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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, 2001
COMMISSION FILE NO. 0-23920
REGI U.S., INC.
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(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)
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(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 NASD Over the Counter Bulletin Board |
Check 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 (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
[ X ] Yes [ ] No
Check if disclosure of delinquent filers pursuant to Item 405 of Regulation S-B is not contained in this form, and no disclosure will be contained, to the best of the 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. [ ]
State the issuer's revenues for its most recent fiscal year: nil.
The aggregate market value of the voting stock held by non-affiliates of the registrant on July 31, 2001, computed by reference to the price at which the stock was sold on that date: $1,288,348.
The number of shares outstanding of the registrant's Common Stock, no par value, as of July 31, 2001 was 10,221,735.
Documents incorporated by reference: See Exhibits.
Transitional Small Business Disclosure Format (Check one): Yes ( ) No (X).
REGI U.S., INC.
FORM 10-KSB
TABLE OF CONTENTS
PART I . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
ITEM 1. DESCRIPTION OF BUSINESS. . . . . . . . . . . . . . . . . . . . . . . . . . 4
GENERAL. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
BUSINESS OF THE COMPANY AND PRODUCTS . . . . . . . . . . . . . . . . . . . . . . . 5
Overview and History . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
PRODUCTS AND PROJECTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Rand Cam Technology. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Air\Vapor Flow System
Hydrogen Separator . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
MARKETING. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
COMPETITION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
RAW MATERIALS AND PRINCIPAL SUPPLIERS. . . . . . . . . . . . . . . . . . . . . . . 12
PATENTS, TRADEMARKS, LICENCES, FRANCHISES, CONCESSIONS, ROYALTY
AGREEMENTS, LABOR CONTRACTS, INCLUDING DURATION. . . . . . . . . . . . . . . . . . 12
Patents. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Royalty Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
RISK FACTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
GOVERNMENT REGULATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
DEPENDENCE ON CERTAIN CUSTOMERS. . . . . . . . . . . . . . . . . . . . . . . . . . 16
RESEARCH AND DEVELOPMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
COSTS AND EFFECTS OF COMPLIANCE WITH ENVIRONMENTAL LAWS. . . . . . . . . . . . . . 17
NUMBER OF TOTAL EMPLOYEES AND NUMBER OF FULL-TIME EMPLOYEES. . . . . . . . . . . . 17
ITEM 2. DESCRIPTION OF PROPERTY. . . . . . . . . . . . . . . . . . . . . . . . . . 17
ITEM 3. LEGAL PROCEEDINGS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. . . . . . . . . . . . 18
PART II. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS . . . . . . . . . 18
DIVIDEND POLICY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
RECENT SALES OF UNREGISTERED SECURITIES. . . . . . . . . . . . . . . . . . . . . . 19
ITEM 6: MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS . . . . . . . . 19
LIQUIDITY AND CAPITAL RESOURCES. . . . . . . . . . . . . . . . . . . . . . . . . . 20
ITEM 7. FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Our consolidated financial statements are included and begin immediately following
the signature page to this report. See Item 13 for a list of the financial statements
and financial statement schedules included.. . . . . . . . . . . . . . . . . . . . . . 20
ITEM 8. CHANGES IN AND DISAGREEEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
PART III . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16 (a) OF THE EXCHANGE ACT.. . . . . . . . . . . . . . . . . 21
BUSINESS EXPERIENCE AND PRINCIPAL OCCUPATION OF DIRECTORS, EXECUTIVE
OFFICERS AND SIGNIFICANT EMPLOYEES . . . . . . . . . . . . . . . . . . . . . . . . 21
ITEM 10. EXECUTIVE COMPENSATION . . . . . . . . . . . . . . . . . . . . . . . . . . 23
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS . . . . . . . . . . . . . . 26
ITEM 13(a). EXHIBITS.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
ITEM 13(b). REPORTS ON FORM 8-K. . . . . . . . . . . . . . . . . . . . . . . . . . . 28
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
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THIS ANNUAL REPORT ON FORM 10-KSB, INCLUDING EXHIBITS THERETO, CONTAINS FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF SECTION 27A OF THE SECURITIES ACT OF 1933, AS AMENDED, AND SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. THESE FORWARD-LOOKING STATEMENTS ARE TYPICALLY IDENTIFIED BY THE WORDS "ANTICIPATES", "BELIEVES", "EXPECTS", "INTENDS", "FORECASTS", "PLANS", "FUTURE", "STRATEGY", OR WORDS OF SIMILAR MEANING. VARIOUS FACTORS COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE EXPRESSED IN THE FORWARD-LOOKING STATEMENTS, INCLUDING THOSE DESCRIBED IN "RISK FACTORS" IN THIS FORM 10-KSB. WE ASSUME NO OBLIGATION TO UPDATE THESE FORWARD-LOOKING STATEMENTS TO REFLECT ACTUAL RESULTS, CHANGES IN ASSUMPTIONS, OR CHANGES IN OTHER FACTORS, EXCEPT AS REGULATED BY LAW.
PART I
ITEM 1. DESCRIPTION OF BUSINESS
GENERAL
We were organized under the laws of the State of Oregon on July 27, 1992 as Sky Technologies, Inc. On August 1, 1994, our name was officially changed by a vote of a majority of our shareholders to REGI U.S., Inc. We are 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").
We are 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. We hold 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 funds 50% of the continuing development cost of the RC/DC Engine.
We 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, in order to fully implement our intended plan of operations.
BUSINESS OF THE COMPANY AND PRODUCTS
Overview and History
We are engaged in the business of developing and building an improved axial vane-type rotary engine known as the Rand CamTM Direct Charge ("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 us. Since no marketable product has yet been developed, we have not received any revenues from operations.
The RC/DC Engine is based upon the Original Engine patented in 1983. Brian Cherry, a former 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 us. We believe 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 between 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, we entered in an agreement with RAND and Brian Cherry (the "August 1992 Agreement") under which we issued 5,700,000 shares of our 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 our president and its Vice President and Secretary is also one of our directors. 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.
We entered into an agreement dated April 13, 1993 with 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 assigned and transfered ownership 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 to us which results or derives from the direct or indirect use of the Original Engine and/or RC/DC Engine technologies by RAND.
We entered into a letter of understanding dated December 13, 1993, with 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 provided support and development of the RC/DC Engine including research, development, testing evaluation and creation of intellectual property. In addition, WVURC introduced us to potential customers and licensees. We are entitled to all intellectual property developed by WVURC relating to the RC/DC Engine.
Based upon testing work performed by independent organizations on prototype models, we believe that the RC/DC Engine holds significant potential in a number of other 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 several types of compressors, pumps, expanders and other applications.
To date, several prototypes of the RC/DC Engine have been tested and additional development and testing work is continuing. We believe that such development and testing will continue until 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. If a commercially feasible design is perfected, we do, 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.
We believe 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 density and exhaust emissions.
Based on the market potential, we believe the RC\DC Engine is well suited for application to internal combustion engines, pumps, compressors and expansion engines. The mechanism can be scaled to match virtually any size requirement. This flexibility opens the door to large markets being developed.
We are currently testing prototypes for these products including air pumps for fuel cell applications and air conditioning compressors. Our strategy is to develop engines and compressors for low to medium horsepower applications, then apply the Technology to larger applications. We plan to 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.
PRODUCTS AND PROJECTS
Rand Cam Technology
Rand Cam Cold Turbine Engine
On March 13, 2001, we announced that analysis has been completed on a RAND CAM COLD TURBINE ENGINE to generate 1000 horsepower at 1800 rpm for the electrical power generation market. Preliminary drawings of this engine have been completed. A presentation has been prepared to visually demonstrate the technology so that we can generate interest and obtain funding to build and test this new engine. A dry run of the presentation was presented to a representative of one of the largest engine manufacturers in North America and the representative is assisting in setting up a presentation for its top management. Two additional presentations have been made to the management of this engine manufacturing company and the product is being reviewed by its engineering department. This presentation will be "taken on the road" and shown to additional major engine manufacturers and end users such as utility companies to solicit interest. Summarizing the presentation, the RAND CAM COLD TURBINE ENGINE compared to the best available MICROTURBINE ENGINE, has 32 percent better efficiency and generates 91 percent more power from the same airflow while retaining all of the emissions advantages of the MICROTURBINE ENGINE.
An analysis has been completed to show the potential of the RAND CAM COLD TURBINE ENGINE in aircraft application at the 400 horsepower output level so that we can work with several groups that have expressed interest in the Rand Cam Engine at this rating for aircraft and marine markets.
Gasoline and Diesel Engine
Two prototype engines were built in 1993 and 1994 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 made up of Alliant Techsystems (formerly Hercules Aerospace Company) ("Alliant"), WVURC and us. 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 was designed as a general purpose power plant for military and commercial applications. A prototype of the diesel engine has been assembled and tested.
By News Release dated June 21, 1999 we announced that The Rand Cam (TM) rotary diesel aircraft project (1998 NASA SBIR Phase I contract) was completed and the final report was delivered to NASA on schedule. Patrick Badgley, our Vice President and the 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 its 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, we announced that the 250 horsepower engine design for aircraft operation was 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. The approval for funding was subsequently unsuccessful.
Motor Scooter Project
The motor scooter project was successfully tested by Paul LaMarche, our engineer in Detroit, Michigan. Additional testing this year is proposed to prove the concept to potential interested customers.
The RC\DC Scooter Engine was successfully test fired on the new ignition system which was designed by our 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. We have received inquiries from manufacturers regarding the possibility of including the Motor Scooter Engine in lightweight and inexpensive vehicles. There is no assurance, however, that we will enter into an agreement with anyone to manufacture the Motor Scooter engine.
Compressor
We contracted Coltec, Inc., a Columbus, Indiana engineering firm, to fabricate the Rand Cam (TM) air conditioning compressor for buses. The testing is to be conducted 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. The prototype compressor was delivered to Trans/Air in January 2001 and is presently awaiting testing in a bus.
A special 3.2 SCFM air compressor has been designed for a large fuel cell customer. The customer has reviewed the design and his comments including type of drive motor, inlet and outlet piping arrangements and mounting considerations were incorporated and final drawings were prepared. This compressor is of virtually all plastic construction.
On June 28, 2001 we announced that the air pump for the fuel cell had been assembled and testing had commenced. The air pump was designed for the 1 KW fuel cell and is to be further tested by a potential customer at its facilities. Reg Technologies, Inc. also has agreed to build a Rand Cam compressor for several applications in the air, hydrogen and natural gas compressor requirements for fuel cell applications.
Air Pump
On September 21, 2000 we announced that Paul LaMarche, a director and Vice President of Engineering, completed a series of feasibility tests on the Rand Cam air pump for the Lumbar seat application in automobiles. The Rand Cam air pump was tested without lubrication and filled the lumbar chamber in less than four (4) seconds, which is less than required by the specifications, at only 6,600 rpm. Production costs and manufacturing techniques are now underway and complete tests for the air pump are to be certified with an independent testing lab on behalf of a designated licensee initiating certification for a series of pre committed automotive customers for the lumbar seat actuators.
On January 11, 2001, we announced that American Components, a division of EPI,
on the Rand Cam Air Pump, completed successful test results. The Pumps were
installed on the American Component test stand and checked for continuous air
pressure and volumetric outputs in comparison to the Mexican-built air pumps
used for the Lumbar seat support systems. These tests delivered air pressure of
3.5 PSI and air volumes of 13.2 Cu. Ft. per minute, which exceeded the required
specifications.
The licensing negations with Moldrite are still ongoing. As at the date of this 10-KSB, as soon as we can provide Moldrite with a further prototype, they will perform an economic cost analysis to determine the cost of production.
Oil Pump Project
In 1997, Ford Motor Company approved a budget for developing a program to test and build a Rand Cam oil pump prototype for their new automotive transmission. On December 1, 1999, we announced that testing of the first Rand Cam (TM) oil pump was completed. The major American automobile manufacturer notified us that the approved evaluation of the production intent design will be run in the first or second month of the year 2000. We are still awaiting approval from the automobile manufacturer regarding this project.
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.
Hydraulic Pump
A special 2.5 GPM pump has been designed and fabricated for use in a hydrostatic transmission for the lawn and garden market. The pump includes an integrated 12 Volt drive motor. This pump incorporates the same new technologies used in the air conditioning compressor including the winged rotor and multi-piece vanes. The pump is designed for very low cost and is of all plastic construction. Production pricing has been obtained and we are very competitive according to our customer. This specific application for which this pump was designed has been temporarily put on hold.
Residential Cold Turbine Generator
On July 12, 2001, we announced that Patrick Badgley, a director and Vice President, has completed a proposal to build a residential Cold Turbine Rand Cam(TM) generator. The self-contained residential power plant will be capable of providing 100% of the power needs of a modern luxury residence and would run
on natural gas, propane or diesel fuel. The 25kW Rand Cam(TM) power plant would run at 3600 rpm, be extremely quiet, only 18 inches in overall diameter and would weigh 110 lbs. We are currently negotiating with potential joint venture partners to finance this project
Hydrogen Separator
We purchased the rights to the H2O Hydrogen Separator Technology consisting of a hydrogen separator based, which is a unique system for extracting hydrogen from water. We own a 50% interest in the U.S. rights and Reg Technologies, Inc. owns 50% of the worldwide rights excluding the U.S. to the Hydrogen Separator Technology.
In consideration for a 50% interest for the rights to the Hydrogen Separator Technology Reg Technologies, Inc. ("Reg") agrees that we shall apply for a patent in the U.S. for the Hydrogen Separator Technology at Reg's expense; and Reg agrees to build a prototype of the Hydrogen Separator Technology as designed by GHM, Inc.
We also have an option to purchase an additional 50% interest in the Hydrogen Separator Technology for US$15,000,000 for a combination of cash and shares and will assign a 5% net revenue interest to GHM, Inc. Reg has commenced construction of a prototype and will conduct a preliminary in-house test to confirm that the Hydrogen Separator Technology can economically convert water into hydrogen and oxygen.
Progress Report from May 1, 2000 to April 30, 2001
A series of feasibility tests by Paul LaMarche on the Rand Cam air pump for the Lumbar seat application in automobiles was completed and announced in September, 2000. The Rand Cam air pump was tested without lubrication and filled the lumbar chamber in less than four (4) seconds which is less than required by the specifications at only 6,600 rpm. Production costs and manufacturing techniques are now underway and complete tests for the air pump are to be certified with an independent testing lab on behalf of a designated licensee initiating certification for a series of pre committed automotive customers for the lumbar seat actuators.
The Rand Cam Canadian Patent No. 2,208,873 has been issued. The term of this patent is for 20 years from the date of application on December 12, 1995 (see Item 1. "Patents, Trademarks, Licenses, Franchises, Concessions, Royalty Agreements, Labor Contracts, Including Duration").
We entered into a 5-year license agreement with Coltec, Inc. wherein the Company and Coltec have jointly agreed to participate in government sponsored research and development programs utilizing our proprietary Rand Cam(TM) technology.
Our parent company, Reg Technologies, Inc. entered into an agreement with GHM, Inc., a private company located in Maryland, to jointly purchase the rights to the H2O Hydrogen Separator Technology consisting of a hydrogen separator based on a unique system for extracting hydrogen from water. We will own a 50% interest to the U.S. rights and Reg Technologies, Inc. will own a 50% interest in the worldwide rights excluding the U.S. to the H20 Hydrogen Separator Technology.
The patent for the European Axial Vane Rotary device and sealing system have been granted on January 10th, 2001 under number 0746071. The Rand Cam(TM) technology relates to rotary devices of the axial vane type. This new Rand Cam(TM) design is vastly improved over the existing Rand Cam(TM) Engine as it eliminates the transfer problems between the rotor and stator and no spark plug is required after start-up. The design incorporates eight or more vanes resulting in sixteen power impulses per revolution versus the original Rand Cam(TM) Engine Patent that only incorporated two vanes resulting in four power impulses.
We announced on April 18, 2001 that Robert Walter has been appointed Vice President of the "Generation of Hydrogen" patent application project, which was recently acquired by us and Reg Technologies from the inventor, Dr. George Magaha.
On June 28, 2001 we reported that the air pump for the fuel cell has been assembled and testing has commenced. The air pump was designed for the 1KW fuel cell and is to be further tested by a potential customer at their facilities. Reg Technologies, Inc. also has agreed to build a Rand Cam(TM) compressor for several applications in the air, hydrogen and natural gas compressor requirements for fuel cell applications
MARKETING
We intend to pursue the development of the RC/DC Engine and the air pump, compressor and other products by entering into licensing and/or joint venture arrangements with other larger companies, which have the financial resources to maximize the potential of the technology. 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. We have no current plans to become actively involved in either manufacturing or marketing any engine or other product which it may ultimately develop to the point of becoming a commercial product.
Our current objective is to complete and test the various compressor, pump and diesel engine prototypes. Based on the successful testing, the prototypes will be used for presentation purposes to potential license and joint venture partners. We are currently making presentations to the U.S. military which could result in additional government funding if the diesel engine prototype meets with its approval.
We expect revenue from license agreements with the potential end users based on the success of the design of from the compressor, pump, Cold Turbine Engine and diesel engine prototypes. Based on of successful testing of the Rand Cam prototypes, we expect to have joint venture or license agreements finalized, which would result in royalties to us. However, there is no assurance that the tests will be successful or that we 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. We have delivered a compressor prototype for testing.
AIR PUMP - A prototype air pump for a Fuel Cell Application has been completed and will be delivered to the Fuel Cell manufacturer for testing soon. Other Fuel Cell manufacturers have expressed keen interest in our technology and we are currently developing special designs for each of these potential customers.
COLD TURBINE - Four designs have been completed with ratings of 750 kW, 300 kW, 75 kW and 25 kW output. We are working to identify interested partners to assist in the development of this new product. The key to the Cold Turbine is the Compressor Design incorporating the Winged Rotor and Multi-Piece Vanes. The marketing effort for this product is equally split between the Government and private sectors.
DIESEL ENGINE - Efforts are underway to obtain funding for modifications of the existing Diesel engine to incorporate the latest winged rotor technology and incorporate extensive thermal barrier coatings. Also several new aircraft engine designs have been completed for aircraft applications ranging from 1 to over 400 horsepower for interested potential customers. Negotiations for contracts with these customers are currently underway.
COMPETITION
We currently face and will continue to face competition in the future from established companies engaged in the business of developing, manufacturing and marketing engines and other products. 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 us. Internal combustion engines are produced by automobile manufacturers, marine engine manufacturers, heavy equipment manufacturers and specialty aircraft and industrial engine manufacturers. We expect that our engine would be used mainly in industrial and marine applications.
Except for the Wankel rotary engine built by Mazda of Japan, no competitor, that we are aware of, presently produces in a commercial quantity any rotary engine similar to the engines we are 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 is currently available to us, however, it is very possible that it may not be able to adequately compete in the engine business. One competitor, Rotary Power International, is presently producing the first production SCORE rotary (Wankel type) engines. Our RC\DC Engine is more fuel efficient, smaller, quieter, costs less to produce and will have fewer exhaust emissions.
We believe that if and when our engine is completely developed, in order to be successful in meeting or overcoming competition which currently exists or may develop in the future, our engine will need to offer superior performance and/or cost advantages over existing engines used in various applications.
RAW MATERIALS AND PRINCIPAL SUPPLIERS
Since we are not in production and there are no plans at this time for us 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.
PATENTS, TRADEMARKS, LICENCES, FRANCHISES, CONCESSIONS, ROYALTY AGREEMENTS, LABOR CONTRACTS, INCLUDING DURATION
Patents
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 us. U.S. Patent 4,401,070 for the Original Engine was issued on August 30, 1983, to James McCann and RAND holds the marketing rights.
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 that 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.
Two additional patents have been issued for improvements to the engine including: U.S. Patents 5,509,793 "Rotary Device with Slidable Vane Supports) issued April 24, 1996 and 5,551,853 "Axial Vane Rotary Device and Sealing System Therefor) issued September 3, 1996. Additional patent applications are presently in process for the Winged Rotor, Multi-Piece Vanes and Cold Turbine.
Royalty Payments
The August 1992 Agreement calls for us to pay RAND semi-annually a royalty of 5% of any net profits to be derived by us from revenues received as a result of its license of the Original Engine. The August 1992 Agreement also calls for us to pay Brian Cherry a royalty of 1% semi-annually any net profits derived by us from revenue received as a result of our licensing the Original Engine.
Other provisions of the April 1993 Agreement call for is (a) to pay to RAND a continuing royalty of 5% of the net profits derived from the Technology by us and (b) to pay to Brian Cherry a continuing royalty of 1% of the net profits derived by us from the Technology.
Pursuant to the letter of understanding dated December 13, 1993, among us, 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 our agreement with Weston, we 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.
RISK FACTORS
You should carefully consider the following risks and the other information in this Report and our other filings with the SEC before you decide to invest in us or to maintain or increase your investment.
The risks and uncertainties described below are not the only ones facing us. Additional risks and uncertainties may also adversely impact and impair our business. If any of the following risks actually occur, our business, results of operations, or financial condition would likely suffer. In such case, the trading price of our common stock could decline, and you may lose all or part of your investment.
Developmental Stage Company. We were incorporated on July 27, 1992. We are a development stage company. 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 we have suffered recurring operating losses as is normal in development stage companies. We also have a working capital deficit of $216,509. These factors raise substantial doubt about our ability to continue as a going concern. Our ability to emerge from the development stage with respect to our planned principal business activity is dependent upon our successful efforts to raise additional equity financing, receive funding from affiliates and controlling shareholders, and develop a market for our products.
Ability to develop product. We have no assurance at this time that a commercially feasible design will ever be perfected, or if it is, that it will become profitable. Our profitability and survival will depend upon our ability to develop a technically and commercially feasible product which will be accepted by end users. The RC/DC Engine which we are 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 we are not able to achieve this condition or if we do not remain technologically competitive, we may be unprofitable and our investors could lose their entire investment. There can be no assurance that we or potential licensees will be able to achieve and maintain end user acceptance of our engine.
Negative Shareholders' Equity. We have a negative shareholders equity as of the date of this 10-KSB. Our ability to continue as a going business will be dependent upon our ability to raise additional capital and/or generate revenues from operations.
Need for Additional Capital. We rely on our ability to raise capital through the sale of our securities. Our the ultimate success will depend upon our ability to raise additional capital or to have other par-ties bear a portion of the required costs to further develop or exploit the potential market for our products. REG Tech and REGI have agreed to provide the necessary funds for the development of the RC/DC Diesel Engine prototypes and our other operations until joint venture or license agreements can be completed.
Dependence on Consultants and Outside Manufacturing Facilities. Since our present plans do not provide for a significant technical staff or the establishment of manufacturing facilities, we will be primarily dependent on others to perform these functions and to pro-vide the requisite expertise and quality control. There is no assurance that such persons or institutions will be available when needed at af-fordable prices. It will likely cost more to have independent companies do research and manufacturing than for us to handle these re-sources.
Product/Market Acceptance. Our profitability and survival will depend upon our ability to develop a technically and commercially feasible product which will be accepted by end users. The RC/DC Engine and the AVFCS which we are developing must be technologically superior or at least equal to other engines which our competitors offer and must have a competitive price/performance ratio to adequately penetrate our potential markets. 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. If we are not able to achieve this condition or if we do not remain technologically competitive, we may be unprofitable and our investors could lose their entire investment. There can be no assurance that we or our potential licensees will be able to achieve and maintain end user acceptance of our engine or the AFVCS.
No Formal Market Survey. We have 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.
Competition. While not a highly competitive business in terms of numbers of competitors, the business of developing engines of a new design and attempting to either license or produce them is nonetheless difficult be-cause most existing engine producers are large, well financed companies which are very concerned about maintaining their market position. There is no assurance that we will be successful in meeting or over-coming our current or future competition.
Protection of Intellectual Property. Our business depends on the protection of our intellectual property and may suffer if we are unable to adequately protect our intellectual property. The success of our business depends on our ability to patent our engine. Currently, we have been granted several U.S. Patents. We cannot provide assurance that our patents will not be invalidated, circumvented or challenged, that the rights granted under the patents will give us competitive advantages or that our patent applications will be granted.
History of Losses. We have a history of operating losses, and an accumulated deficit, as of April 30, 2001, of $5,151,588. Our ability to generate revenues and profits is subject to the risks and uncertainties encountered by development stage companies.
Our future revenues and profitability are unpredictable. We are currently have no signed contracts that will produce revenue and we do not have an estimate as to when we will be entering into such contracts. Furthermore, we cannot provide assurance that management will be successful in negotiating such contracts.
Rapid Technological Changes could Adversely Affect Our Business. The market for our engines is characterized by rapidly changing technology, evolving industry standards and changing customer demands. Accordingly, if we are unable to adapt to rapidly changing technologies and to adapt our product to evolving industry standards, our business will be adversely affected.
Management and Conflicts of Interest. Our present officers and directors have other unrelated full-time positions or part-time employment. Some officers and directors will be available to participate in management decisions on a part-time or as-needed basis only. Our management may devote time to other companies or projects which may compete directly or indirectly with us.
Control by Current Insiders. 5,266,550 common shares, not including currently exercisable options or warrants, are owned by current insiders representing control of approximately 51.5% of the total voting power. Accordingly, the present insiders will continue to elect all of our directors and generally control our affairs.
Need for Additional Key Personnel. At the present, we employ no full time employees. Our success will depend, in part, upon the ability to attract and retain qualified employees. We believe that we will be able to attract
competent employees, but no assurance can be given that we will be successful in this regard. If we are unable to engage and retain the necessary personnel, our business would be materially and adversely affected.
Indemnification of Officers and Directors for Securities Liabilities. Our Bylaws provide that we may indemnify any Director, Officer, agent and/or employee as to those liabilities and on those terms and conditions as are specified in the Oregon Business Corporation Act. Further, we may purchase and maintain insurance on behalf of any such persons whether or not we would have the power to indemnify such person against the liability insured against. This could result in substantial expenditures by us and prevent any recovery from such Officers, Directors, agents and employees for losses incurred by us as a result of their actions. Further, we have been advised that in the opinion of the Securities and Exchange Commission, indemnification is against public policy as ex-pressed in the 1933 Act and is therefore, unenforceable.
General Factors. Our areas of business may be affected from time to time by such matters as changes in general economic conditions, changes in laws and regulations, taxes, tax laws, prices and costs, and other factors of a general nature which may have an adverse effect on our business.
Limited Public Market for the Common Stock. At present, only a limited public market exists for the Common Stock on the over-the-counter bulletin board maintained by the National Association of Securities Dealers and there is no assurance that a more active trading market will develop, or, if developed, that it will be sustained.
Estimates and Financial Statements. The information in this Form 10-KSB consists of and relies upon evaluation and estimates made by management. Even though management believes in good faith that such estimates are reasonable, based upon market studies and data provided by sources knowledgeable in the field, there can be no assurance that such estimates will ultimately be found to be accurate or even based upon ac-curate evaluations.
No Foreseeable Dividends. We have not paid dividends on our Common Stock and do not anticipate paying dividends on our Common Stock in the foreseeable future.
Possible Volatility of Securities Prices. The market price for our Common Stock traded on the over-the-counter bulletin board has been highly volatile since it began trading and will likely to continue to behave in this manner in the future. Factors such as our operating results and other announcements regarding our development work and business operations may have a significant impact on the market price of our securities. Additionally, market prices for securities of many smaller companies have experienced wide fluctuations not necessarily related to the operating performance of the companies themselves.
GOVERNMENT REGULATIONS
Our engine products including the spark ignited engine, Diesel engine and Cold Turbine engine will be subject to various exhaust emissions standards depending upon the application and the country in which it is produced and/or sold. As each product becomes ready for sale, it will be necessary to have the engine certified according to the standards in effort at that time.
DEPENDENCE ON CERTAIN CUSTOMERS
Although we have no key customers at the present time, we expect that if our development work is successful, we 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.
RESEARCH AND DEVELOPMENT
The basic research and development work on the RC/DC Engine and other products is being coordinated and funded by Reg Tech and funded as to 50%.
We plan to contract with outside individuals, institutions and companies to perform most of the additional research and development work which we may require to benefit from our rights to the RC/DC Engine and other products.
Development work on the air conditioning compressors is being completed by Coltec Industries an engineering firm in Columbus, Indiana under contract with us.
During the last two fiscal years, we spent $856,000 on research and development.
COSTS AND EFFECTS OF COMPLIANCE WITH ENVIRONMENTAL LAWS
At the present time there is no direct financial or competitive effect upon our 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.
NUMBER OF TOTAL EMPLOYEES AND NUMBER OF FULL-TIME EMPLOYEES
We currently have two full-time contractors directly involved in technical development work on the RC/DC Engine. We expect to hire additional employees for those positions which we deem necessary to fill, as needs arise. Most additional employees are expected to be in technical and licensing/marketing positions.
ITEM 2. DESCRIPTION OF PROPERTY
We own no properties. We 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 our portion of this office space is $500.00. The present facilities are believed to be adequate for meeting our needs for the immediate future. However we expect that we will likely acquire separate space when the level of business activity requires us to do so. We do not anticipate that we 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, a director and Vice President, 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 and other prototypes. Mr. Badgley has also used the facilities of Coltec Industries which was under contract to design and build the compressor prototype.
ITEM 3. LEGAL PROCEEDINGS
We are not a party to any legal proceedings or litigation, nor are we aware that any litigation is presently being threatened or contemplated against us or any officer, director or affiliate.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There was no matter submitted to a vote by our security holders during the fourth quarter of our fiscal year ended April 30, 2001, through the solicitation of proxies or otherwise.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
There is a limited public market for our Common Stock 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 $0.25 and $6.75 per share since that date.
The following table sets forth the high and low prices for our 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.
Bid Price Asked Price
High $ Low $ High $ Low $
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
Quarter Ended July 31, 2000 .78125 .375 .96875 .5
Quarter Ended October 31, 2000 .53125 .25 .5625 .3125
Quarter Ended January 31, 2001 1.25 .375 1.28125 .5
Quarter Ended April 30, 2001 .53125 .3 .65625 .375
Quarter Ended July 31, 2001 .36 .25 .4 .26
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(Information provided by The Over The Counter Bulletin Board. The quotations reflect inter-dealer prices, without retail mark-up, markdown, or commission and may not represent actual transactions.)
As of July 31, 2001, there were 10,221,735 shares of Common Stock outstanding, held by 221 shareholders of record.
DIVIDEND POLICY
To date we have not paid any dividends on our Common Stock and do not expect to declare or pay any dividends on our Common Stock in the foreseeable future. Payment of any dividends will be dependent upon future earnings, if any, our financial condition, and other factors as deemed relevant by our Board of Directors.
RECENT SALES OF UNREGISTERED SECURITIES
Set forth below is information regarding the issuance and sales of our securities without registration during the last fiscal year. No such sales involved the use of an underwriter. See Note 6(d) to our audited financial statements for the fiscal year ended April 30, 2001 for more information on recent sales of unregistered securities.
ITEM 6: MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
We are 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").
As a development stage company, we devote most of our activities to establishing our business. Planned principal activities have not yet produced significant revenues and we have a working capital deficit. We have undergone mounting losses to date totaling $5,151,588 and further losses are expected until we complete a licensing agreement with a manufacturer and reseller. Our working capital deficit is $618,000. Our only assets are our intangible assets, being patents and intellectual property rights, totaling $82,000 which represents 97% of total assets. These factors raise doubt about our ability to continue as a going concern. Our ability to emerge from the development stage with respect to our planned principal business activity is dependent upon our successful efforts to raise additional equity financing, receive funding from affiliates and controlling shareholders, and develop a market for our products.
During the year, we raised a further $72,000, pursuant to a private placement of 232,000 units at $0.30 per unit. These units have not been issued. Each unit will contain one share and one warrant to acquire one additional share at $0.40 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. We may also raise additional funds through the exercise of warrants and stock options, if exercised. Warrants with respect to 830,767 shares at $0.50 per share may be exercised to net $415,384 and options with respect to 1,485,000 shares at prices between $0.40 and $1.50 per share may be exercised to net $915,000.
Results of operations for the year ended April 30, 2001 ("2001") compared to the year ended April 30, 2000 ("2000")
There were no revenues from product licensing during 2001 and 2000.
The net loss in 2001 increased by $396,000 to $809,000 compared to $413,000 in 2000. The increase was due to a $350,000 increase in research and development expenses and an increase of $45,000 in administrative expenses. The increase in administrative expenses was due to an increase of the investor relations budget. The increase in investor relations activities was due to $122,000 in consulting agreements with Rand. All other administrative expenses were kept to a minimum amount of $30,000 from $84,000 in 2000. Professional fees made up $21,000 of the administrative expenses in 2001 as compared to $25,000 in 2000 which includes accounting, auditing and legal; we continue to use an in house consultant to perform the majority of legal work. The increase of $350,000 in research and development was attributed to a write-off of $309,000 of our AVFS rights and prototype design and construction contracts for outside contractors was increased to $100,000 from $55,000. The majority of prototype construction and testing costs continues to be borne by potential licensees and manufacturers. We
pay two in house consultants for technical prototype design consulting amounting to $97,000 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 AND CAPITAL RESOURCES
During 2001, we financed our operations mainly through subscription proceeds of $72,000 towards a private placement of units at $0.30 per unit. We also received $2,000 from warrants exercised.
We received funding in 2001 from our affiliated companies (common directors) and our 51.44% shareholder, Rand Energy Group, Inc. and our 51% shareholder Reg Technologies Inc. These companies advanced, or paid expenses on behalf of, $530,000 during 2001 of which $286,000 was repaid in 2001. These amounts owing are now $372,000 or 60% of total current liabilities, are unsecured and repayable on demand. Our 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 loss for the year of $809,000 included $353,000 of non-cash items being $25,000 for amortization of capital and intangible assets and $19,000 for stock based compensation, and $309,000 for the write-off of intangible assets.
As at April 30, 2001, we had a cash deficiency of $1,000 and other current liabilities of $245,000. We receive interim support from our ultimate parent company ($33,000 subsequent to April 30, 2001) and plan to raise additional funds from equity financing which is yet to be negotiated. We also plan to raise funds through loans from a controlling shareholder (REGI). REGI owns 5,247,900 shares and plans to sell shares as needed to meet our ongoing funding requirements if traditional equity sources of financing prove to be insufficient.
ITEM 7. FINANCIAL STATEMENTS
Our consolidated financial statements are included and begin immediately following the signature page to this report. See Item 13 for a list of the financial statements and financial statement schedules included.
ITEM 8. CHANGES IN AND DISAGREEEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; 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 of our Executive Officers and Directors:
Name Age Position
John G. Robertson 60 Director, Chairman of the Board of Directors,
President and Chief Executive Officer
Jennifer Lorette 29 Director, Vice-President and Chief Financial Officer
James Vandeberg 58 Director and Chief Operating Officer
Patrick Badgley 57 Vice-President, Research and Development
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BUSINESS EXPERIENCE AND PRINCIPAL OCCUPATION OF DIRECTORS, EXECUTIVE OFFICERS AND SIGNIFICANT EMPLOYEES
Mr. Robertson has held his position since our formation in July, 1992. All officers currently devote part-time services to our operation.
There are no family relationships between any director or executive officer and any other director or executive officer.
The present and principal occupations of our directors and executive officers during the last five years are set forth below:
John G. Robertson - Chairman of the Board of Directors, President, Chief Executive Officer
Mr. Robertson has been our Chairman, President and Chief Executive Officer since our formation. Since October 1984 Mr. Robertson has been President and a Director of Reg Technologies Inc., a British Columbia corporation listed on the Canadian Venture 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 Canadian Venture Exchange involved in gold, diamond, and oil and gas exploration. He is also President of LinuxWizardry Systems, Inc., 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.
Jennifer Lorette - Vice President and Chief Financial Officer
Ms. Lorette became a member of the board of directors in January 2001. She has been our Vice President since June 1994, and was also previously Chief Financial Officer. Since April 1994 she has also been Vice President of Administration and Secretary for Reg Technologies, Inc., a British Columbia corporation listed on the Canadian Venture 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 and a director of IAS Communications Inc., an Oregon corporation traded on the OTC bulletin board. Since June 1997 Ms. Lorette has been Executive Vice President 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 Vice President and Secretary of LinuxWixardry Stystems, Inc. Since November 1997 Ms. Lorette has been Vice President of Teryl Resources Corp., a public company trading on the Canadian Venture Exchange involved in gold, diamond, and oil and gas explorationShe also became a director in February 2001.
James L. Vandeberg - Chief Operating Officer and a Member of the Board of Directors
Mr. Vandeberg became a Director and Chief Operating Officer in November 1999. Mr. Vandeberg is a partner in the Seattle, Washington law firm of Vandeberg Johnson & Gandara. He has served as our legal counsel since 1996. Mr. Vandeberg's practice focuses on the corporate finance area, with an emphasis on securities and acquisitions. Mr. Vandeberg was previously general counsel and secretary of two NYSE companies and is a director of Information-Highway.com, Inc., a Florida corporation traded on the OTC bulletin board. He is also a director of IAS Communications, Inc. an Oregon corporation traded on the OTC bulletin board since November 1998. Mr. Vandeberg is also a director of Cyber Merchants Exchange, Inc. since May 2001. He is a member and former director of the American Society of Corporate Secretaries. He became a member of the Washington Bar Association in 1969 and of the California Bar Association in 1973. Mr. Vandeberg graduated cum laude from the University of Washington with a Bachelor of Arts degree in accounting in 1966, and from New York University School of Law in 1969, where he was a Root-Tilden Scholar.
Patrick R. Badgley - Vice President, Research and Development
Mr. Badgley was appointed our Vice President, Research and Development 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 Canadian Venture 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 us, other than Messrs. Badgley and Vandeberg, who furnished us with no Forms during the year, none of our officers, directors or beneficial owners of more than ten percent of the Common Stock 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 $100,000 during the past fiscal year. Mr. Robertson received no compensation from us in fiscal year 2001, and received options to purchase 700,000 shares of our common stock which replaced the 300,000 options which expired in January 2001. No options were granted in 2000 or 1999.
Annual Compensation Long-Term Compensation
---------------------------------------- -------------------------------------------------------
Awards Payouts
-------------------------------------------------------
Securities
Name and Principal Under-
Position Year Other Annual Restricted Stock lying LTIP (2) All Other
Salary Bonus Compensation Award(s) Options/ Payout Compensation
($) ($) ($) (#) SARs (#) ($) ($)
------------------ ---- ------------- ------------- ------------- ----------------- ----------- -------- -------------
John G. Robertson, 2001 Nil Nil 36,000 (3) Nil 700,000(4) Nil Nil
President and CEO. 2000 Nil Nil 36,000 (3) Nil Nil Nil Nil
1999 Nil Nil 36,000 (3) Nil Nil Nil Nil
(1) "SARS" or "stock appreciation right" means a right granted by US, as compensation for services rendered, to receive a
payment of cash or an issue or transfer of securities based wholly or in part on changes in the trading price of our
publicly traded securities.
(2) "LTIP" or "long term incentive plan" means any plan which provides compensation intended to serve as incentive for
performance to occur over a period longer than one financial year, but does not include option or stock appreciation
right plans or plans for compensation through restricted shares or restricted share units.
(3) Access Information Services, Inc., a Washington corporation which is owned and controlled by the Robertson Family
Trust, received or is to receive $2,500 per month from us for management services provided to us and rent in the sum
of $6,000 per annum. Mr. Robertson is a trustee of the Robertson Family Trust.
(4) These options were granted on March 15, 2001 exercisable at a price of US$0.40 per share until March 15, 2006.
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On March 31, 1994, we entered into a management agreement with Access Information Services, Inc., a Washington corporation which is owned and controlled by the Robertson Family Trust. We retained Access at the rate of $2,500 per month to provide certain management, administrative, and financial services.
We may in the future create retirement, pension, profit sharing, insurance and medical reimbursement plans covering our Officers and Directors. At the present time, no such plans exist. No advances have been made or are contemplated by us to any of our Officers or Directors. Directors receive no compensation for their service as such. Compensation of officers and directors is determined by our Board of Directors and is not subject to shareholder approval.
The following table sets forth certain information with respect to options exercised during the fiscal year ended April 30, 2001 by our Chief Executive Officer, and with respect to unexercised options held by our Chief Executive Officer at the end of fiscal 2001.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND YEAR END OPTION VALUES
Number of Value of
Unexercised Unexercised
Options at Options at Year End
Years End (1)
Shares Acquired Exercisable / Exercisable /
Name On Exercise (#) Value realized ($) Unexercisable Unexercisable
----------------- ---------------- ------------------ ------------- --------------------
John G. Robertson -0- -0- 700,000 -0-
----------------- ---------------- ------------------ ------------- --------------------
(1) The calculation of the value of unexercised options is based on the difference between
the last sale price of $0.40 per share for our Common Stock on April 30, 2001, and the
exercise price of each option ($0.40), multiplied by the number of shares covered by the
option.
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We do not have any Long Term Incentive Plans.
We do 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, 2001, our outstanding Class A Common Stock owned of record or beneficially by each person who owned of record, or was known by us to own beneficially, more than 5% of our 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.
Name Class A Shares Owned Percentage of
Class A Shares
Owned
John G. Robertson, Chairman of the Board
of Directors, President and Director (1) (2) 5,966,050 58.37%
The Watchtower Society (3) 5,257,900 51.44%
James McCann (4) 5,257,900 51.44%
Rand Energy Group Inc. (5) 5,257,900 51.44%
Jennifer Lorette, Vice President and
Director (6) 85,500 *
James Vandeberg, Chief Operating Officer
and Director 75,000 *
Patrick Badgley, Vice President, Research
and Development and Director
75,000 *
ALL EXECUTIVE OFFICERS &
DIRECTORS AS A GROUP (FOUR
INDIVIDUALS) (7) 6,201,550 60.67%
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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 of the issued and outstanding on July 31, 2001 which was 10,221,735
(1) These individuals may be deemed to be our "parents or founders" as that term is defined in the Rules and Regulations promulgated under the Securities Act of 1933.
(2) Includes 5,257,900 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. Mr. Robertson disclaims beneficial ownership of these shares beyond the extent of his pecuniary interest. Also includes 700,000 options that are currently exercisable. Mr. Robertson's address is the same as the Company's.
(3) Includes 5,257,900 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 5,257,900 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 5,257,900 shares registered in the name of Rand Energy Group Inc.
Reg Technologies Inc. is a British Columbia corporation listed on the Canadian Venture 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 5,257,900 shares registered in the name of Rand Energy Group Inc. has been attributed to Mr. Robertson. We believe 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 5,257,900 shares registered in the name
of Rand Energy Group Inc. has been attributed to The Watchtower Society and Mr.
McCann. We believe 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.
(6) Includes 85,000 options that are currently exercisable. Ms. Lorette's address is the same as the Company's.
(7) Includes 5,257,900 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 935,000
options that are currently exercisable.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Pursuant to the August 1992 Agreement we issued 5,700,000 shares of our 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 Canadian Venture Exchange ("Reg Tech"), and 49% by Rand Cam Engine Corp. Reg Tech's President is also our President and its Vice President is also Vice President of the Company.
We also agreed to pay semi-annually to RAND a royalty of 5% of any net profits to be derived by us from revenues received as a result of its license of the Original Engine.
In the April 1993 Agreement, an amendment to a previous Amendment Agreement
dated November 23, 1992, between RAND, Reg Tech and Brian Cherry (a former
officer and director) and an original agreement dated July 30, 1992, between
RAND, Reg Tech and Brian Cherry, Cherry agreed to: (a) sell, transfer and assign
to RAND all his right, title and interest in and to the technology related to
the RC/DC Engine, including all pending and future patent applications in
respect of the Technology for all countries except the United States of America,
together with any improvements, changes or other variations to the Technology;
(b) sell, transfer and assign to us (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 us (a) to pay to RAND a continuing royalty of 5% of the net profits derived from the Technology by us and (b) to pay to Brian Cherry a continuing royalty of 1% of the net profits derived from the Technology by us.
A final provision of the April 1993 Agreement assigns and transfers ownership to us 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.
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.
We are 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") and 49% by Rand Cam Engine Corp. 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. 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.
ITEM 13(a). EXHIBITS.
Number Description
------------------------------------------------------------------------------
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 . . . . . . . . . . . . . (3)
10.2 Special Service Proposal, dated December 21, 1999, between
Regi U.S. and ColTec, Inc . . . . . . . . . . . . . . . . . . (3)
10.3 Agreement between Coltec and REGI dated October 2000. . . . .
23.1 Consent of Independent Auditors . . . . . . . . . . . . . . .
|
(1) Incorporated by reference from Form 10-SB Registration Statement filed
April 26, 1994.
(2) Incorporated by reference from 10-Q Report for the quarter ended 7-30-94.
(3) Incorporated by reference from our 10-KSB for the fiscal year ended April
30, 2000.
Independent Auditor's Report. . . . . . F-1 Balance Sheets. . . . . . . . . . . . . F-2 Statements of Operations. . . . . . . . F-3 Statements of Cash Flows. . . . . . . . F-4 Statement of Stockholders' Equity . . . F-5 Notes to the Financial Statements . . . F-7 to F-11 |
ITEM 13(b). REPORTS ON FORM 8-K.
None.
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 13, 2001
|
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 8/13/01 --------------------- Executive Officer and Director (John G. Robertson) /s/James Vandeberg Chief Operating Officer and Director 8/13/01 ------------------- (James Vandeberg) /s/ Jennifer Lorette Vice President and Director 8/13/01 -------------------- (Jennifer Lorette) |
EXHIBIT INDEX
Number Description Page
------------------------------------------------------------------------------
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 . . . . . . . . . . . . (3)
10.2 Special Service Proposal, dated December 21, 1999, between
Regi U.S. and ColTec, Inc . . . . . . . . . . . . . . . . . (3)
10.3 Agreement between Coltec and REGI dated October 2000. . . . 42
23.1 Consent of Independent Auditors . . . . . . . . . . . . . . 45
|
(1) Incorporated by reference from Form 10-SB Registration Statement filed
April 26, 1994.
(2) Incorporated by reference from 10-Q Report for the quarter ended 7-30-94.
(3) Incorporated by reference from our 10-KSB for the fiscal year ended April
30, 2000.
Independent Auditor's Report. . . . . . . . . . . . . . . . . . . . F-1 Balance Sheets. . . . . . . . . . . . . . . . . . . . . . . . . . . F-2 Statements of Operations. . . . . . . . . . . . . . . . . . . . . . F-3 Statements of Cash Flows. . . . . . . . . . . . . . . . . . . . . . F-4 Statement of Stockholders' Equity . . . . . . . . . . . . . . . . . F-5 Notes to the Financial Statements . . . . . . . . . . . . . F-7 to F-11 |
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, 2001 and 2000 and the related statements of operations, stockholders' equity and cash flows for the period from July 27, 1992 (Inception) to April 30, 2001 and the years ended April 30, 2001 and 2000. 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, 2001 and 2000, and the results of its operations and its cash flows for the period from July 27, 1992 (Inception) to April 30, 2001 and the years ended April 30, 2001 and 2000, in conformity with generally accepted accounting principles used 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.
"Manning Elliott"
CHARTERED ACCOUNTANTS
Vancouver, Canada
August 7, 2001
REGI U.S., Inc.
(A Development Stage Company)
Balance Sheets
April 30, 2001 and 2000
2001 2000
$ $
Assets
Fixed Assets (Note 3) 2,479 4,295
Intangible Assets (Note 4) 81,947 394,973
------------ -----------
84,426 399,268
============ ===========
Liabilities and Stockholders' Equity
Current Liabilities
Cheques issued in excess of funds on deposit 1,466 4,853
Accounts payable 115,243 51,924
Accrued liabilities 129,320 11,328
Due to affiliates (Note 7) 371,819 98,404
Convertible debentures (Note 5) - 50,000
------------ -----------
617,848 216,509
------------ -----------
Commitments and Contingent Liabilities (Note 8)
Stockholders' Equity
Common Stock (Note 6), 20,000,000 shares
authorized without par value; 10,221,735
and 10,217,735 shares issued and
outstanding respectively 4,512,249 4,510,249
Common Stock Paid For But Unissued (Note 6(d)) 72,000 -
Stock Based Compensation - Stock Option 33,917 15,417
Deficit Accumulated During the Development Stage (5,151,588) (4,342,907)
------------ -----------
(533,422) 182,759
------------ -----------
84,426 399,268
============ ===========
|
REGI U.S., Inc.
(A Development Stage Company)
Statements of Operations
Accumulated from July 27, 1992 (Inception) to April 30, 2001 and
the Years ended April 30, 2001 and 2000
Accumulated from
July 27, 1992
(Inception)
to April 30,
2001 2001 2000
$ $ $
Revenues - - -
----------------- ----------- ----------
Administrative Expenses
Bank charges 8,756 1,236 1,552
Foreign exchange 3,947 (349) 654
Interest on debentures 12,593 224 3,828
Investor relations - publications 315,929 11,092 35,994
Investor relations - consulting 664,875 164,569 40,095
Office, rent and telephone 144,468 847 28,714
Professional fees 323,563 20,713 24,586
Transfer agent and regulatory fees 95,972 7,390 21,013
Travel 11,674 - 5,327
Less: interest (16,755) (8) (1,212)
----------------- ----------- ----------
1,565,022 205,714 160,551
----------------- ----------- ----------
Research and Development Expenses
Intellectual property (Note 4(a) and (b)) 566,145 309,145 -
Amortization 108,303 25,241 23,741
Market development 92,782 - -
Professional fees 73,904 - -
Project management 250,000 30,000 30,000
Project overhead 192,298 15,652 21,062
Prototype design and construction contracts 1,384,592 100,486 54,628
Royalties (Note 4(d)) 87,000 24,000 24,000
Technical prototype design consulting 474,806 97,000 88,000
Technical reports 22,120 - -
Technical salaries 169,467 - -
Travel 165,149 1,443 11,513
----------------- ----------- ----------
3,586,566 602,967 252,944
----------------- ----------- ----------
Net Loss 5,151,588 808,681 413,495
================= =========== ==========
Net Loss Per Share (.08) (.04)
=========== ==========
Weighted Average Shares Outstanding 10,218,000 9,657,000
=========== ==========
|
REGI U.S., Inc.
(A Development Stage Company)
Statements of Cash Flows
Accumulated from July 27, 1992 (Inception) to April 30, 2001 and
the Years ended April 30, 2001 and 2000
Accumulated from
July 27, 1992
(Inception)
to April 30,
2001 2001 2000
$ $
Cash Flows to Operating Activities
Net loss (5,151,588) (808,681) (413,495)
Adjustments to reconcile net loss to cash
Amortization 108,303 25,241 23,741
Intellectual property 566,145 309,145 -
Stock based compensation 275,213 18,500 15,417
Change in non-cash working capital items
Increase (decrease) in accounts payable and
accrued liabilities 269,565 181,311 (53,897)
------------------ ---------- ---------
Net Cash Used in Operating Activities (3,932,362) (274,484) (428,234)
------------------ ---------- ---------
Cash Flows from Financing Activities
Increase in capital stock 3,972,702 74,000 501,302
Convertible debentures redeemed - (50,000) -
Increase (decrease) in due to affiliates 171,819 273,415 (142,367)
------------------ ---------- ---------
Net Cash Provided by Financing Activities 4,144,521 297,415 358,935
------------------ ---------- ---------
Cash Flows to Investing Activities
(Increase) in fixed assets (24,947) - (5,452)
(Increase) in intangible assets (188,678) (19,544) (12,222)
------------------ ---------- ---------
Net Cash Used in Investing Activities (213,625) (19,544) (17,674)
------------------ ---------- ---------
Increase (decrease) in cash (1,466) (1,466) (86,973)
Cash (deficiency) - beginning of period - (4,853) 82,120
------------------ ---------- ---------
Cash (deficiency) - end of period (1,466) 3,387 (4,853)
================== ========== =========
Non-Cash Financing Activities
Affiliate's shares issued for intellectual property 200,000 - -
Shares issued for financial consulting services 241,296 - -
Shares issued for intellectual property 345,251 - -
Shares issued to settle debt 25,000 - -
Stock based compensation - stock options 33,917 18,500 15,417
------------------ ---------- ---------
845,464 18,500 15,417
================== ========== =========
Supplemental Disclosures
Interest paid 12,593 224 3,828
Income tax paid - - -
|
REGI U.S., Inc.
(A Development Stage Company)
Statements of Stockholders' Equity
From July 27, 1992 (Inception) to April 30, 2001
Deficit
Accumulated
During the
Common Stock Development
Shares Amount Stage
# $ $
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)
------------ ------------ ------------
|
REGI U.S., Inc.
(A Development Stage Company)
Statements of Stockholders' Equity
From July 27, 1992 (Inception) to April 30, 2001
Deficit
Accumulated
During the
Common Stock Development
Shares Amount Stage
# $ $
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)
Stock issued for cash pursuant to
warrants exercised 4,000 2,000 -
Net loss for the year - - (808,681)
------------ ------------- ------------
Balance - April 30, 2001 10,221,735 4,512,249 (5,151,588)
============ ============= ============
|
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 owns 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 substantial doubt about the Company's ability to continue as a going concern. The ability of the Company to emerge from the development stage with respect to its planned principal business activity is dependent upon its successful efforts to raise additional equity financing, receive funding from affiliates and controlling shareholders, and develop a market for its products.
The Company receives interim support from its ultimate parent company and other affiliated companies and plans to raise additional capital through debt and/or equity financings.
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. Where an impairment loss has been determined the carrying amount is written-down to fair market value. Fair market value is determined as the amount at which the license could be sold in a current transaction between willing parties.
(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.
2. Summary of Significant Accounting Policies (continued)
(c) Basic and Diluted Net Income (Loss) per Share (continued)
Loss per share for 2001 and 2000 does not include the effect of the potential conversions of stock options, or warrants, 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
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
2001 522,000 2016
----------
4,709,000
==========
|
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.
2. Summary of Significant Accounting Policies (continued)
(h) Tax Accounting (continued)
The components of the net deferred tax asset at the end of April 30, 2001 and 2000, and the statutory tax rate, the effective tax rate and the elected amount of the valuation allowance are scheduled below:
2001 2000
$ $
Net Operating Loss 808,000 429,000
113,900 + 34% 113,900 + 34%
in excess of in excess of
Statutory Tax Rate $ 335,000 $ 335,000
Effective Tax Rate - -
Deferred Tax Asset 275,000 145,000
Valuation Allowance (275,000) (145,000)
-------------- --------------
Net Deferred Tax Asset - -
============== ==============
|
3. Fixed Assets
2001 2000
Accumulated Net Book Net Book
Cost Amortization Value Value
$ $ $ $
Computer equipment 5,452 2,973 2,479 4,295
===== ============ ======== ========
4. Intangible Assets
2001 2000
Accumulated Net Book Net Book
Cost Amortization Value Value
$ $ $ $
Patents - RC/DC Engine 88,607 19,366 69,241 63,315
Patents - AVFS 6,619 693 5,926 3,776
AVFS rights ((d) below) 65,606 65,605 1 327,882
Patents/rights-Hydrogen separator 6,950 171 6,779 -
------- ------------ -------- --------
167,782 85,835 81,947 394,973
======= ============ ======== ========
|
(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 former 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.
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, licences, 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. These rights were written down to a nominal value of $1 during the year and $309,145 was charged to operations as a research and development cost.
5. Convertible Debentures
The Company issued three year, 8 % interest, convertible debentures and raised $50,000. The Company redeemed the debentures on their maturity date, June 15, 2000.
6. Common Stock
(a) Warrants outstanding
There are warrants outstanding to acquire 830,767 shares exercisable at $0.50 per share expiring August 31, 2001. During the year, 4,000 shares were issued pursuant to warrants exercised.
(b) Stock Option Plan
The Company has a Stock Option Plan to issue up to 2,500,000 shares to certain key directors and employees, approved April 30, 1993 and amended December 5, 2000. 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.
6. Common Stock (continued)
(b) Stock Option Plan (continued)
The weighted average number of shares under option and option price for the year ended April 30, 2001 is as follows:
Shares Weighted Average Weighted Average
Under Option Option Price Remaining Life
# $
Beginning of year 785,000 .80
Granted 925,000 .40
Exercised - -
Cancelled (225,000) .50
Lapsed - -
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End of year 1,485,000 .60 50 months
=========== ===== =========
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If compensation expense had been determined pursuant to SFAS 123, the Company's net loss and net loss per share for fiscal 2001 and 2000 would have been as follows:
2001 2000
$ $
Net loss
As reported (808,681) (413,495)
Pro forma (837,391) (429,495)
Basic net loss per share
As reported (.08) (.04)
Pro forma (.08) (.04)
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(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 $72,000 pursuant to a private placement of 232,000 units at $0.30 per unit. Each unit contained one share and one warrant to acquire one additional share at $0.40 per share if exercised during year one after receipt of the subscription funds. These shares have not yet been issued.
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.
Exhibit 10.3
AGREEMENT BETWEEN COLTEC, INC. AND REGI U.S., INC. MADE AS
OF OCTOBER 1, 2000.
This Agreement is made as of October 1, 2000 (the "Effective Date"), by and between COLTEC, INC. (hereinafter referred to as "ColTec") an Indiana corporation having a principal office at 1250 Washington Street, Columbus, Indiana, and REGI U.S., INCORPORATED (hereinafter referred to as "REGI U.S.") having a principal office at #185-10751 Shellbridge Way, Richmond, British Columbia, Canada V6X 2W8.
Whereas ColTec and REGI U.S. find it desirable to jointly participate in Government sponsored research and development programs utilizing REGI's proprietary Rand Cam(TM) technology to develop products for U.S. military use while protecting ColTec's interest in a license for producing and sublicensing the resultant product(s) and REGI U.S.'s interest in considerations from ColTec's license for production and/or sublicensing of products utilizing Rand Cam(TM) technology.
Now, therefore, in consideration for the premises and obligations set forth herein, it is hereby agreed that:
1. PRODUCTS FOR U.S. MILITARY USE: For this agreement Products For U.S. Military Use shall consist exclusively of engines utilizing the external combustion Rand Cam(TM) technology (the Rand Cam(TM) device is the compressor and expander portion of the engine) with a rated (continuous duty) output of 10 kW and less. The engines can have an intermittent (or burst power mode) power output up to 20 kW.
2. LICENSE: REGI U.S., Inc. hereby grants a license to ColTec for Products For U.S. Military Use for within North America.
3. CONSIDERATIONS: In return for the license ColTec shall:
3.1. reimburse REGI $9,000.00 U.S. for labor that is furnished by REGI for each Phase I, S.B.I.R. project ColTec receives for Products For U.S. Military Use;
3.2. reimburse REGI $6,000 U.S. for labor that is furnished by REGI for each Phase I (option) S.B.I.R. project ColTec receives for Products For U.S. Military Use;
3.3. reimburse REGI for labor that is furnished by REGI for each Phase II, S.B.I.R. project ColTec receives for Products For. U.S. Military Use in the amount of one sixth of the contract amount;
3.4. pay REGI five percent (5%) of the gross sales amounts of Products For U.S. Military Use resulting from production by ColTec or any of their sub licensees; ColTec agrees to submit monthly financial statements to REGI on a timely basis and payment to REGI shall be made within 30 days from the end of each month;
3.5. responsibilities of REGI in each Phase I and each Phase II S.B.I.R. project ColTec receives for Products for U.S. Military Use are that Mr. Patrick Badgley will provide Dr. Chang Zhang, the project leader, advise on Rand Cam(TM) device design and technology whenever needed, and Mr. Badgley will work steadily an average of two full days per week (on Phase II Projects) in accordance with the terms of the project work plan;
3.6. ColTec will be given the first opportunity to quote on any new Rand Cam(TM) engine or compressor design and/or analysis projects from REGI's customers unless precluded by customer requirements.
4. PATENTS: Inventions that are improvements to Rand Cam(TM) technology and are conceived by ColTec. shall be the property of ColTec.
4.1. ColTec shall grant a perpetual no-cost license to REGI for use of these patents for Rand Cam(TM) products which license shall survive the cancellation or expiry of this Agreement.
4.2. ColTec shall pay all costs associated with obtaining and maintaining said patent(s).
4.3. In the event ColTec decides not to obtain or maintain patents on inventions it conceives, which are improvements to Rand Cam(TM) technology, ColTec hereby authorizes, approves and grants the right to REGI to obtain or maintain patent(s) at REGI's expense. In these instances the patent(s) and the underlying technology shall be the sole and exclusive property of REGI and ColTec waives any rights it may have under such patents.
5. Term: This Agreement shall be effective as of the Effective Date and its
term shall end Five (5) years from the date hereof with the exception of
Licenses granted to ColTec which shall last in perpetuity subject to
specific performance clauses which shall be incorporated in said licenses.
This Agreement shall be terminated in the event that funding for the Rand
Cam(TM) device (the compressor and the expander) is not received within one
(1) year from the date of this agreement and in the event that production
has not commenced within three years from the date of this agreement by
ColTec.
6. Subsidiaries: Each reference to a "party" in this Agreement shall be deemed to include each party's respective subsidiaries, affiliates and sister companies, each of which such patty shall cause to observe the requirements of this Agreement.
7. No Implied Rights: No rights, obligations, representations or terms other than those expressly set forth herein are to be implied from this Agreement.
8. Termination: Either party hereto, upon written notice to the other, may terminate this Agreement. Such termination shall be effective thirty (30) days after receipt of such notice. Notice of termination under this Agreement shall be deemed to be received ten (10) days after posting if sent by first class mail unless actually received at an earlier date. Licenses granted to ColTec are not cancelable unless ColTec defaults on specific performance clauses, which shall be incorporated in said licenses.
9. Severability of Provisions: Should any part of this Agreement be declared invalid by a court of law, such decision shall not affect the validity of any remaining portion which shall remain in force and effect as if the invalid portion was never a part of this Agreement when it was executed. Should the severance of any such part of this Agreement materially affect any other rights and obligations of the parties hereunder, the parties hereto will negotiate in good faith to amend this Agreement in a manner satisfactory to the parties.
10. Non-Assignability: Neither party hereto shall, directly or indirectly, assign or purport to assign this Agreement or any of its rights and obligations in whole or part to any third party without the prior written consent of the other party.
11. Amendment: This Agreement shall not be amended, modified or altered, except in writing, duly accepted and executed by both parties.
12. Governing Law: This Agreement shall be governed by, and construed in accordance with the laws of the State of Indiana.
13. Entire Agreement: This Agreement constitutes the entire agreement and understanding of the parties hereto, and no representations or promises have been made that are not fully set forth herein.
14. Notices: Any notices from either party to the other will be given in writing to the attention of the persons listed below, or to other such addresses or addressees as may hereafter be designated in writing for notices by either party to the other. A notice will be deemed received when delivered, or five (5) days after deposit in the U.S. Mail, certified or registered, postage prepaid, whichever is earlier.
IF TO COLTEC:
ColTec, Inc.
ATTN: Dianne Sturm
1250 Washington Street
P.O. Box 403
Columbus, Indiana 47202-0403
IF TO REGI U.S.:
ATTN: John Robertson
#185-10751 Shellbridge Way,
Richmond, British Columbia, Canada V6X 2W8
IN WITNESS WHEREOF, the parties hereby, or authorized agents thereof, have executed this Agreement, which shall be binding upon them and their respective successors and assigns, as of the day and year first above written.
ColTec, Inc.
By: /s/ C. Dianne Sturm
-----------------------------
Title: President 09/27/00
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Accepted and agreed to this
John Robertson (President)
By: /s/ John Robertson
-----------------------------
Title: President
--------------------------
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Exhibit 23.1
Consent of Independent Auditors
Board of Directors
REGI U.S., Inc.
We consent to the use of our report dated August 7, 2001 on the financial statements of REGI U.S., Inc. as of April 30, 2001 that are included in the Form 10-KSB, which is included, by reference in the Company's Form S-8.
Dated this 13th day of August, 2001.
MANNING ELLIOTT
Chartered Accountants
/s/ Manning Elliott |