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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_______________________________
FORM 10-KSB
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
THE SECURITIES ACT OF 1934
For the Fiscal Year Ended April 30, 1998
COMMISSION FILE NO. 0-23920
REGI U.S., INC.
(Name of small business issuer as specified in its charter)
OREGON 91-1580146
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
185 - 10751 SHELLBRIDGE WAY
RICHMOND, BRITISH COLUMBIA V6X 2W8, CANADA
(Address, including postal code, of registrant's principal executive offices)
(604) 278-5996
(Telephone number including area code)
Securities registered pursuant to Section 12(b) of the Exchange Act: NONE
Securities registered pursuant to Section 12(g) of the Exchange Act:
Title of each class Name of each Exchange on which registered:
------------------- -----------------------------------------
Common Stock, no par value None
Indicate by check mark whether the issuer (1) filed all reports
required to be filed by Section 13 or 15(d) of the Exchange Act during the past
12 months, and (2) has been subject to such filing requirements for the past 90
days. Yes X
-
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-B is not contained herein and will not be contained, to
the best of registrant's knowledge in definitive proxy or information statements
incorporated by reference in Part III of this form 10-KSB or any amendment to
this Form 10-KSB. X
-
The registrants revenues for its most recent fiscal year were: nil.
The Aggregate market value of the voting stock held by non-affiliates
of the registrant on June 30, 1998, computed by reference to the price at which
the stock was sold on that date: $2,582,485.
The number of shares outstanding of the registrant's Common Stock, no
par value, as of June 30, 1998 was 9,248,300.
Documents incorporated by reference: None
________________________________________________________________________________
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REGI U.S., INC.
FORM 10-KSB
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PART I Page
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<S> <C> <C>
Item 1. Business........................................................... 3
Item 2. Property........................................................... 12
Item 3. Legal Proceedings.................................................. 12
Item 4. Submission of Matters to a Vote of Security Holders................ 12
PART II
Item 5. Market for Common Equity and Related Stockholder Matters........... 13
Item 6. Management's Discussion and Analysis of Financial Condition and
Results of Operations.............................................. 14
Item 7. Financial Statements............................................... 17
Item 8. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure........................................... 29
PART III
Item 9. Directors and Executive Officers of the Registrant; Compliance With
Section 16(a) of the Exchange Act.................................. 30
Item 10. Executive Compensation............................................. 31
Item 11. Security Ownership of Certain Beneficial Owners and Management..... 33
Item 12. Certain Relationships and Related Transactions..................... 34
Item 13. Exhibits and Reports on Form 8-K................................... 36
</TABLE>
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ITEM 1. BUSINESS
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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 ("RAND"), 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, exclusive of the United States,
intellectual and marketing rights to the RC/DC Engine are held by RAND. The
Company holds the rights to develop, build and market the RC/DC Engine design in
the U.S. pursuant to an agreement with RAND. Under a project cost sharing
agreement entered into with RAND 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 become available as a result of the exercise of
warrants and options which are currently outstanding.
PRODUCTS
History
-------
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 RAND. 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 RAND. Reg Tech acquired the 40% voting interest in RAND
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., RAND and James McCann, Reg Tech acquired an additional
330,000 shares (11%) of RAND from Rand Cam Corp. to increase its investment to
51%.
On August 20, 1992, the Company entered in an agreement with RAND 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 RAND 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. RAND'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
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and circumstances existing at the time.
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, RAND, Reg Tech and
Brian Cherry (the "April 1993 Agreement") and made as an amendment to a previous
Amendment Agreement dated November 23, 1992 between RAND, Reg Tech and Brian
Cherry and an original agreement dated July 30, 1992 between RAND, Reg Tech and
Brian Cherry, Cherry agreed to: (a) sell, transfer and assign to RAND worldwide
rights, except for the United States, to all of 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,
together with any improvements, changes or other variations to the Technology;
(b) sell, transfer and assign to the Company United States of America rights to
all of his right, title and interest in and to the Technology, including all
pending and future patent applications in respect of the Technology, together
with any improvements, changes or other variations to the Technology. 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 RAND 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 RAND.
Pursuant to a letter of understanding dated December 13, 1993 among the
Company, RAND and Reg Tech, as grantors, and West Virginia University Research
Corporation ("WVURC"), the grantors agreed that WVURC shall own 5% of all
patented technology relating to the Original Engine and the RC/DC Engine. WVURC
performed extensive analysis and testing on 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.
Diesel Engine
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Reg Tech's heavy duty test fixture is now operational to test the diesel
engine prototype. The tests will include using natural gas and/or propane on
the RC\DC Engine. This will also be used to test other RC\DC Engine
applications such as the air-conditioning compressors and any foreseeable new
development programs. The 100 horsepower electric motor is now operational with
fully variable speeds from 0 - 2000 RPM.
The Company is currently negotiating a joint venture agreement with one of
the largest manufacturers of air-
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conditioning systems to develop and manufacture a working prototype Rand Cam
compressor for air-conditioning systems for buses.
Two prototypes were built by the WVURC to run on gasoline. Testing on
these prototypes suggested that the concept is fundamentally sound and that with
a program of engine review, design, testing and development, a technically
successful range of engines can be developed. The current prototype design for
the diesel engine was designed by a consortium consisting of Alliant Techsystems
(formerly Hercules Aerospace Company) ("Alliant"), WVURC and the Company.
Alliant was involved in the design and development including drawings for the
RC/DC diesel engine. In addition Alliant performed extensive analysis on the
diesel engine including bearings, cooling, leakage, rotor, vanes, housing, vane
tip heating, geometry and combustion. This engine is being designed as a
general purpose power plant for military and commercial applications.
Prototypes of the diesel engine have been assembled and tested.
On OCTOBER 1, 1996, the Company announced the results of tests performed at
----------------
Adiabatics Inc. in Columbus, Indiana (an experienced engine research and testing
company). In general, these results were favorable and led to modifications of
the prototype. Subsequently, the Company reported a successful Diesel Engine
Compression Test in May, 1997.
Motor Scooter Project
---------------------
On JANUARY 6, 1998, the Company announced that the RC\DC Scooter Engine was
----------------
successfully test fired on the new ignition system which was designed by its
engineering team.
The system fired in all chambers on both sides. The positive aspect of
this test is that the ignition system is capable of operating at the demanding
rate of the sixteen combustions per revolution versus the eight combustions for
two revolutions on the existing piston engine used today.
The RC\DC Scooter engine will be a light weight, smooth and quiet running
motor and very inexpensive to maintain and manufacture.
Also, the RC\DC Scooter Engine prototype required equipment has been
fabricated and acquired. The RC\DC Scooter Engine will weigh approximately 15-
20 pounds and generate 20 HP. The Company has received inquiries from
manufacturers regarding the possibility of including the Motor Scooter Engine in
lightweight and inexpensive vehicles. There is no assurance, however, that the
Company will enter into an agreement with anyone to manufacture the Motor
Scooter engine.
Compressor Prototype
--------------------
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. In April,
1997, the Company announced that the phase I aluminum compressor was rebuilt to
have "Skates" introduced to guide the vanes through the pin track and to have
vane seals to insure sealing during expansion of the housing. Tests at 2500 RPM
at a pressure of 160 psi indicated that all parts were in excellent condition.
Additional tests involving higher RPM will be conducted at the ETL facilities.
Air\Vapor Flow System
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In JUNE 1997, the Company announced that it had reached an agreement with
John Weston ("Weston") to acquire the US rights to his invention, the Air/Vapor
Flow System (the "AVFS"). The objective of this invention is to reduce harmful
carbon monoxide emissions by eliminating unburned liquid fuel in the exhaust.
Weston was paid $50,000 plus 200,000 shares of the Company. In December 1997 the
Company acquired the worldwide rights (exclusive of Canada) to the AVFS for a
subsequent payment of $36,500 plus an additional 200,000 shares. The Company
agreed to pay to Weston 8.5% of net sales derived from the AVFS together with a
minimum annual royalty of $24,000 per year beginning October 1, 1997, payable
quarterly.
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On SEPTEMBER 2, 1997, the Company announced that test results for the AVFS
reduced hydrocarbon emissions by 75% and carbon monoxide by over 50% compared to
a standard carburetor.
The AVFS is capable of reducing the hydrocarbon and carbon monoxide
emissions produced by internal combustion engines by more than 50%. The AVFS
provides the engine with vaporized fuel rather than liquid gasoline, causing it
to run cleaner. The system runs without a carburetor, fuel injector or fuel
pump.
The latest tests show that the AVFS permits gasoline engines to run much
cleaner, significantly reducing hydrocarbon and carbon monoxide pollution. In
addition, the AVFS is relatively simple to manufacture. The Company believes it
is capable of taking it to the mass production stage in about a year.
First applications will be in the area of small internal combustion engines
powering lawn mowers, weed eaters, and similar devices. Such engines are a
major source of air pollution created by excess exhaust emissions. Future
applications will be in the area of internal combustion engines powering
automobiles, trucks and buses.
A series of tests on the AVFS was run by Adiabatics, Inc. on August 26,
1997. The AVFS provided vaporized fuel to a Kawasaki GA 1400A Portable
Generator Set. Emissions were measured by a complete emissions cart containing
Beckman test equipment.
In half the tests, the Kawasaki engine was provided liquid gasoline by a
conventional carburetor. In the other half, the AVFS replaced the carburetor.
All other facts were kept equal. The generator was first run equipped with the
standard carburetor at idle and at a fixed high load using light bulbs to load
the generator and reading the voltage and current delivered by the generator.
Fuel consumption was measured by using a calibrated pipette directly feeding the
carburetor inlet. Exhaust emissions were collected using a heated sample line
running to the Beckman emission cart. Tests were repeated using the AVFS.
Test results are shown in the following table:
<TABLE>
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HC(ppm) CO(ppm) CO\\2\\(%) O\\2\\(%) NO\\x\\(ppm)
<S> <C> <C> <C> <C> <C>
CARBURETOR
No Load less than 40 greater than 6000 7.61 5.2 44.6
No Load less than 40 greater than 6000 7.82 5.1 48.2
1190 Watts 7742 greater than 6000 8.89 3.9 127.8
1190 Watts 6332 greater than 6000 8.97 3.8 134.3
FUEL CELL
No Load less than 40 5526 9.18 8.8 24.9
No Load less than 40 5147 8.96 9.1 27.3
1190 Watts 2536 5934 12.58 2.7 942.5
1190 Watts 1992 2766 12.47 4.4 932.5
1190 Watts 1716 2448 12.3 3.1 855
1190 Watts 1432 2512 11.5 5.1 610
</TABLE>
On MARCH 12, 1998, the Company announced the following test results as
---------------
reported by Patrick Badgley.
The latest round of AVFS testing on the 10 horsepower Tecumseh engine has
been completed by Adiabatics, Inc. The following is a summary of the latest
test data where the power output is the same for the AVFS
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and the standard carburetor fuel system:
<TABLE>
<CAPTION>
Head Temp Exh. Temp CO2 HC NOX O2 Load Fuel Flow BSFC
(deg F) (deg F)
(%) PPM (ppm) (%) (in-lbs) (lbs/hr) (lbs/hp/hr)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Stock AVFS 258 1074 10.62 131 34.2 0.55 177 5.00 0.636
269 1096 9.14 66 27.6 0.72 177 4.92 0.625
% Change 4.3 2 -14 -49.6 -19.3 30.9 -1.6 -1.6
</TABLE>
. HYDROCARBONS WERE CUT IN HALF with the AVFS
. OXIDES OF NITROGEN WERE REDUCED BY ABOUT 20 PERCENT
. Fuel Consumption was improved
Automotive manufacturers may also consider the AVFS technology because of the
following:
. May be an answer to one of the worlds most serious pollution problems
. Is simple and inexpensive to manufacture, replace and maintain
. Is easily retrofitted on today's internal combustion engines
. Could result in manufacturing cost savings for internal combustion
engines
. Could lengthen the life of an internal combustion engine
Oil Pump Project
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On NOVEMBER 20, 1997, the Company announced that Ford Motor Company has
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approved a budget for developing a program to test and build a Rand Cam oil pump
prototype for their new automotive transmission.
On JUNE 1, 1998, the Company announced that the design of the special
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transmission oil pump for automobiles is now completed for prototype fabrication
and testing has commenced
The major advantages of the Rand Cam design are the small size, ability to
have multiple pressures in one pump and being able to turn off one half of the
pump when a predetermined RPM has been achieved to save on fuel consumption.
Large Diesel Engine
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Discussions with a major utility customer for large RC\DC Engines for power
generation are progressing favorably. A special large RC\DC Diesel Engine has
been designed for these applications along with existing technologies. Quoting
from an internal memorandum prepared by this customer "typically recent
improvements in these generators fuel cells, microturbines, piston type internal
combustion engines tend to be continuous and incremental with each advance
becoming more challenging as fundamental design limitations are approached. The
RC\DC rotary engine presently under advanced development is a total departure
from conventional internal combustion engine design and does not face these
fundamental limitations. In my opinion RC\DC powered generators will shortly
establish a new and significantly higher benchmark of overall performance and
cost".
Other Products
--------------
Discussions with a company that exports small power generation systems are
progressing with a new air cooled RC\DC diesel engine design.
Discussions with a manufacturer of heavy duty vehicular air-conditioning
systems are underway.
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Initial discussions are underway for a special pump for an aerospace
application with a major aerospace equipment manufacturer.
Testing is continuing at Adiabatics, Inc. on the 10 horsepower Tecumseh
engine. All of the testing to date has shown an improvement in fuel economy of
twenty to thirty percent. Emission testing is currently underway.
RISK FACTORS
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 that 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. The two prototypes are being used as demonstrators to prove that the
Technology works and can be used in other engines. For example Alliant looked
at all engine applications for the RC/DC Engine. Based on the market potential,
the RC\DC Engine 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 Company's
strategy is to develop engines and compressors for low to medium horsepower
applications, then apply the Technology to larger applications. The Company
plans to then license the Technology or enter into joint venture arrangements
for other specific applications. The licensee or joint venture partners will
then provide funding for research and development of the specific applications.
A "Technology Evaluation" report was prepared on the RC/DC Engine dated May
19, 1993 by Patrick R. Badgley formerly 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.
ROYALTY PAYMENTS
The August 1992 Agreement calls for the Company to pay semi-annually to
RAND 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 August
1992 Agreement also calls for the Company to pay semi-annually to Brian Cherry a
royalty of 1% of any net profits to be derived by the Company from revenue
received as a result of its licensing of the Original Engine.
Other provisions of the April 1993 Agreement call for the Company (a) to
pay to RAND 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.
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Pursuant to the letter of understanding dated December 13, 1993 among the
Company, RAND, Reg Tech and WVURC, WVURC 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.
No royalties are to be paid to Alliant or Adiabatics, Inc.
Pursuant to its agreement with Weston, the Company agreed to pay to Weston
8.5% of net sales derived from the AVFS together with a minimum annual royalty
of $24,000 per year beginning October 1, 1997, payable quarterly.
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. Within six months of successful testing of the
prototypes, the Company expects to have joint venture or license agreements
finalized. These would result in royalties to the Company. However, there is
no assurance that the tests will be successful and that the Company will ever
receive any such royalties.
The following marketing activities are all currently underway.
. LARGE ELECTRICAL POWER GENERATION - Discussions with a major utility
customer for large RC\DC engines for power generation are continuing.
This potential customer is asking for answers to specific questions
concerning comparisons to existing reciprocating engine generator sets
in the area of emissions and fuel consumption. These answers are being
prepared by Patrick Badgley.
. AIR CONDITIONING COMPRESSOR - Discussions with a manufacturer of heavy-
duty vehicular air conditioning systems are continuing. The Company will
be presenting them with a compressor proposal as well as exploring the
possibility of having them manufacture other RC\DC Engines as a
manufacturing partner.
. PUMP - The design of the special transmission oil pump for Ford Motor
Company is proceeding with a manufacturing "stack-up" being performed by
Ford engineers. Prototype manufacturing is expected to completed shortly
at which point it will be delivered to Ford for their testing.
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RESEARCH AND DEVELOPMENT
The basic research and development work on the RC/DC Engine is being
coordinated and funded by Reg Tech and funded as to 50%.
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.
Development work on the application of the RC\DC engine design in
automobile air conditioner compressors is being completed by Aerotech Driveline,
a design firm in Detroit, Michigan under 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 RAND.
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.
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
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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 and RAND.
Until such time as the Company is able to obtain revenues from licensing
production rights to the RC\DC Engine or from some related activities it will
most likely need to rely on additional equity capital or debt capital, if
available. RAND and Reg Tech will jointly provide the necessary funds for the
development of the RC/DC Diesel Engine prototype and the other operations of the
Company until joint venture or license agreements can be completed.
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. RAND has
agreed to sell sufficient shares of Common Stock, under Rule 144, as necessary
to fund the operations of the Company.
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, 1999.
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 two full-time contractors 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.
11
<PAGE>
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.
ITEM 2. PROPERTY
- ------- --------
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 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. From this office, Mr. Badgley oversees and controls
development and testing of the engine prototypes. Mr. Badgley has also designed
several important improvements to the RC/DC Engine for which patent applications
are pending.
ITEM 3. 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.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- ------- ---------------------------------------------------
No matters were submitted to a vote by the Company's security holders
during the fourth quarter of its fiscal year ended April 30, 1998.
12
<PAGE>
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
- ------- --------------------------------------------------------
There is a limited public market for the Common Stock of the Company which
currently trades on the OTC Bulletin Board under the symbol "RGUS" where it has
been traded since September 21, 1994. The Common Stock has traded between $.75
and $6.75 per share since that date.
The following table sets forth the high and low prices for the Company's
Common Stock as 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 31, 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
Quarter ended July 31, 1996 $ 4.00 $ 3.37 $ 4.37 $ 3.56
Quarter ended October 31, 1996 $ 3.37 $ 1.62 $ 3.56 $ 1.73
Quarter ended January 31, 1997 $ 2.06 $ 1.43 $ 2.18 $ 1.62
Quarter ended April 30, 1997 $ 1.87 $ 0.75 $ 1.93 $ 0.93
Quarter ended January 31, 1998 $ 1.812 $ .937 $ 1.968 $ 1.093
Quarter ended April 30, 1998 $ 1.531 $ 1.00 $ 1.656 $ 1.125
</TABLE>
As of June 30, 1998, there were 9,248,300 shares of Common Stock outstanding,
held by 161 shareholders of record.
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.
UNREGISTERED SECURITIES ISSUED OR SOLD WITHIN ONE YEAR.
In June 1997, the Company sold, in a private placement, 35,000 shares of
Common Stock at a price of $1.00 per share to 2 accredited investors. These
transactions were exempt from registration under the Act by reason of Section
4(2) thereof and Rule 505 of Regulation D. Each certificate representing shares
issued to the investors in this private placement bears a legend restricting
transfer.
In December 1997, the Company sold, in a private placement, $10,000 in
aggregate principal amount of its 8
13
<PAGE>
3/4% of Convertible Debentures due June 15, 2000. Each Debenture is convertible
into Common Stock of the Company at any time at or prior to maturity at a
conversion price of $1.25 per share up to June 15, 1998; at $1.50 from June 16,
1998 to June 15. 1999, and at $1.75 from June 16, 1999 to June 15, 2000. In the
event the shares of Common Stock are trading below $2.00 per share any
consecutive ten trading day period during the period May 15, 2000 to June 15,
2000, the conversion price on June 15, 2000 shall be 80% of the average closing
bid price of Common Stock over said ten day trading period to 2 accredited
investors. These transactions were exempt from registration under the Act by
reason of Section 4(2) thereof and Rule 506 of Regulation D. Each certificate
representing debentures issued to the investors in this private placement bears
a legend restricting transfer.
In December 1997, the Company sold, in a private placement, 480,000 Units
at a price of $1.00 per Units to 13 accredited investors. Each Unit consists of
one share of Common Stock and one Warrant allowing the holder to purchase an
additional share of Common Stock at $1.00 during the first year following the
issue date, and $1.25 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.
These transactions were exempt from registration under the Act by reason of
Section 4(2) thereof and Rule 506 of Regulation D. Each certificate
representing securities issued to the investors in this private placement bears
a legend restricting transfer.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
- ------- ---------------------------------------------------------------
RESULTS OF OPERATIONS
---------------------
Management's Discussion
- -----------------------
The Company was incorporated in the State of Oregon, on July 27, 1992 and is
in the business of developing and commercially exploiting an improved axial vane
type rotary engine known as the RC\DC, which is a variation of the Original
Engine. The world-wide marketing and intellectual rights, other than the U.S.,
are held by Rand 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 RC\DC Engine and
RAND will fund 50%.
The Company has the world-wide marketing and intellectual rights, other than
Canada, to the AVFS.
In a development stage company, management devotes most of its activities to
establishing a new business. Planned principal activities have not yet produced
significant revenue. The ability of the Company to emerge from the development
stage with respect to its planned principal business activity is dependent upon
its successful efforts to raise additional equity financing and develop the
market for its products.
Progress Report from May 1, 1997 to April 30, 1998
- --------------------------------------------------
On MAY 22, 1997, the Company announced that a successful RC\DC Diesel
-------------
Engine Compressor Test was completed.
This test gave 45 PSI at 450 RPM and 75 PSI at 700 RPM. The total motoring
time was approximately 1 1/2 hours. This gave the engine time to warm up to
approximately 125 degrees. All parts in the engine were stable before and after
the test.
The next step is to further seal the combustion chamber. At that time the
Company will decide whether to start the engine on gasoline or continue to
tighten-up the combustion chamber to reach the required amount of compression to
run on diesel which is 140 PSI and up. This will take approximately 2 1/2 weeks
to complete.
On NOVEMBER 3, 1997, the Company announced that testing on the RC\DC Diesel
----------------
Engine recommenced after several modifications.
. 145 PSI was achieved which should be sufficient compression to fire up the
diesel.
. the addition of a super charger to increase the compression.
. The hardware components are in excellent condition.
The compression will be increased by properly adjusting the pre-design
spacers at which time testing will resume on the RC\DC Diesel Engine.
14
<PAGE>
On NOVEMBER 20, 1997, the Company announced that Ford Motor Company had
-----------------
approved a budget for developing a program to test and build a Rand Cam oil pump
prototype for their new automotive transmission.
The Company's engineer, Paul Lamarche, received the specifications from
Ford to fabricate a transmission oil pump to test the efficiency of the Rand Cam
cycle.
On JANUARY 6, 1998, the Company announced that the RC\DC Scooter Engine was
---------------
successfully test fired on the new ignition system, which was designed by the
Company's engineering team. The system fired in all chambers on both sides. The
positive aspect is that the ignition system was capable of operating at the
demand rate of the sixteen combustions per revolution versus the eight
combustions for two revolutions on the existing piston engine. The RC\DC Scooter
Engine will be a lightweight, smooth and quiet running motor and very
inexpensive to maintain and manufacture.
In JUNE 1997, the Company announced that it had reached an agreement with
----------
John Weston ("Weston") to acquire the US rights to his invention, the Air/Vapor
Flow System (the "AVFS"). The objective of this invention is to reduce harmful
carbon monoxide emissions by eliminating unburned liquid fuel in the exhaust.
Weston was paid $50,000 plus 200,000 shares of the Company. In December 1997 the
Company acquired the worldwide rights (exclusive of Canada) to the AVFS for a
subsequent payment of $36,500 plus an additional 200,000 shares. The Company
agreed to pay to Weston 8.5% of net sales derived from the AVFS together with a
minimum annual royalty of $24,000 per year beginning October 1, 1997, payable
quarterly.
On SEPTEMBER 2, 1997, the Company announced that the latest test results
-----------------
for the AVFS reduced hydrocarbon (HC) emissions by 75% and carbon monoxide (CO)
by more than 50% compared to a standard carburetor.
The AVFS can reduce hydrocarbon and carbon monoxide emissions produced by
internal combustion engines by more than 50%. The device provides the engine
with vaporized fuel rather than liquid gasoline, causing it to run cleaner. The
system runs without a carburetor, fuel injector or fuel pump.
The latest tests show that the AVFS technology permits gasoline engines to
run much cleaner, significantly reducing hydrocarbon and carbon monoxide
pollution. In addition, the AVFS is relatively simple to manufacture. The
Company believes that it is capable of taking it to the mass production stage
within a year.
First applications will be in the area of small internal combustion engines
powering lawn mowers, weed eaters, and similar devices. Such engines are a major
source of air pollution created by excess exhaust emissions. Future applications
will be in the area of internal combustion engines powering automobiles, trucks
and buses.
On NOVEMBER 21, 1997, the Company announced the latest results for the
-----------------
AVFS. The device consistently showed significant advantages over a conventional
fuel system in closely controlled tests.
In tests conducted using a Kawasaki 1400 Watt, single cylinder, four-cycle
electrical generator engine, the AVFS reduced hydrocarbons (HC) up to 74%,
reduced carbon monoxide (CO) up to 44% and reduced fuel consumption by as much
as 30% according to Badgley. Tests were conducted at Adiabatics, Inc., a
Columbus, IN based advanced engine research facility.
The Company expects that automotive manufacturers will also consider the
technology as well because the AVFS:
. May be an answer to one of the worlds most serious pollution problems.
. Is simple and inexpensive to manufacture, replace and maintain.
. Is easily retrofitted on today's internal combustion engines.
. Could result in manufacturing cost savings for internal combustion engines.
. Could lengthen the life of an internal combustion engine.
The Company offered a three year, 8 3/4% interest, convertible debenture to
raise $500,000, of which $50,000 was raised. The 8 3/4% interest is paid
annually and the debenture is convertible into common shares at $1.25, $1.50 and
$1.75 in years one, two and three, respectively. In the event the shares are
trading below $2.00 per share during any consecutive ten trading days during the
last month of the third year, the convertible debenture will be exercisable at
20% below the said ten-day average. The maturity date is June 15, 2000.
The Company has the following warrants outstanding:
(i) A total of 361,000 shares are reserved for the exercise of
warrants at $2.50 per share expiring August 16, 1998 and a total of 434,000
shares are reserved for the exercise of warrants at $1.00 per share
expiring in November, 1998 and $1.25 per share expiring in November, 1999.
(ii) A total of $500,000 has been received pursuant to a private
placement and foreign offering of 500,000 units at $1.00 per unit. Each
unit contained one share and one warrant to acquire one additional share at
$1.00 per share expiring one year after receipt of funds and $1.25 per
share expiring two years after.
15
<PAGE>
Results of operations for fiscal 1998 compared to fiscal 1997
- -------------------------------------------------------------
There were no revenues from product licensing during the years.
The net loss in 1998 increased by $70,000 to $581,000 compared to $510,000 in
1997. The increased net loss in 1998 was due to a $72,000 increase in
administrative expenses. The majority of this increase was due to the issuance
of 125,000 shares at a total deemed value of $170,000 to a financial consulting
firm which was classified under investor relations compared to nil in 1997. All
other investor relations activities amounted to $100,000 in both 1998 and 1997.
Professional fees decreased by $75,000 to $28,000 as compared to $103,000 in
1997. This decrease was due to decreased need for outside legal assistance as
the Company used inside legal assistance. During 1998, research and development
costs remained unchanged at $259,000. Research and development is mainly
conducted by Paul Lamarche, an inside consultant, and Patrick Badgley, Vice
President of Research and Development. Total technical consulting and salaries
decreased by $20,000 because of a reduction in amounts paid to Patrick Badgley.
The Company started working on testing and developing the AVFS during the year
which also included a minimum annual royalty payment of $15,000 to the inventor
of the AVFS compared to nil in 1997.
Liquidity
- ---------
During fiscal 1998, the Company financed its operations mainly through proceeds
from a private placement and foreign offering of 500,000 units at $1.00 per unit
for total proceeds of $500,000. Each unit contained one share and one warrant to
acquire one additional share at $1.00 per share expiring one year after receipt
of funds and $1.25 per share expiring two years after.
The Company received $50,000 from a convertible debenture issue with interest of
8 3/4% paid annually on June 15 and maturing on June 15, 2000. The debentures
are convertible into common shares at $1.25, $1.50, and $1.75 in years one, two
and three respectively.
The Company received $5,000 and issued 50,000 shares at $.10 per share pursuant
to options exercised.
The Company repaid loans owing to the President of the Company and affiliated
companies totaling $7,000.
The Company spent $14,000 on patent protection costs and $86,000 on the rights
to the AVFS. The Company also issued 400,000 shares for the rights (except for
Canada) at a total deemed value of $288,000. The Company spent $4,000 on new
computer equipment. Other non-cash financing and investing activities included
50,000 shares issued to settle $25,000 of debt and 125,000 shares issued at a
deemed value of $170,000 for financial consulting services rendered. The Company
spent $446,000 on administration and research and development, after adjustments
to reconcile net loss to cash.
As at April 30, 1998 the company had cash of $1,000 and current liabilities of
$76,000. The Company plans to raise additional funds through the exercise of
warrants and stock options. Warrants in the amount of 500,000 at $1.00 may be
exercised to net $500,000 and options with respect to 663,000 shares at $1.00
per share may be exercised to net $663,000. The Company also plans to raise
funds through loans from a controlling shareholder (REGI). REGI owns 5,369,700
shares in the Company, worth approximately $5,000,000, and plans to sell shares
as needed to meet ongoing funding requirements of the Company.
16
<PAGE>
ITEM 7. FINANCIAL STATEMENTS
- ------- --------------------
Independent Auditor's Report
Balance Sheets as of April 30, 1998 and 1997
Statements of Operations accumulated from July 27, 1992 (Inception)
to April 30, 1998 and the years ended April 30, 1998 and 1997
Statements of Cash Flows accumulated from July 27, 1992 (Inception)
to April 30, 1998 and the years ended April 30, 1998 and 1997
Statement of Stockholders' Equity accumulated from July 27, 1992
(Inception) to April 30, 1998
Notes to the Financial Statements
17
<PAGE>
Independent Auditor's Report
----------------------------
To the 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, 1998 and 1997 and the related
statements of operations, stockholders' equity and cash flows for the years
ended April 30, 1998 and 1997. 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 audits.
We conducted our audits 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, 1998 and 1997, and the results of its operations
and its cash flows for the years ended April 30, 1998 and 1997, 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 1 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 1. The financial statements do not include
any adjustments that might result from the outcome of this uncertainty.
ELLIOT TULK PRYCE ANDERSON
CHARTERED ACCOUNTANTS
Vancouver, B.C., Canada
July 31, 1998
18
<PAGE>
REGI U.S., Inc.
(A Development Stage Company)
Balance Sheets
April 30, 1998 and 1997
(expressed in U.S. dollars)
<TABLE>
<CAPTION>
1998 1997
$ $
<S> <C> <C>
Assets
Current Asset
Cash 1,169 1,219
Fixed Assets (Note 3) 3,160 3,734
Intangible Assets (Note 4) 420,735 44,007
----------- ----------
425,064 49,020
=========== ==========
Liabilities And Stockholders' Equity (Deficit)
Current Liabilities
Accounts payable 58,277 115,950
Accrued liabilities 14,500 33,500
Due to affiliate 3,003 1,056
Due to officer 371 7,200
----------- ----------
76,151 157,707
----------- ----------
Convertible Debenture (Note 5) 50,000 -
----------- ----------
Commitments and Contingent Liabilities (Note 8)
Stockholders' Equity (Deficit)
Common Stock (Note 6), 20,000,000 shares
authorized without par value; 9,248,300
and 8,123,300 shares issued and
outstanding respectively 3,830,401 2,841,900
Deficit Accumulated During the Development Stage (3,531,488) (2,950,587)
----------- ----------
298,913 (108,687)
----------- ----------
425,064 49,020
=========== ==========
</TABLE>
19
<PAGE>
Statements of Operations
Accumulated from July 27, 1992 (Inception) to April 30, 1998 and
the Years ended April 30, 1998 and 1997
<TABLE>
<CAPTION>
Accumulated 1998 1997
$ $ $
<S> <C> <C> <C>
Revenues - - -
--------- --------- ---------
Administrative Expenses
Bank charges 4,730 1,187 2,525
Foreign exchange 3,160 334 589
Interest on debentures 3,828 3,828 -
Investor relations - advertising 262,365 129,776 9,965
Investor relations - consulting 363,341 134,306 86,561
Office, rent and telephone 86,188 10,669 26,680
Professional fees 258,129 28,477 102,994
Transfer agent and regulatory fees 50,648 13,723 20,003
Travel 6,347 924 609
Less: interest (15,523) (1,766) (678)
--------- --------- ---------
1,023,213 321,458 249,248
--------- --------- ---------
Research and Development Expenses
Intellectual property 257,000 - -
Amortization 34,122 16,444 7,348
Market development 92,782 6,436 -
Professional fees 73,904 - 4,089
Project management 160,000 30,000 30,000
Project overhead 139,139 30,116 35,522
Prototype design and construction 1,189,115 53,428 55,060
Royalties 15,000 15,000 -
Technical consulting 205,606 89,797 58,310
Technical reports 22,120 5,000 1,000
Technical salaries 169,467 - 51,746
Travel 150,020 13,222 17,861
--------- --------- ---------
2,508,275 259,443 260,936
--------- --------- ---------
Net Loss 3,531,488 580,901 510,184
========= ========= =========
Net Loss Per Share (.07) (.06)
========= =========
Weighted Average Shares Outstanding 8,565,000 7,887,000
========= =========
</TABLE>
20
<PAGE>
Statements of Cash Flows
Accumulated from July 27, 1992 (Inception) to April 30, 1998 and
the Years ended April 30, 1998 and 1997
<TABLE>
<CAPTION>
Accumulated 1998 1997
$ $ $
<S> <C> <C> <C>
Cash Flows to Operating Activities
Net loss (3,531,488) (580,901) (510,184)
Adjustments to reconcile net loss to cash
Amortization 34,122 16,444 7,348
Intellectual property 257,000 - -
Shares issued for services 170,250 170,250 -
Change in non-cash working capital items
Increase (decrease) in accounts payable and accrued liabilities 97,779 (51,672) 74,382
---------- -------- --------
Net Cash Used by Operating Activities (2,972,337) (445,879) (428,454)
---------- -------- --------
Cash Flows from Financing Activities
Increase in shares issued 3,289,900 505,000 549,300
Increase in convertible debenture 50,000 50,000 -
Decrease in due to affiliate (196,997) 1,947 (115,694)
Increase in loan from an officer 371 (6,829) 7,200
---------- -------- --------
Net Cash Provided by Financing Activities 3,143,274 550,118 440,806
---------- -------- --------
Cash Flows to Investing Activities
(Increase) in computer equipment (19,495) (3,447) -
(Increase) in patents (63,773) (14,342) (13,901)
(Increase) in intellectual property (86,500) (86,500) -
---------- -------- --------
Net Cash (Used) Provided by Investing Activities (169,768) (104,289) (13,901)
---------- -------- --------
Increase (decrease) in cash 1,169 (50) (1,549)
Cash - beginning of period - 1,219 2,768
---------- -------- --------
Cash - end of period 1,169 1,169 1,219
========== ======== ========
Non-Cash Financing Activities
Deemed value of affiliate shares issued for
intellectual property 200,000 - -
125,000 shares issued pursuant to performance
stock agreements for investor relations services
at a deemed value of $1.362 per share 170,250 170,250 -
5,700,000 shares issued for intellectual
property at $0.01 per share 57,000 - -
50,000 shares issued to settle debt for services
at $0.50 per share 25,000 25,000 -
400,000 shares issued for intellectual property
at a deemed value of $0.72 per share 288,251 288,251 -
---------- -------- --------
</TABLE>
21
<PAGE>
<TABLE>
<S> <C> <C> <C>
740,501 483,501 -
========== ======== ========
Supplemental Disclosures
Interest paid 3,828 -
Income tax paid - -
</TABLE>
22
<PAGE>
REGI U.S., Inc.
(A Development Stage Company)
Statements of Stockholders' Equity
From July 27, 1992 (Inception) to April 30, 1998
(expressed in U.S. dollars)
<TABLE>
<CAPTION>
Deficit
Accumulated
During the
Common Stock Development
Shares Amount Stage
# $ $
<S> <C> <C> <C>
Balance - July 27, 1992 (inception) - - -
Stock issued for intellectual property at
$0.01 per share 5,700,000 57,000 -
Stock issued for cash at $0.01 per
share 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 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 at $0.10 per share 10,000 1,000 -
a private placement of shares issued at
$2.25 per share 250,000 562,500 -
warrants exercised at $1.25 per share 169,200 211,500 -
warrants exercised at $1.50 per share 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)
Stock issued for cash pursuant to
options exercised at $0.10 per share 200,500 20,050 -
--------- --------- ----------
Carry forward balance 7,130,700 1,356,550 (1,643,498)
--------- --------- ----------
</TABLE>
23
<PAGE>
Statements of Stockholders' Equity
From July 27, 1992 (Inception) to April 30, 1998
<TABLE>
<CAPTION>
Deficit
Accumulated
During the
Common Stock Development
Shares Amount Stage
# $ $
<S> <C> <C> <C>
Balance carried forward 7,130,700 1,356,550 (1,643,498)
options exercised at $1.00 per share 17,000 17,000 -
options exercised at $2.75 per share 5,000 13,750 -
options exercised at $2.50 per share 10,000 25,000 -
warrants exercised at $1.50 per share 132,200 198,300 -
a private offering memorandum at
$2.00 per share 341,000 682,000 -
Net loss for the year ended April 30, 1996 - - (796,905)
--------- --------- ----------
Balance - April 30, 1996 7,635,900 2,292,600 (2,440,403)
stock issued for cash pursuant to
options exercised at $0.10 per share 137,000 13,700 -
warrants exercised at $1.50 per share 185,400 278,100 -
a private placement at $2.00 per share 20,000 40,000 -
a private placement at $1.50 per share 145,000 217,500 -
Net loss for the year ended April 30, 1997 - - (510,184)
--------- --------- ----------
Balance- April 30, 1997 8,123,300 2,841,900 (2,950,587)
stock issued for cash pursuant to
options exercised at $0.10 per share 50,000 5,000 -
stock issued for acquisition of AVFS rights
at a deemed value of $0.72 per share 400,000 288,251 -
stock issued for investor relations services
pursuant to a performance stock plan
issued at a deemed value of $1.362 per share 125,000 170,250 -
stock issued for cash pursuant to a
units offering at $1.00 per unit 500,000 500,000 -
stock issued to settle an accrued liability
at a deemed value of $0.50 per share 50,000 25,000 -
Net loss for the year ended April 30, 1998 - - (580,901)
--------- --------- ----------
9,248,300 3,830,401 (3,531,488)
========= ========= ==========
</TABLE>
24
<PAGE>
Notes to the Financial Statements
April 30, 1998 and 1997
1. Development Stage Company
REGI U.S., Inc. herein ("the Company") was incorporated in the State of
Oregon, U.S.A. on July 27, 1992.
The Company is a development stage company engaged in the business of
developing and commercially exploiting an improved axial vane type rotary
engine known as the Rand Cam/Direct Charge Engine ("The RC/DC 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, whereby it will fund 50% of the further development of the RC/DC
Engine and REGI will fund 50%.
The Company acquired the world-wide marketing and intellectual rights, other
than Canada, to the Air/Vapor Flow System ("AVFS"). See Note 4(d).
In a development stage company, management devotes most of its activities to
establishing a new business. Planned principal activities have not yet
produced significant revenues. The ability of the Company to emerge from the
development stage with respect to its planned principal business activity is
dependent upon its successful efforts to raise additional equity financing and
develop the market for its products.
The Company plans to raise additional funds through the exercise of warrants
and stock options. Warrants with respect to 500,000 shares at $1.00 per share
may be exercised to net $500,000 and options with respect to 663,000 shares at
$1.00 per share may be exercised to net $663,000. The Company also plans to
raise funds through loans from a controlling shareholder (REGI). REGI owns
approximately 5,000,000 shares in the Company and plans to sell shares as
needed to meet ongoing funding requirements of the Company.
2. Summary of Significant Accounting Policies
(a) Fixed Assets
Computer equipment is amortized over 3 years on a straight-line basis.
(b) Intangible Assets
Costs to register and protect patents and to acquire rights are
capitalized as incurred. These costs are being amortized on a straight
line basis over 20 years or written off completely should the RC/DC
Engine or AVFS be determined by management not to be commercially viable.
(c) 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.
(d) 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.
(e) 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.
2. Summary of Significant Accounting Policies (continued)
(f) Use of Estimates
25
<PAGE>
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the periods. Actual results could differ from those
estimates.
(g) Tax Accounting
Potential benefits of income tax losses are not recognized in the
accounts until realization is more likely than not. Research and
development costs are deducted in the year incurred and added to net
operating loss.
The Company has adopted Statement of Financial Accounting Standards No.
109 ("SFAS 109") as of its inception. The Company has incurred net
operating losses as scheduled below:
<TABLE>
<CAPTION>
Year of Loss Amount Year of
$ Expiration
<S> <C> <C>
1993 23,000 2008
1994 393,000 2009
1995 1,007,000 2010
1996 792,000 2011
1997 521,000 2012
1998 609,000 2013
</TABLE>
Pursuant to SFAS 109 the Company is required to compute tax asset
benefits for net operating losses carried forward. Potential benefit of
net operating losses have not been recognized in these financial
statements because the Company cannot be assured it is more likely than
not it will utilize the net operating losses carried forward in future
years.
The components of the net deferred tax asset at the end of April 30, 1998
and 1997, and the statutory tax rate, the effective tax rate and the
elected amount of the valuation allowance are scheduled below:
<TABLE>
<CAPTION>
1998 1997
$ $
<S> <C> <C>
Net Operating Loss 609,000 521,000
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 207,000 177,000
Valuation Allowance (207,000) (177,000)
-------- --------
Net Deferred Tax Asset - -
======== ========
</TABLE>
3. Fixed Assets
<TABLE>
<CAPTION>
1998 1997
Accumulated Net Book Net Book
Cost Amortization Value Value
$ $ $ $
<S> <C> <C> <C> <C>
Computer equipment 19,495 16,335 3,160 3,734
====== ====== ===== =====
</TABLE>
26
<PAGE>
4. Intangible Assets
<TABLE>
<CAPTION>
1998 1997
Accumulated Net Book Net Book
Cost Amortization Value Value
$ $ $ $
<S> <C> <C> <C> <C>
Patents - RC/DC Engine 62,624 8,390 54,234 44,007
Patents - AVFS 1,148 - 1,148 -
AVFS rights ((d) below) 374,751 9,397 365,354 -
------- ------ ------- ------
438,523 17,787 420,736 44,007
======= ====== ======= ======
</TABLE>
(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 RC/DC 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, licenses, royalties or income derived from the
patented technology.
(d) On June 22, 1997 the Company acquired the U.S. rights to an Air/Vapor Flow
System "AVFS". The Company paid $50,000 and 200,000 shares at a deemed
value of $154,665. The Company will pay to the inventor 8.5% on net sales
derived from the AVFS. On December 31, 1997, the Company acquired the
world-wide rights (except Canada) to the AVFS by paying $36,500 and
issuing a further 200,000 shares at a deemed value of $133,586. The
inventor will also receive a minimum annual royalty of $24,000 per year
beginning October 1, 1997, payable quarterly.
5. Convertible Debenture
The Company offered a three year, 8 3/4% interest, convertible debenture to
raise $500,000, of which $50,000 was raised. The 8 3/4% interest is paid
annually and the debenture is convertible into common shares at $1.25, $1.50
and $1.75 in years one, two and three, respectively. In the event the shares
are trading below $2.00 per share during any consecutive ten trading days
during the last month of the third year, the convertible debenture will be
exercisable at 20% below the said ten-day average. The maturity date is June
15, 2000.
6. Common Stock
(a) Warrants outstanding
(i) A total of 361,000 shares are reserved for the exercise of warrants
at $2.50 per share expiring August 16, 1998 and a total of 434,000
shares are reserved for the exercise of warrants at $1.00 per share
expiring in November, 1998 and $1.25 per share expiring in
November, 1999.
(ii) A total of $500,000 has been received pursuant to a private
placement and foreign offering of 500,000 units at $1.00 per unit.
Each unit contained one share and one warrant to acquire one
additional share at $1.00 per share expiring one year after receipt
of funds and $1.25 per share expiring two years after.
27
<PAGE>
(b) Stock Option Plan
The Company has a Stock Option Plan to issue up to 1,000,000 shares to
certain key directors and employees, approved April 30, 1993 and amended
March 30, 1995. On March 30, 1995 the Company registered the 1,000,000
shares for issuance under the Stock Option Plan which was amended November
1, 1996. Pursuant to the Plan the Company has granted stock options to
certain directors and employees. The options are granted for services
provided or to be provided to the Company. Statement of Financial
Accounting Standards No. 123 ("SFAS 123") requires that an enterprise
recognize, or at its option, disclose, the impact of the fair value of
stock options and other forms of stock based compensation in the
determination of income. The Company has elected under SFAS 123 to continue
to measure compensation cost on the intrinsic value basis set out in APB
Opinion No. 25. As options are granted at exercise prices based on the
market price of the Company's shares at the date of grant, no intrinsic
value adjustment is required.
<TABLE>
<CAPTION>
April 30, Price Granted during Lapsed (L) April 30, Expiry
1997 $ the year Exercised (E) 1998 Date
# # # #
<S> <C> <C> <C> <C> <C>
50,000 0.10 - 50,000 (E) -
178,000 1.00 - 43,000 (L) 135,000 October 29, 1998
30,000 1.00 - 30,000 (L) - September 15, 1997
75,000 1.00 - - 75,000 February 9, 1999
5,000 1.00 - - 5,000 October 29, 1999
5,000 1.00 - - 5,000 September 8, 2000
350,000 1.00 - - 350,000 January 3, 2001
- 1.00 100,000 - 100,000 June 26, 2002
------- ------- ------- -------
693,000 100,000 123,000 670,000
======= ======= ======= =======
</TABLE>
(c) Performance Stock Plan
The Company has allotted 1,000,000 shares to be issued pursuant to a
Performance Stock Plan approved and registered on June 27, 1997.
Compensation is recorded when the shares are issued at their then fair
market value. The Company has issued 200,000 shares for the AVFS rights and
125,000 shares for financial consulting services.
7. Related Party Transactions
The following amounts were paid to officers and directors or companies under
their control at their exchange amounts.
(a) A project management fee of $30,000 (1997 - $30,000) was paid to a
company controlled by the President of the Company and is included in
research and development expenses.
(b) Rent of $6,000 (1997 - $6,000) was paid to a company controlled by the
President of the Company and is included in research and development
expenses.
(c) A technical consulting fee of $33,000 (1997 - $51,746) was paid to the
Vice President of Research and Development and is included in research
and development expenses.
(d) An administrative fee of $6,000 (1997 - $6,000) was paid to the Vice
President of Administration and is included in research and development
expenses.
(e) The amounts owing to an officer and affiliate are unsecured, non-interest
bearing and have no fixed terms of repayment.
8. Commitments and Contingent Liabilities
(a) See Note 4 for royalty commitments in connection with the RC/DC Engine
and the AVFS.
28
<PAGE>
(b) The Company is committed to pay project management fees and rent totaling
$36,000 per annum to a Company controlled by the President of the
Company.
(c) See Note 6 for commitments to issue shares.
(d) The Company is committed to fund 50% of the further development of the
RC/DC Engine.
(e) See Note 1 for going concern considerations.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
- ------- ---------------------------------------------------------------
FINANCIAL DISCLOSURE
- --------------------
None.
29
<PAGE>
PART III
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT; COMPLIANCE WITH
- ------- -------------------------------------------------------------------
SECTION 16 (a) OF THE EXCHANGE ACT.
-----------------------------------
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, 1996, 1997 and 1998.
<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
John G. Robertson 57 Chairman of the Board and President
Brian Cherry 58 Vice President, Secretary and Director
Patrick R. Badgley 55 Vice President, Research and Development
Jennifer Lorette 26 Vice President and Chief Financial Officer
</TABLE>
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 such 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 has been the Chairman, President and Chief Executive Officer
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 trading on the Vancouver Stock Exchange
involved in gold, diamond, and oil and gas exploration. 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 public company
trading on the Alberta stock Exchange with interests in oil and gas and gold
prospects, and President of IAS Communications, Inc., which is developing a new
type of antenna system.
BRIAN CHERRY has been Vice President, 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. Mr. Cherry has made significant
contributions to the improved design of the Original Engine and the development
of the RC/DC Engine. He 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 been a director of Reg Tech, which initially
financed the research and development for the RC\DC 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 was 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 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
30
<PAGE>
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 and officer of IAS
Communications Inc.
JENNIFER H. LORETTE has been 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. 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 public company with interests in oil, diamonds, gas and gold prospects.
Between October 1990 and July 1992, Ms. Lorette was employed by Nickels Custom
Cabinets.
ITEM 10. 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 1998 -0- -0- -0- -0-
President, Chief 1997 -0- -0- -0- -0-
Executive Officer 1996 -0- -0- -0- 300,000
Brian Cherry 1998 -0- -0- -0- -0-
Vice President and 1997 -0- -0- -0- 125,000
Director 1996 -0- -0- -0- -0-
Patrick Badgley 1998 -0- -0- $33,000 75,000
Vice President 1997 $46,200 -0- -0- -0-
1996 $46,200 -0- -0- -0-
Jennifer Lorette, 1998 $ 6,000 -0- -0- -0-
Vice President 1997 $ 6,000 -0- -0- -0-
1996 $ 6,000 -0- -0- 60,000
</TABLE>
_____________________
(1) Represents options granted under the Company's 1993 Key Employees Incentive
Stock Option Plan.
No other significant compensation has been paid directly or accrued to
any other officer or director of the Company during the year ended April 1998.
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. 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
deter-
31
<PAGE>
mined 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 2,000,000 shares of Common
Stock of the Company to be issued to employees. As of April 30, 1998, the
Company had outstanding options for 670,000 shares.
OPTION GRANTS IN LAST FISCAL YEAR
A grant of the stock option for 50,000 shares at $1 per share, to expire on
June 26, 2002, was made to Brian Cherry, a Vice President and Director of the
Company.
STOCK OPTIONS EXERCISED IN LAST FISCAL YEAR AND HELD AT END OF FISCAL YEAR -
APRIL 30, 1998
The following table sets forth certain information with respect to options
exercised during fiscal 1998 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 1998.
<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 -0- -0- 300,000 -0- $37,500 -0-
Patrick Badgley -0- N/A 75,000 -0- $ 9,375 -0-
Jennifer Lorette -0- -0- 60,000 -0- $ 7,500 -0-
Brian Cherry 50,000 $40,000 125,000 -0- $15,625 -0-
</TABLE>
____________________
(1) The calculation of the value of unexercised options are based on the
difference between the last sale price of $1.125 per share for the
Company's common Stock on Wednesday, April 30, 1998, and the exercise price
of each option, multiplied by the number of shares covered by the option.
32
<PAGE>
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
- -------- --------------------------------------------------------------
The following table sets forth, as of June 30, 1998, 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. 5,371,900 (2) 54.8%
1030 West Georgia St.
Vancouver, B.C., V6E 2Y3
Common Brian Cherry 340,500 (3) 3.5%
5451 Floyd Avenue
Richmond, B.C. Canada
Common John G. Robertson 5,680,050 (4) 57.94%
4040 Amundsen Place
Richmond, B.C. Canada
Common Patrick R. Badgley 75,000 (6) 0.85%
2815 Franklin Drive
Columbus, IN 47201
Common Jennifer Lorette 60,500 (5) 0.62%
419-5880 Dover Crest
Richmond, B.C. Canada
Common James McCann 5,371,900 (2) 54.8%
211 -107 E. Broadway
Vancouver, B. C.
Common All officers and directors as a 6,627,900 67.6%
group (five persons)
</TABLE>
__________________
1. Based upon 9,248,300 shares issued and outstanding and assuming exercise of
options. A person is deemed to be the beneficial owner of securities that
can be acquired by such person within 60 days from June 30, 1998, upon the
exercise of options. Each beneficial owner's percentage ownership is
determined by assuming that options that are held by such person and which
are exercisable within 60 days from such date are exercised.
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 215,000 shares and options on an additional 125,000
shares.
4. John G. Robertson owns 8,150 shares and holds options to acquire 300,000
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.
33
<PAGE>
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- -------- ----------------------------------------------
Pursuant to 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 RAND in
exchange for certain valuable rights, technology, information, and other
tangible and intangible assets relating to the United States rights to the
Original Engine. Reg Tech's president is also the president of the Company and
its Vice President and Secretary is also Vice President and Secretary of the
Company.
The Company also agreed to pay semi-annually to RAND 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
semi-annually 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 the April 1993 Agreement, an amendment to a previous Amendment
Agreement dated November 23, 1992, between RAND, Reg Tech and Brian Cherry and
an original agreement dated July 30, 1992, between RAND, Reg Tech and Brian
Cherry, Cherry agreed to: (a) sell, transfer and assign to RAND 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 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 RAND 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.
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 RAND 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 RAND.
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 RAND 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
34
<PAGE>
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.
35
<PAGE>
PART IV
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.
- -------- ---------------------------------
(a) INDEX TO AND DESCRIPTION OF EXHIBITS
<TABLE>
<CAPTION>
Number Description Page No.
- ------ ----------- --------
<S> <S> <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)
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.............................................. (4)
10.5 Agreement between the Company and Integral
Visions Systems, Inc........................................... (4)
10.6 REGI U.S., Inc. KEY EMPLOYEES INCENTIVE STOCK
OPTION PLAN.................................................... (3)
10.7 Agreement with Global Aircraft................................. (4)
23 CONSENT OF EXPERTS AND COUNSEL
23.1 Consent of Elliott Tulk Pryce Anderson......................... ( )
Consent of Patrick Badgley..................................... (4)
27 FINANCIAL DATA SCHEDULE.................................................. ( )
99 ADDITIONAL EXHIBITS
99.1 Technology Evaluation report on the Rand
Cam/Direct Charge Engine prepared by
Adiabatics, Inc..................................................... (1)
</TABLE>
____________________
(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.
(4) Incorporated by reference from Form SB-2 dated July 23, 1996.
(b) REPORTS ON FORM 8-K:
NONE
36
<PAGE>
SIGNATURES
Pursuant to the requirements Section 13 of the Securities Exchange Act of
1934, the Registrant has duly caused this report or amendment to be signed on
its behalf by the undersigned, thereunto duly authorized.
REGI U.S., INC.
By: /s/ John G. Robertson
-----------------------------
John G. Robertson, President
Chief Executive Officer and Director
Dated: August 12, 1998
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons in-the in the capacities
indicated and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ John G. Robertson President, Chief 8/12/98
- ------------------------------------------ Executive Officer -------
(John G. Robertson) and Director
/s/ Brian Cherry Vice President, 8/12/98
- ------------------------------------------ Secretary and -------
(Brian Cherry) Director
/s/ Jennifer Lorette Vice President, 8/12/98
- ------------------------------------------ Chief Financial Officer -------
(Jennifer Lorette) and Principal Accounting
Officer
</TABLE>
37
<PAGE>
EXHIBIT 23.1
CONSENT OF CHARTERED ACCOUNTANTS
--------------------------------
Board of Directors
REGI US, Inc.
We consent to the use of our report dated July 31, 1998 on the financial
statements of REGI US, Inc. as of April 30, 1998 and 1997 that are included in
the Form 10-KSB.
Dated this 31st day of July, 1998
ELLIOTT TULK PRYCE ANDERSON
"Elliott Tulk Pryce Anderson"
Chartered Accountants
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> APR-30-1998
<PERIOD-START> MAY-01-1997
<PERIOD-END> APR-30-1998
<CASH> 1,169
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,169
<PP&E> 438,523
<DEPRECIATION> 17,787
<TOTAL-ASSETS> 425,064
<CURRENT-LIABILITIES> 73,945
<BONDS> 50,000
0
0
<COMMON> 3,830,401
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 425,064
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 577,073
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,828
<INCOME-PRETAX> (580,901)
<INCOME-TAX> 0
<INCOME-CONTINUING> (580,901)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (580,901)
<EPS-PRIMARY> (.07)
<EPS-DILUTED> (.07)
</TABLE>
