<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_______________________________
FORM 10-KSB
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES ACT OF 1934
For the Fiscal Year Ended April 30, 2000
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 July 31, 2000, computed by reference to the price at which the
stock was sold on that date: $1,959,905.13.
The number of shares outstanding of the registrant's Common Stock, no par
value, as of July 31, 2000 was 10,217,735.
Documents incorporated by reference: None
Transitional Small Business Disclosure Format (Check one): Yes ( ) No (X).
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REGI U.S., INC.
FORM 10-KSB
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PART I Page
<C> <S> <C>
Item 1. Description of Business............................ 1
Item 2. Property........................................... 14
Item 3. Legal Proceedings.................................. 14
Item 4. Submission of Matters to a Vote of Security Holders 15
PART II
Item 5. Market for Common Equity and Related Stockholder
Matters............................................ 15
Item 6. Management's Discussion and Analysis of Financial
Condition and Results of Operations................ 16
Item 7. Financial Statements............................... F-1
PART III
Item 9. Directors, Executive Officers, Promoters and
Control Persons; Compliance with Section 16(a) of
the Exchange Act................................... 19
Item 10. Executive Compensation............................. 21
Item 11. Security Ownership of Certain Beneficial Owners
and Management..................................... 22
Item 12. Certain Relationships and Related Transaction...... 25
Item 13. Exhibits and Reports on Form 8-K................... 27
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ITEM 1. BUSINESS
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GENERAL
The Company was organized under the laws of the State of Oregon on July 27,
1992 as Sky Technologies, Inc. On August 1, 1994, the Company's name was
officially changed by majority shareholder vote to REGI U.S., Inc. The Company
is controlled by Rand Energy Group Inc., a privately held British Columbia
corporation ("RAND"), which, in turn, is controlled 51% by Reg Technologies
Inc., a publicly held British Columbia corporation ("Reg Tech"). The Company is
engaged in the business of developing and building an improved axial vane-type
rotary engine known as the Rand Cam/Direct Charge Engine ("RC/DC Engine"), which
is a variation of the Rand Cam Rotary Engine, an axial vane rotary engine
("Original Engine"). The worldwide, exclusive of the United States, intellectual
and marketing rights to the RC/DC Engine are held by RAND. The Company holds the
rights to develop, build and market the RC/DC Engine design in the U.S. pursuant
to an agreement with RAND. Under a project cost sharing agreement entered into
with RAND effective May 1, 1993, each company will fund 50% of the continuing
development cost of the RC/DC Engine.
The Company's principal offices are located at 10751 Shellbridge Way, Suite
185, Richmond, British Columbia V6X 2W8, Canada. Its telephone number is (604)
278-5996 and its telefacsimile number is (604) 278-3409.
In order to fully effect its intended plan of operations, the Company will
likely need to raise additional capital in the future beyond any amount
currently on hand and which may become available as a result of the exercise of
warrants and options which are currently outstanding. Reg Technologies, Inc.,
the parent company, is currently completing a private placement to raise
$250,000 Cnd, which will be sufficient funds to complete the Rand Cam(TM)
compressor and oil pump projects.
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
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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 April, 27, 1993 among Reg Tech, Rand
Cam Corp., RAND and James McCann, Reg Tech acquired an additional 330,000 shares
(11%) of RAND from Rand Cam Corp. to increase its investment to 51%.
On August 20, 1992, the Company entered in an agreement with RAND and Brian
Cherry (the "August 1992 Agreement") under which the Company issued 5,700,000
shares of its Common Stock at a deemed value of $0.01 per share to RAND in
exchange for certain valuable rights, technology, information, and other
tangible and intangible assets, including improvements, relating to the United
States rights to the Original Engine. RAND's president is also the president of
the Company and its Vice President and Secretary is also a director of the
Company. The terms of the agreement were negotiated between the parties and were
deemed to be mutually advantageous based upon conditions 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
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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
-------------
By News Release dated June 21, 1999, the company announced that the 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 his 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 and he also
assisted in the design of several important modifications.
Also on June 21, 1999, the Company announced that the 250 horsepower engine
design for aircraft operation has been completed using our 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)
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engine was completed and submitted to NASA for their approval for funding. The
approval for funding was subsequently unsuccessful.
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 Company has contracted Coltec, Inc., a Columbus, Indiana engineering
firm, to fabricate the Rand Cam (TM) air conditioning compressor for buses. The
testing was to be conducted in the Spring by Trans Air Manufacturing
Corporation, one of the largest manufacturers of air
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conditioning units for buses, which has agreed to jointly develop and
manufacture the working model compressor.
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, reducing hydrocarbon and carbon monoxide pollution. In addition, the
AVFS is relatively simple to manufacture.
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.
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Test results are shown in the following table:
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HC(ppm) CO(ppm) CO\\2\\(%) O\\2\\(%) NO\\x\\(ppm)
<S> <C> <C> <C> <C>
CARBURETOR
No Load less than 40 greater than 6000 7.61 5.2
44.6
No Load less than 40 greater than 6000 7.82 5.1
48.2
1190 Watts 7742 greater than 6000 8.89 3.9
127.8
1190 Watts 6332 greater than 6000 8.97 3.8
134.3
FUEL CELL
No Load less than 40 5526 9.18 8.8
24.9
No Load less than 40 5147 8.96 9.1
27.3
1190 Watts 2536 5934 12.58 2.7
942.5
1190 Watts 1992 2766 12.47 4.4
932.5
1190 Watts 1716 2448 12.3 3.1
855
1190 Watts 1432 2512 11.5 5.1
610
</TABLE>
On March 12, 1998, the Company announced the following test results as
reported by Patrick Badgley.
The latest round of AVFS testing on the 10 horsepower Tecumseh engine has
been completed by Adiabatics, Inc. The following is a summary of the latest test
data where the power output is the same for the AVFS and the standard carburetor
fuel system:
<TABLE>
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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>
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. 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 December 1, 1999, the Company announced that testing of the first Rand
Cam (TM) oil pump was completed. A major American automobile manufacturer
notified the Company that the approved evaluation of the production intent
design will be run in the first or second month of the year 2000. The Company's
components were expected to be ready for testing and evaluating by the
automobile manufacturer's Production Transmission Group at that time. The Rand
Cam (TM) pump assembly was to be ready by late January 2000. The Rand Cam (TM)
oil pump tests completed to date by Paul LaMarche indicate that the oil pump in
many areas exceed the spectrum and show to be more efficient in volumetric
performance. These results promoted the oil pump to the next phase of the
evaluation to be run. It is a requirement to calibrate all the benefits to
improve fuel economy over current oil pumps used today in automobile
transmissions. Currently the Company is still awaiting results from the
automobile manufacturer regarding this project.
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.
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.
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.
Other Products
--------------
Discussions with a large potential end user for fuel cell applications are
underway for the air pump and compressor.
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Progress Report from May 1, 1999 to April 30, 2000
--------------------------------------------------
On May 18, 1999 the Company announced out of Detroit, MI that it is
proceeding to build and test the Rand Cam(TM) pump in high volume transmission
applications.
The design of the new pump application is currently underway by Paul
LaMarche, REGI's engineer in Detroit, MI and will proceed with a production
packaging evaluation in the rear wheel drive transmission.
The evaluation will include the following:
. Demonstrate packagability
. Enable functional testing at the Automatic Transmission New Product Center in
Livonia
. Enable in vehicle evaluation
. Check functionality given packaging constraints
. Ease cost comparison
. Ease manufacturing evaluation
The first Rand Cam(TM) pump is currently being tested in Detroit. The
automotive testing facilities, which are dedicated to pre-production development
programs, will complete the testing on the new pump. The testing will include in
lab testing as well as vehicle on the road evaluation.
On June 11, 1999 the Company announced that the Rand Cam(TM) rotary diesel
aircraft project (1998 NASA SBIR Phase I contract) has been completed and the
final report has been delivered to NASA on schedule.
The NASA SBIR Phase I contract provided funds for modification and testing
of the existing 125 horsepower Rand Cam(TM) diesel engine which was developed by
Reg Technologies/REGI U.S., Inc. engineering team Patrick Badgley and assisted
by Paul LaMarche.
Patrick Badgley, our senior engineer for the Rand Cam(TM) diesel aircraft
project, has reported that under Mr. Badgley's direction the 125 horsepower
diesel engine has successfully completed a short test run on diesel fuel ignited
by compression ignition. Mr. Badgley was directly involved with the Global
Aircraft corporation 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. Additional testing is currently being conducted
by the Global/Reg team.
Patrick Badgley also reports that the 250 horsepower engine design
especially for aircraft operation has been completed using the Reg Technologies,
Inc. 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 is currently being completed and
submitted to NASA.
On October 4, 1999 the Company announced it has received notification from
Global Aircraft Corporation on Friday October 1, 1999 that Global/Reg/REGI was
not successful in obtaining the Phase II award for the 250 H.P. Rand Cam(TM)
aircraft engine. The debriefer from NASA stated that the Phase II proposal was
excellent with regard to technical content applicability to the NASA mission,
the major weakness of the proposal regarding the lack of sufficient engine test
data and concern that the Reg engineers have solved the sealing problems.
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Based on the information from NASA the Company has commenced work on design
modifications to the existing 125 horsepower diesel Rand Cam(TM) engine to
incorporate the latest "winged rotor" concept.
Following the completion of the drawings the new hardware will be
fabricated and the existing engine parts modified. The engine will then be
assembled and tested to demonstrate that the objectives have been met.
According to Chief Engineer Patrick Badgley this project will dramatically
improve the gas sealing, will eliminate several rubbing surfaces and will omit
over 50 parts.
On January 14, 2000 the Company announced it contracted with Coltec, Inc.,
a Columbus, Indiana engineering firm, to fabricate the Rand Cam(TM) air-
conditioning compressor for buses.
The testing will be conducted by TransAir Manufacturing Corporation this
spring. TransAir is one of the largest manufacturers of air-conditioning units
for buses and has agreed to jointly develop and manufacture the working model
compressor.
DISCUSSION ON THE YEAR 2000 ISSUE
In recognition of the Year 2000 risk for information systems, computers,
equipment and products using date sensitive software, the Company retained a
consultant to assess the risk to the Company, both internally and externally.
The Year 2000 risk for information systems, computers, equipment and products
using date sensitive software has passed without any problems whatsoever. The
Company will continue to monitor the Year 2000 issue, but does not anticipate
any problems. It is not expected that any additional 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,
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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.
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.
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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:
. AIR CONDITIONING COMPRESSOR - An agreement with Trans Air Manufacturers
has been completed to use the Rand Cam(TM) compressor in air conditioning units
in bus applications. The Company is in the final stages of delivering a
compressor prototype for testing.
. PUMP - The design of the special transmission oil pump for a large
automobile manufacturer will proceed shortly after receiving the pump
specifications from their engineers.
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 air conditioning compressors is being completed by
Coltec Industries an engineering firm in Columbus, Indiana under contract with
the Company.
During the last two fiscal years, the company has spent $475,324 on
research and development.
ENVIRONMENTAL CONTROL FACTORS
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At the present time there is no direct financial or competitive effect upon
the Company's business as a result of any need to comply with any federal, state
or local provisions which have been enacted or adopted regulating the discharge
of materials into the environment, or otherwise relating to the protection of
the environment.
KEY CUSTOMERS
Although the Company has no key customers at the present time, it is
expected that if its development work is successful, it will likely become
dependent, at least initially, upon one or very few key customers. Such
dependence could prove to be risky in the event that one or more such potential
customers were to be lost and not replaced.
RAW MATERIALS
Since the Company is not in production and there are no plans at this time
for the Company to enter the actual engine manufacturing business, raw materials
are not of present concern. At this time, however, there does not appear to be
any foreseeable problem with obtaining any materials or components which may be
required in the manufacture of its potential products.
PATENT INFORMATION
U.S. patent No. 5,429,084 was granted on July 4, 1995, to the inventor,
Brian Cherry, Patrick Badgley and four other individuals for various
improvements incorporated in the RC/DC Engine. The patent has been assigned to
the Company. U.S. Patent 4,401,070 for the Original Engine was issued on August
30, 1983, to James McCann and the marketing rights are held by RAND.
The RC/DC Engine is composed basically of a disk shaped rotor with drive
shaft, which turns, and the housing or stator, which remains stationary. The
rotor has two or more vanes which are mounted perpendicular to the direction of
rotation and slide back and forth through it. As the rotor turns, the ends of
the vanes ride along the insides of the stator housing which have wave-like
depressions, causing the vanes to slide back and forth. In the process of
turning and sliding, combustion chambers are formed between the rotor, stator
walls and vanes where the fuel/air mixture is injected, compressed, burned and
exhausted.
SEASONALITY AND BACKLOG OF BUSINESS
Since the Company is not yet in production, 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
-12-
<PAGE>
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, 2000.
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 different. The Infinite Engine is similar to
the old Wankel engine which had pollution problems and was not
-13-
<PAGE>
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 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 is also using the facilities of Coltec
Industries which is under contract to design and build the compressor prototype.
Mr. Badgley has also designed several important improvements to the RC/DC Engine
for which patent applications are pending. Mr. LaMarche works out of the office
at Five Star Industries, a machine shop located in Detroit, MI. The monthly rent
for his portion of office and work space is $2,175.
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
-14-
<PAGE>
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, 2000.
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
$0.5625 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, 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
Quarter ended July 31, 1999 $0.6870 $0.6628 $0.84879 $0.8392
Quarter ended October 31, 1999 $0.644 $0.6318 $0.7583 $0.74365
Quarter ended January 31, 2000 $0.621845 $0.596685 $0.72569 $0.69246
Quarter ended April 30, 2000 $0.99776 $0.91778 $1.1553 $1.06256
</TABLE>
As of July 31, 2000, there were 10,217,735 shares of Common Stock
outstanding, held by 229 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.
-15-
<PAGE>
RECENT SALES OF UNREGISTERED SECURITIES
Set forth below is information regarding the issuance and sales of the
Company's securities without registration during the last fiscal year. No such
sales involved the use of an underwriter.
From October 1998 to September 1999, the Company sold, in a private
placement, 852,101 units at a price of $0.75 per unit to 30 accredited investors
and to 21 non-accredited investors. Of these investors, four of the accredited
were not U.S. residents. Each unit contained one share and one warrant to
acquire one additional share at $1.00 per share if exercised during year one
after receipt of the subscription funds. An additional 17,334 shares were issued
pursuant to exercises of warrants at $1.00 per share. A commission of $47,608
was paid in connection with the placement. This offering was exempt from
registration under Rule 506 and Section 4(2) of the Securities Act of 1933, as
amended (the "Act"). Each certificate representing securities issued to the
investors in this private placement bears a legend restricting transfer. In
addition, if the exemptions under Rule 506 under and Section 4(2) of the Act are
not available, $ 61,750 of the sales to non-U.S. residents were exempt pursuant
to Regulation S under the Act.
ITEM 6: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
------ ---------------------------------------------------------------
RESULTS OF OPERATIONS MANAGEMENT'S DISCUSSION
---------------------------------------------
REGI U.S., Inc. 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 Company's controlling shareholder. The Company
owns the U.S. marketing and intellectual rights and has a project cost sharing
agreement, whereby the Company will fund 50% of the further development of the
RC/DC Engine and REGI will fund 50%.
In fiscal 1998, the Company acquired the U.S. and world-wide rights (except
Canada) to an Air/Vapour Flow System "AVFS". The Company will pay to the
inventor 8.5% on net sales derived from the AVFS. The inventor will also receive
a minimum annual royalty of $24,000 per year beginning October 1, 1997, payable
quarterly.
As a development stage company, the Company devotes most of its activities
to establishing its business. Planned principal activities have not yet produced
significant revenues and the Company has a working capital deficit. The Company
has undergone mounting losses to date totalling $4,343,000 and further losses
are expected until the Company completes a licensing agreement with a
manufacturer and reseller. The Company's working capital deficit is $217,000.
The Company's only assets are our intangible assets, being patents and
intellectual property rights, totalling $395,000, which represents 99% of total
assets or 216% of shareholders' equity. These factors raise doubt about the
Company's ability to continue as a going concern. The Company's ability 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.
-16-
<PAGE>
During the year, the Company raised a further $531,575 gross, $483,968
net, pursuant to a private placement of 852,101 units at $0.75 per unit,
$107,500 was received in fiscal 1999. These units were issued on December 20,
1999, and each unit contained one share and one warrant to acquire one
additional share at $1.00 per share if exercised in year one after receipt of
funds. These funds raised do not provide enough working capital to fund ongoing
operations for the next twelve months. The Company may also raise additional
funds through the exercise of warrants and stock options, if exercised. Warrants
with respect to 834,767 shares at $1.00 per share may be exercised to net
$834,767 and options with respect to 815,000 shares at prices between $0.75 and
$1.00 per share may be exercised to net $655,000.
The Company receives interim support from its ultimate parent company
($110,000 subsequent to April 30, 2000). The parent company is raising
additional funds from equity financing for a total of $250,000 Cnd.
Progress Report from May 1, 1999 to April 30, 2000
--------------------------------------------------
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 his direction, the 125 horsepower diesel engine successfully
completed a short test run on diesel fuel ignited by compression ignition. He
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 for aircraft operation has been
completed using our 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 was completed and submitted to NASA for their approval for funding.
On December 1, 1999, the Company announced that testing of the first Rand Cam
(TM) oil pump was completed. A major American automobile manufacturer notified
the Company that the approved evaluation of the production intent design will be
run in the first or second month of year 2000. The Company's components were
expected to be ready for testing and evaluating by the automobile manufacturer's
Production Transmission Group at that time. The Rand Cam (TM) pump assembly was
to be ready by late January 2000. The Rand Cam (TM) oil pump tests completed to
date by Paul LaMarche indicate that the oil pump in many areas exceed the
spectrum and show to be more efficient in volumetric performance. These results
promoted the oil pump to the next phase of the evaluation to be run. It is a
requirement to calibrate all the benefits to improve fuel economy over current
oil pumps used today in automobile transmissions.
By News Release dated January 14, 2000, the Company announced that it had
contracted with Coltec, Inc., a Columbus, Indiana engineering firm, to fabricate
the Rand Cam(TM) air conditioning compressor for buses. The testing was to be
conducted in the Spring by Trans Air Manufacturing Corporation, one of the
largest manufacturers of air conditioning units for buses, which has agreed to
jointly develop and manufacture the working model compressor.
Results of operations for the year ended April 30, 2000 ("2000") compared to the
--------------------------------------------------------------------------------
year ended April 30, 1999 ("1999")
----------------------------------
-17-
<PAGE>
There were no revenues from product licensing during 2000 and 1999.
The net loss in 2000 increased by $15,000 to $413,000 compared to $398,000
in 1999. The increase was due to a $30,000 increase in research and development
expenses and a decrease of $15,000 in administrative expenses. The decrease in
administrative expenses was due to the Company's continued reduction of the
investor relations budget. The reductions in investor relations activities was
done to preserve working capital. All other administrative expenses were kept to
a minimum amount of $84,000 from $72,000 in 1999. Professional fees made up
$25,000 of the administrative expenses in 2000 as compared to $20,000 in 1999
which includes accounting, auditing and legal; the Company continues to use an
in house consultant to perform the majority of legal work. The increase of
$30,000 in research and development was attributed to increased travel costs to
$12,000 from $2,000; and prototype design and construction contracts for outside
contractors was increased to $55,000 from $40,000. The majority of prototype
construction and testing costs continues to be borne by potential licensees and
manufacturers. The Company pays two in house consultants for technical prototype
design consulting amounting to $88,000 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.
Liquidity
---------
During 2000, the Company financed its operations mainly through
subscription proceeds of $484,000, net of a $48,000 cash commission, towards a
private placement of units at $0.75 per unit. The Company also received $17,000
from warrants exercised.
The Company paid funding received in 1999 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 of which $142,000 was repaid in 2000. These
amounts owing are now $98,000, or 45% of total current 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, or pay expenses on behalf of, further funds
if needed.
The Company spent $12,000 on patent protection costs and $5,000 on
computer equipment during 2000. The loss for the year of $413,000 included
$40,000 of non-cash items being $24,000 for amortization of capital and
intangible assets and $16,000 for stock based compensation.
As at April 30, 2000, the Company had a cash deficiency of $5,000 and
other current liabilities of $202,000. The Company receives interim support from
its ultimate parent company ($110,000 subsequent to April 30, 2000) and plans to
raise additional funds from equity financing which is yet to be negotiated. The
Company also plans to raise funds through loans from a controlling shareholder
(REGI). REGI owns 5,362,700 shares and plans to sell shares as needed to meet
the Company's ongoing funding requirements if traditional equity sources of
financing prove to be insufficient.
-18-
<PAGE>
ITEM 7. FINANCIAL STATEMENTS
------- --------------------
Independent Auditor's Report......................................... F-2
Balance Sheets....................................................... F-3
Statements of Operations............................................. F-4
Statements of Cash Flows............................................. F-5
Statement of Stockholders' Equity.................................... F-6
Notes to the Financial Statements.................................... F-8
F-1
<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, 2000 and 1999 and the related
statements of operations, shareholders' equity and cash flows for the period
from July 27, 1992 (Inception) to April 30, 2000 and the years ended April 30,
2000 and 1999. 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, 2000 and 1999, and the results of its operations
and its cash flows for the period from July 27, 1992 (Inception) to April 30,
2000 and the years ended April 30, 2000 and 1999, 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.
"Elliott, Tulk, Pryce, Anderson"
CHARTERED ACCOUNTANTS
Vancouver, Canada
July 19, 2000
F-2
<PAGE>
REGI U.S., Inc.
(A Development Stage Company)
Balance Sheets
April 30, 2000 and 1999
<TABLE>
<CAPTION>
2000 1999
$ $
<S> <C> <C>
Assets
Current Asset
Cash - 82,120
Fixed Assets (Note 3) 4,295 -
Intangible Assets (Note 4) 394,973 405,335
---------- ----------
399,268 487,455
========== ==========
Liabilities and Shareholders' Equity
Current Liabilities
Cheques issued in excess of funds on deposit 4,853 -
Accounts payable 51,924 107,274
Accrued liabilities 11,328 9,875
Due to affiliates (Note 7) 98,404 240,771
Convertible debentures (Note 5) 50,000 -
---------- ----------
216,509 357,920
---------- ----------
Convertible Debentures (Note 5) - 50,000
---------- ----------
Commitments and Contingent Liabilities (Note 8)
Shareholders' Equity
Common Stock (Note 6), 20,000,000 shares
authorized without par value; 10,217,735
and 9,348,300 shares issued and
outstanding respectively 4,510,249 3,901,447
Common Stock Paid For But Unissued (Note 6(d)) - 107,500
Stock Based Compensation - Stock Option 15,417 -
Deficit Accumulated During the Development Stage (4,342,907) (3,929,412)
---------- ----------
182,759 79,535
---------- ----------
399,268 487,455
========== ==========
</TABLE>
(The accompanying notes are an integral part of the financial statements)
F-3
<PAGE>
REGI U.S., Inc.
(A Development Stage Company)
Statements of Operations
Accumulated from July 27, 1992 (Inception) to April 30, 2000 and
the Years ended April 30, 2000 and 1999
<TABLE>
<CAPTION>
Accumulated from
July 27, 1992 (Inception)
to April 30,
2000 2000 1999
$ $ $
<S> <C> <C> <C>
Revenues - - -
--------- --------- ---------
Administrative Expenses
Bank charges 7,520 1,552 1,238
Foreign exchange 4,296 654 482
Interest on debentures 12,369 3,828 4,713
Investor relations - publications 304,837 35,994 6,478
Investor relations - consulting 500,306 40,095 96,870
Office, rent and telephone 143,621 28,714 28,719
Professional fees 302,850 24,586 20,135
Transfer agent and regulatory fees 88,582 21,013 16,921
Travel 11,674 5,327 -
Less: interest (16,747) (1,212) (12)
--------- --------- ---------
1,359,308 160,551 175,544
--------- --------- ---------
Research and Development Expenses
Intellectual property (Note 4(a) and (b)) 257,000 - -
Amortization 83,062 23,741 25,199
Market development 92,782 - -
Professional fees 73,904 - -
Project management 220,000 30,000 30,000
Project overhead 176,646 21,062 16,445
Prototype design and construction contracts 1,284,106 54,628 40,363
Royalties (Note 4(d)) 63,000 24,000 24,000
Technical prototype design consulting 377,806 88,000 84,200
Technical reports 22,120 - -
Technical salaries 169,467 - -
Travel 163,706 11,513 2,173
--------- --------- ---------
2,983,599 252,944 222,380
--------- --------- ---------
Net Loss 4,342,907 413,495 397,924
========= ========= =========
Net Loss Per Share (.04) (.04)
========= =========
Weighted Average Shares Outstanding 9,657,000 9,310,000
========= =========
</TABLE>
(The accompanying notes are an integral part of the financial statements)
F-4
<PAGE>
REGI U.S., Inc.
(A Development Stage Company)
Statements of Cash Flows
Accumulated from July 27, 1992 (Inception) to April 30, 2000 and
the Years ended April 30, 2000 and 1999
<TABLE>
<CAPTION>
Accumulated from
July 27, 1992 (Inception)
to April 30,
2000 2000 1999
$ $ $
<S> <C> <C> <C>
Cash Flows to Operating Activities
Net loss (4,342,907) (413,495) (397,924)
Adjustments to reconcile net loss to cash
Amortization 83,062 23,741 25,199
Intellectual property 257,000 - -
Stock based compensation 256,713 15,417 71,046
Change in non-cash working capital items
Increase (decrease) in accounts payable and
accrued liabilities 88,254 (53,897) 44,372
---------- -------- --------
Net Cash Used in Operating Activities (3,657,878) (428,234) (257,307)
---------- -------- --------
Cash Flows from Financing Activities
Increase in capital stock - net of cash commission 3,898,702 501,302 107,500
Increase in convertible debenture 50,000 - -
Increase (decrease) in due to affiliates (101,596) (142,367) 237,397
---------- -------- --------
Net Cash Provided by Financing Activities 3,847,106 358,935 344,897
---------- -------- --------
Cash Flows to Investing Activities
(Increase) in fixed assets (24,947) (5,452) -
(Increase) in intangible assets (169,134) (12,222) (6,639)
---------- -------- --------
Net Cash Used in Investing Activities (194,081) (17,674) (6,639)
---------- -------- --------
Increase (decrease) in cash (4,853) (86,973) 80,951
Cash - beginning of period - 82,120 1,169
---------- -------- --------
Cash (deficiency) - end of period (4,853) (4,853) 82,120
========== ======== ========
Non-Cash Financing Activities
Affiliate's shares issued for intellectual property 200,000 - -
Shares issued for financial consulting services 241,296 - 71,046
Shares issued for intellectual property 345,251 - -
Shares issued to settle debt 25,000 - -
Stock based compensation - stock options 15,417 15,417 -
---------- -------- --------
826,964 15,417 71,046
========== ======== ========
Supplemental Disclosures
Interest paid 12,369 3,828 4,713
Income tax paid - - -
</TABLE>
(The accompanying notes are an integral part of the financial statements)
F-5
<PAGE>
REGI U.S., Inc.
(A Development Stage Company)
Statements of Shareholders' Equity
From July 27, 1992 (Inception) to April 30, 2000
<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 5,700,000 57,000 -
Stock issued for cash 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 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 10,000 1,000 -
a private placement 250,000 562,500 -
warrants exercised 170,200 213,000 -
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 232,500 75,800 -
warrants exercised 132,200 198,300 -
a private offering memorandum 341,000 682,000 -
Net loss for the year - - (796,905)
--------- --------- ----------
Balance - April 30, 1996 7,635,900 2,292,600 (2,440,403)
Stock issued for cash pursuant to
options exercised 137,000 13,700 -
warrants exercised 185,400 278,100 -
private placements 165,000 257,500 -
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 50,000 5,000 -
a units offering 500,000 500,000 -
Stock issued for acquisition of AVFS rights 400,000 288,251 -
Stock issued for financial consulting services 125,000 170,250 -
Stock issued to settle an accrued liability 50,000 25,000 -
Net loss for the year - - (580,901)
--------- --------- ----------
Balance - April 30, 1998 9,248,300 3,830,401 (3,531,488)
========= ========= ==========
</TABLE>
(The accompanying notes are an integral part of the financial statements)
F-6
<PAGE>
REGI U.S., Inc.
(A Development Stage Company)
Statements of Shareholders' Equity
From July 27, 1992 (Inception) to April 30, 2000
<TABLE>
<CAPTION>
Deficit
Accumulated
During the
Common Stock Development
Shares Amount Stage
# $ $
<S> <C> <C> <C>
Balance carried forward 9,248,300 3,830,401 (3,531,488)
Stock issued for financial consulting services 100,000 71,046 -
Net loss for the year - - (397,924)
---------- --------- ----------
Balance - April 30, 1999 9,348,300 3,901,447 (3,929,412)
Stock issued for cash pursuant to
a private placement 852,101 639,075 -
less cash commission paid - (47,607) -
warrants exercised 17,334 17,334 -
Net loss for the year - - (413,495)
---------- --------- ----------
Balance - April 30, 2000 10,217,735 4,510,249 (4,342,907)
========== ========= ==========
</TABLE>
(The accompanying notes are an integral part of the financial statements)
F-7
<PAGE>
REGI U.S., Inc.
(A Development Stage Company)
Notes to the Financial Statements
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 $216,509. 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.
During the year the Company raised a further $531,575 gross, $483,968
pursuant to a private placement of 852,101 units at $0.75 per unit,
$107,500 was received in fiscal 1999. These units were issued on December
20, 1999 and each unit contained one share and one warrant to acquire one
additional share at $1.00 per share if exercised in year one after receipt
of funds. These funds raised do not provide enough working capital to fund
ongoing operations for the next twelve months. The Company may also raise
additional funds through the exercise of warrants and stock options, if
exercised. Warrants with respect to 834,767 shares at $1.00 per share may
be exercised to net $834,767 and options with respect to 815,000 shares at
prices between $0.75 and $1.00 per share may be exercised to net $655,000.
The Company receives interim support from its ultimate parent company
($110,000 subsequent to April 30, 2000) and plans to raise additional funds
from equity financing which is yet to be negotiated.
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.
F-8
<PAGE>
2. Summary of Significant Accounting Policies (continued)
(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.
Loss per share for 2000 and 1999 does not include the effect of the
potential conversions of stock options, warrants or convertible
debentures, as their effect would be anti-dilutive.
(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 fair market value 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:
Amount Year of
Year of Loss $ Expiration
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 417,000 2014
2000 429,000 2015
---------
4,187,000
=========
F-9
<PAGE>
2. Summary of Significant Accounting Policies (continued)
(h) Tax Accounting
Pursuant to SFAS 109 the Company is required to compute tax asset
benefits for net operating losses carried forward. Potential benefit
of net operating losses have not been recognized in these financial
statements because the Company cannot be assured it is more likely
than not it will utilize the net operating losses carried forward in
future years.
The components of the net deferred tax asset at the end of April 30,
2000 and 1999, and the statutory tax rate, the effective tax rate and
the elected amount of the valuation allowance are scheduled below:
2000 1999
$ $
Net Operating Loss 429,000 417,000
Statutory Tax Rate 113,900 + 113,900 +
34% 34%
in in
excess of excess of
$335,000 $335,000
Effective Tax Rate - -
Deferred Tax Asset 145,000 142,000
Valuation Allowance (145,000) (142,000)
Net Deferred Tax Asset - -
============ ============
3. Fixed Assets
2000 1999
Accumulated Net Book Net Book
Cost Amortization Value Value
$ $ $ $
Computer equipment 5,452 1,157 4,295 -
===== ===== ===== =====
4. Intangible Assets
2000 1999
Accumulated Net Book Net Book
Cost Amortization Value Value
$ $ $ $
Patents - RC/DC Engine 78,495 15,180 63,315 55,183
Patents - AVFS 4,137 361 3,776 3,984
AVFS rights ((d) below) 374,751 46,869 327,882 346,618
------- ------ ------- -------
457,383 62,410 394,973 405,785
======= ====== ======= =======
(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.
F-10
<PAGE>
4. Intangible Assets (continued)
(c) Pursuant to a letter of understanding dated December 13, 1993 between
the Company, REGI and REG (collectively called the grantors) and West
Virginia University Research Corporation ("WVURC"), the grantors have
agreed that WVURC shall own 5% of all patented technology and will
receive 5% of all net profits from sales, licenses, royalties or
income derived from the patented technology.
(d) On June 22, 1997 the Company acquired the U.S. rights to an Air/Vapor
Flow System "AVFS". The Company paid $50,000 and 200,000 shares at a
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. The Company
subsequently redeemed the debentures on their maturity date.
6. Common Stock
(a) Warrants outstanding
Exercise
Number of Price
Shares $ Expiry Dates
500,000 1.25 September 23, 2000 to December 11, 2000
834,767 1.00 May 3, 2000 to September 28, 2000
(b) Stock Option Plan
The Company has a Stock Option Plan to issue up to 1,000,000 shares to
certain key directors and employees, approved April 30, 1993 and
amended March 30, 1995. On March 30, 1995 the Company registered the
1,000,000 shares for issuance under the Stock Option Plan which was
amended November 1, 1996. Pursuant to the Plan the Company has granted
stock options to certain directors and employees.
The options are granted for services provided 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 conditions are met to issue shares.
The fair value of the employee's purchase rights, pursuant to stock
options, under SFAS 123, was estimated using the Black-Scholes model.
F-11
<PAGE>
6. Common Stock (continued)
(b) Stock Option Plan
The weighted average number of shares under option and option price
for the year ended April 30, 2000 is as follows:
Shares Weighted Average
Under Option Option Price
# $
Beginning of year 570,000 .76
Granted 250,000 .90
Exercised - -
Cancelled - -
Lapsed (5,000) (.75)
-------- -----
End of year 815,000 .80
======== =====
If compensation expense had been determined pursuant to SFAS 123, the
Company's net loss and net loss per share for fiscal 2000 and 1999
would have been as follows:
2000 1999
$ $
Net loss
As reported (333,665) (309,502)
Pro forma (344,607) (318,842)
Basic net loss per share
As reported (.04) (.03)
Pro forma (.04) (.03)
(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 conditions to issue shares are met
at their then fair market value. There are no options currently
granted pursuant to this plan.
(d) Private Placement
During the year, the Company has raised a further $531,575 for a total
of $639,075 raised pursuant to a private placement of 852,101 units at
$0.75 per unit. Each unit contained one share and one warrant to
acquire one additional share at $1.00 per share if exercised during
year one after receipt of the subscription funds. A total of 17,334
shares were issued pursuant to warrants exercised at $1.00 per share.
A financing fee of $47,608 was paid to an employee in connection with
finding subscribers for this private placement which was deducted from
the proceeds as a capital transaction.
7. Due to Affiliates
Amounts owing to affiliates are unsecured, non-interest bearing and are due
on demand.
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.
F-12
<PAGE>
PART III
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT; COMPLIANCE WITH
------ -------------------------------------------------------------------
SECTION 16 (a) OF THE EXCHANGE ACT.
-----------------------------------
Directors and Executive Officers of the Registrant
The following table sets forth the name, age and position of each Executive
Officer and Director of the Company:
NAME AGE POSITION
John G. Robertson 59 Chairman of the Board of Directors, President
and Chief Executive Officer
Brian Cherry 60 Vice-President, Secretary and Director
Jennifer Lorette 28 Vice-President and Chief Financial Officer
Patrick Badgley 56 Vice-President, Research and Development
Mr. Robertson and Mr. Cherry have held their positions since the formation of
the Company in July, 1992. All officers currently devote part-time to the
operation of the Company.
There are no family relationships between any director or executive officer and
any other director or executive officer.
John G. Robertson - Chairman of the Board of Directors, President, Chief
Executive Officer
-19-
<PAGE>
Mr. Robertson has been the Chairman, President and Chief Executive Officer of
the Company since its formation. Since October 1984 Mr. Robertson has been
President and a Director of Reg Technologies Inc., a British Columbia
corporation listed on the Vancouver Stock Exchange that has financed the
research on the Rand Cam Engine since 1986. REGI U.S. is controlled by Rand
Energy Group, Inc., a British Columbia corporation of which Reg Technologies
Inc. is the majority shareholder. REGI U.S. owns the U.S. rights to the Rand Cam
(TM) technology and Rand Energy Group, Inc. owns the worldwide rights exclusive
of the U.S. Mr. Robertson is President, Principal Executive Officer and a member
of the Board of Directors of IAS Communications, Inc., an Oregon corporation
traded on the OTC bulletin board, which is developing a new type of antenna
system. Since June 1997 Mr. Robertson has been President, Principal Executive
Officer and a Director of Information-Highway.com, Inc., a Florida corporation
traded on the OTC bulletin board, and its predecessor. He is also the President
and Founder of Teryl Resources Corp., a public company trading on the Vancouver
Stock Exchange involved in gold, diamond, and oil and gas exploration. He is
also President of Linux Wizardry Systems, Inc. (formerly Flame Petro Minerals
Corp.), a public company trading on the OTC Bulletin Board. Linux Wizardry's
Apprentice Router allows small businesses to establish and manage network
connections without the need of a Network specialist. Since May 1977 Mr.
Robertson has been President and a member of the Board of Directors of SMR
Investments Ltd., a British Columbia corporation engaged in the business of
management and investment consulting.
Brian Cherry - Vice President, Secretary and Director
Mr. Cherry has been Vice President, Secretary and a Director of the Company
since its inception. Since October 1994 Mr. Cherry has served as Vice President
in charge of patents and technology for the Rand Cam Engine. Since April 1990
Mr. Cherry has been a director of Reg Technologies, Inc., a British Columbia
corporation listed on the Vancouver Stock Exchange that has financed the
research on the Rand Cam Engine since 1986.
Jennifer Lorette - Vice President and Chief Financial Officer
Ms. Lorette has been Vice President and Chief Financial Officer of the Company
since June 1994. Since April 1994 she has also been Vice President of
Administration for Reg Technologies, Inc., a British Columbia corporation listed
on the Vancouver Stock Exchange that has financed the research on the Rand Cam
Engine since 1986. REGI U.S. is controlled by Rand Energy Group, Inc., a British
Columbia corporation of which Reg Technologies Inc. is the majority shareholder.
Since February 1995 Ms. Lorette has been Secretary/Treasurer, Principal
Financial Officer and Principal Accounting Officer of IAS Communications Inc.,
an Oregon corporation traded on the OTC bulletin board. Since June 1997 Ms.
-20-
<PAGE>
Lorette has been Secretary/Treasurer, Principal Financial Officer, Principal
Accounting Officer and a Director of Information-Highway.com, Inc., a Florida
corporation traded on the OTC bulletin board, and its predecessor. Since June
1994 Ms. Lorette has also been Chief Financial Officer and Vice President of
LinuxWixardry Stystems, Inc. (formerly Flame Petro-Minerals Corp.).
Patrick R. Badgley - Vice President, Research and Development
Mr. Badgley was appointed Vice President, Research and Development of the
Company in February 1994. He is directing and participating in the technical
development of the Rand Cam compressor, gasoline engine and diesel engine. Since
July 1993 Mr. Badgley has been a Director of Reg Technologies Inc., a British
Columbia corporation listed on the Vancouver Stock Exchange that has financed
the research on the Rand Cam Engine since 1986. REGI U.S. is controlled by Rand
Energy Group, Inc., a British Columbia corporation of which Reg Technologies
Inc. is the majority shareholder. Between 1986 and 1994, Mr. Badgley was the
Director of Research and Development at Adiabatics, Inc., in Columbus, Indiana,
where he directly oversaw several government and privately sponsored research
programs involving engines. He was the Program Manager for the Gas Research
Institute project for emissions reduction of two-stoke cycle natural gas
engines. He was also Program Manger for several coal fuel diesel engine programs
for the Department of Energy and for uncooled engine programs for a Wankel
engine for NASA and for a piston type diesel engine for the U.S. Army. Mr.
Badgley's work has covered all phases of research, design, development and
manufacturing, from research on ultra-high speed solenoids and fuel sprays, to
new product conceptualization and production implementation of fuel pumps and
fuel injectors. Mr. Badgley received his Bachelor of Science degree in
Mechanical Engineering from Ohio State University. Since February 1995 Mr.
Badgley has been a director and officer of IAS Communications Inc., an Oregon
corporation traded on the OTC bulletin board.
Section 16(a) Beneficial Ownership Reporting Compliance
Based solely upon a review of Forms 3, 4 and 5 furnished to the Company, other
than Mr. Badgley, who furnished no Forms to the Company during the year, no
officer, director or beneficial owner of more than ten percent of the Common
Stock of the Company failed to file on a timely basis reports required to be
filed by Section 16(a) of the Exchange Act during the most recent fiscal year.
ITEM 10. EXECUTIVE COMPENSATION
------- ----------------------
No executive officer had an annual salary and bonus in excess of $100,000 during
the past fiscal year. Mr. Robertson received no compensation from the Company in
fiscal year 2000, and has not received options to purchase shares of the
Company's common stock in any of fiscal years 2000, 1999, or 1998.
-21-
<PAGE>
On March 31, 1994, the Company entered into a management agreement with Access
Information Services, Inc., a Washington corporation which is owned and
controlled by the Robertson Family Trust. The Company retained Access at the
rate of $2,500 per month to provide certain management, administrative, and
financial services for the Company.
The Company may in the future create retirement, pension, profit sharing,
insurance and medical reimbursement plans covering its Officers and Directors.
At the present time, no such plans exist. No advances have been made or are
contemplated by the Company to any of its Officers or Directors. Directors
receive no compensation for their service as such. Compensation of officers and
directors is determined by the Company's Board of Directors and is not subject
to shareholder approval.
The following table sets forth certain information with respect to options
exercised during the fiscal year ended April 30, 2000 by the Company's Chief
Executive Officer, and with respect to unexercised options held by the Company's
Cheif Executive Officer at the end of fiscal 2000.
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR
AND YEAR END OPTION VALUES
<TABLE>
<CAPTION>
Number of Value of
Unexercised Unexercised Options at
Shares Options at Year End Year End
Acquired on Value ----------------------------- -----------------------------
Name Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
<S> <C> <C> <C> <C> <C> <C>
John G. Robertson -0- -0- 300,000 -0- -0-(1) -0-
</TABLE>
(1)The calculation of the value of unexercised options is based on the
difference between the last sale price of $0.78125 per share for the Company's
Common Stock on April 30, 2000, and the exercise price of each option ($1.00),
multiplied by the number of shares covered by the option.
The Company does not have any Long Term Incentive Plans.
The Company does not have any employment contracts, termination of employment
and change of control arrangements.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
------- --------------------------------------------------------------
The following table sets forth, as of July 31, 2000, the outstanding Class A
-22-
<PAGE>
Common Stock of the Company owned of record or beneficially by each person who
owned of record, or was known by the Company to own beneficially, more than 5%
of the Company's Common Stock, and the name and shareholdings of each Executive
Officer and Director and all Executive Officers and Directors as a group. A
person is deemed to be the beneficial owner of securities that can be acquired
by such person within 60 days from the date of this report upon the exercise of
warrants or options. Each beneficial owner's percentage ownership is determined
by assuming that options that are held by such person and which are exercisable
within 60 days from the date are exercised.
<TABLE>
<CAPTION>
PERCENTAGE OF
CLASS A CLASS A
NAME SHARES OWNED SHARES OWNED
<S> <C> <C>
John G. Robertson, Chairman of the Board of Directors,
President and Chief Executive Officer (1) (2) 5,676,050 56.5%
The Watchtower Society (3) 5,367,900 53%
James McCann (4) 5,367,900 53%
Rand Energy Group Inc. (5) 5,367,900 53%
Brian Cherry, Vice President, Secretary and Director (6) 300,500 2.9%
Jennifer Lorette, Vice President and Chief Financial
Officer (7) 60,500 *
Patrick Badgley, Vice President, Research and Development -- *
ALL EXECUTIVE OFFICERS & DIRECTORS AS A GROUP (FOUR
INDIVIDUALS) (8) 6,037,050 59%
</TABLE>
Except as noted below, all shares are held beneficially and of record and each
record shareholder has sole voting and investment power.
* Less than one percent
(1) These individuals may be deemed to be "parents or founders" of the Company
as that term is defined in the Rules and Regulations promulgated under the
Securities Act of 1933.
(2) Includes 5,367,900 shares registered in the name of Rand Energy Group Inc.
See Note (5) below for an explanation of the beneficial ownership of Rand
-23-
<PAGE>
Energy Group Inc. Mr. Robertson disclaims beneficial ownership of these
shares beyond the extent of his pecuniary interest. Also includes 300,000
options that are currently exercisable. Mr. Robertson's address is the same
as the Company's.
(3) Includes 5,367,900 shares registered in the name of Rand Energy Group Inc.
See Note (5) below for an explanation of the beneficial ownership of Rand
Energy Group Inc.
(4) Includes 5,367,900 shares registered in the name of Rand Energy Group Inc.
See Note (5) below for an explanation of the beneficial ownership of Rand
Energy Group Inc.
(5) Rand Energy Group Inc. is owned 51% by Reg Technologies Inc. and 49% by
Rand Cam Engine Corp. Under Rule 13d-3 under the Securities Exchange Act of
1934, both Reg Technologies Inc. and Rand Cam Engine Corp. could be
considered the beneficial owner of the 5,367,900 shares registered in the
name of Rand Energy Group Inc.
Reg Technologies Inc. is a British Columbia corporation listed on the
Vancouver Stock Exchange that has financed the research on the Rand Cam
Engine since 1986. Since October 1984 Mr. Robertson has been President and
a Director of Reg Technologies Inc. SMR Investment Ltd., a British Columbia
corporation, holds a controlling interest in Reg Technologies Inc. Since
May 1977 Mr. Robertson has been President and a member of the Board of
Directors of SMR Investments Ltd. Susanne M. Robertson, Mr. Robertson's
wife, owns SMR Investment Ltd. Accordingly, in Note (2) above, beneficial
ownership of the 5,367,900 shares registered in the name of Rand Energy
Group Inc. has been attributed to Mr. Robertson. The Company believes it
would be misleading and not provide clear disclosure to list as beneficial
owners in the table the other entities and persons discussed in this
paragraph, although a strict reading of Rule 13d-3 under the Securities
Exchange Act of 1934 might require each such entity and person to be listed
in the beneficial ownership table.
Rand Cam Engine Corp. is a privately held company whose stock is reportedly
owned 50% by The Watchtower Society, a religious organization, 34% by James
McCann and the balance by several other shareholders. Mr. McCann has
indicated that he donated the shares held by The Watchtower Society to that
organization but has retained a voting proxy for those shares. Accordingly,
in Notes (3) and (4) above, beneficial ownership of the 5,367,900 shares
registered in the name of Rand Energy Group Inc. has been attributed to The
Watchtower Society and Mr. McCann. The Company believes it would be
misleading and not provide clear disclosure to list as beneficial owners in
the table the other entities and persons discussed in this paragraph,
although a strict reading of Rule 13d-3 under the Securities Exchange Act
-24-
<PAGE>
of 1934 might require each such entity and person to be listed in the
beneficial ownership table.
(6) Includes 125,000 options that are currently exercisable. Mr. Cherry's
address is the same as the Company's.
(7) Includes 60,000 options that are currently exercisable. Ms. Lorette's
address is the same as the Company's.
(8) Includes 5,367,900 shares registered in the name of Rand Energy Group Inc.
whose beneficial ownership is attributed to Mr. Robertson as set forth in
Note (2) above. See Note (5) above for an explanation of the beneficial
ownership of Rand Energy Group Inc. Mr. Robertson disclaims beneficial
ownership of these shares beyond the extent of his pecuniary interest. Also
includes 485,000 options that are currently exercisable.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
------- ----------------------------------------------
Pursuant to the August 1992 Agreement the Company issued 5,700,000 shares of its
Common Stock at a deemed value of $0.01 per share to Rand Energy Group Inc., a
privately held British Columbia corporation ("RAND") in exchange for certain
valuable rights, technology, information, and other tangible and intangible
assets relating to the United States rights to the Original Engine. RAND is
owned 51% by Reg Technologies Inc., a British Columbia corporation listed on the
Vancouver Stock Exchange ("Reg Tech"), and 49% by Rand Cam Engine Corp. Reg
Tech's president is also the president of the Company and its Vice President and
Secretary is also Vice President and Secretary of the Company.
The Company also agreed to pay semi-annually to RAND a royalty of 5% of any net
profits to be derived by the Company from revenues received as a result of its
license of the Original Engine.
As part of the August 1992 Agreement, the Company also agreed to pay semi-
annually to Brian Cherry a royalty of 1% of any net profits to be derived by the
Company from revenues received as a result of this agreement.
Also in August 1992, the Company sold 300,000 shares of its Common Stock at
$0.01 per share to Brian Cherry.
In the April 1993 Agreement, an amendment to a previous Amendment Agreement
dated November 23, 1992, between RAND, Reg Tech and Brian Cherry and an original
agreement dated July 30, 1992, between RAND, Reg Tech and Brian Cherry, Cherry
agreed to: (a) sell, transfer and assign to RAND all his right, title and
interest in and to the technology related to the RC/DC Engine, including all
pending and future patent applications in respect of the Technology for all
countries except the United States of America, together with any improvements,
changes or other
-25-
<PAGE>
variations to the Technology; (b) sell, transfer and assign to the Company (then
called Sky Technologies Inc.), all his right, title and interest in and to the
Technology, including all pending and future patent applications in respect of
the Technology for the United States of America, together with any improvements,
changes or other variations to the Technology.
Other provisions of the April 1993 Agreement call for the Company (a) to pay to
RAND a continuing royalty of 5% of the net profits derived from the Technology
by the Company and (b) to pay to Brian Cherry a continuing royalty of 1% of the
net profits derived from the Technology by the Company.
A final provision of the April 1993 Agreement assigns and transfers ownership to
the Company of any patents, inventions, copyrights, know-how, technical data,
and related types of intellectual property conceived, developed or created by
RAND or its associated companies either prior to or subsequent to the date of
the agreement, which results or derives from the direct or indirect use of the
Original Engine and/or RC/DC Engine technologies by RAND.
In November 1993, in consideration for certain technology transferred to the
Company, as described above, Brian Cherry was issued 100,000 Common Shares of
Reg Tech (deemed value $200,000). There was no connection between this
transaction and the transaction involving the acquisition of the Canadian rights
to the Machine Vision Technology described below. At that time the Company did
not have available cash to pay to Mr. Cherry and there was no public market for
the stock of the Company. Based upon his desire for some degree of immediate
liquidity, management agreed to issue shares of Reg Tech to Mr. Cherry and to
treat this as an advance. As previously noted, Reg Tech owns 51% of RAND which
owns 76.7% of the Common Stock of the Company. Both Mr. Cherry and Mr. Robertson
are officers and directors of both the Company and Reg Tech.
The terms of the agreements referenced above were negotiated by the parties in
non-arm's-length transactions but were deemed by the parties involved to be fair
and equitable under the circumstances existing at the time.
In 1995, the Company acquired an exclusive limited sublicense to market and
distribute in Canada for the following consideration:
A. $200,000 (paid).
B. royalty payments equal to 2% of all net revenue derived from sales in
Canada, to be paid 30 days after the end of each calendar quarter.
C. minimum annual royalty payments as follows:
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<PAGE>
$
December 31, 1996 1,000
December 31, 1997 3,000
December 31, 1998 4,500
annually thereafter 6,000
On October 31, 1995, the Company sold its rights to the Machine Vision
Technology to Reg Tech for $200,000. All obligations pursuant to the sublicense
were transferred to Reg Tech.
ITEM 13(a). EXHIBITS.
---------- ---------
Number Description Page No.
------ ----------- --------
3.1 Articles of Incorporation.................................. (1)
3.2 Article of Amendment changing name to
REGI U.S., Inc............................................. (2)
3.3 By-Laws.................................................... (1)
4.1 Specimen Share Certificate................................. (1)
4.2 Specimen Warrant Certificate............................... (1)
10.1 Consulting Agreement, dated December 1, 1999, between
Regi U.S., Inc. and Patrick Badgley .......................
10.2 Special Service Proposal, dated December 21, 1999, between
Regi U.S. and ColTec, Inc..................................
23.1 Consent of Independent Auditors............................
27.1 Financial Data Schedule....................................
--------------------
(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.
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<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: August 31, 2000
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.
Signature Title Date
--------- ----- ----
/s/ John G. Robertson President, Chief 8/31/00
---------------------- Executive Officer and Director
(John G. Robertson)
/s/ Brian Cherry Vice President, Secretary and Director 8/31/00
----------------------
(Brian Cherry)
/s/ Jennifer Lorette Vice President, Chief Financial Officer 8/31/00
---------------------- and Principal Accounting Officer
(Jennifer Lorette)
-28-
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT INDEX
<S> <C> <C>
Number Description Page No.
------ ----------- --------
3.1 Articles of Incorporation.................................. (1)
3.2 Article of Amendment changing name to
REGI U.S., Inc............................................. (2)
3.3 By-Laws.................................................... (1)
4.1 Specimen Share Certificate................................. (1)
4.2 Specimen Warrant Certificate............................... (1)
10.1 Consulting Agreement, dated December 1, 1999, between
Regi U.S., Inc. and Patrick Badgley .......................
10.2 Special Service Proposal, dated December 21, 1999, between
Regi U.S. and ColTec, Inc..................................
23.1 Consent of Independent Auditors............................
27.1 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.
