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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, 1999
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.
-
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, 1999, computed by reference to the price at which
the stock was sold on that date: $3,204,267.18.
The number of shares outstanding of the registrant's Common Stock, no
par value, as of June 30, 1999 was 9,348,300.
Documents incorporated by reference:
The information required by Part III, relating to Directors,
Executive Officers, Promoters and Control Persons; Compliance with
Section 16(a) of the Exchange Act; Executive Compensation; and
Security Ownership of Certain Beneficial Owners and Management;
Certain Relationships and Related Transactions; is hereby
incorporated by reference from the Company's definitive proxy
statement to be filed on or before August 28, 1999.
________________________________________________________________________________
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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>
Item 1. Description of Business........................................................... 3
Item 2. Property.......................................................................... 13
Item 3. Legal Proceedings................................................................. 14
Item 4. Submission of Matters to a Vote of Security Holders............................... 14
PART II
Item 5. Market for Common Equity and Related Stockholder Matters.......................... 14
Item 6. Management's Discussion and Analysis of Financial Condition and
Results of Operations............................................................. 15
Item 7. Financial Statements.............................................................. 17
Item 8. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure..........................................................
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act................................. 31
Item 10. Executive Compensation............................................................ 31
Item 11. Security Ownership of Certain Beneficial Owners and Management.................... 31
Item 12. Certain Relationships and Related Transaction..................................... 31
Item 13. Exhibits and Reports on Form 8-K.................................................. 31
</TABLE>
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ITEM 1. BUSINESS
- ------ --------
GENERAL
The Company was organized under the laws of the State of Oregon on July 27,
1992 as Sky Technologies, Inc. On August 1, 1994, the Company's name was
officially changed by majority shareholder vote to REGI U.S., Inc. The Company
is controlled by Rand Energy Group Inc., a privately held British Columbia
corporation ("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
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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 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 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
-------------
Reg Tech's heavy duty test fixture is now operational to test the diesel
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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-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.
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 of 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:
HC(ppm) CO(ppm) CO\\2\\(%) O\\2\\(%) NO\\x\\(ppm)
<TABLE>
<CAPTION>
CARBURETOR
<S> <C> <C> <C> <C>
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
<CAPTION>
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
</TABLE>
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<TABLE>
<S> <C> <C> <C> <C>
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
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
----------------
On November 20, 1997, the Company announced that Ford Motor Company has
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
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
-------------------
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".
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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.
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.
Progress Report from May 1, 1998 to April 30, 1999
- --------------------------------------------------
The design of the special transmission oil pump for automobiles has been
completed for prototype fabrication and testing. According to the Company's
engineer, Paul LaMarche, the major advantages of the Rand Cam(TM) 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 in
order to save on fuel consumption.
On August 7th, 1998, the Company announced that an agreement was completed with
Trans Air Manufacturing Corporation ("Trans Air") to jointly develop and
manufacture a working prototype compressor for air conditioning for buses. Trans
Air, founded in 1979, has successfully manufactured and supported the highest
quality transportation air conditioning systems in the industry using a single
basic premise, which is to make a quality product and stand behind it.
On August 24th, 1998, the Company announced that the current oil pump test
results were successfully completed by the Company's engineers. The Rand Cam(TM)
oil pump was tested up to 650 psi with no signs of stress. The conventional oil
pump pressures peak at 300 psi with 200 psi as the standard operating pressure.
The Company's engineers have commenced the production design for the Rand
Cam(TM) oil pump for transmissions for automotive use. The Company believes that
this unique patented rotary design should open a completely new opportunity for
all pump applications. The Rand Cam(TM) pump is an efficient, smooth and quiet
running design that will require very little maintenance due to the simplicity
of the design.
By News Release dated October 5th, 1998, the Company issued a progress report on
the Rand Cam(TM) oil pump from its engineer, Paul LaMarche, which states that
the Rand Cam(TM) design oil pump was tested at the Ford Motor test labs with the
following results:
- - The pump showed 10% greater volumetric efficiency than current production
pumps of the same displacement;
- - The Rand Cam(TM) pump was much quieter than the existing pumps used today.
By using a simulated stethoscope the sound from the hydraulic motor
completely masked any sound that the pump could make. The noise factor is
the most important problem with hydraulic pumps.
- - The Rand Cam(TM) pump ran cooler than the existing pumps used today.
- - This particular Rand Cam(TM) pump was designed with four separate pumping
chambers. Each is capable of producing a different pressure in each of the
pump chambers. This is believed to be the only pump in existence to
integrally accomplish this feat. By using an approximate combination of
chambers and pressures, energy waste and undesirable heat buildup are
reduced. For automotive use, increased performance and fuel economy, plus
decreased cooling requirements, all highly desirable attributes, are
achieved.
Negotiations are planned with compressor and pump manufacturers to produce the
Rand Cam(TM) oil pump and the compressor for commercial applications.
On January 4, 1999, the Company announced that it had received confirmation that
Ford Motor Company's Advanced Vehicle Technology department has approved
budgeted resources for 1999 to further evaluate the Rand Cam(TM) oil pump for
use in automobile transmissions. The Company will supply the test hardware for
evaluation, a set of drawings for the hardware with
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production intent tolerance material requirements, and answer any issues that
may arise during the evaluation. Ford will evaluate the functional,
manufacturing, and cost aspects of the Rand Cam(TM) oil pump for production
intent.
The oil pump testing to date indicates the following:
- -----------------------------------------------------
- - The Rand Cam(TM) oil pump is up to 20% more efficient in volumetric
performance than the current oil pumps used today in automobile
transmissions.
- - The Rand Cam(TM) oil pump was much quieter at all speeds and pressures than
the existing pumps.
- - The Rand Cam(TM) oil pump was designed with four separate pumping chambers
resulting in increased performance and fuel economy while decreasing
cooling requirements - all highly desirable attributes.
The Ford program is designed to evaluate a production intent Rand Cam(TM)
Automobile Transmission oil pump during 1999.
On October 30th, 1998, the Company announced that it had entered into a
Manufacturing Agreement with T.W. Blasingame Company, Inc., of Boise Idaho
("Blasingame"). Pursuant to the terms of the Agreement, the Company granted to
Blasingame the exclusive worldwide rights to market and sell a steam
expander/hot air version of the Rand Cam/Direct Charge(TM) engine (the "RC/DC
Engine") for locomotive/railway applications. Pursuant to the terms thereto,
Blasingame has granted the exclusive world-wide rights to the Company to
manufacture, market and sell the vane restraint mechanism developed by
Blasingame for all applications of the RC/DC Engine, which vane restraint
mechanism has increased the rotational speed of the RC/DC Engine from 500
revolutions per minute to 1,200 revolutions per minute.
Blasingame and the Company have also agreed to jointly develop the RC/DC engine
for diesel engine manufacturers for locomotive/railway applications and such
other applications as the Company may agree to in writing.
A royalty equal to 10% of the gross sale price for each RC/DC Engine using the
vane restraint mechanism is payable as to 75% to the Company and 25% to
Blasingame.
Pursuant to a News Release dated December 29, 1998, the Company announced that
Reg Tech, the Company's majority shareholder, and the Company signed a
cooperative and license agreement with Global Aircraft Corporation to develop
and commercialize the Rand Cam(TM) diesel engine for aviation applications. The
license agreement is subject to Global obtaining NASA Small Business Innovative
Research Phase I and Phase II contracts for development of a Rand Cam(TM) diesel
aircraft engine. Global received a Phase I contract in the amount of $70,000.00
US and work on the project was initiated by January 4, 1999. The Phase I funds
will be used to test the Rand Cam(TM) 125 horsepower Diesel engine currently
being developed in the Company's Detroit facilities and to evaluate its
potential for aviation applications. The Phase I funds will also permit the
Company and Global to prepare a preliminary design of a 225 - 250 horsepower
engine to be developed in the Phase II project. The Phase I project will also
include the preparation of the proposal for the Phase II project which could
provide up to $600,000.00 US for development of the Rand Cam(TM) Diesel Aircraft
Engine.
Patrick Badgley, the Company's Vice President of Research & Development for the
Rand Cam(TM) project will work with Global Aircraft to test the 125 horsepower
diesel engine to determine its performance under various load conditions and
evaluate its suitability for aviation applications. The specific type of data to
be acquired will include torque, horsepower, and fuel consumption at various
RPM, engine temperature, acoustic and vibration signatures, and analysis of
engine exhaust products.
During the project period, the Global/REGI team will develop a preliminary
design for a 225 -250 horsepower Rand Cam(TM) diesel aircraft engine that will
meet NASA AGATE requirements for a high performance 21st Century General
Aviation Aircraft capable of cruising at 250 MPH and at altitudes up to 25,000
MSL. Based on successful funding of the SBIR NASA Phase II contact, Global and
the Company will receive $600,000.00 US for a two-year research program to
develop and commercialize the new aircraft engine and will open up other sources
of NASA technical support, at no cost to the Company, in the areas of advanced
composite materials and coatings, near net shape material casting, high
temperature lubrication, bearings and seals; and high altitude and anechoic
testing facilities. These resources will be extremely valuable in advancing the
technology required to make the Rand Cam(TM) diesel engine superior and unique
in performance and reliability.
Reg Tech and the Company will grant to Global Aircraft a worldwide license for
aviation applications of the Rand Cam(TM) concept as follows:
- - The Company will receive a royalty of 5% on all sales of Rand Cam(TM)
aviation products under this license.
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- - The Company will receive 50% of all royalties and payments on sublicense
agreements after Global has first received reimbursement for all
development and certification costs and secondly the Company has received
five million dollars (US $5,000,000.00) in payment for the rights to
sublicense under this agreement.
- - All sublicense agreements shall be approved by the Company and Global.
- - The Company will provide all technical support for design, fabrication, and
testing of prototype engines and products for aviation applications at no
cost to Global. Global will fund the fabrication, research and development
testing, and FAA certification of all prototype and production products.
- - Global will be responsible for all costs related to start-up of production
and all manufacturing costs. The Company will provide technical support of
manufacturing and product service for all licensed products on a cost
reimbursable basis with such costs to be reimbursed quarterly.
- - In return for the Company's technical support for development of Rand
Cam(TM) aviation applications, Global agrees to share funding in the amount
of 30% of all funds Global receives, subsequent to the SBIR Phase I
contract, from NASA or other government sources, unless government
restrictions limit third party participation. In case of such funding
limitations, the Company will receive the maximum funds permitted by the
government.
Global Aircraft Corporation is currently engaged in the development of an all
composite light aeroplane for the General Aviation market and the development
and marketing of composite propellers for light aeroplanes. The Global QCS
Composite Propeller is more efficient than conventional wooden or metal
propellers and produces less than half as much noise. Global is a major
participant in the NASA Advanced General Aviation Transportation Experiments
Program (AGATE) and has been highly successful in the NASA SBIR and STTR
research programs. Since 1994, Global has received eight NASA SBIR contracts and
three NASA Small Business Technology Transfer Research (STTR) contracts. Global
is currently commercializing three of the products developed under these NASA
programs.
By News Release dated June 21st, 1999 the Company announced that the Rand Cam
(TM) rotary diesel aircraft project, (1998 NASA SBIR Phase I contract) was
completed and the final report was delivered to NASA on schedule.
Patrick Badgley, senior engineer for the Rand Cam (TM) diesel aircraft project,
reported that under Mr. Badgley's direction, the 125 horsepower diesel engine
successfully completed a short test run on diesel fuel ignited by compression
ignition. Mr. Badgley was directly involved with Global Aircraft in Starkville,
Mississippi in training their personnel on the assembly and testing of the
engine. He also assisted in the design of several important modifications. The
Global/REGI team is currently conducting additional testing.
The 250 horsepower engine designed especially for aircraft operation has been
completed using the Company's new "winged rotor" concept that greatly enhanced
internal sealing and eliminates numerous separate components.
The proposal for a Phase II program for $600,000 to design, fabricate and test a
250 horsepower Rand Cam (TM) engine has been completed and submitted to NASA.
Discussion on Y2K issue
- -----------------------
In recognition of the Year 2000 risk for information systems, computers,
equipment and products using date sensitive software, the Company has retained a
consultant to assess the risk to the Company, both internally and externally.
However, the Company does not anticipate that its operations will be materially
affected. In the unlikely event that the Company's computers are not Year 2000
compliant, the consultant will remedy any deficiencies.
The Company is monitoring the Year 2000 compliance by external parties to whom
the Company may be dependent, primarily its bank, suppliers and accountants. The
Company is unable to assess the potential damage that may be caused if external
parties are unable to resolve their Year 2000 compliance. If it appears that any
external party to whom the Company is dependent will be unable to resolve its
Year 2000 issue prior to December 31, 1999, the Company has designated personnel
to be responsible for developing a contingency plan to minimize the risk of
business interruption of the Company.
To mitigate any risk to the Company from external parties, the Company has made
every effort to ensure that all current financial, legal and administrative
information on the Company is maintained by the Company, both on paper and on
the Company's computers.
10
<PAGE>
It is not expected that any material costs will be incurred in addressing the
Year 2000 compliance for the Company.
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.
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.
11
<PAGE>
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 or 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.
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
12
<PAGE>
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, the seasonality of its potential
business is not of present concern. However, at this time it does not appear
that there will be a significant seasonal factor to its potential business.
The Company has no current backlog of business.
WORKING CAPITAL REQUIREMENTS
Because the Company is not yet producing and selling any products, working
capital requirements relative to production, inventory and accounts receivable
are not relevant. Working capital requirements for day-to-day operations and the
continuation of research and development activities have been provided from
equity capital and advances from related parties including Reg Tech 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.
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
13
<PAGE>
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.
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 July 31, 1997 $ 0.937 $ 0.937 $ 1.00 $ 1.00
Quarter ended October 31, 1997 $ 1.562 $ 1.562 $ 1.75 $ 1.75
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
Quarter ended July 31, 1998 $ 0.843 $ 0.843 $ 0.937 $ 0.937
Quarter ended October 31, 1998 $ 0.593 $ 0.593 $ 0.760 $ 0.760
Quarter ended January 31, 1999 $ 0.75 $ 0.75 $ 0.937 $ 0.937
Quarter ended April 30, 1999 $ 0.5625 $ 0.5625 $ 0.75 $ 0.75
</TABLE>
As of June 30, 1999, there were 9,348,300 shares of Common Stock outstanding,
held by 183 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 THREE YEARS.
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 3/4%
14
<PAGE>
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.
The Company plans to raise $525,000 and issue 700,000 units at $0.75 per unit.
Each unit will contain one share and one warrant to acquire one additional share
at $1.00 per share if exercised in year one. A total of $107,500 was raised as
at April 30, 1999 and $51,000 was raised subsequently.
Item 6: Management's Discussion and Analysis of Financial Condition and Results
- ------ -----------------------------------------------------------------------
of Operations
-------------
Management's Discussion
- -----------------------
REGI U.S., Inc. herein (the "Company") was incorporated in the State of Oregon,
USA 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 is the controlling shareholder of 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%.
On June 22, 1997, the Company acquired the U.S. rights to an Air/Vapour Flow
System "AVFS". The Company paid $50,000 and 200,000 shares at a fair 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 fair value of $133,586. The inventor will also receive a minimum
annual royalty of $24,000 per year beginning October 1, 1997, payable quarterly.
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 and the Company has a working capital deficit of $275,800.
The Company has undergone mounting losses to date totalling $3,929,412 and
further losses are expected until the Company completes a licensing agreement
with a manufacturer and reseller. The Company's only asset, other than cash, is
its intangible assets, being patents and intellectual property rights, totalling
$405,335, which represents 83% of total assets or 509% of shareholders' equity.
These factors raise doubt about the Company's ability to continue as a going
concern. 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, receive funding from
affiliates and controlling shareholders, and develop a market for its products.
The Company plans to raise $525,000 and issue 700,000 units at $0.75 per unit.
Each unit will contain one share and one warrant to acquire one additional share
at $1.00 per share if exercised in year one. A total of $107,500 was raised as
of April 30, 1999 and $51,000 was raised subsequently. The Company may also
raise additional funds through the exercise of warrants and stock options, if
exercised. Warrants with respect to 500,000 shares at $1.25 per share may be
exercised to net $625,000 and options with respect to 570,000 shares at $0.75
per share may be exercised to net $427,000.
15
<PAGE>
Results of operations for fiscal 1999 compared to fiscal 1998
- -------------------------------------------------------------
There were no revenues from product licensing during the years ended April 30,
1998 and 1999.
The net loss in 1999 decreased by $183,000 to $398,000 compared to $581,000 in
1998. The decrease was due to a $146,000 decrease in administrative expenses and
a $37,000 decrease in research and development expenses. The decrease in
administrative expenses was due to the Company not paying large amounts for
advertising their Company in publications which amounted to $130,000 in 1998 and
only $6,000 in 1999. The Company reduced the amount it paid for investor
relations consultants by $37,000 to $97,000. The reductions in investor
relations activities was done to preserve working capital. All other
administrative expenses were kept to a minimum amount of $50,000 from $57,000 in
1998. Professional fees made up $20,000 of the administrative expenses in 1999
as compared to $28,000 in 1998 which includes accounting, auditing and legal;
the Company continues to use an in house consultant to perform the majority of
legal work. The decrease of $37,000 in research and development was attributed
to a reduction of travel costs to $2,000 from $13,000; overhead was reduced to
$16,000 from $30,000; and prototype design and construction contracts for
outside contractors was reduced to $40,000 from $53,000 as the majority of
prototype construction and testing costs has been borne by potential licensees
and manufacturers. The Company pays two in-house consultants for technical
prototype design consulting amounting to $84,200 which was mainly conducted by
Paul LaMarche and Patrick Badgley, Vice President of Research and Development.
See above progress reports for research and development activity conducted
during the year by the Company and these two individuals.
Liquidity
- ---------
During fiscal 1999, the Company financed its operations mainly through
subscription proceeds of $107,500 towards a private placement of 700,000 units
at $0.75 per unit for potential total proceeds of $525,000. The Company received
a further $51,000 subsequent to April 30, 1999. Each unit will contain one share
and one warrant to acquire one additional share at $1.00 per share expiring one
year after receipt of funds. No units have been issued to date.
The Company received funding from its affiliated companies (common directors)
and its 57.3% shareholder, Rand Energy Group, Inc. and its 51% shareholder Reg
Technologies Inc. These companies advanced, or paid expenses on behalf of,
$237,000 during 1999. These amounts owing are now $240,000, or 59% of total
liabilities, are unsecured and repayable on demand. The Company's affiliated
companies have indicated that they will not be demanding repayment of these
funds during the next fiscal year and will advance further funds, or pay
expenses on behalf of the Company, if needed.
The Company spent $6,600 on patent protection costs during 1999. The loss for
the year of $398,000 included $96,000 of non-cash items being $25,000 for
amortization of capital and intangible assets and $71,000 for financial
consulting fees paid by issuing 100,000 shares pursuant to performance stock
agreements. In addition to the aforementioned sources of financing, the
Company's suppliers financed a further $79,000 during the year.
As of April 30, 1999 the Company had cash of $82,000 and current liabilities of
$358,000. To repay the current working capital deficit of $276,000 and finance
the next twelve months of operations, the Company plans to raise $525,000 and
issue 700,000 units at $0.75 per unit. Each unit will contain one share and one
warrant to acquire one additional share at $1.00 per share if exercised in year
one. A total of $107,500 was raised as at April 30, 1999 and $51,000 was raised
subsequently with $366,500 yet to be secured. The Company may also raise
additional funds through the exercise of warrants and stock options, if
exercised. Warrants with respect to 500,000 shares at $1.25 per share may be
exercised to net $625,000 and options with respect to 570,000 shares at $0.75
per share may be exercised to net $427,000. The Company also plans to raise
funds through loans from a controlling shareholder (REGI). REGI owns 5,362,700
shares in the Company, worth approximately $3,750,000, and plans to sell shares
as needed to meet ongoing funding requirements of the Company if traditional
equity sources of financing prove to be insufficient.
16
<PAGE>
Item 7. Financial Statements
- ------- --------------------
Independent Auditor's Report
Balance Sheets as of April 30, 1999 and 1998
Statements of Operations accumulated from July 27, 1992 (Inception)
to April 30, 1999 and the years ended April 30, 1999 and 1998
Statements of Cash Flows accumulated from July 27, 1992 (Inception)
to April 30, 1999 and the years ended April 30, 1999 and 1998
Statement of Stockholders' Equity accumulated from July 27, 1992
(Inception) to April 30, 1999
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, 1999 and 1998 and the related
statements of operations, shareholders' equity and cash flows for the period
from July 27, 1992 (Inception) to April 30, 1999 and the years ended April 30,
1999 and 1998. 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
in the United States. 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, 1999 and 1998, and the results of its operations
and its cash flows for the period from July 27, 1992 (Inception) to April 30,
1999 and the years ended April 30, 1999 and 1998, in conformity with generally
accepted accounting principles in the United States.
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.
/s/ Elliott, Tulk, Pryce, Anderson
CHARTERED ACCOUNTANTS
Vancouver, Canada
July 15, 1999
18
<PAGE>
REGI U.S., Inc.
(A Development Stage Company)
Balance Sheets
April 30, 1999 and 1998
<TABLE>
<CAPTION>
1999 1998
$ $
<S> <C> <C>
Assets
Current Asset
Cash 82,120 1,169
Fixed Assets (Note 3) - 3,160
Intangible Assets (Note 4) 405,335 420,735
--------- ----------
487,455 425,064
========= ==========
Liabilities and Shareholders' Equity
Current Liabilities
Accounts payable 107,274 58,277
Accrued liabilities 9,875 14,500
Due to affiliates (Note 7(e)) 240,264 3,003
Due to officer (Note 7(e)) 507 371
--------- ---------
357,920 76,151
--------- ---------
Convertible Debentures (Note 5) 50,000 50,000
--------- ---------
Commitments and Contingent Liabilities (Note 8)
Shareholders' Equity
Common Stock (Note 6), 20,000,000 shares
authorized without par value; 9,348,300
and 9,248,300 shares issued and
outstanding respectively 3,901,447 3,830,401
Common Stock paid for but unissued (Note 6(d)) 107,500 -
Deficit Accumulated During the Development Stage (3,929,412) (3,531,488)
--------- ---------
79,535 298,913
--------- ---------
487,455 425,064
========= =========
</TABLE>
The accompanying notes are an integral
part of the financial statements)
19
<PAGE>
REGI U.S., Inc.
(A Development Stage Company)
Statements of Operations
Accumulated from July 27, 1992 (Inception) to April 30, 1999 and
the Years ended April 30, 1999 and 1998
<TABLE>
<CAPTION>
Accumulated from
July 27, 1992 (Inception)
to April 30,
1999 1999 1998
$ $ $
<S> <C> <C> <C>
Revenues - - -
----------- ---------- ----------
Administrative Expenses
Bank charges 5,968 1,238 1,187
Foreign exchange 3,642 482 334
Interest on debentures 8,541 4,713 3,828
Investor relations - advertising 268,843 6,478 129,776
Investor relations - consulting 460,211 96,870 134,306
Office, rent and telephone 114,907 28,719 10,669
Professional fees 278,264 20,135 28,477
Transfer agent and regulatory fees 67,569 16,921 13,723
Travel 6,347 - 924
Less: interest (15,535) (12) (1,766)
----------- ---------- ----------
1,198,757 175,544 321,458
----------- ---------- ----------
Research and Development Expenses
Intellectual property (Note 4(a) and (b)) 257,000 - -
Amortization 59,321 25,199 16,444
Market development 92,782 - 6,436
Professional fees 73,904 - -
Project management 190,000 30,000 30,000
Project overhead 155,584 16,445 30,116
Prototype design and construction contracts 1,229,478 40,363 53,428
Royalties (Note 4(d)) 39,000 24,000 15,000
Technical prototype design consulting 289,806 84,200 89,797
Technical reports 22,120 - 5,000
Technical salaries 169,467 - -
Travel 152,193 2,173 13,222
----------- ---------- ----------
2,730,655 222,380 259,443
----------- ---------- ----------
Net Loss 3,929,412 397,924 580,901
=========== ========== ==========
Net Loss Per Share (.04) (.07)
========== ==========
Weighted Average Shares Outstanding 9,310,000 8,565,000
========== ==========
</TABLE>
(The accompanying notes are an integral
part of the financial statements)d
20
<PAGE>
REGI U.S., Inc.
(A Development Stage Company)
Statements of Cash Flows
Accumulated from July 27, 1992 (Inception) to April 30, 1999 and
the Years ended April 30, 1999 and 1998
<TABLE>
<CAPTION>
Accumulated from
July 27, 1992 (Inception)
to April 30,
1999 1999 1998
$ $ $
<S> <C> <C> <C>
Cash Flows to Operating Activities
Net loss (3,929,412) (397,924) (580,901)
Adjustments to reconcile net loss to cash
Amortization 59,321 25,199 16,444
Intellectual property 257,000 - -
Shares issued for services 241,296 71,046 170,250
Change in non-cash working capital items
Increase (decrease) in accounts payable and accrued liabilities 142,151 44,372 (51,672)
----------- --------- ----------
Net Cash Used in Operating Activities (3,229,644) (257,307) (445,879)
----------- --------- ----------
Cash Flows from Financing Activities
Increase in capital stock 3,397,400 107,500 505,000
Increase in convertible debenture 50,000 - 50,000
Increase in due to affiliates 40,264 237,261 1,947
Increase in officer's loan 507 136 (6,829)
------------ --------- ----------
Net Cash Provided by Financing Activities 3,488,171 344,897 550,118
------------ --------- ----------
Cash Flows to Investing Activities
(Increase) in fixed assets (19,495) - (3,447)
(Increase) in intangible assets (156,912) (6,639) (100,842)
------------ --------- ----------
Net Cash Used in Investing Activities (176,407) (6,639) (104,289)
------------ --------- ----------
Increase (decrease) in cash 82,120 80,951 (50)
Cash - beginning of period - 1,169 1,219
------------ --------- ----------
Cash - end of period 82,120 82,120 1,169
------------ --------- ----------
Non-Cash Financing Activities
Affiliate's shares issued for intellectual property 200,000 - -
100,000 shares (1997 - 125,000 shares) issued pursuant to
performance stock agreements for financial consulting services 241,296 71,046 170,250
6,100,000 shares issued for intellectual property 345,251 - 288,251
50,000 shares issued to settle debt 25,000 - 25,000
------------ --------- ----------
811,547 71,046 483,501
============ ========= ==========
Supplemental Disclosures
Interest paid 8,541 4,713 3,828
Income tax paid - - -
</TABLE>
(The accompanying notes are an integral
part of the financial statements)
21
<PAGE>
REGI U.S., Inc.
(A Development Stage Company)
Statements of Shareholders' Equity
From July 27, 1992 (Inception) to April 30, 1999
<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 - - (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 - - (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 - - (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 -
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 - - (796,905)
--------- --------- ----------
Balance - April 30, 1996 7,635,900 2,292,600 (2,440,403)
--------- --------- ----------
</TABLE>
(The accompanying notes are an integral
part of financial statements)
22
<PAGE>
REGI U.S., Inc.
(A Development Stage Company)
Statements of Shareholders' Equity
From July 27, 1992 (Inception) to April 30, 1999
<TABLE>
<CAPTION>
Deficit
Accumulated
During the
Common Stock Development
Shares Amount Stage
# $ $
<S> <C> <C> <C>
Balance carried forward 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 - - (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 financial consulting services
pursuant to performance stock plans
issued at a fair value of $1.36 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 - - (580,901)
--------- --------- ----------
Balance - April 30, 1998 9,248,300 3,830,401 (3,531,488)
Stock issued for financial consulting services
pursuant to performance stock plans issued
at a fair value of $0.71 per share 100,000 71,046 -
Net loss for the year - - (397,924)
--------- --------- ----------
Balance - April 30, 1999 9,348,300 3,901,447 (3,929,412)
========= ========= ==========
</TABLE>
(The accompanying notes are an integral
part of financial statements)
23
<PAGE>
REGI U.S., Inc.
(A Development Stage Company)
Notes to the Financial Statements
April 30, 1999 and 1998
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 is the controlling shareholder of
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 and the Company has suffered recurring
operating losses as is normal in development stage companies. The Company
also has a working capital deficit of $275,800. These factors raise doubt
about the Company's ability to continue as a going concern. 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, receive funding from affiliates and controlling
shareholders, and develop a market for its products.
The Company plans to raise $525,000 and issue 700,000 units at $0.75 per
unit. Each unit will contain one share and one warrant to acquire one
additional share at $1.00 per share if exercised in year one. A total of
$107,500 was raised as at April 30, 1999 and $51,000 was raised subsequently.
The Company may also raise additional funds through the exercise of warrants
and stock options, if exercised. Warrants with respect to 500,000 shares at
$1.25 per share may be exercised to net $625,000 and options with respect to
570,000 shares at $0.75 per share may be exercised to net $427,000.
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. Intangible assets are evaluated in each
reporting period to determine if there were events or circumstances
which would indicate a possible inability to recover the carrying
amount. Such evaluation is based on various analyses including assessing
the Company's ability to bring the commercial applications to market,
related profitability projections and undiscounted cash flows relating
to each application which necessarily involves significant management
judgment.
(c) Basic and Diluted Net Income (Loss) per Share
The Company computes net income (loss) per share in accordance with SFAS
No. 128, "Earnings per Share" (SFAS 128). SFAS 128 requires presentation
of both basic and diluted earnings per shares (EPS) on the face of the
income statement. Basic EPS is computed by dividing net income (loss)
available to common shareholders (numerator) by the weighted average
number of common shares outstanding (denominator) during the period.
Diluted EPS gives effect to all dilutive potential common shares
outstanding during the period including stock options, using the
treasury stock method, and convertible preferred stock, using the if-
converted method. In computing Diluted EPS, the average stock price for
the period is used in determining the number of shares assumed to be
purchased from the exercise of stock options or warrants. Diluted EPS
excludes all dilutive potential common shares if their effect is
antidilutive.
24
<PAGE>
Loss per share for 1999 and 1998 does not include the effect of the Loss
per share for 1999 and 1998 does not include the effect of the potential
conversions of stock options, warrants or convertible debentures, as
their effect would be anti-dilutive.
2. Summary of Significant Accounting Policies (continued)
(d) Accounting for Stock Based Compensation
The Company uses the intrinsic value based method of accounting
prescribed by Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees" ("APB Opinion No. 25") in accounting for
its stock based method, compensation cost is the excess, if any, of the
quoted market price of the stock at grant date over the amount an
employee or director must pay to acquire the stock. See Note 6(b).
(e) Cash and Cash Equivalents
The Company considers all highly liquid instruments with a maturity of
three months or less at the time of issuance to be cash equivalents.
(f) Foreign Currency Transactions/Balances
Transactions in currencies other than the U.S. dollar are translated at
the rate in effect on the transaction date. Any balance sheet items
denominated in foreign currencies are translated into U.S. dollars using
the rate in effect on the balance sheet date.
(g) Use of Estimates
The preparation of 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.
(h) 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 605,000 2013
1999 415,000 2014
---------
3,756,000
=========
</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.
25
<PAGE>
2. Summary of Significant Accounting Policies (continued)
(h) Tax Accounting (continued)
The components of the net deferred tax asset at the end of April 30, 1999
and 1998, and the statutory tax rate, the effective tax rate and the
elected amount of the valuation allowance are scheduled below:
<TABLE>
<CAPTION>
1999 1998
$ $
<S> <C> <C>
Net Operating Loss 415,000 605,000
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 141,000 206,000
Valuation Allowance (141,000) (206,000)
--------- ---------
Net Deferred Tax Asset - -
========= =========
</TABLE>
3. Fixed Assets
<TABLE>
<CAPTION>
1999 1998
Accumulated Net Book Net Book
Cost Amortization Value Value
$ $ $ $
<S> <C> <C> <C> <C>
Computer equipment 19,495 19,495 - 3,160
====== ====== ===== =====
</TABLE>
4. Intangible Assets
<TABLE>
<CAPTION>
1999 1998
Accumulated Net Book Net Book
Cost Amortization Value Value
$ $ $ $
<S> <C> <C> <C> <C>
Patents - RC/DC Engine 66,723 11,540 55,183 54,234
Patents - AVFS 4,137 153 3,984 1,148
AVFS rights ((d) below) 374,751 28,133 346,618 365,354
------- ------ ------- -------
445,611 39,826 405,785 420,736
======= ====== ======= =======
</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 fair value of
$0.01 per share. REGI will receive a 5% net profit royalty. The $57,000
was expensed as research and development.
(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
fair value of $200,000. The $200,000 was expensed as research and
development. A 1% net profit royalty will be due to the director.
26
<PAGE>
(c) Pursuant to a letter of understanding dated December 13, 1993 between
the Company, REGI and REG (collectively called the grantors) and West
Virginia University Research Corporation ("WVURC"), the grantors have
agreed that WVURC shall own 5% of all patented technology and will
receive 5% of all net profits from sales, licences, royalties or income
derived from the patented technology.
27
<PAGE>
4. Intangible Assets (continued)
(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
fair 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 fair 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 Debentures
The Company issued three year, 8 3/4% interest, convertible debentures and
raised $50,000. The 8 3/4% interest is paid annually and the debentures are
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 debentures 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 434,000 shares are reserved for the exercise of
warrants at $1.25 per share expiring in November, 1999 and a total
of 500,000 shares are reserved for the exercise of warrants at
$2.50 per share expiring August, 1999.
(ii) A total of $500,000 was raised 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 $1.25 per share expiring between September, 1999 and
November, 1999.
(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.
<TABLE>
<CAPTION>
April 30, Price Granted Lapsed April 30, Expiry
1998 $ during the # 1999 Date
# year #
#
<S> <C> <C> <C> <C> <C>
135,000 1.00 - 135,000
75,000 0.75/*/ - 75,000
5,000 0.75/*/ - - 5,000 October 29, 1999
5,000 0.75/*/ - - 5,000 September 8, 2000
350,000 0.75/*/ - - 350,000 January 3, 2001
100,000 0.75/*/ - - 100,000 June 26, 2002
- 0.75 25,000 - 25,000 July 22, 2003
- 0.75 85,000 - 85,000 November 11, 2003
-------- --------- -------- --------
670,000 110,000 (210,000) 570,000
======== ========= ======== ========
</TABLE>
* repriced from $1.00 to $0.75 in November, 1998.
28
<PAGE>
6. Common Stock (continued)
(b) Stock Option Plan (continued)
The options are granted for services 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 costs on the intrinsic value basis set
out in APB Opinion No. 25. As stock options are granted at exercise
prices based on the market price of the Company's shares at the date of
grant, no compensation cost is recognized. However, under SFAS 123, the
impact on net income and income per share of the fair value of stock
options must be measured and disclosed on a fair value based method on a
pro forma basis. As performance stock is issued for services rendered the
fair value of the shares issued is recorded as compensation expense or
capitalized, at the date the shares are issued, based on a discounted
average trading price of the Company's stock as quoted on the Over The
Counter Bulletin Board.
The fair value of the employee's purchase rights, pursuant to stock
options, under SFAS 123, was estimated using the Black-Scholes model with
the following assumptions: risk free interest rate was 5.5%, expected
volatility of 20%, an expected option life of two years and no expected
dividends.
If compensation expense had been determined pursuant to SFAS 123, the
Company's net loss and net loss per share for fiscal 1999 and 1998 would
have been as follows:
<TABLE>
<CAPTION>
1999 1998
$ $
Net loss
<S> <C> <C>
As reported (397,924) (580,901)
Pro forma (411,624) (588,101)
Basic net loss per share
As reported (.04) (.07)
Pro forma (.04) (.07)
</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 150,000 shares for the AVFS rights,
at a fair value of $112,500, and 225,000 shares for financial consulting
services, at a fair value of $241,296.
(d) Private Placement
The Company plans to raise $525,000 and issue 700,000 units at $0.75 per
unit. Each unit will contain one share and one warrant to acquire one
additional share at $1.00 per share if exercised in year one. A total of
$107,500 was raised as at April 30, 1999 and $51,000 was raised
subsequently.
29
<PAGE>
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 (1998 - $30,000) was paid to a
company controlled by the President of the Company and is included
in research and development expenses.
(b) A technical consulting fee of $36,000 (1998 - $33,000) was paid to the
Vice President of Research and Development and is included in research
and development expenses.
(c) An administrative fee of $6,000 (1998 - $6,000) was paid to the Vice
President of Administration and is included in research and development
expenses.
(d) Amounts owing to an officer and affiliates are unsecured, non-interest
bearing and are due on demand.
(e) Included in accounts payable is $51,000 owing to a Company controlled
by the President of the Company for management services rendered.
8. Commitments and Contingent Liabilities
(a) See Note 4 for royalty commitments in connection with the RC/DC Engine
and the AVFS.
(b) See Note 6 for commitments to issue shares.
(c) The Company is committed to fund 50% of the further development of the
RC/DC Engine.
(d) See Note 1 for going concern considerations.
9. Uncertainty Due to the Year 2000 Issue
The Year 2000 Issue arises because many computerized systems use two digits
rather than four to identify a year. Date-sensitive systems may recognize
the year 2000 as 1900 or some other date, resulting in errors when
information using year 2000 dates is processed. In addition, similar
problems may arise in some systems which use certain dates in 1999 to
represent something other than a date. The effects of the Year 2000 Issue
may be experienced before, on, or after January 1, 2000, and, if not
addressed, the impact on operations and financial reporting may range from
minor errors to significant systems failure which could affect an entity's
ability to conduct normal business operations. It is not possible to be
certain that all aspects of the Year 2000 Issue affecting the Company,
including those related to the efforts of customers, suppliers, or other
third parties, will be fully resolved.
30
<PAGE>
PART III
The information required by this Part III, relating to Directors, Executive
Officers, Promoters and Control Persons; Compliance with Section 16(a) of the
Exchange Act; Executive Compensation; and Security Ownership of Certain
Beneficial Owners and Management; Certain Relationships and Related
Transactions; is hereby incorporated by reference from the Company's definitive
proxy statement to be filed on or before August 29, 1999.
<TABLE>
<CAPTION>
Item 13(a). Exhibits.
Number Description Page No.
- ------ ----------- -------
<S> <C> <C>
3 ARTICLES OF INCORPORATION AND BY-LAWS
3.1 Articles of Incorporation.................................. (1)
3.2 Article of Amendment changing name to
REGI U.S., Inc............................................. (2)
3.3 By-Laws.................................................... (1)
4 INSTRUMENTS DEFINING RIGHTS OF SECURITY HOLDERS
4.1 Specimen Share Certificate................................. (1)
4.2 Specimen Warrant Certificate............................... (1)
23 CONSENT OF EXPERTS AND COUNSEL
23.1 Consent of Elliott Tulk Pryce Anderson.....................
27 FINANCIAL DATA SCHEDULE............................................
</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.
Item 13(b). Reports on Form 8-K.
None.
31
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) 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: July 29, 1999
In accordance with the Securities Exchange Act of 1934, this report has been
signed by the following persons on behalf of the Registrant and in the
capacities and on the dates indicated below.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ John G. Robertson President, Chief
- -------------------------- 7/29/99
(John G. Robertson) Executive Officer
and Director
/s/ Brian Cherry Vice President,
- -------------------------- 7/29/99
(Brian Cherry) Secretary and
Director
/s/ Jennifer Lorette Vice President,
- -------------------------- 7/29/99
(Jennifer Lorette) Chief Financial Officer
and Principal Accounting
Officer
</TABLE>
32
<PAGE>
EXHIBIT 23.1
Consent of Independent Auditors
-------------------------------
Board of Directors
REGI U.S., Inc.
We consent to the use of our report dated July 15, 1999 on the financial
statements of REGI U.S., Inc. as of April 30, 1999 and 1998 that are included in
the Form 10-KSB, which is included, by reference in the Company's Form S-8.
Dated this 30/th/ day of July, 1999
Vancouver, Canada
ELLIOTT TULK PRYCE ANDERSON
Chartered Accountants
/s/ Elliott Tulk Pryce Anderson
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> APR-30-1999
<PERIOD-START> MAY-01-1998
<PERIOD-END> APR-30-1999
<CASH> 82,120
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 82,120
<PP&E> 465,106
<DEPRECIATION> 59,321
<TOTAL-ASSETS> 487,455
<CURRENT-LIABILITIES> 357,920
<BONDS> 50,000
0
0
<COMMON> 4,008,947
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 487,455
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 393,211
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,713
<INCOME-PRETAX> (397,924)
<INCOME-TAX> 0
<INCOME-CONTINUING> (397,924)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (397,924)
<EPS-BASIC> (.04)
<EPS-DILUTED> (.04)
</TABLE>
