and outstanding 7,833,500 shares of its
Common Stock, of which 6,723,500 will be "restricted" securities. Rule 144
provides, in essence, that after two years from the date of acquisition, a
person, including an affiliate, of the Company (or persons whose shares are
aggregated) may sell an amount up to one percent (1%) of the issued and
outstanding shares within any three month period, provided that certain
current public information about the Company is available. A person who has
not been an affiliate of the Company (or persons whose shares are
aggregated) who has owned restricted shares of Common Stock for at least
three years is entitled to sell such shares under Rule 144 without regard
to any of the limitations described above. Thereby, in each three month
period, 78,335 shares could be sold under Rule 144 by each person having
held the securities for at least two years. Investors should be aware of
the possibility that sales under Rule 144 may, in the future, have a
depressing effect on the price of the Company's stock in any market that
currently exists or may develop.
5. ESTIMATES AND FINANCIAL STATEMENTS. Some of the information in this
Prospectus consists of and relies upon evaluations and estimates made by
management and other professionals. Even though management believes in good
faith that such estimates are reasonable, based upon market studies and
data provided by sources knowledgeable in the field, there can be no
assurance that such estimates will ultimately be found to be accurate or
even based upon accurate evaluations. Any management errors in evaluations
or estimates could have a significant negative effect upon the Company's
profitability or even its viability.
6. NO FORESEEABLE DIVIDENDS. The Company has not paid dividends on its Common
Stock and does not anticipate paying dividends on its Common Stock in the
foreseeable future.
7. POSSIBLE VOLATILITY OF SECURITIES PRICES. The market price of the Company's
Common Stock has been highly volatile since it began trading in September
1994 and will likely continue to behave in this manner in the future.
Factors such as the Company's operating results and other announcements by
the Company regarding its development work and business operations may have
a significant impact on the market price of the Company's securities.
Additionally, market prices for securities of many smaller companies have
experienced wide fluctuations not necessarily related to the operating
performance of the companies themselves.
8. REQUIREMENTS OF SEC WITH REGARD TO LOW-PRICED SECURITIES. The Company's
securities are subject to Rule 15g-9 under the Exchange Act, which imposes
additional sales practice requirements on broker-dealers who sell such
securities to persons other than established customers and "accredited
investors" (generally, individuals with net worths in excess of $1,000,000
or annual incomes exceeding $200,000, or $300,000 together with their
spouses). For transactions covered by this rule, a broker-dealer must make
a special suitability determination for the purchaser and have received the
purchaser's written consent to the transaction prior to sale. Consequently,
the rule may adversely affect the ability of broker-dealers to sell the
Company's securities and may adversely affect the ability of purchasers in
this ofering to sell any of the securities acquired hereby in the secondary
market.
USE OF PROCEEDS
The Company will not receive any proceeds from the sale of the shares
offered hereby and will pay the expenses of the offering estimated at $35,000.
8
<PAGE> 10
DILUTION
At April 30, 1995, the net tangible book value of the Company was
approximately $(306,998) or $(0.44) per share. Net tangible book value per share
equals the Company's total shareholders' equity less intangible assets
(primarily goodwill) divided by the number of shares of Common Stock
outstanding. After giving effect to the sale of the 492,500 Shares by the
selling shareholders at an assumed public offering price of $3.50, the proforma
net tangible book value of the Company's Common Stock at April 30, 1996 (after
deducting estimated offering expenses) would have been approximately or $(0.049)
per share. This represents an immediate dilution of $(3.505) per share to new
investors. The following table illustrates this per share dilution.
<TABLE>
<S> <C> <C>
Assumed Public Offering Price . . . . . . . . . . $ 3.50
Net tangible book value per share
before offering (1)(3). . . . . . . . . . . $(0.044)
Pro forma net tangible book value after
offering (2)(3) . . . . . . . . . . . . . . $(0.049)
Decrease attributable to expenses of offering . . 0.005
Dilution to new investors . . . . . . . . . . . . $3.505
</TABLE>
- -------------------------------
(1) The data in the table do not give effect to the exercise of any outstanding
options or warrants nor to any transactions in the Company's Common Stock
subsequent to April 30, 1995.
(2) After deduction of $35,000 estimated offering expenses to be paid by the
Company.
(3) Determined by dividing the number of shares of Common Stock outstanding
into the tangible net worth of the Company. Tangible net worth is defined
as tangible net assets minus liabilities.
SALES BY SELLING SHAREHOLDERS
A total of 492,500 Shares have been registered pursuant to the
registration statement under the Securities Act, of which this Prospectus forms
a part, for sale by the Selling Shareholders. All of the Shares were registered,
at the Company's expense, under the Securities Act and are expected to become
tradeable on or about the date of this Prospectus. The Company will not receive
any proceeds from the sale of the Shares by the Selling Shareholders. Sales of
the Selling Shareholders' Shares or the potential of such sales would likely
have an adverse effect on the market prices of the Common Stock. None of the
Selling Shareholders are officers or directors of the Company.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
Amount of Amount of Amount and
Issuer's Issuer's Percentage of
Securities Securities Issuer's
Relationship with Owned Offered As Part Securities to be
Issuer and/or Issuer's (Prior to of Current Owned After
Stockholder Affiliates or Subsidiaries(1) Offering) Offering Offering(2)
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Aabedi, Ghaleb 1,000 500 500
Adolph, David 2,000 1,000 1,000
Alford, Jay W. 40,000 20,000 20,000
Altivilla, Thomas G. 10,000 5,000 5,000
Anderson, Patricia 10,000 5,000 5,000
Archibald, Joan 2,000 1,000 1,000
Atherton, Gregory 2,000 1,000 1,000
Atherton, Leo L. 2,000 1,000 1,000
Atherton, Mark V. 2,000 1,000 1,000
Atherton, Peter A. 4,000 2,000 2,000
Begg, G. H. K. 4,000 2,000 2,000
Burns Fry & Company 5,000 5,000 0
Bernhardt, Alanna 8,000 4,000 4,000
Bertin-Maclean, Denise 200 100 100
Bettis, Sandra 200 100 100
Bickerton, Brian 10,000 5,000 5,000
Boughen, Lise 10,000 5,000 5,000
Bowerman, Wes 2,000 1,000 1,000
Brady, James 2,000 1,000 1,000
Busby, James 2,000 1,000 1,000
Butterley, Rhonda 10,000 5,000 5,000
Butterley, Ron 10,000 5,000 5,000
Butterley, Sandee 10,000 5,000 5,000
Campbell, Kent 15,000 7,500 7,500
</TABLE>
9
<PAGE> 11
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
Amount of Amount of Amount and
Issuer's Issuer's Percentage of
Securities Securities Issuer's
Relationship with Owned Offered As Part Securities to be
Issuer and/or Issuer's (Prior to of Current Owned After
Stockholder Affiliates or Subsidiaries(1) Offering) Offering Offering(2)
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Canaccord Capital Corp. 9,000 9,000 0
Carr, Lucille 10,000 5,000 5,000
Castle, Harry 20,000 10,000 10,000
Chernoff, Lawrence 15,000 5,000 10,000
Christman, Melvin 4,000 2,000 2,000
Clark, Isabelle M. 6,000 3,000 3,000
Clark, Lloyd 49,000 7,000 42,000
Crandall, John C. 2,000 1,000 1,000
Cranfield, Kerry G. 2,000 1,000 1,000
Cranfield, R. G. 2,000 1,000 1,000
Cutler, Kimberly Ann 400 200 200
D'Mello, Clara 2,000 1,000 1,000
D'Mello, Elizabeth 2,000 1,000 1,000
Deeley, Bernadette P. 2,000 1,000 1,000
DeMello, Mario 4,000 2,000 2,000
Drescher, Katherine B. 10,000 5,000 5,000
Drescher, Richard 10,000 5,000 5,000
Edmunds, F. R. 2,000 1,000 1,000
Egger, Jennifer 3,000 1,500 1,500
Emmrich, Dietmund 2,000 1,000 1,000
Felker, Bob & Marva 5,000 2,500 2,500
Fitzgerald, Gary 2,000 1,000 1,000
Fitzgibbons, Neil 10,000 5,000 5,000
Flawse, Allen 10,000 5,000 5,000
Flawse, Barbara 10,000 5,000 5,000
Forsyth, Walter 10,000 5,000 5,000
Friesen, Greg 10,000 5,000 5,000
Gibb, Colin R. 4,000 2,000 2,000
Gilstead, Eric 200 100 100
Griffiths, Jill 40,000 10,000 30,000
Gross, Allen 2,000 1,000 1,000
GundyCo. 5,000 5,000 0
Guss, A. K. 10,000 5,000 5,000
Haab, Hans 1,000 500 500
Hadden, L. A. H. 2,000 1,000 1,000
Harder, Robert L. 1,000 500 500
Harris, Jeffrey F. 10,000 5,000 5,000
Harris, Marsha 2,000 1,000 1,000
Hatcher, William 10,000 5,000 5,000
Heath, Eustace W. 8,000 4,000 4,000
Heath, Wendy C. 10,000 5,000 5,000
Herman, Louis 7,000 3,500 3,500
</TABLE>
10
<PAGE> 12
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
Amount of Amount of Amount and
Issuer's Issuer's Percentage of
Securities Securities Issuer's
Relationship with Owned Offered As Part Securities to be
Issuer and/or Issuer's (Prior to of Current Owned After
Stockholder Affiliates or Subsidiaries(1) Offering) Offering Offering(2)
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Hoffman, Andrew 10,000 5,000 5,000
How & Company 5,000 5,000 0
Hutchison, Thomas 10,000 5,000 5,000
Jaeb, Lewis 25,000 12,500 12,500
Jenkins, Noel 6,000 3,000 3,000
Jenkins, Phillis 8,000 4,000 4,000
Jetha, Riaz & Michelle 2,000 1,000 1,000
Johnson, D. 10,000 5,000 5,000
Kennett, Brent E. 200 100 100
Kennett, Linda 200 100 100
Keslar, Fred & Clara 2,000 1,000 1,000
Kimoto, James & Joan 10,000 5,000 5,000
Kirk, Julia 200 100 100
Kocalis, Julie 4,000 2,000 2,000
Konnert, Ellen 2,000 1,000 1,000
Kurtz, Maryann 10,000 5,000 5,000
Lacroix, Brian 20,000 10,000 10,000
Lacroix, Shelly 6,000 3,000 3,000
Lim, Keith 20,000 5,000 15,000
Longe, Robert 10,000 5,000 5,000
Macgregor, Elizabeth 6,000 3,000 3,000
Maclean, Peter 200 100 100
Mainart, David F. 10,000 5,000 5,000
Marohn, Dieter & Esther 20,000 10,000 10,000
Marr, Jack 10,000 5,000 5,000
Marsh, Neil Thomas 2,000 1,000 1,000
Mass, Edward G. 10,000 5,000 5,000
McArdon, Valerie 200 100 100
McBain, K. R. 2,000 1,000 1,000
McLeod, James 2,000 1,000 1,000
Medford, Brian 8,000 4,000 4,000
Medford, Gary 30,000 5,000 25,000
Medford, Kenneth 10,000 5,000 5,000
Midland Walwyn Capital 1,000 1,000 0
Miller, Ray 9,000 2,000 7,000
Mullaly, James & Gene 10,000 5,000 5,000
Myron, Kandel 20,000 10,000 10,000
Olde Discount Corp. 5,000 5,000 0
Parkinson, W. D. 10,000 5,000 5,000
Peter, Terence F. 2,000 1,000 1,000
Potthoff, Paul 2,000 1,000 1,000
Quinn, Robert 10,000 5,000 5,000
Reisner, William 2,400 1,200 1,200
Richards, Donald 3,000 1,500 1,500
Richie, David 2,000 1,000 1,000
Rosenfield, Norm 6,000 3,000 3,000
Schedeen, Brinkley 2,000 1,000 1,000
</TABLE>
11
<PAGE> 13
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
Amount of Amount of Amount and
Issuer's Issuer's Percentage of
Securities Securities Issuer's
Relationship with Owned Offered As Part Securities to be
Issuer and/or Issuer's (Prior to of Current Owned After
Stockholder Affiliates or Subsidiaries(1) Offering) Offering Offering(2)
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ScotiaMcleod 20,000 20,000 0
Self Owned Apartments Ltd. 32,000 16,000 16,000
Short, Betty 3,000 1,000 2,000
Smith, J. B. 2,000 1,000 1,000
Smith, J. N. 2,000 1,000 1,000
SMR Investments Ltd. 40,400 20,200 20,200
Spady, Larry 10,000 5,000 5,000
Steeds, Horace Anthony 4,000 2,000 2,000
Vandenbrink, Antonie 10,000 5,000 5,000
Vandenbrink, Jakob 10,000 5,000 5,000
Warner, Brian & Kelly 4,000 2,000 2,000
Weeks, Todd 10,000 5,000 5,000
Welty, Alison 10,000 5,000 5,000
Williams, Brady 4,000 2,000 2,000
Winkler, John 10,000 5,000 5,000
Winkler, Peggy 4,000 2,000 2,000
With, Wm. D. 6,000 3,000 3,000
Wolverton Securities 5,000 5,000 0
Woo, Robert & Carol 2,000 1,000 1,000
</TABLE>
PLAN OF DISTRIBUTION
The sale of the Shares may be effected from time to time in
transactions (which may include block transactions by or for the account of the
Selling Shareholders) in the over-the-counter market or in negotiated
transactions, a combination of such methods of sale or otherwise. Sales may be
made at fixed prices which may be changed, at market prices prevailing at the
time of sale, or at negotiated prices.
Selling Shareholders may effect such transactions by selling their
Shares directly to purchasers, through broker-dealers acting as agents for the
Selling Shareholders or to broker-dealers who may purchase shares as principals
and thereafter sell such shares from time to time in the over-the-counter market
in negotiated transactions or otherwise. Such broker-dealers, if any, may
receive compensation in the form of discounts, concessions or commissions from
the Selling Shareholders and/or the purchasers for whom such broker-dealers may
act as agents or to whom they may sell as principals or otherwise (which
compensation as to a particular broker-dealer may exceed customary commissions).
Each Selling Stockholder desiring to sell Shares will be subject to the
applicable provisions of the Exchange Act and the rules and regulations
thereunder, including without limitation, Rules 10b-6 and 10b-7, which
provisions may limit the timing of the purchases and sales of Shares by such
Selling Shareholders.
The Selling Shareholders and broker-dealers, if any, acting in
connection with such sales might be deemed to be "underwriters" within the
meaning of Section 2(11) of the Securities Act and any commission received by
them and any profit on the resale of the Selling Stockholder Shares might be
deemed to be underwriting discounts and commissions under the Securities Act.
12
<PAGE> 14
DIVIDEND POLICY
To date the Company has not paid any dividends on its Common Stock and
does not expect to declare or pay any dividends on such Common Stock in the
foreseeable future. Payment of any dividends will be dependent upon future
earnings, if any, the financial condition of the Company, and other factors as
deemed relevant by the Company's Board of Directors.
PRICE RANGE OF THE COMMON SHARES
There is a limited public market for the Common Stock of the Company
which currently trades on the NASD OTC Bulletin Board under the symbol "RGUS"
where it has been traded since September 21, 1994.
The following table sets forth the high and low prices for the
Company's Common Stock, as provided by NASD and reported on the Bulletin Board
for the quarters presented. These quotations reflect inter-dealer prices,
without retail mark-up, mark-down or commissions, and may not reflect actual
transactions.
<TABLE>
<CAPTION>
Bid Price Asked Price
High Low High Low
---- --- ---- ---
<S> <C> <C> <C> <C>
Quarter ended October 31, 1994 none reported none reported
Quarter ended January 31, 1995 $3.00 $ 1.25 $3.375 $2.40
Quarter ended April 30, 1995 $3.00 $ 1.25 $3.375 $2.25
Quarter ended July 30, 1995 $2.50 $ 1.75 $2.875 $2.00
Quarter ended October 31, 1995 $2.75 $ 1.875 $ 2.75 $2.12
Quarter ended January 31, 1996 $6.75 $2.4375 $ 6.62 $2.56
Quarter ended April 30, 1996 $6.25 $ 3.75 $ 6.62 $4.00
</TABLE>
As of May 28, 1996, there were 7,665,900 shares of Common Stock
outstanding, held by 178 shareholders of record and by various broker/dealers on
behalf of 19 street name shareholders.
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
April 30, 1995 and January 31, 1996. This table should be read in conjunction
with the Financial Statements and the Notes thereto included elsewhere in the
Prospectus.
<TABLE>
<CAPTION>
April 30, 1995 January 31, 1996
(Audited) (Unaudited)
---------------------------------
<S> <C> <C>
Short term debt $ 644,745 $ 103,170
Long term debt -- --
Stockholders Equity
Common Stock: no par value
20,000,000 shares authorized
6,930,200 and 7,613,900 shares
outstanding, respectively $ 1,336,500 $ 2,246,850
Deficit accumulated during the
development stage $(1,643,498) $(2,246,828)
Total stockholders equity $ (306,998) $ 22
Total capitalization $ (306,998) $ 22
</TABLE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
INTRODUCTION
The Company, a development stage company, has, since its formation in
July 1992, been engaged almost exclusively in research and development
activities in conjunction with its parent companies, Rand Energy Group Inc.
("REGI") and Reg Technologies Inc. ("Reg Tech"). Reg Tech is a publicly held
Canadian company which owns 51%
13
<PAGE> 15
of REGI. These activities have focused on developing a commercially viable model
of the Rand Cam/Direct Charge Engine ("RC/DC Engine"). The Company has not yet
commenced any significant product commercialization and, until such time as it
does, will not generate significant product revenues. The Company has incurred
significant operating losses since its inception, resulting in an accumulated
deficit of $1,643,498 at April 30, 1995, and significant additional losses since
that date. The rate of loss has increased as the Company's activities have
increased and such losses are expected to continue into the foreseeable future
until such time as, if ever, the Company is able to attain sales and profit
levels sufficient to support its operations. The Company's ability to continue
as a going concern is dependent in part on its ability to raise operating
capital through either equity, debt, joint ventures, other means, or some
combination of these, until such time as it is able to attain profitable
operations.
RESULTS OF OPERATIONS
YEAR ENDED APRIL 30, 1996
The audited financial statements for the year ended April 30, 1996 have
not been prepared as of the date of this Prospectus. However, management
believes the Company incurred a loss for the year that will be less than the
loss of $1,225,743 and $.18 per share reported for fiscal 1995. The Company's
only revenues for fiscal 1996 were $200,000 from the sale of its 3-D Machine
Vision Technology to Reg Tech.
YEAR ENDED APRIL 30, 1995 COMPARED TO YEAR ENDED APRIL 30, 1994
The Company received no revenues from operations during the period
ended April 30, 1995 compared to similar results during the 1994 period. During
fiscal 1995 the loss totaled $1,225,743 compared to $394,263 during fiscal 1994.
The majority of the increase was due to higher direct development costs
associated with prototype design and construction which totaled $581,318 in
fiscal 1995 against $174,398 in fiscal 1994. During 1995 the Company also
expensed $257,000 relating to intellectual property acquired in previous years.
The Company acquired the U.S. rights to the original Rand Cam Engine ("Original
Engine") on August 20, 1992 from REGI by issuing 5,700,000 shares at a deemed
value of $0.01 per share and agreeing to pay REGI a 5% net profit royalty. The
$57,000 deemed value was expensed as research and development in 1995. Under an
agreement with Brian Cherry, (a director) dated July 30, 1992 and amended
November 23, 1992 and April 13, 1993, the Company acquired the U.S. rights to
the improved axial vane rotary engine known as the RC/DC Engine. On November 9,
1993, in consideration for the transferred technology, Mr. Cherry was issued
100,000 shares of Reg Tech and 300,000 shares of REGI. The shares issued had a
deemed value of $200,000. As part of the agreement, Mr. Cherry was also granted
a 1% net profit royalty on revenues derived from the RC/DC Engine. The deemed
value of $200,000 was treated as an expense paid by Reg Tech on behalf of the
Company and treated as an inter-company loan. The $200,000 deemed value of
intellectual property has been expensed as research and development in 1995.
Other significant increases occurred in technical salaries,
professional fees and project overhead which together increased to $127,255 in
fiscal 1995 from $42,401 in fiscal 1994, due also to the higher level of
activity associated with product development.
Administrative expenses rose from $35,689 in fiscal 1994 to $112,964 in
fiscal 1995. The most significant of these were shareholder relations costs
which rose from $26,350 in 1994 to $49,162 in fiscal 1995 and accounting and
legal fees which went from $1,580 to $52,311
Decreased costs were shown in technical consulting and report expenses
which dropped from $44,488 in fiscal 1994 to $8,360 in fiscal 1995.
The loss per share for fiscal 1995 was $0.18 versus $0.06 in fiscal
1994.
YEAR ENDED APRIL 30, 1994 COMPARED TO YEAR ENDED APRIL 30, 1993
The Company generated no revenues from operations during the fiscal
1994 which was also the case during period from inception to April 30, 1993. The
loss for the fiscal 1994 totaled $394,263 compared to $23,492 during the same
period in 1993. The majority of the increase was due to higher direct
development costs associated with prototype design and construction which
totaled $174,398 in fiscal 1994 against $2,500 in fiscal 1993. Other significant
increases occurred in professional and project management fees which rose from
$12,800 in the fiscal 1993 period to $56,488 in fiscal 1994 and technical
salaries and consulting fees which rose to $47,961 in fiscal 1994 from $1,125 in
fiscal 1993. Travel and market development expenses rose from nil in fiscal 1993
to $57,809 in fiscal 1994.
Administrative expenses increased from none in fiscal 1993 to $35,689
in fiscal 1994. The most significant of these was shareholder relations costs
which rose from none during the 1993 period to $26,350 in fiscal 1994. The loss
per share for fiscal 1994 was $0.06 versus $0.01 in fiscal 1993.
14
<PAGE> 16
LIQUIDITY AND CAPITAL RESOURCES
The Company did not generate any revenues from operations during fiscal
1996. Management anticipates that the Company will be able to fund continuing
operations from funds currently on hand as well as from additional equity and/or
debt capital infusions as may be required. There is, however, no assurance that
such additional funding will, in fact, be available when required or, if it is,
that it will be available on terms which would be economically attractive to the
Company. If the Company is not able to generate cash flows from operations
and/or acquire additional funding as needed, its operations may be adversely
affected or may need to be curtailed. Funding for continued development of the
prototypes for the RC/DC Engine is currently being provided by Reg Tech pursuant
to a loan. Additional equity may be generated from exercise of outstanding stock
options and warrants.
YEAR ENDED APRIL 30, 1995 COMPARED TO YEAR ENDED APRIL 30, 1994
As previously noted the Company generated no revenue from operations
during the fiscal year ended April 30, 1995. Working capital requirements were
met by utilizing cash and term deposits which the Company had on hand at the
start of the period and from the exercise of options, warrants and a private
placement of units. Net cash generated from financing activities during the
fiscal year ended April 30, 1995 totaled $776,500.
At year end 1995, current assets decreased to $100,878 from $170,860 at
the end of 1994 while current liabilities increased to $644,745 in 1995 from
$295,307 at the end of 1994. The amount due to the parent company, REGI,
decreased to nil at the end of 1995 from $74,455 at yearend 1994, while the
amount due to Reg Tech, which is the ultimate parent of the Company, rose to
$609,873 at April 30, 1995 from $213,352 at the end of 1994. The amount due to
Reg Tech varies from one accounting period to another based upon the
availability of cash or working capital within the two companies. Reg Tech
periodically pays for research and development expenses on behalf of the Company
and REGI. Reg Tech then charges the Company and REGI on a 50-50 basis for these
expenses, pursuant to the research and development cost sharing agreement. The
balance owing to Reg Tech of $609,873 has been reduced to $45,708 as of January
31, 1996 by selling the 3-D Machine Vision Technology to Reg Tech for $200,000,
by payment of $250,000 in cash and offsetting the $114,125 receivable from REGI.
The Company continues to incur debt payable to Reg Tech pursuant to the cost
sharing agreement.
YEAR ENDED APRIL 30, 1994 COMPARED TO YEAR ENDED APRIL 30, 1993
No revenues from operations were generated during either of the fiscal
years ended April 30, 1993 and 1994. The Company met its working capital
requirements during the 1994 fiscal year partially from the use of cash and term
deposits which it had on hand at the start of the year and from a private
placement of units made during the year which provided $500,000 in additional
capital. An additional $109,357 was provided as advances from REGI and Reg Tech.
At yearend 1994, current assets stood at $170,860, up from $29,708 at
the end of 1993, and current liabilities dropped to $7,500 in 1994 versus
$15,000 at the end of the 1993 period. The amount due REGI was $74,455 at the
end of 1994 to compared to nil at the end of the 1993 period, and the amount due
Reg Tech rose to $213,352 at the end of the 1994 period compared to nil at
yearend 1993.
BUSINESS
GENERAL
The Company was organized under the laws of the State of Oregon on July
27, 1992 as Sky Technologies, Inc. On August 1, 1994, the Company's name was
officially changed by majority shareholder vote to REGI U.S., Inc. The Company
is controlled by Rand Energy Group Inc., a privately held British Columbia
corporation ("REGI"), which, at April 30, 1995 owned 82.2% of its shares of
Common Stock and which, in turn, is controlled 51% by Reg Technologies Inc., a
publicly held British Columbia corporation ("Reg Tech"). The Company is engaged
in the business of developing and building an improved axial vane-type rotary
engine known as the Rand Cam/Direct Charge Engine ("RC/DC Engine"), which is a
variation of the Rand Cam Rotary Engine, an axial vane rotary engine ("Original
Engine"). The worldwide intellectual and marketing rights to the RC/DC Engine
are held by REGI. The Company holds the rights to develop, build and market the
RC/DC Engine design in the U.S. pursuant to an agreement with REGI. Under a
project cost sharing agreement entered into with REGI effective May 1, 1993,
each company will fund 50% of the continuing development cost of the RC/DC
Engine.
The Company's principal offices are located at 10751 Shellbridge Way,
Suite 185, Richmond, British Columbia V6X 2W8, Canada. Its telephone number is
(604) 278-5996 and its telefacsimile number is (604) 278-3409.
In order to fully effect its intended plan of operations, the Company
will likely need to raise additional capital in the future beyond any amount
currently on hand and which may be become available as a result of the exercise
of warrants and options which are currently outstanding.
15
<PAGE> 17
PRODUCTS
The Company is engaged in the business of developing and building an
improved axial vane-type rotary engine known as the RC/DC Engine which is a
variation of the Original Engine. The Original Engine is an axial vane rotary
engine, the worldwide marketing rights to which are held by REGI. A United
States patent was issued for the RC/DC Engine on July 4, 1995, and assigned to
the Company. Since no marketable product has yet been developed, the Company has
received no revenues from operations.
The RC/DC Engine is based upon the Original Engine patented in 1983.
Brian Cherry, an officer and director of the Company, has done additional
development work on the Original Engine which resulted in significant changes
and improvements for which the U.S. patent has been issued and assigned to the
Company. It is believed that the RC/DC Engine offers important simplification
from the basic Original Engine, which will make it easier to manufacture and
will also allow it to operate more efficiently.
Pursuant to an agreement dated October 20, 1986 among Reg Tech, Rand
Cam Corp. and James McCann, Reg Tech agreed to acquire a 40% voting interest in
a new corporation to be incorporated to acquire the rights to the Original
Engine. The new corporation was REGI. Reg Tech acquired the 40% voting interest
in REGI in consideration of the payment of $250,000.
Pursuant to an agreement made as of the 27th day of April, 1993 among
Reg Tech, Rand Cam Corp., REGI and James McCann, Reg Tech acquired an additional
330,000 shares (11%) of REGI from Rand Cam Corp. to increase its investment to
51%.
On August 20, 1992, the Company entered in an agreement with REGI and
Brian Cherry (the "August 1992 Agreement") under which the Company issued
5,700,000 shares of its Common Stock at a deemed value of $0.01 per share to
REGI in exchange for certain valuable rights, technology, information, and other
tangible and intangible assets, including improvements, relating to the United
States rights to the Original Engine. REGI's president is also the president of
the Company and its Vice President and Secretary is also a Director of the
Company. The terms of the agreement were negotiated between the parties and were
deemed to be mutually advantageous based upon conditions and circumstances
existing at the time.
The second part of the August 1992 Agreement calls for the Company to
pay semiannually to REGI a royalty of 5% of any net profits to be derived by the
Company from revenues received as a result of its license of the Original
Engine.
The third part of the August 1992 Agreement calls for the Company to
pay semiannually to Brian Cherry a royalty of 1% of any net profits to be
derived by the Company from revenues received as a result of its licensing of
the Original Engine.
Also in August 1992, the Company sold 300,000 shares of its Common
Stock at $0.01 per share to Brian Cherry.
In an agreement dated April 13, 1993 among the Company, REGI, Reg Tech
and Brian Cherry (the "April 1993 Agreement") and made as an amendment to a
previous Amendment Agreement dated November 23, 1992 between REGI, Reg Resources
Corp. (now Reg Tech) and Brian Cherry and an original agreement dated July 30,
1992 between REGI, Reg Resources Corp. and Brian Cherry, Cherry agreed to: (a)
sell, transfer and assign to REGI all his right, title and interest in and to
the technology related to the RC/DC Engine (the "Technology"), including all
pending and future patent applications in respect of the Technology for all
countries except the United States of America, together with any improvements,
changes or other variations to the Technology; (b) sell, transfer and assign to
the Company, all his right, title and interest in and to the Technology related
to the RC/DC engine, including all pending and future patent applications in
respect of the Technology for the United States of America, together with any
improvements, changes or other variations to the Technology. The Company has the
manufacturing and marketing rights for the RC/DC Engine and the Technology in
the United States. Thus uses of the RC/DC Engine or the Technology in the United
States belongs to the Company including manufacturing for export.
Other provisions of the April 1993 Agreement call for the Company (a)
to pay to REGI a continuing royalty of 5% of the net profits derived from the
Technology by the Company and (b) to pay to Brian Cherry a continuing royalty of
1% of the net profits derived from the Technology by the Company. On November 9,
1993, in consideration for this transfer of the Technology, Brian Cherry was
issued 100,000 shares of Reg Tech with a deemed value of $200,000.
A final provision of the April 1993 Agreement assigns and transfers
ownership to the Company of any patents, inventions, copyrights, know-how,
technical data, and related types of intellectual property conceived, developed
or created by REGI or its associated companies either prior to or subsequent to
the date of the agreement, which results or derives from the direct or indirect
use of the Original Engine and/or RC/DC Engine technologies by REGI.
16
<PAGE> 18
Pursuant to a letter of understanding dated December 13, 1993 among the
Company, REGI and Reg Tech, as grantors, and West Virginia University Research
Corporation ("WVURC"), the grantors agreed that WVURC shall own 5% of all
patented technology and will receive 5% of all net profits from sales, licenses,
royalties or income derived from the patented technology relating to the
Original Engine and the RC/DC Engine. WVURC will provide continued support and
development of the RC/DC Engine including research, development, testing
evaluation and creation of intellectual property. In addition WVURC will
introduce the Company to potential customers and licensees. The Company also
will be entitled to all additional intellectual property developed by WVURC
relating to the RC/DC Engine.
Based upon testing work performed by independent organizations on
prototype models, the Company believes that the RC/DC Engine holds significant
potential in a number of applications ranging from small stationary equipment to
automobiles and aircraft. In additional to its potential use as an internal
combustion engine, the RC/DC Engine design is also being employed in the
development of a compressor unit which may find application in automobile air
conditioners.
At the present time, several prototypes of the RC/DC Engine have been
tested and additional development and testing work is continuing. The Company
believes that such development and testing will continue for at least another
year before a more or less "final" design is achieved, and it may take several
years before a commercially feasible design is perfected. There is no assurance
at this time, however, that such a commercially feasible design will ever be
perfected, or if it is, that it will become profitable to the Company. If a
commercially feasible design is perfected, the Company does, however, expect to
derive revenues from licensing the Technology relating to the RC/DC Engine
regardless of whether actual commercial production is ever achieved. There is no
assurance at this time, however, that revenues will ever be received from
licensing the Technology even if it does prove to be commercially feasible.
Two prototypes were built by the WVURC to run on gasoline. Testing on
these prototypes suggested that the concept is fundamentally sound. The current
prototype design for the diesel engine was designed by a consortium consisting
of Hercules Aerospace Company (now Alliant Techsystems), WVURC and the Company.
This engine is being designed as a general purpose power plant for military and
commercial applications. The diesel engine prototype is being fabricated at a
machine shop in El Segundo, CA. The testing of the Diesel will commence at the
El Segundo machine shop and then will be extensively tested at Adiabatics Inc.
in Columbus, Indiana (an experienced engine research and testing company) by the
end of June 1996.
The compressor prototype has been completed and testing has commenced
in the ETL labs in Cortland, NY (an experienced compressor testing company). The
compressor is being built for an automobile air-conditioning unit. The results
of the testing should be completed by the end of June 1996.
A number of rotary engines have been designed over the past 70 years
but only one, the Wankel, has been able to achieve mechanical practicality and
any significant market acceptance. It is believed that a large market would
exist for a practical rotary engine which could be produced at a competitive
price and which could provide a good combination of fuel efficiency, power and
decreased emissions.
The profitability and survival of the Company will depend upon its
ability to develop a technically and commercially feasible product which will be
accepted by end users. The RC/DC Engine which the Company is developing must be
technologically superior or at least equal to other engines which competitors
offer and must have a competitive price/performance ratio to adequately
penetrate its potential markets. If it is not able to achieve this condition or
if it does not remain technologically competitive, the Company may be
unprofitable and investors could lose their entire investment. There can be no
assurance that the Company or potential licensees will be able to achieve and
maintain end user acceptance of its engine.
While market acceptance of a new type of engine could be difficult to
achieve, once accepted, such an engine could have a potential market of hundreds
of thousands of units per year. The Company has not conducted a formal market
survey but statistics available on the aircraft, marine and industrial markets
alone indicate an annual market potential of more than one hundred million
dollars. Based on the market potential, the Rand Cam mechanism is well suited
for application to internal combustion engines, pumps and compressors and
expansion engines, such as turbines and other piston engine applications. The
mechanism can be scaled to match virtually any size requirement. This
flexibility opens the door to large markets being developed. The Company is
currently testing prototypes for these products. The strategy is to develop
engines and compressors for low to medium horsepower applications, then apply
the technology to larger applications.
A "Technology Evaluation" report was prepared on the RC/DC Engine dated
May 19, 1993 by Patrick R. Badgley of Adiabatics, Inc. This evaluation concludes
that the engine concept is sound and has numerous advantages over current
engines. At the time of the report, Mr. Badgley was director of research and
development at Adiabatics, Inc. Mr. Badgley is now a Vice President of the
Company. The Company believes the conclusions contained in the report are still
valid.
17
<PAGE> 19
MARKETING
The Company intends to pursue the commercial development of the RC/DC
Engine by entering into licensing and/or joint venture arrangements with other
larger companies which would have the financial resources to maximize the
potential of the engine. At the present time no such licensing or joint venture
arrangements have been concluded and there is no assurance that any will be in
the foreseeable future. There are no plans at present for the Company to become
actively involved in either manufacturing or marketing any engine which it may
ultimately develop to the point of becoming a commercial product.
The Company's current objective is to complete and test the compressor
and diesel engine prototypes. Based on the successful testing the prototypes
will be used for presentation purposes to potential license and joint venture
partners. The Company will be making presentations to the military which could
result in additional government funding if the diesel engine prototype meets
with its approval.
The Company expects revenue from license agreements with the potential
end users based on the success of the early test results from the compressor and
diesel engine prototypes. The negotiations for license agreements will take up
to six months to complete agreements based on opinions from counsel and
preliminary talks with potential end users.
RESEARCH AND DEVELOPMENT
The basic research and development work on the RC/DC Engine is being
coordinated and funded by Reg Tech.
The Company plans to contract with outside individuals, institutions
and companies to perform most of the additional research and development work
which it may require to benefit from its rights to the RC/DC Engine.
The Company has entered into an employment agreement with Patrick
Badgley, a professional engineer in Columbus, Indiana, and a Vice President and
Director of the Company, to act as Research Project Manager for the RC/DC
Engine. Under the agreement, Mr. Badgley, will receive compensation of $7,700
per month plus reasonable expenses related to the project, of which the Company
will pay 50% and REGI will pay 50%.
Development work on the application of the RC\DC engine design in auto
air conditioner compressors is being completed by Aerotech Driveline, a design
firm in Detroit, Michigan under a contract with Reg Tech.
ENVIRONMENTAL CONTROL FACTORS
At the present time there is no direct financial or competitive effect
upon the Company's business as a result of any need to comply with any federal,
state or local provisions which have been enacted or adopted regulating the
discharge of materials into the environment, or otherwise relating to the
protection of the environment.
KEY CUSTOMERS
Although the Company has no key customers at the present time, it is
expected that if its development work is successful, it will likely become
dependent, at least initially, upon one or very few key customers. Such
dependence could prove to be risky in the event that one or more such potential
customers were to be lost and not replaced.
RAW MATERIALS
Since the Company is not in production and there are no plans at this
time for the Company to enter the actual engine manufacturing business, raw
materials are not of present concern. At this time, however, there does not
appear to be any foreseeable problem with obtaining any materials or components
which may be required in the manufacture of its potential products.
PATENT INFORMATION
U.S. patent No. 5,429,084 was granted on July 4, 1995 to the inventor,
Brian Cherry, Patrick Badgley and four other individuals for various
improvements incorporated in the RC/DC Engine. The patent has been assigned to
the Company. U.S. Patent 4,401,070 for the Original Engine was issued on August
30, 1983 to James McCann and the marketing rights are held by REGI.
The RC/DC Engine is composed basically of a disk shaped rotor with
drive shaft, which turns, and the housing or stator, which remains stationary.
The rotor has two or more vanes which are mounted perpendicular to the direction
of rotation and slide back and forth through it. As the rotor turns, the ends of
the vanes ride along the insides of the stator housing which have wave-like
depressions, causing the vanes to slide back and forth. In the process of
turning and sliding, combustion chambers are formed between the rotor, stator
walls and vanes where the fuel/air mixture is injected, compressed, burned and
exhausted.
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<PAGE> 20
SEASONALITY AND BACKLOG OF BUSINESS
Since the Company is not yet in production, seasonality of its
potential business is not of present concern. However, at this time it does not
appear that there will be a significant seasonal factor to its potential
business.
The Company has no current backlog of business.
WORKING CAPITAL REQUIREMENTS
Because the Company is not yet producing and selling any products,
working capital requirements relative to production, inventory and accounts
receivable are not relevant. Working capital requirements for day-to-day
operations and the continuation of research and development activities have been
provided from equity capital and advances from related parties including Reg
Tech.
Until such time as the Company is able to obtain revenues from
licensing production rights to the engine or from some related activities it
will most likely need to rely on additional equity capital or debt capital, if
available. There is no assurance that such funding from either or any source
will be available or, if available, that it would be on such terms as will be
economically acceptable to the Company.
The Company believes that it currently has on hand sufficient funds to
cover anticipated expenses relating to this development work and the ongoing
overhead costs of maintaining offices and functioning as a publicly held
company. Additionally, the Company expects that it may receive additional
capital as the result of the sale of shares of Common Stock either through
private placements or public offerings and through the exercise of outstanding
options and warrants.
BUSINESS SUBJECT TO RENEGOTIATION
The Company currently has no business or contract subject to
renegotiation with any agency of the U.S. Government and does not expect to have
any during the fiscal year ending April 30, 1997.
COMPETITION
The Company currently faces and will continue to face competition in
the future from established companies engaged in the business of developing,
manufacturing and marketing engines. While not a highly competitive business in
terms of numbers of competitors, the business of developing engines of a new
design and attempting to either license or produce them is nonetheless difficult
because most existing engine producers are large, well financed companies which
are very concerned about maintaining their market position. Such competitors are
already well established in the market and have substantially greater resources
than the Company. Internal combustion engines are produced by automobile
manufacturers, marine engine manufacturers, heavy equipment manufacturers and
specialty aircraft and industrial engine manufacturers. The Company expects that
its engine would be used mainly in industrial and marine applications.
Except for the Wankel rotary engine built by Mazda of Japan, no
competitor, of which the Company is aware, presently produces in a commercial
quantity any rotary engine similar to that which the Company is developing. The
Wankel rotary engine is similar only in that it is a rotary engine rather than a
reciprocating piston engine. Without substantially greater financial resources
than are currently available to the Company, however, it is very possible that
it may not be able to adequately compete in the engine business. One competitor,
Infinite Engines Corporation, is developing a competitive rotary engine.
However, the Company believes that its engine is dramatically different. The
Infinite Engine is similar to the old Wankel engine which had pollution problems
and was not fuel efficient. The Company's RC\DC Engine is more fuel efficient
and will have fewer emissions.
The Company believes that if and when its engine is completely
developed, in order to be successful in meeting or overcoming competition which
currently exists or may develop in the future, its engine will need to offer
superior performance and/or cost advantages over existing engines used in
various applications.
EMPLOYEES
The Company currently has one full-time and three part-time employees,
only two of which are directly involved in technical development work on the
RC/DC Engine. The Company expects to hire additional employees for those
positions which it deems necessary to fill, as needs arise. Most additional
employees are expected to be in technical and licensing/marketing positions.
PROPERTIES
The Company owns no properties. It currently utilizes office space
leased by Reg Tech in a commercial business park building located in Richmond,
British Columbia, Canada, a suburb of Vancouver. The monthly rent for
19
<PAGE> 21
its portion of this office space is $500.00. The present facilities are believed
to be adequate for meeting the Company's needs for the immediate future.
However, management expects that the Company will likely acquire separate space
when the level of business activity requires it to do so. The Company does not
anticipate that it will have any difficulty in obtaining such additional space
at favorable rates. There are no current plans to purchase or lease any
properties in the near future. Mr. Badgley works out of an office in his home in
Columbus, Indiana.
LEGAL PROCEEDINGS
The Company is not a party to any legal proceedings or litigation, nor
is it aware that any litigation is presently being threatened or contemplated
against either itself or any officer, director or affiliate.
PLAN OF OPERATIONS
During the fiscal year beginning May 1, 1996, the Company plans to
continue development work on the RC/DC Engine in conjunction with work being
done by Reg Tech. If testing work on prototype models continues to be
successful, the Company hopes to enter into implementation type studies with
branches of the U.S. military as well as certain private companies. In
conjunction with such studies, the Company hopes to establish agreements with
one or more industrial engine manufacturers which would wish to participate in
further development and commercialization of the engine.
SEGMENT DATA
The Company currently operates only in one industry and therefore, the
financial statements contained herein describe its operations in this one
industry. All dollar amounts are stated in U.S. funds, unless otherwise noted.
The Company has no foreign operations and has recorded no sales since its
inception.
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following is a list of the names of all of the current directors
and executive officers of the Company. Each of the directors listed below served
in the respective capacities during the fiscal periods ended April 30, 1993,
1994, 1995 and 1996.
Name Age Position
---- --- --------
John G. Robertson 55 Chairman of the Board and President
Brian Cherry 56 Vice President, Secretary and Director
Patrick R. Badgley 53 Vice President, Research and Development
Jennifer Lorette 23 Vice President and Chief Financial Officer
The directors are elected annually and shall serve until their
successors are elected and qualified. Mr. Robertson and Mr. Cherry have held
their positions since the formation of the Company. The Company intends to hold
its annual meetings on August 4 of each year or on such other later date as may
be set by the board of directors. Additional officers and directors may be added
as the Company's operations require.
There are no family relationships between any director or executive
officer and any other director or executive officer.
JOHN ROBERTSON been the Chairman and President of the Company since its
formation. For more than the past ten years he has also been the president of
Reg Tech, a public company listed on the Vancouver Stock Exchange, which he
founded, and which has financed the research on the Rand Cam Engine since 1986.
He is also the President and Founder of Teryl Resources Corp., a public company
involved in gold, diamond, and oil and gas exploration. Teryl Resources Corp.
has been financed to a large extent by VenturesTrident II, a Limited Partnership
consisting of several blue chip pension funds, including AT&T, Harvard
University, Total Petroleum, John Hancock Insurance, World Bank Pension Fund and
others which invested US$750,000 in Teryl in 1989. Mr. Robertson is also
President and Founder of SMR Investments, Ltd., the management company for both
Teryl Resources Corp. and Reg Tech. SMR has been in business since 1979 and owns
major share positions in Teryl Resources Corp., Reg Tech and other public
companies. He is also President of Flame Petro Minerals Corp., a private company
with interests in oil and gas and gold prospects. Flame Petro Minerals Corp.,
has participated in drilling three successful oil and gas wells in Texas which
have produced 1.5 million barrels of oil since 1979 and have resulted in several
dividends for its shareholders.
BRIAN CHERRY has been Secretary and a Director of the Company since its
inception. His family has owned a pump manufacturing company in Vancouver for a
number of years and has made significant contributions to the
20
<PAGE> 22
improved design of the Original Engine and the development of the RC/DC Engine.
Mr. Cherry has also been a Director of Flame Petro Minerals Corp. From October
20, 1994 through the present he has also served as Vice President in charge of
patents and technology for Rand Cam Engine. From April 1990 through the present
Mr. Cherry has acted as Secretary Treasurer to Reg Tech which initially financed
the research and development for the Rand Cam Engine. His duties include
overseeing technical and patent data on the RC/DC Engine.
PATRICK R. BADGLEY was appointed Vice President, Research and
Development of the Company in February 1994. He is directing and participating
in the technical development of the Rand Cam compressor, gasoline engine and
diesel engine. Previously, Mr. Badgley had been employed for 16 years at
Adiabatics, Inc., in Columbus, Indiana. Between 1986 and 1994, Mr. Badgley was
the Director of Research and Development at Adiabatics, where he directly
oversaw several government and privately sponsored research programs including
the lightweight, quiet 30 kW APU project for ARPA. He was also the Program
Manager for the Gas Research Institute project for emissions reduction of
two-stoke cycle natural gas engines. He was also Program Manger for several coal
fuel diesel engine programs for the Department of Energy and for uncooled engine
programs for a Wankel engine for NASA and for a piston type diesel engine for
the U.S. Army. Mr. Badgley's work has covered all phases of research, design,
development and manufacturing, from research on ultra-high speed solenoids and
fuel sprays, to new product conceptualization and production implementation of
fuel pumps and fuel injectors. Previously, he also worked at Curtiss Wright and
John Deere on Wankel engine development. Mr. Badgley received his Bachelor of
Science degree in Mechanical Engineering from Ohio State University and has done
graduate work at Purdue University. Mr. Badgley is also a director of IAS
Communications Inc., a U.S. company which is developing a new type of antenna
system and is in the process of registering a public offering of its Common
Stock.
JENNIFER H. LORETTE has been a Vice President and Chief Financial
Officer of the Company since June 1994. From April 1994 through the present she
has also been Vice President of Administration for Reg Tech. From December 1994
through the present she has acted as Secretary of IAS Communications Inc. which
is developing a revolutionary antenna system that uses wireless communication.
Between December 1992 and June 1994 she was employed in various capacities by
Reg Tech. Ms. Lorette has also been the Vice President and CFO of Flame Petro
Minerals Corp. a private company with interests in oil, diamonds, gas and gold
prospects. Between October 1990 and July 1992, Ms. Lorette was employed by
Nickels Custom Cabinets. Ms. Lorette completed her high school education in June
1990.
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth the aggregate cash compensation paid for
services rendered to the Company during the last three fiscal years by the
Company's Chief Executive Officer and the Company's most highly compensated
executive officers who served as such at the end of the last fiscal year. No
executive officer had an annual salary and bonus in excess of $100,000 during
such year.
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
---------------------------------------- ------------
NAME AND OTHER ANNUAL
PRINCIPAL POSITION YEAR SALARY($) BONUS($) COMPENSATION($) OPTIONS(#)1)
- ------------------ ---- --------- -------- --------------- ------------
<S> <C> <C> <C> <C> <C>
John G. Robertson 1996 -0- -0- -0- 300,000
President, Chief 1995 -0- -0- -0- -0-
Executive Officer 1994 -0- -0- -0- 300,000
Brian Cherry 1996 -0- -0- -0- -0-
Vice President and 1995 -0- -0- -0- -0-
Director 1994 -0- -0- -0- 125,000
Patrick Badgley 1996 $46,200 -0- -0- -0-
Vice President 1995 $42,000 -0- -0- -0-
1994 $42,000 -0- -0- 75,000
Jennifer Lorette, 1996 $ 6,000 -0- -0- 50,000
Vice President 1995 $ 2,000 -0- -0- -0-
1994 -0- -0- -0- 30,000
</TABLE>
- ---------------------
(1) Represents options granted under the Company's 1993 Key Employees Incentive
Stock Option Plan.
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<PAGE> 23
The Company has entered into an employment agreement with Patrick
Badgley, a registered professional engineer, to act as Research Project Manager
for the RC/DC Engine. The agreement calls for Mr. Badgley to be paid $7,700 per
month plus reasonable expenses related to the project. Fifty-percent (50%) of
this amount is paid by the Company and 50% by Reg Tech.
During the fiscal year ended April 30, 1995, project management fees of
$30,000 were paid to a company controlled by the president of the Company and an
additional $6,000 of rent and secretarial fee were paid to a company controlled
by the president of the Company.
No other significant compensation has been paid directly or accrued to
any other officer or director of the Company during the year ended April 1995.
On March 31, 1994 the Company entered into a management agreement with Access
Information Services, Inc., a Washington corporation which is owned and
controlled by John G. Robertson, under which the Company retained Access at the
rate of $2,500 to provide certain management, administrative, and financial
services for the Company.
The Company has no other agreement at this time, with any officer or
director, regarding employment with the Company or compensation for services
other than herein described. Compensation of officers and directors is
determined by the Company's Board of Directors and is not subject to shareholder
approval.
STOCK OPTION PLAN
The Company adopted a Key Employees Incentive Stock Option Plan on
April 30, 1993. The Plan authorizes the issuance of up to 1,000,000 shares of
Common Stock of the Company to be issued to employees. As of April 30, 1995, the
Company had issued options for approximately 982,500 shares.
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth information concerning individual grants
of stock options made during the fiscal year ended April 30, 1996 to the
Company's Chief Executive and the other executive officers named in the above
Summary Compensation Table.
<TABLE>
<CAPTION>
% OF TOTAL
OPTIONS GRANTED EXERCISE OR
OPTIONS TO EMPLOYEES IN BASE PRICE
NAME GRANTED (#) FISCAL YEAR ($/SHARE) EXPIRATION DATE
- ---- ----------- ----------- --------- ---------------
<S> <C> <C> <C> <C>
John G. Robertson 300,000 83% $3.00 January 3, 2001
Jennifer Lorette 50,000 14% $3.00 January 3, 2001
</TABLE>
STOCK OPTIONS EXERCISED IN LAST FISCAL YEAR AND HELD AT END OF FISCAL YEAR -
APRIL 30, 1996
The following table sets forth certain information with respect to
options exercised during fiscal 1996 by the Company's Chief Executive Officer
and the other executive officers named in the above Summary Compensation Table,
and with respect to unexercised options held by such persons at the end of
fiscal 1996.
<TABLE>
<CAPTION>
SHARES VALUE OF UNEXERCISED
ACQUIRED ON VALUE NUMBER OF UNEXERCISED IN-THE-MONEY OPTIONS
EXERCISE REALIZED OPTIONS AT FISCAL YEAR END AT FISCAL YEAR END(1)
-------- -------- ------------------------------ ------------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
John G. Robertson 163,000 $458,230 437,000 -0- $615,500 -0-
Patrick Badgley -0- N/A 75,000 -0- $206,250 -0-
Jennifer Lorette 20,000 $ 47,800 60,000 -0- $ 65,000 -0-
Brian Cherry -0- -0- 125,000 -0- $388,750 -0-
</TABLE>
- --------------------
(1) The calculation of the value of unexercised options are based on the
difference between the last sale price of $3.75 per share for the Company's
common Stock on Tuesday, April 30, 1996 as reported by NASD, and the
exercise price of each option, multiplied by the number of shares covered
by the option.
22
<PAGE> 24
INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Company's Articles of Incorporation provide that the Company shall
indemnify to the fullest extent permitted by the Oregon Business Corporation Act
any person who is made, or threatened to be made, a party to any action, suit or
proceeding, whether civil, criminal, administrative, investigative, or otherwise
(including an action, suit or proceeding by or in the right of the corporation)
by reason of the fact that the person is or was a director or officer of the
corporation or a fiduciary within the meaning of the Employee Retirement Income
Security Act of 1974 with respect to any employee benefit plan of the
corporation, or serves or served at the request of the corporation as a director
or officer, or as a fiduciary of an employee benefit plan, of another
corporation, partnership, joint venture, trust or other enterprise. The right to
and amount of indemnification shall be determined in accordance with the
provisions of the Oregon Business Corporation Act in effect at the time of the
determination.
The Oregon Revised Statutes provides for indemnification where a person
who was or is a party or is threatened to be made a party to any threatened,
pending or contemplated action, suit or proceeding, whether civil, criminal,
administrative or investigative (other than action by or in right of a
corporation), by reason of fact he is or was a Director, Officer, employee or
agent of a corporation or serving another corporation at the request of the
corporation, against expenses (including attorneys' fees), judgments, fines, and
amounts paid in settlement, actually and reasonably incurred by him if he acted
in good faith and in a manner he reasonably believed to be in or not opposed to
the best interest of the corporation and, with respect to criminal action or
proceeding, had no reasonable cause to believe his conduct unlawful. Lack of
good faith is not presumed from settlement or nolo contendere plea.
Indemnification of expenses (including attorneys' fees) is allowed in derivative
actions except in the case of misconduct in performance of duty to the
corporation unless the Court decides indemnification is proper. To the extent
any such person succeeds on the merits or otherwise, he shall be indemnified
against expenses (including attorneys' fees). Determination that the person to
be indemnified met applicable standards of conduct, if not made by the Court, is
made by the Board of Directors by majority vote of quorum consisting of the
Directors not party to such action, suit or proceeding or, if a quorum is not
obtainable or a disinterested quorum so directs, by independent legal counsel or
by the stockholders. Expenses may be paid in advance upon receipt of
undertakings to repay unless it shall ultimately be determined that he is
entitled to be indemnified by the corporation. The Corporation may purchase
indemnity insurance.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Company pursuant to the foregoing provisions, or otherwise, the Company has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Company of expenses
incurred or paid by a director, officer or controlling person of the Company in
the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Company will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question of whether such indemnification by it is against
public policy as expressed in the Securities Act and will be governed by the
final adjudication of such issue.
PRINCIPAL SHAREHOLDERS
The following table sets forth, as of April 30, 1996, the amount and
the percentage of the Company's Common Stock owned of record or beneficially by
each officer, director and holder, or person known by the Company to own
beneficially, more than five percent of the voting interest in the Company's
Common Stock, and all officers and directors as a group.
<TABLE>
<CAPTION>
AMOUNT AND NATURE PERCENTAGE
TITLE NAME AND ADDRESS OF OF BENEFICIAL OF BENEFICIAL
OF CLASS BENEFICIAL OWNER OWNERSHIP(1) OWNERSHIP(1)
- -------- ---------------- ------------- -------------
<S> <C> <C> <C>
Common Rand Energy Group Inc. 5,653,700(2) 65.1%
1030 West Georgia St.
Vancouver, B.C., V6E 2Y3
Common Brian Cherry 390,000(3) 4.5%
5451 Floyd Avenue
Richmond, B.C. Canada
Common John G. Robertson 6,104,400(4) 70.25%
4040 Amundsen Place
Richmond, B.C. Canada
Common Patrick R. Badgley 75,000(6) 0.9%
2815 Franklin Drive
Columbus, IN 47201
</TABLE>
23
<PAGE> 25
<TABLE>
<CAPTION>
AMOUNT AND NATURE PERCENTAGE
TITLE NAME AND ADDRESS OF OF BENEFICIAL OF BENEFICIAL
OF CLASS BENEFICIAL OWNER OWNERSHIP(1) OWNERSHIP(1)
- -------- ---------------- ------------- -------------
<S> <C> <C> <C>
Common Jennifer Lorette 60,500(5) 0.7%
9751 Seagrave Road
Richmond, B.C. Canada
Common James McCann 5,653,700(2) 65.1%
211 -107 E. Broadway
Vancouver, B. C.
Common All officers and 6,639,900 76.4%
directors as a group (five persons)
</TABLE>
- ------------------
1. Based upon 7,635,900 shares issued and outstanding, and assuming (1)
exercise of options, and (2) exercise of 197,600 warrants. A person is
deemed to be the beneficial owner of securities that can be acquired by
such person within 60 days from the date of this Prospectus upon the
exercise of warrants or options. Each beneficial owner's percentage
ownership is determined by assuming that options or warrants that are held
by such person (but not those held by any other person) and which are
exercisable within 60 days from the date of this Prospectus.
2. Rand Energy Group is owned 51% by Reg Technologies Inc. and 49% by Rand Cam
Engine Corp. Rand Cam Engine Corp. is a privately held company whose stock
is reportedly owned 50% by The Watchtower Society, a religious
organization, 34% by James McCann and the balance by several other
shareholders. Mr. McCann has indicated that he donated the shares held by
The Watchtower Society to that organization but has retained a voting proxy
for those shares.
3. Brian Cherry owns 265,000 shares and options on an additional 125,000
shares.
4. John G. Robertson owns 13,700 shares and holds options to acquire 437,000
shares of the Company's Common Stock. Susanne M. Robertson, the wife of
John G. Robertson, owns SMR Investment Ltd. which holds a controlling
interest in Reg Technologies Inc. Therefore, Mr. Robertson is deemed to
also be the beneficial owner of the shares owned by Rand Energy Group,
Inc., which is 51% controlled by Reg Technologies Inc.
5. Ms. Lorette owns 500 shares and owns options to purchase an additional
60,000 shares.
6. Holds options for these shares.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Pursuant to an agreement dated August 1992 (the "August 1992
Agreement"), the Company issued 5,700,000 shares of its Common Stock at a deemed
value of $0.01 per share to REGI in exchange for certain valuable rights,
technology, information, and other tangible and intangible assets relating to
the United States rights to the Rand Cam Engine (the "Original Engine"). Reg
Tech's president is also the president of the Company and its Vice President and
Secretary is also a Director of the Company.
The Company also agreed to pay semiannually to REGI a royalty of 5% of
any net profits to be derived by the Company from revenues received as a result
of its license of the Original Engine.
As part of the August 1992 Agreement, the Company also agreed to pay
semiannually to Brian Cherry a royalty of 1% of any net profits to be derived by
the Company from revenues received as a result of this agreement.
Also in August 1992, the Company sold 300,000 shares of its Common
Stock at $0.01 per share to Brian Cherry.
In an agreement dated April 13, 1993 among the Company, REGI, Reg Tech
and Brian Cherry (the "April 1993 Agreement"), and made as an amendment to a
previous Amendment Agreement dated November 23, 1992 between REGI, Reg Resources
Corp. (Reg Tech) and Brian Cherry and an original agreement dated July 30, 1992
between REGI, Reg Resources Corp. and Brian Cherry, Cherry agreed to: (a) sell,
transfer and assign to REGI all his right, title and interest in and to the
technology related to the RC/DC Engine, (the "Technology") including all pending
and future patent applications in respect of the Technology for all countries
except the United States of America, together with any improvements, changes or
other variations to the Technology; (b) sell, transfer and assign to the Company
(then called Sky Technologies Inc.), all his right, title and interest in and to
the Technology, including all pending and future patent applications in respect
of the Technology for the United States of America, together with any
improvements, changes or other variations to the Technology.
Other provisions of the April 1993 Agreement call for the Company (a)
to pay to REGI a continuing royalty of 5% of the net profits derived from the
Technology by the Company and (b) to pay to Brian Cherry a continuing royalty of
1% of the net profits derived from the Technology by the Company.
24
<PAGE> 26
A final provision of the April 1993 Agreement assigns and transfers
ownership to the Company of any patents, inventions, copyrights, know-how,
technical data, and related types of intellectual property conceived, developed
or created by REGI or its associated companies either prior to or subsequent to
the date of the agreement, which results or derives from the direct or indirect
use of the Original Engine and/or RC/DC Engine technologies by REGI.
In November 1993, in consideration for certain technology transferred
to the Company, as described above, Brian Cherry was issued 100,000 Common
Shares of Reg Tech (deemed value $200,000). There was no connection between this
transaction and the transaction involving the acquisition of the Canadian rights
to the Machine Vision Technology described below. At that time the Company did
not have available cash to pay to Mr. Cherry and there was no public market for
the stock of the Company. Based upon his desire for some degree of immediate
liquidity, management agreed to issue shares of Reg Tech to Mr. Cherry and to
treat this as an advance. As previously noted, Reg Tech owns 51% of REGI which
owns 76.7% of the Common Stock of the Company. Both Mr. Cherry and Mr. Robertson
are officers and directors of both the Company and Reg Tech.
The terms of the agreements referenced above were negotiated by the
parties in non-arm's-length transactions but were deemed by the parties involved
to be fair and equitable under the circumstances existing at the time.
In 1995, the Company acquired an exclusive limited sublicense to market
and distribute in Canada for the following consideration:
i) $200,000 (paid).
ii) royalty payments equal to 2% of all net revenue derived from sales
in Canada, to be paid 30 days after the end of each calendar
quarter.
iii) minimum annual royalty payments as follows:
<TABLE>
<CAPTION>
$
<S> <C>
December 31, 1996 1,000
December 31, 1997 3,000
December 31, 1998 4,500
annually thereafter 6,000
</TABLE>
On October 31, 1995, the Company sold its rights to the Machine Vision
Technology to Reg Tech for $200,000. All obligations pursuant to the sublicense
were transferred to Reg Tech.
DESCRIPTION OF SECURITIES
The Company's authorized capital stock consists of 20,000,000 shares of
Common Stock with no par value. As of the date of this Registration Statement,
the Company has outstanding 7,635,900 shares of its Common Stock.
COMMON STOCK
Holders of the Company's Common Stock are entitled to receive dividends
when declared by the Board of Directors out of funds legally available for that
purpose. Any such dividends may be paid in cash, property or shares of the
Company's Common Stock. The Company has not paid any dividends since its
inception and it is unlikely that any dividends on its Common Stock will be
declared at any time in the foreseeable future. Any dividends will be subject to
the discretion of the Company's Board of Directors, and will depend upon, among
other things, the operating and financial condition of the Company, its capital
requirements and general business conditions. Therefore, there can be no
assurance that any future dividends will be paid on the Company's Common Stock.
All shares of the Company's Common Stock have equal voting rights and,
when validly issued and outstanding, will have one vote per share on all matters
to be voted upon by the shareholders. Cumulative voting in the election of
directors is not allowed, and a quorum for shareholder meetings shall consist of
a majority of the issued and outstanding shares present in person or by proxy.
Accordingly, the holders of a majority of the shares of Common Stock
present, in person or by proxy, at any legally convened shareholders' meeting at
which the Board of Directors is to be elected, will be able to elect all
directors and minority shareholders will not be able to elect a representative
to the Board of Directors.
Shares of the Company's Common Stock have no preemptive or conversion
rights, no redemption or sinking fund provisions, and are not liable for further
call or assessment. Each share of the Company's Common Stock is entitled to
share on a prorata basis in any assets available for distribution to holders of
its equity securities upon liquidation of the Company.
25
<PAGE> 27
STATE LEGISLATION
Upon completion of this offering, the Company will become subject to
certain provisions of the Oregon Business Combination Act that govern business
combinations between corporations and interested shareholders (the "Business
Combination Act"). The Business Combination Act generally provides that if a
person or entity acquires 15% or more of the voting stock of an Oregon
corporation (an "Interested Shareholder"), the corporation and the Interested
Shareholder, or any affiliated entity of the Interested Shareholder, may not
engage in certain business combination transactions for three years following
the date the person became an Interested Shareholder. Business combination
transactions for this purpose include (a) a merger or plan of share exchange,
(b) any sale, lease, mortgage or other disposition of 10% or more of the assets
of the corporation and (c) certain transactions that result in the issuance of
capital stock to the Interested Shareholder. These restrictions do not apply if
(i) the Interested Shareholder, as a result of the transaction in which such
person became an Interested Shareholder, owns at least 85% of the outstanding
voting stock of the corporation (disregarding shares owned by directors who are
also officers and certain employee benefit plans), (ii) the board of directors
approves the share acquisition or business combination before the Interested
Shareholder acquires 15% or more of the corporation's outstanding voting stock
or (iii) the board of directors and the holders of at least two-thirds of the
outstanding voting stock of the corporation (disregarding shares owned by the
Interested Shareholder) approve the transaction after the Interested Shareholder
acquires 15% or more of the corporation's voting stock.
Upon completion of this offering, the Company will also become subject
to the Oregon Control Share Act (the "Control Share Act"). The Control Share Act
generally provides that a person (the "Acquiror") who acquires voting stock of
an Oregon corporation in a transaction which results in the Acquiror holding
more than each of 20%, 33 1/3% or 50% of the total voting power of the
corporation (a "Control Share Acquisition") cannot vote the shares it acquires
in the Control Share Acquisition ("Control Shares") unless voting rights are
accorded to the Control Shares by (i) a majority of each voting group entitled
to vote and (ii) the holders of a majority of the outstanding voting shares,
excluding the Control Shares held by the Acquiror and shares held by the
corporation's officers and inside directors. The term 'Acquiror" is broadly
defined to include persons acting as a group.
The Acquiror may, but is not required to, submit to the corporation an
"Acquiring Person Statement" setting forth certain information about the
Acquiror and its plans with respect to the corporation. The Acquiring Person
Statement may also request that the corporation call a special meeting of
shareholders to determine whether the voting rights will be restored to the
Control Shares. If the Acquiror does not request a special meeting of
shareholders, the issue of voting rights of Control Shares will be considered at
the next annual or special meeting of shareholders. If the Acquiror's Control
Shares are accorded voting rights and represent a majority or more of all voting
power. Shareholders who do not vote in favor of the restoration of such voting
rights will have the right to receive the appraised "fair value" of their
shares, which may not be less than the highest price paid per share by the
Acquiror for the Control Shares.
REPORTS TO STOCKHOLDERS
The Company has registered its Common Stock under the provisions of
Section 12(g) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and has undertaken to continue to maintain such registration. Such
registration will require the Company to comply with periodic reporting, proxy
solicitation and certain other requirements of the Exchange Act.
SHARES ELIGIBLE FOR FUTURE SALE
All but 617,500 of the Company's presently outstanding 7,635,900
shares, are "restricted" securities and could be sold in compliance with Rule
144 adopted under the Securities Act of 1933, as amended, if certain additional
requirements are met. Assuming the exercise of all of the 197,600 outstanding
Warrants and the registration of the 492,500 Shares, and no exercise of existing
options, the Company will then have issued and outstanding 7,833,500 shares of
its Common Stock, of which 6,723,500 will be "restricted" securities.
Rule 144 provides, in essence, that after two years from the date of
acquisition, a person, including an affiliate, of the Company (or persons whose
shares are aggregated) may sell an amount up to one percent (1%) of the issued
and outstanding shares within any three month period, provided that certain
current public information about the Company is available. A person who has not
been an affiliate of the Company (or persons whose shares are aggregated) who
has owned restricted shares of Common Stock for at least three years is entitled
to sell such shares under Rule 144 without regard to any of the limitations
described above. Therefore, in each three month period, 78,335 shares could be
sold under Rule 144 by each person having held the securities for at least two
years. Investors should be aware of the possibility that sales under Rule 144
may, in the future, have a depressing effect on the price of the Company's
stock.
Prior to this offering, there has been a limited market for the Common
Stock as listed on the OTC Bulletin Board and there can be no prediction made as
to the effect, if any, that public sales of additional shares of Common Stock or
the availability of such additional shares for sale will have on the market
prices prevailing from time to
26
<PAGE> 28
time. Nevertheless, the possibility that substantial amounts of Common Stock may
be sold in the public market may adversely affect prevailing market prices for
the Common Stock and could impair the Company's ability to raise capital through
the sale of its equity securities.
LEGAL MATTERS
The validity of the securities being offered will be passed upon for
the Company by James L. Vandeberg, Esq., Graham & Dunn, 1420 Fifth Avenue, 33rd
Floor, Seattle, Washington 98101-2390. The Company's legal counsel has been
employed on a non-contingent basis.
EXPERTS
The financial statements for the fiscal years ended April 30, 1993,
1994 and 1995, and included in the Prospectus and in the Registration Statement
have been audited by Elliott Tulk Pryce Anderson, independent chartered
accountants to the extent and for the periods set forth in their report
appearing elsewhere herein and in the Registration Statement, and are included
in reliance upon such report given the authority of said firm as experts in
auditing and accounting.
Patrick Badgley, a Vice President of the Company, prepared a Technology
Evaluation Report on the RC/DC Engine for the Company.
All experts and counsel employed by the Company have been employed on a
non-contingent basis.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission"), Washington, DC, a Registration Statement on Form SB-2 (the
"Registration Statement"), under the Securities Act with respect to the Common
Stock offered by this Prospectus. This Prospectus, filed as part of such
Registration Statement, does not contain all of the information set forth in, or
annexed as exhibits to, the Registration Statement, certain parts of which are
omitted in accordance with the rules and regulations of the Commission. For
further information with respect to the Company and this offering, reference is
made to the Registration Statement, including the exhibits filed therewith,
which may be inspected without charge at the Office of the Commission, 450 Fifth
Street, NW, Washington, DC, 20549, Copies of the Registration Statement may be
obtained from the Commission at its principal office upon payment of prescribed
fees. Statements contained in the Prospectus as to the contents of any contract
or other document are not necessarily complete and, in each instance, reference
is made to the copy of each such contract or other document filed as an exhibit
to the Registration Statement, each such statement being qualified in all
respects by reference to the applicable document filed with the Commission.
27
<PAGE> 29
<TABLE>
<CAPTION>
INDEX TO FINANCIAL STATEMENTS
<S> <C>
Report of Public Accountants........................................................................ F-1
Balance Sheet at April 30, 1995, 1994 and 1993...................................................... F-2
Statement of Operations Accumulated from
July 27, 1992 (Inception) to April 30, 1995 and the years ended
April 30, 1995, 1994 and 1993..................................................................... F-3
Statement of Stockholders' Equity Accumulated from
July 27, 1992 (Inception) to April 30, 1995................................................ F-4
Statementof Cash Flows from May 25, 1989 (Inception) to April 30, 1995 and the
years ended April 30, 1995, 1994 and 1993........................................................ F-5
Notes to the Financial Statements................................................................... F-6
to
F-10
Balance Sheet at January 31, 1996 and 1995.......................................................... F-11
(unaudited)
Statement of Operations Accumulated from July 27, 1992 (Inception)
to January 31, 1996 and the six months ended January 31, 1996 and 1995............................ F-12
(unaudited)
Statement of Stockholders' Equity
Accumulated from July 27, 1992 (Inception) to January 31, 1996.................................... F-13
(unaudited) to
F-14
Statement of Cash Flows Accumulated from July 27, 1992 (Inception)
to January 31, 1996 and the six months ended January 31, 1996 and 1995............................ F-15
Notes to the Financial Statements................................................................... F-16
(unaudited) to
F-20
</TABLE>
F
<PAGE> 30
ELLIOTT TULK PRYCE ANDERSON
CHARTERED ACCOUNTANTS [ETPA LOGO]
Independent Auditors Report
Board of Directors
REGI U.S., Inc.
(A Development Stage Company)
We have audited the accompanying balance sheets of REGI U.S., Inc. (A
Development Stage Company) as of April 30, 1995, 1994 and 1993 and the related
statements of operations, stockholders' equity and cash flows for the periods
ended April 30, 1995, 1994 and 1993. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the aforementioned financial statements present fairly, in all
material respects, the financial position of REGI U.S., Inc. (A Development
Stage Company), as of April 30, 1995, 1994 and 1993, and the results of its
operations and its cash flows for the periods ended April 30, 1995, 1994 and
1993, in conformity with U.S. generally accepted accounting principles.
The accompanying financial statements have been prepared assuming the Company
will continue as a going concern. As discussed in Note 2 to the financial
statements, the Company has not generated any revenues or profitable operations
since inception. These factors raise substantial doubt about the Company's
ability to continue as a going concern. Management's plans in regard to these
matters are also discussed in Note 2. The financial statements do not include
any adjustments that might result from the outcome of this uncertainty.
/s/ Elliott Tulk
/s/ Pryce Anderson
CHARTERED ACCOUNTANTS
Vancouver, B.C., Canada
December 7, 1995
F-1
<PAGE> 31
REGI U.S., Inc.
(A Development Stage Company)
Balance Sheets
April 30, 1995, 1994 and 1993
(expressed in U.S. dollars)
<TABLE>
<CAPTION>
1995 1994 1993
$ $ $
<S> <C> <C> <C>
Assets
Current Assets
Cash and cash equivalents 66,442 163,870 7,658
Subscription receivable - - 500
Due from parent 28,436 - 21,550
Prepaid expenses 6,000 6,990 -
---------- -------- -------
100,878 170,860 29,708
Fixed Assets (Notes 3 and 5) 8,996 4,359 -
Intangible Assets (Notes 3, 4 and 5) 227,873 262,333 57,000
---------- -------- -------
337,747 437,552 86,708
========== ======== =======
Liabilities And Stockholders' Equity (Deficit)
Current Liabilities
Accounts payable 34,872 7,500 15,000
Due to parent - 74,455 -
Due to affiliate (Note 6) 609,873 213,352 -
---------- -------- -------
644,745 295,307 15,000
========== ======== =======
Stockholders' Equity (Deficit)
Common Stock (Note 7), 20,000,000 shares
authorized without par value; 6,930,200,
6,500,000 and 6,000,000 shares issued
and outstanding respectively. 1,336,500 560,000 60,000
Paid for but unissued-- 35,200 shares - - 35,200
Deficit Accumulated During the Development Stage (1,643,498) (417,755) (23,492)
---------- -------- -------
(306,998) 142,245 71,708
---------- -------- -------
337,747 437,552 86,708
========== ======== =======
</TABLE>
Commitments (Note 9)
F-2
(The accompanying notes are an integral
part of the financial statements)
<PAGE> 32
REGI U.S., Inc.
(A Development Stage Company)
Statement of Operations
Accumulated from July 27, 1992 (Inception) to April 30, 1995 and
the Periods ended April 30, 1995, 1994 and 1993
(expressed in U.S. dollars)
<TABLE>
<CAPTION>
July 27
May 1 May 1 1992
Accumulated 1994 1993 (inception)
During the to to to
Development April 30 April 30 April 30
Stage 1995 1994 1993
$ $ $ $
<S> <C> <C> <C> <C>
Revenues - - - -
--------- --------- ------- ------
Administrative Expenses
Accounting and legal 53,891 52,311 1,580 -
Advertising - stock 27,905 27,905 - -
Bank charges 455 425 30 -
Foreign exchange 1,940 963 977 -
Listings application 5,220 1,868 3,352 -
Office 6,610 6,610 - -
Stockholder and investor relations 47,607 21,257 26,350 -
Transfer agent 6,965 3,565 3,400 -
Travel 4,814 4,814 - -
Less interest (6,754) (6,754) - -
--------- --------- ------- ------
148,653 112,964 35,689 -
--------- --------- ------- ------
Research and Development Expenses
Intellectual property (Note 4(a) and (b)) 257,000 257,000 - -
Amortization 3,814 (4,664) 8,478 -
Market development 79,384 54,173 25,211 -
Professional fees 66,595 37,307 26,488 2,800
Project management 70,000 30,000 30,000 10,000
Project overhead 44,126 37,282 4,716 2,128
Prototype design and construction 758,215 581,318 174,398 2,499
Technical consulting 46,249 8,360 36,764 1,125
Technical reports 13,664 - 8,724 4,940
Technical salaries 63,863 52,666 11,197 -
Travel 91,935 59,337 32,598 -
--------- --------- ------- ------
1,494,845 1,112,779 358,574 23,492
--------- --------- ------- ------
Net Loss 1,643,498 1,225,743 394,263 23,492
========= ========= ======= ======
Net Loss Per Share (.18) (.06) (.01)
========= ========= =========
Weighted Average Shares Outstanding 6,710,275 6,500,000 6,000,000
========= ========= =========
</TABLE>
F-3
(The accompanying notes are an integral
part of the financial statements)
<PAGE> 33
REGI U.S., Inc.
(A Development Stage Company)
Statement of Stockholders' Equity (Deficit)
From July 27, 1992 (Inception) to April 30, 1995
(expressed in U.S. dollars)
<TABLE>
<CAPTION>
Deficit Accumulated
Common Stock During the
Shares Amount Development Stage
# $ $
<S> <C> <C> <C>
Balance - July 27, 1992 (inception) - - -
Stock issued for intellectual property at
$0.01 per share August 20, 1992 5,700,000 57,000 -
Stock issued for cash at $0.01 per
share August 20, 1992 300,000 3,000 -
Net loss for the period from
July 27, 1992 to April 30, 1993 - - (23,492)
--------- --------- ----------
Balance - April 30, 1993 6,000,000 60,000 (23,492)
Stock issued for cash pursuant to
a public offering of shares issued at
$1.00 per share October 31, 1993 500,000 500,00 -
Net loss for the year ended April 30, 1994 - - (394,263)
--------- --------- ----------
Balance - April 30, 1994 6,500,000 560,000 (417,755)
Stock issued for cash pursuant to
options exercised July 1, 1994
at $0.10 per share 10,000 1,000 -
a private placement of shares issued at
$2.25 per share October 31, 1994 and 200,000 450,000 -
November 30, 1994 50,000 112,500 -
warrants exercised at $1.25 per share
October 31, 1994 169,200 211,500 -
warrants exercised at $1.50 per share
December 13, 1994 1,000 1,500 -
Net loss for the year ended April 30, 1995 - - (1,225,743)
--------- --------- ----------
Balance - April 30, 1995 6,930,200 1,336,500 (1,643,498)
========= ========= ==========
</TABLE>
F-4
(The accompanying notes are an integral
part of the financial statements)
<PAGE> 34
REGI U.S., Inc.
(A Development Stage Company)
Statement of Cash Flows
Accumulated from July 27, 1992 (Inception) to April 30, 1995 and
the Periods ended April 30, 1995, 1994 and 1993
(expressed in U.S. dollars)
<TABLE>
<CAPTION>
July 27
May 1 May 1 1992
Accumulated 1994 1993 (inception)
During the to to to
Development April 30 April 30 April 30
Stage 1995 1994 1993
$ $ $ $
<S> <C> <C> <C> <C>
Cash Flows to Operating Activities
Net loss (1,643,498) (1,225,743) (394,263) (23,492)
Adjustments to Reconcile
Net loss to cash
Amortization 3,814 (4,664) 8,478 -
Intellectual property 257,000 257,000 - -
Change in non-cash working capital items
(Increase) decrease in subscription receivable - - 500 (500)
(Increase) decrease in prepaid expense (6,000) 990 (6,990) -
Increase (decrease) in accounts payable 34,872 27,372 (7,500) 15,000
---------- ---------- -------- -------
Net Cash Used by Operating Activities (1,353,812) (945,045) (399,775) (8,992)
---------- ---------- -------- -------
Cash Flows to Financing Activities
Increase (decrease) in subscriptions received - - (35,200) 35,200
Increase in shares issued - cash 1,279,500 776,500 500,000 3,000
Increase (decrease) in advances from parent (28,436) (102,891) 96,005 (21,550)
Increase in advances from affiliate 409,873 396,521 13,352 -
---------- ---------- -------- -------
Net Cash Provided by Financing Activities 1,660,937 1,070,130 574,157 16,650
---------- ---------- -------- -------
Cash Flows to Investing Activities
(Increase) in computer equipment (11,460) (6,765) (4,695) -
(Increase) in patents (29,223) (15,748) (13,475) -
(Increase) in licence (200,000) (200,000) - -
---------- ---------- -------- -------
Net Cash (Used) Provided by Investing Activities (240,683) (222,513) (18,170) -
---------- ---------- -------- -------
Increase (decrease) in cash and cash equivalents 66,442 (97,428) 156,212 7,658
Cash and cash equivalents - beginning of period 171,528 163,870 7,658 -
---------- ---------- -------- -------
Cash and cash equivalents - end of period 237,970 66,442 163,870 7,658
========== ========== ======== =======
Non-Cash Financing Activities
Deemed value of affiliate shares issued for
intellectual property (Note 4(b)) 200,000 - 200,000 -
5,700,000 shares issued for intellectual
property at $0.01 per share (Note 4(a)) 57,000 - - 57,000
---------- ---------- -------- -------
257,000 - 200,000 57,000
========== ========== ======== =======
</TABLE>
F-5
(The accompanying notes are an integral
part of the financial statements)
<PAGE> 35
REGI U.S., Inc.
(A Development Stage Company)
Notes to the Financial Statements
October 31, 1995 and April 30, 1995, 1994 and 1993
(expressed in U.S. dollars)
1. Date of Incorporation
The Company was incorporated in the State of Oregon, U.S.A. on July 27,
1992. On August 1, 1994 the Company changed its name from Sky Technologies
Inc. to REGI U.S., Inc.
2. Nature and Continuance of Business
The Company is in the business of developing and commercially exploiting an
improved axial vane type rotary engine known as the Rand Cam/Direct Charge
Engine ("The Engine"), which is a variation of the original Rand-Cam
Engine. The world-wide marketing and intellectual rights, other than the
U.S., are held by Rand Energy Group Inc. ("REGI") which controls the
Company. The Company owns the U.S. marketing and intellectual rights and
has a project cost sharing agreement, effective May 1, 1993, whereby it
will fund 50% of the further development of The Engine and REGI will fund
50%.
These financial statements have been prepared on the basis of a going
concern, which contemplates the realization of assets and the satisfaction
of liabilities in the normal course of business. The Company has not
generated any revenues or profitable operations since inception. The
Company's activities are in the development stage and additional costs for
the further improvement of The Engine must be incurred. There is
substantial doubt as to the Company's ability to generate revenues and to
continue as a going concern, as the continuation of the Company as a going
concern is dependent on its ability to obtain financing and/or the
attainment of revenues and profitable operations. Management plans to raise
capital with private and public offerings of stock, the conversion of
warrants and the exercise of stock options, and together with cash on hand
at April 30, 1995 and additional funds raised to December 7, 1995 should
enable the Company to remain viable to at least April 30, 1996.
3. Summary of Significant Accounting Policies
(a) Year-End
The Company's management has chosen April 30 as its fiscal
year-end.
(b) Fixed Assets
Computer equipment is amortized over 3 years on a straight-line
basis.
(c) Intangible Assets
Costs incurred by the Company to register and protect patents are
capitalized as incurred. The cost of patent protection is being
amortized on a straight line basis over 20 years or written off
completely should The Engine be determined by management not to be
commercially viable.
(d) Research and Development
Costs to acquire technological rights and design drawings
collectively referred to as intellectual property are treated as
research and development. Research and development is expensed in
the period in which the activities occurred.
(e) Cash and Cash Equivalents
The Company considers all highly liquid instruments with a maturity
of three months or less at the time of issuance to be cash
equivalents.
F-6
<PAGE> 36
3. Accounting Policies (continued)
(f) Foreign Currency Transactions/Balances
Transactions in currencies other than the U.S. dollar are translated at
the rate in effect on the transaction date. Any balance sheet items
denominated in foreign currencies are translated into U.S. dollars using
the rate in effect on the balance sheet date.
(g) Tax Accounting
Research and development is fully deducted in the year of expenditure.
The Company has not earned any research and development tax credits. The
Company has adopted SFAS 109 as of its inception. The Company has
incurred net operating losses as scheduled below:
<TABLE>
<CAPTION>
Year of Loss Amount Expiration Date
$
<S> <C> <C>
April 30, 1994 416,218 2009
April 30, 1995 1,007,063 2010
</TABLE>
Pursuant to SFAS 109 the Company is required to compute tax asset
benefits for net operating loss carryforwards. Potential benefit of net
income losses have not been recognized in the financial statements
because the Company cannot be assured that it is more likely than not
that it will utilize the net operating loss carryforwards in future
years.
The components of the net deferred tax asset at the end of April 30, 1995
and 1994, the statutory tax rate, the effective tax rate and the elected
amount of the valuation allowance are scheduled below:
<TABLE>
<CAPTION>
April 30, 1995 April 30, 1994
$ $
<S> <C> <C>
Net Operating Loss 1,007,063 416,218
Statutory Tax Rate 113,900 + 34% 113,900 + 34%
in excess of in excess of
335,000 335,000
Effective Tax Rate - -
Deferred Tax Asset 342,401 141,514
Valuation Allowance (342,401) (141,514)
------------ ------------
Net Deferred Tax Asset - -
============ ============
</TABLE>
F-7
<PAGE> 37
4. Acquisition of Rights, Title and Interest
(a) On August 20, 1992 the Company acquired the U.S. rights to the original
Rand Cam-Engine from REGI by issuing 5,700,000 shares at a deemed value
of $0.01 per share. REGI will receive a 5% net profit royalty. The
$57,000 deemed value has been expensed as research and development in
1995.
(b) Pursuant to an agreement with Brian Cherry (a director) dated July 30,
1992 and amended November 23, 1992 and April 13, 1993, the Company
acquired the U.S. rights to the improved axial vane rotary engine known
as the Rand Cam/Direct Charge Engine. On November 9, 1993, in
consideration for the transferred technology, Mr. Cherry was issued
100,000 shares of Reg Technologies Inc. ("REG") (a public company owning
51% of REGI) with a deemed value of $200,000 and will receive a 1% net
profit royalty. The deemed value of $200,000 was treated as an expense
paid by REG on behalf of the Company and treated as an inter-company
loan. The $200,000 deemed value of intellectual property has been
expensed as research and development in 1995.
(c) Pursuant to a letter of understanding dated December 13, 1993 between the
Company, REGI and REG (collectively called the grantors) and West
Virginia University Research Corporation ("WVURC"), the grantors have
agreed that WVURC shall own 5% of all patented technology and will
receive 5% of all net profits from sales, licences, royalties or income
derived from the patented technology.
5. (a) Fixed Assets
<TABLE>
<CAPTION>
1995 1994 1993
Accumulated Net Book Net Book Net Book
Cost Amortization Value Value Value
$ $ $ $ $
<S> <C> <C> <C> <C> <C>
Computer equipment 11,460 2,464 8,996 4,359 -
======= ===== ======= ======= ======
(b) Intangible Assets
Sublicence (below) 200,000 - 200,000 - -
Patents 29,223 1,350 27,873 13,184 -
Intellectual property
(Note 4(a) and (b)) - - - 249,149 57,000
------- ----- ------- ------- ------
229,223 1,350 227,873 262,333 57,000
======= ===== ======= ======= ======
</TABLE>
In 1995 the Company acquired an exclusive limited sublicence to market and
distribute a "Machine Vision Technology" in Canada for the following
consideration:
i) $200,000 (paid).
ii) royalty payments equal to 2% of all net revenue derived from sales in
Canada, to be paid 30 days after the end of each calendar quarter.
iii) minimum annual royalty payments as follows:
<TABLE>
$
<S> <C>
December 31, 1996 1,000
December 31, 1997 3,000
December 31, 1998 4,500
annually thereafter 6,000
</TABLE>
F-8
<PAGE> 38
5. Fixed Assets (continued)
On October 31, 1995 the Company sold its rights to REG for $200,000. All
obligations pursuant to the sublicense transfers to REG.
6. Due to Affiliate
REG periodically pays for research and development expenses on behalf of the
Company and REGI and then charges the two companies on a 50/50 basis pursuant
to the research and development cost sharing agreement. The balance owing to
REG, of $609,873 has been paid down to $171,351 subsequent to April 30, 1995.
Any balance owing is unsecured, non-interest bearing and is payable on
demand.
7. Common Stock
(a) Public offering - October 31, 1993 - warrants outstanding
A total of $500,000 was received and 500,000 units issued pursuant to a
public offering of 500,000 units at $1.00 per unit. Each unit contained
1 common share, and 1 warrant to acquire an additional share at $1.25
by August 24, 1994 (extended to October 31, 1994), and $1.50 by August
24, 1995. A total of 169,200 warrants were exercised at $1.25, and
133,200 warrants were exercised at $1.50. A total of 197,600 warrants
are outstanding.
(b) Private placement - October 31 and November 30, 1994 - warrants
outstanding
A total of $450,000 was received and 200,000 units issued on
October 31, 1994 and a total of $112,500 was received and 50,000 units
issued on November 30, 1994 pursuant to a private placement of 250,000
units at $2.25 per unit. Each unit contained 1 common share, and 1
warrant to acquire an additional share at $2.60 by October 12, 1995
(expired), and $3.00 by October 12, 1996. All warrants issued pursuant to
this private placement are outstanding as at April 30, 1995.
(c) Pursuant to a Private Offering Memorandum dated April 15, 1995 and
expiring October 15, 1995 the Company sold 341,000 units at $2.00 per
unit for net proceeds of $682,000. Each unit contained 1 common share,
and 1 warrant to acquire an additional share at $2.00 exercisable
beginning April 15, 1996 and ending April 15, 1997 or at $2.50 beginning
April 16, 1997 and ending April 15, 1998.
(d) Stock options
Certain directors and employees were granted stock options since
inception as follows:
- April 30, 1993 to acquire 387,500 shares at $0.10 per share expiring
April 30, 1998 of which 137,500 have been exercised subsequently.
- October 29, 1993 to acquire 195,000 shares at $1.00 per share
expiring April 30, 1998 as to 50,000 shares and October 29, 1998 as
to 145,000 shares.
- February 9, 1994 to acquire 75,000 shares at $1.00 expiring February
9, 1999.
- October 20, 1994 to acquire 35,000 shares at $2.75 per share expiring
October 20, 1999.
- January 15, 1995 to acquire 30,000 shares at $1.50 per share expiring
January 15, 2000.
- March 15, 1995 to acquire 10,000 shares at $2.50 per share expiring
March 15, 2000.
- August 11, 1995 to acquire 25,000 shares at $2.50 per share expiring
August 11, 2000.
- September 8, 1995 to acquire 10,000 shares at $2.50 per share
expiring September 8, 2000.
F-9
<PAGE> 39
8. Related Party Transactions
(a) A project management fee of $30,000 in fiscal 1995, $30,000 in fiscal
1994 and $10,000 in fiscal 1993 was paid to a company controlled by the
president of the Company and is included in research and development
expenses.
(b) Rent and secretarial fees of $6,000 in fiscal 1995, $6,000 in fiscal
1994 and $2,000 in fiscal 1993 were paid to a company controlled by the
president of the Company and are included in research and development
expenses.
(c) A technical salary of $52,666 in fiscal 1995 and $11,197 in fiscal 1994
was paid to an officer and director and is included in research and
development expenses.
(d) An administrative fee of $4,500 in fiscal 1995 was paid to an officer
and director and is included in research and development expenses.
(e) The exclusive limited sublicense for The Machine Vision Technology was
sold to REG for $200,000 (See Note 5).
9. Commitments
(a) See Note 4 - royalty commitments in connection with the Rand Cam/Direct
Charge Engine.
(b) The Company is committed to pay $2,910 per month pursuant to an investor
relations contract expiring March 31, 1996.
(c) The Company is committed to pay project management fees and rent and
secretarial fees totalling $36,000 per annum to a Company controlled by
the president of the Company pursuant to a contract dated April 1, 1994
and expiring April 1, 1997.
(d) The Company has reserved 591,000 shares for the conversion of warrants
(See Note 7(b) and (c)) and 640,000 shares for the exercise of stock
options (See Note 7(d)).
(e) The Company has no long-term lease commitments.
(f) The Company is committed to fund 50% of the further development of the
Engine. See Note 2.
10. Subsequent Events to December 7, 1995
(a) The Company received $1,000 pursuant to options exercised at $0.10 for
10,000 common shares.
(b) The Company sold its interest in the Machine Vision Technology to Reg
Technologies Inc. on October 31, 1995 for $200,000.
(c) See Note 7(c) for completion of a financing.
(d) See Note 7(d) for stock options granted.
F-10
<PAGE> 40
REGI U.S., Inc.
(A Development Stage Company)
Balance Sheets
January 31, 1996 and 1995
(expressed in U.S. dollars)
<TABLE>
<CAPTION>
1996 1995
$ $
<S> <C> <C>
Assets
Current Assets
Cash and cash equivalents 54,913 321,766
Prepaid expenses 6,090 -
---------- ----------
61,003 321,766
Fixed Assets (Notes 3 and 5) 10,021 3,186
Intangible Assets (Notes 3, 4 and 5) 32,168 225,867
---------- ----------
103,192 550,819
========== ==========
Liabilities And Stockholders' Equity
Current Liabilities
Accounts payable 57,462 5,320
Due to parent - 11,120
Due to affiliate (Note 6) 45,708 478,612
---------- ----------
103,170 495,052
---------- ----------
Stockholders' Equity
Common Stock (Note 7), 20,000,000 shares
authorized without par value; 7,613,900 and
6,930,200, shares issued and outstanding respectively. 2,246,850 1,336,500
Deficit Accumulated During the Development Stage (2,246,828) (1,280,733)
---------- ----------
22 55,767
---------- ----------
103,192 550,819
========== ==========
</TABLE>
Commitments (Note 9)
F-11
(The accompanying notes are an integral
part of the financial statements)
<PAGE> 41
REGI U.S., Inc.
(A Development Stage Company)
Statement of Operations
Accumulated from July 27, 1992 (Inception) to January 31, 1996 and
the Nine Month Periods ended January 31, 1996 and 1995
(expressed in U.S. dollars)
<TABLE>
<CAPTION>
May 1 May 1
Accumulated 1995 1994
During the to to
Development January 31 January 31
Stage 1996 1995
$ $ $
<S> <C> <C> <C>
Revenues - - -
--------- --------- ---------
Administrative Expenses
Accounting and legal 97,248 43,357 7,929
Advertising - stock 119,724 91,819 27,904
Bank charges 918 463 305
Foreign exchange 2,301 361 -
Listings application 5,220 - 300
Office 22,485 15,875 2,189
Stockholder and investor relations 112,390 64,783 12,865
Transfer agent 11,488 4,523 3,525
Travel 4,814 - 4,814
Less interest (12,771) (6,017) -
--------- --------- ---------
363,817 215,164 59,831
--------- --------- ---------
Research and Development Expenses
Intellectual property (Note 4(a) and (b)) 257,000 - -
Amortization 8,548 4,734 1,867
Market development 86,204 6,820 32,729
Professional fees 69,345 2,750 34,267
Project management 92,500 22,500 20,000
Project overhead 68,123 23,997 14,323
Prototype design and construction 1,026,658 268,443 384,392
Technical consulting 47,704 1,455 7,940
Technical reports 13,664 - -
Technical salaries 103,008 39,145 35,074
Travel 110,257 18,322 23,406
--------- --------- ---------
1,883,011 388,166 553,998
--------- --------- ---------
Net Loss 2,246,828 603,330 613,829
========= ========= =========
Net Loss Per Share .08 .09
========= =========
Weighted Average Shares Outstanding 7,375,610 6,642,122
========= =========
</TABLE>
F-12
(The accompanying notes are an integral
part of the financial statements)
<PAGE> 42
REGI U.S., Inc.
(A Development Stage Company)
Statement of Stockholders' Equity (Deficit)
From July 27, 1992 (Inception) to January 31, 1996
(expressed in U.S. dollars)
<TABLE>
<CAPTION>
Deficit Accumulated
Common Stock During the
Shares Amount Development Stage
# $ $
<S> <C> <C> <C>
Balance - July 27, 1992 (inception) - - -
Stock issued for intellectual property at
$0.01 per share August 20, 1992 5,700,000 57,000 -
Stock issued for cash at $0.01 per
share August 20, 1992 300,000 3,000 -
Net loss for the period from
July 27, 1992 to April 30, 1993 - - (23,492)
--------- --------- ----------
Balance - April 30, 1993 6,000,000 60,000 (23,492)
Stock issued for cash pursuant to
a public offering of shares issued at
$1.00 per share October 31, 1993 500,000 500,000 -
Net loss for the year ended April 30, 1994 - - (394,263)
--------- --------- ----------
Balance - April 30, 1994 6,500,000 560,000 (417,755)
Stock issued for cash pursuant to
options exercised July 1, 1994
at $0.10 per share 10,000 1,000 -
a private placement of shares issued at
$2.25 per share October 31, 1994 and 200,000 450,000 -
November 30, 1994 50,000 112,500 -
warrants exercised at $1.25 per share
October 31, 1994 169,200 211,500 -
warrants exercised at $1.50 per share
December 13, 1994 1,000 1,500 -
Net loss for the year ended April 30, 1995 - - (1,225,743)
--------- --------- ----------
Balance - April 30, 1995 6,930,200 1,336,500 (1,643,498)
</TABLE>
F-13
(The accompanying notes are an integral
part of the financial statements)
<PAGE> 43
REGI U.S., Inc.
(A Development Stage Company)
Statement of Stockholders' Equity (Deficit)
From July 27, 1992 (Inception) to January 31, 1996
(expressed in U.S. dollars)
<TABLE>
<CAPTION>
Deficit Accumulated
Common Stock During the
Shares Amount Development Stage
Continued # $ $
<S> <C> <C> <C>
Balance forward from April 30, 1995 6,930,200 1,336,500 (1,643,498)
Stock issued for cash pursuant to
options exercised at $0.10 per share
June, 1995 7,500 750 -
July, 1995 110,000 11,000 -
September, 1995 10,000 1,000 -
November, 1995 10,000 1,000 -
December, 1995 13,000 1,300 -
January, 1996 50,000 5,000 -
option exercised at $1.00 per share
January, 1996 10,000 10,000 -
warrants exercised at $1.50 per share
August, 1995 132,200 198,300 -
a private offering memorandum to
issue shares at $2.00 per share
May, 1995 20,000 40,000 -
June, 1995 35,000 70,000 -
July, 1995 173,500 347,000 -
August, 1995 22,500 45,000 -
September, 1995 50,000 100,000 -
October, 1995 40,000 80,000 -
Net loss for the period ended January 31, 1996 - - (603,330)
--------- --------- ----------
Balance - January 31, 1996 7,613,900 2,246,850 (2,246,828)
========= ========= ==========
</TABLE>
F-14
(The accompanying notes are an integral
part of the financial statements)
<PAGE> 44
REGI U.S., Inc.
(A Development Stage Company)
Statement of Cash Flows
Accumulated from July 27, 1992 (Inception) to January 31, 1996 and
the Nine Month Periods ended January 31, 1996 and 1995
expressed in U.S. dollars)
<TABLE>
<CAPTION>
May 1 May 1
Accumulated 1995 1994
During the to to
Development January 31 January 31
Stage 1996 1995
$ $ $
<S> <C> <C> <C>
Cash Flows to Operating Activities
Net loss (2,246,828) (603,330) (613,829)
Adjustments to Reconcile
Net loss to cash
Amortization 8,548 4,734 1,867
Intellectual property 257,000 - -
Change in non-cash working capital items
(Increase) decrease in subscription receivable (6,090) - -
(Increase) decrease in prepaid expense - (89) 6,990
Increase (decrease) in accounts payable 57,462 22,590 (2,180)
---------- -------- --------
Net Cash Used by Operating Activities (1,929,908) (576,095) (607,152)
========== ======== ========
Cash Flows to Financing Activities
Increase in shares issued - cash 2,189,850 910,350 776,500
Increase (decrease) in advances from parent - 28,436 (63,335)
Increase (decrease) in advances from affiliate (154,292) (564,165) 265,260
---------- -------- --------
Net Cash Provided by Financing Activities 2,035,558 374,621 978,425
========== ======== ========
Cash Flows to Investing Activities
(Increase) in computer equipment (16,047) (4,588) -
(Increase) in patents (34,690) (5,467) (13,377)
(Increase) decrease in licence - 200,000 (200,000)
---------- -------- --------
Net Cash (Used) Provided by Investing Activities (50,737) 189,945 (213,377)
========== ======== ========
Increase (decrease) in cash and cash equivalents 54,913 (11,529) 157,896
Cash and cash equivalents - beginning of period - 66,442 163,870
---------- -------- --------
Cash and cash equivalents - end of period 54,913 54,913 321,766
========== ======== ========
Non-Cash Financing Activities
Deemed value of affiliate shares issued for
intellectual property (Note 4(b)) 200,000 - -
5,700,000 shares issued for intellectual
property at $0.01 per share (Note 4(a)) 57,000 - -
---------- -------- --------
257,000 - -
========== ======== ========
</TABLE>
F-15
(The accompanying notes are an integral
part of the financial statements)
<PAGE> 45
REGI U.S., Inc.
(A Development Stage Company)
Notes to the Financial Statements
January 31, 1996 and 1995
(expressed in U.S. dollars)
1. Date of Incorporation
The Company was incorporated in the State of Oregon, U.S.A. on July 27, 1992.
On August 1, 1994 the Company changed its name from Sky Technologies Inc. to
REGI U.S., Inc.
2. Nature and Continuance of Business
The Company is in the business of developing and commercially exploiting an
improved axial vane type rotary engine known as the Rand Cam/Direct Charge
Engine ("The Engine"), which is a variation of the original Rand-Cam Engine.
The world-wide marketing and intellectual rights, other than the U.S., are
held by Rand Energy Group Inc. ("REGI") which controls the Company. The
Company owns the U.S. marketing and intellectual rights and has a project
cost sharing agreement, effective May 1, 1993, whereby it will fund 50% of
the further development of The Engine and REGI will fund 50%. These financial
statements have been prepared on the basis of a going concern, which
contemplates the realization of assets and the satisfaction of liabilities in
the normal course of business. The Company has not generated any revenues or
profitable operations since inception. The Company's activities are in the
development stage and additional costs for the further improvement of The
Engine must be incurred. There is substantial doubt as to the Company's
ability to generate revenues and to continue as a going concern, as the
continuation of the Company as a going concern is dependent on its ability to
obtain financing and/or the attainment of revenues and profitable operations.
Management plans to raise capital with private and public offerings of stock,
the conversion of warrants and the exercise of stock options, and together
with cash on hand at January 31, 1996, should enable the Company to remain
viable to at least January 31, 1997.
3. Summary of Significant Accounting Policies
(a) Year-End
The Company's management has chosen April 30 as its fiscal year-end.
(b) Fixed Assets
Computer equipment is amortized over 3 years on a straight-line basis.
(c) Intangible Assets
Costs incurred by the Company to register and protect patents are
capitalized as incurred. The cost of patent protection is being
amortized on a straight line basis over 20 years or written off
completely should The Engine be determined by management not to be
commercially viable.
(d) Research and Development
Costs to acquire technological rights and design drawings collectively
referred to as intellectual property are treated as research and
development. Research and development is expensed in the period in which
the activities occurred.
(e) Cash and Cash Equivalents
The Company considers all highly liquid instruments with a maturity of
three months or less at the time of issuance to be cash equivalents.
F-16
<PAGE> 46
3. Accounting Policies (continued)
(f) Foreign Currency Transactions/Balances
Transactions in currencies other than the U.S. dollar are translated at
the rate in effect on the transaction date. Any balance sheet items
denominated in foreign currencies are translated into U.S. dollars using
the rate in effect on the balance sheet date.
(g) Tax Accounting
Research and development is fully deducted in the year of expenditure.
The Company has not earned any research and development tax credits.
The Company has adopted SFAS 109 as of its inception. The Company has
incurred net operating losses as scheduled below:
<TABLE>
<CAPTION>
Year of Loss Amount Expiration Date
$
<S> <C> <C>
April 30, 1994 416,218 2009
April 30, 1995 1,007,063 2010
Period May 1, 1995 to 603,330 2011
January 31, 1996
</TABLE>
Pursuant to SFAS 109 the Company is required to compute tax asset
benefits for net operating loss carryforwards. Potential benefit of net
income losses have not been recognized in the financial statements
because the Company cannot be assured that it is more likely than not
that it will utilize the net operating loss carryforwards in future
years.
The components of the net deferred tax asset at the end of April 30,
1994, April 30, 1995 and January 31, 1996, the statutory tax rate, the
effective tax rate and the elected amount of the valuation allowance are
scheduled below:
<TABLE>
<CAPTION>
January 31, 1996 April 30, 1995 April 30, 1994
$ $ $
<S> <C> <C> <C>
Net Operating Loss 603,330 1,007,063 416,218
Statutory Tax Rate 113,900 +34% 113,900 +34% 113,900 +34%
in excess of in excess of in excess of
$335,000 $335,000 $335,000
Effective Tax Rate - - -
Deferred Tax Asset 205,132 342,401 141,514
Valuation Allowance (205,132) (342,401) (141,514)
----------- ----------- -----------
Net Deferred Tax Asset - - -
=========== =========== ===========
</TABLE>
F-17
<PAGE> 47
4. Acquisition of Rights, Title and Interest
(a) On August 20, 1992 the Company acquired the U.S. rights to the original
Rand Cam-Engine from REGI by issuing 5,700,000 shares at a deemed value
of $0.01 per share. REGI will receive a 5% net profit royalty. The
$57,000 deemed value has been expensed as research and development in
1995.
(b) Pursuant to an agreement with Brian Cherry (a director) dated July 30,
1992 and amended November 23, 1992 and April 13, 1993, the Company
acquired the U.S. rights to the improved axial vane rotary engine known
as the Rand Cam/Direct Charge Engine. On November 9, 1993, in
consideration for the transferred technology, Mr. Cherry was issued
100,000 shares of Reg Technologies Inc. ("REG") (a public company owning
51% of REGI) with a deemed value of $200,000 and will receive a 1% net
profit royalty. The deemed value of $200,000 was treated as an expense
paid by REG on behalf of the Company and treated as an inter-company
loan. The $200,000 deemed value of intellectual property has been
expensed as research and development in 1995.
(c) Pursuant to a letter of understanding dated December 13, 1993 between the
Company, REGI and REG (collectively called the grantors) and West
Virginia University Research Corporation ("WVURC"), the grantors have
agreed that WVURC shall own 5% of all patented technology and will
receive 5% of all net profits from sales, licences, royalties or income
derived from the patented technology.
5. (a) Fixed Assets
<TABLE>
<CAPTION>
1996 1995
Accumulated Net Book Net Book
Cost Amortization Value Value
$ $ $ $
<S> <C> <C> <C> <C>
Computer equipment 16,048 6,027 10,021 3,186
====== ===== ====== =======
(b) Intangible Assets
Sublicence (below) - - - 200,000
Patents 34,690 2,522 32,168 25,867
------ ----- ------ -------
34,690 2,522 32,168 225,867
====== ===== ====== =======
</TABLE>
In 1995 the Company acquired an exclusive limited sublicence to market and
distribute a "Machine Vision Technology" in Canada for the following
consideration:
i) $200,000 (paid).
ii) royalty payments equal to 2% of all net revenue derived from sales in
Canada, to be paid 30 days after the end of each calendar quarter.
iii) minimum annual royalty payments as follows:
<TABLE>
<CAPTION>
$
<S> <C>
December 31, 1996 1,000
December 31, 1997 3,000
December 31, 1998 4,500
annually thereafter 6,000
</TABLE>
On October 31, 1995 the Company sold its rights to REG for $200,000. All
obligations pursuant to the sublicense transfers to REG.
F-18
<PAGE> 48
6. Due to Affiliate
REG periodically pays for research and development expenses on behalf of the
Company and REGI and then charges the two companies on a 50/50 basis pursuant
to the research and development cost sharing agreement. The balance owing to
REG, of $45,708 will be paid out of cash on hand at January 31, 1996. Any
balance owing is unsecured, non-interest bearing and is payable on demand.
7. Common Stock
(a) Public offering - October 31, 1993 - warrants outstanding A total of
$500,000 was received and 500,000 units issued pursuant to a public
offering of 500,000 units at $1.00 per unit. Each unit contained 1 common
share, and 1 warrant to acquire an additional share at $1.25 by August
24, 1994 (extended to October 31, 1994), and $1.50 by August 24, 1995. A
total of 169,200 warrants were exercised at $1.25, and 133,200 warrants
were exercised at $1.50. A total of 197,600 warrants are outstanding.
(b) Private placement - October 31 and November 30, 1994 - warrants
outstanding A total of $450,000 was received and 200,000 units issued on
October 31, 1994 and a total of $112,500 was received and 50,000 units
issued on November 30, 1994 pursuant to a private placement of 250,000
units at $2.25 per unit. Each unit contained 1 common share, and 1
warrant to acquire an additional share at $2.60 by October 12, 1995
(expired), and $3.00 by October 12, 1996. All warrants issued pursuant to
this private placement are outstanding as at January 31, 1996.
(c) Pursuant to a Private Offering Memorandum dated April 15, 1995 and
expiring October 15, 1995 the Company sold 341,000 units at $2.00 per
unit for net proceeds of $682,000. Each unit contained 1 common share,
and 1 warrant to acquire an additional share at $2.00 exercisable
beginning April 15, 1996 and ending April 15, 1997 or at $2.50 beginning
April 16, 1997 and ending April 15, 1998.
(d) Stock options
Certain directors and employees were granted stock options since
inception as follows:
- April 30, 1993 to acquire 387,500 shares at $0.10 per share expiring
April 30, 1998 of which 200,500 have been exercised to January 31,
1996.
- October 29, 1993 to acquire 195,000 shares at $1.00 per share expiring
April 30, 1998 as to 50,000, shares of which 10,000 have been exercised
to January 31, 1996, and October 29, 1998 as to 145,000 shares.
- February 9, 1994 to acquire 75,000 shares at $1.00 expiring February 9,
1999.
- October 20, 1994 to acquire 35,000 shares at $2.75 per share expiring
October 20, 1999.
- January 15, 1995 to acquire 30,000 shares at $1.50 per share expiring
January 15, 2000.
- March 15, 1995 to acquire 10,000 shares at $2.50 per share expiring
March 15, 2000.
- August 11, 1995 to acquire 25,000 shares at $2.50 per share expiring
August 11, 2000.
- September 8, 1995 to acquire 10,000 shares at $2.50 per share expiring
September 8, 2000.
F-19
<PAGE> 49
8. Related Party Transactions
(a) A project management fee of $22,500 in 1996 and $22,500 in 1995 was paid
to a company controlled by the president of the Company and is included
in research and development expenses.
(b) Rent and secretarial fees of $4,500 in 1996 and $4,500 in 1995 were paid
to a company controlled by the president of the Company and are included
in research and development expenses.
(c) A technical salary of $39,145 in 1996 and $35,074 in 1995 was paid to an
officer and director and is included in research and development
expenses.
(d) An administrative fee of $9,000 in 1996 was paid to an officer and
director and is included in research and development expenses.
(e) The exclusive limited sublicense for The Machine Vision Technology was
sold to REG for $200,000 (See Note 5).
9. Commitments
(a) See Note 4 - royalty commitments in connection with the Rand Cam/Direct
Charge Engine.
(b) The Company is committed to pay $2,910 per month pursuant to an investor
relations contract expiring March 31, 1996.
(c) The Company is committed to pay project management fees and rent and
secretarial fees totalling $36,000 per annum to a Company controlled by
the president of the Company pursuant to a contract dated April 1, 1994
and expiring April 1, 1997.
(d) The Company has reserved 591,000 shares for the conversion of warrants
(See Note 7(b) and (c)) and 557,000 shares for the exercise of stock
options (See Note 7(d)).
(e) The Company has no long-term lease commitments.
(f) The Company is committed to fund 50% of the further development of the
Engine. See Note 2.
F-20
<PAGE> 50
UNTIL SEPTEMBER , 1996, (NINETY DAYS AFTER THE EFFECTIVE DATE OF THIS
PROSPECTUS) ALL DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED
SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION,
MAY BE REQUIRED TO DELIVER A PROSPECTUS.
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
492,500 SHARES
Summary 5
Selected Financial Data 6 REGI U.S., INC.
Risk Factors 6
Use of Proceeds 8
Dilution 9 COMMON STOCK
Concurrent Sales by Selling Shareholders 9
Plan of Distribution 12
Dividend Policy 13
Capitalization 13
Management's Discussion and Analysis of
Results of Operations and Financial PROSPECTUS
Condition 13
Business 15
Management 20
Principal Shareholders 23
Certain Relationships and Related Transactions 24
Description of Securities 25
Shares Eligible for Future Sale 26 REGI U.S., Inc.
Legal Matters 27 10751 Shellbridge Way
Experts 27 Suite 185
Additional Information 27 Richmond, BC V6X 2W8
Index to Financial Statements F-1 Canada
No dealer, salesman or any other person has been authorized to give any
information or make any representations other than those contained in this
Prospectus in connection with the offer contained in this Prospectus and,
if given or made, such information must not be relied upon as having been
authorized by the Company. Neither the delivery nor any sale made hereunder
shall under any circumstances, create any implication that there has been
no change in the affairs of the Company since the date hereof. This
prospectus does not constitute an offer to sell or the solicitation of an
offer to buy any security other than the shares of Common Stock offer by
this Prospectus, nor does it constitute an offer to sell or a solicitation
of an offer to buy the shares of Common Stock by anyone in any jurisdiction
in which such offer or solicitation is not authorized or in which the
person making such offer or solicitation is not qualified to do so, to any
person to whom it is unlawful to make such offer or solicitation.
<PAGE> 51
PART II - INFORMATION NOT REQUIRED IN PROSPECTUS
Page No.
--------
Item 24. Indemnification of Directors and Officers...................II-2
Item 25. Other Expenses of Issuance and Distribution.................II-2
Item 26. Recent Sales of Unregistered Securities.....................II-3
Item 27. Index to Exhibits...........................................II-4
Item 28. Undertakings................................................II-5
Signatures..............................................................II-6
II-1
<PAGE> 52
PART II -- INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
It is provided in the Articles of Incorporation of the Company that it
shall indemnify to the fullest extent permitted by the Oregon Business
Corporation Act any person who is made, or threatened to be made, a party to any
action, suit or proceeding, whether civil, criminal, administrative,
investigative, or otherwise (including an action, suit or proceeding by or in
the right of the corporation) by reason of the fact that the person is or was a
director or officer of the corporation or a fiduciary within the meaning of the
Employee Retirement Income Security Act of 1974 with respect to any employee
benefit plan of the corporation, or serves or served at the request of the
corporation as a director or officer, or as a fiduciary of an employee benefit
plan, of another corporation, partnership, joint venture, trust or other
enterprise. The right to and amount of indemnification shall be determined in
accordance with the provisions of the Oregon Business Corporation Act in effect
at the time of the determination.
The Oregon Revised Statutes provides for indemnification where a person who
was or is a party or is threatened to be made a party to any threatened, pending
or contemplated action, suit or proceeding, whether civil, criminal,
administrative or investigative (other than action by or in right of a
corporation), by reason of fact he is or was a Director, Officer, employee or
agent of a corporation or serving another corporation at the request of the
corporation, against expenses (including attorneys' fees), judgments, fines, and
amounts paid in settlement, actually and reasonably incurred by him if he acted
in good faith and in a manner he reasonably believed to be in or not opposed to
the best interest of the corporation and, with respect to criminal action or
proceeding, had no reasonable cause to believe his conduct unlawful. Lack of
good faith is not presumed from settlement or nolo contendere plea.
Indemnification of expenses (including attorneys' fees) is allowed in derivative
actions except in the case of misconduct in performance of duty to the
corporation unless the Court decides indemnification is proper. To the extent
any such person succeeds on the merits or otherwise, he shall be indemnified
against expenses (including attorneys' fees). Determination that the person to
be indemnified met applicable standards of conduct, if not made by the Court, is
made by the Board of Directors by majority vote of quorum consisting of the
Directors not party to such action, suit or proceeding or, if a quorum is not
obtainable or a disinterested quorum so directs, by independent legal counsel or
by the stockholders. Expenses may be paid in advance upon receipt of
undertakings to repay unless it shall ultimately be determined that he is
entitled to be indemnified by the corporation. The Corporation may purchase
indemnity insurance.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the Company
pursuant to the foregoing provisions, or otherwise, the Company has been advised
that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Company of expenses
incurred or paid by a director, officer or controlling person of the Company in
the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Company will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question of whether such indemnification by it is against
public policy as expressed in the Securities Act and will be governed by the
final adjudication of such issue.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the estimated costs and expenses to be borne
by the Company in connection with the offering described in the Registration
Statement.
Registration Fee.........................................$ 597.46
Legal Fees and Expenses.................................. 15,000.00
Accounting Fees and Expenses............................. 3,000.00
Printing and Engraving Expenses.......................... 2,000.00
Blue Sky Fees and Expenses............................... 5,000.00
Transfer Agent's and Registrar's Fees.................... 500.00
Miscellaneous Expenses................................... 8,902.54
Total....................................................$35,000.00
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<PAGE> 53
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.
Set forth below is information regarding the issuance and sales of
securities of the Company without registration under the Securities Act since
May 1, 1993. No sales of securities involved the use of an underwriter and no
commissions were paid in connection with the sale of any securities.
a. In the period May 1993 through October 1993 the Company sold 500,000
units to accredited investors. Each unit was sold at $1.00 per unit and
consisted of 1 share of Common Stock and one warrant to acquire an additional
share of Common Stock at $1.25 per share through August 24, 1994 (extended to
October 31, 1994) and at $1.50 per share through August 24, 1995 (extended to
November 30, 1995 or fifteen days after the effective date of this registration
statement, whichever is later). A total of 169,000 warrants were exercised at
$1.25 per share and 133,200 warrants were exercised at $1.50 per share. The
underlying shares of Common Stock were issued to the warrant holders. The
warrant holders were accredited investors and the issuance of units and Common
Stock was exempt from registration under Regulation D and Section 4(2) of the
Securities Act.
b. During October and December 1994, the Company made a private placement
of 250,000 units at a price of $2.25 with two private investors who were
existing shareholders of the Company. Each unit consists of one share of Common
Stock and one warrant allowing the holder to purchase an additional share of
Common Stock at $2.60 during the first year following the issue date, and at
$3.00 per share during the second year following the issue date. The purchasers
of these units were, in the opinion of management, fully informed with respect
to the financial position, business and prospects of the Company and were
accredited investors. These transactions were exempt from registration under the
Securities Act by reason of Section 4(2) thereof.
c. During the period April 15, 1995 to October 15, 1995, the Company sold
341,000 units at a price of $2.00 per unit. Each unit consisted of one share of
Common Stock and one warrant to acquire an additional share of Common Stock at
$2.00 per share beginning April 15, 1996 through April 15, 1997 or at $2.50 per
share beginning April 16, 1997 through April 15, 1998. The insurance of these
units were exempt under Regulation D and Section 4(2) of the Securities Act.
Each of the foregoing transactions was exempt from registration under the
Securities Act by virtue of the provisions of Section 4(2) and/or 3(b) thereof.
Each purchaser of the securities described above has represented that he
understands that the securities acquired may not be sold or otherwise
transferred absent registration under the Securities Act or the availability of
an exemption from the registration requirements of the Securities Act, and each
certificate evidencing the securities owned by each purchaser bears or will bear
a legend to that effect.
II-3
<PAGE> 54
ITEM 27. EXHIBITS
INDEX TO AND DESCRIPTION OF EXHIBITS
<TABLE>
<CAPTION>
Number Description Page No.
- ------ ----------- --------
<S> <C> <C>
3 ARTICLES OF INCORPORATION AND BY-LAWS
3.1 Articles of Incorporation....................................................................*(1)
3.2 Article of Amendment changing name to
REGI U.S., Inc...............................................................................*(2)
3.3 By-Laws......................................................................................*(1)
4 INSTRUMENTS DEFINING RIGHTS OF SECURITY HOLDERS
4.1 Specimen Share Certificate...................................................................*(1)
4.2 Specimen Warrant Certificate.................................................................*(1)
5 OPINION OF COUNSEL REGARDING LEGALITY
5.1 Opinion of Graham & Dunn......................................................................**
10 MATERIAL CONTRACTS
10.1 Agreement between Brian Cherry, the Company and
Rand Energy Group Inc........................................................................*(1)
10.2 Agreement between the Company and Patrick
Badgley......................................................................................*(1)
10.3 Agreement between the Company and Access
Information Services, Inc....................................................................*(1)
10.4 Agreement between the Company and Reg
Technologies, Inc.............................................................................54
10.5 Agreement between the Company and Integral
Visions Systems, Inc..........................................................................56
10.6 REGI U.S., Inc. KEY EMPLOYEES INCENTIVE STOCK
OPTION PLAN..................................................................................*(3)
23 CONSENT OF EXPERTS AND COUNSEL
23.1 Consent of Elliott Tulk Pryce Anderson .......................................................56
23.2 Consent of Patrick Badgley....................................................................**
23.3 Consent of Graham & Dunn......................................................................**
99 ADDITIONAL EXHIBITS
99.1 Technology Evaluation report on the Rand
Cam/Direct Charge Engine prepared by
Adiabatics, Inc..............................................................................*(1)
</TABLE>
- --------------------
* Previously filed documents.
** To be filed by amendment.
(1) Incorporated by reference from Form 10-SB Registration Statement filed
April 26, 1994.
(2) Incorporated by reference from 10-Q Report for the quarter ended
7-30-94.
(3) Incorporated by reference from Form S-8 Registration Statement dated
April 4, 1995.
II-4
<PAGE> 55
ITEM 28. UNDERTAKINGS
A. The undersigned registrant hereby undertakes;
(1) To file, during any period in which offers or sales are-being
made, a post effective amendment to this registration statement:
(a) To include any prospectus required by Section 10(a) (3) of
the Securities Act of 1933;
(b) To reflect in the prospectus any facts or events which
arising after the effective date of the registration
statement (or the most recent post-effective amendment)
individually or in the aggregate, represent a fundamental
change in the information set forth in the registration
statement; and,
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, as amended, each such post-effective
amendment shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of
such securities at that time shall be deemed to be the initial
bona fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain
unsold at the termination of the offering.
(4) To, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether indemnification by
the registrant of directors, officers and controlling persons
against liabilities in connection with securities being
registered is against public policy as expressed in the
Securities Act of 1934, as amended and will be governed by the
final adjudication of such issue.
II-5
<PAGE> 56
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized in the City of Richmond, Province of
British Columbia on May , 1996.
REGI U.S., Inc.
By:
------------------------------------
John G. Robertson
President and Director
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons on the day
of May, 1996 in the capacities indicated.
Signature Title
--------- -----
(John G. Robertson) President, Chief Executive Officer
- ------------------------------------ and Director
(Brian Cherry) Vice President, Secretary and Director
- ------------------------------------
(Jennifer Lorette) Vice President, Chief Financial Officer
- ------------------------------------
II-6
<PAGE> 1
EXHIBIT 23.1
[Elliott Tulk Pryce Anderson Letterhead]
June 3, 1996
Board of Directors
REGI U.S., Inc.
185 - 10751 Shellbridge Way
Richmond, B.C. V6X 2W8
Dear Ladies and Gentlemen:
RE: REGI U.S., INC.
We consent to the use of our report dated December 7, 1995 on the financial
statements of REGI U.S., Inc., as of April 30, 1995 and the inclusion of our
name under the headings "Selected Financial Data" and "Experts" in the
prospectus.
Yours truly,
ELLIOTT, TULK, PRYCE, ANDERSON
/s/ Don M. Prest, C.A.
Partner
Encl.
