-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, HgpxC4iTFNY3WFZGzOCseOIHOAHLtEmo1o3LI5t+7ACdQ/cwv01/k0PMdjzT/L2Y o+RN6sUY/T8T5pFAz+CPHw== 0001032210-97-000099.txt : 19970912 0001032210-97-000099.hdr.sgml : 19970912 ACCESSION NUMBER: 0001032210-97-000099 CONFORMED SUBMISSION TYPE: 10KSB/A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19970430 FILED AS OF DATE: 19970910 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: REGI U S INC CENTRAL INDEX KEY: 0000922330 STANDARD INDUSTRIAL CLASSIFICATION: ENGINES & TURBINES [3510] IRS NUMBER: 911580146 STATE OF INCORPORATION: OR FISCAL YEAR END: 0430 FILING VALUES: FORM TYPE: 10KSB/A SEC ACT: SEC FILE NUMBER: 000-23920 FILM NUMBER: 97678122 BUSINESS ADDRESS: STREET 1: #185-10751 SHELLBRIDGE WAY CITY: RICHMOND B C CANADA STATE: A1 ZIP: V7A 5G8 BUSINESS PHONE: 6042414214 MAIL ADDRESS: STREET 1: #185-10751 SHELLBRIDGE WAY CITY: RICHMOND B C STATE: A1 FORMER COMPANY: FORMER CONFORMED NAME: SKY TECHNOLOGIES INC /OR/ DATE OF NAME CHANGE: 19940427 10KSB/A 1 FORM 10KSB/A FOR FISCAL YEAR ENDED APRIL 30, 1997 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 _______________________________ FORM 10-KSB/A ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES ACT OF 1934 For the Fiscal Year Ended April 30, 1997 COMMISSION FILE NO. 0-23920 REGI U.S., INC. (Name of small business issuer as specified in its charter) OREGON 91-1580146 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 185 - 10751 SHELLBRIDGE WAY RICHMOND, BRITISH COLUMBIA V6X 2W8, CANADA (Address, including postal code, of registrant's principal executive offices) (604) 278-5996 (Telephone number including area code) Securities registered pursuant to Section 12(b) of the Exchange Act: NONE Securities registered pursuant to Section 12(g) of the Exchange Act: Title of each class Name of each Exchange on which registered: ------------------- ------------------------------------------ Common Stock, no par value None Indicate by check mark whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months, and (2) has been subject to such filing requirements for the past 90 days. Yes X --- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-B is not contained herein and will not be contained, to the best of registrant's knowledge in definitive proxy or information statements incorporated by reference in Part III of this form 10-KSB or any amendment to this Form 10-KSB.___ The registrants revenues for its most recent fiscal year were: nil. The Aggregate market value of the voting stock held by non-affiliates of the registrant on July 24, 1997, computed by reference to the price at which the stock was sold on that date: $1,600,000. The number of shares outstanding of the registrant's Common Stock, no par value, as of July 24, 1997 was 8,233,300. Documents incorporated by reference: None _______________________________________________________________________________ REGI U.S., INC. FORM 10-KSB\A TABLE OF CONTENTS
PART I Page ---- Item 1. Business........................................................ 3 Item 2. Property........................................................ 9 Item 3. Legal Proceedings............................................... 9 Item 4. Submission of Matters to a Vote of Security Holders............. 9 PART II Item 5. Market for Common Equity and Related Stockholder Matters........ 9 Item 6. Management's Discussion and Analysis of Financial Condition and Results of Operations....................................... 10 Item 7. Financial Statements............................................ 13 Item 8. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure........................................ 14 PART III Item 9. Directors and Executive Officers of the Registrant; Compliance With Section 16(a) of the Exchange Act............... 14 Item 10. Executive Compensation.......................................... 15 Item 11. Security Ownership of Certain Beneficial Owners and Management...................................................... 17 Item 12. Certain Relationships and Related Transactions.................. 18 Item 13. Exhibits and Reports on Form 8-K................................ 20
2 ITEM 1. BUSINESS - ------- -------- GENERAL The Company was organized under the laws of the State of Oregon on July 27, 1992 as Sky Technologies, Inc. On August 1, 1994, the Company's name was officially changed by majority shareholder vote to REGI U.S., Inc. The Company is controlled by Rand Energy Group Inc., a privately held British Columbia corporation ("REGI"), which, in turn, is controlled 51% by Reg Technologies Inc., a publicly held British Columbia corporation ("Reg Tech"). The Company is engaged in the business of developing and building an improved axial vane-type rotary engine known as the Rand Cam/Direct Charge Engine ("RC/DC Engine"), which is a variation of the Rand Cam Rotary Engine, an axial vane rotary engine ("Original Engine"). The worldwide intellectual and marketing rights to the RC/DC Engine are held by REGI. The Company holds the rights to develop, build and market the RC/DC Engine design in the U.S. pursuant to an agreement with REGI. Under a project cost sharing agreement entered into with REGI effective May 1, 1993, each company will fund 50% of the continuing development cost of the RC/DC Engine. The Company's principal offices are located at 10751 Shellbridge Way, Suite 185, Richmond, British Columbia V6X 2W8, Canada. Its telephone number is (604) 278-5996 and its telefacsimile number is (604) 278-3409. In order to fully effect its intended plan of operations, the Company will likely need to raise additional capital in the future beyond any amount currently on hand and which may be become available as a result of the exercise of warrants and options which are currently outstanding. PRODUCTS The Company is engaged in the business of developing and building an improved axial vane-type rotary engine known as the RC/DC Engine which is a variation of the Original Engine. The Original Engine is an axial vane rotary engine, the worldwide marketing rights to which are held by REGI. A United States patent was issued for the RC/DC Engine on July 4, 1995, and assigned to the Company. Since no marketable product has yet been developed, the Company has received no revenues from operations. The RC/DC Engine is based upon the Original Engine patented in 1983. Brian Cherry, an officer and director of the Company, has done additional development work on the Original Engine which resulted in significant changes and improvements for which the U.S. patent has been issued and assigned to the Company. It is believed that the RC/DC Engine offers important simplification from the basic Original Engine, which will make it easier to manufacture and will also allow it to operate more efficiently. Pursuant to an agreement dated October 20, 1986 among Reg Tech, Rand Cam Corp. and James McCann, Reg Tech agreed to acquire a 40% voting interest in a new corporation to be incorporated to acquire the rights to the Original Engine. The new corporation was REGI. Reg Tech acquired the 40% voting interest in REGI in consideration of the payment of $250,000. Pursuant to an agreement made as of the 27th day of April, 1993 among Reg Tech, Rand Cam Corp., REGI and James McCann, Reg Tech acquired an additional 330,000 shares (11%) of REGI from Rand Cam Corp. to increase its investment to 51%. On August 20, 1992, the Company entered in an agreement with REGI and Brian Cherry (the "August 1992 Agreement") under which the Company issued 5,700,000 shares of its Common Stock at a deemed value of $0.01 per share to REGI in exchange for certain valuable rights, technology, information, and other tangible and intangible assets, including improvements, relating to the United States rights to the Original Engine. REGI's president is also the president of the Company and its Vice President and Secretary is also a Director of the Company. The terms of the agreement were negotiated between the parties and were deemed to be mutually advantageous based upon conditions and circumstances existing at the time. 3 Also in August 1992, the Company sold 300,000 shares of its Common Stock at $0.01 per share to Brian Cherry. In an agreement dated April 13, 1993 among the Company, REGI, Reg Tech and Brian Cherry (the "April 1993 Agreement") and made as an amendment to a previous Amendment Agreement dated November 23, 1992 between REGI, Reg Resources Corp. (now Reg Tech) and Brian Cherry and an original agreement dated July 30, 1992 between REGI, Reg Resources Corp. and Brian Cherry, Cherry agreed to: (a) sell, transfer and assign to REGI worldwide rights except for the United States of America 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. The Company has the manufacturing and marketing rights for the RC/DC Engine and the Technology in the United States. Thus uses of the RC/DC Engine or the Technology in the United States belongs to the Company including manufacturing for export. On November 9, 1993, in consideration for this transfer of the Technology, Brian Cherry was issued 100,000 shares of Reg Tech with a deemed value of $200,000. A final provision of the April 1993 Agreement assigns and transfers ownership to the Company of any patents, inventions, copyrights, know-how, technical data, and related types of intellectual property conceived, developed or created by REGI or its associated companies either prior to or subsequent to the date of the agreement, which results or derives from the direct or indirect use of the Original Engine and/or RC/DC Engine technologies by REGI. Pursuant to a letter of understanding dated December 13, 1993 among the Company, REGI and Reg Tech, as grantors, and West Virginia University Research Corporation ("WVURC"), the grantors agreed that WVURC shall own 5% of all patented technology relating to the Original Engine and the RC/DC Engine. WVURC performed extensive analysis and testing on the RC/DC engine. WVURC will provide continued support and development of the RC/DC Engine including research, development, testing evaluation and creation of intellectual property. In addition WVURC will introduce the Company to potential customers and licensees. The Company also will be entitled to all additional intellectual property developed by WVURC relating to the RC/DC Engine. Based upon testing work performed by independent organizations on prototype models, the Company believes that the RC/DC Engine holds significant potential in a number of applications ranging from small stationary equipment to automobiles and aircraft. In additional to its potential use as an internal combustion engine, the RC/DC Engine design is also being employed in the development of a compressor unit which may find application in automobile air conditioners. At the present time, several prototypes of the RC/DC Engine have been tested and additional development and testing work is continuing. The Company believes that such development and testing will continue for at least another year before a more or less "final" design is achieved, and it may take several years before a commercially feasible design is perfected. There is no assurance at this time, however, that such a commercially feasible design will ever be perfected, or if it is, that it will become profitable to the Company. If a commercially feasible design is perfected, the Company does, however, expect to derive revenues from licensing the Technology relating to the RC/DC Engine regardless of whether actual commercial production is ever achieved. There is no assurance at this time, however, that revenues will ever be received from licensing the Technology even if it does prove to be commercially feasible. Two prototypes were built by the WVURC to run on gasoline. Testing on these prototypes suggested that the concept is fundamentally sound and that with a program of engine review, design, testing and development, a technically successful range of engines can be developed. The current prototype design for the diesel engine was designed by a consortium consisting of Hercules Aerospace Company (now Alliant Techsystems), WVURC and the Company. Hercules Aerospace was involved in the design and development including drawings for the RC/DC diesel engine. In addition Hercules Aerospace performed extensive analysis on the diesel engine including bearings, cooling, leakage, rotor, vanes, housing, vane tip heating, geometry and combustion. This engine is being designed as a general purpose power plant for military and commercial applications. Prototypes of the diesel engine have been assembled 4 and tested. On October 1, 1996, the Company announced the results of tests performed at Adiabatics Inc. in Columbus, Indiana (an experienced engine research and testing company). In general, these results were favorable and led to modifications of the prototype. Subsequently, the Company reported a successful Diesel Engine Compression Test in May, 1997. Additional tests and modifications will be performed. Also, the Scooter Rand Cam(TM) Engine prototype required equipment has been fabricated and acquired. The Motor Scooter engine will weigh approximately 15- 20 pounds and generate 20 HP. The Company has received inquiries from manufacturers regarding the possibility of including the Motor Scooter Engine in lightweight and inexpensive vehicles. There is no assurance, however, that the Company will enter into an agreement with anyone to manufacture the Motor Scooter engine. Accordingly, in the event that the Company does not enter into an agreement to manufacture the engine or in the event the Company locates a manufacturer that subsequently ceases operations for any reason, serious financial consequences to the Company could result. Assembly and testing of the Motor Scooter prototype began in April, 1997. The compressor prototype has been completed and testing has commenced in the ETL labs in Cortland, NY (an experienced compressor testing company). The compressor is being built for an automobile air-conditioning unit. In April, 1997, the Company announced that the phase I aluminum compressor was rebuilt to have "Skates" introduced to guide the vanes through the pin track and to have vane seals to insure sealing during expansion of the housing. Tests at 2500 RPM at a pressure of 160 psi indicated that all parts were in excellent. Additional tests involving higher RPM will be conducted at the ETL facilities. The Company is in the process of purchasing its own test stand to speed up the development of both the engine and compressor prototypes. A number of rotary engines have been designed over the past 70 years but only one, the Wankel, has been able to achieve mechanical practicality and any significant market acceptance. It is believed that a large market would exist for a practical rotary engine which could be produced at a competitive price and which could provide a good combination of fuel efficiency, power and decreased emissions. The profitability and survival of the Company will depend upon its ability to develop a technically and commercially feasible product which will be accepted by end users. The RC/DC Engine which the Company is developing must be technologically superior or at least equal to other engines which competitors offer and must have a competitive price/performance ratio to adequately penetrate its potential markets. If it is not able to achieve this condition or if it does not remain technologically competitive, the Company may be unprofitable and investors could lose their entire investment. There can be no assurance that the Company or potential licensees will be able to achieve and maintain end user acceptance of its engine. While market acceptance of a new type of engine could be difficult to achieve, once accepted, such an engine could have a potential market of hundreds of thousands of units per year. The Company has not conducted a formal market survey but statistics available on the aircraft, marine and industrial markets alone indicate an annual market potential of more than one hundred million dollars. The two prototypes are being used as demonstrators to prove that the Technology works and can be used in other engines. For example Hercules Aerospace looked at all engine applications for the RC/DC Engine. Based on the market potential, the Rand Cam mechanism is well suited for application to internal combustion engines, pumps and compressors and expansion engines, such as turbines and other piston engine applications. The mechanism can be scaled to match virtually any size requirement. This flexibility opens the door to large markets being developed. The Company is currently testing prototypes for these products. The Company's strategy is to develop engines and compressors for low to medium horsepower applications, then apply the Technology to larger applications. The Company plans to then license the Technology or enter into joint venture arrangements for other specific applications. The licensee or joint venture partners will then provide funding for research and development of the specific applications. A "Technology Evaluation" report was prepared on the RC/DC Engine dated May 19, 1993 by Patrick R. Badgley of Adiabatics, Inc. This evaluation concludes that the engine concept is sound and has numerous advantages over current engines. At the time of the report, Mr. Badgley was director of research and development at Adiabatics, 5 Inc. Mr. Badgley is now a Vice President of the Company. The Company believes the conclusions contained in the report are still valid. In June, 1997, the Company announced that it had reached an agreement with John Weston to acquire the US rights to his invention, the Air/Vapor Fuel Cell System (the "AVFCS"). The objective of this invention is to reduce harmful carbon monoxide emissions by eliminating unburned liquid fuel in the exhaust. Initial payment to Weston was $13,500 plus 50,000 shares of the Company. A subsequent payment of $36,500 plus 75,000 shares upon successful completion of tests and the filing of the patent application. Also see Item 6. Management's Discussion and Analysis of Financial Condition and Results of Operations - Director's Progress Report from May 1, 1996 to July 15, 1997 for additional information about the business of the Company. ROYALTY PAYMENTS The August 1992 Agreement calls for the Company to pay semiannually to REGI a royalty of 5% of any net profits to be derived by the Company from revenues received as a result of its license of the Original Engine. The August 1992 Agreement also calls for the Company to pay semiannually to Brian Cherry a royalty of 1% of any net profits to be derived by the Company from revenue received as a result of its licensing of the Original Engine. Other provisions of the April 1993 Agreement call for the Company (a) to pay to REGI a continuing royalty of 5% of the net profits derived from the Technology by the Company and (b) to pay to Brian Cherry a continuing royalty of 1% of the net profits derived from the Technology by the Company. Pursuant to the letter of understanding dated December 13, 1993 among the Company, REGI, 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 Hercules Aerospace Company and Adiabatics, Inc. The Company agrees to pay an 8% net profit interest on all sales of the AVFCS to the inventor. MARKETING The Company intends to pursue the commercial development of the RC/DC Engine by entering into licensing and/or joint venture arrangements with other larger companies which would have the financial resources to maximize the potential of the engine. At the present time no such licensing or joint venture arrangements have been concluded and there is no assurance that any will be in the foreseeable future. There are no plans at present for the Company to become actively involved in either manufacturing or marketing any engine which it may ultimately develop to the point of becoming a commercial product. The Company's current objective is to complete and test the compressor and diesel engine prototypes. Based on the successful testing, the prototypes will be used for presentation purposes to potential license and joint venture partners. The Company will be making presentations to the military which could result in additional government funding if the diesel engine prototype meets with its approval. The Company expects revenue from license agreements with the potential end users based on the success of the early test results from the compressor and diesel engine prototypes. Within six months of successful testing of the prototypes, the Company expects to have joint venture or license agreements finalized. These would result in royalties to the Company. However, there is no assurance that the tests will be successful and that the Company will ever receive any such royalties. 6 RESEARCH AND DEVELOPMENT The basic research and development work on the RC/DC Engine is being coordinated and funded by Reg Tech. The Company plans to contract with outside individuals, institutions and companies to perform most of the additional research and development work which it may require to benefit from its rights to the RC/DC Engine. The Company has entered into an employment agreement with Patrick Badgley, a professional engineer in Columbus, Indiana, and a Vice President and Director of the Company, to act as Research Project Manager for the RC/DC Engine. Under the agreement, Mr. Badgley, will receive compensation of $7,700 per month plus reasonable expenses related to the project, of which the Company will pay 50% and REGI will pay 50%. Development work on the application of the RC\DC engine design in auto air conditioner compressors is being completed by Aerotech Driveline, a design firm in Detroit, Michigan under a contract with Reg Tech. ENVIRONMENTAL CONTROL FACTORS At the present time there is no direct financial or competitive effect upon the Company's business as a result of any need to comply with any federal, state or local provisions which have been enacted or adopted regulating the discharge of materials into the environment, or otherwise relating to the protection of the environment. KEY CUSTOMERS Although the Company has no key customers at the present time, it is expected that if its development work is successful, it will likely become dependent, at least initially, upon one or very few key customers. Such dependence could prove to be risky in the event that one or more such potential customers were to be lost and not replaced. RAW MATERIALS Since the Company is not in production and there are no plans at this time for the Company to enter the actual engine manufacturing business, raw materials are not of present concern. At this time, however, there does not appear to be any foreseeable problem with obtaining any materials or components which may be required in the manufacture of its potential products. PATENT INFORMATION U.S. patent No. 5,429,084 was granted on July 4, 1995 to the inventor, Brian Cherry, Patrick Badgley and four other individuals for various improvements incorporated in the RC/DC Engine. The patent has been assigned to the Company. U.S. Patent 4,401,070 for the Original Engine was issued on August 30, 1983 to James McCann and the marketing rights are held by REGI. The RC/DC Engine is composed basically of a disk shaped rotor with drive shaft, which turns, and the housing or stator, which remains stationary. The rotor has two or more vanes which are mounted perpendicular to the direction of rotation and slide back and forth through it. As the rotor turns, the ends of the vanes ride along the insides of the stator housing which have wave-like depressions, causing the vanes to slide back and forth. In the process of turning and sliding, combustion chambers are formed between the rotor, stator walls and vanes where the fuel/air mixture is injected, compressed, burned and exhausted. SEASONALITY AND BACKLOG OF BUSINESS Since the Company is not yet in production, seasonality of its potential business is not of present concern. However, at this time it does not appear that there will be a significant seasonal factor to its potential business. 7 The Company has no current backlog of business. WORKING CAPITAL REQUIREMENTS Because the Company is not yet producing and selling any products, working capital requirements relative to production, inventory and accounts receivable are not relevant. Working capital requirements for day-to-day operations and the continuation of research and development activities have been provided from equity capital and advances from related parties including Reg Tech and REGI. Until such time as the Company is able to obtain revenues from licensing production rights to the engine or from some related activities it will most likely need to rely on additional equity capital or debt capital, if available. REGI and Reg Tech have agreed to provide the necessary funds for the development of the RC/DC Diesel Engine prototype and the other operations of the Company until joint venture or license agreements can be completed. On September 23, 1996, the Company announced that $333,100.00 had been received by way of a $40,000 private placement at $2.00 per unite and exercise of warrants. Each unit consists of one share and one two-year warrant, enabling the investor to purchase one additional share at $2.00 in the first year, and/or $2.50 in the second year. $293,100.00 was received by the exercise of 195,400 warrants at $1.50 per share. On April 25, 1997, the Company offered up to $500,000 of 8 3/4 % Senior Convertible Debentures due June 15, 2000 through a private placement. The Company believes that it currently has on hand sufficient funds to cover anticipated expenses relating to this development work and the ongoing overhead costs of maintaining offices and functioning as a publicly held company. Additionally, the Company expects that it may receive additional capital as the result of the sale of shares of Common Stock either through private placements or public offerings and through the exercise of outstanding options and warrants. REGI currently owns over $20 million of Common Stock (at current market prices) which it has agreed to sell under Rule 144 as necessary to fund the operations of the Company. BUSINESS SUBJECT TO RENEGOTIATION The Company currently has no business or contract subject to renegotiation with any agency of the U.S. Government and does not expect to have any during the fiscal year ending April 30, 1997. COMPETITION The Company currently faces and will continue to face competition in the future from established companies engaged in the business of developing, manufacturing and marketing engines. While not a highly competitive business in terms of numbers of competitors, the business of developing engines of a new design and attempting to either license or produce them is nonetheless difficult because most existing engine producers are large, well financed companies which are very concerned about maintaining their market position. Such competitors are already well established in the market and have substantially greater resources than the Company. Internal combustion engines are produced by automobile manufacturers, marine engine manufacturers, heavy equipment manufacturers and specialty aircraft and industrial engine manufacturers. The Company expects that its engine would be used mainly in industrial and marine applications. Except for the Wankel rotary engine built by Mazda of Japan, no competitor, of which the Company is aware, presently produces in a commercial quantity any rotary engine similar to that which the Company is developing. The Wankel rotary engine is similar only in that it is a rotary engine rather than a reciprocating piston engine. Without substantially greater financial resources than are currently available to the Company, however, it is very possible that it may not be able to adequately compete in the engine business. One competitor, Infinite Engines Corporation, is developing a competitive rotary engine. However, the Company believes that its engine is dramatically different. The Infinite Engine is similar to the old Wankel engine which had pollution problems and was not fuel efficient. The 8 Company's RC\DC Engine is more fuel efficient and will have fewer emissions. The Company believes that if and when its engine is completely developed, in order to be successful in meeting or overcoming competition which currently exists or may develop in the future, its engine will need to offer superior performance and/or cost advantages over existing engines used in various applications. EMPLOYEES The Company currently has one full-time and three part-time employees, only two of which are directly involved in technical development work on the RC/DC Engine. The Company expects to hire additional employees for those positions which it deems necessary to fill, as needs arise. Most additional employees are expected to be in technical and licensing/marketing positions. SEGMENT DATA The Company currently operates only in one industry and therefore, the financial statements contained herein describe its operations in this one industry. All dollar amounts are stated in U.S. funds, unless otherwise noted. The Company has no foreign operations and has recorded no sales since its inception. ITEM 2. PROPERTY - ------- -------- The Company owns no properties. It currently utilizes office space leased by Reg Tech in a commercial business park building located in Richmond, British Columbia, Canada, a suburb of Vancouver. The monthly rent for its portion of this office space is $500.00. The present facilities are believed to be adequate for meeting the Company's needs for the immediate future. However, management expects that the Company will likely acquire separate space when the level of business activity requires it to do so. The Company does not anticipate that it will have any difficulty in obtaining such additional space at favorable rates. There are no current plans to purchase or lease any properties in the near future. Mr. Badgley works out of an office in his home in Columbus, Indiana. From this office, Mr. Badgley oversees and controls development and testing of the engine prototypes. Mr. Badgley has also designed several important improvements to the RC/DC Engine for which patent applications are pending. ITEM 3. LEGAL PROCEEDINGS - ------- ----------------- The Company is not a party to any legal proceedings or litigation, nor is it aware that any litigation is presently being threatened or contemplated against either itself or any officer, director or affiliate. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS - ------- --------------------------------------------------- No matters were submitted to a vote by the Company's security holders during the fourth quarter of its fiscal year ended April 30, 1997. PART II ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS - ------- -------------------------------------------------------- There is a limited public market for the Common Stock of the Company which currently trades on the NASD OTC Bulletin Board under the symbol "RGUS" where it has been traded since September 21, 1994. The Common Stock has traded between $.75 and $6.75 per share since that date. The following table sets forth the high and low prices for the Company's Common Stock, as provided by NASD and reported on the Bulletin Board for the quarters presented. These quotations reflect inter-dealer prices, without retail mark-up, mark-down or commissions, and may not reflect actual transactions. 9
Bid Price Asked Price High Low High Low -------------------- --------------------- Quarter ended October 31, 1994 none reported none reported Quarter ended January 31, 1995 $3.00 $1.25 $3.375 $2.40 Quarter ended April 30, 1995 $3.00 $1.25 $3.375 $2.25 Quarter ended July 30, 1995 $2.50 $1.75 $2.875 $2.00 Quarter ended October 31, 1995 $2.75 $1.875 $2.75 $2.12 Quarter ended January 31, 1996 $6.75 $2.4375 $6.62 $2.56 Quarter ended April 30, 1996 $6.25 $3.75 $6.62 $4.00 Quarter ended July 30, 1996 $4.00 $3.37 $4.37 $3.56 Quarter ended October 31, 1996 $3.37 $1.62 $3.56 $1.73 Quarter ended January 31, 1997 $2.06 $1.43 $2.18 $1.62 Quarter ended April 30, 1997 $1.87 $0.75 $1.93 $0.93
As of July 24, 1997, there were 8,223,300 shares of Common Stock outstanding, held by 161 shareholders of record. DIVIDEND POLICY To date the Company has not paid any dividends on its Common Stock and does not expect to declare or pay any dividends on such Common Stock in the foreseeable future. Payment of any dividends will be dependent upon future earnings, if any, the financial condition of the Company, and other factors as deemed relevant by the Company's Board of Directors. ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND - ------- --------------------------------------------------------------- RESULTS OF OPERATIONS --------------------- Management's Discussion - ----------------------- The Company was incorporated in the State of Oregon, on July 27, 1992 and is in the business of developing and commercially exploiting an improved axial vane type rotary engine known as the Rand Cam/Direct Charge Engine ("The Engine"), which is a variation of the original Rand-Cam Engine. The world-wide marketing and intellectual rights, other than the U.S., are held by Rand Energy Group Inc. ("REGI") which controls the Company. The Company owns the U.S. marketing and intellectual rights and has a project cost sharing agreement, effective May 1, 1993, whereby it will fund 50% of the further development of The Engine and REGI will fund 50%. In a development stage company, management devotes most of its activities to establishing a new business. Planned principle activities have not yet produced significant revenue. The ability of the Company to emerge from the development stage with respect to its planned principle business activity is dependent upon its successful efforts to raise additional equity financing and develop the market for its products. Director's Progress Report from May 1, 1996 to July 15, 1997 - ------------------------------------------------------------ On May 23, 1996 the Rand Cam Compressor was transferred to Cortland, NY from fabricating facilities in California. An experienced compressor testing company and Pat Badgley, Vice President of Research Development, recommended some minor modifications. The fabricating facilities in California report that there were no leaks and the engine rotated freely. Preliminary testing began to test the compressor as an air conditioning unit for automobiles. The Rand Cam Air Conditioning unit is a very quiet and smooth unit and is one-half the size of existing air conditioning units currently 10 used in automobiles. On July 8, 1996 the fabricating of the Rand Cam Diesel Engine was completed and assembly started. Testing took place under the direction of the major designer of the Rand Cam Diesel Engine, Pat Badgley. Paul Lamarche, PhD, engineering consultant, has been contracted by the Company to assist in testing the Rand Cam Diesel Engine. His experience includes the successful testing of the Rand Cam Gasoline prototype in Detroit, in January of 1995, whereas one hour of testing resulted in positive torque outputs and good throttle response. The Rand Cam Diesel Engine is a demonstrator model to prove that the technology is feasible. The engine has twelve vanes, continuous injection with twenty-four power impulses, K-Miller cycle, extended combustion and is designed to power a 60KW generator. This demonstration model will be used to attract license and joint venture agreements for the Company. On July 15, 1996 the Company agreed to a cooperative agreement to participate with Global Aircraft Corporation in the NASA GAP program. On November 1, 1996, the submission was not awarded by the NASA GAP personnel. The NASA GAP program was awarded to a large aerospace company. On September 13, 1996 a progress report was received from Paul Lamarche regarding test results on the Rand Cam Compressor. The compressor was run at 1,200 RPM, 2,000 RPM, 3,000 RPM and 4,000 RPM. The system worked very well as far as keeping the hardware cool. The compressor remained at room temperature during the test runs. On Test #1 the compressor was run at 1,200 RPM and 2,000 RPM on Test #2. The data showed the tests were successful and the discharge temperatures were higher than the suction temperature which meant the compressor was functioning properly. On October 1, 1996 the Rand Cam Diesel Engine commenced testing at Adiabatics, Inc. in Columbus, Indiana. The Engine was installed in an engine test cell which had a 50 horsepower D.C. dynamometer which can motor the engine over a wide speed range as well as absorb power from the Engine. The test stand had an in-line, strain gage type torquemeter for measuring the power transmitted in the shaft from the Engine to the dynamometer. The test cell completed instrumentation to measure speed, temperatures and pressures. The data was gathered on a computer data logger. Based on the report by Pat Badgley, the first test was positive and the hardware looked good. On October 2, 1996 the modifications recommended by Paul Lamarche and Pat Badgley commenced in Detroit at Five Star Industries, an aerospace components developer. On October 28, 1996 an agreement with the Quincy Compressor Division, a Coltec Industries Company, to build a low pressure compressor for medical applications had been entered into. On December 27, 1996 the Company received an outline of the Rand Cam Air Conditioning Compressor development test program from Paul Lamarche. An extensive testing and hardware development program was instituted on November 2, 1996 reaching the performance goals of the specifications set by the automotive industry to qualify the Rand Cam Air Conditioning Compressor. A set of in excess of twenty tests were performed at various speeds, using various materials, on two phases of hardware models. Phase 1 utilized an aluminum housing with a pin track, guide to dynamically locate the vanes. Phase 2 utilized a cast iron housing with vanes self-locating against the cams. On January 17, 1997, a series of programs commenced on the Rand Cam Compressor and Diesel Engine as follows: (i) The air conditioning compressor was successfully tested at 3,700 RPM with 260 PSI, the best result to date. (ii) The diesel engine prototype testing will commence after an engineering analysis is completed in Detroit by Paul Lamarche. (iii) The medical application compressor design was completed and the fabricating of the prototype model commenced. 11 (iv) Three Small Business Innovations Research (SBIR) program applications were submitted by Pat Badgley to the US government for funding. The funding is for the US Department of Defence motorcycle, boat and small airplane applications. Several companies in Europe, Asia, and India have expressed interest in license agreements for the Rand Cam Engine motorcycle. Engineers will commence a design for a prototype motorcycle Rand Cam Engine. On February 26, 1997 a successful preliminary system function test was conducted. The test consisted of a simulated vehicle with all the components, evaporator, condenser, control valves, fan and ducts on the Rand Cam Air Conditioning Compressor unit. The unit performed as designed and met expectations. The test was to evaluate the Rand Cam Compressor cooling cycle using the non-polluting 134A Freon. On July 17, 1997 several proof of concept tests to fire the Rand Cam Scooter Engine were successfully completed. The engine parts were inspected and found to be in excellent condition after the series of tests. Additional tests will be run in the future. Several meetings with potential joint venture or licensees were concluded in July resulting in positive interest in its Rand Cam compressor and pump applications. Negotiations to work on their applications are now taking place. The Company's objective is to sign several joint venture or license agreements with large end users for its Rand Cam design during fiscal 1998. During fiscal 1998, the Company plans to raise $500,000 through a three year, 8 3/4% interest, convertible debenture, of which $5,000 has been raised to date. The 8 3/4% interest is paid annually and the debenture is convertible into Class common shares at $1.25, $1.50 and $1.75 in years one, two and three, respectively. In the event the shares are trading below $2.00 per share over a ten-day average prior to exercising into shares of the Company during the last month of the third year, the convertible debenture will be exercisable at 20% below the said ten-day average. The maturity date is June 15, 2000. The Company will use these funds to pay down accounts payable and to complete the development of the Rand Cam Compressor and Diesel Engine prototypes for demonstration purposes to potential license and/or joint venture companies. Results of operations for the fiscal 1997 compared to fiscal 1996 - ----------------------------------------------------------------- There were no revenues from product licensing during the years. The net loss in 1997 decreased by $286,721 to $510,184 compared to $796,905 in 1996. The decreased net loss in 1997 was due to administrative expenses which decreased by $54,606 to $249,248 as compared to $303,854 in 1996. The major components of this decrease was due to a decrease in advertising of stock and investor relations activities by $93,060 to $96,526 as compared to $189,586 in 1996; professional fees increased by $30,227 to $102,994 as compared to $72,767 in 1996. During 1997, research and development costs decreased by $232,115 to $260,936 compared to $493,051 in 1996. The decrease was due to more cost effective prototype construction activity during 1997 as compared to extensive completion of prototypes in 1996. Prototype costs decreased by $267,352 to $55,000 compared to $322,412 in 1996. Liquidity - --------- During fiscal 1997, the Company financed its operations, in part, from proceeds from two private placements whereby the Company received $40,000 and issued 20,000 shares at $2.00 per share and received $217,500 and issued 145,000 shares at $1.50 per share. During the year the Company received $13,700 and issued 137,000 shares at $.10 per share pursuant to options exercised. A total of $278,100 was received, and 185,400 shares issued, pursuant to warrants exercised at $1.50 per share. The Company received a loan of $7,200 from the President of the Company. The Company's financial resources, including an opening cash balance as at April 30, 1996 of $2,768, totalled $559,268. Cash used, as a result of the net loss for the period, totalled $428,454, after adjustments to reconcile net loss to cash. During the year the Company spent $13,901 on patent protection costs and $115,694 paying down an amount owing to an affiliate. After the above cash outflows the Company was left with $1,219 as at April 30, 1997. 12 These funds together with the planned convertible debenture issue of $500,000 will be used for further development of the Rand Cam Engine, pay off April 30, 1997 net accounts payable totalling $124,450 and to provide working capital. ITEM 7. FINANCIAL STATEMENTS - ------- -------------------- 13 $115,694 paying down an amount owing to an affiliate. After the above cash outflows the Company was left with $1,219 as at April 30, 1997. These funds together with the planned convertible debenture issue of $500,000 will be used for further development of the Rand Cam(TM) Engine, pay off April 30, 1997 net accounts payable totalling $124,450 and to provide working capital. Item 7. Financial Statements - ------- -------------------- Index to Financial Statements
Page Report of Public Accountants............................... F-1 Balance Sheet at April 30, 1993, 1994, 1995 and 1996....... F-2 Statements of Operations for the years ended April 30, 1993, 1994, 1995 and 1996....................... F-3 Statements of Stockholder's Equity (Deficit) From July 27, 1992 (Inception) to April 30, 1996.......... F-4 Statements of Cash Flows Accumulated From July 27, 1992 (Inception) to April 30, 1996 and for the years ended April 30, 1993, 1994, 1995 and 1996....................... F-6 Notes to the Financial Statements.......................... F-7
14 [LETTERHEAD OF ELLIOTT TULK PRYCE ANDERSON] Independent Auditor's Report ---------------------------- To the shareholders of 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, 1997 and 1996 and the related statements of operations, stockholders' equity and cash flows for the years ended April 30, 1997 and 1996. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the aforementioned financial statements present fairly, in all material respects, the financial position of REGI U.S., Inc. (A Development Stage Company), as of April 30, 1997 and 1996, and the results of its operations and its cash flows for the years ended April 30, 1997 and 1996, in conformity with U.S. generally accepted accounting principles. The accompanying financial statements have been prepared assuming the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company has not generated any revenues or profitable operations since inception. These factors raise doubt about the Company's ability to continue as a going concern. Management's plans in regard to these matters are also discussed in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. /s/ ELLIOTT TULK PRYCE ANDERSON CHARTERED ACCOUNTANTS Vancouver, B.C., Canada July 17, 1997 15 REGI U.S., Inc. (A Development Stage Company) Balance Sheets April 30, 1997 and 1996 (expressed in U.S. dollars)
1997 1996 $ $ Assets Current Asset Cash 1,219 2,768 Fixed Assets (Note 4) 3,734 8,684 Intangible Assets (Note 4) 44,007 32,564 ---------- ---------- 49,020 44,016 ========== ========== Liabilities And Stockholders' Deficit Current Liabilities Accounts payable and accrued liabilities 149,451 75,069 Due to affiliate 1,056 116,750 Due to officer 7,200 - ---------- ---------- 157,707 191,819 ---------- ---------- Stockholders' Deficit Common Stock (Note 5), 20,000,000 shares authorized without par value; 8,123,300 and 7,635,900 shares issued and outstanding respectively. 2,841,900 2,292,600 Deficit Accumulated During the Development Stage (2,950,587) (2,440,403) ---------- ---------- (108,687) (147,803) ---------- ---------- 49,020 44,016 ========== ========== Commitments and Contingent Liabilities (Note 7)
(The accompanying notes are an integral part of the financial statements) 16 REGI U.S., Inc. (A Development Stage Company) Statements of Operations Accumulated from July 27, 1992 (Inception) to April 30, 1997 and the Years ended April 30, 1997 and 1996 (expressed in U.S. dollars)
May 1 May 1 Accumulated 1996 1995 During the to to Development April 30 April 30 Stage 1997 1996 $ $ $ Revenues - - - ---------- --------- --------- Administrative Expenses Advertising - stock 132,589 9,965 94,719 Bank charges 3,543 2,525 563 Foreign exchange 2,826 589 297 Office, rent and telephone 75,519 26,680 42,229 Professional fees 229,652 102,994 72,767 Stockholder and investor relations 229,035 86,561 94,867 Transfer agent and regulatory fees 36,925 20,003 4,737 Travel 5,423 609 - Less: interest (13,757) (678) (6,325) ---------- --------- --------- 701,755 249,248 303,854 ---------- --------- --------- Research and Development Expenses Intellectual property 257,000 - - Amortization 17,678 7,348 6,516 Market development 86,346 - 6,962 Professional fees 73,904 4,089 3,220 Project management 130,000 30,000 30,000 Project overhead 109,023 35,522 29,375 Prototype design and construction 1,135,687 55,060 322,412 Technical consulting 115,809 58,310 11,250 Technical reports 17,120 1,000 2,456 Technical salaries 169,467 51,746 53,858 Travel 136,798 17,861 27,002 ---------- --------- --------- 2,248,832 260,936 493,051 ---------- --------- --------- Net Loss 2,950,587 510,184 796,905 ========== ========= ========= Net Loss Per Share (.06) (.10) ========= ========= Weighted Average Shares Outstanding 7,887,000 7,382,000 ========= =========
(The accompanying notes are an integral part of the financial statements) 17 REGI U.S., Inc. (A Development Stage Company) Statements of Stockholders' Equity From July 27, 1992 (Inception) to April 30, 1997 (expressed in U.S. dollars)
Deficit Accumulated Common Stock During the Shares Amount Development Stage # $ $ Balance - July 27, 1992 (inception) - - - Stock issued for intellectual property at $0.01 per share 5,700,000 57,000 - Stock issued for cash at $0.01 per share 300,000 3,000 - Net loss for the period from July 27, 1992 to April 30, 1993 - - (23,492) --------- -------- --------- Balance - April 30, 1993 6,000,000 60,000 (23,492) Stock issued for cash pursuant to a public offering of shares issued at $1.00 per share 500,000 500,000 - Net loss for the year ended April 30, 1994 - - (394,263) --------- -------- ---------- Balance - April 30, 1994 6,500,000 560,000 (417,755) Stock issued for cash pursuant to: options exercised at $0.10 per share 10,000 1,000 - a private placement of shares issued at $2.25 per share 250,000 562,500 - warrants exercised at $1.25 per share 169,200 211,500 - warrants exercised at $1.50 per share 1,000 1,500 - Net loss for the year ended April 30, 1995 - - (1,225,743) --------- --------- ---------- Balance - April 30, 1995 6,930,200 1,336,500 (1,643,498) Stock issued for cash pursuant to options exercised at $0.10 per share 200,500 20,050 - --------- --------- ---------- Carry forward balance 7,130,700 1,356,550 (1,643,498) --------- --------- ---------- Balance carried forward 7,130,700 1,356,550 (1,643,498) options exercised at $1.00 per share 17,000 17,000 - options exercised at $2.75 per share 5,000 13,750 - options exercised at $2.50 per share 10,000 25,000 - warrants exercised at $1.50 per share 132,200 198,300 - a private offering memorandum at $2.00 per share 341,000 682,000 - Net loss for the year ended April 30, 1996 - - (796,905) --------- --------- ---------- Balance - April 30, 1996 7,635,900 2,292,600 (2,440,403) stock issued for cash pursuant to options exercised at $0.10 per share 137,000 13,700 - warrants exercised at $1.50 per share 185,400 278,100 - a private placement at $2.00 per share 20,000 40,000 - a private placement at $1.50 per share 145,000 217,500 - Net loss for the year ended April 30, 1997 - - (510,184) --------- --------- ---------- Balance- April 30, 1997 8,123,300 2,841,900 (2,950,587) ========= ========= ==========
(The accompanying notes are an integral part of the financial statements) 18 REGI U.S., Inc. (A Development Stage Company) Statements of Cash Flows Accumulated from July 27, 1992 (Inception) to April 30, 1997 and the Years ended April 30, 1997 and 1996 (expressed in U.S. dollars)
May 1 May 1 Accumulated 1996 1995 During the to to Development April 30 April 30 Stage 1997 1996 $ $ $ Cash Flows to Operating Activities Net loss (2,950,587) (510,184) (796,905) Adjustments to reconcile net loss to cash Amortization 17,678 7,348 6,516 Intellectual property 257,000 - - Change in non-cash working capital items Decrease in prepaid expense - - 6,000 Increase in accounts payable 149,451 74,382 40,197 ---------- -------- -------- Net Cash Used by Operating Activities (2,526,458) (428,454) (744,192) ---------- -------- -------- Cash Flows from Financing Activities Increase in shares issued 2,784,900 549,300 956,100 Increase in advances from parent - - 28,436 Decrease in due to affiliate (198,944) (115,694) (493,123) ---------- -------- -------- Increase in loan from an officer 7,200 7,200 - ---------- -------- -------- Net Cash Provided by Financing Activities 2,593,156 440,806 491,413 ---------- -------- -------- Cash Flows to Investing Activities (Increase) in computer equipment (16,048) - (4,588) (Increase) in patents (49,431) (13,901) (6,307) Decrease in licence - - 200,000 ---------- -------- -------- Net Cash (Used) Provided by Investing Activities (65,479) (13,901) 189,105 ---------- -------- -------- Increase (decrease) in cash 1,219 (1,549) (63,674) Cash - beginning of year - 2,768 66,442 ---------- -------- -------- Cash - end of year 1,219 1,219 2,768 ========== ======== ======== Non-Cash Financing Activities Deemed value of affiliate shares issued for intellectual property (Note 4) 200,000 - - 5,700,000 shares issued for intellectual property at $0.01 per share (Note 4) 57,000 - - ---------- -------- -------- 257,000 - - ========== ======== ========
(The accompanying notes are an integral part of the financial statements) 19 REGI U.S., Inc. (A Development Stage Company) Notes to the Financial Statements April 30, 1997 and 1996 (expressed in U.S. dollars) 1. Development Stage Company The Company was incorporated in the State of Oregon, U.S.A. on July 27, 1992 and is in the business of developing and commercially exploiting an improved axial vane type rotary engine known as the Rand Cam/Direct Charge Engine ("The Engine"). The world-wide marketing and intellectual rights, other than the U.S., are held by Rand Energy Group Inc. ("REGI") which controls the Company. The Company owns the U.S. marketing and intellectual rights and has a project cost sharing agreement, whereby it will fund 50% of the further development of The Engine and REGI will fund 50%. In a development stage company, management devotes most of its activities to establishing a new business. Planned principle activities have not yet produced significant revenue. The ability of the Company to emerge from the development stage with respect to its planned principle business activity is dependent upon its successful efforts to raise additional equity financing and develop the market for its products. The Company plans to raise additional funds through a $500,000 convertible debenture issue (See Note 8 (b)). 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 are capitalized as incurred. The cost of patent protection is being amortized on a straight line basis over 20 years or written off completely should The Engine be determined by management not to be commercially viable. (c) Research and Development Costs to acquire technological rights and design drawings collectively referred to as intellectual property are treated as research and development. Research and development is expensed in the period in which the activities occurred. (d) Cash and Cash Equivalents The Company considers all highly liquid instruments with a maturity of three months or less at the time of issuance to be cash equivalents. (e) Foreign Currency Transactions/Balances Transactions in currencies other than the U.S. dollar are translated at the rate in effect on the transaction date. Any balance sheet items denominated in foreign currencies are translated into U.S. dollars using the rate in effect on the balance sheet date. 20 2. Summary of Significant Accounting Policies (continued) (f) Tax Accounting Research and development is fully deducted in the year of expenditure. The Company has not earned any research and development tax credits. The Company has adopted SFAS 109 as of its inception. The Company has net operating losses, totalling $2,736.000 as scheduled below:
Fiscal Year of Loss Amount Expiration Date $ 1994 416,000 2009 1995 1,007,000 2010 1996 792,000 2011 1997 521,000 2012
Pursuant to SFAS 109 the Company is required to compute tax asset benefits for net operating loss carryforwards. Potential benefit of net income losses have not been recognized in the financial statements because the Company cannot be assured that it is more likely than not that it will utilize the net operating loss carryforwards in future years. The components of the net deferred tax asset, the statutory tax rate, the effective tax rate and the elected amount of the valuation allowance are scheduled below:
1997 1996 $ $ Net Operating Loss 521,000 792,000 Statutory Tax Rate $113,900 + 34% $113,900 + 34% in excess of in excess of $335,000 $335,000 Effective Tax Rate - - Deferred Tax Asset 177,000 269,000 Valuation Allowance (177,000) (269,000) --------- -------- Net Deferred Tax Asset - - ========= ========
21 3. Acquisition of Rights, Title and Interest (a) On August 20, 1992 the Company acquired the U.S. rights to the original Rand Cam-Engine from REGI by issuing 5,700,000 shares at a deemed value of $0.01 per share. REGI will receive a 5% net profit royalty. The $57,000 deemed value has been expensed as research and development in 1995. (b) Pursuant to an agreement with Brian Cherry (a director) dated July 30, 1992 and amended November 23, 1992 and April 13, 1993, the Company acquired the U.S. rights to the improved axial vane rotary engine known as the Rand Cam/Direct Charge Engine. On November 9, 1993, in consideration for the transferred technology, Mr. Cherry was issued 100,000 shares of Reg Technologies Inc. ("REG") (a public company owning 51% of REGI) with a deemed value of $200,000 and will receive a 1% net profit royalty. The deemed value of $200,000 was treated as an expense paid by REG on behalf of the Company and treated as an inter- company loan. The $200,000 deemed value of intellectual property has been expensed as research and development in 1995. (c) Pursuant to a letter of understanding dated December 13, 1993 between the Company, REGI and REG (collectively called the grantors) and West Virginia University Research Corporation ("WVURC"), the grantors have agreed that WVURC shall own 5% of all patented technology and will receive 5% of all net profits from sales, licences, royalties or income derived from the patented technology. 4. (a) Fixed Assets
1997 1996 Accumulated Net Book Net Book Cost Amortization Value Value $ $ $ $ Computer equipment 16,048 12,314 3,734 6,009 ====== ====== ====== ====== (b) Intangible Assets Patents 49,431 5,364 44,067 44,787 ====== ====== ====== ======
5. Common Stock (a) Pursuant to a Private Offering Memorandum dated April 15, 1995 and expiring February 28, 1996 the Company sold 361,000 units at $2.00 per unit for proceeds of $722,000. Each unit contained one common share, and one warrant to acquire an additional share at $2.00 exercisable beginning August 15, 1996 and ending August 15, 1997 or at $2.50 beginning August 16, 1997 and ending August 15, 1998. All warrants issued pursuant to this offering are outstanding at April 30, 1997. 22 5. Common Stock (b) Stock option activity
1996 Price Granted Cancelled (C) 1997 Expiry # $ # Exercised(E) # Date 30,000 2.50 - 30,000C - - 187,000 0.10 - 137,000E 50,000 April 30, 1998 178,000 1.00 - - 178,000 October 29, 1998 30,000 1.00* - - 30,000 September 15, 1997 75,000 1.00 - - 75,000 February 9, 1999 30,000 1.00* - 25,000C 5,000 October 29, 1999 5,000 1.00* - - 5,000 September 8, 2000 350,000 1.00* - - 350,000 January 3, 2001 ------- ------- ----------- ------- 885,000 - - 192,000 693,000 ======= ======= =========== =======
*These stock options were repriced to $1.00. 6. Related Party Transactions (a) A project management fee of $30,000 (1996 - $30,000) was paid to a company controlled by the president of the Company and is included in research and development expenses. (b) Rent and secretarial fees of $6,000 (1996 - $6,000) was paid to a company controlled by the president of the Company and are included in research and development expenses. (c) A technical salary of $51,746 (1996 - $53,858) was paid to an officer and director and is included in research and development expenses. (d) An administrative fee of $6,000 (1996 - $6,000) was paid to an officer and director and is included in research and development expenses. (e) The amounts owing to an officer and affiliate are unsecured, non- interest bearing and have no fixed terms of repayment. 7. Commitments and Contingent Liabilities (a) See Note 3 - royalty commitments in connection with the Rand Cam/Direct Charge Engine. (b) The Company is committed to pay project management fees and rent and secretarial fees totalling $36,000 per annum to a Company controlled by the president of the Company. (c) The Company has reserved 361,000 shares for the conversion of warrants and 693,000 shares for the exercise of stock options. See Note 8(c) for subsequent commitments to issue shares. (d) The Company is committed to fund 50% of the further development of the Engine. (e) A total of $25,000 has been accrued as professional fees as at April 30, 1997. The Company is committed to issue 50,000 shares to settle this debt. 8. Subsequent Events Subsequent to April 30, 1997, the Company has: (a) received $5,000 and issued 50,000 shares pursuant to stock options exercised at $0.10 per share. (b) offered a three year, 8 3/4% interest, convertible debenture to raise $500,000, of which $5,000 has been raised to date. The 8 3/4% interest is paid annually and the debenture is convertible into Class "A" common shares at $1.25, $1.50 and $1.75 in years one, two and three, respectively. In the event the shares are trading below $2.00 per share over a ten-day average prior to exercising into shares of the Company during the last month of the third year, the convertible debenture will be exercisable at 20% below the said ten-day average. The maturity date is June 15, 2000. (c) acquired the U.S. rights to an Air/Vapour Fuel Cell System "the System". The Company paid $13,500 and has caused an officer to transfer to the vendor 50,000 shares of the Company owned by the officer. Once the agreement has been approved, the Company will issue 50,000 shares to the officer as a reimbursement. Upon submission of a patent application and successful testing of the System, a further $36,500 and 150,000 shares are to be paid. The Company will pay to the inventor 8.5% on net sales derived from the system. 23 ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND - ------- --------------------------------------------------------------- FINANCIAL DISCLOSURE -------------------- None. PART III ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT; COMPLIANCE WITH - ------- ------------------------------------------------------------------- SECTION 16 (A) OF THE EXCHANGE ACT. ----------------------------------- The following is a list of the names of all of the current directors and executive officers of the Company. Each of the directors listed below served in the respective capacities during the fiscal periods ended April 30, 1993, 1994, 1995, 1996 and 1997.
Name Age Position - ---- --- -------- John G. Robertson 56 Chairman of the Board and President Brian Cherry 57 Vice President, Secretary and Director Patrick R. Badgley 54 Vice President, Research and Development Jennifer Lorette 25 Vice President and Chief Financial Officer
The directors are elected annually and shall serve until their successors are elected and qualified. Mr. Robertson and Mr. Cherry have held their positions since the formation of the Company. The Company intends to hold its annual meetings on such date as may be set by the board of directors. Additional officers and directors may be added as the Company's operations require. There are no family relationships between any director or executive officer and any other director or executive officer. JOHN ROBERTSON been the Chairman, President and Chief Executive Officer of the Company since its formation. For more than the past ten years he has also been the president of Reg Tech, a public company listed on the Vancouver Stock Exchange, which he founded, and which has financed the research on the Rand Cam Engine since 1986. He is also the President and Founder of Teryl Resources Corp., a public company involved in gold, diamond, and oil and gas exploration. Mr. Robertson is also President and Founder of SMR Investments, Ltd., the management company for both Teryl Resources Corp. and Reg Tech. SMR has been in business since 1979 and owns major share positions in Teryl Resources Corp., Reg Tech and other public companies. He is also President of Flame Petro Minerals Corp., a private company with interests in oil and gas and gold prospects, and President of IAS Communications, Inc., which is developing a new type of antenna system. BRIAN CHERRY has been Vice President, Secretary and a Director of the Company since its inception. His family has owned a pump manufacturing company in Vancouver for a number of years and has made significant contributions to the improved design of the Original Engine and the development of the RC/DC Engine. Mr. Cherry has also been a Director of Flame Petro Minerals Corp. From October 20, 1994 through the present he has also served as Vice President in charge of patents and technology for Rand Cam Engine. From April 1990 through the present Mr. Cherry has acted as Secretary Treasurer to Reg Tech which initially financed the research and development for the Rand Cam Engine. His duties include overseeing technical and patent data on the RC/DC Engine. PATRICK R. BADGLEY was appointed Vice President, Research and Development of the Company in February 1994. He is directing and participating in the technical development of the Rand Cam compressor, gasoline engine and diesel engine. Previously, Mr. Badgley had been employed for 16 years at Adiabatics, Inc., in Columbus, Indiana. Between 1986 and 1994, Mr. Badgley was the Director of Research and Development at Adiabatics, where he directly oversaw several government and privately sponsored research programs including the lightweight, quiet 30 kW APU project for ARPA. He was also the Program Manager for the Gas Research Institute project for emissions reduction of two-stoke cycle natural gas engines. He was also Program Manger for several coal fuel diesel engine programs for the 24 Department of Energy and for uncooled engine programs for a Wankel engine for NASA and for a piston type diesel engine for the U.S. Army. Mr. Badgley's work has covered all phases of research, design, development and manufacturing, from research on ultra-high speed solenoids and fuel sprays, to new product conceptualization and production implementation of fuel pumps and fuel injectors. Previously, he also worked at Curtiss Wright and John Deere on Wankel engine development. Mr. Badgley received his Bachelor of Science degree in Mechanical Engineering from Ohio State University and has done graduate work at Purdue University. Mr. Badgley is also a director and officer of IAS Communications Inc. JENNIFER H. LORETTE has been a Vice President and Chief Financial Officer of the Company since June 1994. From April 1994 through the present she has also been Vice President of Administration for Reg Tech. From December 1994 through the present she has acted as Secretary of IAS Communications Inc. Between December 1992 and June 1994 she was employed in various capacities by Reg Tech. Ms. Lorette has also been the Vice President and CFO of Flame Petro Minerals Corp. a private company with interests in oil, diamonds, gas and gold prospects. Between October 1990 and July 1992, Ms. Lorette was employed by Nickels Custom Cabinets. Ms. Lorette completed her high school education in June 1990. ITEM 10. EXECUTIVE COMPENSATION - -------- ---------------------- SUMMARY COMPENSATION TABLE The following table sets forth the aggregate cash compensation paid for services rendered to the Company during the last three fiscal years by the Company's Chief Executive Officer and the Company's most highly compensated executive officers who served as such at the end of the last fiscal year. No executive officer had an annual salary and bonus in excess of $100,000 during such year.
LONG-TERM COMPENSATION ANNUAL COMPENSATION AWARDS ------------------------------------------------------ ------------ NAME AND OTHER ANNUAL PRINCIPAL POSITION YEAR SALARY ($) BONUS ($) COMPENSATION ($) OPTIONS (#)(1) - ------------------ ---- ---------- --------- ---------------- -------------- John G. Robertson 1997 -0- -0- -0- -0- President, Chief 1996 -0- -0- -0- 300,000 Executive Officer 1995 -0- -0- -0- -0- Brian Cherry 1997 -0- -0- -0- -0- Vice President and 1996 -0- -0- -0- -0- Director 1995 -0- -0- -0- -0- Patrick Badgley 1997 $46,200 -0- -0- -0- Vice President 1996 $46,200 -0- -0- -0- 1995 $42,000 -0- -0- -0- Jennifer Lorette, 1997 $ 6,000 -0- -0- -0- Vice President 1996 $ 6,000 -0- -0- 50,000 1995 $ 2,000 -0- -0- -0-
_____________________ (1) Represents options granted under the Company's 1993 Key Employees Incentive Stock Option Plan. The Company has entered into an employment agreement with Patrick Badgley, a registered professional engineer, to act as Research Project Manager for the RC/DC Engine. The agreement calls for Mr. Badgley to be paid $7,700 per month plus reasonable expenses related to the project. Fifty-percent (50%) of this amount is paid by the Company and 50% by Reg Tech. 25 During the fiscal year ended April 30, 1997, project management fees of $30,000 were paid to a company controlled by the president of the Company and an additional $6,000 of rent and secretarial fee were paid to a company controlled by the president of the Company. No other significant compensation has been paid directly or accrued to any other officer or director of the Company during the year ended April 1997. On March 31, 1994 the Company entered into a management agreement with Access Information Services, Inc., a Washington corporation which is owned and controlled by John G. Robertson, under which the Company retained Access at the rate of $2,500 to provide certain management, administrative, and financial services for the Company. The Company has no other agreement at this time, with any officer or director, regarding employment with the Company or compensation for services other than herein described. Compensation of officers and directors is determined by the Company's Board of Directors and is not subject to shareholder approval. STOCK OPTION PLAN The Company adopted a Key Employees Incentive Stock Option Plan on April 30, 1993. The Plan authorizes the issuance of up to 2,000,000 shares of Common Stock of the Company to be issued to employees. As of April 30, 1997, the Company had issued options for approximately 1,097,500 shares. OPTION GRANTS IN LAST FISCAL YEAR No grants of stock options were made during the fiscal year ended April 30, 1997 to the Company's Chief Executive and the other executive officers named in the above Summary Compensation Table. STOCK OPTIONS EXERCISED IN LAST FISCAL YEAR AND HELD AT END OF FISCAL YEAR - APRIL 30, 1997 The following table sets forth certain information with respect to options exercised during fiscal 1997 by the Company's Chief Executive Officer and the other executive officers named in the above Summary Compensation Table, and with respect to unexercised options held by such persons at the end of fiscal 1997.
SHARES VALUE OF UNEXERCISED ACQUIRED ON VALUE NUMBER OF UNEXERCISED IN-THE-MONEY OPTIONS EXERCISE REALIZED OPTIONS AT FISCAL YEAR END AT FISCAL YEAR END(1) ---------- -------- ----------------------------- ---------------------------- Name Exercisable Unexercisable Exercisable Unexercisable - ---- ----------- ------------- ----------- ------------- John G. Robertson 137,000 $350,236 300,000 -0- -0- -0- Patrick Badgley -0- N/A 75,000 -0- -0- -0- Jennifer Lorette -0- N/A 60,000 -0- -0- -0- Brian Cherry -0- -0- 125,000 -0- $40,300 -0-
____________________ (1) The calculation of the value of unexercised options are based on the difference between the last sale price of $0.906 per share for the Company's common Stock on Wednesday, April 30, 1997 as reported by NASD, and the exercise price of each option, multiplied by the number of shares covered by the option. 26 ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT - -------- -------------------------------------------------------------- The following table sets forth, as of April 30, 1997, the amount and the percentage of the Company's Common Stock owned of record or beneficially by each officer, director and holder, or person known by the Company to own beneficially, more than five percent of the voting interest in the Company's Common Stock, and all officers and directors as a group.
AMOUNT AND NATURE PERCENTAGE TITLE NAME AND ADDRESS OF BENEFICIAL OF BENEFICIAL OF CLASS BENEFICIAL OWNER OWNERSHIP(1) OWNERSHIP(1) - -------- ------------------- ----------------- ------------- Common Rand Energy Group Inc. 5,538,800 (2) 63.0% 1030 West Georgia St. Vancouver, B.C., V6E 2Y3 Common Brian Cherry 390,000 (3) 4.4% 5451 Floyd Avenue Richmond, B.C. Canada Common John G. Robertson 5,878,300 (4) 66.8% 4040 Amundsen Place Richmond, B.C. Canada Common Patrick R. Badgley 75,000 (6) 0.85% 2815 Franklin Drive Columbus, IN 47201 Common Jennifer Lorette 60,500 (5) 0.69% 419-5880 Dover Crest Richmond, B.C. Canada Common James McCann 5,538,800 (2) 63.0% 211 -107 E. Broadway Vancouver, B. C. Common All officers and 6,403,800 72.8% directors as a group (five persons)
__________________ 1. Based upon 8,233,300 shares issued and outstanding and assuming exercise of options. A person is deemed to be the beneficial owner of securities that can be acquired by such person within 60 days from the date hereof upon the exercise of options. Each beneficial owner's percentage ownership is determined by assuming that options that are held by such person and which are exercisable within 60 days from such date are exercised. 2. Rand Energy Group is owned 51% by Reg Technologies Inc. and 49% by Rand Cam Engine Corp. Rand Cam Engine Corp. is a privately held company whose stock is reportedly owned 50% by The Watchtower Society, a religious organization, 34% by James McCann and the balance by several other shareholders. Mr. McCann has indicated that he donated the shares held by The Watchtower Society to that organization but has retained a voting proxy for those shares. 3. Brian Cherry owns 265,000 shares and options on an additional 125,000 shares. 4. John G. Robertson owns 11,700 shares and holds options to acquire 300,000 shares of the Company's Common Stock. Susanne M. Robertson, the wife of John G. Robertson, owns SMR Investment Ltd. which holds a controlling interest in Reg Technologies Inc. Therefore, Mr. Robertson is deemed to also be the beneficial owner of the shares owned by Rand Energy Group, Inc., which is 51% controlled by Reg Technologies Inc. 5. Ms. Lorette owns 500 shares and owns options to purchase an additional 60,000 shares. 6. Holds options for these shares. 27 ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS - -------- ---------------------------------------------- Pursuant to an agreement dated August 1992 (the "August 1992 Agreement"), the Company issued 5,700,000 shares of its Common Stock at a deemed value of $0.01 per share to REGI in exchange for certain valuable rights, technology, information, and other tangible and intangible assets relating to the United States rights to the Rand Cam Engine (the "Original Engine"). Reg Tech's president is also the president of the Company and its Vice President and Secretary is also a Director of the Company. The Company also agreed to pay semiannually to REGI a royalty of 5% of any net profits to be derived by the Company from revenues received as a result of its license of the Original Engine. As part of the August 1992 Agreement, the Company also agreed to pay semiannually to Brian Cherry a royalty of 1% of any net profits to be derived by the Company from revenues received as a result of this agreement. Also in August 1992, the Company sold 300,000 shares of its Common Stock at $0.01 per share to Brian Cherry. In an agreement dated April 13, 1993 among the Company, REGI, Reg Tech and Brian Cherry (the "April 1993 Agreement"), and made as an amendment to a previous Amendment Agreement dated November 23, 1992 between REGI, Reg Resources Corp. (Reg Tech) and Brian Cherry and an original agreement dated July 30, 1992 between REGI, Reg Resources Corp. and Brian Cherry, Cherry agreed to: (a) sell, transfer and assign to REGI all his right, title and interest in and to the technology related to the RC/DC Engine, (the "Technology") including all pending and future patent applications in respect of the Technology for all countries except the United States of America, together with any improvements, changes or other variations to the Technology; (b) sell, transfer and assign to the Company (then called Sky Technologies Inc.), all his right, title and interest in and to the Technology, including all pending and future patent applications in respect of the Technology for the United States of America, together with any improvements, changes or other variations to the Technology. Other provisions of the April 1993 Agreement call for the Company (a) to pay to REGI a continuing royalty of 5% of the net profits derived from the Technology by the Company and (b) to pay to Brian Cherry a continuing royalty of 1% of the net profits derived from the Technology by the Company. A final provision of the April 1993 Agreement assigns and transfers ownership to the Company of any patents, inventions, copyrights, know-how, technical data, and related types of intellectual property conceived, developed or created by REGI or its associated companies either prior to or subsequent to the date of the agreement, which results or derives from the direct or indirect use of the Original Engine and/or RC/DC Engine technologies by REGI. In November 1993, in consideration for certain technology transferred to the Company, as described above, Brian Cherry was issued 100,000 Common Shares of Reg Tech (deemed value $200,000). There was no connection between this transaction and the transaction involving the acquisition of the Canadian rights to the Machine Vision Technology described below. At that time the Company did not have available cash to pay to Mr. Cherry and there was no public market for the stock of the Company. Based upon his desire for some degree of immediate liquidity, management agreed to issue shares of Reg Tech to Mr. Cherry and to treat this as an advance. As previously noted, Reg Tech owns 51% of REGI which owns 76.7% of the Common Stock of the Company. Both Mr. Cherry and Mr. Robertson are officers and directors of both the Company and Reg Tech. The terms of the agreements referenced above were negotiated by the parties in non-arm's-length transactions but were deemed by the parties involved to be fair and equitable under the circumstances existing at the time. In 1995, the Company acquired an exclusive limited sublicense to market and distribute in Canada for the following consideration: i) $200,000 (paid). 28 ii) royalty payments equal to 2% of all net revenue derived from sales in Canada, to be paid 30 days after the end of each calendar quarter. iii) minimum annual royalty payments as follows:
$ December 31, 1996 1,000 December 31, 1997 3,000 December 31, 1998 4,500 annually thereafter 6,000
On October 31, 1995, the Company sold its rights to the Machine Vision Technology to Reg Tech for $200,000. All obligations pursuant to the sublicense were transferred to Reg Tech. 29 PART IV ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K. - -------- --------------------------------- (A) INDEX TO AND DESCRIPTION OF EXHIBITS
Number Description Page No. - ------ ----------- -------- 3 ARTICLES OF INCORPORATION AND BY-LAWS 3.1 Articles of Incorporation...................... (1) 3.2 Article of Amendment changing name to REGI U.S., Inc................................. (2) 3.3 By-Laws........................................ (1) 4 INSTRUMENTS DEFINING RIGHTS OF SECURITY HOLDERS 4.1 Specimen Share Certificate..................... (1) 4.2 Specimen Warrant Certificate................... (1) 10 MATERIAL CONTRACTS 10.1 Agreement between Brian Cherry, the Company and Rand Energy Group Inc.......................... (1) 10.2 Agreement between the Company and Patrick Badgley........................................ (1) 10.3 Agreement between the Company and Access Information Services, Inc...................... (1) 10.4 Agreement between the Company and Reg Technologies, Inc.............................. (4) 10.5 Agreement between the Company and Integral Visions Systems, Inc........................... (4) 10.6 REGI U.S., Inc. KEY EMPLOYEES INCENTIVE STOCK OPTION PLAN.................................... (3) 10.7 Agreement with Global Aircraft................. (4) 23 CONSENT OF EXPERTS AND COUNSEL 23.1 Consent of Elliott Tulk Pryce Anderson......... (5) 23.2 Consent of Patrick Badgley..................... (4) 27 FINANCIAL DATA SCHEDULE................................ (5) 99 ADDITIONAL EXHIBITS 99.1 Technology Evaluation report on the Rand Cam/Direct Charge Engine prepared by Adiabatics, Inc. .............................. (1)
____________________ (1) Incorporated by reference from Form 10-SB Registration Statement filed April 26, 1994. (2) Incorporated by reference from 10-Q Report for the quarter ended 7-30-94. (3) Incorporated by reference from Form S-8 Registration Statement dated April 4, 1995. (4) Incorporated by reference from Form SB-2 dated July 23, 1996. (5) Incorporated by reference from Form 10-KSB filed July 30, 1997. (B) REPORTS ON FORM 8-K: None 30 SIGNATURES Pursuant to the requirements Section 13 of the Securities Exchange Act of 1934, the Registrant has duly caused this report or amendment to be signed on its behalf by the undersigned, thereunto duly authorized. REGI U.S., INC. By: /s/ John G. Robertson ------------------------------- John G. Robertson, President Chief Executive Officer and Director Dated: Sept. 9, 1997 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons in-the in the capacities indicated and on the dates indicated.
Signature Title Date --------- ----- ---- /s/ John G. Robertson - ----------------------------- President, Chief 9/9/97 (John G. Robertson) Executive Officer and Director /s/ Brian Cherry - ----------------------------- Vice President, 9/9/97 (Brian Cherry) Secretary and Director /s/ Jennifer Lorette - ----------------------------- Vice President, 9/9/97 (Jennifer Lorette) Chief Financial Officer and Principal Accounting Officer
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