-----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, EMY26ln9W8SlOnfhiB5iEwjy83lUo9690KTS6vWTps4teg7Nzz4Uvyyf75AXkdzu L7hHbX+7yFXXSgTgcpSCdQ== 0000891020-96-000634.txt : 19960607 0000891020-96-000634.hdr.sgml : 19960607 ACCESSION NUMBER: 0000891020-96-000634 CONFORMED SUBMISSION TYPE: SB-2/A PUBLIC DOCUMENT COUNT: 2 FILED AS OF DATE: 19960606 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: 0131 FILING VALUES: FORM TYPE: SB-2/A SEC ACT: 1933 Act SEC FILE NUMBER: 033-96974 FILM NUMBER: 96577334 BUSINESS ADDRESS: STREET 1: #185-10751 SHELLBRIDGE WAY CITY: RICHMOND B C CANADA STATE: A1 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 SB-2/A 1 AMENDMENT NO. 2 TO FORM SB-2 1 As filed with the Securities and Exchange Commission on June 6, 1996 REGISTRATION STATEMENT NO. 33-96974 - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ----------------------------------------- Amendment No. 2 to FORM SB-2 Registration Statement under THE SECURITIES ACT OF 1933 ----------------------------------------- REGI U.S., INC. (Name of small business issuer in its charter) OREGON 3519 91-1580146 (State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer Identification incorporation or organization) Classification Code Number) Number)
10751 SHELLBRIDGE WAY, SUITE 185 RICHMOND, BRITISH COLUMBIA V6X 2W8, CANADA 604-278-5996 (Address and telephone number of principal executive offices and principal place of business) ----------------------------------------- James L. Vandeberg, Esq. GRAHAM & DUNN 1420 Fifth Avenue, 33rd Floor Seattle, Washington 98101-2390 (206) 624-8300 (Name address and telephone number of agent for service) ----------------------------------------- Approximate date of proposed sale to the public: AS SOON AS PRACTICABLE AFTER THIS REGISTRATION STATEMENT BECOMES EFFECTIVE. If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box [ X ]
CALCULATION OF REGISTRATION FEE - ----------------------------------------------------------------------------------------------------------- TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE PER AGGREGATE OFFERING AMOUNT OF SECURITIES TO BE REGISTERED REGISTERED SHARE (1) PRICE REGISTRATION FEE(2) - ----------------------------------------------------------------------------------------------------------- SHARES OF COMMON STOCK 492,500 $3.50 $1,723,750 $586.21
(1) Based Upon The Price At Which Shares Were Traded On May 24, 1996. (2) Previously Paid. The Registrant Hereby Amends This Registration Statement On Such Date Or Dates As May Be Necessary To Delay Its Effective Date Until The Registrant Shall File A Further Amendment Which Specifically States That The Registration Statement Shall Thereafter Become Effective In Accordance With Section 8(a) Of The Securities Act Of 1933 Or Until This Registration Statement Shall Become Effective On Such Date As The Commission, Acting Pursuit To Said Section 8(a) May Determine. 2 CROSS-REFERENCE OF ITEM NUMBERS IN PART I OF FORM SB-2 1. Front of Registration Statement and Outside Front Cover of Prospectus............................. Outside Front Cover Page 2. Inside Front and Outside Back Cover Pages of Prospectus....... Inside Front and Outside Back Cover Pages of Prospectus 3. Summary Information and Risk Factors.......................... Summary: Company; Risk Factors 4. Use of Proceeds............................................... Use of Proceeds 5. Determination of Offering Price............................... Risk Factors: Offering Risks 6. Dilution...................................................... Dilution 7. Selling Security Holders...................................... Sales by Selling Shareholders 8. Plan of Distribution.......................................... Plan of Distribution 9. Legal Proceedings............................................. Business: Legal Proceedings 10. Directors, Executive Officers, Promoters and Control Persons................................. Management 11. Security Ownership of Certain Beneficial Owners and Management.............................. Principal Shareholders 12. Description of Securities..................................... Description of Securities 13. Interest of Named Experts and Counsel......................... Legal Matters; Experts 14. Disclosure of Commission Position on Indemnification For Securities Act Liabilities................................ Management: Indemnification 15. Organization within Last Five Years........................... N/A 16. Description of Business....................................... Business 17. Management Discussion and Analysis or Plan of Operation................................. Management's Discussion and Analysis of Results of Operations and Financial Condition 18. Description of Property....................................... Business: Properties 19. Certain Relationships and Related Transactions................ Certain Relationships and Related Transactions 20. Market For Common Equity and Related Stockholders Matters.................................. Dividend Policy; Description of Securities 21. Executive Compensation........................................ Management 22. Financial Statements.......................................... Selected Financial Data 23. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure........................ N/A
3 PART II INFORMATION NOT REQUIRED IN PROSPECTUS 24. Indemnification of Directors and Officers.......... Page II-2 25. Other Expenses of Issuance and Distribution........ Page II-2 26. Recent Sales of Unregistered Securities............ Page II-3 27. Exhibits........................................... Page II-4 28. Undertakings....................................... Page II-5 2 4 PROSPECTUS REGI U.S., INC. 492,500 SHARES OF COMMON STOCK, NO PAR VALUE ("COMMON STOCK"), TO BE SOLD BY CERTAIN SHAREHOLDERS Certain shareholders of REGI U.S., Inc., an Oregon corporation (the "Company"), hereby offer for sale 492,500 shares of Common Stock (the "Shares"). The Shares were issued or will be issued to holders of warrants (the "Warrants") who elected to exercise those Warrants at $1.25 per share or will exercise Warrants and purchase Shares at $1.50 per share (the "Selling Shareholders"). The Warrants were issued by the Company as part of a private placement of units consisting of one share of Common Stock and one Warrant to purchase one additional Share. The period to exercise the Warrants has since been extended by the Company pending the effectiveness of a registration statement allowing holders of the Warrants to resell the Shares issued upon exercise of the Warrants.. THESE SECURITIES INVOLVE A HIGH DEGREE OF RISK AND SHOULD NOT BE PURCHASED BY ANY INVESTOR WHO CANNOT AFFORD TO SUSTAIN THE LOSS OF THEIR ENTIRE INVESTMENT. PLEASE REFER TO SECTION TITLED "RISK FACTORS" ON PAGES 8-10 INFRA. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THE INFORMATION CONTAINED IN THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
- ---------------------------------------------------------------------------- PROCEEDS TO PROCEEDS TO PRICE TO SALES THE THE SELLING PUBLIC COMMISSION COMPANY(1) SHAREHOLDERS(2) - ---------------------------------------------------------------------------- PER SHARE $ 3.50(1) 0 0 $ 3.50 TOTAL $1,723,500 0 0 $1,723,500 - ----------------------------------------------------------------------------
(1) Based upon the market price of the Common Stock on May 24, 1996. (2) The Company will pay the expenses of the selling shareholders estimated at $35,000. THE DATE OF THIS PROSPECTUS IS JUNE ___, 1996 3 5 PROSPECTUS REGI U.S., INC. THE COMPANY INTENDS TO FURNISH ITS SHAREHOLDERS ANNUAL REPORTS CONTAINING AUDITED FINANCIAL STATEMENTS WITH A REPORT THEREON BY ITS INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS AS WELL AS QUARTERLY REPORTS FOR THE FIRST THREE QUARTERS OF EACH FISCAL YEAR CONTAINING UNAUDITED FINANCIAL INFORMATION. UNTIL SEPTEMBER ____,1996 (NINETY DAYS AFTER THE EFFECTIVE DATE OF THIS PROSPECTUS) ALL DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. 4 6 SUMMARY The following summary is qualified in its entirety by the information and financial statements appearing elsewhere in this Prospectus. THE COMPANY GENERAL REGI U.S. Inc., an Oregon corporation (the "Company") is engaged principally in the business of developing and seeking to commercially exploit an improved axial vane-type rotary engine known as the Rand Cam/Direct Charge Engine (the "RC/DC Engine"), a variation of the Rand Cam Engine (the "Original Engine"). A patent has been received on certain features of the RC/DC Engine. The worldwide intellectual and marketing rights to the RC/DC Engine are held by Rand Energy Group Inc. ("REGI"). The Company holds the rights to develop, build and market the engine design in the U.S. under a project cost sharing agreement entered into with REGI effective May 1, 1993. Under the terms of this agreement each company will fund 50% of the continuing development cost of the RC/DC Engine. The Company was organized under the laws of the State of Oregon on July 27, 1992. The Company is controlled by REGI, a privately held British Columbia corporation which owns 74.6% of its shares of Common Stock and which, in turn, is controlled 51% by Reg Technologies Inc., a publicly held British Columbia corporation ("Reg Tech"). The RC/DC Engine is based upon the Original Engine which was 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 a patent was issued and assigned to the Company. It is believed that RC/DC Engine offers important simplification from the Original Engine, which will make it easier to manufacture and will also allow it to operate more efficiently. 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. 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. At the present time, several prototype models 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. 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 operation, the Company will likely need to raise additional capital in the future beyond any amount currently on hand and which may become available as a result of the exercise of Warrants and options which are currently outstanding. 5 7 THE OFFERING SECURITIES OFFERED: Shares of unregistered restricted Common Stock issued or to be issued upon the exercise of the Warrants by the Selling Shareholders. COMMON STOCK OUTSTANDING: 7,635,900 TO BE OUTSTANDING AFTER EXERCISE OF ALL WARRANTS: 7,833,500 MARKET FOR SHARES: All Shares offered pursuant to this prospectus will be freely tradeable when issued, on the NASD OTC Bulletin Board. RISK FACTORS: The Company has generated no revenues since incorporation, and there are substantial risks involved in any investment in the Company at this time. See "Risk Factors."
SELECTED FINANCIAL DATA (IN DOLLARS) The selected financial data set forth below is derived from the financial statements of the Company included in this Prospectus and should be read in conjunction with such financial statements, including the notes thereto.
STATEMENT OF OPERATIONS DATA: - -------------------------------------------------------------------------------------------- Years Ended 9 months July 27, 1992 April 30 Ended (inception) to -------------------- January 31, April 30,1993 1994 1995 1996 - -------------------------------------------------------------------------------------------- Net Sales -- -- -- -- Net Income (Loss) $ (23,492) $ (394,263) $(1,225,743) $ (603,330) Net Income (Loss) per Share (1) $ (0.01) $ (0.06) $ (0.18) $ (0.08) Cash Dividends Paid per Share -- -- -- -- Weighted Averages Shares used in 6,000,000 6,500,000 6,710,275 7,375,610 per share calculations
BALANCE SHEET DATA: - -------------------------------------------------------------------------------------- April 30 ------------------------------- 1993 1994 1995 January 31, 1996 - -------------------------------------------------------------------------------------- Current Assets $29,708 $ 170,860 $ 100,878 $ 61,003 Current Liabilities 15,000 295,307 644,745 103,170 Working Capital 14,708 (124,447) (543,867) (42,167) Total Assets 86,708 437,552 337,747 103,192 Long Term Debt -- -- -- -- Stockholder's Equity 71,708 142,245 (306,998) 22
(1) Based on the average weighted number of shares outstanding during the respective periods. RISK FACTORS The Shares of Common Stock being registered hereby involve a high degree of risk and, therefore, should be considered extremely speculative. THESE SHARES SHOULD NOT BE PURCHASED BY ANYONE WHO CANNOT AFFORD THE POSSIBLE LOSS OF THEIR ENTIRE INVESTMENT. Prospective investors should read the entire Prospectus and carefully consider among the other factors and financial data described herein, the following risk factors related to the business of the Company: 6 8 BUSINESS RISKS 1. LIMITED OPERATING HISTORY. The Company was incorporated on July 27, 1992. It has conducted only limited business and has a very short operating history. The Company is still in the developmental stage and does not expect to receive any revenues from either licensing or production of the RC/DC Engine for a minimum of 12 to 18 months. 2. NEGATIVE SHAREHOLDERS' EQUITY. The Company had a negative shareholders' equity at April 30, 1995 and continues to have a negative shareholders equity as of the date of this prospectus. The Company's ability to continue as a going business will be dependent upon its ability to raise additional capital and/or generate revenues from operations. 3. NEED FOR ADDITIONAL CAPITAL. Even if the all of the Warrants outstanding are exercised, the proceeds available to the Company along with other possible sources of financing may not be adequate for it to achieve its business objectives. The Company intends to use the proceeds from the exercise of Warrants for working capital and for further research and development work. The ultimate success of the Company will depend upon its ability to raise additional capital or to have other parties bear a portion of the required costs to further develop or exploit the potential market for its products. There is no assurance that funds will be available from any source, and if not available, it will be necessary for the Company to limit its operations to those which can be financed from the proceeds of the exercise of outstanding Warrants. (See "Business".) 4. DEPENDENCE ON CONSULTANTS AND OUTSIDE MANUFACTURING FACILITIES. Since the Company's present plans do not provide for a significant technical staff or the establishment of manufacturing facilities, the Company will be primarily dependent on others to perform these functions and to provide the requisite expertise and quality control. There is no assurance that such persons or institutions will be available when needed at affordable prices. It will likely cost more to have independent companies do research and manufacturing than for the Company to handle these functions if it had these resources. 5. PRODUCT ACCEPTANCE. 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. 6. 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 because most existing engine producers are large, well financed companies which are very concerned about maintaining their market position. There is no assurance that the Company will be successful in meeting or overcoming competition which currently exists or may develop in the future. 7. MANAGEMENT AND CONFLICTS OF INTEREST. The present officers and directors of the Company have other full- time positions or part time employment which is unrelated to the Company. Some officers and directors will be available to participate in management decisions on a part time or as needed basis only. (See "Management"). Management of the Company may devote time to other companies or projects which may compete directly or indirectly with the Company. 8. CONTROL BY CURRENT SHAREHOLDERS. If the currently exercisable outstanding Warrants are exercised and the Shares sold to the public pursuant to this prospectus, there will be 7,833,500 shares of Common Stock outstanding of which at least 7,341,000 will be owned by current shareholders representing control of approximately 93.7% of the total. Accordingly, the present shareholders will continue to elect all of the Company's directors and generally control the affairs of the Company. (See "Principal Shareholders" and "Description of Securities.") 9. GENERAL FACTORS. The Company's 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 the Company's business. OFFERING RISKS 1. LIMITED PUBLIC MARKET FOR COMMON STOCK. At present, only a limited market exists for the Company's Common Stock on the over the counter bulletin board and there is no assurance that a more active trading 7 9 market will develop, or, if developed, that it will be sustained. A purchaser of Shares may, therefore, find it difficult to resell the securities offered herein should he or she desire to do so. Furthermore, it is unlikely that a lending institution will accept the Company's Common Stock as pledged collateral for loans. 2. ISSUANCE OF ADDITIONAL SHARES. The substantial portion of the 20,000,000 authorized shares of Common Stock of the Company will remain unissued even if all outstanding Warrants are exercised. The Board of Directors has, however, the power to issue such shares without shareholder approval. Although the Company presently has no firm commitments or contracts to issue any additional shares, it fully intends to do so if necessary in order to acquire products, properties, capital, or for any other corporate purposes. Following this offering, any additional issuances by the Company from its authorized but unissued shares would have the effect of further diluting the percentage interest of investors in this offering. 3. CUMULATIVE VOTING AND PREEMPTIVE RIGHTS. There are no preemptive rights in connection with the Company's Common Stock. The investors purchasing Shares in this offering may be diluted in their percentage ownership of the Company in the event additional shares are issued by the Company in the future. Cumulative voting in the election of directors is not permitted. Accordingly, the holders of a majority of the shares of Common Stock, present in person or by proxy, will be able to elect all of the Company's Board of Directors. (See "Description of Securities.") 4. SHARES AVAILABLE FOR RESALE. All but 617,500 of the Company's presently outstanding 7,635,900 shares, are "restricted" securities and could be sold in compliance with Rule 144 adopted under the Securities Act of 1933, as amended, if certain additional requirements are met. Assuming the exercise of all of the Warrants and the registration of the 492,500 Shares, the Company will then have issued and outstanding 7,833,500 shares of its Common Stock, of which 6,723,500 will be "restricted" securities. Rule 144 provides, in essence, that after two years from the date of acquisition, a person, including an affiliate, of the Company (or persons whose shares are aggregated) may sell an amount up to one percent (1%) of the issued and outstanding shares within any three month period, provided that certain current public information about the Company is available. A person who has not been an affiliate of the Company (or persons whose shares are aggregated) who has owned restricted shares of Common Stock for at least three years is entitled to sell such shares under Rule 144 without regard to any of the limitations described above. Thereby, in each three month period, 78,335 shares could be sold under Rule 144 by each person having held the securities for at least two years. Investors should be aware of the possibility that sales under Rule 144 may, in the future, have a depressing effect on the price of the Company's stock in any market that currently exists or may develop. 5. ESTIMATES AND FINANCIAL STATEMENTS. Some of the information in this Prospectus consists of and relies upon evaluations and estimates made by management and other professionals. 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 accurate evaluations. Any management errors in evaluations or estimates could have a significant negative effect upon the Company's profitability or even its viability. 6. NO FORESEEABLE DIVIDENDS. The Company has not paid dividends on its Common Stock and does not anticipate paying dividends on its Common Stock in the foreseeable future. 7. POSSIBLE VOLATILITY OF SECURITIES PRICES. The market price of the Company's Common Stock has been highly volatile since it began trading in September 1994 and will likely continue to behave in this manner in the future. Factors such as the Company's operating results and other announcements by the Company regarding its development work and business operations may have a significant impact on the market price of the Company's 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. 8. REQUIREMENTS OF SEC WITH REGARD TO LOW-PRICED SECURITIES. The Company's securities are subject to Rule 15g-9 under the Exchange Act, which imposes additional sales practice requirements on broker-dealers who sell such securities to persons other than established customers and "accredited investors" (generally, individuals with net worths in excess of $1,000,000 or annual incomes exceeding $200,000, or $300,000 together with their spouses). For transactions covered by this rule, a broker-dealer must make a special suitability determination for the purchaser and have received the purchaser's written consent to the transaction prior to sale. Consequently, the rule may adversely affect the ability of broker-dealers to sell the Company's securities and may adversely affect the ability of purchasers in this ofering to sell any of the securities acquired hereby in the secondary market. USE OF PROCEEDS The Company will not receive any proceeds from the sale of the shares offered hereby and will pay the expenses of the offering estimated at $35,000. 8 10 DILUTION At April 30, 1995, the net tangible book value of the Company was approximately $(306,998) or $(0.44) per share. Net tangible book value per share equals the Company's total shareholders' equity less intangible assets (primarily goodwill) divided by the number of shares of Common Stock outstanding. After giving effect to the sale of the 492,500 Shares by the selling shareholders at an assumed public offering price of $3.50, the proforma net tangible book value of the Company's Common Stock at April 30, 1996 (after deducting estimated offering expenses) would have been approximately or $(0.049) per share. This represents an immediate dilution of $(3.505) per share to new investors. The following table illustrates this per share dilution. Assumed Public Offering Price . . . . . . . . . . $ 3.50 Net tangible book value per share before offering (1)(3). . . . . . . . . . . $(0.044) Pro forma net tangible book value after offering (2)(3) . . . . . . . . . . . . . . $(0.049) Decrease attributable to expenses of offering . . 0.005 Dilution to new investors . . . . . . . . . . . . $3.505
- ------------------------------- (1) The data in the table do not give effect to the exercise of any outstanding options or warrants nor to any transactions in the Company's Common Stock subsequent to April 30, 1995. (2) After deduction of $35,000 estimated offering expenses to be paid by the Company. (3) Determined by dividing the number of shares of Common Stock outstanding into the tangible net worth of the Company. Tangible net worth is defined as tangible net assets minus liabilities. SALES BY SELLING SHAREHOLDERS A total of 492,500 Shares have been registered pursuant to the registration statement under the Securities Act, of which this Prospectus forms a part, for sale by the Selling Shareholders. All of the Shares were registered, at the Company's expense, under the Securities Act and are expected to become tradeable on or about the date of this Prospectus. The Company will not receive any proceeds from the sale of the Shares by the Selling Shareholders. Sales of the Selling Shareholders' Shares or the potential of such sales would likely have an adverse effect on the market prices of the Common Stock. None of the Selling Shareholders are officers or directors of the Company.
- ---------------------------------------------------------------------------------------------------------------------- Amount of Amount of Amount and Issuer's Issuer's Percentage of Securities Securities Issuer's Relationship with Owned Offered As Part Securities to be Issuer and/or Issuer's (Prior to of Current Owned After Stockholder Affiliates or Subsidiaries(1) Offering) Offering Offering(2) - ---------------------------------------------------------------------------------------------------------------------- Aabedi, Ghaleb 1,000 500 500 Adolph, David 2,000 1,000 1,000 Alford, Jay W. 40,000 20,000 20,000 Altivilla, Thomas G. 10,000 5,000 5,000 Anderson, Patricia 10,000 5,000 5,000 Archibald, Joan 2,000 1,000 1,000 Atherton, Gregory 2,000 1,000 1,000 Atherton, Leo L. 2,000 1,000 1,000 Atherton, Mark V. 2,000 1,000 1,000 Atherton, Peter A. 4,000 2,000 2,000 Begg, G. H. K. 4,000 2,000 2,000 Burns Fry & Company 5,000 5,000 0 Bernhardt, Alanna 8,000 4,000 4,000 Bertin-Maclean, Denise 200 100 100 Bettis, Sandra 200 100 100 Bickerton, Brian 10,000 5,000 5,000 Boughen, Lise 10,000 5,000 5,000 Bowerman, Wes 2,000 1,000 1,000 Brady, James 2,000 1,000 1,000 Busby, James 2,000 1,000 1,000 Butterley, Rhonda 10,000 5,000 5,000 Butterley, Ron 10,000 5,000 5,000 Butterley, Sandee 10,000 5,000 5,000 Campbell, Kent 15,000 7,500 7,500
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- ---------------------------------------------------------------------------------------------------------------------- Amount of Amount of Amount and Issuer's Issuer's Percentage of Securities Securities Issuer's Relationship with Owned Offered As Part Securities to be Issuer and/or Issuer's (Prior to of Current Owned After Stockholder Affiliates or Subsidiaries(1) Offering) Offering Offering(2) - ---------------------------------------------------------------------------------------------------------------------- Canaccord Capital Corp. 9,000 9,000 0 Carr, Lucille 10,000 5,000 5,000 Castle, Harry 20,000 10,000 10,000 Chernoff, Lawrence 15,000 5,000 10,000 Christman, Melvin 4,000 2,000 2,000 Clark, Isabelle M. 6,000 3,000 3,000 Clark, Lloyd 49,000 7,000 42,000 Crandall, John C. 2,000 1,000 1,000 Cranfield, Kerry G. 2,000 1,000 1,000 Cranfield, R. G. 2,000 1,000 1,000 Cutler, Kimberly Ann 400 200 200 D'Mello, Clara 2,000 1,000 1,000 D'Mello, Elizabeth 2,000 1,000 1,000 Deeley, Bernadette P. 2,000 1,000 1,000 DeMello, Mario 4,000 2,000 2,000 Drescher, Katherine B. 10,000 5,000 5,000 Drescher, Richard 10,000 5,000 5,000 Edmunds, F. R. 2,000 1,000 1,000 Egger, Jennifer 3,000 1,500 1,500 Emmrich, Dietmund 2,000 1,000 1,000 Felker, Bob & Marva 5,000 2,500 2,500 Fitzgerald, Gary 2,000 1,000 1,000 Fitzgibbons, Neil 10,000 5,000 5,000 Flawse, Allen 10,000 5,000 5,000 Flawse, Barbara 10,000 5,000 5,000 Forsyth, Walter 10,000 5,000 5,000 Friesen, Greg 10,000 5,000 5,000 Gibb, Colin R. 4,000 2,000 2,000 Gilstead, Eric 200 100 100 Griffiths, Jill 40,000 10,000 30,000 Gross, Allen 2,000 1,000 1,000 GundyCo. 5,000 5,000 0 Guss, A. K. 10,000 5,000 5,000 Haab, Hans 1,000 500 500 Hadden, L. A. H. 2,000 1,000 1,000 Harder, Robert L. 1,000 500 500 Harris, Jeffrey F. 10,000 5,000 5,000 Harris, Marsha 2,000 1,000 1,000 Hatcher, William 10,000 5,000 5,000 Heath, Eustace W. 8,000 4,000 4,000 Heath, Wendy C. 10,000 5,000 5,000 Herman, Louis 7,000 3,500 3,500
10 12
- ---------------------------------------------------------------------------------------------------------------------- Amount of Amount of Amount and Issuer's Issuer's Percentage of Securities Securities Issuer's Relationship with Owned Offered As Part Securities to be Issuer and/or Issuer's (Prior to of Current Owned After Stockholder Affiliates or Subsidiaries(1) Offering) Offering Offering(2) - ---------------------------------------------------------------------------------------------------------------------- Hoffman, Andrew 10,000 5,000 5,000 How & Company 5,000 5,000 0 Hutchison, Thomas 10,000 5,000 5,000 Jaeb, Lewis 25,000 12,500 12,500 Jenkins, Noel 6,000 3,000 3,000 Jenkins, Phillis 8,000 4,000 4,000 Jetha, Riaz & Michelle 2,000 1,000 1,000 Johnson, D. 10,000 5,000 5,000 Kennett, Brent E. 200 100 100 Kennett, Linda 200 100 100 Keslar, Fred & Clara 2,000 1,000 1,000 Kimoto, James & Joan 10,000 5,000 5,000 Kirk, Julia 200 100 100 Kocalis, Julie 4,000 2,000 2,000 Konnert, Ellen 2,000 1,000 1,000 Kurtz, Maryann 10,000 5,000 5,000 Lacroix, Brian 20,000 10,000 10,000 Lacroix, Shelly 6,000 3,000 3,000 Lim, Keith 20,000 5,000 15,000 Longe, Robert 10,000 5,000 5,000 Macgregor, Elizabeth 6,000 3,000 3,000 Maclean, Peter 200 100 100 Mainart, David F. 10,000 5,000 5,000 Marohn, Dieter & Esther 20,000 10,000 10,000 Marr, Jack 10,000 5,000 5,000 Marsh, Neil Thomas 2,000 1,000 1,000 Mass, Edward G. 10,000 5,000 5,000 McArdon, Valerie 200 100 100 McBain, K. R. 2,000 1,000 1,000 McLeod, James 2,000 1,000 1,000 Medford, Brian 8,000 4,000 4,000 Medford, Gary 30,000 5,000 25,000 Medford, Kenneth 10,000 5,000 5,000 Midland Walwyn Capital 1,000 1,000 0 Miller, Ray 9,000 2,000 7,000 Mullaly, James & Gene 10,000 5,000 5,000 Myron, Kandel 20,000 10,000 10,000 Olde Discount Corp. 5,000 5,000 0 Parkinson, W. D. 10,000 5,000 5,000 Peter, Terence F. 2,000 1,000 1,000 Potthoff, Paul 2,000 1,000 1,000 Quinn, Robert 10,000 5,000 5,000 Reisner, William 2,400 1,200 1,200 Richards, Donald 3,000 1,500 1,500 Richie, David 2,000 1,000 1,000 Rosenfield, Norm 6,000 3,000 3,000 Schedeen, Brinkley 2,000 1,000 1,000
11 13
- ---------------------------------------------------------------------------------------------------------------------- Amount of Amount of Amount and Issuer's Issuer's Percentage of Securities Securities Issuer's Relationship with Owned Offered As Part Securities to be Issuer and/or Issuer's (Prior to of Current Owned After Stockholder Affiliates or Subsidiaries(1) Offering) Offering Offering(2) - ---------------------------------------------------------------------------------------------------------------------- ScotiaMcleod 20,000 20,000 0 Self Owned Apartments Ltd. 32,000 16,000 16,000 Short, Betty 3,000 1,000 2,000 Smith, J. B. 2,000 1,000 1,000 Smith, J. N. 2,000 1,000 1,000 SMR Investments Ltd. 40,400 20,200 20,200 Spady, Larry 10,000 5,000 5,000 Steeds, Horace Anthony 4,000 2,000 2,000 Vandenbrink, Antonie 10,000 5,000 5,000 Vandenbrink, Jakob 10,000 5,000 5,000 Warner, Brian & Kelly 4,000 2,000 2,000 Weeks, Todd 10,000 5,000 5,000 Welty, Alison 10,000 5,000 5,000 Williams, Brady 4,000 2,000 2,000 Winkler, John 10,000 5,000 5,000 Winkler, Peggy 4,000 2,000 2,000 With, Wm. D. 6,000 3,000 3,000 Wolverton Securities 5,000 5,000 0 Woo, Robert & Carol 2,000 1,000 1,000
PLAN OF DISTRIBUTION The sale of the Shares may be effected from time to time in transactions (which may include block transactions by or for the account of the Selling Shareholders) in the over-the-counter market or in negotiated transactions, a combination of such methods of sale or otherwise. Sales may be made at fixed prices which may be changed, at market prices prevailing at the time of sale, or at negotiated prices. Selling Shareholders may effect such transactions by selling their Shares directly to purchasers, through broker-dealers acting as agents for the Selling Shareholders or to broker-dealers who may purchase shares as principals and thereafter sell such shares from time to time in the over-the-counter market in negotiated transactions or otherwise. Such broker-dealers, if any, may receive compensation in the form of discounts, concessions or commissions from the Selling Shareholders and/or the purchasers for whom such broker-dealers may act as agents or to whom they may sell as principals or otherwise (which compensation as to a particular broker-dealer may exceed customary commissions). Each Selling Stockholder desiring to sell Shares will be subject to the applicable provisions of the Exchange Act and the rules and regulations thereunder, including without limitation, Rules 10b-6 and 10b-7, which provisions may limit the timing of the purchases and sales of Shares by such Selling Shareholders. The Selling Shareholders and broker-dealers, if any, acting in connection with such sales might be deemed to be "underwriters" within the meaning of Section 2(11) of the Securities Act and any commission received by them and any profit on the resale of the Selling Stockholder Shares might be deemed to be underwriting discounts and commissions under the Securities Act. 12 14 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. PRICE RANGE OF THE COMMON SHARES 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 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.
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
As of May 28, 1996, there were 7,665,900 shares of Common Stock outstanding, held by 178 shareholders of record and by various broker/dealers on behalf of 19 street name shareholders. CAPITALIZATION The following table sets forth the capitalization of the Company as of April 30, 1995 and January 31, 1996. This table should be read in conjunction with the Financial Statements and the Notes thereto included elsewhere in the Prospectus.
April 30, 1995 January 31, 1996 (Audited) (Unaudited) --------------------------------- Short term debt $ 644,745 $ 103,170 Long term debt -- -- Stockholders Equity Common Stock: no par value 20,000,000 shares authorized 6,930,200 and 7,613,900 shares outstanding, respectively $ 1,336,500 $ 2,246,850 Deficit accumulated during the development stage $(1,643,498) $(2,246,828) Total stockholders equity $ (306,998) $ 22 Total capitalization $ (306,998) $ 22
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION INTRODUCTION The Company, a development stage company, has, since its formation in July 1992, been engaged almost exclusively in research and development activities in conjunction with its parent companies, Rand Energy Group Inc. ("REGI") and Reg Technologies Inc. ("Reg Tech"). Reg Tech is a publicly held Canadian company which owns 51% 13 15 of REGI. These activities have focused on developing a commercially viable model of the Rand Cam/Direct Charge Engine ("RC/DC Engine"). The Company has not yet commenced any significant product commercialization and, until such time as it does, will not generate significant product revenues. The Company has incurred significant operating losses since its inception, resulting in an accumulated deficit of $1,643,498 at April 30, 1995, and significant additional losses since that date. The rate of loss has increased as the Company's activities have increased and such losses are expected to continue into the foreseeable future until such time as, if ever, the Company is able to attain sales and profit levels sufficient to support its operations. The Company's ability to continue as a going concern is dependent in part on its ability to raise operating capital through either equity, debt, joint ventures, other means, or some combination of these, until such time as it is able to attain profitable operations. RESULTS OF OPERATIONS YEAR ENDED APRIL 30, 1996 The audited financial statements for the year ended April 30, 1996 have not been prepared as of the date of this Prospectus. However, management believes the Company incurred a loss for the year that will be less than the loss of $1,225,743 and $.18 per share reported for fiscal 1995. The Company's only revenues for fiscal 1996 were $200,000 from the sale of its 3-D Machine Vision Technology to Reg Tech. YEAR ENDED APRIL 30, 1995 COMPARED TO YEAR ENDED APRIL 30, 1994 The Company received no revenues from operations during the period ended April 30, 1995 compared to similar results during the 1994 period. During fiscal 1995 the loss totaled $1,225,743 compared to $394,263 during fiscal 1994. The majority of the increase was due to higher direct development costs associated with prototype design and construction which totaled $581,318 in fiscal 1995 against $174,398 in fiscal 1994. During 1995 the Company also expensed $257,000 relating to intellectual property acquired in previous years. The Company acquired the U.S. rights to the original Rand Cam Engine ("Original Engine") on August 20, 1992 from REGI by issuing 5,700,000 shares at a deemed value of $0.01 per share and agreeing to pay REGI a 5% net profit royalty. The $57,000 deemed value was expensed as research and development in 1995. Under an agreement with Brian Cherry, (a director) dated July 30, 1992 and amended November 23, 1992 and April 13, 1993, the Company acquired the U.S. rights to the improved axial vane rotary engine known as the RC/DC Engine. On November 9, 1993, in consideration for the transferred technology, Mr. Cherry was issued 100,000 shares of Reg Tech and 300,000 shares of REGI. The shares issued had a deemed value of $200,000. As part of the agreement, Mr. Cherry was also granted a 1% net profit royalty on revenues derived from the RC/DC Engine. The deemed value of $200,000 was treated as an expense paid by Reg Tech 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. Other significant increases occurred in technical salaries, professional fees and project overhead which together increased to $127,255 in fiscal 1995 from $42,401 in fiscal 1994, due also to the higher level of activity associated with product development. Administrative expenses rose from $35,689 in fiscal 1994 to $112,964 in fiscal 1995. The most significant of these were shareholder relations costs which rose from $26,350 in 1994 to $49,162 in fiscal 1995 and accounting and legal fees which went from $1,580 to $52,311 Decreased costs were shown in technical consulting and report expenses which dropped from $44,488 in fiscal 1994 to $8,360 in fiscal 1995. The loss per share for fiscal 1995 was $0.18 versus $0.06 in fiscal 1994. YEAR ENDED APRIL 30, 1994 COMPARED TO YEAR ENDED APRIL 30, 1993 The Company generated no revenues from operations during the fiscal 1994 which was also the case during period from inception to April 30, 1993. The loss for the fiscal 1994 totaled $394,263 compared to $23,492 during the same period in 1993. The majority of the increase was due to higher direct development costs associated with prototype design and construction which totaled $174,398 in fiscal 1994 against $2,500 in fiscal 1993. Other significant increases occurred in professional and project management fees which rose from $12,800 in the fiscal 1993 period to $56,488 in fiscal 1994 and technical salaries and consulting fees which rose to $47,961 in fiscal 1994 from $1,125 in fiscal 1993. Travel and market development expenses rose from nil in fiscal 1993 to $57,809 in fiscal 1994. Administrative expenses increased from none in fiscal 1993 to $35,689 in fiscal 1994. The most significant of these was shareholder relations costs which rose from none during the 1993 period to $26,350 in fiscal 1994. The loss per share for fiscal 1994 was $0.06 versus $0.01 in fiscal 1993. 14 16 LIQUIDITY AND CAPITAL RESOURCES The Company did not generate any revenues from operations during fiscal 1996. Management anticipates that the Company will be able to fund continuing operations from funds currently on hand as well as from additional equity and/or debt capital infusions as may be required. There is, however, no assurance that such additional funding will, in fact, be available when required or, if it is, that it will be available on terms which would be economically attractive to the Company. If the Company is not able to generate cash flows from operations and/or acquire additional funding as needed, its operations may be adversely affected or may need to be curtailed. Funding for continued development of the prototypes for the RC/DC Engine is currently being provided by Reg Tech pursuant to a loan. Additional equity may be generated from exercise of outstanding stock options and warrants. YEAR ENDED APRIL 30, 1995 COMPARED TO YEAR ENDED APRIL 30, 1994 As previously noted the Company generated no revenue from operations during the fiscal year ended April 30, 1995. Working capital requirements were met by utilizing cash and term deposits which the Company had on hand at the start of the period and from the exercise of options, warrants and a private placement of units. Net cash generated from financing activities during the fiscal year ended April 30, 1995 totaled $776,500. At year end 1995, current assets decreased to $100,878 from $170,860 at the end of 1994 while current liabilities increased to $644,745 in 1995 from $295,307 at the end of 1994. The amount due to the parent company, REGI, decreased to nil at the end of 1995 from $74,455 at yearend 1994, while the amount due to Reg Tech, which is the ultimate parent of the Company, rose to $609,873 at April 30, 1995 from $213,352 at the end of 1994. The amount due to Reg Tech varies from one accounting period to another based upon the availability of cash or working capital within the two companies. Reg Tech periodically pays for research and development expenses on behalf of the Company and REGI. Reg Tech then charges the Company and REGI on a 50-50 basis for these expenses, pursuant to the research and development cost sharing agreement. The balance owing to Reg Tech of $609,873 has been reduced to $45,708 as of January 31, 1996 by selling the 3-D Machine Vision Technology to Reg Tech for $200,000, by payment of $250,000 in cash and offsetting the $114,125 receivable from REGI. The Company continues to incur debt payable to Reg Tech pursuant to the cost sharing agreement. YEAR ENDED APRIL 30, 1994 COMPARED TO YEAR ENDED APRIL 30, 1993 No revenues from operations were generated during either of the fiscal years ended April 30, 1993 and 1994. The Company met its working capital requirements during the 1994 fiscal year partially from the use of cash and term deposits which it had on hand at the start of the year and from a private placement of units made during the year which provided $500,000 in additional capital. An additional $109,357 was provided as advances from REGI and Reg Tech. At yearend 1994, current assets stood at $170,860, up from $29,708 at the end of 1993, and current liabilities dropped to $7,500 in 1994 versus $15,000 at the end of the 1993 period. The amount due REGI was $74,455 at the end of 1994 to compared to nil at the end of the 1993 period, and the amount due Reg Tech rose to $213,352 at the end of the 1994 period compared to nil at yearend 1993. 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, at April 30, 1995 owned 82.2% of its shares of Common Stock and 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. 15 17 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. The second part of 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 third part of the August 1992 Agreement 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 revenues received as a result of its licensing of the Original Engine. 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 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, 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 the United States of America, 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. 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. 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. 16 18 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 and 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. 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. 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. This engine is being designed as a general purpose power plant for military and commercial applications. The diesel engine prototype is being fabricated at a machine shop in El Segundo, CA. The testing of the Diesel will commence at the El Segundo machine shop and then will be extensively tested at Adiabatics Inc. in Columbus, Indiana (an experienced engine research and testing company) by the end of June 1996. 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. The results of the testing should be completed by the end of June 1996. 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. 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 strategy is to develop engines and compressors for low to medium horsepower applications, then apply the technology to larger 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, Inc. Mr. Badgley is now a Vice President of the Company. The Company believes the conclusions contained in the report are still valid. 17 19 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. The negotiations for license agreements will take up to six months to complete agreements based on opinions from counsel and preliminary talks with potential end users. 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. 18 20 SEASONALITY AND BACKLOG OF BUSINESS Since the Company is not yet in production, seasonality of its potential business is not of present concern. However, at this time it does not appear that there will be a significant seasonal factor to its potential business. The Company has no current backlog of business. WORKING CAPITAL REQUIREMENTS Because the Company is not yet producing and selling any products, working capital requirements relative to 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. 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. There is no assurance that such funding from either or any source will be available or, if available, that it would be on such terms as will be economically acceptable to the Company. 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. 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 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. PROPERTIES 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 19 21 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. 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. PLAN OF OPERATIONS During the fiscal year beginning May 1, 1996, the Company plans to continue development work on the RC/DC Engine in conjunction with work being done by Reg Tech. If testing work on prototype models continues to be successful, the Company hopes to enter into implementation type studies with branches of the U.S. military as well as certain private companies. In conjunction with such studies, the Company hopes to establish agreements with one or more industrial engine manufacturers which would wish to participate in further development and commercialization of the engine. 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. MANAGEMENT DIRECTORS AND EXECUTIVE OFFICERS 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 and 1996. Name Age Position ---- --- -------- John G. Robertson 55 Chairman of the Board and President Brian Cherry 56 Vice President, Secretary and Director Patrick R. Badgley 53 Vice President, Research and Development Jennifer Lorette 23 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 August 4 of each year or on such other later 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 and President 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. Teryl Resources Corp. has been financed to a large extent by VenturesTrident II, a Limited Partnership consisting of several blue chip pension funds, including AT&T, Harvard University, Total Petroleum, John Hancock Insurance, World Bank Pension Fund and others which invested US$750,000 in Teryl in 1989. 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. Flame Petro Minerals Corp., has participated in drilling three successful oil and gas wells in Texas which have produced 1.5 million barrels of oil since 1979 and have resulted in several dividends for its shareholders. BRIAN CHERRY has been 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 20 22 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 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 of IAS Communications Inc., a U.S. company which is developing a new type of antenna system and is in the process of registering a public offering of its Common Stock. 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. which is developing a revolutionary antenna system that uses wireless communication. 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. 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 1996 -0- -0- -0- 300,000 President, Chief 1995 -0- -0- -0- -0- Executive Officer 1994 -0- -0- -0- 300,000 Brian Cherry 1996 -0- -0- -0- -0- Vice President and 1995 -0- -0- -0- -0- Director 1994 -0- -0- -0- 125,000 Patrick Badgley 1996 $46,200 -0- -0- -0- Vice President 1995 $42,000 -0- -0- -0- 1994 $42,000 -0- -0- 75,000 Jennifer Lorette, 1996 $ 6,000 -0- -0- 50,000 Vice President 1995 $ 2,000 -0- -0- -0- 1994 -0- -0- -0- 30,000
- --------------------- (1) Represents options granted under the Company's 1993 Key Employees Incentive Stock Option Plan. 21 23 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. During the fiscal year ended April 30, 1995, 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 1995. 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 $2,500 to provide certain management, administrative, and financial services for the Company. The Company has no other agreement at this time, with any officer or director, regarding employment with the Company or compensation for services other than herein described. Compensation of officers and directors is determined by the Company's Board of Directors and is not subject to shareholder approval. STOCK OPTION PLAN The Company adopted a Key Employees Incentive Stock Option Plan on April 30, 1993. The Plan authorizes the issuance of up to 1,000,000 shares of Common Stock of the Company to be issued to employees. As of April 30, 1995, the Company had issued options for approximately 982,500 shares. OPTION GRANTS IN LAST FISCAL YEAR The following table sets forth information concerning individual grants of stock options made during the fiscal year ended April 30, 1996 to the Company's Chief Executive and the other executive officers named in the above Summary Compensation Table.
% OF TOTAL OPTIONS GRANTED EXERCISE OR OPTIONS TO EMPLOYEES IN BASE PRICE NAME GRANTED (#) FISCAL YEAR ($/SHARE) EXPIRATION DATE - ---- ----------- ----------- --------- --------------- John G. Robertson 300,000 83% $3.00 January 3, 2001 Jennifer Lorette 50,000 14% $3.00 January 3, 2001
STOCK OPTIONS EXERCISED IN LAST FISCAL YEAR AND HELD AT END OF FISCAL YEAR - APRIL 30, 1996 The following table sets forth certain information with respect to options exercised during fiscal 1996 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 1996.
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 163,000 $458,230 437,000 -0- $615,500 -0- Patrick Badgley -0- N/A 75,000 -0- $206,250 -0- Jennifer Lorette 20,000 $ 47,800 60,000 -0- $ 65,000 -0- Brian Cherry -0- -0- 125,000 -0- $388,750 -0-
- -------------------- (1) The calculation of the value of unexercised options are based on the difference between the last sale price of $3.75 per share for the Company's common Stock on Tuesday, April 30, 1996 as reported by NASD, and the exercise price of each option, multiplied by the number of shares covered by the option. 22 24 INDEMNIFICATION OF DIRECTORS AND OFFICERS. The Company's Articles of Incorporation provide that the Company shall indemnify to the fullest extent permitted by the Oregon Business Corporation Act any person who is made, or threatened to be made, a party to any action, suit or proceeding, whether civil, criminal, administrative, investigative, or otherwise (including an action, suit or proceeding by or in the right of the corporation) by reason of the fact that the person is or was a director or officer of the corporation or a fiduciary within the meaning of the Employee Retirement Income Security Act of 1974 with respect to any employee benefit plan of the corporation, or serves or served at the request of the corporation as a director or officer, or as a fiduciary of an employee benefit plan, of another corporation, partnership, joint venture, trust or other enterprise. The right to and amount of indemnification shall be determined in accordance with the provisions of the Oregon Business Corporation Act in effect at the time of the determination. The Oregon Revised Statutes provides for indemnification where a person who was or is a party or is threatened to be made a party to any threatened, pending or contemplated action, suit or proceeding, whether civil, criminal, administrative or investigative (other than action by or in right of a corporation), by reason of fact he is or was a Director, Officer, employee or agent of a corporation or serving another corporation at the request of the corporation, against expenses (including attorneys' fees), judgments, fines, and amounts paid in settlement, actually and reasonably incurred by him if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interest of the corporation and, with respect to criminal action or proceeding, had no reasonable cause to believe his conduct unlawful. Lack of good faith is not presumed from settlement or nolo contendere plea. Indemnification of expenses (including attorneys' fees) is allowed in derivative actions except in the case of misconduct in performance of duty to the corporation unless the Court decides indemnification is proper. To the extent any such person succeeds on the merits or otherwise, he shall be indemnified against expenses (including attorneys' fees). Determination that the person to be indemnified met applicable standards of conduct, if not made by the Court, is made by the Board of Directors by majority vote of quorum consisting of the Directors not party to such action, suit or proceeding or, if a quorum is not obtainable or a disinterested quorum so directs, by independent legal counsel or by the stockholders. Expenses may be paid in advance upon receipt of undertakings to repay unless it shall ultimately be determined that he is entitled to be indemnified by the corporation. The Corporation may purchase indemnity insurance. Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the Company pursuant to the foregoing provisions, or otherwise, the Company has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Company of expenses incurred or paid by a director, officer or controlling person of the Company in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Company will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question of whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. PRINCIPAL SHAREHOLDERS The following table sets forth, as of April 30, 1996, 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 OF BENEFICIAL OF BENEFICIAL OF CLASS BENEFICIAL OWNER OWNERSHIP(1) OWNERSHIP(1) - -------- ---------------- ------------- ------------- Common Rand Energy Group Inc. 5,653,700(2) 65.1% 1030 West Georgia St. Vancouver, B.C., V6E 2Y3 Common Brian Cherry 390,000(3) 4.5% 5451 Floyd Avenue Richmond, B.C. Canada Common John G. Robertson 6,104,400(4) 70.25% 4040 Amundsen Place Richmond, B.C. Canada Common Patrick R. Badgley 75,000(6) 0.9% 2815 Franklin Drive Columbus, IN 47201
23 25
AMOUNT AND NATURE PERCENTAGE TITLE NAME AND ADDRESS OF OF BENEFICIAL OF BENEFICIAL OF CLASS BENEFICIAL OWNER OWNERSHIP(1) OWNERSHIP(1) - -------- ---------------- ------------- ------------- Common Jennifer Lorette 60,500(5) 0.7% 9751 Seagrave Road Richmond, B.C. Canada Common James McCann 5,653,700(2) 65.1% 211 -107 E. Broadway Vancouver, B. C. Common All officers and 6,639,900 76.4% directors as a group (five persons)
- ------------------ 1. Based upon 7,635,900 shares issued and outstanding, and assuming (1) exercise of options, and (2) exercise of 197,600 warrants. 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 Prospectus upon the exercise of warrants or options. Each beneficial owner's percentage ownership is determined by assuming that options or warrants that are held by such person (but not those held by any other person) and which are exercisable within 60 days from the date of this Prospectus. 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 13,700 shares and holds options to acquire 437,000 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. 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. 24 26 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). 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. DESCRIPTION OF SECURITIES The Company's authorized capital stock consists of 20,000,000 shares of Common Stock with no par value. As of the date of this Registration Statement, the Company has outstanding 7,635,900 shares of its Common Stock. COMMON STOCK Holders of the Company's Common Stock are entitled to receive dividends when declared by the Board of Directors out of funds legally available for that purpose. Any such dividends may be paid in cash, property or shares of the Company's Common Stock. The Company has not paid any dividends since its inception and it is unlikely that any dividends on its Common Stock will be declared at any time in the foreseeable future. Any dividends will be subject to the discretion of the Company's Board of Directors, and will depend upon, among other things, the operating and financial condition of the Company, its capital requirements and general business conditions. Therefore, there can be no assurance that any future dividends will be paid on the Company's Common Stock. All shares of the Company's Common Stock have equal voting rights and, when validly issued and outstanding, will have one vote per share on all matters to be voted upon by the shareholders. Cumulative voting in the election of directors is not allowed, and a quorum for shareholder meetings shall consist of a majority of the issued and outstanding shares present in person or by proxy. Accordingly, the holders of a majority of the shares of Common Stock present, in person or by proxy, at any legally convened shareholders' meeting at which the Board of Directors is to be elected, will be able to elect all directors and minority shareholders will not be able to elect a representative to the Board of Directors. Shares of the Company's Common Stock have no preemptive or conversion rights, no redemption or sinking fund provisions, and are not liable for further call or assessment. Each share of the Company's Common Stock is entitled to share on a prorata basis in any assets available for distribution to holders of its equity securities upon liquidation of the Company. 25 27 STATE LEGISLATION Upon completion of this offering, the Company will become subject to certain provisions of the Oregon Business Combination Act that govern business combinations between corporations and interested shareholders (the "Business Combination Act"). The Business Combination Act generally provides that if a person or entity acquires 15% or more of the voting stock of an Oregon corporation (an "Interested Shareholder"), the corporation and the Interested Shareholder, or any affiliated entity of the Interested Shareholder, may not engage in certain business combination transactions for three years following the date the person became an Interested Shareholder. Business combination transactions for this purpose include (a) a merger or plan of share exchange, (b) any sale, lease, mortgage or other disposition of 10% or more of the assets of the corporation and (c) certain transactions that result in the issuance of capital stock to the Interested Shareholder. These restrictions do not apply if (i) the Interested Shareholder, as a result of the transaction in which such person became an Interested Shareholder, owns at least 85% of the outstanding voting stock of the corporation (disregarding shares owned by directors who are also officers and certain employee benefit plans), (ii) the board of directors approves the share acquisition or business combination before the Interested Shareholder acquires 15% or more of the corporation's outstanding voting stock or (iii) the board of directors and the holders of at least two-thirds of the outstanding voting stock of the corporation (disregarding shares owned by the Interested Shareholder) approve the transaction after the Interested Shareholder acquires 15% or more of the corporation's voting stock. Upon completion of this offering, the Company will also become subject to the Oregon Control Share Act (the "Control Share Act"). The Control Share Act generally provides that a person (the "Acquiror") who acquires voting stock of an Oregon corporation in a transaction which results in the Acquiror holding more than each of 20%, 33 1/3% or 50% of the total voting power of the corporation (a "Control Share Acquisition") cannot vote the shares it acquires in the Control Share Acquisition ("Control Shares") unless voting rights are accorded to the Control Shares by (i) a majority of each voting group entitled to vote and (ii) the holders of a majority of the outstanding voting shares, excluding the Control Shares held by the Acquiror and shares held by the corporation's officers and inside directors. The term 'Acquiror" is broadly defined to include persons acting as a group. The Acquiror may, but is not required to, submit to the corporation an "Acquiring Person Statement" setting forth certain information about the Acquiror and its plans with respect to the corporation. The Acquiring Person Statement may also request that the corporation call a special meeting of shareholders to determine whether the voting rights will be restored to the Control Shares. If the Acquiror does not request a special meeting of shareholders, the issue of voting rights of Control Shares will be considered at the next annual or special meeting of shareholders. If the Acquiror's Control Shares are accorded voting rights and represent a majority or more of all voting power. Shareholders who do not vote in favor of the restoration of such voting rights will have the right to receive the appraised "fair value" of their shares, which may not be less than the highest price paid per share by the Acquiror for the Control Shares. REPORTS TO STOCKHOLDERS The Company has registered its Common Stock under the provisions of Section 12(g) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and has undertaken to continue to maintain such registration. Such registration will require the Company to comply with periodic reporting, proxy solicitation and certain other requirements of the Exchange Act. SHARES ELIGIBLE FOR FUTURE SALE All but 617,500 of the Company's presently outstanding 7,635,900 shares, are "restricted" securities and could be sold in compliance with Rule 144 adopted under the Securities Act of 1933, as amended, if certain additional requirements are met. Assuming the exercise of all of the 197,600 outstanding Warrants and the registration of the 492,500 Shares, and no exercise of existing options, the Company will then have issued and outstanding 7,833,500 shares of its Common Stock, of which 6,723,500 will be "restricted" securities. Rule 144 provides, in essence, that after two years from the date of acquisition, a person, including an affiliate, of the Company (or persons whose shares are aggregated) may sell an amount up to one percent (1%) of the issued and outstanding shares within any three month period, provided that certain current public information about the Company is available. A person who has not been an affiliate of the Company (or persons whose shares are aggregated) who has owned restricted shares of Common Stock for at least three years is entitled to sell such shares under Rule 144 without regard to any of the limitations described above. Therefore, in each three month period, 78,335 shares could be sold under Rule 144 by each person having held the securities for at least two years. Investors should be aware of the possibility that sales under Rule 144 may, in the future, have a depressing effect on the price of the Company's stock. Prior to this offering, there has been a limited market for the Common Stock as listed on the OTC Bulletin Board and there can be no prediction made as to the effect, if any, that public sales of additional shares of Common Stock or the availability of such additional shares for sale will have on the market prices prevailing from time to 26 28 time. Nevertheless, the possibility that substantial amounts of Common Stock may be sold in the public market may adversely affect prevailing market prices for the Common Stock and could impair the Company's ability to raise capital through the sale of its equity securities. LEGAL MATTERS The validity of the securities being offered will be passed upon for the Company by James L. Vandeberg, Esq., Graham & Dunn, 1420 Fifth Avenue, 33rd Floor, Seattle, Washington 98101-2390. The Company's legal counsel has been employed on a non-contingent basis. EXPERTS The financial statements for the fiscal years ended April 30, 1993, 1994 and 1995, and included in the Prospectus and in the Registration Statement have been audited by Elliott Tulk Pryce Anderson, independent chartered accountants to the extent and for the periods set forth in their report appearing elsewhere herein and in the Registration Statement, and are included in reliance upon such report given the authority of said firm as experts in auditing and accounting. Patrick Badgley, a Vice President of the Company, prepared a Technology Evaluation Report on the RC/DC Engine for the Company. All experts and counsel employed by the Company have been employed on a non-contingent basis. ADDITIONAL INFORMATION The Company has filed with the Securities and Exchange Commission (the "Commission"), Washington, DC, a Registration Statement on Form SB-2 (the "Registration Statement"), under the Securities Act with respect to the Common Stock offered by this Prospectus. This Prospectus, filed as part of such Registration Statement, does not contain all of the information set forth in, or annexed as exhibits to, the Registration Statement, certain parts of which are omitted in accordance with the rules and regulations of the Commission. For further information with respect to the Company and this offering, reference is made to the Registration Statement, including the exhibits filed therewith, which may be inspected without charge at the Office of the Commission, 450 Fifth Street, NW, Washington, DC, 20549, Copies of the Registration Statement may be obtained from the Commission at its principal office upon payment of prescribed fees. Statements contained in the Prospectus as to the contents of any contract or other document are not necessarily complete and, in each instance, reference is made to the copy of each such contract or other document filed as an exhibit to the Registration Statement, each such statement being qualified in all respects by reference to the applicable document filed with the Commission. 27 29
INDEX TO FINANCIAL STATEMENTS Report of Public Accountants........................................................................ F-1 Balance Sheet at April 30, 1995, 1994 and 1993...................................................... F-2 Statement of Operations Accumulated from July 27, 1992 (Inception) to April 30, 1995 and the years ended April 30, 1995, 1994 and 1993..................................................................... F-3 Statement of Stockholders' Equity Accumulated from July 27, 1992 (Inception) to April 30, 1995................................................ F-4 Statementof Cash Flows from May 25, 1989 (Inception) to April 30, 1995 and the years ended April 30, 1995, 1994 and 1993........................................................ F-5 Notes to the Financial Statements................................................................... F-6 to F-10 Balance Sheet at January 31, 1996 and 1995.......................................................... F-11 (unaudited) Statement of Operations Accumulated from July 27, 1992 (Inception) to January 31, 1996 and the six months ended January 31, 1996 and 1995............................ F-12 (unaudited) Statement of Stockholders' Equity Accumulated from July 27, 1992 (Inception) to January 31, 1996.................................... F-13 (unaudited) to F-14 Statement of Cash Flows Accumulated from July 27, 1992 (Inception) to January 31, 1996 and the six months ended January 31, 1996 and 1995............................ F-15 Notes to the Financial Statements................................................................... F-16 (unaudited) to F-20
F 30 ELLIOTT TULK PRYCE ANDERSON CHARTERED ACCOUNTANTS [ETPA LOGO] Independent Auditors Report 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, 1995, 1994 and 1993 and the related statements of operations, stockholders' equity and cash flows for the periods ended April 30, 1995, 1994 and 1993. 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 audit 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, 1995, 1994 and 1993, and the results of its operations and its cash flows for the periods ended April 30, 1995, 1994 and 1993, 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 2 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 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. /s/ Elliott Tulk /s/ Pryce Anderson CHARTERED ACCOUNTANTS Vancouver, B.C., Canada December 7, 1995 F-1 31 REGI U.S., Inc. (A Development Stage Company) Balance Sheets April 30, 1995, 1994 and 1993 (expressed in U.S. dollars)
1995 1994 1993 $ $ $ Assets Current Assets Cash and cash equivalents 66,442 163,870 7,658 Subscription receivable - - 500 Due from parent 28,436 - 21,550 Prepaid expenses 6,000 6,990 - ---------- -------- ------- 100,878 170,860 29,708 Fixed Assets (Notes 3 and 5) 8,996 4,359 - Intangible Assets (Notes 3, 4 and 5) 227,873 262,333 57,000 ---------- -------- ------- 337,747 437,552 86,708 ========== ======== ======= Liabilities And Stockholders' Equity (Deficit) Current Liabilities Accounts payable 34,872 7,500 15,000 Due to parent - 74,455 - Due to affiliate (Note 6) 609,873 213,352 - ---------- -------- ------- 644,745 295,307 15,000 ========== ======== ======= Stockholders' Equity (Deficit) Common Stock (Note 7), 20,000,000 shares authorized without par value; 6,930,200, 6,500,000 and 6,000,000 shares issued and outstanding respectively. 1,336,500 560,000 60,000 Paid for but unissued-- 35,200 shares - - 35,200 Deficit Accumulated During the Development Stage (1,643,498) (417,755) (23,492) ---------- -------- ------- (306,998) 142,245 71,708 ---------- -------- ------- 337,747 437,552 86,708 ========== ======== =======
Commitments (Note 9) F-2 (The accompanying notes are an integral part of the financial statements) 32 REGI U.S., Inc. (A Development Stage Company) Statement of Operations Accumulated from July 27, 1992 (Inception) to April 30, 1995 and the Periods ended April 30, 1995, 1994 and 1993 (expressed in U.S. dollars)
July 27 May 1 May 1 1992 Accumulated 1994 1993 (inception) During the to to to Development April 30 April 30 April 30 Stage 1995 1994 1993 $ $ $ $ Revenues - - - - --------- --------- ------- ------ Administrative Expenses Accounting and legal 53,891 52,311 1,580 - Advertising - stock 27,905 27,905 - - Bank charges 455 425 30 - Foreign exchange 1,940 963 977 - Listings application 5,220 1,868 3,352 - Office 6,610 6,610 - - Stockholder and investor relations 47,607 21,257 26,350 - Transfer agent 6,965 3,565 3,400 - Travel 4,814 4,814 - - Less interest (6,754) (6,754) - - --------- --------- ------- ------ 148,653 112,964 35,689 - --------- --------- ------- ------ Research and Development Expenses Intellectual property (Note 4(a) and (b)) 257,000 257,000 - - Amortization 3,814 (4,664) 8,478 - Market development 79,384 54,173 25,211 - Professional fees 66,595 37,307 26,488 2,800 Project management 70,000 30,000 30,000 10,000 Project overhead 44,126 37,282 4,716 2,128 Prototype design and construction 758,215 581,318 174,398 2,499 Technical consulting 46,249 8,360 36,764 1,125 Technical reports 13,664 - 8,724 4,940 Technical salaries 63,863 52,666 11,197 - Travel 91,935 59,337 32,598 - --------- --------- ------- ------ 1,494,845 1,112,779 358,574 23,492 --------- --------- ------- ------ Net Loss 1,643,498 1,225,743 394,263 23,492 ========= ========= ======= ====== Net Loss Per Share (.18) (.06) (.01) ========= ========= ========= Weighted Average Shares Outstanding 6,710,275 6,500,000 6,000,000 ========= ========= =========
F-3 (The accompanying notes are an integral part of the financial statements) 33 REGI U.S., Inc. (A Development Stage Company) Statement of Stockholders' Equity (Deficit) From July 27, 1992 (Inception) to April 30, 1995 (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 August 20, 1992 5,700,000 57,000 - Stock issued for cash at $0.01 per share August 20, 1992 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 October 31, 1993 500,000 500,00 - 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 July 1, 1994 at $0.10 per share 10,000 1,000 - a private placement of shares issued at $2.25 per share October 31, 1994 and 200,000 450,000 - November 30, 1994 50,000 112,500 - warrants exercised at $1.25 per share October 31, 1994 169,200 211,500 - warrants exercised at $1.50 per share December 13, 1994 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) ========= ========= ==========
F-4 (The accompanying notes are an integral part of the financial statements) 34 REGI U.S., Inc. (A Development Stage Company) Statement of Cash Flows Accumulated from July 27, 1992 (Inception) to April 30, 1995 and the Periods ended April 30, 1995, 1994 and 1993 (expressed in U.S. dollars)
July 27 May 1 May 1 1992 Accumulated 1994 1993 (inception) During the to to to Development April 30 April 30 April 30 Stage 1995 1994 1993 $ $ $ $ Cash Flows to Operating Activities Net loss (1,643,498) (1,225,743) (394,263) (23,492) Adjustments to Reconcile Net loss to cash Amortization 3,814 (4,664) 8,478 - Intellectual property 257,000 257,000 - - Change in non-cash working capital items (Increase) decrease in subscription receivable - - 500 (500) (Increase) decrease in prepaid expense (6,000) 990 (6,990) - Increase (decrease) in accounts payable 34,872 27,372 (7,500) 15,000 ---------- ---------- -------- ------- Net Cash Used by Operating Activities (1,353,812) (945,045) (399,775) (8,992) ---------- ---------- -------- ------- Cash Flows to Financing Activities Increase (decrease) in subscriptions received - - (35,200) 35,200 Increase in shares issued - cash 1,279,500 776,500 500,000 3,000 Increase (decrease) in advances from parent (28,436) (102,891) 96,005 (21,550) Increase in advances from affiliate 409,873 396,521 13,352 - ---------- ---------- -------- ------- Net Cash Provided by Financing Activities 1,660,937 1,070,130 574,157 16,650 ---------- ---------- -------- ------- Cash Flows to Investing Activities (Increase) in computer equipment (11,460) (6,765) (4,695) - (Increase) in patents (29,223) (15,748) (13,475) - (Increase) in licence (200,000) (200,000) - - ---------- ---------- -------- ------- Net Cash (Used) Provided by Investing Activities (240,683) (222,513) (18,170) - ---------- ---------- -------- ------- Increase (decrease) in cash and cash equivalents 66,442 (97,428) 156,212 7,658 Cash and cash equivalents - beginning of period 171,528 163,870 7,658 - ---------- ---------- -------- ------- Cash and cash equivalents - end of period 237,970 66,442 163,870 7,658 ========== ========== ======== ======= Non-Cash Financing Activities Deemed value of affiliate shares issued for intellectual property (Note 4(b)) 200,000 - 200,000 - 5,700,000 shares issued for intellectual property at $0.01 per share (Note 4(a)) 57,000 - - 57,000 ---------- ---------- -------- ------- 257,000 - 200,000 57,000 ========== ========== ======== =======
F-5 (The accompanying notes are an integral part of the financial statements) 35 REGI U.S., Inc. (A Development Stage Company) Notes to the Financial Statements October 31, 1995 and April 30, 1995, 1994 and 1993 (expressed in U.S. dollars) 1. Date of Incorporation The Company was incorporated in the State of Oregon, U.S.A. on July 27, 1992. On August 1, 1994 the Company changed its name from Sky Technologies Inc. to REGI U.S., Inc. 2. Nature and Continuance of Business The Company 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%. These financial statements have been prepared on the basis of a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company has not generated any revenues or profitable operations since inception. The Company's activities are in the development stage and additional costs for the further improvement of The Engine must be incurred. There is substantial doubt as to the Company's ability to generate revenues and to continue as a going concern, as the continuation of the Company as a going concern is dependent on its ability to obtain financing and/or the attainment of revenues and profitable operations. Management plans to raise capital with private and public offerings of stock, the conversion of warrants and the exercise of stock options, and together with cash on hand at April 30, 1995 and additional funds raised to December 7, 1995 should enable the Company to remain viable to at least April 30, 1996. 3. Summary of Significant Accounting Policies (a) Year-End The Company's management has chosen April 30 as its fiscal year-end. (b) Fixed Assets Computer equipment is amortized over 3 years on a straight-line basis. (c) Intangible Assets Costs incurred by the Company 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. (d) 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. (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-6 36 3. Accounting Policies (continued) (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) 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 incurred net operating losses as scheduled below:
Year of Loss Amount Expiration Date $ April 30, 1994 416,218 2009 April 30, 1995 1,007,063 2010
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 at the end of April 30, 1995 and 1994, the statutory tax rate, the effective tax rate and the elected amount of the valuation allowance are scheduled below:
April 30, 1995 April 30, 1994 $ $ Net Operating Loss 1,007,063 416,218 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 342,401 141,514 Valuation Allowance (342,401) (141,514) ------------ ------------ Net Deferred Tax Asset - - ============ ============
F-7 37 4. 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. 5. (a) Fixed Assets
1995 1994 1993 Accumulated Net Book Net Book Net Book Cost Amortization Value Value Value $ $ $ $ $ Computer equipment 11,460 2,464 8,996 4,359 - ======= ===== ======= ======= ====== (b) Intangible Assets Sublicence (below) 200,000 - 200,000 - - Patents 29,223 1,350 27,873 13,184 - Intellectual property (Note 4(a) and (b)) - - - 249,149 57,000 ------- ----- ------- ------- ------ 229,223 1,350 227,873 262,333 57,000 ======= ===== ======= ======= ======
In 1995 the Company acquired an exclusive limited sublicence to market and distribute a "Machine Vision Technology" in Canada for the following consideration: i) $200,000 (paid). ii) royalty payments equal to 2% of all net revenue derived from sales in Canada, to be paid 30 days after 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
F-8 38 5. Fixed Assets (continued) On October 31, 1995 the Company sold its rights to REG for $200,000. All obligations pursuant to the sublicense transfers to REG. 6. Due to Affiliate REG periodically pays for research and development expenses on behalf of the Company and REGI and then charges the two companies on a 50/50 basis pursuant to the research and development cost sharing agreement. The balance owing to REG, of $609,873 has been paid down to $171,351 subsequent to April 30, 1995. Any balance owing is unsecured, non-interest bearing and is payable on demand. 7. Common Stock (a) Public offering - October 31, 1993 - warrants outstanding A total of $500,000 was received and 500,000 units issued pursuant to a public offering of 500,000 units at $1.00 per unit. Each unit contained 1 common share, and 1 warrant to acquire an additional share at $1.25 by August 24, 1994 (extended to October 31, 1994), and $1.50 by August 24, 1995. A total of 169,200 warrants were exercised at $1.25, and 133,200 warrants were exercised at $1.50. A total of 197,600 warrants are outstanding. (b) Private placement - October 31 and November 30, 1994 - warrants outstanding A total of $450,000 was received and 200,000 units issued on October 31, 1994 and a total of $112,500 was received and 50,000 units issued on November 30, 1994 pursuant to a private placement of 250,000 units at $2.25 per unit. Each unit contained 1 common share, and 1 warrant to acquire an additional share at $2.60 by October 12, 1995 (expired), and $3.00 by October 12, 1996. All warrants issued pursuant to this private placement are outstanding as at April 30, 1995. (c) Pursuant to a Private Offering Memorandum dated April 15, 1995 and expiring October 15, 1995 the Company sold 341,000 units at $2.00 per unit for net proceeds of $682,000. Each unit contained 1 common share, and 1 warrant to acquire an additional share at $2.00 exercisable beginning April 15, 1996 and ending April 15, 1997 or at $2.50 beginning April 16, 1997 and ending April 15, 1998. (d) Stock options Certain directors and employees were granted stock options since inception as follows: - April 30, 1993 to acquire 387,500 shares at $0.10 per share expiring April 30, 1998 of which 137,500 have been exercised subsequently. - October 29, 1993 to acquire 195,000 shares at $1.00 per share expiring April 30, 1998 as to 50,000 shares and October 29, 1998 as to 145,000 shares. - February 9, 1994 to acquire 75,000 shares at $1.00 expiring February 9, 1999. - October 20, 1994 to acquire 35,000 shares at $2.75 per share expiring October 20, 1999. - January 15, 1995 to acquire 30,000 shares at $1.50 per share expiring January 15, 2000. - March 15, 1995 to acquire 10,000 shares at $2.50 per share expiring March 15, 2000. - August 11, 1995 to acquire 25,000 shares at $2.50 per share expiring August 11, 2000. - September 8, 1995 to acquire 10,000 shares at $2.50 per share expiring September 8, 2000. F-9 39 8. Related Party Transactions (a) A project management fee of $30,000 in fiscal 1995, $30,000 in fiscal 1994 and $10,000 in fiscal 1993 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 in fiscal 1995, $6,000 in fiscal 1994 and $2,000 in fiscal 1993 were paid to a company controlled by the president of the Company and are included in research and development expenses. (c) A technical salary of $52,666 in fiscal 1995 and $11,197 in fiscal 1994 was paid to an officer and director and is included in research and development expenses. (d) An administrative fee of $4,500 in fiscal 1995 was paid to an officer and director and is included in research and development expenses. (e) The exclusive limited sublicense for The Machine Vision Technology was sold to REG for $200,000 (See Note 5). 9. Commitments (a) See Note 4 - royalty commitments in connection with the Rand Cam/Direct Charge Engine. (b) The Company is committed to pay $2,910 per month pursuant to an investor relations contract expiring March 31, 1996. (c) 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 pursuant to a contract dated April 1, 1994 and expiring April 1, 1997. (d) The Company has reserved 591,000 shares for the conversion of warrants (See Note 7(b) and (c)) and 640,000 shares for the exercise of stock options (See Note 7(d)). (e) The Company has no long-term lease commitments. (f) The Company is committed to fund 50% of the further development of the Engine. See Note 2. 10. Subsequent Events to December 7, 1995 (a) The Company received $1,000 pursuant to options exercised at $0.10 for 10,000 common shares. (b) The Company sold its interest in the Machine Vision Technology to Reg Technologies Inc. on October 31, 1995 for $200,000. (c) See Note 7(c) for completion of a financing. (d) See Note 7(d) for stock options granted. F-10 40 REGI U.S., Inc. (A Development Stage Company) Balance Sheets January 31, 1996 and 1995 (expressed in U.S. dollars)
1996 1995 $ $ Assets Current Assets Cash and cash equivalents 54,913 321,766 Prepaid expenses 6,090 - ---------- ---------- 61,003 321,766 Fixed Assets (Notes 3 and 5) 10,021 3,186 Intangible Assets (Notes 3, 4 and 5) 32,168 225,867 ---------- ---------- 103,192 550,819 ========== ========== Liabilities And Stockholders' Equity Current Liabilities Accounts payable 57,462 5,320 Due to parent - 11,120 Due to affiliate (Note 6) 45,708 478,612 ---------- ---------- 103,170 495,052 ---------- ---------- Stockholders' Equity Common Stock (Note 7), 20,000,000 shares authorized without par value; 7,613,900 and 6,930,200, shares issued and outstanding respectively. 2,246,850 1,336,500 Deficit Accumulated During the Development Stage (2,246,828) (1,280,733) ---------- ---------- 22 55,767 ---------- ---------- 103,192 550,819 ========== ==========
Commitments (Note 9) F-11 (The accompanying notes are an integral part of the financial statements) 41 REGI U.S., Inc. (A Development Stage Company) Statement of Operations Accumulated from July 27, 1992 (Inception) to January 31, 1996 and the Nine Month Periods ended January 31, 1996 and 1995 (expressed in U.S. dollars)
May 1 May 1 Accumulated 1995 1994 During the to to Development January 31 January 31 Stage 1996 1995 $ $ $ Revenues - - - --------- --------- --------- Administrative Expenses Accounting and legal 97,248 43,357 7,929 Advertising - stock 119,724 91,819 27,904 Bank charges 918 463 305 Foreign exchange 2,301 361 - Listings application 5,220 - 300 Office 22,485 15,875 2,189 Stockholder and investor relations 112,390 64,783 12,865 Transfer agent 11,488 4,523 3,525 Travel 4,814 - 4,814 Less interest (12,771) (6,017) - --------- --------- --------- 363,817 215,164 59,831 --------- --------- --------- Research and Development Expenses Intellectual property (Note 4(a) and (b)) 257,000 - - Amortization 8,548 4,734 1,867 Market development 86,204 6,820 32,729 Professional fees 69,345 2,750 34,267 Project management 92,500 22,500 20,000 Project overhead 68,123 23,997 14,323 Prototype design and construction 1,026,658 268,443 384,392 Technical consulting 47,704 1,455 7,940 Technical reports 13,664 - - Technical salaries 103,008 39,145 35,074 Travel 110,257 18,322 23,406 --------- --------- --------- 1,883,011 388,166 553,998 --------- --------- --------- Net Loss 2,246,828 603,330 613,829 ========= ========= ========= Net Loss Per Share .08 .09 ========= ========= Weighted Average Shares Outstanding 7,375,610 6,642,122 ========= =========
F-12 (The accompanying notes are an integral part of the financial statements) 42 REGI U.S., Inc. (A Development Stage Company) Statement of Stockholders' Equity (Deficit) From July 27, 1992 (Inception) to January 31, 1996 (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 August 20, 1992 5,700,000 57,000 - Stock issued for cash at $0.01 per share August 20, 1992 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 October 31, 1993 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 July 1, 1994 at $0.10 per share 10,000 1,000 - a private placement of shares issued at $2.25 per share October 31, 1994 and 200,000 450,000 - November 30, 1994 50,000 112,500 - warrants exercised at $1.25 per share October 31, 1994 169,200 211,500 - warrants exercised at $1.50 per share December 13, 1994 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)
F-13 (The accompanying notes are an integral part of the financial statements) 43 REGI U.S., Inc. (A Development Stage Company) Statement of Stockholders' Equity (Deficit) From July 27, 1992 (Inception) to January 31, 1996 (expressed in U.S. dollars)
Deficit Accumulated Common Stock During the Shares Amount Development Stage Continued # $ $ Balance forward from 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 June, 1995 7,500 750 - July, 1995 110,000 11,000 - September, 1995 10,000 1,000 - November, 1995 10,000 1,000 - December, 1995 13,000 1,300 - January, 1996 50,000 5,000 - option exercised at $1.00 per share January, 1996 10,000 10,000 - warrants exercised at $1.50 per share August, 1995 132,200 198,300 - a private offering memorandum to issue shares at $2.00 per share May, 1995 20,000 40,000 - June, 1995 35,000 70,000 - July, 1995 173,500 347,000 - August, 1995 22,500 45,000 - September, 1995 50,000 100,000 - October, 1995 40,000 80,000 - Net loss for the period ended January 31, 1996 - - (603,330) --------- --------- ---------- Balance - January 31, 1996 7,613,900 2,246,850 (2,246,828) ========= ========= ==========
F-14 (The accompanying notes are an integral part of the financial statements) 44 REGI U.S., Inc. (A Development Stage Company) Statement of Cash Flows Accumulated from July 27, 1992 (Inception) to January 31, 1996 and the Nine Month Periods ended January 31, 1996 and 1995 expressed in U.S. dollars)
May 1 May 1 Accumulated 1995 1994 During the to to Development January 31 January 31 Stage 1996 1995 $ $ $ Cash Flows to Operating Activities Net loss (2,246,828) (603,330) (613,829) Adjustments to Reconcile Net loss to cash Amortization 8,548 4,734 1,867 Intellectual property 257,000 - - Change in non-cash working capital items (Increase) decrease in subscription receivable (6,090) - - (Increase) decrease in prepaid expense - (89) 6,990 Increase (decrease) in accounts payable 57,462 22,590 (2,180) ---------- -------- -------- Net Cash Used by Operating Activities (1,929,908) (576,095) (607,152) ========== ======== ======== Cash Flows to Financing Activities Increase in shares issued - cash 2,189,850 910,350 776,500 Increase (decrease) in advances from parent - 28,436 (63,335) Increase (decrease) in advances from affiliate (154,292) (564,165) 265,260 ---------- -------- -------- Net Cash Provided by Financing Activities 2,035,558 374,621 978,425 ========== ======== ======== Cash Flows to Investing Activities (Increase) in computer equipment (16,047) (4,588) - (Increase) in patents (34,690) (5,467) (13,377) (Increase) decrease in licence - 200,000 (200,000) ---------- -------- -------- Net Cash (Used) Provided by Investing Activities (50,737) 189,945 (213,377) ========== ======== ======== Increase (decrease) in cash and cash equivalents 54,913 (11,529) 157,896 Cash and cash equivalents - beginning of period - 66,442 163,870 ---------- -------- -------- Cash and cash equivalents - end of period 54,913 54,913 321,766 ========== ======== ======== Non-Cash Financing Activities Deemed value of affiliate shares issued for intellectual property (Note 4(b)) 200,000 - - 5,700,000 shares issued for intellectual property at $0.01 per share (Note 4(a)) 57,000 - - ---------- -------- -------- 257,000 - - ========== ======== ========
F-15 (The accompanying notes are an integral part of the financial statements) 45 REGI U.S., Inc. (A Development Stage Company) Notes to the Financial Statements January 31, 1996 and 1995 (expressed in U.S. dollars) 1. Date of Incorporation The Company was incorporated in the State of Oregon, U.S.A. on July 27, 1992. On August 1, 1994 the Company changed its name from Sky Technologies Inc. to REGI U.S., Inc. 2. Nature and Continuance of Business The Company 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%. These financial statements have been prepared on the basis of a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company has not generated any revenues or profitable operations since inception. The Company's activities are in the development stage and additional costs for the further improvement of The Engine must be incurred. There is substantial doubt as to the Company's ability to generate revenues and to continue as a going concern, as the continuation of the Company as a going concern is dependent on its ability to obtain financing and/or the attainment of revenues and profitable operations. Management plans to raise capital with private and public offerings of stock, the conversion of warrants and the exercise of stock options, and together with cash on hand at January 31, 1996, should enable the Company to remain viable to at least January 31, 1997. 3. Summary of Significant Accounting Policies (a) Year-End The Company's management has chosen April 30 as its fiscal year-end. (b) Fixed Assets Computer equipment is amortized over 3 years on a straight-line basis. (c) Intangible Assets Costs incurred by the Company 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. (d) 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. (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-16 46 3. Accounting Policies (continued) (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) 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 incurred net operating losses as scheduled below:
Year of Loss Amount Expiration Date $ April 30, 1994 416,218 2009 April 30, 1995 1,007,063 2010 Period May 1, 1995 to 603,330 2011 January 31, 1996
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 at the end of April 30, 1994, April 30, 1995 and January 31, 1996, the statutory tax rate, the effective tax rate and the elected amount of the valuation allowance are scheduled below:
January 31, 1996 April 30, 1995 April 30, 1994 $ $ $ Net Operating Loss 603,330 1,007,063 416,218 Statutory Tax Rate 113,900 +34% 113,900 +34% 113,900 +34% in excess of in excess of in excess of $335,000 $335,000 $335,000 Effective Tax Rate - - - Deferred Tax Asset 205,132 342,401 141,514 Valuation Allowance (205,132) (342,401) (141,514) ----------- ----------- ----------- Net Deferred Tax Asset - - - =========== =========== ===========
F-17 47 4. 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. 5. (a) Fixed Assets
1996 1995 Accumulated Net Book Net Book Cost Amortization Value Value $ $ $ $ Computer equipment 16,048 6,027 10,021 3,186 ====== ===== ====== ======= (b) Intangible Assets Sublicence (below) - - - 200,000 Patents 34,690 2,522 32,168 25,867 ------ ----- ------ ------- 34,690 2,522 32,168 225,867 ====== ===== ====== =======
In 1995 the Company acquired an exclusive limited sublicence to market and distribute a "Machine Vision Technology" in Canada for the following consideration: i) $200,000 (paid). ii) royalty payments equal to 2% of all net revenue derived from sales in Canada, to be paid 30 days after 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 REG for $200,000. All obligations pursuant to the sublicense transfers to REG. F-18 48 6. Due to Affiliate REG periodically pays for research and development expenses on behalf of the Company and REGI and then charges the two companies on a 50/50 basis pursuant to the research and development cost sharing agreement. The balance owing to REG, of $45,708 will be paid out of cash on hand at January 31, 1996. Any balance owing is unsecured, non-interest bearing and is payable on demand. 7. Common Stock (a) Public offering - October 31, 1993 - warrants outstanding A total of $500,000 was received and 500,000 units issued pursuant to a public offering of 500,000 units at $1.00 per unit. Each unit contained 1 common share, and 1 warrant to acquire an additional share at $1.25 by August 24, 1994 (extended to October 31, 1994), and $1.50 by August 24, 1995. A total of 169,200 warrants were exercised at $1.25, and 133,200 warrants were exercised at $1.50. A total of 197,600 warrants are outstanding. (b) Private placement - October 31 and November 30, 1994 - warrants outstanding A total of $450,000 was received and 200,000 units issued on October 31, 1994 and a total of $112,500 was received and 50,000 units issued on November 30, 1994 pursuant to a private placement of 250,000 units at $2.25 per unit. Each unit contained 1 common share, and 1 warrant to acquire an additional share at $2.60 by October 12, 1995 (expired), and $3.00 by October 12, 1996. All warrants issued pursuant to this private placement are outstanding as at January 31, 1996. (c) Pursuant to a Private Offering Memorandum dated April 15, 1995 and expiring October 15, 1995 the Company sold 341,000 units at $2.00 per unit for net proceeds of $682,000. Each unit contained 1 common share, and 1 warrant to acquire an additional share at $2.00 exercisable beginning April 15, 1996 and ending April 15, 1997 or at $2.50 beginning April 16, 1997 and ending April 15, 1998. (d) Stock options Certain directors and employees were granted stock options since inception as follows: - April 30, 1993 to acquire 387,500 shares at $0.10 per share expiring April 30, 1998 of which 200,500 have been exercised to January 31, 1996. - October 29, 1993 to acquire 195,000 shares at $1.00 per share expiring April 30, 1998 as to 50,000, shares of which 10,000 have been exercised to January 31, 1996, and October 29, 1998 as to 145,000 shares. - February 9, 1994 to acquire 75,000 shares at $1.00 expiring February 9, 1999. - October 20, 1994 to acquire 35,000 shares at $2.75 per share expiring October 20, 1999. - January 15, 1995 to acquire 30,000 shares at $1.50 per share expiring January 15, 2000. - March 15, 1995 to acquire 10,000 shares at $2.50 per share expiring March 15, 2000. - August 11, 1995 to acquire 25,000 shares at $2.50 per share expiring August 11, 2000. - September 8, 1995 to acquire 10,000 shares at $2.50 per share expiring September 8, 2000. F-19 49 8. Related Party Transactions (a) A project management fee of $22,500 in 1996 and $22,500 in 1995 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 $4,500 in 1996 and $4,500 in 1995 were paid to a company controlled by the president of the Company and are included in research and development expenses. (c) A technical salary of $39,145 in 1996 and $35,074 in 1995 was paid to an officer and director and is included in research and development expenses. (d) An administrative fee of $9,000 in 1996 was paid to an officer and director and is included in research and development expenses. (e) The exclusive limited sublicense for The Machine Vision Technology was sold to REG for $200,000 (See Note 5). 9. Commitments (a) See Note 4 - royalty commitments in connection with the Rand Cam/Direct Charge Engine. (b) The Company is committed to pay $2,910 per month pursuant to an investor relations contract expiring March 31, 1996. (c) 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 pursuant to a contract dated April 1, 1994 and expiring April 1, 1997. (d) The Company has reserved 591,000 shares for the conversion of warrants (See Note 7(b) and (c)) and 557,000 shares for the exercise of stock options (See Note 7(d)). (e) The Company has no long-term lease commitments. (f) The Company is committed to fund 50% of the further development of the Engine. See Note 2. F-20 50 UNTIL SEPTEMBER , 1996, (NINETY DAYS AFTER THE EFFECTIVE DATE OF THIS PROSPECTUS) ALL DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. - -------------------------------------------------------------------------------- TABLE OF CONTENTS 492,500 SHARES Summary 5 Selected Financial Data 6 REGI U.S., INC. Risk Factors 6 Use of Proceeds 8 Dilution 9 COMMON STOCK Concurrent Sales by Selling Shareholders 9 Plan of Distribution 12 Dividend Policy 13 Capitalization 13 Management's Discussion and Analysis of Results of Operations and Financial PROSPECTUS Condition 13 Business 15 Management 20 Principal Shareholders 23 Certain Relationships and Related Transactions 24 Description of Securities 25 Shares Eligible for Future Sale 26 REGI U.S., Inc. Legal Matters 27 10751 Shellbridge Way Experts 27 Suite 185 Additional Information 27 Richmond, BC V6X 2W8 Index to Financial Statements F-1 Canada No dealer, salesman or any other person has been authorized to give any information or make any representations other than those contained in this Prospectus in connection with the offer contained in this Prospectus and, if given or made, such information must not be relied upon as having been authorized by the Company. Neither the delivery nor any sale made hereunder shall under any circumstances, create any implication that there has been no change in the affairs of the Company since the date hereof. This prospectus does not constitute an offer to sell or the solicitation of an offer to buy any security other than the shares of Common Stock offer by this Prospectus, nor does it constitute an offer to sell or a solicitation of an offer to buy the shares of Common Stock by anyone in any jurisdiction in which such offer or solicitation is not authorized or in which the person making such offer or solicitation is not qualified to do so, to any person to whom it is unlawful to make such offer or solicitation. 51 PART II - INFORMATION NOT REQUIRED IN PROSPECTUS Page No. -------- Item 24. Indemnification of Directors and Officers...................II-2 Item 25. Other Expenses of Issuance and Distribution.................II-2 Item 26. Recent Sales of Unregistered Securities.....................II-3 Item 27. Index to Exhibits...........................................II-4 Item 28. Undertakings................................................II-5 Signatures..............................................................II-6 II-1 52 PART II -- INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS. It is provided in the Articles of Incorporation of the Company that it shall indemnify to the fullest extent permitted by the Oregon Business Corporation Act any person who is made, or threatened to be made, a party to any action, suit or proceeding, whether civil, criminal, administrative, investigative, or otherwise (including an action, suit or proceeding by or in the right of the corporation) by reason of the fact that the person is or was a director or officer of the corporation or a fiduciary within the meaning of the Employee Retirement Income Security Act of 1974 with respect to any employee benefit plan of the corporation, or serves or served at the request of the corporation as a director or officer, or as a fiduciary of an employee benefit plan, of another corporation, partnership, joint venture, trust or other enterprise. The right to and amount of indemnification shall be determined in accordance with the provisions of the Oregon Business Corporation Act in effect at the time of the determination. The Oregon Revised Statutes provides for indemnification where a person who was or is a party or is threatened to be made a party to any threatened, pending or contemplated action, suit or proceeding, whether civil, criminal, administrative or investigative (other than action by or in right of a corporation), by reason of fact he is or was a Director, Officer, employee or agent of a corporation or serving another corporation at the request of the corporation, against expenses (including attorneys' fees), judgments, fines, and amounts paid in settlement, actually and reasonably incurred by him if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interest of the corporation and, with respect to criminal action or proceeding, had no reasonable cause to believe his conduct unlawful. Lack of good faith is not presumed from settlement or nolo contendere plea. Indemnification of expenses (including attorneys' fees) is allowed in derivative actions except in the case of misconduct in performance of duty to the corporation unless the Court decides indemnification is proper. To the extent any such person succeeds on the merits or otherwise, he shall be indemnified against expenses (including attorneys' fees). Determination that the person to be indemnified met applicable standards of conduct, if not made by the Court, is made by the Board of Directors by majority vote of quorum consisting of the Directors not party to such action, suit or proceeding or, if a quorum is not obtainable or a disinterested quorum so directs, by independent legal counsel or by the stockholders. Expenses may be paid in advance upon receipt of undertakings to repay unless it shall ultimately be determined that he is entitled to be indemnified by the corporation. The Corporation may purchase indemnity insurance. Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the Company pursuant to the foregoing provisions, or otherwise, the Company has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Company of expenses incurred or paid by a director, officer or controlling person of the Company in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Company will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question of whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION. The following table sets forth the estimated costs and expenses to be borne by the Company in connection with the offering described in the Registration Statement. Registration Fee.........................................$ 597.46 Legal Fees and Expenses.................................. 15,000.00 Accounting Fees and Expenses............................. 3,000.00 Printing and Engraving Expenses.......................... 2,000.00 Blue Sky Fees and Expenses............................... 5,000.00 Transfer Agent's and Registrar's Fees.................... 500.00 Miscellaneous Expenses................................... 8,902.54 Total....................................................$35,000.00 II-2 53 ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES. Set forth below is information regarding the issuance and sales of securities of the Company without registration under the Securities Act since May 1, 1993. No sales of securities involved the use of an underwriter and no commissions were paid in connection with the sale of any securities. a. In the period May 1993 through October 1993 the Company sold 500,000 units to accredited investors. Each unit was sold at $1.00 per unit and consisted of 1 share of Common Stock and one warrant to acquire an additional share of Common Stock at $1.25 per share through August 24, 1994 (extended to October 31, 1994) and at $1.50 per share through August 24, 1995 (extended to November 30, 1995 or fifteen days after the effective date of this registration statement, whichever is later). A total of 169,000 warrants were exercised at $1.25 per share and 133,200 warrants were exercised at $1.50 per share. The underlying shares of Common Stock were issued to the warrant holders. The warrant holders were accredited investors and the issuance of units and Common Stock was exempt from registration under Regulation D and Section 4(2) of the Securities Act. b. During October and December 1994, the Company made a private placement of 250,000 units at a price of $2.25 with two private investors who were existing shareholders of the Company. Each unit consists of one share of Common Stock and one warrant allowing the holder to purchase an additional share of Common Stock at $2.60 during the first year following the issue date, and at $3.00 per share during the second year following the issue date. The purchasers of these units were, in the opinion of management, fully informed with respect to the financial position, business and prospects of the Company and were accredited investors. These transactions were exempt from registration under the Securities Act by reason of Section 4(2) thereof. c. During the period April 15, 1995 to October 15, 1995, the Company sold 341,000 units at a price of $2.00 per unit. Each unit consisted of one share of Common Stock and one warrant to acquire an additional share of Common Stock at $2.00 per share beginning April 15, 1996 through April 15, 1997 or at $2.50 per share beginning April 16, 1997 through April 15, 1998. The insurance of these units were exempt under Regulation D and Section 4(2) of the Securities Act. Each of the foregoing transactions was exempt from registration under the Securities Act by virtue of the provisions of Section 4(2) and/or 3(b) thereof. Each purchaser of the securities described above has represented that he understands that the securities acquired may not be sold or otherwise transferred absent registration under the Securities Act or the availability of an exemption from the registration requirements of the Securities Act, and each certificate evidencing the securities owned by each purchaser bears or will bear a legend to that effect. II-3 54 ITEM 27. EXHIBITS 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) 5 OPINION OF COUNSEL REGARDING LEGALITY 5.1 Opinion of Graham & Dunn......................................................................** 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.............................................................................54 10.5 Agreement between the Company and Integral Visions Systems, Inc..........................................................................56 10.6 REGI U.S., Inc. KEY EMPLOYEES INCENTIVE STOCK OPTION PLAN..................................................................................*(3) 23 CONSENT OF EXPERTS AND COUNSEL 23.1 Consent of Elliott Tulk Pryce Anderson .......................................................56 23.2 Consent of Patrick Badgley....................................................................** 23.3 Consent of Graham & Dunn......................................................................** 99 ADDITIONAL EXHIBITS 99.1 Technology Evaluation report on the Rand Cam/Direct Charge Engine prepared by Adiabatics, Inc..............................................................................*(1)
- -------------------- * Previously filed documents. ** To be filed by amendment. (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. II-4 55 ITEM 28. UNDERTAKINGS A. The undersigned registrant hereby undertakes; (1) To file, during any period in which offers or sales are-being made, a post effective amendment to this registration statement: (a) To include any prospectus required by Section 10(a) (3) of the Securities Act of 1933; (b) To reflect in the prospectus any facts or events which arising after the effective date of the registration statement (or the most recent post-effective amendment) individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement; and, (2) That, for the purpose of determining any liability under the Securities Act of 1933, as amended, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. (4) To, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether indemnification by the registrant of directors, officers and controlling persons against liabilities in connection with securities being registered is against public policy as expressed in the Securities Act of 1934, as amended and will be governed by the final adjudication of such issue. II-5 56 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the Registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized in the City of Richmond, Province of British Columbia on May , 1996. REGI U.S., Inc. By: ------------------------------------ John G. Robertson President and Director Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons on the day of May, 1996 in the capacities indicated. Signature Title --------- ----- (John G. Robertson) President, Chief Executive Officer - ------------------------------------ and Director (Brian Cherry) Vice President, Secretary and Director - ------------------------------------ (Jennifer Lorette) Vice President, Chief Financial Officer - ------------------------------------ II-6 EX-23.1 2 CONSENT OF ELLIOT TULK PRYCE ANDERSON 1 EXHIBIT 23.1 [Elliott Tulk Pryce Anderson Letterhead] June 3, 1996 Board of Directors REGI U.S., Inc. 185 - 10751 Shellbridge Way Richmond, B.C. V6X 2W8 Dear Ladies and Gentlemen: RE: REGI U.S., INC. We consent to the use of our report dated December 7, 1995 on the financial statements of REGI U.S., Inc., as of April 30, 1995 and the inclusion of our name under the headings "Selected Financial Data" and "Experts" in the prospectus. Yours truly, ELLIOTT, TULK, PRYCE, ANDERSON /s/ Don M. Prest, C.A. Partner Encl. -----END PRIVACY-ENHANCED MESSAGE-----