20-F/A 1 doc1.txt United States Securities and Exchange Commission Washington, D.C. 20549 ________________________________________________ FORM 20-F Amendment No. 1 [_] REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934 OR [_] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 - For the fiscal year ended April 30, 2001 OR [_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File Number 0-24342 ------- REG TECHNOLOGIES, INC. ---------------------- (Exact name of registrant as specified in its charter) BRITISH COLUMBIA, CANADA ------------------------ (Jurisdiction of incorporation or organization) 185 - 10751 SHELLBRIDGE WAY RICHMOND, BRITISH COLUMBIA V6X 2W8, CANADA ------------------------------------------ (Address of principal executive offices) Securities registered pursuant to Section 12(g) of the Act: COMMON STOCK, NO PAR VALUE -------------------------- (Title of Class) Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: NONE Indicate the number of outstanding shares of each of the issuer's class of capital or common stock as of the close of the period covered by the annual report. Title of Each Class Outstanding at April 30, 2001 ---------------------- ----------------------------- Common Shares, no par value 16,578,371 Preferred Shares, $1.00 par value none Class A, no par value none Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No X --- --- Indicate by check mark which financial statement the registrant has elected to follow. Item 17. X Item 18. - ---
TABLE OF CONTENTS Forward-Looking Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4 Foreign Private Issuer Status and Currencies and Exchange Rates . . . . . . . . . . . .5 PART I . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5 ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISORS . . . . . . . . . 5 ITEM 2. OFFER AND STATISTICS AND EXPECTED TIMETABLE . . . . . . . . . . . .6 ITEM 3. KEY INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . .6 A. SELECTED FINANCIAL DATA . . . . . . . . . . . . . . . . . . . . . . . . .6 B. CAPITALIZATION AND INDEBTEDNESS . . . . . . . . . . . . . . . . . . . . .7 C. REASON FOR THE OFFER AND USE OF PROCEEDS . . . . . . . . . . . . . .7 D. RISK FACTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7 ITEM 4. INFORMATION ON THE COMPANY . . . . . . . . . . . . . . . . . . . . .11 A. HISTORY AND DEVELOPMENT . . . . . . . . . . . . . . . . . . . . . . . . 11 B. BUSINESS OVERVIEW . . . . . . . . . . . . . . . . . . . . . . . . . . . .13 C. ORGANIZATIONAL STRUCTURE . . . . . . . . . . . . . . . . . . . . . . . . 23 D. PROPERTY, PLANT AND EQUIPMENT . . . . . . . . . . . . . . . . . . . . .24 ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS . . . . . . . . . . .24 A. OPERATING RESULTS . . . . . . . . . . . . . . . . . . . . . . . . . . . .24 B. LIQUIDITY AND CAPITAL RESOURCES . . . . . . . . . . . . . . . . . . . .27 C. RESEARCH AND DEVELOPMENT, PATENTS AND LICENSES, ETC. . . . . . . . .28 D. TREND INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . .28 ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES . . . . . . . . . . . . 29 A. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES . . . . . . . . . . . . . .29 B. COMPENSATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .30 C. BOARD PRACTICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . .32 D. EMPLOYEES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 E. SHARE OWNERSHIP . . . . . . . . . . . . . . . . . . . . . . . . . . . . .32 ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS . . . . . . . . 33 A. Major Shareholders. . . . . . . . . . . . . . . . . . . . . . . . . . . .33 B. Related Party Transactions. . . . . . . . . . . . . . . . . . . . . . . 33 C. Interests of Experts and Counsel. . . . . . . . . . . . . . . . . . . 34 ITEM 8. FINANCIAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . 34 A. Consolidated Statements and Other Financial Information . . . . . . .34 B. Significant Changes . . . . . . . . . . . . . . . . . . . . . . . . . . .35 ITEM 9. THE OFFER AND LISTING . . . . . . . . . . . . . . . . . . . . . . . 35 ITEM 10. ADDITIONAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . .35 A. Share Capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .35 B. Memorandum and Articles of Association . . . . . . . . . . . . . . . .36 C. Material Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 D. Exchange Controls. . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 E. Taxation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 F. Dividends and Paying Agents . . . . . . . . . . . . . . . . . . . . . .37 G. Statement by Experts. . . . . . . . . . . . . . . . . . . . . . . . . . 37 H. Documents on Display. . . . . . . . . . . . . . . . . . . . . . . . . . 37 I. Subsidiary Information. . . . . . . . . . . . . . . . . . . . . . . . . .37 ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK . . . . . . 37 ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES . . . . . . . 38 PART II . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38 ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELIQUENCIES . . . . . . . . . . 38 ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38 A. Material Modifications to the Rights of Security Holders . . . . . 38 B. Use of Proceeds. . . . . . . . . . . . . . . . . . . . . . . . . . . . .38 ITEM 15. [RESERVED] . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38 -2- ITEM 16. [RESERVED] . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38 PART III . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .38 ITEM 17. FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . 38 ITEM 18. FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . 38 ITEM 19. EXHIBITS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39 SIGNATURE PAGE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .40
-3- Forward-Looking Statements This annual report includes "forward-looking statements." All statements, other than statements of historical facts, included in this annual report that address activities, events or developments which we expect or anticipate will or may occur in the future are forward-looking statements. The words "believe", "intend", "expect", "anticipate", "project", "estimate", "predict" and similar expressions are also intended to identify forward-looking statements. These forward-looking statements address, among others, such issues as: - future prices of and demand for our products, - future earnings and cash flow, - future plans and capital expenditures, - expansion and other development trends of the engine industry, - expansion and growth of our business and operations, and - our prospective operational and financial information. These statements are based on assumptions and analyses made by us in light of our experience and our perception of historical trends, current conditions and expected future developments, as well as other factors we believe are appropriate in particular circumstances. However, whether actual results and developments will meet our expectations and predictions depends on a number of risks and uncertainties which could cause actual results to differ materially from our expectations, including the risks set forth in "Item 3-Key Information-Risk Factors" and the following: - fluctuations in prices of our products, - potential acquisitions and other business opportunities, - general economic, market and business conditions, and - other risks and factors beyond our control. Consequently, all of the forward-looking statements made in this annual report are qualified by these cautionary statements. We cannot assure you that the actual results or developments anticipated by us will be realized or, even if substantially realized, that they will have the expected effect on us or our business or operations. -4- This 20-F annual report, including all exhibits, consists of 62 pages. The Exhibit Index is displayed on page 41. Foreign Private Issuer Status and Currencies and Exchange Rates Foreign Private Issuer Status: Reg Technologies, Inc., (hereinafter referred to as the "Company", or "we", "it", "our" or such other context as may be applicable), is a Canadian corporation incorporated under the laws of the Province of British Columbia. Less than 50% of our common stock is held by United States citizens and residents, our business is administered principally outside the United States; and more than 50% of our assets are located outside the United States. As a result, we believe that we qualify as a "foreign private issuer" for continuing to report regarding the registration of our common stock using this Form 20-F annual report format. Currencies and Exchange Rates: We publish our financial statements in Canadian dollars. Unless otherwise indicated, monetary amounts referred to in this annual report are in Canadian dollars. Unless otherwise indicated, all translations from Canadian dollars to US dollars have been made at a rate of CDN$ 1.5360 to US$ 1.00, the noon buying rate as certified for customs purposes by the Federal Reserve Bank of New York (the "Noon Buying Rate") on April 30, 2001. We do not represent that Canadian dollar or US dollar amounts could be converted into US dollars or Canadian dollars, as the case may be, at any particular rate, the rates below or at all. On September 12, 2001, the Noon Buying Rate was CDN$ 1.5656 to US$ 1.00. The following table sets forth noon buying rate for US dollars in New York City for cable transfers in Canadian dollars as certified for customs purposes by the Federal Reserve Bank of New York for the periods indicated: Year Average Low/High April 30 ------------------------------------------------------------- 2001 1.5113 1.4639/1.5790 1.5360 2000 1.4634 1.4977/1.4475 1.4789 1999 1.5088 1.5465/1.4305 1.4565 1998 1.4056 1.4451/1.3795 1.4310 1997 1.3641 1.3982/1.3375 1.3976 1996 1.3616 1.3782/1.3445 1.3621 PART I ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISORS Not applicable, but see "Item 6 - Directors, Senior Management and Employees - Directors and Senior Management". -5- ITEM 2. OFFER AND STATISTICS AND EXPECTED TIMETABLE Not applicable. ITEM 3. KEY INFORMATION A. SELECTED FINANCIAL DATA The summary consolidated financial information set forth below should be read in conjunction with, and is qualified in its entirety by reference to, the Consolidated Financial Statements, as of and for the years ended April 30, 2001 and 2000, together with the notes thereto, which appear elsewhere in this annual report. The Consolidated Financial Statements as of and for the years ended April 30, 2001 and 2000 have been audited by Manning Elliott. The Consolidated Financial Statements are prepared in accordance with Canadian GAAP. See Note 12 of the Notes to Consolidated Financial Statements for a reconciliation to U.S. GAAP. The selected financial data set forth in the following table is expressed in Canadian dollars. Since June 1, 1970, the Government of Canada has permitted a floating exchange rate to determine the value of the Canadian dollar as compared to the United States dollar. At April 30, 2001, US$1.00 was equal to approximately C$1.5360. The exchange rates for the past five fiscal years ended April 30, are presented in the introduction to this registration statement. The following represents our selected financial data for each of the past five fiscal years, ending on April 30. The data presented is prepared in accordance with generally accepted accounting principles in the United States and expressed in Canadian dollars:
Fiscal Years Ended April 30 2001 2000 1999 1998 1997 ----------- ---------- ----------- ---------- ----------- Net sales or operating revenues - - - - - Income (loss) from operations (1,631,759) 148,090 (929,866) 306,701 (637,934) Income (loss) from continuing operations (1,631,759) 148,090 (929,866) 306,701 (637,934) Net income (loss) (1,631,759) 148,090 (929,866) 306,701 (637,934) Net income (loss) from operations per (0.10) 0.01 (0.06) .02 (0.04) share Income (loss) from continuing operations (0.10) 0.01 (0.06 .02 (0.04) per share Total assets 262,443 910,337 890,170 924,052 348,417 Net assets (1,085,587) 266,873 95,965 331,427 (325,174) Capital stock (excluding long term debt 10,392,920 10,142,920 10,142,920 9,448,516 9,098,616 and redeemable preferred stock) Number of shares as adjusted to reflect 16,578,371 16,078,371 16,078,371 14,999,782 14,393,782 changes in capital Dividends per share - - - - - Diluted net income per share - - - - -
-6- Reference is made to "Item 4. Information on the Company" and "Item 5. "Operating and Financial Review and Prospects" for a description of the initiation and progression of our activities since incorporation. B. CAPITALIZATION AND INDEBTEDNESS Not applicable. C. REASON FOR THE OFFER AND USE OF PROCEEDS Not applicable. D. RISK FACTORS The occurrence of any of the following risks could hurt our business, financial condition or results of operations. In such case, the trading price of our shares could decline and you could lose all or part of your investment You should carefully consider the following risks and the other information in this Report and our other filings with the SEC before you decide to invest in us or to maintain or increase your investment. The risks and uncertainties described below are not the only ones facing us. Additional risks and uncertainties not now known to us or that we think are immaterial may also adversely impact and impair our business. If any of the following risks actually occur, our business, results of operations, or financial condition would likely suffer. In such case, the trading price of our common stock could decline, and you may lose all or part of your investment. Development Stage Enterprise. We are a development stage enterprise and is subject to all of the attendant business risks associated with a development stage enterprise, including constraints on financial and personnel resources, lack of established credit facilities, and uncertainties regarding product development and future revenues. We will continue to be subject to all the risks attendant to a development stage enterprise for the foreseeable future, including competition, complications and setbacks in the development program, and the need for additional capital. We have reported losses in each year since its inception. At April 30, 2001, we had an accumulated deficit of ($11,530,624) in accordance with U.S. GAAP. Our history consists almost entirely of development of its products funded entirely from the sale of our Common Stock in the absence of revenues. We anticipate that it will continue to incur substantial additional operating losses for at least the next 12 months and expects cumulative losses to increase as our development efforts expand. Although we anticipate receiving future revenues from the sales of engines or the licensing of our technology or pursuant to a joint venture, we have received minimal revenues in preparation for licensing or joint venture activities, and there are no assurances that significant revenues will be derived from this activity in the future. We have received no revenues from sales of any of the products under development. There can be no assurance as to when or if we will be able to develop significant sources of revenue or whether our operations will become profitable, even if we are able to commercialize any product. See "Operating and Financial Review and Prospects," and Notes to Financial Statements. Ability to develop product. We have no assurance at this time that a commercially feasible design will ever be perfected, or if it is, that it will become profitable. Our profitability and survival will depend upon our ability -7- to develop a technically and commercially feasible product which will be accepted by end users. The RC/DC Engine which we are developing must be technologically superior or at least equal to other engines that competitors offer and must have a competitive price/performance ratio to adequately penetrate its potential markets. If we are not able to achieve this condition or if we do not remain technologically competitive, we may be unprofitable and our investors could lose their entire investment. There can be no assurance that we or potential licensees will be able to achieve and maintain end user acceptance of our engine. Additional Financing will be Required. Our expectations as to the amount of funds needed for development and the timing of the need for these funds is based on our current operating plan, which can change as a result of many factors, and we could require additional funding sooner than anticipated. Our cash needs may vary materially from those now planned because of results of development or changes in the focus and direction of our development program, competitive and technological advances, results of laboratory and field testing, requirements of regulatory agencies and other factors. We have no credit facility or other committed sources of capital. To the extent capital resources are insufficient to meet future capital requirements, we will have to raise additional funds to continue our development and operations. There can be no assurance that such funds will be available on favorable terms, or at all. To the extent that additional capital is raised through the sale of equity or convertible debt securities, the issuance of such securities could result in dilution to our shareholders. If adequate funds are not available, we may be required to curtail operations significantly or to obtain funds on unattractive terms. Our inability to raise capital would have a material adverse effect on us. Significant Losses for the Foreseeable Future. We expect to incur significant losses for the foreseeable future and cannot be certain when or if we will achieve profitability. Failure to become and remain profitable will adversely affect the value of our Common Shares and our ability to raise capital and continue operations. Product/Market Acceptance. Our profitability and survival will depend upon our ability to develop a technically and commercially feasible product which will be accepted by end users. The RC/DC Engine and the AVFCS which we are developing must be technologically superior or at least equal to other engines which our competitors offer and must have a competitive price/performance ratio to adequately penetrate our potential markets. A number of rotary engines have been designed over the past 70 years but only one, the Wankel, has been able to achieve mechanical practicality and any significant market acceptance. If we are not able to achieve this condition or if we do not remain technologically competitive, we may be unprofitable and our investors could lose their entire investment. There can be no assurance that we or our potential licensees will be able to achieve and maintain end user acceptance of our engine or the AFVCS. No Formal Market Survey. We have not conducted a formal market survey but statistics available on the aircraft, marine and industrial markets alone indicate an annual market potential of more than one hundred million dollars. Lack Of Experience To Manufacture Or Market Product. Assuming we are successful in developing the Rand Cam products, we presently have no proven ability either to manufacture or market the engine. There is no assurance that we will be able to profitably manufacture and market engines. -8- Going Concern Disclosure In Independent Auditor's Report. The report of our independent auditors with respect to our financial statements included in this Form 20-F includes a "going concern" qualification, indicating that ourb losses and deficits in working capital and shareholders' equity raise substantial doubt about our ability to continue as a going concern. See " Operating and Financial Review and Prospects" and Notes to Financial Statements. Our Dependence on Skilled Personnel. We are dependent on certain members of our management and engineering staff, the loss of services of one or more of whom could adversely affect our business. In particular, we depend on the abilities and continued participation of Pat Badgley and other key personnel who have been instrumental in bringing the Rand Cam engine to its present state of development. The loss of any of these key individuals could hamper the successful development of the engine. Our present officers and directors have other full-time positions or part-time employment unrelated to our business. Some officers and directors will be available to participate in management decisions on a part-time or as-needed basis only. Our management may devote time to other companies or projects which may compete directly or indirectly with us. We do not have "key man" life insurance on such officers and currently have no plans to obtain such insurance. See "Management". Our success also depends on our ability to attract and retain additional skilled employees. Dependence on Consultants and Outside Manufacturing Facilities. Since our present plans do not provide for a significant technical staff or the establishment of manufacturing facilities, we will be primarily dependent on others to perform these functions and to pro-vide the requisite expertise and quality control. There is no assurance that such persons or institutions will be available when needed at affordable prices. It will likely cost more to have independent companies do research and manufacturing than for us to handle these re-sources. Control by Current Insiders. 3,414,105 common shares, not including currently exercisable options or warrants, are owned by current insiders representing control of approximately 20.6% of the total voting power. Accordingly, the present insiders will likely continue to elect all of our directors and generally control our affairs. Protection of Intellectual Property. Our business depends on the protection of our intellectual property and may suffer if we are unable to adequately protect our intellectual property. The success of our business depends on our ability to patent our engine. Currently, we have been granted several U.S. Patents. We cannot provide assurance that our patents will not be invalidated, circumvented or challenged, that the rights granted under the patents will give us competitive advantages or that our patent applications will be granted. Product Errors. Engines such as the ones proposed by us and our related planned applications may contain errors or defects, especially when first introduced, or when new versions are released. Our products may not be free from errors after commercial release has occurred. Any errors that are discovered after such commercial release could result in loss of revenue or delay in market acceptance, diversion of development resources, damage to our reputation, increased service and warranty costs and liability claims. Any defects in these products could adversely affect the operation of and market for our products, reduce revenue, increase costs and damage our reputation. 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. These companies possess greater -9- technical resources and market recognition than us, and have management, financial and other resources not yet available to us. Existing engines are likely to be perceived by many customers as superior or more reliable than any new product until it has been in the marketplace for a period of time. There is no assurance that we will be able to compete effectively with these companies. Market prices for our products may decline in the future. We anticipate that market prices for our main products may decline in the future due to increased competition. We expect significant competition among local and international companies, including from new entrants, may continue to drive equipment prices lower. We also expect that there may be increases in promotional spending by companies in our industry which would also contribute to increasing movement of customers between competitors. Such increased competition and the resulting decline of market prices for our products would have a material adverse effect on our business, financial condition and results of operations. Rapid technological change. New technology or refinement of existing technology could render our Rand Cam products less attractive or obsolete. Our success depends in part upon its ability to anticipate changes in technology and industry standards and to successfully develop and introduce new and improved engines on a timely basis. There is no assurance that we will be able to do so. Timing of new product introductions and lack of market acceptance for our new products. Our future success may be dependent on the success of our products and services. The success of our business depends on a variety of factors, including: - the quality and reliability of our products and services; - our ability to develop new products and services superior to that of our competitors; - our ability to establish licensing relationships and other strategic alliances; - our pricing policies and the pricing policies of our competitors; - our ability to introduce new products and services before our competitors; - our ability to successfully advertise our products and services; and - general economic trends. Volatility of The Over-the-Counter Bulletin Board ("OTC BB") or the Canadian Venture Exchange ("CDNX") may adversely affect the price of the Common Stock. Certain stocks listed on the OTC BB and/or the CDNX have recently experienced significant price and volume fluctuations and decreases which have adversely affected the market price of our and other stocks listed on the OTC BB and/or the CDNX without any regard to the underlying fundamentals of such stocks. These broad market fluctuations, which may occur in the future, as well as issues more specifically related to our business activities or prospects, our financial performance, intellectual property, may continue to adversely affect the market price of the Common Stock. Product liability. Product liability claims asserted against us in the future could hurt our business. If a customer suffers damage from our products, the customer could sue us on product liability or related grounds, claim damages for data loss or make other claims. We currently do not carry product liability insurance. While we have not been sued on product liability grounds to date, a successful product liability or related claim brought against us could harm our business. -10- We do not expect to pay cash dividends. We intend to retain any future earnings to finance our business and operations and any future growth. Therefore, we do not anticipate paying any cash dividends in the foreseeable future. Potential lack of attractive investment targets. Continued volatility of stock prices on the OTC BB and the CDNX may have a material adverse effect on our ability to raise capital on the OTC BB or the CDNX or by private investment, and the price of our common stock could fluctuate substantially. Other Factors. Our areas of business may be affected from time to time by such matters as changes in general economic conditions, changes in laws and regulations, taxes, tax laws, prices and costs, and other factors of a general nature which may have an adverse effect on our business. Conflict of Interest. Some of our current officers and directors have other unrelated full-time positions or part-time employment. Some officers and directors will be available to participate in management decisions on a part-time or as-needed basis only. Our management may devote its time to other companies or projects which may compete directly or indirectly with us. ITEM 4. INFORMATION ON THE COMPANY A. HISTORY AND DEVELOPMENT We were originally incorporated on October 6, 1982 as Reg Resources Corp. under a perpetual charter pursuant to the British Columbia Company Act by registration of our Memorandum and Articles. On February 23, 1993 we changed our name to Reg Technologies Inc. in order to better reflect our main area of business development. We did not consolidate our shares at the time our name was changed. Its authorized capital consists of 45,000,000 shares consisting of 30,000,000 common shares without par value, 10,000,000 preferred shares with a par value of $1.00 per share and 5,000,000 class "A" non-voting shares without par value. Of the 30,000,000 common shares without par value, 16,578,371 shares were issued and outstanding as of April 30, 2001 and the same number of shares were issued and outstanding as of the date of this Form 20-F. There are no Preferred or Class "A" Shares currently outstanding. All the Issuer's outstanding shares are Common Shares. They are not subject to any future call or assessment and they all have equal voting rights. There are no special rights or restrictions of any nature attached to any of the shares and they all rank equally, as to all benefits that might accrue to the holder thereof. Our head office is located at #185 -10751 Shellbridge Way, Richmond, B.C., V6X 2W8, Canada, Our telephone number is 604-278-5996 and our fax number is 604-278-3409. We made our initial public offering of 500,000 Common Shares in July 1983 at a price of $0.50 per share to residents of British Columbia. Following the completion of that offering, our shares were listed on the Vancouver Stock Exchange (which is now the Canadian Venture Exchange). We were initially involved in the mineral development and oil and gas business. The mineral development business produced no revenues from operations and the oil and gas business produced only limited revenues. -11- On May 23, 1986 we entered an agreement which was amended October 20, 1986 ("Initial Agreements") among ourself, Rand Cam-Engine Corp (a private company owned by James L. McCann, the inventor of the Rand Cam Engine) and James L. McCann. Under this agreement we acquired a 40% interest in a company to be formed, by paying $50,000 and agreeing to expend $200,000 on research and development pertaining to the Rand Cam Engine, which utilizes a new type of design for a rotary internal combustion engine. The company to be formed referred to above was incorporated in November 1989, by registration of its Memorandum and Articles pursuant to the British Columbia Company Act as Rand Energy Group Inc. (REGI), which company would hold all the rights, agreements and patents to the Rand Cam Engine. We acquired 1,200,000 of the issued and outstanding shares of REGI while Rand Cam-Engine Corp. acquired 1,800,000 of the issued and outstanding shares. The Initial Agreements were superseded by an "Energy Group Acquisition Agreement" dated March 28, 1990 and a "Share Purchase Agreement" dated March 28, 1990 whereby James L. McCann and Rand Cam- Engine Corp. agreed to transfer all rights, title and interest in and to the Rand Cam Engine to REGI for 1,800,000 common shares of REGI in consideration for certain covenants and warranties along with the $250,000 expended in accordance with the Initial Agreements. We were allotted 1,200,000 common shares of REGI. These agreements resulted in us owning 40% of the issued and outstanding shares of Rand Technologies Inc., with the balance of 60% being owned by Rand Cam-Engine Corp. Pursuant to an amalgamation agreement between the shareholders of Rand Technologies Inc. and REGI, the two companies were amalgamated effective July 31, 1993. The amalgamated company is called Rand Energy Group Inc. and retains the same ownership structure. Under an agreement dated April 27, 1993, between ourself, REGI, Rand Cam-Engine Corporation and James L. McCann (the "Agreement"), Rand Cam-Engine Corporation agreed to sell to us 330,000 shares of REGI, representing a further 11% interest in REGI. In consideration for a controlling interest in REGI, we agreed to pay Rand Cam-Engine Corporation $50,000, issue 600,000 shares of our Common Stock (the "Purchase Price") and grant a participating royalty to a maximum amount of $10,000,000, ("Participating Royalty"). On July 14, commencing in 1995 and for each consecutive year thereafter, the Participating Royalty is to be paid in the form of instalments by us. A minimum of $50,000 per year must be paid by us to the Rand Cam-Engine Corporation. As part of the minimum payment, we are to pay to Rand Cam-Engine Corporation, 5% of any after-tax net profits receive by us from REGI. Pursuant to the Agreement, we were and are to distribute the 600,000 Common Shares to Rand Cam-Engine Corporation as follows: (a) 100,000 shares upon receiving regulatory approval; (b) a further 100,000 shares within five days of receiving written approval of the then Vancouver Stock Exchange following the successful testing of the Alpha version of the Rand Cam/Direct Charge Engine, and an independent engineer's report recommending further expenditures be made. Regulatory approval was received on April 11, 1995 and the shares were issued April 20, 1995 at $1.69 per share; (c) a further 150,000 shares within five days after the latter of: receipt of written approval of the Vancouver Stock Exchange of an independent assessment report confirming that the Beta version of the RC/DC Engine has commercial or military applications; July 17, 1993; or the date the shares issued in (b) above; -12- (d) a final 250,000 shares within five days after written approval from the Vancouver Stock Exchange following the latter of: the signing of a contract to build and sell the RC/DC Engine or the execution of a License Agreement with an independent company; July 17, 1994; or the date the shares are issued in (c) above. Under the terms of the Agreement, if any of the 600,000 shares to be issued as set out above remain unissued after ten years from the date of the Agreement, these shares will not be issued and we shall be relieved of any further obligations in respect to the issuance of these shares. Pursuant to an agreement with Brian Cherry ("Cherry Agreement") dated July 30, 1992 , REGI was assigned all rights, title and interest in the Direct Charge Rotary Engine for all countries excluding the United States of America. Also under the Cherry Agreement, Sky Technologies Inc. (now called REGI U.S., Inc.) was assigned from Brian Cherry all right, title and interest in and to the Rand Cam/Direct Charge Rotary Engine for the United States. REGI U.S., INC. REGI U.S., Inc. ("REGI U.S.") is a 52.5% owned U.S. subsidiary of Rand Energy Group Inc. which is in turn controlled through 51% ownership by us. REGI U.S. was organized under the laws of the State of Oregon on July 27, 1992 as Sky Technologies, Inc. with its name changed on August 1, 1994. It has a total authorized capital of 20,000,000 common shares. As of April 30, 2001, a total of 10,221,735 shares are issued of which 5,257,900 are owned by Rand Energy Group Inc. In 1993 Sky completed an offering of 500,000 units consisting of one share of the Common Stock with no par value and one Warrant to purchase one share of Sky. Each Warrant entitled the holder to purchase one share of Sky at $1.25 until August 24, 1994 and then at a price of $1.50 during the following 12 month period, or extension thereof. Pursuant to an agreement dated July 30, 1992 and amendments thereto between Brian Cherry, Sky and ourself (the "Cherry Agreement"), we acquired and then assigned to Sky the U.S. technology rights to the Rand Cam/Direct Charge Rotary Engine (the "Rand Cam/Direct Charge Rotary Engine") from Brian Cherry. REGI will retain a 5% interest in the net profits from the United States rights. In consideration, Mr. Cherry received, subject to regulatory approval, 100,000 shares of the Company, and a 1% net profits interest in REGI U.S. Brian Cherry purchased 300,000 shares of Sky/REGI at US $0.01. Our stock currently trades on the OTC BB under the symbol REGRF and on the Canadian Venture Exchange as RRE.V. B. BUSINESS OVERVIEW Nature of the Company's Operations -------------------------------------- We are engaged in the business of developing and building an improved axial vane-type rotary engine known as the Rand CamTM Direct Charge ("RC/DC") Engine, which is a variation of the Original Engine. The Original Engine is an axial vane rotary engine, the worldwide marketing rights to which are held by RAND. A United States patent was issued for the RC/DC Engine on July 4, 1995, and assigned to us. Since no marketable product has yet been developed, we have not received any revenues from operations. -13- The RC/DC Engine is based upon the Original Engine patented in 1983. Brian Cherry, a former officer and director of the Company, has done additional development work on the Original Engine which resulted in significant changes and improvements for which the U.S. patent has been issued and assigned to us. We believe the RC/DC Engine offers important simplification from the basic Original Engine, which will make it easier to manufacture and will also allow it to operate more efficiently. Based upon testing work performed by independent organizations on prototype models, we believe that the RC/DC Engine holds significant potential in a number of other applications ranging from small stationary equipment to automobiles and aircraft. In additional to its potential use as an internal combustion engine, the RC/DC Engine design is being employed in the development of several types of compressors, pumps, expanders and other applications. To date, several prototypes of the RC/DC Engine have been tested and additional development and testing work is continuing. We believe that such development and testing will continue until a commercially feasible design is perfected. There is no assurance at this time, however, that such a commercially feasible design will ever be perfected, or if it is, that it will become profitable. If a commercially feasible design is perfected, we do, however, expect to derive revenues from licensing the Technology relating to the RC/DC Engine regardless of whether actual commercial production is ever achieved. There is no assurance at this time, however, that revenues will ever be received from licensing the Technology even if it does prove to be commercially feasible. We believe that a large market would exist for a practical rotary engine which could be produced at a competitive price and which could provide a good combination of fuel efficiency, power density and exhaust emissions. Based on the market potential, we believe the RC\DC Engine is well suited for application to internal combustion engines, pumps, compressors and expansion engines. The mechanism can be scaled to match virtually any size requirement. This flexibility opens the door to large markets being developed. We are currently testing prototypes for these products including air pumps for fuel cell applications and air conditioning compressors. Our strategy is to develop engines and compressors for low to medium horsepower applications, then apply the Technology to larger applications. We plan to license the Technology or enter into joint venture arrangements for other specific applications. The licensee or joint venture partners will then provide funding for research and development of the specific applications. Products -------- Rand Cam Technology The Rand Cam Engine incorporates an innovative mechanical approach offering certain advantages over the standard internal combustion engine. The standard reciprocating engine used in automobiles has a relatively small mechanical efficiency and fuel efficiency. One reason for this is the short stroke of the engine. The limited amount of time possible for the power-stroke leads to incomplete combustion. The inefficiency increases with the engine's speed because the time for combustion is correspondingly reduced. Since both exhaust and intake valves are open at the same time in the standard reciprocating engine, a portion of the air/fuel mixture is exhausted unburned. A large number of rotary engines have been designed or built in an attempt to overcome such problems with the piston engine. Many of these designs have inherent problems -14- that have impeded their development or widespread acceptance. The Wankel engine, the only mass produced rotary internal combustion engine has suffered from rotor sealing problems in the past as well as fuel consumption levels higher than that of a piston engine of similar performance. The Rand Cam Engine design attempts to overcome the inefficiencies of the standard reciprocating engine and is comprised of a rotor and a vane extending through the rotor and which can slide in a transverse direction while rotating with it. The vane has opposite ends extendable beyond the rotor. There is a stator with a hollow, cylindrical interior. The rotor is able to rotate within the interior of the stator. The stator has opposite side walls with circumferentially extending recesses in it. The recesses are shaped to receive the ends of the sliding vane in sealing contact. The recesses of the opposite walls are staggered, causing transverse reciprocation of the vane as the rotor is rotated. Air is compressed within the recesses and exhaust gases are purged from the recess ahead of the vane in the rotational direction of the vane. Air is taken into the recesses behind the vane in a direction opposite the direction of rotation and the air/fuel mixture is ignited within the recesses behind the vane to propel the rotor in the rotation direction. The basic design of the Rand Cam overcomes many of the problems associated with conventional piston engines and many other rotary engines. For example, the bore/stroke ratio is large, which increases the fuel burning time and the amount of power such fuel can produce. Valve overlap is completely eliminated and all of the exhaust gases are vented. Ignition starts after the power stroke begins, so that expanded gases produce work energy instead of heat. The mean effective pressure is substantially increased over that of a piston engine. Moreover, a large crank arm can be provided, increasing the efficiency of the engine. The Rand Cam/Direct Charge Engine is based on the Rand Cam Engine but incorporates a number of significant improvements over the basic Rand Cam Engine. The Rand Cam/Direct Charge Engine offers a number of unique features and competitive advantages. The engine is naturally balanced, with no reciprocating parts and therefore needs no heavy counter-weights or large drive shaft bearings. The engine is mechanically simple with only the vanes and rotor as moving parts. Since there are no secondary forces present, the engine produces a very small level of vibrations. The engine is smaller and more compact than the standard reciprocating engine. Development is aimed at an engine with 1/6 the weight of the existing piston engine. In the Wankel Rotary Engine, there is only one power impulse per shaft revolution. In the four stroke reciprocating engine there is one power impulse for two crank revolutions. The Rand Cam/Direct Charge Engine provides multiple power impulses per revolution of the rotor. The current prototype has twenty-four power impulses per revolution. The design of the Rand Cam Engine is such that it can be operated as a compressor where power is supplied by an outside source and the engine mechanism compresses a working fluid (air or a refrigerant) to produce a desired effect, and also as a pump. Rand Cam Cold Turbine Engine On March 13, 2001, we announced that analysis has been completed on a RAND CAM COLD TURBINE ENGINE to generate 1000 horsepower at 1800 rpm for the electrical power generation market. Preliminary drawings of this engine have been completed. A presentation has been prepared to visually demonstrate the technology so that we can generate interest and obtain funding to build and test this new engine. A dry run of the presentation was presented to a representative of one of the largest engine manufacturers in North America and the representative is assisting in setting up a presentation for its top -15- management. Two additional presentations have been made to the management of this engine manufacturing company and the product is being reviewed by its engineering department. This presentation will be "taken on the road" and shown to additional major engine manufacturers and end users such as utility companies to solicit interest. Summarizing the presentation, the RAND CAM COLD TURBINE ENGINE compared to the best available MICROTURBINE ENGINE, has 32 percent better efficiency and generates 91 percent more power from the same airflow while retaining all of the emissions advantages of the MICROTURBINE ENGINE. An analysis has been completed to show the potential of the RAND CAM COLD TURBINE ENGINE in aircraft application at the 400 horsepower output level so that we can work with several groups that have expressed interest in the Rand Cam Engine at this rating for aircraft and marine markets. Gasoline and Diesel Engine Two prototype engines were built in 1993 and 1994 by the WVURC to run on gasoline. Testing on these prototypes suggested that the concept is fundamentally sound and that with a program of engine review, design, testing and development, a technically successful range of engines can be developed. The current prototype design for the diesel engine was designed by a consortium made up of Alliant Techsystems (formerly Hercules Aerospace Company) ("Alliant"), WVURC and us. Alliant was involved in the design and development including drawings for the RC/DC diesel engine. In addition Alliant performed extensive analysis on the diesel engine including bearings, cooling, leakage, rotor, vanes, housing, vane tip heating, geometry and combustion. This engine was designed as a general purpose power plant for military and commercial applications. A prototype of the diesel engine has been assembled and tested. By News Release dated June 21, 1999 we announced that The Rand Cam (TM) rotary diesel aircraft project (1998 NASA SBIR Phase I contract) was completed and the final report was delivered to NASA on schedule. Patrick Badgley, our Vice President and the senior engineer for the Rand Cam (TM) diesel aircraft project, reported that under his direction, the 125 horsepower diesel engine successfully completed a short test run on diesel fuel ignited by compression ignition. Mr. Badgley was directly involved with Global Aircraft in Starkville, Mississippi in training its personnel on the assembly and testing of the engine and he also assisted in the design of several important modifications. Also on June 21, 1999, we announced that the 250 horsepower engine design for aircraft operation was completed using our new "winged rotor" concept that greatly enhanced internal sealing and eliminates numerous separate components. The proposal for a Phase II program for $600,000 to design, fabricate and test a 250 horsepower Rand Cam (TM) engine was completed and submitted to NASA for their approval for funding. The approval for funding was subsequently unsuccessful. Motor Scooter Project The motor scooter project was successfully tested by Paul LaMarche, our engineer in Detroit, Michigan. Additional testing this year is proposed to prove the concept to potential interested customers. The RC\DC Scooter Engine was successfully test fired on the new ignition system which was designed by our engineering team. The system fired in all chambers on both sides. The positive aspect of this test is that the ignition system is capable of operating at the demanding rate of the sixteen combustions per revolution versus the eight combustions for two revolutions on the existing piston engine used today. -16- The RC\DC Scooter engine will be a light weight, smooth and quiet running motor and very inexpensive to maintain and manufacture. Also, the RC\DC Scooter Engine prototype required equipment has been fabricated and acquired. The RC\DC Scooter Engine will weigh approximately 15-20 pounds and generate 20 HP. We have received inquiries from manufacturers regarding the possibility of including the Motor Scooter Engine in lightweight and inexpensive vehicles. There is no assurance, however, that we will enter into an agreement with anyone to manufacture the Motor Scooter engine. Compressor We contracted Coltec, Inc., a Columbus, Indiana engineering firm, to fabricate the Rand Cam (TM) air conditioning compressor for buses. The testing is to be conducted by Trans/Air Manufacturing Corporation, one of the largest manufacturers of air conditioning units for buses, which has agreed to jointly develop and manufacture the working model compressor. The prototype compressor was delivered to Trans/Air in January 2001 and is presently awaiting testing in a bus. A special 3.2 SCFM air compressor has been designed for a large fuel cell customer. The customer has reviewed the design and his comments including type of drive motor, inlet and outlet piping arrangements and mounting considerations were incorporated and final drawings were prepared. This compressor is of virtually all plastic construction. On June 28, 2001 we announced that the air pump for the fuel cell had been assembled and testing had commenced. The air pump was designed for the 1 KW fuel cell and is to be further tested by a potential customer at its facilities. Reg Technologies, Inc. also has agreed to build a Rand Cam compressor for several applications in the air, hydrogen and natural gas compressor requirements for fuel cell applications. Air Pump On September 21, 2000 we announced that Paul LaMarche, a director and Vice President of Engineering, completed a series of feasibility tests on the Rand Cam air pump for the Lumbar seat application in automobiles. The Rand Cam air pump was tested without lubrication and filled the lumbar chamber in less than four (4) seconds, which is less than required by the specifications, at only 6,600 rpm. Additional prototype air pumps are required for a potential customer. On January 11, 2001, we announced that American Components, a division of EPI, on the Rand Cam Air Pump, completed successful test results for the Lumbar sear application. The Pumps were installed on the American Component test stand and checked for continuous air pressure and volumetric outputs in comparison to the Mexican-built air pumps used for the Lumbar seat support systems. These tests delivered air pressure of 3.5 PSI and air volumes of 13.2 Cu. Ft. per minute, which exceeded the required specifications. The licensing negotiations with Moldrite are still ongoing. As at the date of this 10-KSB, as soon as we can provide Moldrite with a further prototype, they will perform an economic cost analysis to determine the cost of production. Oil Pump Project -17- The major advantages of the Rand Cam design are the small size, ability to have multiple pressures in one pump and being able to turn off one half of the pump when a predetermined RPM has been achieved to save on fuel consumption. Hydraulic Pump A special 2.5 GPM pump has been designed and fabricated for use in a hydrostatic transmission for the lawn and garden market. The pump includes an integrated 12 Volt drive motor. This pump incorporates the same new technologies used in the air conditioning compressor including the winged rotor and multi-piece vanes. The pump is designed for very low cost and is of all plastic construction. Production pricing has been obtained and we are very competitive according to our customer. This specific application for which this pump was designed has been temporarily put on hold. Residential Cold Turbine Generator On July 12, 2001, we announced that Patrick Badgley, a director and Vice President, has completed a proposal to build a residential Cold Turbine Rand Cam(TM) generator. The self-contained residential power plant will be capable of providing 100% of the power needs of a modern luxury residence and would run on natural gas, propane or diesel fuel. The 25kW Rand Cam(TM) power plant would run at 3600 rpm, be extremely quiet, only 18 inches in overall diameter and would weigh 110 lbs. We are currently seeking a potential joint venture partner to finance this project Hydrogen Separator We purchased the rights to the H2O Hydrogen Separator Technology consisting of a hydrogen separator based, which is a unique system for extracting hydrogen from water. We own a 50% interest in the U.S. rights and Reg Technologies, Inc. owns 50% of the worldwide rights excluding the U.S. rights to the Hydrogen Separator Technology which is owned by REGI U.S., Inc. In consideration for a 50% interest for the rights to the Hydrogen Separator Technology Reg Technologies, Inc. ("Reg") agrees that we shall apply for a patent in the U.S. for the Hydrogen Separator Technology at Reg's expense; and Reg agrees to build a prototype of the Hydrogen Separator Technology as designed by GHM, Inc. We also have an option to purchase an additional 50% interest in the Hydrogen Separator Technology for US$15,000,000 for a combination of cash and shares and will assign a 5% net revenue interest to GHM, Inc. Reg has commenced construction of a prototype and will conduct a preliminary in-house test to confirm that the Hydrogen Separator Technology can economically convert water into hydrogen and oxygen. Progress Report from May 1, 2000 to April 30, 2001 A series of feasibility tests by Paul LaMarche on the Rand Cam air pump for the Lumbar seat application in automobiles was completed and announced in September, 2000. The Rand Cam air pump was tested without lubrication and filled the lumbar chamber in less than four (4) seconds which is less than required by the specifications at only 6,600 rpm. Production costs and manufacturing techniques -18- are now underway and complete tests for the air pump are to be certified with an independent testing lab on behalf of a designated licensee initiating certification for a series of pre committed automotive customers for the lumbar seat actuators. The Rand Cam Canadian Patent No. 2,208,873 has been issued. The term of this patent is for 20 years from the date of application on December 12, 1995 (see Item 1. "Patents, Trademarks, Licenses, Franchises, Concessions, Royalty Agreements, Labor Contracts, Including Duration"). We entered into a 5-year license agreement with Coltec, Inc. wherein the Company and Coltec have jointly agreed to participate in government sponsored research and development programs utilizing our proprietary Rand Cam(TM) technology. Reg Technologies, Inc. entered into an agreement with GHM, Inc., a private company located in Maryland, to jointly purchase the rights to the H2O Hydrogen Separator Technology consisting of a hydrogen separator based on a unique system for extracting hydrogen from water. We will own a 50% interest to the technology excluding the U.S. rights and REGI U.S., Inc. will own a 50% interest in the U.S. rights to the H20 Hydrogen Separator Technology. The patent for the European Axial Vane Rotary device and sealing system have been granted on January 10th, 2001 under number 0746071. The Rand Cam(TM) technology relates to rotary devices of the axial vane type. This new Rand Cam(TM) design is vastly improved over the existing Rand Cam(TM) Engine as it eliminates the transfer problems between the rotor and stator and no spark plug is required after start-up. The design incorporates eight or more vanes resulting in sixteen power impulses per revolution versus the original Rand Cam(TM) Engine Patent that only incorporated two vanes resulting in four power impulses. We announced on April 18, 2001 that Robert Walter has been appointed Vice President of the "Generation of Hydrogen" patent application project, which was recently acquired by Reg Technologies and REGI U.S., Inc. from the inventor, Dr. George Magaha. On June 28, 2001 Reg Technologies, Inc. reported that the air pump for the fuel cell has been assembled and testing has commenced. The air pump was designed for the 1KW fuel cell and is to be further tested by a potential customer at their facilities. Reg Technologies, Inc. also has agreed to build a Rand Cam(TM) compressor for several applications in the air, hydrogen and natural gas compressor requirements for fuel cell applications The Industry ------------- We initially targeted market was the smaller engine application (under 20 horsepower) segment. This includes such applications as lawnmowers, lawn tractors, weed eaters, tillers, shredders, chainsaws, electrical generators, pumps, heatpumps and tampers. Our management believes that many of these small engine applications could benefit by the expected size, weight, reduced vibration, cost and power density advantages of the Rand Cam Rotary Engines. Possible military applications include smaller electrical generator sites, water pumps and a small diesel engine 5-10 HP for drones or remote piloted vehicles. We plan to address the electrical power generation market through solicitation of military research and development funding. -19- The use of the basic engine technology in air conditioning compressors appears to hold significant potential for mass market applications. Another application is the air pump being developed for a large fuel company which could hold the potential for significant volume sales if it proves to be a viable alternative to existing pumps currently used in fuel cell applications. Description of the Markets in Which the Company Competes ---------------------------------------------------------------- We currently face and will continue to face competition in the future from established companies engaged in the business of developing, manufacturing and marketing engines and other products. While not a highly competitive business in terms of numbers of competitors, the business of developing engines of a new design and attempting to either license or produce them is nonetheless difficult because most existing engine producers are large, well financed companies which are very concerned about maintaining their market position. Such competitors are already well established in the market and have substantially greater resources than us. Internal combustion engines are produced by automobile manufacturers, marine engine manufacturers, heavy equipment manufacturers and specialty aircraft and industrial engine manufacturers. We expect that our engine would be used mainly in industrial and marine applications. Except for the Wankel rotary engine built by Mazda of Japan, no competitor, that we are aware of, presently produces in a commercial quantity any rotary engine similar to the engines we are developing. The Wankel rotary engine is similar only in that it is a rotary engine rather than a reciprocating piston engine. Without substantially greater financial resources than is currently available to us, however, it is very possible that it may not be able to adequately compete in the engine business. One competitor, Rotary Power International, is presently producing the first production SCORE rotary (Wankel type) engines. Our RC\DC Engine is more fuel efficient, smaller, quieter, costs less to produce and will have fewer exhaust emissions. We believe that if and when our engine is completely developed, in order to be successful in meeting or overcoming competition which currently exists or may develop in the future, our engine will need to offer superior performance and/or cost advantages over existing engines used in various applications. Seasonality ----------- We believe that there is no seasonality which affects the sales of our products. Availability of Raw Materials -------------------------------- Since we are not in production and there are no plans at this time for us to enter the actual engine manufacturing business, raw materials are not of present concern. At this time, however, there does not appear to be any foreseeable problem with obtaining any materials or components, which may be required in the manufacture of its potential products. Marketing Strategy ------------------- -20- We intend to pursue the development of the RC/DC Engine and the air pump, compressor and other products by entering into licensing and/or joint venture arrangements with other larger companies, which have the financial resources to maximize the potential of the technology. At the present time no such licensing or joint venture arrangements have been concluded and there is no assurance that any will be in the foreseeable future. We have no current plans to become actively involved in either manufacturing or marketing any engine or other product which it may ultimately develop to the point of becoming a commercial product. Our current objective is to complete and test the various compressor, pump and diesel engine prototypes. Based on the successful testing, the prototypes will be used for presentation purposes to potential license and joint venture partners. We are currently making presentations to the U.S. military which could result in additional government funding if the diesel engine prototype meets with its approval. We expect revenue from license agreements with the potential end users based on the success of the design of from the compressor, pump, Cold Turbine Engine and diesel engine prototypes. Based on of successful testing of the Rand Cam prototypes, we expect to have joint venture or license agreements finalized, which would result in royalties to us. However, there is no assurance that the tests will be successful or that we will ever receive any such royalties. The following marketing activities are all currently underway: AIR CONDITIONING COMPRESSOR - An agreement with Trans Air Manufacturers has been completed to use the Rand Cam(TM) compressor in air conditioning units in bus applications. We have delivered a compressor prototype for testing. AIR PUMP - A prototype air pump for a Fuel Cell Application has been completed and will be delivered to the Fuel Cell manufacturer for testing soon. Other Fuel Cell manufacturers have expressed keen interest in our technology and we are currently developing special designs for each of these potential customers. COLD TURBINE - Four designs have been completed with ratings of 750 kW, 300 kW, 75 kW and 25 kW output. We are working to identify interested partners to assist in the development of this new product. The key to the Cold Turbine is the Compressor Design incorporating the Winged Rotor and Multi-Piece Vanes. The marketing effort for this product is equally split between the Government and private sectors. DIESEL ENGINE - Efforts are underway to obtain funding for modifications of the existing Diesel engine to incorporate the latest winged rotor technology and incorporate extensive thermal barrier coatings. Also several new aircraft engine designs have been completed for aircraft applications ranging from 1 to over 400 horsepower for interested potential customers. Negotiations for contracts with these customers are currently underway. Patents and Licenses ---------------------- Patents We have patents on the Rand Cam Engine for Canada, Mexico and the United States to protect certain aspects of the Rand Cam engine. U.S. patent 5,429,084 was granted on July 4, 1995, to James McCann, Brian Cherry, Patrick Badgley and four other individuals for various improvements incorporated in the RC/DC Engine, -21- This patent has been assigned to us. The patent to the original Rand Cam engine, U.S. Patent 4,401,070, was issued on August 30, 1983 to James McCann and the marketing rights are held by Rand Energy. The RC/DC Engine is composed basically of a disk shaped rotor with drive shaft, which turns, and the housing or stator, which remains stationary. The rotor has two or more vanes that are mounted perpendicular to the direction of rotation and slide back and forth through it. As the rotor turns, the ends of the vanes ride along the insides of the stator housing which have wave-like depressions, causing the vanes to slide back and forth. In the process of turning and sliding, combustion chambers are formed between the rotor, stator walls and vanes where the fuel/air mixture is injected, compressed, burned and exhausted. Two additional patents have been issued for improvements to the engine including: U.S. Patents 5,509,793 "Rotary Device with Slidable Vane Supports) issued April 24, 1996 and 5,551,853 "Axial Vane Rotary Device and Sealing System Therefor) issued September 3, 1996. Additional patent applications are presently in process for the Winged Rotor, Multi-Piece Vanes and Cold Turbine. Royalty Payments The August 1992 Agreement calls for us to pay RAND semi-annually a royalty of 5% of any net profits to be derived by us from revenues received as a result of its license of the Original Engine. The August 1992 Agreement also calls for us to pay Brian Cherry a royalty of 1% semi-annually any net profits derived by us from revenue received as a result of our licensing the Original Engine. Other provisions of the April 1993 Agreement call for is (a) to pay to RAND a continuing royalty of 5% of the net profits derived from the Technology by us and (b) to pay to Brian Cherry a continuing royalty of 1% of the net profits derived by us from the Technology. Pursuant to the letter of understanding dated December 13, 1993, among us, RAND, Reg Tech and WVURC, WVURC will receive 5% of all net profits from sales, licenses, royalties or income derived from the patented technology relating to the Original Engine and the RC/DC Engine. No royalties are to be paid to Alliant or Adiabatics, Inc. Pursuant to our agreement with Weston, we agreed to pay to Weston 8.5% of net sales derived from the AVFS together with a minimum annual royalty of $24,000 per year beginning October 1, 1997, payable quarterly. Competition and Alternative Technologies ------------------------------------------- We believe strong competition can be expected in the engine market with new patents being taken out on a continuous basis and that we may have a time advantage over some of the competitive products as far as niche markets which we may enter, however there is no way to accurately determine or predict whether this situation is or will continue to be true. The conventional piston type internal combustion engine is the prime competitor of the Rand Cam Engine. Due to the substantial infrastructure built up to support the standard combustion engine, substantial barriers to entry exist into this market. -22- A number of the new engine designs over the last decade have offered advantages on the thermodynamics front (e.g. more efficient use of energy through better combustion, better heat transfer, etc.). In the case of the Rand Cam Engine, its strong point it believed to be in its mechanism, not in its thermodynamics. Whether or not the engine's mechanism alone will provide the competitive edge necessary to result in a marketable and successful product is unknown at this time. Since we do not have management experience in manufacturing engines, it hopes to be able to follow the same strategy as that of other companies such as Orbital and Wankel, where it would be licensing its technology and would therefore not be directly engaged in manufacturing. An extensive manufacturing study has not been performed to date and it could turn out that the costs to manufacture are prohibitive for one or more reasons. However, the computer modelling done can be utilized to generate manufacturing drawings which could be used to obtain preliminary costing estimates. The development of our business and its ability to maintain its competitive and technical position has depended and will depend, in part, upon its ability to attract and retain qualified scientific, engineering, managerial and manufacturing personnel. Significant competition exists from engine manufacturers and engineering firms specializing in the development of internal combustion engines technology for the automotive, marine, motorcycle and small engine industry. Such competition also exists in the pump and compressor markets which may utilize the Rand Cam technology in their products. Many of these companies have substantially greater resources for research, development and manufacturing than us. It is possible that our competitors may succeed in developing technologies and products that are more effective or commercially acceptable. We believe, based on its testing of the Rand Cam engine that the engine is a superior overall engine package to the reciprocating piston engine. This assessment is made on the basis of the Rand Cam engine's potential for reduced engine weight and packaging volume, improved performance, and possibly lower manufacturing costs. Technology development is taking place on many fronts and competitors may have, unknown to us, a product or products under development which may be technologically superior to ours which may be more acceptable to the market. Competition with engines employing Rand Cam technology may also include other lean burn engines, electric motors, gas turbine engines, solar power and hybrid vehicles, and may include concepts not yet known to us. Material effects of Government --------------------------------- Our engine products including the spark ignited engine, Diesel engine and Cold Turbine engine will be subject to various exhaust emissions standards depending upon the application and the country in which it is produced and/or sold. As each product becomes ready for sale, it will be necessary to have the engine certified according to the standards in effort at that time. C. ORGANIZATIONAL STRUCTURE For a list of our significant subsidiaries, see "Item 10 - Additional Information - Subsidiary Information". -23- D. PROPERTY, PLANT AND EQUIPMENT We own no properties. We currently utilize office space leased by Reg Technologies in a commercial business park building located in Richmond, British Columbia, Canada, a suburb of Vancouver. The monthly rent for our portion of this office space is $600.00 payable to SMR Investment Ltd. The present facilities are believed to be adequate for meeting our needs for the immediate future. However we expect that we will likely acquire separate space when the level of business activity requires us to do so. We do not anticipate that we will have any difficulty in obtaining such additional space at favorable rates. There are no current plans to purchase or lease any properties in the near future. Mr. Badgley, a director and Vice President, works out of an office in his home in Columbus, Indiana. From this office, Mr. Badgley oversees and controls development and testing of the engine and other prototypes. Mr. Badgley has also used the facilities of Coltec Industries which was under contract to design and build the compressor prototype. Paul LaMarche, our engineer for the air pump is located in Detroit, Michigan, and REGI U.S., Inc. has an office and shop facilities in a machine shop to conduct tests and development work for the Rand Cam projects. ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS The following discussion should be read in conjunction with the Consolidated Financial Statements and Notes thereto included elsewhere herein. The Consolidated Financial Statements have been prepared in accordance with Canadian GAAP. See Note 12 to the consolidated financial statements for a reconciliation to U.S. GAAP. The following discussion is derived from the U.S. GAAP reconciliation. A. OPERATING RESULTS We are a development stage company engaged in the business of developing and commercially exploiting an improved axial vane type rotary engine known as the Rand Cam/Direct Charge Engine (the "RC/DC Engine"). As a development stage company, we devote most of our activities to establishing our business. Planned principal activities have not yet produced significant revenues and we have a working capital deficit. We have undergone mounting losses to date totaling $11,530,624 and further losses are expected until we complete a licensing agreement with a manufacturer and reseller. Our working capital deficit is $1,235,830. Our only assets are our tangible and intangible assets, being patents and intellectual property rights, totaling $260,878 which represents 99% of total assets. These factors raise substantial doubt about our ability to continue as a going concern. Our ability to emerge from the development stage with respect to our planned principal business activity is dependent upon our successful efforts to raise additional equity financing, receive funding from affiliates and controlling shareholders, and develop a market for our products. Fiscal 2001 compared to 2000 -------------------------------- Results of operations was a net loss of $1,632,000 ($0.10 per share) for 2001 as compared to net income of $148,000 ($0.01 per share) for 2000. No revenues from the sale or licensing of any technology were realized in 2001 or 2000. A number of license agreements have been initiated. -24- In 2000, we recognized a gain of $884,000 as a result of its subsidiary issuing shares outside the consolidated group for cash proceeds of $884,000 which resulted in a deemed disposition of 5% of our ownership in the subsidiary. In 2001 there was a gain of $2,000 on proceeds of $3,000. In 2001 we realized a gain of $81,000 from the sale of the remaining shares of LinuxWizardry Systems Inc. and received cash proceeds of $89,000 as compared to a gain of $288,000 in 2000 resulting in cash proceeds of $304,000. In 2001 a loss of $678,000 was recognized due to the write-down of the AVFS rights and development costs as compared to nil in 2000. Administrative expenses increased by $152,000 to $657,000 in 2001 from $505,000 in 2000. This increase is a result of: investor relations activities being increased by $249,000 to $402,000 in 2001 as compared to $153,000 in 2000 as result of share of REGI US, Inc. being transferred to a service provider to settle debt totaling $83,000; professional fees decreased by $42,000 to $69,000 in 2001 as compared to $117,000 in 2000; secretarial wages and benefits decreased by $39,000 to $33,000 in 2001 as compared to $72,000 in 2001 as result of redeployment of staff to other companies. We paid $12,000 in mineral property maintenance fees for 2001 and 2000. Research and development expenses remained consistent with $498,000 spent in 2001 compared to $523,000 spent in 2000. The largest components of research and development are prototype development costs of $121,000 compared to $147,000 spent in 2000 and technical consulting of $219,000 compared to $190,000. Technical consulting continued to consist of Patrick Badgley and Paul LaMarche. Fiscal 2000 compared to 1999 -------------------------------- A gain of $883,899, as adjusted for US GAAP, was recorded in the 2000 fiscal year on the issue by our subsidiary, REGI U.S., Inc. of our own shares outside of the consolidated group. This compared to a similarly adjusted lesser gain of $81,048 in 1999. The cash proceeds realized were $727,205 (156,689 received in 1999). Administrative expenses in 2000 were $505,169, down 21% from the $639,366 total in 1999. The decrease was due mainly to a lower level of business activity relating to market development work. The major components contributing to this decrease were lower investor relations expenses which dropped by 30% to $152,770 in 2000 from $216,885 in 1999, lower telephone expenses of $7,862 in 2000 compared to $28,458 in 1999, decreased secretarial wages and benefits of $71,864 in 2000 compared to $88,591 in 1999, and lower office, printing and courier expenses which dropped from $37,341 in 1999 to $24,338 in 2000. Balancing these, somewhat, were higher professional fees of $112,451 in 2000 compared to $68,317 in 1999, travel and promotion which increased to $10,885 from $1,721 in 1999 and foreign exchange costs which rose to $11,354 in 2000 from $1,889 the previous year as the Canadian dollar weakened. We were able to generate a net profit in 2000 under U.S. GAAP, which totaled $148,090, compared to the loss of $929,866 recorded in 1999. The major contributor to the turnaround was the increased gain on the issues of REGI shares described above. During the fiscal year ended April 30, 2000, we derived most of its development and operating capital primarily from the $288,115 in profits ($304,492 in proceeds) generated as a result of gains on the sale of marketable securities (compared to no such profits received in fiscal 1999. Proceeds from related -25- companies rose to $131,858 in 2000 from $1.024in the previous year, an increase of $130,834. Cash proceeds of $727,205 was received by a subsidiary issuing shares for cash. The Company did not issue any common shares during the year. -26- B. LIQUIDITY AND CAPITAL RESOURCES LIQUIDITY AND CAPITAL RESOURCES ---------------------------------- In the past, we have derived most of our development and operating capital primarily from the issuance of our capital stock and our subsidiary REGI U.S., Inc. We have also caused our 51% owned subsidiary, Rand Energy Group Inc. to sell shares it owned in REGI U.S., Inc. We have been successful in the past in acquiring capital through the issuance of shares of our Common Stock, and through advances from related parties. Although it intends to continue utilizing these sources, there has been no assurance in the past that these sources and methods would continue to be available in the future. In the event that no other sources of capital were available to us in the future, on a reasonable financial basis, it would face the same obstacles as many small, undercapitalized companies do, and, in the worst case, we could be forced to reorganize or liquidate, either of which consequence would likely have an adverse financial effect upon our shareholders. Fiscal 2001 compared to 2000 -------------------------------- During the fiscal year ended April 30, 2001, we derived most of our development and operating capital primarily from the $80,506 in profits ($89,129 in proceeds) generated as a result of gains on the sale of marketable securities (compared to $304,492 received in fiscal 2000). Proceeds from related companies rose to $489,311 in 2001 from $134,858 the previous year, an increase of $357,453. During the year, we raised a further $250,000, pursuant to a private placement of 500,000 units at $0.50 per unit. These units were issued in January, 2001.Each unit consisted of one share and one warrant to acquire one additional share at $0.60 per share if exercised in year one after receipt of funds. These funds raised do not provide enough working capital to fund ongoing operations for the next twelve months. We may also raise additional funds through the exercise of warrants and stock options, if exercised. Warrants with respect to 500,000shares at $0.60 per share may be exercised to net $300,000 and options with respect to 1,385,000 shares at prices between $0.40 and $0.52 per share may be exercised to net $618,200, if exercised. Our subsidiary issued shares and raised $110,635 in 2001 compared to nil in 2000. We redeemed convertible debentures totaling $74,000 in 2001. Our investment in research and development activities totaled $650,575 during the 2001 fiscal year, up 26% from the $523,057 spent during the 2000 fiscal year. Fiscal 2000 compared to 1999 -------------------------------- During the fiscal year ended April 30, 2000, we derived most of our development and operating capital primarily from the $288,115 in profits ($304,492 in proceeds) generated as a result of gains on the sale of marketable securities (compared to no such profits received in fiscal 1999, and the $727,205 of -27- proceeds on issuance of our subsidiary's shares, (compared to $156,692 received in fiscal 1999). Proceeds from related companies rose to $131,858 in 2000 from $1,024 the previous year, an increase of $130,834. We issued no additional common shares during the year. Our investment in research and development activities totaled $523,000 during the 2000 fiscal year, up 27% from the $411,000 spent during the 1999 fiscal year. At fiscal 2000 year-end, current assets stood at $167,157, compared to $152,704 at the end of 1999. Current liabilities decreased slightly to $569,464 from $564,633 in 1999 as the decrease in the amount of accounts payable nearly equalled the increase in amounts due to related companies. As a results of the minimal year-to-year changes in both current assets and current liabilities, the working capital deficit decreased by about 2% to a negative $402,307 in fiscal 2000 from a negative $411,929 at the end of 1999. Shareholders' equity increased to $266,872 at fiscal 2000 year-end up 178% from $95,965 in 1999 as a result of positive earnings. All figures are reported under U.S. GAAP. At fiscal 2001 year-end, current assets stood at $1,565 compared to $167,157 at the end of 2000. Current liabilities increased to $1,237,394 from $561,464 in 2000. As a result of the year-to-year changes in both current assets and current liabilities, the working capital deficit increased to $(1,235,830) in fiscal 2001 from a negative $402,307 at the end of 2000. Shareholders' equity decreased to $1,085,587 at fiscal 2001. All figures are reported under U.S. GAAP. Our cash position has decreased by $175,135 to negative $20,422 and our working capital deficit, as at April 30, 2001 is $1,235,030. C. RESEARCH AND DEVELOPMENT, PATENTS AND LICENSES, ETC. The basic research and development work on the RC/DC Engine and other products is being coordinated and funded by us and REGI U.S., Inc. and funded as to 50% each. We plan to contract with outside individuals, institutions and companies to perform most of the additional research and development work which we may require to benefit from our rights to the RC/DC Engine and other products. Development work on the air conditioning compressors completed by Coltec Industries an engineering firm in Columbus, Indiana under contract with us has been and is currently awaiting testing by Trans Air Manufacturing our potential customer for the Rand Cam Compressor for air conditioning units in buses. During the last two fiscal years, we spent $1,021,796 on research and development. D. TREND INFORMATION See "Item 4. - Information on the Company, - Part B., Business Overview" -28- ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES A. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES As of April 30, 2001, our Board of Directors consisted of four Directors, two of whom are independent (or "outside") non-executive Directors. The following table provides certain information about the members of our Board of Directors as of April 30, 2001.
Name Position with Registrant Term of Office Office Held Since ----------------- ------------------------ ----------------------- ----------------- John G. Robertson President and Director Annual Shareholders 1982 Meeting in 2001 Jennifer Lorette Secretary and Vice Annual Shareholders 2001 President of Meeting in 2001 Administration and Director Patrick Badgley Director Annual Shareholders 1993 meeting for fiscal 2001 Susanne Robertson Director Annual Shareholders 1984 meeting for fiscal 2001
Susanne Robertson, a director, is the wife of John Robertson, our President and a director. The present and principal occupations of our directors and executive officers during the last five years are set forth below: John G. Robertson, Richmond, B.C. Since October 1984, Mr. Robertson has been --------------------------------- President and a Director of our Company. He is also the Chairman of the Board, founder and a director of LinuxWizardry Systems, Inc. since its inception. Mr. Robertson has been the Chairman, President and Chief Executive Officer of REGI U.S., Inc., an Oregon corporation traded on the OTC bulletin board, since July 1992, a U.S. public company engaged in the development of a rotary engine/compressor ("Rand Cam Engine") and hydrogen separator technology. REGI U.S. is ultimately controlled by Reg Technologies Inc. Mr. Robertson has been the President and Principal Executive Officer and a Director of IAS Communications, Inc. since its formation in December 1994, a U.S. public company which is developing and marketing proprietary antenna technology. Since June 1997 Mr. Robertson has been President, Principal Executive Officer and a Director of Information Highway.com, Inc., a Florida corporation traded on the OTC bulletin board, a U.S. public company engaged in the Internet services provider business. Mr. Robertson is also the President and founder of Teryl Resources Corp., a British Columbia company trading on the Canadian Venture Exchange involved in mineral exploration. Since May 1977 Mr. Robertson has been President and a member of the Board of Directors of SMR Investments Ltd., a private British Columbia corporation engaged in management of public companies. Mr. Robertson is also the President and Director of the following private companies: JGR Petroleum, Inc., BlueCrow Internet Co. Ltd., 394754 B.C. Ltd., dba SOVO Computer Centre, Pavlik Travel Services Ltd., World Tel-Internet (Toronto) Ltd., International Diamond Syndicate Ltd., Argon Investment Corporation, and Airstream Communications, Inc. Mr. Robertson is a citizen and resident of Canada. -29- Jennifer Lorette, Richmond, B.C. - Since April 1994, Ms. Lorette has been Vice ---------------------------------- President of Administration for Reg Technologies, Inc., and recently became a director. Ms. Lorette is a director of LinuxWizardry Systems, Inc., a British Columbia company traded on the OTC BB, and has held several positions with it since June 1994, most recently as its Vice President and Secretary. Also since June 1994 Ms. Lorette, has been Vice President of REGI U.S., Inc., an Oregon corporation traded on the OTC bulletin board. REGI U.S. is ultimately controlled by Reg Technologies Inc. Since June 1997 Ms. Lorette has been Secretary/Treasurer, and a Director of Information Highway.com, Inc., a Florida corporation traded on the OTC bulletin board, and its predecessor. Ms. Lorette is a founder, and has been Secretary/Treasurer of IAS Communications, Inc. since February 1995. Ms. Lorette is a citizen and resident of Canada. Susanne M. Robertson, Richmond, B.C. Mrs. Robertson has been a director of --------------------------------------- the Company since 1984 and is also the wife of John Robertson, its president. She has been active in the management of the Company since its incorporation. She is also a director of LinuxWizardry Systems, Inc. and Teryl Resources Corp., and is the principal shareholder of SMR Investments Ltd. Mrs. Robertson is a citizen and resident of Canada. Patrick Badgley, Columbus, Indiana Mr. Badgley has been a director is the ------------------------------------- Company since 1993. Mr. Badgley was appointed Vice President, Research and Development of REGI U.S. in February 1994. He is directing and participating in the technical development of the Rand Cam compressor, gasoline engine and diesel engine. Between 1986 and 1994, Mr. Badgley was the Director of Research and Development at Adiabatics, Inc., in Columbus, Indiana, where he directly oversaw several government and privately sponsored research programs involving engines. He was the Program Manager for the Gas Research Institute project for emissions reduction of two-stoke cycle natural gas engines. He was also Program Manger for several coal fuel diesel engine programs for the Department of Energy and for uncooled engine programs for a Wankel engine for NASA and for a piston type diesel engine for the U.S. Army. Mr. Badgley's work has covered all phases of research, design, development and manufacturing, from research on ultra-high speed solenoids and fuel sprays, to new product conceptualization and production implementation of fuel pumps and fuel injectors. Mr. Badgley received his Bachelor of Science degree in Mechanical Engineering from Ohio State University. Since February 1995 Mr. Badgley has also been a director and officer of IAS Communications Inc. He is also a director of Adiabatics Inc., and Advanced Engine Concepts. Mr. Badgley is a citizen and resident of the United States. B. COMPENSATION For the fiscal year ended April 30, 2001 we and our subsidiary paid $233,373 in compensation to directors and officers as a group. Total compensation paid to all employees was $287,787 . During the year ended April 30, 2000, the aggregate cash compensation (including salaries, fees, directors' fees, commissions, bonuses paid for services rendered, and any compensation other than bonuses earned during the fiscal year, the payment of which was deferred) paid to such executive officers as a group by us and our subsidiaries for services rendered was C$12,000 and US$36,000. Under a three-year Management Agreement entered into on May 1, 1996 between us and SMR Investments Ltd. ("SMR"), and approved by the CDNX, SMR, a company owned by Susanne M. Robertson, a director of the Company and wife of John G. Robertson, receives $2,500 per month for management services provided to us. This contract is renewable annually after the initial term ended May 1, 1999. -30- $12,000 was paid to our President, John G. Robertson, as a director's fee during the past fiscal year. US$8,000 per month was paid during the year by REGI U.S. Inc., our US subsidiary, to Patrick Badgley for research and development services related to the Rand Cam Engine. Except as noted elsewhere herein, we did not pay any additional compensation to our executive officers (including personal benefits and securities or properties paid or distributed), which compensation was not offered on the same terms to all full time employees. No monies were set aside or accrued by us during the fiscal year ended April 30, 2001 to provide pension, retirement or similar benefits for our officers or directors. During the fiscal year ended April 30, 2001, we did not grant any long-term incentive plans awards to any of our executive officers, directors or employees. Additional detailed information regarding compensation is included in the Information Circular for our 2001 annual general meeting, which is included as an exhibit to this 20-F annual report and incorporated herein by reference. During the fiscal year ended April 30, 2001 stock options were granted on a total of 100,000 common shares pursuant to stock option plans. Total options currently exercisable at the date of this 20-F are 1,385,000. Of the total amount, 850,000 are exercisable at $0.40 per shares expiring October 11, 2005, and 535,000 are exercisable at $0.52 per share on April 1, 2004. Options to Purchase Registrant's Common Shares Held by Officers and Directors of -------------------------------------------------------------------------------- Registrant ---------- NAME OF OPTIONEE NUMBER OF OPTIONS EXERCISE PRICE EXPIRY DATE ---------------------- ----------------- --------------- ----------- John G. Robertson 750,000 $ 0.40 11-24-03 Jennifer Lorette 50,000 $ 0.52 04-01-04 Susanne Robertson 250,000 $ 0.52 04-01-04 Patrick Badgley 100,000 $ 0.52 04-01-04 TOTAL HELD AS A GROUP: 1,150,000 Options to Purchase Registrant's Common Shares Held by Persons Other than -------------------------------------------------------------------------------- Officers and Directors of the Registrant --------------------------------------------- NAME OF OPTIONEE NUMBER OF OPTIONS EXERCISE PRICE EXPIRY DATE ---------------- ----------------- --------------- ----------- Suzanne Foster 25,000 $ 0.40 11/10/05 Gordon Friesen 75,000 $ 0.40 11/10/05 Gordon Friesen 75,000 $ 0.52 04/04/01 Tammy Dal Santo 10,000 $ 0.52 04/04/01 Paul LaMarche 50,000 $ 0.52 04/04/01 TOTAL: 235,000 -31- Additional detailed information regarding options on our common stock is included in the Information Circular for our 2001 annual general meeting, which is included as an exhibit to this 20-F annual report and incorporated herein by reference. C. BOARD PRACTICES Under section 187 of the Company Act, R.S.B.C. 1996, c. 62, the directors of a reporting company, from among their number, must elect at their first meeting following each annual general meeting a committee, to be known as the audit committee, composed of not fewer than 3 directors, of whom a majority must not be officers or employees of the company or an affiliate of the company, to hold office until the next annual general meeting. Our Board of Directors established an Audit Committee which members consist of John Robertson, Patrick Badgley, and Susanne Robertson. It is intended that following the completion of the annual general meeting of shareholders scheduled to be held on October 29, 2001, that, providing the directors nominated are elected by the shareholder, the directors will appoint John Robertson, Patrick Badgley, and Susanne Robertson as members of the Audit Committee. Our directors are elected by the shareholders to hold office for a term of one year or until re-elected at the next annual general meeting. D. EMPLOYEES Competition for technical personnel in our industry is intense. We believe that we have been successful in recruiting qualified employees, and that our future success depends in part on our continued ability to hire, assimilate and retain qualified personnel. Our employees do not belong to any labor unions. We have not been subject to any strikes or other labor disturbances that have interfered with our operations. As of April 30, 2001, we employed two full-time contractors and four part-time employees/contractors. Many of our legal, accounting, marketing and administrative functions are contracted out to consultants. E. SHARE OWNERSHIP The following table sets forth the ownership of our common shares by our Directors and Officers as at August 31, 2001:
Number of shares issued and Shareholder outstanding Percentage ownership (1) --------------------- --------------------------- ------------------------ John G. Robertson (2) 1,880,169 11.34% Jennifer Lorette (3) 58,400 * Susanne Robertson (4) 2,525,536 15.23% Patrick Badgley nil *
-32- (1) as at August 31, 2001, there were 16,578,371 issued and outstanding common shares. (2) Includes 523,000 shares registered in the name of and beneficially owned by Access Information Services, Inc., a Washington corporation which is owned and controlled by the Robertson Family Trust, the beneficiary of which is Kelly Robertson, daughter of John G. Robertson. Mr. Robertson is one of three trustees of the Robertson Family Trust, which acts by the majority vote of the three trustees. Mr. Robertson disclaims beneficial ownership of the shares owned or controlled by the Robertson Family Trust. It also includes 750,000 stock options which are currently exercisable but not in the money. (3) Includes 50,000 stock options which are currently exercisable but not in the money. (4) SMR Investments Ltd., a company wholly-owned by Susanne Robertson, is the beneficial owner of 1,963,061 common shares representing 11.84% of our outstanding common shares. This amount also includes 250,000 stock options which are currently exercisable but not in the money. * Beneficially owns less than one percent of our common shares. For information regarding the ownership of stock options to acquire our common shares which are held by our Directors and Officers, and also by our employees, please refer to " - Stock Options Granted to Employees, Directors and Senior Managers". ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS A. Major Shareholders. To the best of our knowledge, we are not indirectly owned or controlled by any other corporation or foreign government. As of August 31, 2001 16, 578,371 Common Shares were outstanding. At such date, and to the knowledge of our directors and senior officers, the following persons beneficially own shares carrying more than 10% of the voting rights attached to all our shares: PERCENTAGE OF NO. OF COMMON SHARES OUTSTANDING NAME OF SHAREHOLDER OWNED COMMON SHARES Susanne M. Robertson (1) 2,275,536 13.73% 1) SMR Investments Ltd., a company wholly-owned by Susanne Robertson, is the beneficial owner of 1,963,061 common shares representing 11.84% of our outstanding common shares. We do not know of any arrangements which could result in a change in our control. B. Related Party Transactions. Under a three-year Management Agreement entered into on May 1, 1996 between us and SMR Investments Ltd., and approved by the Canadian Venture Exchange, SMR, a company owned by Susanne M. Robertson, one of our directors and wife of John G. Robertson, receives $2,5OO per month for management services provided to us. -33- This contract has been renewable annually after the initial term ended May 1, 1999. Accordingly, SMR incurred management fees of $30,000 in each of fiscal years 2001, 2000 and 1999, and rent of $6,000 in each of fiscal years 2001, 2000 and 1999. SMR is a private company owned by Susanne M. Robertson, one of our directors and the wife of John G. Robertson. We paid a director's fee of $12,000 to John G. Robertson, our President, during each of fiscal years 2001, 2000 and 1999. We had related party advances outstanding of $489,311 at the April 2001 year-end, compared to $131,858 at the end of our previous fiscal year. These were unsecured, non-interest bearing and with no fixed terms of repayment. During fiscal 1993, for an investment of $25,000, we acquired 100,000 shares Flame Petro-Minerals Corp., now called LinuxWizardry Systems, Inc., which currently trades on the OTC Bulletin Board. At the time it was a resource development company controlled by John G. Robertson. During the 2000 fiscal year we sold 70,200 shares for proceeds of $308,428 resulting in a monetary gain of $288,115. We sold 29,800 shares of an affiliated publicly listed company for proceeds of $89,129 resulting in a gain of $80,506. During the fiscal year ended April 30, 2001 there was no material direct or indirect interest by our directors and officers, any shareholder who beneficially owns more than 10% of our common shares, or any known associate or affiliate of these persons in any transactions or proposed transaction which has or would materially affect us. At no time during the fiscal year ended April 30, 2001 has any director, senior officer, proposed nominee for election, nor any associate of such persons been indebted to us or our subsidiaries, other than routine indebtedness. C. Interests of Experts and Counsel. Not applicable. ITEM 8. FINANCIAL INFORMATION A. Consolidated Statements and Other Financial Information See Auditor's Report and pages F-1 to F-14 following Item 19. Legal Proceedings We are not a party to any material legal proceedings. Dividend Distribution Policy We have not paid any cash dividends to date and we do not intend to pay cash dividends in the foreseeable future. -34- B. Significant Changes None. ITEM 9. THE OFFER AND LISTING Not applicable, except for Item 9A and Item 9C. Our shares have traded on the Vancouver Stock Exchange (the "VSE") and its successor, the Canadian Venture Exchange (the "CDNX") (the principal non-United States trading market) since August, 1983. In addition, there has been a U.S. market in our shares on the NQB "Pink Sheets" for the past several years and more recently, on the OTC Bulletin Board. We are not specifically aware of prices and other trading details for any shares which have or may have traded on the "Pink Sheets" or the OTC Bulletin Board. The ranges of the low and high sales prices for our shares traded on the VSE/CDNX during the last two fiscal years ended April 30 were as follows: Period High Low Close ------ ---- --- ----- 2000 ---- 1st Quarter ended 7/31/99 0.67 0.35 0.65 2nd Quarter ended 10/31/99 0.65 0.36 0.58 3rd Quarter ended 1/31/00 0.56 0.33 0.42 4th Quarter ended 4/30/00 1.40 0.37 0.55 2001 ---- 1st Quarter ended 7/31/00 0.80 0.47 0.50 2nd Quarter ended 10/31/00 0.75 0.41 0.50 3rd Quarter ended 1/31/01 0.76 0.30 0.31 4th Quarter ended 4/30/01 0.38 0.15 0.28 The following table shows the high and low closing prices of our stock traded on the Canadian Venture Exchange during the most recent six months, for each month as follows: Month High Low 2001, August $0.30 $0.17 2001, July $0.24 $0.17 2001, June $0.25 $0.17 2001, May $0.25 $0.20 2001, April $0.33 $0.23 2001, March $0.38 $0.25 ITEM 10. ADDITIONAL INFORMATION A. Share Capital Not applicable. -35- B. Memorandum and Articles of Association Our Memorandum and Articles are incorporated by reference to the information in our registration statement on Form 20-F filed with the Securities and Exchange Commission, in Washington, D.C. on June 15, 1994, to which our Articles of Incorporation and Memorandum were filed as exhibits. C. Material Contracts We did not enter into any material contracts which were not made in the ordinary course of business. D. Exchange Controls. There are no governmental laws, decrees or regulations in Canada relating to restrictions on the export of capital affecting the remittance of interest, dividends or other payments to nonresident holders of the Registrant's shares. Any such remittances, however, are subject to withholding tax. See Item 7, "Taxation". There are no limitations under the laws of Canada, the Province of British Columbia or in the charter or any other constituent documents of the Company on the right of foreigners to hold or vote our shares. However, under the provisions of the Investment Canada Act, when control of a Canadian business is acquired by a non- Canadian, the transaction may be reviewable in certain circumstances by Investment Canada, an agency of the federal government of Canada. Reviewable transactions are those in which a non-Canadian acquires the assets of a Canadian business or the voting shares of a Canadian corporation the value of which assets or shares exceeds $5 million (Canadian). Also, certain transactions are specifically exempted from review. E. Taxation. Withholding ----------- Generally, cash dividends paid by Canadian corporations to nonresident shareholders are subject to a withholding tax of 25 percent. However, pursuant to Article X[2] of the Canada-United States tax treaty, dividends paid to a resident if a company of the United States are only subject to a 15 percent withholding tax. Further, if the United states resident owns 10 percent or more of the voting shares of the Canadian company paying the dividends, the withholding tax is reduced to 10 percent. In addition to dividend withholding, interest paid to United States residents is subject to a 15 percent withholding tax pursuant to Article XI[2] of the Canada-United States tax treaty. Capital Gains -------------- A nonresident purchaser who holds our shares as capital property will not be subject to tax on capital gains realized on the disposition of such shares unless such shares are "taxable Canadian property" within the meaning of the Income Tax Act (Canada) and no relief is afforded under any applicable tax treaty. Our shares would be taxable Canadian property of a nonresident purchaser if the nonresident purchaser used the shares in carrying on a business in Canada or if at any time during the five-year period immediately preceding the disposition not less than 25 percent of the issued shares of any class of the Company belonged to the particular purchaser, persons with whom the purchaser did not deal at arm's length or any combination thereof. -36- Holders of our Common Shares should seek independent advice from their own professional tax advisors with respect to the Canadian Income Tax consequences arising from the holding of our Common Shares. F. Dividends and Paying Agents Not applicable. G. Statement by Experts. Not applicable. H. Documents on Display. We filed a registration statement on Form 20-F filed the Securities and Exchange Commission in Washington, D.C. (Registration No. 000-30084) on June 15, 1994, which became effective August 15, 1994. The Registration Statement contains exhibits and schedules. Any statement in this annual report about any of our contracts or other documents is not necessarily complete. If the contract or document is filed as an exhibit to the Registration Statement, the contract or document is deemed to modify the description contained in this annual report. You must review the exhibits themselves for a complete description of the contract or documents. You may inspect and copy our registration statements, including their exhibits and schedules, and the reports and other information we file with the Securities and Exchange Commission in accordance with the Exchange Act at the public reference facilities maintained by the Securities and Exchange Commission at Judiciary Plaza, 450 Fifth Street, Room 1024, N.W., Washington, D.C. 20549 and at the regional offices of the Securities and Exchange Commission located at Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. You may also inspect the registration statements, including their exhibits and schedules, at the office of the New York Stock Exchange, Wall Street, New York, New York 10005. Copies of such material may also be obtained from the Public Reference Section of the Securities and Exchange Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. You may obtain information regarding the Washington D.C. Public Reference Room by calling the Securities and Exchange Commission at 1-800-SEC-0330 or by contacting the Securities and Exchange Commission over the Internet at its website at http://www.sec.gov. I. Subsidiary Information. REGI U.S., Inc. ("REGI U.S.") is a 52.5% owned U.S. subsidiary of Rand Energy Group Inc. which is in turn controlled through 51% ownership by us. REGI trades its shares on the OTC BB under the symbol RGUS. Refer to Exhibit 3 outlining our subsidiary structure. ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK In June 1998, the Financial Accounting Standards Board issued SFAS No. 133. "Accounting For Derivative Instruments and Hedging Activities." This statement establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. SFAS No. 133 was effective for our fiscal year beginning May -37- 1, 2000. Because we are not involved in any activities covered by SFAS No. 133, the adoption of SFAS No. 133 is not expected to have a material effect on our financial position or results of operations. ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES Not applicable. PART II ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELIQUENCIES None. ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS. A. Material Modifications to the Rights of Security Holders None. B. Use of Proceeds. Not applicable ITEM 15. [RESERVED] ITEM 16. [RESERVED] PART III ITEM 17. FINANCIAL STATEMENTS We have elected to provide financial statements pursuant to Item 17. Reference is made to Item 19 for a list of all financial statements filed as part of this annual report. Our consolidated financial statements are stated in Canadian Dollars (CDN$) and are prepared in accordance with Canadian Generally Accepted Accounting Principles (GAAP). See Note 12 to the consolidated financial statements for a reconciliation to U.S. GAAP. The consolidated financial statements as required under Item 17 are included immediately following the text of this Report. ITEM 18. FINANCIAL STATEMENTS We have elected to provide financial statements pursuant to Item 17. -38- ITEM 19. EXHIBITS (a) The following consolidated financial statements, together with the report of Manning, Elliott, our auditor, on the annual financial statements referred to below, are filed as part of this annual report, and are included immediately following the text of this 20-F: Index to Consolidated Financial Statements Independent Auditors' Report Consolidated Balance Sheets Consolidated Statements of Loss and Deficit Consolidated Statements of Cash Flows Notes to the Consolidated Financial Statements (b) Documents filed as exhibits to this annual report: Exhibits filed herewith ------------------------- Material contracts not made in the ordinary course of business. ---------------------------------------------------------------------- Agreement made as of October 27, 2000 with GHM Inc. regarding 50% interest in the rights to the hydrogen separator technology 3 Listing of parents and subsidiaries --------------------------------------- Other Exhibits --------------- Notice of Annual General Meeting Information Circular Instrument of Proxy -39- SIGNATURE PAGE The Registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this transitional report on its behalf. REG TECHNOLOGIES, INC. ---------------------- REGISTRANT Dated: September 17, 2001 By: /s/ John G. Robertson ------------------ ---------------------------- John G. Robertson President/Director -40- EXHIBIT INDEX PAGE Exhibits filed herewith ------------------------- Material contracts not made in the ordinary course of business. ---------------------------------------------------------------------- Agreement made as of October 27, 2000 with GHM Inc. regarding 50% interest in the rights to the hydrogen separator technology . .61 3 Listing of parents and subsidiaries . . . . . . . . . . . . . . . . . 66 --------------------------------------- Other Exhibits --------------- Notice of Annual General Meeting . . . . . . . . . . . . . 67 Information Circular . . . . . . . . . . . . . . . . . . . . .69 Instrument of Proxy . . . . . . . . . . . . . . . . . . . . .77 Exhibits previously filed with the 20-F Annual Report for the fiscal ---------------------------------------------------------------------- year ended April 30,2000 - Incorporated by reference ------------------------------ 3 Listing of parents and subsidiaries ----------------------------------- Notice of Annual General Meeting Information Circular Instrument of Proxy Exhibits previously filed with the 20-F Annual Report for the fiscal ---------------------------------------------------------------------- year ended April 30, 1999 - Incorporated by reference ------------------------------ 2.1 Agreement dated August 5, 1998 between the Company and T.W. Blasingame Company, Inc. (Blasingame) regarding the licensing of certain Rand Cam/Direct Charge Engine manufacturing rights to Blasingame and licensing of certain rights to the "Vane Restraint Mechanism" by Blasingame to the Company 2.2 Cooperative and Licensing Agreement dated December 14, 1998 between the Company, REGI U.S., Inc. Rand Energy Group, Inc. USA and Global Aircraft Corporation regarding the NASA SBIR Phase I -41- Contract for development of the Rand-Cam Diesel Aircraft Engine ______________________ Exhibits previously filed with the 20-F Annual Report for the fiscal ---------------------------------------------------------------------- year ended April 30, 1998 - Incorporated by reference ------------------------------ Agreement dated June 22, 1997 between John Weston and the Company regarding the acquisition of rights to Air/Vapour Flow Systems by the Company from Weston Agreement dated September 23, 1997 between the Company, REGI U.S., Inc. and SMR Investments Ltd. regarding the assignment of the above agreement by the Company to REGI and SMR pending regulatory approval of the original agreement Agreement dated December 31, 1997 between the Company REGI U.S., Inc. and SMR Investments Ltd. regarding the Canadian rights to the AVFS and repayment of advances to Weston by SMR Joint Venture Agreement dated July 28, 1998 between REGI U.S., Inc and Trans Air Manufacturing Corporation regarding development and manufacturing of a prototype Bus Compressor ______________________ Exhibits previously filed with the 20-F Annual Report for the fiscal ---------------------------------------------------------------------- year ended April 30, 1997 - Incorporated by reference ------------------------------ Management Agreement dated May 1, 1996 between the Company and SMR Investments Ltd. Cooperative Agreement between the Company and Global Aircraft Corporation regarding NASA General Aviation Propulsion Program ______________________ Exhibits previously filed with the 20-F Annual Report for the fiscal ---------------------------------------------------------------------- year ended April 30, 1996 - Incorporated by reference ------------------------------ -42- Agreement dated October 31, 1995 between the Company and REGI U.S., Inc. regarding assignment of Machine Vision Technology agreement with Integral Vision Systems, Inc. ______________________ Exhibits previously filed with the 20-F Annual Report for the fiscal ---------------------------------------------------------------------- year ended June 15, 1994 - Incorporated by reference ----------------------------- 1. Articles of Incorporation with Bylaws dated October 6, 1982 ----------------------------------------- Certificate of Name Change and Special Resolution dated February 23, 1993 2. Instruments defining rights of holders of equity securities ------------------------------------------------------------------ (i) Special rights and restrictions attaching to the Common Shares without par value and the Class A non-voting shares without par value. Special resolution dated November 25, 1985 3. Material contracts not made in the ordinary course of business. ---------------------------------------------------------------- (i) Contract among the Company, Rand Technologies Corp. and Rand Energy Group Inc. regarding formation of Rand Energy Group Inc. and arrangement of various inter- related matters, dated March 28, 1990 Energy Group Acquisition Agreement among the Company, Rand Cam-Engine Corporation, James L. McCann and Rand Energy Group Inc. regarding acquisition of technology, and rights to the Rand Cam-Engine, dated March 28, 1990 Contract among the Company, Rand Cam-Engine Corporation Rand Energy Group Inc. and James L. McCann regarding arrangement of various inter-related matters concerning issuance of shares, payments, royalties, etc., dated July 30, 1992 -43- Agreement with Center for Industrial Research Applications (CIRA) regarding Year 2: Engine Refinement and Testing on the Rand-Cam Engine Research & Development Agreement Between Members of the Consortium of Reg Technologies Inc., Rand Energy Group Inc., Hercules Incorporated and The West Virginia University Research Corporation, dated May 10, 1994 (ii) (A) Management Agreement between the Company and SMR Investments Ltd., dated April 2, 1993 Agreement between Brian Cherry, Sky Technologies, Inc. and Rand Energy Group Inc., regarding U.S. rights to the Rand Cam/Direct Charge Engine dated August 20, 1993 Employment Agreement between Sky Technologies, Inc. and Patrick Badgley dated February 9, 1994 Management Agreement between Sky Technologies, Inc. and Access Information Services, Inc., dated April 1, 1994 (B) Agreement between the Company and Rand Energy Group Inc. granting the Company rights to negotiate and sell licenses and marketing rights for the Rand Cam Engine, dated February 27, 1992 -44- REG TECHNOLOGIES INC. Consolidated Financial Statements For the Years Ended April 30, 2001 and 2000 -45- MANNING ELLIOTT | 11th floor, 1050 West Pender Street | Vancouver, BC, Canada V6E 3S7 | Phone: 604.714.3600 Fax: 604.714.3669 CHARTERED PUBLIC ACCOUNTANTS | Web: manningelliot.com AUDITORS' REPORT To the Shareholders of Reg Technologies Inc. We have audited the consolidated balance sheets of Reg Technologies Inc. as at April 30, 2001 and 2000, and the consolidated statements of loss and deficit and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards in Canada. Those standards require that we plan and perform an audit to obtain reasonable assurance 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. In our opinion, these consolidated financial statements present fairly, in all material respects the financial position of the Company as at April 30, 2001 and 2000, and the results of its operations and the changes in its cash flows for the years then ended, in accordance with generally accepted accounting principles used in Canada. As required by The British Columbia Company Act we report that, in our opinion, these principles have been applied on a basis consistent with that of the preceding year. /s/ Manning Elliott CHARTERED ACCOUNTANTS Vancouver, B.C. September 6, 2001 COMMENTS BY AUDITORS FOR U.S. READERS ON CANADA - U.S. REPORTING CONFLICT In the United States, reporting standards for auditors require the addition of an explanatory paragraph (following the opinion paragraph) when the financial statements are affected by significant uncertainties and contingencies such as those referred to in Note 2 to these financial statements. Our report to the shareholders dated September 6, 2001 is expressed in accordance with Canadian reporting standards which do not permit a reference to such uncertainties in the auditors' report when the uncertainties are adequately disclosed in the financial statements. /s/ Manning Elliott CHARTERED ACCOUNTANTS Vancouver, B.C. September 6, 2001 -46- REG TECHNOLOGIES INC. Consolidated Balance Sheets As at April 30, 2001 and 2000 2001 2000 $ $ ASSETS Current Assets Cash - 154,713 Accounts receivable 1,446 3,822 Marketable securities - 8,623 Prepaid expense 119 - --------------------------------------------------------------------------- 1,565 167,158 Capital Assets [Note 4] 848,484 1,365,971 Development Costs [Schedule] 8,590,313 7,911,092 --------------------------------------------------------------------------- 9,440,362 9,444,221 =========================================================================== LIABILITIES Current Liabilities Cheques issued in excess of funds on deposit 20,422 - Accounts payable and accruals 727,662 437,606 Due to related companies [Note 10] 489,311 131,858 --------------------------------------------------------------------------- 1,237,395 569,464 Convertible Debentures [Note 5] - 74,000 Non-controlling Interest [Note 8] 2,412,717 3,094,305 Subscriptions for Shares of Subsidiary [Note 7] 110,635 - --------------------------------------------------------------------------- 3,760,747 3,737,769 --------------------------------------------------------------------------- SHAREHOLDERS' EQUITY Capital Stock [Note 6] 10,392,920 10,142,920 Accumulated Foreign Exchange Gain [Note 3] 497,151 320,722 Deficit (5,210,456) (4,757,190) --------------------------------------------------------------------------- 5,679,615 5,706,452 --------------------------------------------------------------------------- 9,440,362 9,444,221 =========================================================================== Contingency [Note 2] Approved by the Board "John G. Robertson" "Jennifer Lorette" --------------------------- ------------------------- John G. Robertson, Director Jennifer Lorette, Director (The accompanying notes are an integral part of the financial statements) -47-
REG TECHNOLOGIES INC. Consolidated Statements of Operations and Deficit For the Years Ended April 30, 2001 and 2000 2001 2000 $ $ Administrative Expenses Amortization - computers and office equipment 2,918 2,594 - goodwill [Note 4] 25,175 25,174 Bank charges and interest 6,685 13,703 Foreign exchange 13,146 11,354 Investor relations - advertising 60,936 77,058 Investor relations - consulting 313,665 53,049 Management and directors fees 42,000 42,000 Mineral property maintenance expenses 12,083 - Office, printing and couriers 22,348 24,338 Professional fees 69,456 112,451 Regulatory fees 30,344 47,763 Rent 16,838 33,148 Royalty 4,565 4,410 Secretarial wages and benefits 32,662 71,864 Telephone 5,513 7,862 Travel and promotion 638 10,885 Less interest income (568) (2,150) ----------------------------------------------------------------------------------------- Net Loss Before Other Items (658,404) (535,503) Other Items Write-off of AVFS intellectual property and development costs (678,562) - Gain on payables written-off 35,380 - Gain on sale of marketable securities [Note 10[c]] 80,506 288,115 Gain on sale of subsidiaries shares 32,907 - Gain on issue by subsidiary of its own shares outside the consolidated group [Note 8[a]] 2,283 662,138 Non-controlling interest adjustment [Note 8[b]] 732,624 (165,218) ----------------------------------------------------------------------------------------- Net Earnings (Loss) for the Year (453,266) 249,532 Deficit - Beginning of Year (4,757,190) (5,006,722) ----------------------------------------------------------------------------------------- Deficit - End of Year (5,210,456) (4,757,190) ========================================================================================= Earnings (Loss) per Share - weighted average basis (.03) .02 ========================================================================================= Weighted average number of shares outstanding 16,245,000 16,078,000 ========================================================================================= (The accompanying notes are an integral part of the financial statements)
-48-
REG TECHNOLOGIES INC. Consolidated Statements of Cash Flows For the Years Ended April 30, 2001 and 2000 2001 2000 $ $ Operating Activities Net earnings (loss) for the year (453,266) 249,532 Items not involving cash Services paid by issuing shares of subsidiary 83,132 - Amortization 28,093 27,768 Non-controlling interest (732,624) 165,218 Gain on issue by subsidiary of its own shares (2,283) (662,138) Gain on payables written-off (35,380) - Gain on sale of marketable securities (80,506) (288,115) Gain on sale of subsidiaries shares (32,907) - Write-off of intellectual property and developmental costs 678,562 - --------------------------------------------------------------------------------------- (547,179) (507,735) Change in non-cash working capital items Accounts receivable 2,376 2,802 Accounts payable 325,436 (126,004) Prepaid expenses (119) - --------------------------------------------------------------------------------------- Cash to Operating Activities (219,486) (630,937) --------------------------------------------------------------------------------------- Financing Activities Shares issued for cash 250,000 - Proceeds from related companies 357,453 130,834 Proceeds on subsidiary's shares issued - 727,205 Proceeds on sale of marketable securities 89,129 304,492 Subscriptions received 110,635 - Redemption of convertible debentures (74,000) - --------------------------------------------------------------------------------------- 733,217 1,162,531 --------------------------------------------------------------------------------------- Investing Activities Development costs - net of amortization (630,446) (508,794) Acquisition of computers and office equipment (309) (8,069) Patent protection costs (47,696) (35,584) --------------------------------------------------------------------------------------- (678,451) (552,447) --------------------------------------------------------------------------------------- Translation Adjustments (10,415) 54,486 --------------------------------------------------------------------------------------- Increase in Cash During the Year (175,135) 33,633 Cash (Deficiency) - Beginning of Year 154,713 121,080 --------------------------------------------------------------------------------------- Cash - End of Year (20,422) 154,713 ======================================================================================= (The accompanying notes are an integral part of the financial statements)
-49-
REG TECHNOLOGIES INC. Consolidated Schedule of Deferred Development Costs To April 30, 2001 Incurred 2000 during the 2001 Cumulative year Cumulative $ $ $ Amortization of patents and intellectual property 360,079 77,768 437,847 Consulting 845,516 241,632 1,087,148 Management 465,600 58,550 524,150 Market development 376,309 5,251 381,560 Overhead 303,882 34,049 337,931 Professional fees 229,917 4,183 234,100 Prototype design and construction 4,295,765 234,135 4,529,900 Reports 75,917 1,252 77,169 Salaries 610,274 10,918 621,192 Travel and promotion 469,263 11,483 480,746 -------------------------------------------------------------------------------------- 8,032,522 679,221 8,711,743 Less: Government assistance 121,430 - 121,430 -------------------------------------------------------------------------------------- 7,911,092 679,221 8,590,313 ====================================================================================== Note: Included in development costs capitalized during the year is a non-cash adjustment for the increase in foreign exchange in translating the Company's US subsidiary's balances into Canadian dollars at the year-end rate. Cash expenditures incurred during the year, not including amortization, amounted to $630,446. (The accompanying notes are an integral part of the financial statements)
-50- REG TECHNOLOGIES INC. Notes to the Consolidated Financial Statements For the Years Ended April 30, 2001 and 2000 1. CONSOLIDATED FINANCIAL STATEMENTS These consolidated financial statements include the accounts of the Company and its 51% owned subsidiary, Rand Energy Group Inc., which owns a 51.4% interest in REGI US, Inc., a U.S. public company listed on the OTC Bulletin Board in the United States. 2. NATURE OF OPERATIONS 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(TM)/Direct Charge Engine and other RandCam(TM) applications, such as compressors and pumps (the "RC/DC Engine"). The world-wide marketing and intellectual rights, other than the U.S., are held by Rand Energy Group Inc. which controls REGI US, Inc. REGI US, Inc. owns the U.S. marketing and intellectual rights. Rand Energy Group Inc. and REGI US, Inc. have a project cost sharing agreement whereby the companies each fund 50% of the further development of The RC/DC Engine and its related industrial applications. The Company and REGI US, Inc. owns the world-wide marketing and intellectual rights to an Air/Vapor Flow System ("AVFS"); however, these rights were written-off during the year. In October 2000, the Company entered into an agreement with GHM Inc., a privately owned company located in Maryland, to acquire a 50% interest in the rights to the H2O hydrogen separator technology. The hydrogen separator is based on a unique system for extracting hydrogen from water. REGI U.S., Inc will own the U.S. rights and the Company will own the worldwide rights excluding the U.S. In consideration for these rights, the Company has paid US$1,000 and has applied for a patent in the U.S. for the hydrogen separator technology. The Company is also building a prototype of the hydrogen separator technology as designed by GHM. The Company has an option to purchase an additional 50% interest in the hydrogen separator technology for US$15 million in a combination of cash and shares and will assign a 5% net revenue interest to GHM, Inc. The Company and REGI US will each fund further development of this technology. 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 from the sale or licensing of The RC/DC Engine or related applications or achieved operational profitability since inception. The Company's activities are in the development stage and additional costs for the further advancement and application diversification of The RC/DC Engine and related applications must be incurred. There is risk as to the Company's ability to generate revenues and to continue as a going concern. 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. The Company also owns a 51% interest in Rand Energy Group, which owns 5,257,900 shares of REGI U.S. Inc., a U.S. company trading on the OTC Bulletin Board, which shares had a value of approximately US$1,235,000 as of September 11, 2001. The Company can sell up to 100,000 shares of REGI US, Inc., being 1% of the issued shares, during any 90 day period. 3. SIGNIFICANT ACCOUNTING POLICIES [a] Goodwill on consolidation Goodwill represents the excess of the original purchase consideration paid for Rand Energy Group Inc. over fair market value of net identifiable assets acquired and contingent consideration paid, and is amortized on a straight-line basis over twenty years. Goodwill is evaluated in each reporting period to determine if there were events or circumstances which would indicate a possible inability to recover the carrying amount. -51- REG TECHNOLOGIES INC. Notes to the Consolidated Financial Statements For the Years Ended April 30, 2001 and 2000 3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) [b] Development costs Costs incurred by the Company in development of The RC/DC Engine and related applications are capitalized as incurred. Costs will be amortized over the estimated useful life of specific licensed products or rights following commencement of commercial activity, or written-off should The RC/DC Engine and/or AVFS be determined not to be commercially viable. The AVFS rights and development costs were written-off during the year. [c] Capital assets Costs to register and protect patents are capitalized. Costs to acquire intellectual property such as technological rights and design drawings are capitalized. Costs of patents and intellectual property are being amortized to development costs on a straight-line basis over 20 years or written-off should The RC/DC Engine and/or AVFS be determined by management not to be commercially viable. Computer equipment is amortized over 3 years on a straight-line basis. [d] Accounting basis These financial statements are prepared using Canadian generally accepted accounting principles. See Note 12 regarding adjustments from Canadian generally accepted accounting principles to U.S. generally accepted accounting principles. [e] Foreign currency translation [i] Translation of foreign currency transactions and balances Revenue, expenses and non-monetary balance sheet items in foreign currencies are translated into Canadian dollars at the rate of exchange prevailing on the transaction dates. Monetary balance sheet items are translated at the rate prevailing at the balance sheet date. The resulting exchange gain or loss is included in operations. [ii] Translation of foreign subsidiary balances Assets and liabilities of REGI US, Inc. are translated into Canadian dollars at the rates of exchange on the balance sheet date. The foreign subsidiary's operating results are translated into Canadian dollars using the average exchange rate for the year with any translation gain or loss deferred and included as a separate component of shareholders' equity. The accumulated foreign exchange gain, totalling $497,151 to April 30, 2001, is a result of translating assets and liabilities at the rate of exchange on April 30, 2001 as compared to the exchange rate accumulated from the inception of REGI US, Inc. [f] Use of estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets, particularly the recoverability of capital assets and goodwill, and recording of liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from the estimates. -52- REG TECHNOLOGIES INC. Notes to the Consolidated Financial Statements For the Years Ended April 30, 2001 and 2000 4. CAPITAL ASSETS Capital assets include tangible and intangible assets stated at cost less accumulated amortization.
2001 2000 Accumulated Carrying Carrying Cost Amortization Value Value $ $ $ $ Tangible Computer equipment 97,952 93,610 4,342 7,422 ------------------------------------------------------------------------------------------ Intangible Goodwill 503,494 193,006 310,488 335,663 RC/DC Engine rights and related patent protection costs 792,654 280,010 512,644 504,757 AVFS rights and related patent protection costs 113,855 104,746 9,109 518,128 Mineral resource properties 1 - 1 1 Hydrogen separator technology and related patent protection costs 12,201 301 11,900 - ------------------------------------------------------------------------------------------ 1,422,205 578,063 844,142 1,358,549 ------------------------------------------------------------------------------------------ 1,520,157 671,673 848,484 1,365,971 ==========================================================================================
In October 2000, the Company entered into an agreement with GHM Inc., a privately owned company located in Maryland, to acquire a 50% interest in the rights to the H2O hydrogen separator technology. The hydrogen separator is based on a unique system for extracting hydrogen from water. REGI will own the U.S. rights and the Company will own the worldwide rights excluding the U.S. In consideration for these rights, the Company has paid US$1,000 and has applied for a patent in the U.S. for the hydrogen separator technology. The Company is also building a prototype of the hydrogen separator technology as designed by GHM. The Company has an option to purchase an additional 50% interest in the hydrogen separator technology for US$15 million in a combination of cash and shares and will assign a 5% net revenue interest to GHM, Inc. See Note 11 regarding royalty commitments. 5. CONVERTIBLE DEBENTURES REGI US, Inc. issued three year, 8 % interest, convertible debentures and raised US$50,000. The 8 % interest was paid annually and the debentures were convertible into REGI US, Inc. shares at US$1.75 to June 15, 2000. In the event the shares were trading below US$2.00 per share during any consecutive ten trading days during the last month the convertible debentures would have been exercisable at 20% below the said ten-day average. The maturity date was June 15, 2000. REGI US, Inc. redeemed the debentures on their maturity. -53- REG TECHNOLOGIES INC. Notes to the Consolidated Financial Statements For the Years Ended April 30, 2001 and 2000 6. CAPITAL STOCK Authorized: 30,000,000 Common shares without par value 10,000,000 Preferred shares with a $1 par value, redeemable for common shares on the basis of 1 common share for 2 preferred shares 5,000,000 Class A non-voting shares without par value. Special rights and restrictions apply. Value Common shares issued: # $ April 30, 1999 and April 30, 2000 16,078,371 10,142,920 Issued during the year for cash: Private placement 500,000 250,000 -------------------------------------------------------------------------------- April 30, 2001 16,578,371 10,392,920 ================================================================================ [a] Escrowed shares 93,750 shares are held in escrow, the release of which is subject to the direction and determination of regulatory authorities. [b] Stock option activity April 30, April 30, 2000 Price Granted Cancelled 2001 # $ # # # Expiry Date 680,000 0.52 - (145,000) 535,000 April 1, 2004 750,000 0.40* - - 750,000 October 11, 2005 - 0.40 100,000 - 100,000 October 11, 2005 --------- ------- ---------- --------- 1,430,000 100,000 (145,000) 1,385,000 ========= ======= ========== ========= * Price reduced from $0.71 on October 11, 2000 and expiry extended to October 11, 2005. [c] Private placements The Company closed its private placement of 500,000 units at a price of $0.50 per unit raising an aggregate of $250,000. Each unit consisted of one common share and one share purchase warrant to purchase one additional common share at a price of $0.60 per share for one year from the date of subscription. Accordingly, on January 4, 2001, the Company issued 500,000 common shares in relation to this private placement, and also issued 500,000 share purchase warrants expiring between September 14, 2001 and October 23, 2001. -54- REG TECHNOLOGIES INC. Notes to the Consolidated Financial Statements For the Years Ended April 30, 2001 and 2000 7. CAPITAL STOCK ACTIVITY OF REGI US, INC. Value Common shares issued: # US$ April 30, 1999 9,348,300 3,901,447 Issued during the year for cash 869,435 656,409 Less financing fee (47,608) --------------------------------------------------------------------- April 30, 2000 10,217,735 4,510,248 Warrants exercised 4,000 2,000 232,000 paid for but unissued shares - 72,000 --------------------------------------------------------------------- April 30, 2001 10,221,735 4,584,248 ===================================================================== [a] 5,257,900 shares, having an approximate undiscounted fair market value as at September 11, 2001 of US$1,235,000, are owned by Rand Energy Group Inc. The Company owns 51% of Rand Energy Group Inc. [b] A total of 1,485,000 shares are reserved for the exercise of stock options, exercisable at a weighted average price of US$0.60. [c] A total of 830,767 shares are reserved for the exercise of warrants at US$1.00 per share expiring in August 2001. [d] Private Placement REGI US, Inc. raised US$74,000 and will issue 236,000 units at US$0.30 per unit. Each unit will contain one share and one warrant to acquire one additional share at US$0.40 per share if exercised in year one. Subsequently, REGI U.S., Inc. has raised an additional US$86,300 and will issue a further 298,333 units at $0.30 per unit. 8. NON-MONETARY TRANSACTIONS [a] Gain on shares issued During fiscal 2001 and 2000, REGI US, Inc. issued shares outside the consolidated group for cash proceeds. These issuances effectively reduced Rand Energy Group Inc.'s interest in REGI US, Inc. from 52.48% to 52.46% in 2001 and from 57.4% to 52.48% in 2000 which resulted in a deemed gain on sale of subsidiary's shares as follows:
2001 2000 $ Cash proceeds on issuance of shares 3,094 883,900 Less net book value of interest deemed sold (811) (221,762) ---------------------------------------------------------------------------------------------------- Monetary Gain 2,283 662,138 ==================================================================================================== -55- REG TECHNOLOGIES INC. Notes to the Consolidated Financial Statements For the Years Ended April 30, 2001 and 2000 8. NON-MONETARY TRANSACTIONS (CONTINUED) [b] Non-controlling interest 2001 2000 $ $ Non-controlling interest - beginning of year 3,094,305 2,707,325 Non-controlling interest - end of year 2,412,717 3,094,305 ---------------------------------------------------------------------------------------------------- Increase (Decrease) in non-controlling interest (681,588) 386,980 ==================================================================================================== Components of the increase (decrease) in non-controlling interest: [i] non-controlling interest in subsidiaries' net results of operations (732,624) 165,218 [ii] net book value of REGI US, Inc. deemed sold [Note 8[a]] 811 221,762 [iii] net book value of REGI US, Inc. shares sold to settle debt 50,225 - ---------------------------------------------------------------------------------------------------- (681,588) 386,980 ====================================================================================================
9. LOSSES AND DEDUCTIONS FOR TAX PURPOSES The Company and Rand Energy Group Inc. have combined Canadian income tax losses of approximately $4,747,000 which are available to reduce Canadian taxable income of future years. The losses expire as follows: $ $ 2002 1,902,000 2006 409,000 2003 987,000 2007 229,000 2004 402,000 2008 428,000 2005 390,000 The Company's US subsidiary, REGI US, Inc., has U.S. income tax losses of US$4,792,000 which are available to reduce U.S. taxable income of future years. The losses expire as follows: US$ US$ 2008 23,000 2013 605,000 2009 393,000 2014 417,000 2010 1,007,000 2015 429,000 2,011 792,000 2016 605,000 2012 521,000 The potential benefits of income tax losses have not been recognized in the accounts as realization is not likely. 10. RELATED PARTY BALANCES AND TRANSACTIONS [a] The Company shares office space, staff and service providers with a number of private and public companies with several directors in common. [b] The amounts owing to or from related companies are unsecured, non-interest bearing and due on demand. [c] The Company sold 29,800 shares of an affiliated publicly listed company for proceeds of $89,129 resulting in a gain of $80,506. -56- REG TECHNOLOGIES INC. Notes to the Consolidated Financial Statements For the Years Ended April 30, 2001 and 2000 11. COMMITMENTS [a] In connection with the acquisition of REGI the Company may have the following obligations: [i] a further 150,000 shares may be issued, subject to regulatory approval, when an independent market assessment report confirming the Beta version of The RC/DC Engine has commercial or military applications; [ii] a further 250,000 shares may be issued, subject to regulatory approval, upon signing of a contract to build and sell The RC/DC Engine or the execution of a license agreement with an independent company; [iii]A participating royalty is to be paid to the inventor to a maximum amount of $10,000,000. The participating royalty is to be paid in minimum annual instalments of $50,000 per year beginning on the date the first revenues are derived from the license or sale of the patented technology and after shares are issued per above. As part of the minimum payment, the Company is to pay 5% of all net profits from sales, licenses, royalties or income derived from the patented technology. [iv] Pursuant to a letter of understanding between the Company, REGI US and REGI (collectively called the grantors) and West Virginia University Research Corporation (WVURC), the grantors have agreed that WVURC shall own 5% of all patented technology and will receive 5% of all net profits from sales, licenses, royalties or income derived from the patented technology. [v] 1% net profit royalty will be payable to a director on all U.S. based sales. [b] In connection with the maintenance and continuation of ownership of the AVFS rights the Company is obligated to pay $6,000 per quarter to the inventor of the AVFS technology. [c] See Note 4 for obligations pursuant to the exercise of an option agreement to increase the Company's ownership in the hydrogen separator technology to 100%. 12. DIFFERENCES BETWEEN GENERALLY ACCEPTED ACCOUNTING PRINCIPLES IN CANADA AND THOSE IN THE UNITED STATES The material differences between Canadian and U.S. accounting principles is the treatment of the following items: [a] Development costs Development costs, under Canadian accounting principles, may be deferred, until the processes reach commercial production, at which time they are amortized on a systematic basis by reference to the sale or use of the processes, or until the project is sold or abandoned, at which time the costs are written-off. Under U.S. accounting principles, development costs must be expensed as incurred requiring that development costs of $8,590,313 be expensed. [b] Capital assets Intellectual property and goodwill are treated as capital assets under Canadian accounting principles. Under U.S. accounting principles, these relate to and thus, are treated as, research and development, which must be expensed as incurred, requiring the net book value of capital assets totalling $587,606 be expensed. [c] Non-controlling interest The amounts written-off to operations in (a) and (b) above would be reduced by $2,412,717 which represents non-controlling interest therein. -57- REG TECHNOLOGIES INC. Notes to the Consolidated Financial Statements For the Years Ended April 30, 2001 and 2000 12. DIFFERENCES BETWEEN GENERALLY ACCEPTED ACCOUNTING PRINCIPLES IN CANADA AND THOSE IN THE UNITED STATES (CONTINUED) [d] Accumulated foreign exchange Foreign exchange gains and losses recognized on translation of self-sustaining foreign operations are included in the statement of operations under U.S. accounting principles. [e] The balance sheet, as determined under U.S. accounting principles, is as follows:
2001 2000 $ $ ASSETS Current Assets Cash - 154,712 Accounts receivable 1,446 3,822 Marketable securities - 8,623 Prepaid expenses 119 - -------------------------------------------------------------------------------- 1,565 167,157 Capital Assets 260,878 743,180 -------------------------------------------------------------------------------- 262,443 910,337 ================================================================================ LIABILITIES Current Liabilities Cheques issued in excess of funds on deposit 20,422 - Accounts payable and accruals 727,662 437,606 Due to related companies 489,311 131,858 -------------------------------------------------------------------------------- 1,237,395 569,464 Convertible Debentures - 74,000 Subscriptions For Shares of Subsidiary 110,635 - -------------------------------------------------------------------------------- 1,348,030 643,464 -------------------------------------------------------------------------------- SHAREHOLDERS' EQUITY (DEFICIT) Capital Stock 10,392,920 10,142,920 Stock Based Compensation 52,117 22,818 Deficit (refer to reconciliation following) (11,530,624) (9,898,865) -------------------------------------------------------------------------------- (1,085,587) 266,873 -------------------------------------------------------------------------------- 262,443 910,337 ================================================================================
-58- REG TECHNOLOGIES INC. Notes to the Consolidated Financial Statements For the Years Ended April 30, 2001 and 2000 12. DIFFERENCES BETWEEN GENERALLY ACCEPTED ACCOUNTING PRINCIPLES IN CANADA AND THOSE IN THE UNITED STATES (CONTINUED) [f] Loss and deficit accumulated during the development stage as determined under U.S. generally accepted accounting principles is as follows:
2001 2000 $ $ Net earnings (loss), as determined under Canadian generally accepted accounting principles (453,266) 249,532 Amortization of goodwill on consolidation 25,175 25,174 Stock based compensation (27,963) (22,040) Foreign exchange translation 1,876 30,425 Non-controlling interest (732,624) 165,218 Gain on sale of subsidiaries' shares 50,225 - Gain on issue of subsidiaries' shares 811 221,761 Development costs written-off (495,993) (521,980) ------------------------------------------------------------------------------------ Net earnings (loss), as determined under U.S. generally accepted accounting principles (1,631,759) 148,090 Deficit accumulated during the development stage, as determined under U.S. generally accepted accounting principles - Beginning of year (9,898,865) (10,046,955) ------------------------------------------------------------------------------------ - End of year (11,530,624) (9,898,865) ==================================================================================== Earnings (loss) per share, weighted average basis (excluding escrowed shares) (0.10) .01 ====================================================================================
[g] Material effects of the different generally accepted accounting principles on the Company's balance sheet are as follows:
2001 2000 $ $ Deferred development costs, as determined in Canada 8,590,313 7,911,092 Deferred development costs, as determined in the U.S. - - ----------------------------------------------------------------------------------- Increase to deficit as determined in the U.S. 8,590,313 7,911,092 =================================================================================== Capital assets, as determined in Canada 848,484 1,365,971 Capital assets, as determined in the U.S. 260,878 743,180 ----------------------------------------------------------------------------------- Increase to deficit as determined in the U.S. 587,606 622,791 =================================================================================== Non-controlling interest, as determined in Canada (2,412,717) 3,094,305 Non-controlling interest, as determined in the U.S. - - ----------------------------------------------------------------------------------- Decrease to deficit as determined in the U.S. (2,412,717) (3,094,305) ===================================================================================
-59- REG TECHNOLOGIES INC. Notes to the Consolidated Financial Statements For the Years Ended April 30, 2001 and 2000 12. DIFFERENCES BETWEEN GENERALLY ACCEPTED ACCOUNTING PRINCIPLES IN CANADA AND THOSE IN THE UNITED STATES (CONTINUED) [g] Material effects of the different generally accepted accounting principles on the Company's balance sheet are as follows:
2001 2000 $ $ Accumulated foreign exchange gain, as determined in Canada 497,151 320,721 Accumulated foreign exchange gain, as determined in the U.S. - - --------------------------------------------------------------------------------------- Decrease to deficit as determined in the U.S. (497,151) (320,721) ======================================================================================= Stock based compensation, as determined in Canada - - Stock based compensation, as determined in the U.S. 52,117 22,818 --------------------------------------------------------------------------------------- Increase to deficit as determined in the U.S. 52,117 22,818 ======================================================================================= Deficit, as determined in Canada 5,210,456 4,757,190 Deficit, as determined in the U.S. 11,530,624 9,898,865 --------------------------------------------------------------------------------------- Net increase to deficit as determined in the U.S. 6,320,168 5,141,675 =======================================================================================
13. SUBSEQUENT EVENT Subsequently, REGI U.S., Inc. has raised an additional US$86,300 and will issue a further 298,333 units at $0.30 per uni -60- THIS AGREEMENT is dated for reference the 27th day of October, 2000. BETWEEN: REG TECHNOLOGIES INC. #185, 10751 Shellbridge Way Richmond, BC V6X 2W8 ("Reg") OF THE FIRST PART AND: GHM INC. and GEORGE H. MAGAHA, Ph.D. P.O. Box 145 Glen Burnie, MD 21060 (collectively "GHM") OF THE SECOND PART WHEREAS: A. GHM has agreed to sell and Reg has agreed to purchase from GHM a 50% (fifty percent) right, title and interest in the H2O Converter and to the Technology as hereinafter defined; NOW THEREFORE in consideration of the mutual covenants and conditions set forth herein, the parties hereto agree as follows: DEFINITIONS 1. In the Agreement the following terms shall have the following meanings: (a) "AGREEMENT" shall mean this Agreement and all other documents which are made a part thereof; (b) "LICENSE" shall mean the right and license to the H20 Converter and the Technology that may be granted by Reg to licenses at any time at the option and discretion of Reg, subject to the terms and conditions of this Agreement, and with the written concurrence of GHM; (c) "LICENSED PRODUCTS" shall mean any products developed by license of Reg using the H20 Converter and the Technology; (d) "NET REVENUES" shall mean gross invoiced sales less actual quantity discounts, taxes and returns on merchandise for which royalties have already been accrued and paid. No deduction shall be made for cash, commissions or uncollectible accounts, nor for any costs incurred in the manufacture, sale, distribution or promotion of the Licensed Products. A royalty shall also be paid by Reg based on Reg's usual Net Sales price: (i) on all unbilled Products distributed by Reg or any of its affiliated companies and/or licenses; or (ii) where the billed price for the Products was less than the usual Net Sales price, and Reg has received other compensation attributable to the distribution of the Products separate from the price which appears on the respective invoice; (e) The "PATENT" is herein defined as the United States and foreign patent(s) and patent application(s) based on the H20 Converter and on the Technology of paragraph 1(g), including all divisions, continuations, continuations-in-part, or reissues thereof. The Patent will also include any future -61- improvements thereto which are conceived, made or acquired by Reg during the term of this Agreement. Reg shall promptly disclose all said future improvements to GHM: (f) "PRODUCTS" shall mean any and all products developed by Reg and GHM using the H20 Converter and the Technology; and (g) "TECHNOLOGY" shall mean the technology developed by GHM and George H. Magaha. Ph.D., related to the fuel cell called H20 Converter and the Technology consisting of a hydrogen converter based on a system for energy efficiency of hydrogen fuel. SALE OF TECHNOLOGY 2. GHM hereby agrees to sell, transfer and assign to Reg a 50% (fifty percent) of the rights they have or may have to the H2O Converter and the Technology. 3. In consideration for the H20 Converter and the Technology and related patent, Rug agrees to pay GHM the following consideration: (a) The sum or $1,000.00 (dollars) payable by way of cheque upon execution of this Agreement; (b) 5% of Net Revenues received by Reg on the 50% (fifty percent) rights: and (c) Reports, Payments and Audit: (1) Reg shall send quarterly royalty reports to GHM within sixty (60) days after the end of March, June, September and December of each calendar year. Each report shall clearly show the total number of each different model or system of Products sold by Reg (and the sublicenses of Reg, if any) in the previous quarter, the Net Sales thereof, and the calculation of unit royalties due and payable thereon. Each report shall be accompanied by the required payment of the unit royalties or deposit in a bank chosen by GHM, if applicable, the difference or balance to meet the minimum annual royalties of...; (2) Reg shall at all times maintain its pertinent records for a minimum of five (5) years from the date of each royalty report to GHM. GHM shall have the right to appoint an independent certified (or chartered) public accountant to audit Reg's pertinent records at Reg's business premises and at reasonable business times for the purpose of verifying the completeness and accuracy of Reg's reports and royalty payments to GHM; and (3) The independent certified (or chartered) public accountant shall provide an audit report to both GHM and Reg. Any overpayment by Reg to GHM shall be applied as a credit to Reg on the next quarterly royalty report following the audit report. Any underpayment shall be paid by Reg to GHM within thirty (30) days following the date of the audit report. If the underpayment is more than five percent (5%) of the correct amount due and payable, Reg shall also reimburse GHM for the actual and reasonable cost of the audit. 4. Reg reserves the right to assign all of its right, title and interest in and to this Agreement and any rights granted hereunder to its nominee, to be a United States private company wholly-owned by Reg, such assignment to be known to and approved in writing by GHM. LICENSE RIGHTS 5. Reg shall have the discretion to assign, sublicense or otherwise grant to a third party license rights as to the 50% interest in the H20 Converter and the Technology or any rights thereunder or under this Agreement. -62- PATENT RIGHTS 6. GHM hereby agrees to sell, transfer and assign to Reg a 50% (fifty percent) of the Patent rights that it may have to the H20 Converter and the Technology. 7. Upon execution of this Agreement, Reg shall apply for a Patent for the H2O Converter and the Technology at the sole expense of Reg. 8. GHM agrees to assist Reg in its application for the Patent and shall provide technical assistance to Reg and/or its patent agents as required by Reg. 9. It is understood and agreed by the parties hereto that any and all patents and patent rights, trademarks, tradenames, copyrights and other property rights in and with respect to the H20 Converter and the Technology shall be exclusive property of Reg after a one-time buy out for $15,000,000 (15 million) U.S. dollars and shares approved by Reg and GHM. OPTION FOR NET REVENUES 10. GHM hereby grants to Reg the irrevocable right and option to acquire from GHM all rights, title and interest in and to the 5% (five percent) Net Revenues granted hereunder (the "Option"). 11. The Option shall be for a term of ten (10) years from the date of this Agreement, unless the Option is extended by written agreement between the parties hereto. 12. Subject to the provisions hereof, the Option may be exercised by Reg or its representative at any time during the term of the Option by payment of the sum of $15,000,000 (15 million) U.S. dollars, payable as follows: (a) A sum of $2,000,000 (2 million) U.S. dollars to be paid to GHM by Reg in the first year from the date of this Agreement; (b) The remaining amount of $13,000,000 (13 million) U.S. dollars, payable by way of a combination of cash and shares of Reg and/or its nominee, at the sole discretion of Reg and only with the written approval of GHM (the "Option Price"). 13. Upon payment of the Option Price and the approval in writing by GHM, GHM agrees to complete and sign any documentation necessary to affect the transfer and assignment of the 5% (five percent) Net Revenue to Reg. (This would also include the 50% (fifty percent) under #2.) 14. Reg has the option to buy out all rights to the H2O Converter and the Technology, the patent and to transfer the rights to any nominee to be a United States private company, wholly-owned by Reg, such assignment to be at the sole discretion of Reg after the paid sum of $15,000,000 (15 million) U.S. dollars, including the shares agreed by Reg and GHM and approved in writing by all parties herein. (See paragraph numbers 12 and 13 as noted.) PROTOTYPE 15. The parties hereto understand and agree that Reg shall, at its sole expense, build a prototype of the H20 Converter and the Technology using the diagrams and notes from GHM. 16. GHM agrees to assist Reg in creating the prototype of the H20 Converter and the Technology by providing technical assistance and guidance to Reg's employees and consultants. If it should require for GHM to travel from his home to Reg's site, it is agreed that GHM will be reimbursed for the cost of travel, meals, hotel and any other expenses incurred. GHM agrees to furnish all expense receipts to Reg upon the completion at each required trip. -63- REPRESENTATIONS AND WARRANTIES OF GHM 17. GHM hereby represents and warrants to Reg that: (a) GHM has the full right and power to sell and assign its rights to the H2O Converter and the Technology and patent; (b) There are no outstanding agreements, assignments or encumbrances inconsistent with the terms hereof; (c) GHM does not know of any facts that may adversely affect the validity or enforceability of the patent or the H20 Converter and the Technology. SUCCESSORS 18. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors. SEVERABILITY 19. If any provision of this Agreement is held by a competent court to be invalid, illegal or unenforceable for any reason or in any respect whatsoever, such invalidity, illegality or unenforceability shall not affect any other provisions of this Agreement, and this Agreement shall be construed as if such invalid, illegal or unenforceable provision have never been contained herein. GHM and Reg hereby agree, however, to negotiate an equitable amendment of this Agreement if a material provision is adversely affected. BREACH 20. If one party shall breach any provision of this Agreement, the other party shall have the right to notify the one party in writing of such breach and shall specify such breach in such notice. The other party shall have a period of thirty (30) days after such written notice to correct the breach. If such breach is not corrected within such thirty (30) day period, the other party shall have the right to thereafter terminate this Agreement by a further notice of at least ten (10) days in writing to the one party. Any such termination shall not affect any obligations incurred by either parry prior to the effective date of such termination. TERMINATION 21. Upon any termination under this Agreement in accordance with the provisions of Section 19 of this Agreement, the Agreement shall be null and void, all rights shall revert to GHM, and Reg shall discontinue all further manufacture and sale of said products. NEW PRODUCTS 22. Any and all other patents and designs of new products or technologies by GHM, Reg's will have the first right to review them and have the option to execute an Agreement between GHM and Reg. If Reg finds no interest in any new product, Reg will send a written notice of No Interest to GHM. ENTIRE AGREEMENT 23. This Agreement shall constitute the entire Agreement between the parties hereto and all prior or collateral agreements, understandings or representations of any kind are hereby terminated, except that existing Confidentiality and Non-Disclosure Agreements shall remain in full force and effect and are incorporated herein by reference as if fully set forth herein. -64- MODIFICATION OF AGREEMENT 24. This Agreement and any modification or waiver of any provision hereof shall be binding only if set forth in writing and signed by both parties hereto and shall be effective only to the extend set forth in such modification or waiver and for the particular occasion. NOTICE 25. Any notice required or permitted under the terms of the Agreement will be delivered in person or mailed or sent by courier service and will be deemed given when either mailed or delivered by courier service or personally delivered. To Reg: John G. Robertson, President Reg Technologies Inc. # 185, 10751 Shellbridge Way Richmond, BC V6X 2W8 To GHM: George H. Magaha, Ph.D. GHM Inc. P.O. Box 145 Glen Burnie, MD 21060 or such other address as either party shall give written notice to the other party. GOVERNING LAW 26. This Agreement shall be construed, interpreted and applied in accordance with the laws of the Province of British Columbia and Canada, and all matters shall be resolved solely in Canada, and if for any reason a matter can not be resolved by the Canada laws, GHM will have the right to resolve any and all matters by the laws of the United States. IN WITNESS WHEREOF, the parties hereunder have executed this Agreement on the 28 day of October, 2000. --- REG TECHNOLOGIES INC. GHM INC. /s/ John G. Robertson /s/ George H. Magaha, Ph.D. ------------------------------ ------------------------------ Authorized Signatory Authorized Signatory John G. Robertson George H. Magaha, Ph.D. ------------------------------ ------------------------------ Name Name President President /s/ George H. Magaha, Ph.D. ------------------------------ ------------------------------ Title Title Jennifer Lorette Tammy N. Ghary ------------------------------ ------------------------------ Witness Witness -65- LIST OF PARENTS AND SUBSIDIARIES OF THE COMPANY ----------------------------------------------- REG TECHNOLOGIES INC. --------------------- (a British Columbia corporation) Rand Energy Group Inc. ---------------------- (a British Columbia corporation) (51% owned by Reg Technologies Inc.) REGI U.S., Inc. --------------- (an Oregon corporation) (52.5% owned by Rand Energy Group Inc.) -66- REG TECHNOLOGIES INC. #185, 10751 Shellbridge Way Richmond, BC V6X 2W8 NOTICE OF ANNUAL GENERAL MEETING TO THE MEMBERS: NOTICE IS HEREBY GIVEN that the annual general meeting of REG TECHNOLOGIES INC. (the "Company") will be held at Salon #216, Holiday Inn Vancouver Airport, 10720 Cambie Road, Richmond, B.C., V6X 1K8, on Monday, the 29th day of October, 2001 at the hour of 10:00 o'clock in the forenoon (Vancouver time) to transact the usual business of an annual general meeting and for the following purposes: 1. To receive and consider the Report of the Directors to the Members. 2. To receive and consider the financial statements of the Company, together with the auditor's report thereon for the fiscal year ended April 30th, 2001. 3. To elect directors to hold office until the next annual general meeting of the Company. 4. To appoint an auditor for the Company to hold office until the next annual general meeting of the Company and to authorize the directors to fix the remuneration to be paid to the auditor. 5. To consider and, if thought fit, to approve an ordinary resolution to grant to the directors and employees of the Company incentive stock options to purchase common shares in the capital stock of the Company for such periods, in such amounts and at such prices per share, including any amendments thereto, as agreed upon and at the discretion of the Board of Directors in accordance with the policies of the Canadian Venture Exchange and upon terms and conditions subject to the approval of the Canadian Venture Exchange and to approve the exercise of any options granted to insiders. 6. To consider and, if thought fit, to approve an ordinary resolution approving the issuance of common shares in the capital stock of the Company in amounts exceeding 20% of the issued and outstanding common shares in the capital stock of the Company on future public offerings, private placements, debt settlements, property acquisitions or other transactions requiring the issuance of common shares in the capital stock of the Company, at such prices and such times as the directors of the Company deem to be in the best interests of the Company, and in accordance with the policies of the Canadian Venture Exchange. 7. To transact such further or other business as may properly come before the meeting and any adjournment or adjournments thereof. SHAREHOLDERS OF THE COMPANY WHO ARE UNABLE TO ATTEND THE MEETING IN PERSON ARE REQUESTED TO COMPLETE, SIGN AND DATE THE ENCLOSED INSTRUMENT OF PROXY AND TO MAIL IT OR DEPOSIT IT WITH COMPUTERSHARE INVESTOR SERVICES INC., 4TH FLOOR, 510 BURRARD STREET, VANCOUVER, BRITISH COLUMBIA, V6C 3B9. IN ORDER TO BE VALID AND ACTED UPON AT THE MEETING, INSTRUMENTS OF PROXY MUST BE RECEIVED AT THE AFORESAID ADDRESS NOT LESS THAN 48 HOURS BEFORE THE TIME SET FOR THE HOLDING OF THE MEETING OR ANY ADJOURNMENT THEREOF. -67- The Company has fixed the close of business on the 13th day of September, 2001 as the record date for the determination of shareholders who are entitled to receive notice of the annual general meeting of shareholders. The transfer books of the Company will not be closed. Only shareholders of the Company of record as at that date are entitled to receive notice of and to vote at the meeting. The accompanying Information Circular provides additional information relating to the matters to be dealt with at the meeting and is deemed to form part of this notice. Please advise the Company of any change in your address. DATED at Vancouver, British Columbia, this 13th day of September, 2001. By Order of the Board of REG TECHNOLOGIES INC. "John G. Robertson" --------------------- JOHN G. ROBERTSON, President -68- REG TECHNOLOGIES INC. #185, 10751 Shellbridge Way Richmond, BC V6X 2W8 INFORMATION CIRCULAR (As at September 13th, 2001 except as indicated) MANAGEMENT SOLICITATION This information circular is furnished in connection with the solicitation of proxies by the management of REG TECHNOLOGIES INC. (the "Company") for use at the annual general meeting (the "Meeting") of the Company to be held at Salon 216, Holiday Inn Vancouver Airport, 10720 Cambie Road, Richmond, British Columbia, V6X 1K8, on Monday, the 29th day of October, 2001. The solicitation will be by mail and possibly supplemented by telephone or other personal contact to be made without special compensation by regular officers and employees of the Company. The Company does not reimburse shareholders, nominees or agents for the cost incurred in obtaining from their principals authorization to execute forms of proxy. No solicitation will be made by specifically engaged employees or solicitating agents. The cost of solicitation will be borne by the Company. APPOINTMENT AND REVOCATION OF PROXIES The persons named in the enclosed Instrument of Proxy are directors and officers of the Company. A MEMBER WISHING TO APPOINT SOME OTHER PERSON WHO NEED NOT BE A MEMBER TO ATTEND AND ACT FOR HIM AND ON HIS BEHALF AT THE MEETING OTHER THAN THE PERSONS DESIGNATED IN THE ACCOMPANYING INSTRUMENT OF PROXY HAS THE RIGHT TO DO SO, EITHER BY INSERTING SUCH PERSON'S NAME IN THE BLANK SPACE PROVIDED IN THE INSTRUMENT OF PROXY OR BY COMPLETING ANOTHER INSTRUMENT OF PROXY. A proxy will not be valid unless the completed Instrument of Proxy is deposited with Computershare Investor Services Inc., at 4th Floor, 510 Burrard Street, Vancouver, British Columbia, V6C 3B9, not less than 48 hours before the time fixed for the Meeting, in default of which the Instrument of Proxy shall not be treated as valid. A member who has given a proxy may revoke it by an instrument in writing deposited at the Company, at any time up to and including the last business day preceding the day of the Meeting or, if adjourned, any reconvening thereof, or with the Chairman of the Meeting at the scheduled commencement of the Meeting or, if adjourned, any reconvening thereof, or in any other manner provided by law. Where a proxy has been revoked, the member may personally attend at the Meeting and vote his shares as if no proxy had been given. VOTING OF PROXIES All shares represented at the Meeting by properly executed proxies will be voted on any ballot that may be called for and, where a choice with respect to any matter to be acted upon has been specified in the Instrument of Proxy, the shares represented by the proxy will be voted in accordance with such specification. IN THE ABSENCE OF ANY SUCH SPECIFICATIONS, THE MANAGEMENT OR DESIGNEES, IF NAMED AS PROXY, WILL VOTE IN FAVOUR OF ALL THE MATTERS SET OUT THEREON. The enclosed Instrument of Proxy confers discretionary authority upon the management designees or other persons named as proxy with respect to amendments to or variations of matters identified in the Notice of Annual General Meeting and any other matters which may properly come before the Meeting. At the time of printing of this Information Circular, the management of the Company knows of no such amendment, variation or the matter. -69- RECORD DATE The Board of Directors of the Company have fixed the close of business on the 13th day of September, 2001 as the record date (the "Record Date") for the determination of members entitled to notice of the annual general meeting of shareholders. Only members of the Company of record as at the Record Date are entitled to receive notice of and to vote at the Meeting unless after that date a member of record transfers his shares and the transferee, upon producing properly endorsed certificates evidencing such shares or otherwise establishing that he owns such shares, requests at least 10 days prior to the Meeting that the transferee's name be included in the list of members entitled to vote, in which case such transferee is entitled to vote such shares at the Meeting. VOTING SHARES AND PRINCIPAL HOLDERS THEREOF The Company is authorized to issue 45,000,000 shares, divided into 30,000,000 common shares without par value, 10,000,000 preferred shares with a par value of $1.00 per share and 5,000,000 class "A" non-voting shares without par value. 16,578,371 common shares are currently issued and outstanding. Only the holders of common shares are entitled to vote at the Meeting and the holders of common shares are entitled to one vote for each common share held. Holders of common shares of record on September 13th, 2001 will be entitled to vote at the Meeting. To the knowledge of the directors and senior officers of the Company, the following persons beneficially own shares carrying more than 10% of the voting rights attached to all shares of the Company: NO. OF COMMON SHARES PERCENTAGE OF OUTSTANDING NAME OF SHAREHOLDER OWNED COMMON SHARES Susanne M. Robertson (1) 2,275,536 13.73% 1) SMR Investments Ltd., a company wholly-owned by Susanne Robertson, is the beneficial owner of 1,963,061 common shares representing 11.84% of the outstanding common shares of the Company. As of the 13th day of September, 2001, the directors and senior officers as a group owned beneficially directly and indirectly, 3,414,105 common shares of the Company, representing 20.59% of the presently issued and outstanding common shares of the Company. ADVANCE NOTICE OF MEETING The Advance Notice of the Meeting inviting nominations for directors of the Company as required by Section 111 of the Company Act (British Columbia) was mailed to the British Columbia Securities Commission and to the Canadian Venture Exchange and was published in The Province newspaper, Vancouver, British Columbia on September 4, 2001. STATEMENT OF EXECUTIVE COMPENSATION COMPENSATION OF EXECUTIVE OFFICERS AND DIRECTORS The Company has two executive officers and four directors. (In this Information Circular, "Executive Officer" means an individual who at any time during the year was the Chairman of the Board, the Vice Chairman of the Board, the President of the Company, a Vice-President of the Company or an officer of the Company or any person who performed a policy making function in respect of the Company). The aggregate cash compensation (including salaries, fees, directors' fees, commissions, bonuses paid for services rendered during the fiscal year ended April 30, 2001, and any compensation other than bonuses earned during the fiscal year ended April 30, 2000 the payment of which was deferred) paid to such Executive Officers by the Company and its subsidiaries for services rendered during the fiscal year ended April 30, 2001 was $12,000 and $36,000. Other than as herein set forth, the Company did not pay any additional compensation to its -70- Executive Officers (including personal benefits and securities or properties paid or distributed which compensation was not offered on the same terms to all full time employees). INCENTIVE SHARE OPTION PLAN The Company has not adopted an Incentive Stock Option Plan (the "Plan") and there is no such Plan in effect as at the date hereof. OTHER Except as set out below, the Company has not paid any other compensation to any of its Executive Officers, Director or Employees in its most recently completed financial year. SUMMARY COMPENSATION TABLE The Name Executive Officers of the Company are defined as follows: (a) the Chief Executive Officer or the President of the Company, despite the amount of compensation paid to that individual; (b) each of the Company's four highly compensated Executive Officers, other than the Chief Executive Officer, who are serving as Executive Officers at the end of the most recently completed financial year and whose total salary and bonus exceeded $100,000.00; and (c) any additional individual for whom disclosure would have been provided under (b) but for the fact the individual was not serving as an Executive Officer of the Company at the end of the most recently completed financial year. The following table provides a summary of compensation earned during the fiscal year ended April 30, 2001 by the only Named Executive Officer of the Company, the President. There are no other executive officers whose combined salary and bonus exceeds $100,000.00.
Annual Compensation Long-Term Compensation Awards Payouts Name and Principal Position Year Restricted Securities Shares or LTIP (2) All Other Salary Bonus Other Annual Granted under Restricted Payouts Compensation ($) ($) Compensation Options/SARS(1) Share ($) ($) ($) Granted Units # ($) ================== ==== ====== ===== ============= =============== ========= ======== ============ John G. Robertson, 2001 12,000 Nil Nil (3) Nil Nil Nil Nil President 2000 12,000 Nil Nil (3) Nil Nil Nil Nil 1999 12,000 Nil Nil (3) 750,000 Nil Nil Nil
(1) "SARS" or "stock appreciation right" means a right granted by the Company, as compensation for services rendered, to receive a payment of cash or an issue or transfer of securities based wholly or in part on changes in the trading price of publicly traded securities of the Company. (2) "LTIP" or "long term incentive plan" means any plan which provides compensation intended to serve as incentive for performance to occur over a period longer than one financial year, but does not include option or stock appreciation right plans or plans for compensation through restricted shares or restricted share units. (3) John Robertson is a director and Susanne Robertson is the sole shareholder of SMR Investments Ltd. , which accrued $2,500 per month from the Company for management services provided to the Company. -71- INCENTIVE PLANS (a) Long-term Incentive Plan Awards During the most recently completed financial year, the Company did not grant any long-term incentive plan awards to any of its Executive Officers, Directors or Employees. (b) Stock Options The following sets forth details of individual grants of options to purchase or acquire securities of the Issuer or any of its subsidiaries made during the financial years ended April 30, 2001, to each of the Named Executive Officers and the directors of the Issuer. Options include all stock options, share purchase warrants and rights granted by the Issuer or its subsidiaries as compensation for services rendered or otherwise in connection with office or employment. Note that the Company has no plan for any of its Executive Officers, Directors or Employees involving stock appreciation rights (SAR's").
OPTION/SAR GRANTS Securities Under % of Total Exercise or Market Value of Expiration Name Option/SARS Options/SARS Base Price Securities Date Granted Granted to ($/Security) Underlying (#) Employees in Options/SARS on Financial Year the Date of Grant ($/Security) =================== ================= =============== ============= =================== =========== John G. Robertson, 750,000 13.3% $ 0.40(1) $ 0.68 October 11, President, Director 2005 and CEO Directors who are 400,000 25.0% $ 0.52 $ 0.52 April 1, not Named 2004 Executive Officers
(1) Repriced on October 11, 2000 and expiry date extended to October 11, 2005 Management proposes to seek shareholder approval of the exercise of stock options previously granted to insiders and the granting and exercise of incentive stock options (options may have special rights attached) which may be granted during the ensuing year to directors, officers and employees of the Company at prices and in amounts determined by the directors, including any amendments thereto, in accordance with the policies of the Canadian Venture Exchange. RETIREMENT AND PENSION PLANS The Issuer has no retirement plans or pension plans for any of its Named Executive Officers, Directors or Employees. EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT There are no employment agreements or other compensating plans or arrangements with regard to any of the Named Executive Officers which provide for specific compensation in the event of resignation, retirement, other termination of employment or from a change of control of the Issuer or from a change in a Named Executive Officer's responsibilities following a change in control. -72- COMPOSITION OF COMPENSATION COMMITTEE At the present time the Issuer does not have a Compensation Committee. All decisions involving compensation issues are made by the Board of Directors of the Issuer. Since January 1, 1996, and the last annual general meeting held by the Company, the Board of Directors has consisted of John Robertson (President), Susanne Robertson and Patrick Badgley. It also included Brian Cherry (Secretary) who resigned on January 20, 2001. Ms. Jennifer Lorette was appointed to the board in his place and holds the office of Vice President of Administration and Secretary. REPORT ON EXECUTIVE COMPENSATION The Board of Directors, when performing equivalent functions of a Compensation Committee, base their decisions on very simplistic policies. When deciding the method and amount of compensation, the Board of Directors base their decision on the following criteria and factors: 1. level of services, expertise, business contacts and skills provided to the Company; 2. degree of involvement and participation in the day to day operations of the Company; 3. amount of finances available to the Company; and 4. amount of outstanding options already granted. At this time there is no relationship between corporate performance and executive compensation. COMPENSATION OF DIRECTORS During the most recently completed financial year, the Company compensated John Robertson for his services in his capacity as a Director of the Company in the aggregate amount of $12,000 (2000 - $12,000). Also, REGI U.S., Inc. a subsidiary of the Issuer, compensated Patrick Badgley for services provided in the form of research and development of the Rand Cam Engine in the aggregate amount of $8,000 U.S. per month. During that same time period, the Company paid no other cash compensation (including salaries, fees, directors' fees, commissions, bonuses paid for services rendered during the most recently completed fiscal year, bonuses paid during the most recently completed fiscal year for services rendered in a previous year, and any compensation other than bonuses earned during the most recently completed fiscal year the payment of which was deferred) to the Directors for services rendered. Executive Officers of the Company, who also act as Directors of the Company, do not receive any additional compensation for services rendered in such capacity other than as paid by the Company to such Executive Officers in their capacity as Executive Officers (see "Compensation of Executive Officers") MANAGEMENT CONTRACTS The Company entered into a Management Agreement with SMR Investments Ltd. on May 1, 1996. Pursuant to the Management Agreement, SMR Investments Ltd. provides management and administrative services to the Company, and is in a unique position to service the promotion, marketing, investment and business management needs of the Company, for which the Company pays the sum of $2,500 per month. The Management Agreement also provides that the manager will be reimbursed for all reasonable out-of-pocket expenses. The Management Agreement was for a term of three years, expiring on May 1, 1999 and renewable annually thereafter. Susanne Robertson, a director of the Company, is the sole shareholder of SMR Investments Ltd. and John Robertson, President and a director of the Company is a director of SMR Investments Ltd. There are no other management contracts in existence at this time which the Company is a party other than the Management Agreement mentioned above. -73- INDEBTEDNESS OF DIRECTORS AND OFFICERS None of the directors and senior officers of the Company, proposed nominees for election or associates of such persons is or has been indebted to the Company or its subsidiaries, other than routine indebtedness, at any time since the beginning of the last completed financial year of the Company. INTEREST OF INSIDERS IN MATERIAL TRANSACTIONS There was no material interest, direct or indirect, of directors and officers of the Company, any shareholder who beneficially owns more than 10% of the common shares of the Company, or any known associate or affiliate of these persons in any transactions since the commencement of the Company's last completed fiscal year end in any proposed transaction which has materially affected or would materially affect the Company. DIVIDEND RECORD AND POLICY The Company has not paid any dividends to date and does not intend to pay dividends in the foreseeable future. AUDITOR, TRANSFER AGENT AND REGISTRAR The auditor of the Company is Manning Elliott, Chartered Accountants, of #1101, 750 West Pender Street, Vancouver, British Columbia, V6C 2T8. Computershare Trust Company of Canada is the transfer agent and registrar for the common shares of the Company at its principal offices in Vancouver, British Columbia. PARTICULARS OF OTHER MATTERS TO BE ACTED UPON FINANCIAL STATEMENTS The audited financial statements of the Company for the fiscal years ended April 30, 2001 have been approved by the Company's audit committee and Board of Directors and are enclosed with this Information Circular and will be placed before the Meeting for acceptance by the members. APPOINTMENT OF AUDITOR At the meeting the members will be asked to appoint an auditor to serve until the close of the next annual meeting of the members of the Company and to authorize the directors to fix their remuneration. The Board of Directors of the Company recommends that the members re-appoint Manning Elliott, Chartered Accountants, as auditor of the Company to hold office until the close of the next annual meeting at a remuneration to be fixed by the directors of the Company. UNLESS OTHER SPECIFIED, THE PERSONS NAMED IN THE ENCLOSED FORM OF PROXY WILL VOTE FOR THE APPOINTMENT OF MANNING ELLIOTT, CHARTERED ACCOUNTANTS, VANCOUVER, BRITISH COLUMBIA, AS AUDITOR OF THE COMPANY TO HOLD OFFICE UNTIL THE NEXT ANNUAL GENERAL MEETING OF MEMBERS OR UNTIL HER SUCCESSOR IS APPOINTED AND TO AUTHORIZE THE DIRECTORS TO FIX THEIR REMUNERATION. -74- ELECTION OF DIRECTORS It is proposed that the following persons will be nominated at the Meeting. IT IS THE INTENTION OF THE MANAGEMENT DESIGNEES, IF NAMED AS PROXYHOLDER, TO VOTE FOR THE ELECTION OF SAID PERSONS TO THE BOARD OF DIRECTORS UNLESS OTHERWISE DIRECTED. Each director elected will hold office until the next annual meeting, or until his successor is duly elected or appointed, unless his office is earlier vacated in accordance with the Company Act (British Columbia). The following information relating to the nominees as directors is based partly on the Company's records and partly on information received by the Company from the said nominees and sets forth the name of each of the persons proposed to be nominated for election as a director, his principal occupation at present, all other positions and offices in the Company held by him, the date upon which he was first elected a director, and the approximate number of shares of the Company that he has advised the Company are beneficially owned by him, directly or indirectly.
POSITIONS HELD YEAR VOTING SHARES PERCENTAGE WITH COMPANY BECAME A BENEFICIALLY OWNED OF ISSUED NAME, MUNICIPALITY OF RESIDENCE DIRECTOR AS AT DATE HEREOF VOTING AND PRINCIPAL OCCUPATION FOR THE SHARES (3) PAST FIVE YEARS ===================================== ================== ======== =================== =========== JOHN GEORGE ROBERTSON * President and 1982 607,169 3.66% Richmond, B.C. Director (Directly) President of the Company since 1984; President and Director of 523,000 Teryl Resources Corp since 1986, of (Indirectly) SMR Invesments Ltd. since 1979, of Rand Energy Group Inc. since 1993, 750,000 of Access Information Services Inc. Stock Options since 1993, Chairman of the Board and President of LinuxWizardry Systems, Inc., of REGI U.S., Inc., of IAS Communications, Inc., of Information-Highway.com, Inc. since 1995. JENNIFER LORETTE Vice President 2001 8,400 0.05% Richmond, B.C. of Administration, (Directly) Vice President of Administration of Secretary and the issuer since 1994 and a director Director 50,000 and Secretary of the issuer since Stock Options 2001; Director, Vice President and Secretary of LinuxWizardry Systems, Inc., Vice President of REGI U.S., Inc. Secretary and director of Information Highway.com, Inc.; and Secretary of IAS Communications, Inc. SUSANNE ROBERTSON * Director 1984 312,475 13.73% Richmond, B.C. (Directly) Director of Teryl Resources Corp.; Principal shareholder of SMR 1,963,061 Investments Ltd.; Director of (Indirectly) LinuxWizardry Systems, Inc. 250,000 Stock Options -75- POSITIONS HELD YEAR VOTING SHARES PERCENTAGE WITH COMPANY BECAME A BENEFICIALLY OWNED OF ISSUED NAME, MUNICIPALITY OF RESIDENCE DIRECTOR AS AT DATE HEREOF VOTING AND PRINCIPAL OCCUPATION FOR THE SHARES (3) PAST FIVE YEARS ===================================== ================== ======== =================== =========== 174,700 Warrants PATRICK BADGLEY * Director 1993 Nil 0% Columbus, Indiana Director of Adiabatic Inc. Advanced 100,000 Engine Concepts; Director of IAS Stock Options Communications, Inc. and Vice President R&D of REGI U.S., Inc.
* Audit Committee ADDITIONAL EQUITY ISSUANCES Management of the Company has determined that current market conditions are such that it may be in the best interest of the Company to undertake further equity issuances. The additional funds raised by such equity issuances would be used to pursue and fund the ongoing business opportunities currently available to the Company and as general working capital. Accordingly, the members will be asked to pass an ordinary resolution approving the issuance of common shares in the capital stock of the Company in amounts exceeding 20% of the issued and outstanding common shares in the capital stock of the Company on future public offerings, private placements, debt settlements, property acquisitions or other transactions requiring the issuance of common shares in the capital stock of the Company, at such prices and such times as the directors of the Company deem to be in the best interests of the Company, and in accordance with the policies of the Canadian Venture Exchange. PARTICULARS OF OTHER MATTERS TO BE ACTED UPON The Company will consider and transact such other business as may properly come before the Meeting or any adjournment thereof. Management of the Company knows of no other matters to come before the Meeting other than those referred to in the Notice of Meeting. Should any other matters properly come before the Meeting, the shares represented by the proxy solicited hereby will be voted on such matters in accordance with the best judgment of the persons voting by proxy. DATED at Richmond, British Columbia, this 13th day of September, 2001. By Order of the Board of REG TECHNOLOGIES INC. "John G. Robertson" --------------------- JOHN ROBERTSON, President -76- REG TECHNOLOGIES INC. #185, 10751 Shellbridge Way, Richmond, BC V6X 2W8 INSTRUMENT OF PROXY ANNUAL GENERAL MEETING OCTOBER 29TH, 2001 THIS PROXY IS SOLICITED BY THE MANAGEMENT OF THE COMPANY The undersigned member of REG TECHNOLOGIES INC. (the "Company") hereby appoints JOHN G. ROBERTSON, the President and a Director of the Company, or failing him, JENNIFER LORETTE, the Secretary and a Director of the Company, or failing both of them ____________________ or ________________________ as proxyholder for and on behalf of the undersigned to attend the annual general meeting of shareholders of the Company to be held on October 29th, 2001 and at any and all adjournments thereof and thereat, to act for and on behalf of and to vote the shares of the undersigned and to cast the number of votes the undersigned would be entitled to cast if personally present with respect to the matters specified below. The undersigned specifies that, with respect to any of the matters listed below, the number of votes which the undersigned would be entitled to cast if personally present shall on any poll or ballot be voted for or against by the proxyholder as so specified. The undersigned hereby authorizes the proxyholder to demand a poll. IF NO CHOICE IS SPECIFIED IN ANY ONE OR MORE OF THE SPACES SET OUT BELOW FOR THAT PURPOSE, AND WITH RESPECT TO ANY AMENDMENTS TO OR VARIATIONS IN ANY OF THE MATTERS LISTED BELOW AND TO OTHER MATTERS WHICH MAY PROPERLY COME BEFORE THE MEETING OR ANY ADJOURNMENT THEREOF, THE UNDERSIGNED HEREBY CONFERS SOLE DISCRETIONARY AUTHORITY ON THE PROXYHOLDER TO ACT AT SUCH MEETING AND ANY ADJOURNMENT THEREOF FOR AND ON BEHALF OF AND IN THE NAME OF THE UNDERSIGNED AND TO CAST THE NUMBER OF VOTES THAT THE UNDERSIGNED WOULD BE ENTITLED TO CAST IF PERSONALLY PRESENT, ALL IN THE SAME MANNER AND TO THE SAME EXTENT AND WITH THE SAME POWER AS THE UNDERSIGNED COULD DO IF PERSONALLY PRESENT THEREAT, THE UNDERSIGNED HEREBY RATIFYING AND CONFIRMING AND AGREEING TO RATIFY AND CONFIRM ALL THAT THE PROXYHOLDER MAY LAWFULLY DO BY VIRTUE HEREOF. VOTING CHOICE ON RESOLUTIONS ------------------------------- 1. To elect the following persons as directors of the Company for the ensuing year: JOHN G. ROBERTSON FOR _________ WITHHOLD VOTE __________ JENNIFER LORETTE FOR _________ WITHHOLD VOTE __________ SUSANNE M. ROBERTSON FOR _________ WITHHOLD VOTE __________ PATRICK BADGLEY FOR _________ WITHHOLD VOTE __________ 2. To adopt a resolution appointing Manning Elliott, Chartered Accountants, as the auditor of the Company until the next annual general meeting and to authorize the directors to fix their remuneration. FOR ___________ WITHHOLD VOTE ___________ 3. To approve an ordinary resolution to grant to the directors and employees of the Company, incentive stock options to purchase common shares in the capital stock of the Company for such periods, in such amounts and at such prices per share, including any amendments thereto, as agreed upon and at the discretion of the Board of Directors in accordance with the policies of the Canadian Venture Exchange and upon terms and conditions subject to the approval of the Canadian Venture Exchange and to approve the exercise of any options granted to insiders. FOR ____________ AGAINST ____________ -77- 4. To approve an ordinary resolution authorizing the issuance of common shares in the capital stock of the Company in amounts exceeding 20% of the issued and outstanding common shares in the capital stock of the Company on future public offerings, private placements, debt settlements, property acquisitions or other transactions requiring the issuance of common shares in the capital stock of the Company, at such prices and such times as the directors of the Company deem to be in the best interests of the Company, and in accordance with the policies of the Canadian Venture Exchange. FOR ___________ AGAINST ____________ The shares represented by this proxy may be voted on the above items by marking "X" in the space provided for that purpose. The undersigned hereby revokes any proxy previously given. Executed on the _______ day of _________________, 2001. ________________________ ____________________________________ Number of Shares Held Signature of Member or his attorney authorized in writing ____________________________________ Name of Member (Please Print) ____________________________________ Address ____________________________________ City/Province NOTES: 1. Complete this form of proxy and deposit with, mail to or send by facsimile transmission to Computershare Investor Services Inc. at 4th Floor, 510 Burrard Street, Vancouver, BC, V6C 3B9. The proxy must be received at the office of ComputerShare Investor Services Inc. at least 48 hours (excluding Saturdays, Sundays and holidays) prior to the scheduled time of the meeting at which such proxy is to be used. 2. Failure to comply with the time deadlines set out will result in your proxy being invalid. 3. A proxy will not be valid unless it is dated and signed by the Member or the Member's attorney in writing and, in such case, the form of power of attorney must be attached to the Proxy. 4. If the member is a company, the Instrument of Proxy should be under its corporate seal and executed by an officer or attorney thereof duly authorized. 5. IF A MEMBER WISHES TO APPOINT A PERSON OTHER THAN THOSE WHOSE NAMES ARE PRINTED ON THE FORM OF PROXY, THE MEMBER SHOULD STRIKE OUT THE NAMES PROVIDED AND INSERT THE NAME OF HIS NOMINEE AS PROXYHOLDER IN THE SPACE PROVIDED FOR THAT PURPOSE. -78-