UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES ACT OF 1934
For the Fiscal Year Ended April 30, 2005
COMMISSION FILE NO. 0-23920
REGI U.S., INC.
(Name of small business issuer as specified in its charter)
OREGON | 91-1580146 |
(State or other jurisdiction of | (I.R.S. Employer |
incorporation or organization) | Identification Number) |
1103 - 11871 HORSESHOE WAY
RICHMOND, BRITISH COLUMBIA V7A 5H5, CANADA
(Address, including postal code, of registrant's principal executive offices)
(604) 278-5996
(Telephone number including area code)
Securities registered pursuant to Section 12(b) of the Exchange Act: NONE
Securities registered pursuant to Section 12(g) of the Exchange Act:
Title of each class | Name of each Exchange on which registered: |
Common Stock, no par value | NASD Over the Counter Bulletin Board |
Berlin Bremen Stock Exchange |
Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
ý Yes o No
Check if disclosure of delinquent filers pursuant to Item 405 of Regulation S-B is not contained in this form, and no disclosure will be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in part III of this form 10-KSB or any amendment to this Form 10-KSB. o
State the issuer’s revenues for its most recent fiscal year: nil.
The aggregate market value of the voting stock held by non-affiliates of the registrant on July 25, 2005, computed by reference to the price at which the stock was sold on that date: $11,157,893.
The number of shares outstanding of the registrant's Common Stock, no par value, as of July 25, 2005 was 23,764,475.
Documents incorporated by reference: See Exhibits.
Transitional Small Business Disclosure Format (Check one): Yes o No ý.
REGI U.S., INC.
FORM 10-KSB
TABLE OF CONTENTS
THIS ANNUAL REPORT ON FORM 10-KSB, INCLUDING EXHIBITS THERETO, CONTAINS FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF SECTION 27A OF THE SECURITIES ACT OF 1933, AS AMENDED, AND SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. THESE FORWARD-LOOKING STATEMENTS ARE TYPICALLY IDENTIFIED BY THE WORDS "ANTICIPATES", "BELIEVES", "EXPECTS", "INTENDS", "FORECASTS", "PLANS", "FUTURE", "STRATEGY", OR WORDS OF SIMILAR MEANING. VARIOUS FACTORS COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE EXPRESSED IN THE FORWARD-LOOKING STATEMENTS, INCLUDING THOSE DESCRIBED IN "RISK FACTORS" IN THIS FORM 10-KSB. WE ASSUME NO OBLIGATION TO UPDATE THESE FORWARD-LOOKING STATEMENTS TO REFLECT ACTUAL RESULTS, CHANGES IN ASSUMPTIONS, OR CHANGES IN OTHER FACTORS, EXCEPT AS REGULATED BY LAW.
PART I
ITEM 1. DESCRIPTION OF BUSINESS
GENERAL
We were organized under the laws of the State of Oregon on July 27, 1992 as Sky Technologies, Inc. On August 1, 1994, our name was officially changed by a vote of a majority of our shareholders to REGI U.S., Inc. We are controlled by Rand Energy Group Inc., a privately held British Columbia corporation ("RAND"), which, in turn, is controlled 51% by Reg Technologies Inc., a publicly held British Columbia corporation ("Reg Tech").
We are engaged in the business of developing and building an improved axial vane-type rotary engine known as the Rand Cam/Direct Charge Engine ("RC/DC Engine"), which is a variation of the Rand Cam Rotary Engine, an axial vane rotary engine ("Original Engine"). The worldwide, exclusive of the United States, intellectual and marketing rights to the RC/DC Engine are held by RAND. We hold the rights to develop, build and market the RC/DC Engine design in the U.S. pursuant to an agreement with RAND. Under a project cost sharing agreement entered into with RAND effective May 1, 1993, each company funds 50% of the continuing development cost of the RC/DC Engine.
Our principal offices are located at 1103-11871 Horseshoe Way, Richmond, British Columbia V7A 5H5, Canada. Our telephone number is (604) 278-5996 and our telefacsimile number is (604) 278-3409. Our website is www.regtech.com.
We will likely need to raise additional capital in the future beyond any amount currently on hand and which may become available as a result of the exercise of warrants and options which are currently outstanding, in order to fully implement our intended plan of operations.
BUSINESS OF THE COMPANY AND PRODUCTS
Overview and History
We are engaged in the business of developing and building an improved axial vane-type rotary engine known as the Rand CamTM Direct Charge (“RC/DC”) Engine, which is a variation of the Original Engine. The Original Engine is an axial vane rotary engine, the worldwide marketing rights to which are held by RAND. A United States patent was issued for the RC/DC Engine on July 4, 1995, and assigned to us. Since no marketable product has yet been developed, we have not received any revenues from operations.
The RC/DC Engine is based upon the Original Engine patented in 1983. Brian Cherry, a former officer and director of the Company, has done additional development work on the Original Engine which resulted in significant changes and improvements for which the U.S. patent has been issued and assigned to us. We believe the RC/DC Engine offers important simplification from the basic Original Engine, which will make it easier to manufacture and will also allow it to operate more efficiently.
Pursuant to an agreement dated October 20, 1986 between Reg Tech, Rand Cam Corp. and James McCann, Reg Tech agreed to acquire a 40% voting interest in a new corporation to be incorporated to acquire the rights to the Original Engine. The new corporation was RAND. Reg Tech acquired the 40% voting interest in RAND in consideration of the payment of $250,000.
Pursuant to an agreement made as of April 27, 1993 among Reg Tech, Rand Cam Corp., RAND and James McCann, Reg Tech acquired an additional 330,000 shares (11%) of RAND from Rand Cam Corp. to increase its investment to 51%.
On August 20, 1992, we entered in an agreement with RAND and Brian Cherry (the "August 1992 Agreement") under which we issued 5,700,000 shares of our Common Stock at a deemed value of $0.01 per share to RAND in exchange for certain valuable rights, technology, information, and other tangible and intangible assets, including improvements, relating to the United States rights to the Original Engine. RAND's president is also our president and its Vice President and Secretary is also one of our directors. The terms of the agreement were negotiated between the parties and were deemed to be mutually advantageous based upon conditions and circumstances existing at the time.
We entered into an agreement dated April 13, 1993 with RAND, Reg Tech and Brian Cherry (the "April 1993 Agreement") and made as an amendment to a previous Amendment Agreement dated November 23, 1992 between RAND, Reg Tech and Brian Cherry and an original agreement dated July 30, 1992 between RAND, Reg Tech and Brian Cherry, Cherry agreed to: (a) sell, transfer and assign to RAND worldwide rights, except for the United States, to all of his right, title and interest in and to the technology related to the RC/DC Engine (the "Technology"), including all pending and future patent applications in respect of the Technology, together with any improvements, changes or other variations to the Technology; (b) sell, transfer and assign to the Company United States of America rights to all of his right, title and interest in and to the Technology, including all pending and future patent applications in respect of the Technology, together with any improvements, changes or other variations to the Technology. On November 9, 1993, in consideration for this transfer of the Technology, Brian Cherry was issued 100,000 shares of Reg Tech with a deemed value of $200,000.
A final provision of the April 1993 Agreement assigned and transferred ownership of any patents, inventions, copyrights, know-how, technical data, and related types of intellectual property conceived, developed or created by RAND or its associated companies either to us which results or derives from the direct or indirect use of the Original Engine and/or RC/DC Engine technologies by RAND.
We entered into a letter of understanding dated December 13, 1993, with RAND and Reg Tech, as grantors, and West Virginia University Research Corporation ("WVURC"), the grantors agreed that WVURC shall own 5% of all patented technology relating to the Original Engine and the RC/DC Engine. WVURC performed extensive analysis and testing on the RC/DC engine. WVURC provided support and development of the RC/DC Engine including research, development, testing evaluation and creation of intellectual property. In addition, WVURC introduced us to potential customers and licensees. We are entitled to all intellectual property developed by WVURC relating to the RC/DC Engine.
Based upon testing work performed by independent organizations on prototype models, we believe that the RC/DC Engine holds significant potential in a number of other applications ranging from small stationary equipment to automobiles and aircraft. In additional to its potential use as an internal combustion engine, the RC/DC Engine design is being employed in the development of several types of compressors, pumps, expanders and other applications.
To date, several prototypes of the RC/DC Engine have been tested and additional development and testing work is continuing. We believe that such development and testing will continue until a commercially feasible design is perfected. There is no assurance at this time, however, that such a commercially feasible design will ever be perfected, or if it is, that it will become profitable. If a commercially feasible design is perfected, we do, however, expect to derive revenues from licensing the Technology relating to the RC/DC Engine regardless of whether actual commercial production is ever achieved. There is no assurance at this time, however, that revenues will ever be received from licensing the Technology even if it does prove to be commercially feasible.
We believe that a large market would exist for a practical rotary engine which could be produced at a competitive price and which could provide a good combination of fuel efficiency, power density and exhaust emissions.
Based on the market potential, we believe the RC\DC Engine is well suited for application to internal combustion engines, pumps, compressors and expansion engines. The mechanism can be scaled to match virtually any size requirement. This flexibility opens the door to large markets being developed.
We are currently testing prototypes for several applications. Our strategy is to develop engines and compressors for low to medium horsepower applications, then apply the Technology to larger applications. We have licensed the Technology for several projects. The licensee’s have agreed to fund their projects for research and development of the specific applications. To date, we have completed a license agreement with Radian MILPARTS for greater than 10 H.P. for military applications. License agreements to Rotary Power have been terminated due to non payment. The Advanced Ceramics agreement has also terminated due to the fact that Phase II funding was not approved and received pursuant to our agreement.
PRODUCTS AND PROJECTS
Rand Cam Technology
Rand Cam Cold Turbine Engine
On May 7, 2003 we announced that Rotary Power International has been granted a license agreement for the power generator applications. On June 9, 2003 we announced that the license had been extended to December 31, 2003. The agreement has now lapsed due to non payment of the $100,000.
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.
In May 2004 the Company completed an amended Rand CamTM UAV engine license agreement with Radian, Inc. Radian, Inc. agrees to furnish REGI U.S., Inc. with a second generation, application specific Rand CamTM 42 H.P. diesel engine at the conclusion of their Phase II study program. The Radian, Inc. UAV product development program commenced early in 2004. The Phase I/ Study Rand CamTM 42 H.P. diesel engine demonstrated that the engine generates sufficient pressure and temperature to proceed with the second generation diesel engine.
On November 3, 2004 we announced that the Canadian Patent was issued for the Rand CamTM Rotary Engine effective October 5, 2004. The term of the patent is twenty years from the date of the filing on December 11, 1992.
On November 29, 2004, we announced that a world wide license agreement, excluding the rights for the United States of America that are held by REGI U.S. for the Rand CamTM technology has been successfully completed with Rand Energy Group Inc. Reg Technologies, Inc., our parent company, has agreed to pay a 5% net profit interest and make annual payments of $50,000. Reg Technologies, Inc. will be responsible for 50% of the costs for development and production of the Rand CamTM technology.
The world wide patents cover Canada and several countries in Europe, namely, Germany, France, Great Britain, and Italy. Reg Technologies, Inc., together with REGI U.S., Inc., is in the process of testing a Rand CamTM diesel engine for a generator application for hybrid electric cars. Additionally, our licensee for the 42 H.P. production model diesel Rand CamTM is currently completing the engine for unmanned aerial applications for the U.S. military.
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.
A special 3.2 SCFM air compressor has been designed and built 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.
In January, 2004, testing for the air conditioning compressor for buses application had commenced by Trans Air Manufacturing. The new manifold has been installed on the working prototype compressor and pressure testing has commenced. Trans Air Manufacturing will first perform bench testing to baseline speed, performance, and power consumption data before designing to install on a vehicle for “real world” testing.
Based on the successful completion of the Joint Venture, being the development and successful testing of a working prototype of the Bus Compressor, Trans Air shall have the exclusive right and shall use its reasonable efforts to market, merchandise, sell and exploit the Bus Compressor within the markets or geographical areas in which Trans Air, in its sole option and discretion, believes such efforts would be appropriate. Currently Brian Cherry, our Vice President of Research and Development, is overseeing the testing of the air conditioning compressor.
In August 2004, we completed compressor tests which displayed encouraging results of up to 25 P.S.I. with only 800 R.P.M. The testing for the compressor was completed on behalf of Trans Air Manufacturing for air-conditioning in bus applications, and exceeded our expectations. We are currently negotiating a license agreement for compressor applications, to be announced when the terms and conditions are finalized.
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.
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 declined the option to purchase an additional 50% interest. To date, neither patent confirmation nor approval has been received by Reg.
Ceramic Rand CamTM Engine
In July 2003, the RadMax TM Engine was announced at the AUVSI Conference Association for Unmanned Vehicle Systems. (AUV) by our licensee Radian MILPARTS. The announcement stated that plans are in place to start calibration testing at the Naval Air Systems Command (NAVAIR) Patuxent River, MD late in the summer. Procedures are written and in place to
determine and document the RadMax TM Engines horsepower, its vibration and noise metrics, and so forth. Following completion of the testing, to be conducted by engineers, first production units will generally be available by the fall, followed by a full production run next year.
The announcement further stated that the RadMax TM Engine, a heavy fuel engine that is comprised of only 13 moving parts, is completely balanced and on all speeds, loads and orientation angles. Without piston valves, a crankshaft or camshaft it is inherently quiet at 60 dB at 1,500 feet.
We have entered into an agreement with Radian which grants an exclusive license for the manufacture of the Rand Cam Diesel Engines within the United States, for applications in Unmanned Autonomous Vehicles (UAV'S) over 10 horsepower, including non-exclusive rights to the worldwide sales for this application.
In February, 2004 we announced that a REGI licencee for unmanned vehicle system engines had completed testing of the prototype 42 H.P. engine. Tests occurred at Adiabatics in Columbus, IN and at the U.S. Navy's test facility at Patuxent River, MD. The initial test results demonstrated that the first generation prototype engine generated pressure and temperature. The licencee has started design of a second generation prototype. The documentation and one of the completed 42 H.P. Rand Cam(tm) engines have been delivered to REGI U.S., Inc. as part of the license agreement.
Rand CamTM Generator and Fuel Cell Technology
In September 2004 testing had commenced for the Rand CamTM generator application for hybrid electric cars, portable generator application, and for back up power for family homes. Brian Cherry, our Vice President of the Rand CamTM engine projects and co-inventor of the Rand CamTM technology, is overseeing the development and testing in conjunction with two rotary engine mechanics with over 10 years experience with the Mazda rotary engine.
In April, 2005 we completed several successful, continuous combustion tests for the Rand CamTM engine using gasoline fuel. The series of tests took place at SNK’s facilities, in Richmond, BC, on April 14, 2005, with starter speed of up to 490 RPM, utilizing a unique vane design that does not require vane tip seals. Eliminating the need for vane tip seals will reduce the manufacturing and maintenance costs significantly, therefore, resulting in a breakthrough with the technology. The Rand CamTM engine design will be further tested for generator and hybrid car applications.
On June 29, 2005, REGI U.S., Inc. we entered into an exclusive distributor agreement relating to fuel cell technology (the “Technology”) with Anuvu Incorporated (“Anuvu”). Our affiliate, Reg Technologies, Inc., agrees to pay $200,000.00 as payment in full for the exclusive Canadian Distributorship for the Technology. We have an option to pay $300,000 for the exclusive European rights for the Technology, of which $150,000.00 is to be paid within 90 days from the date of the Agreement and the final payment of $150,000.00 is to be paid on or before November 30, 2005
We agree to issue 200,000 treasury shares of REGI U.S., Inc. to Anuvu upon confirmation of acceptance of the European fuel cell technology patents. Anuvu will submit a patent application for Canada and Europe based on the current fuel cell technology claims set forth in claims of the U.S. Patents Pending held by Anuvu before the deadline date by the Patent Office. Patents will be owned by Anuvu and used exclusively in Europe by REGI during the term of the Agreement. REGI agrees to pay for the patent application costs and associated legal fees for Europe.
Reg Technologies, Inc. and REGI agree to pay a 5% royalty of the adjusted gross sales relating to the Technology.
REGI and Reg Technologies, Inc. will receive up to 1,000,000 warrants of Anuvu, based on 2 warrants issued for every $1.00 paid for the Distribution rights. The warrants enable REGI and Reg Technologies, Inc. the right to purchase up to 1,000,000 shares of Anuvu for a total of $10,000 for a period of one year.
Anuvu agrees as follows:
• | to give REGI a right of first refusal
to purchase Anuvu shares, in the event additional shares are to
be issued or purchased, for a period of six months; |
• | to build a working fuel cell model prototype
for a vehicle for demonstration purposes in Canada and Europe on
behalf of Reg Technologies, Inc. and REGI |
• | to work on the Rand CamTM projects as
required by Reg Technologies, Inc. and REGI, under a contract basis; |
• | to grant to REGI and Reg Technologies
a right of first refusal to exclusively use, manufacture, develop, sell,
market and distribute products based on new patents and applications
for patents, improvements, technology, products, devices, know-how,
inventions, ideas, methods, processes and concepts, which are owned or
developed by Anuvu and are not included in the Distributorship Patents
in consideration for 100,000 treasury shares of REGI. |
We believe the companies have a common objective of developing a clean burning new source of power for vehicles, which are currently using gasoline driven piston engines. We are in the final phase of developing a light weight rotary engine that will run on any fuel, including cleaner burning fuels, such as hydrogen, propane and natural gas.
Anuvu Fuel Cell Advantages:
• | Anuvu recently commenced building 1,100
fuel cell engines for an automotive customer. |
• | The Anuvu fuel cell is Integration-Ready,
complete fuel cell systems have been integrated into on-road vehicles,
boats, off-road vehicles and extensively used in driving simulators. |
• | Anuvu fuel cells exceed goals for DOE
weight and volume for mobile applications |
• | Improved stack efficiency and life by
liquid cooling each cell for uniform temperature |
control. |
|
• | Improved water management technology
which allows operation over a broad range of gas and humidity conditions,
greatly reducing the complexity and cost of gas humidification subsystems |
• | Smaller, lighter, more robust and vibration
tolerant |
• | Carbon-based to reduce catalyst poisoning,
increasing cell life |
• | Lower cost with no precious metals, except
a trace amount of platinum |
• | Designed for high volume manufacturing
and consistency of performance |
Corporate
In April 2004 the Company received an additional listing on the Berlin Bremen Stock Exchange (www.berlinerboerse.de) under the symbol RGJ, German Cusip Number S7589431045/786692. The Company retains the OTC Bulletin Board listing Symbol: RGUS.OB.
REGI U.S., Inc.’s market maker is Berliner Freiverkehr (Aktien) AG, which is one of the largest German brokerage firms and acts as market maker for the Unofficial Regulated Markets in Berlin and Frankfurt. The main advantage for REGI U.S., Inc. to trade on the Berlin Bremen Stock Exchange, is that the German investors, including small ones, can buy REGI U.S., Inc. shares in their domestic currency, thus making transactions easier and less expensive.
In June 2004 Brian Cherry was appointed Vice President of the Rand CamTM engine technology projects. Brian Cherry is the inventor of the Direct Charge Rand CamTM engine patented in 1996 by REGI U.S., Inc. and is currently the project manager in charge of developing a Rand CamTM electric generator for hybrid electric automobiles, and for residential uses in family homes. Mr. Cherry will also be overseeing and preparing the current submission of a new patent application on the Rand CamTM technology. The generator can run on any fuel including hydrogen and natural gas. The tests are to commence within 30 days utilizing an alternator as the electric output, and the Rand CamTM engine as the power source. REGI U.S., Inc. has signed an agreement with Brian Cherry to develop the generator application and other applications for a period of two years in consideration for 150,000 treasury shares of REGI U.S., Inc.
MARKETING
We intend to pursue the development of the RC/DC Engine and the air pump, compressor and other products by entering into licensing and/or joint venture arrangements with other larger companies, which have the financial resources to maximize the potential of the technology. At the present time, we have signed license agreements with Advanced Ceramics Research, Inc., Radian, Inc. and Rotary Power Generation, Incorporated. 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 expect revenue from license agreements with the potential end users based on the success of the design from the compressor, pump, 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. We are awaiting test results from Trans Air. Currently, Brian Cherry, our Vice President of Research and Development, is overseeing the testing of the air conditioning compressor.
AIR PUMP – A prototype air pump for a Fuel Cell Application has been completed and will be delivered to the Fuel Cell manufacturer and others. We plan to build several additional air pumps for demonstration purposes for other fuel cell uses.
DIESEL ENGINE – We have signed a license agreement with Radian MILPARTS to further develop our Rand Cam Technology for a 42 horsepower engine. Our license agreement with Radian calls for a 6% royalty to us and one working model 42 horsepower diesel engine for our own use for demonstration purposes for the other commercial applications.
GENERATOR AND FUEL CELL - We entered into an exclusive distributor agreement with Anuvu Incorporated to build a working fuel cell model prototype for a vehicle for demonstration purposes in Canada and Europe on behalf of Reg Technologies, Inc. and REGI, to work on the Rand CamTM projects as required by Reg Technologies, Inc. and REGI, under a contract basis and to grant to REGI and Reg Technologies a right of first refusal to exclusively use, manufacture, develop, sell, market and distribute products developed.
COMPETITION
We currently face and will continue to face competition in the future from established companies engaged in the business of developing, manufacturing and marketing engines and other products. While not a highly competitive business in terms of numbers of competitors, the business of developing engines of a new design and attempting to either license or produce them is nonetheless difficult because most existing engine producers are large, well financed companies which are very concerned about maintaining their market position. Such competitors are already well established in the market and have substantially greater resources than us. Internal combustion engines are produced by automobile manufacturers, marine engine manufacturers, heavy equipment manufacturers and specialty aircraft and industrial engine manufacturers. We expect that our engine would be used mainly in industrial and marine applications.
Except for the Wankel rotary engine built by Mazda of Japan, no competitor, that we are aware of, presently produces in a commercial quantity any rotary engine similar to the engines we are developing. The Wankel rotary engine is similar only in that it is a rotary engine rather than a reciprocating piston engine. Without substantially greater financial resources than is currently available to us, however, it is very possible that it may not be able to adequately compete in the engine business. One competitor, Rotary Power International, is presently producing the first production SCORE rotary (Wankel type) engines. Our RC\DC Engine is calculated to be, smaller, quieter, costs less to produce and maintain.
We believe that if and when our engine is completely developed, in order to be successful in meeting or overcoming competition which currently exists or may develop in the future, our engine will need to offer superior performance and/or cost advantages over existing engines used in various applications.
RAW MATERIALS AND PRINCIPAL SUPPLIERS
Since we are not in production and there are no plans at this time for us to enter the actual engine manufacturing business, raw materials are not of present concern. At this time, however, there does not appear to be any foreseeable problem with obtaining any materials or components, which may be required in the manufacture of its potential products.
PATENTS, TRADEMARKS, LICENCES, FRANCHISES, CONCESSIONS, ROYALTY AGREEMENTS, LABOR CONTRACTS, INCLUDING DURATION
Patents
U.S. patent No. 5,429,084 was granted on July 4, 1995, to the inventor, Brian Cherry, Patrick Badgley and four other individuals for various improvements incorporated in the RC/DC Engine. The patent has been assigned to us. U.S. Patent 4,401,070 for the Original Engine was issued on August 30, 1983, to James McCann and RAND holds the marketing rights.
The RC/DC Engine is composed basically of a disk shaped rotor with drive shaft, which turns, and the housing or stator, which remains stationary. The rotor has two or more vanes that are mounted perpendicular to the direction of rotation and slide back and forth through it. As the rotor turns, the ends of the vanes ride along the insides of the stator housing which have wave-like depressions, causing the vanes to slide back and forth. In the process of turning and sliding, combustion chambers are formed between the rotor, stator walls and vanes where the fuel/air mixture is injected, compressed, burned and exhausted.
Two additional patents have been issued for improvements to the engine including: U.S. Patents 5,509,793 “Rotary Device with Slidable Vane Supports) issued April 24, 1996 and 5,551,853 “Axial Vane Rotary Device and Sealing System Therefor) issued September 3, 1996. The Company has submitted additional Rand CamTM improvements for a patent in the month of July.
On November 3, 2004 we announced that the Canadian Patent was issued for the Rand CamTM Rotary Engine effective October 5, 2004. The term of the patent is twenty years from the date of the filing on December 11, 1992.
On November 29, 2004, we announced that a world wide license agreement, excluding the rights for the United States of America that are held by REGI U.S. for the Rand CamTM technology has been successfully completed with Rand Energy Group Inc. Reg Technologies, Inc., our parent company, has agreed to pay a 5% net profit interest and make annual payments of $50,000. Reg Technologies, Inc. will be responsible for 50% of the costs for development and production of the Rand CamTM technology.
The world wide patents cover Canada and several countries in Europe, namely, Germany, France, Great Britain, and Italy. Reg Technologies, Inc., together with REGI U.S., Inc., is in the process of testing a Rand CamTM diesel engine for a generator application for hybrid electric cars. Additionally, our licensee for the 42 H.P. production model diesel Rand CamTM is currently completing the engine for unmanned aerial applications for the U.S. military.
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.
RISK FACTORS
You should carefully consider the following risks and the other information in this Report and our other filings with the SEC before you decide to invest in us or to maintain or increase your investment.
The risks and uncertainties described below are not the only ones facing us. Additional risks and uncertainties may also adversely impact and impair our business. If any of the following risks actually occur, our business, results of operations, or financial condition would likely suffer. In such case, the trading price of our common stock could decline, and you may lose all or part of your investment.
Developmental Stage Company. We were incorporated on July 27, 1992. We are a development stage company. In a development stage company, management devotes most of its activities to establishing a new business. Planned principal activities have not yet produced significant revenues and we have suffered recurring operating losses as is normal in development stage companies. We also have a working capital deficit of $211,623. These factors raise substantial doubt about our ability to continue as a going concern. Our ability to emerge from the development stage with respect to our planned principal business activity is dependent upon our successful efforts to raise additional equity financing, receive funding from affiliates and controlling shareholders, and develop a market for our products.
Ability to develop product. We have no assurance at this time that a commercially feasible design will ever be perfected, or if it is, that it will become profitable. Our profitability and survival will depend upon our ability to develop a technically and commercially feasible product which will be accepted by end users. The RC/DC Engine which we are developing must be technologically superior or at least equal to other engines that competitors offer and must have a competitive price/performance ratio to adequately penetrate its potential markets. If we are not able to achieve this condition or if we do not remain technologically competitive, we may be unprofitable and our investors could lose their entire investment. There can be no assurance that we or potential licensees will be able to achieve and maintain end user acceptance of our engine.
Negative Shareholders' Equity. We have a negative shareholders equity as of the date of this 10-KSB. Our ability to continue as a going business will be dependent upon our ability to raise additional capital and/or generate revenues from operations.
Need for Additional Capital. We rely on our ability to raise capital through the sale of our securities. Our the ultimate success will depend upon our ability to raise additional capital or to have other parties bear a portion of the required costs to further develop or exploit the potential market for our products. REG Tech and REGI have agreed to provide the necessary funds for the development of the RC/DC Diesel Engine prototypes and our other operations until joint venture or license agreements can be completed.
Dependence on Consultants and Outside Manufacturing Facilities. Since our present plans do not provide for a significant technical staff or the establishment of manufacturing facilities, we will be primarily dependent on others to perform these functions and to provide the requisite expertise and quality control. There is no assurance that such persons or institutions will be available when needed at affordable prices. It will likely cost more to have independent companies do research and manufacturing than for us to handle these resources.
Product/Market Acceptance. Our profitability and survival will depend upon our ability to develop a technically and commercially feasible product which will be accepted by end users. The RC/DC Engine and the AVFCS which we are developing must be technologically superior or at least equal to other engines which our competitors offer and must have a competitive price/performance ratio to adequately penetrate our potential markets. A number of rotary engines have been designed over the past 70 years but only one, the Wankel, has been able to achieve mechanical practicality and any significant market acceptance. If we are not able to achieve this condition or if we do not remain technologically competitive, we may be unprofitable and our investors could lose their entire investment. There can be no assurance that we or our potential licensees will be able to achieve and maintain end user acceptance of our engine or the AFVCS.
No Formal Market Survey. We have not conducted a formal market survey but statistics available on the aircraft, marine and industrial markets alone indicate an annual market potential of more than one hundred million dollars.
Competition. While not a highly competitive business in terms of numbers of competitors, the business of developing engines of a new design and attempting to either license or produce them is nonetheless difficult because most existing engine producers are large, well financed companies which are very concerned about maintaining their market position. There is no assurance that we will be successful in meeting or overcoming our current or future competition.
Protection of Intellectual Property. Our business depends on the protection of our intellectual property and may suffer if we are unable to adequately protect our intellectual property. The success of our business depends on our ability to patent our engine. Currently, we have been granted several U.S. Patents. We cannot provide assurance that our patents will not be invalidated, circumvented or challenged, that the rights granted under the patents will give us competitive advantages or that our patent applications will be granted.
History of Losses. We have a history of operating losses, and an accumulated deficit, as of April 30, 2005, of $6,723,452. Our ability to generate revenues and profits is subject to the risks and uncertainties encountered by development stage companies.
Our future revenues and profitability are unpredictable. We are currently have no signed contracts that will produce revenue and we do not have an estimate as to when we will be entering into such contracts. Furthermore, we cannot provide assurance that management will be successful in negotiating such contracts.
Rapid Technological Changes could Adversely Affect Our Business. The market for our engines is characterized by rapidly changing technology, evolving industry standards and changing customer demands. Accordingly, if we are unable to adapt to rapidly changing technologies and to adapt our product to evolving industry standards, our business will be adversely affected.
Management and Conflicts of Interest. Our present officers and directors have other unrelated full-time positions or part-time employment. Some officers and directors will be available to participate in management decisions on a part-time or as-needed basis only. Our management may devote time to other companies or projects which may compete directly or indirectly with us.
Control by Current Insiders. 17,165,989 common shares, not including currently exercisable options or warrants, are owned by current insiders representing control of approximately 72% of the total voting power. Accordingly, the present insiders will continue to elect all of our directors and generally control our affairs.
Need for Additional Key Personnel. At the present, we employ no full time employees. Our success will depend, in part, upon the ability to attract and retain qualified employees. We believe that we will be able to attract competent employees, but no assurance can be given that we will be successful in this regard. If we are unable to engage and retain the necessary personnel, our business would be materially and adversely affected.
Indemnification of Officers and Directors for Securities Liabilities. Our Bylaws provide that we may indemnify any Director, Officer, agent and/or employee as to those liabilities and on those terms and conditions as are specified in the Oregon Business Corporation Act. Further, we may purchase and maintain insurance on behalf of any such persons whether or not we would have the power to indemnify such person against the liability insured against. This could result in substantial expenditures by us and prevent any recovery from such Officers, Directors, agents and employees for losses incurred by us as a result of their actions. Further, we have been advised that in the opinion of the Securities and Exchange Commission, indemnification is against public policy as expressed in the 1933 Act and is therefore, unenforceable.
General Factors. Our areas of business may be affected from time to time by such matters as changes in general economic conditions, changes in laws and regulations, taxes, tax laws, prices and costs, and other factors of a general nature which may have an adverse effect on our business.
Limited Public Market for the Common Stock. At present, only a limited public market exists for the Common Stock on the over-the-counter bulletin board maintained by the National Association of Securities Dealers and there is no assurance that a more active trading market will develop, or, if developed, that it will be sustained.
Estimates and Financial Statements. The information in this Form 10-KSB consists of and relies upon evaluation and estimates made by management. Even though management believes in good faith that such estimates are reasonable, based upon market studies and data provided by sources knowledgeable in the field, there can be no assurance that such estimates will ultimately be found to be accurate or even based upon accurate evaluations.
No Foreseeable Dividends. We have not paid dividends on our Common Stock and do not anticipate paying dividends on our Common Stock in the foreseeable future.
Possible Volatility of Securities Prices. The market price for our Common Stock traded on the over-the-counter bulletin board has been highly volatile since it began trading and will likely to continue to behave in this manner in the future. Factors such as our operating results and other announcements regarding our development work and business operations may have a significant impact on the market price of our securities. Additionally, market prices for securities of many smaller companies have experienced wide fluctuations not necessarily related to the operating performance of the companies themselves.
GOVERNMENT REGULATIONS
Our engine products including the spark ignited engine, Diesel engine and Cold Turbine engine will be subject to various exhaust emissions standards depending upon the application and the country in which it is produced and/or sold. As each product becomes ready for sale, it will be necessary to have the engine certified according to the standards in effort at that time.
DEPENDENCE ON CERTAIN CUSTOMERS
Although we have no key customers at the present time, we expect that if our development work is successful, we will likely become dependent, at least initially, upon one or very few key customers. Such dependence could prove to be risky in the event that one or more such potential customers were to be lost and not replaced.
RESEARCH AND DEVELOPMENT
The basic research and development work on the RC/DC Engine and other products is being coordinated and funded by Reg Tech and funded as to 50%.
We plan to contract with outside individuals, institutions and companies to perform most of the additional research and development work which we may require to benefit from our rights to the RC/DC Engine and other products.
During the last two fiscal years, we have incurred a total of $178,394 in research and development expenses. During the last year, the majority of the costs were paid directly toward the building of the 42 horsepower prototypes by Radian Milparts and by Advanced Ceramics for the 10 horsepower ceramic engine for unmanned aerial applied uses.
COSTS AND EFFECTS OF COMPLIANCE WITH ENVIRONMENTAL LAWS
At the present time there is no direct financial or competitive effect upon our business as a result of any need to comply with any federal, state or local provisions which have been enacted or adopted regulating the discharge of materials into the environment, or otherwise relating to the protection of the environment.
NUMBER OF TOTAL EMPLOYEES AND NUMBER OF FULL-TIME EMPLOYEES
We currently have two contractors directly involved in technical development work on the RC/DC Engine. We expect to hire additional employees for those positions which we deem necessary to fill, as needs arise. Most additional employees are expected to be in technical and licensing/marketing positions.
ITEM 2. DESCRIPTION OF PROPERTY
We own no properties. We currently utilizes office space leased by Reg Tech in a commercial business park building located in Richmond, British Columbia, Canada, a suburb of Vancouver. The monthly rent for our portion of this office space is $500.00. The present facilities are believed to be adequate for meeting our needs for the immediate future. However we expect that we will likely acquire separate space when the level of business activity requires us to do so. We do not anticipate that we will have any difficulty in obtaining such additional space at favorable rates. There are no current plans to purchase or lease any properties in the near future.
ITEM 3. LEGAL PROCEEDINGS
We are not a party to any legal proceedings or litigation, nor are we aware that any litigation is presently being threatened or contemplated against us or any officer, director or affiliate.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There was no matter submitted to a vote by our security holders during the fourth quarter of our fiscal year ended April 30, 2005, through the solicitation of proxies or otherwise.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
There is a limited public market for our Common Stock which currently trades on the OTC Bulletin Board under the symbol "RGUS.OB" where it has been traded since September 21, 1994. The Common Stock has traded between $0.035 and $6.75 per share since that date.
The following table sets forth the high and low prices for our Common Stock as reported on the Bulletin Board for the quarters presented. These quotations reflect inter-dealer prices, without retail mark-up, mark-down or commissions, and may not reflect actual transactions.
Bid Price | Asked Price | |||
High$ | Low $ | High $ | Low $ | |
Quarter Ended April 30, 2003 | .09 | .04 | .11 | .05 |
Quarter Ended July 31, 2003 | .23 | .045 | .27 | .06 |
Quarter Ended October 31, 2003 | .43 | .12 | .46 | .18 |
Quarter Ended January 31, 2004 | .45 | .25 | .47 | .25 |
Quarter Ended April 30, 2004 | .32 | .19 | .37 | .20 |
Quarter Ended July 31, 2004 | .27 | .15 | .29 | .16 |
Quarter Ended October 31, 2004 | .4 | .24 | .425 | .285 |
Quarter Ended January 31, 2005 | 2.21 | .33 | 2.28 | .34 |
Quarter Ended April 30, 2005 | 1.07 | .369 | 1.1 | .04 |
(Information provided by The Over The Counter Bulletin Board. The quotations reflect inter-dealer prices, without retail mark-up, markdown, or commission and may not represent actual transactions.)
As of July 25, 2005, there were 23,764,475 shares of Common Stock outstanding, held by 253 shareholders of record.
DIVIDEND POLICY
To date we have not paid any dividends on our Common Stock and do not expect to declare or pay any dividends on our Common Stock in the foreseeable future. Payment of any dividends will be dependent upon future earnings, if any, our financial condition, and other factors as deemed relevant by our Board of Directors.
RECENT SALES OF UNREGISTERED SECURITIES
Set forth below is information regarding the issuance and sales of our securities without registration during the last fiscal year. No such sales involved the use of an underwriter. See Note 4 to our audited financial statements for the fiscal year ended April 30, 2005 for more information on recent sales of unregistered securities.
On December 24, 2004, the Company closed a private placement offering for subscriptions of 1,032,800 units of the Company at a purchase price of $0.25 per unit for total cash proceeds of $258,200. Each unit consisted of one common share of the Company and one-half non-transferable share purchase warrant. Each two one-half warrants may be exercised within one year of the date of issuance to the purchaser at a price of $0.35. This offering was exempt from registration under Rule 506 and Section 4(2) of the Securities Act of 1933, as amended (the "Act"). Each certificate representing securities issued to the investors in this private placement bears a legend restricting transfer. In addition, if the exemptions under Rule 506 under and Section 4(2) of the Act are not available, the sales to non-U.S. residents were exempt pursuant to Regulation S under the Act.
ITEM 6: MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
We are a development stage company engaged in the business of developing and commercially exploiting an improved axial vane type rotary engine known as the Rand Cam/Direct Charge Engine (the "RC/DC Engine").
As a development stage company, we devote most of our activities to establishing our business. Planned principal activities have not yet produced significant revenues and we have a working capital deficit. We have undergone mounting losses to date totaling $6,723,452 and further losses are expected until we complete a licensing agreement with a manufacturer and reseller. At April 30, 2005, our working capital deficit is $211,623. Our only assets are prepaid expenses, totaling $17,214. 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.
During the year, we raised $258,200 pursuant to a private placement of 1,032,800 units issued at $0.25 per unit. Each unit contains one share and one-half warrant. Each two one-half warrants may be exercised within one year of date of issuance to acquire one additional share at $0.35 per share. During the year, we also raised $29,750 from the exercise of 133,750 stock options, and $34,624 from the exercise of 173,120 share purchase warrants. During the fiscal year ended April 30, 2004, we raised $20,000 from the exercise of 100,000 stock options, and $86,000 from the exercise of 550,000 share purchase warrants. 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.
Results of operations for the year ended April 30, 2005 ("2005") compared to the year ended April 30, 2004 ("2004")
There were no revenues from product licensing during 2004 and 2003.
The net loss in 2005 decreased by $25,024 to $584,889 compared to $609,913 in 2004. The decrease was due to a decrease of $70,814 in general and administrative expenses and a decrease in research and development expenses of $33,468. The decrease in administrative expenses was mainly due to a decrease in stock-based compensation of $91,222 from $142,354 in 2004 to $51,132 in 2005. The decrease of $33,468 in research and development was mainly attributed to the increase in prototype design and construction contracts of $29,862 offset by a decrease in technical prototype design consulting fees of $60,000. The majority of prototype construction and testing costs continues to be borne by potential licensees and manufacturers. See above progress reports for research and development activity conducted during the year.
LIQUIDITY AND CAPITAL RESOURCES
During 2005, we financed our operations mainly through proceeds of $64,374 from the exercise of stock options and share purchase warrants, as well as proceeds of $258,200 from the completion of a private placement offering.
We received funding in 2004 from our affiliated companies (common officers and directors) and our 18% shareholder, Rand Energy Group, Inc. (“Rand”) and Reg Technologies Inc., the controlling shareholder of Rand Energy Group, Inc. The total amount owing to related parties is $137,650 or 60% of total current liabilities as at April 30, 2005. The balances owing to related parties are non-interest bearing, unsecured and repayable on demand. Our affiliated companies have indicated that they will not be demanding repayment of these funds during the next fiscal year and will advance, or pay expenses on behalf of, further funds if needed.
As at April 30, 2005, we had a working capital deficit of $211,623. We receive interim support from our ultimate parent company and plan to raise additional funds from equity financing which is yet to be negotiated. We also plan to raise funds through loans from a major shareholder (Rand). Rand owns 4,079,036 shares and plans to sell shares as needed to meet our ongoing funding requirements if traditional equity sources of financing prove to be insufficient.
ITEM 7. FINANCIAL STATEMENTS
Our financial statements are included and begin immediately following the signature page to this report. See Item 13 for a list of the financial statements and financial statement schedules included.
ITEM 8. CHANGES IN AND DISAGREEEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 8A. CONTROLS AND PROCEEDURES.
(a) Evaluation of disclosure controls and procedures.
As required by Rule 13a-15 under the Exchange Act, as of the end of the period covered by this annual report, being April 30, 2005, we have carried out an evaluation of the effectiveness of the design and operation of our company's disclosure controls and procedures. This evaluation was carried out under the supervision and with the participation of our company's management, including our President and our Chief Financial Officer. Based upon that evaluation, our President and our Chief Financial Officer concluded that our company's disclosure controls and procedures are effective. There have been no changes in our company's internal controls or in other factors, which could significantly affect internal controls subsequent to the date we carried out our evaluation.
Disclosure controls and procedures and other procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported, within the time period specified in the Securities and Exchange Commission's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in our reports filed under the Exchange Act is accumulated and communicated to management, including our President and our Chief Financial Officer as appropriate, to allow timely decisions regarding required disclosure.
(b) Changes in internal controls.
Subsequent to the date of their evaluation, there were no corrective actions taken by our Company or other changes made to these internal controls. Our Company's management does not believe there were changes in other factors that could affect these controls subsequent to the date of the evaluation.
ITEM 8B. OTHER INFORMATION.
None.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16 (a) OF THE EXCHANGE ACT.
Directors and Executive Officers of the Registrant
The following table sets forth the name, age and position of each of our Executive Officers and Directors:
Name | Age | Position |
John G. Robertson | 64 | Director, Chairman of the Board of Directors, President and Chief Executive Officer |
Jennifer Lorette | 33 | Director, Vice-President |
James Vandeberg | 61 | Director and Chief Operating Officer and Chief Financial Officer |
Brian Cherry* | 65 | Vice President, Rand CamTM Engine Technology Projects |
BUSINESS EXPERIENCE AND PRINCIPAL OCCUPATION OF DIRECTORS, EXECUTIVE OFFICERS AND SIGNIFICANT EMPLOYEES
Mr. Robertson has held his position since our formation in July, 1992. All officers currently devote part-time services to our operation.
There are no family relationships between any director or executive officer and any other director or executive officer.
The present and principal occupations of our directors and executive officers during the last five years are set forth below:
John G. Robertson - Chairman of the Board of Directors, President, Chief Executive Officer
Mr. Robertson has been our Chairman, President and Chief Executive Officer since our formation. Since October 1984 Mr. Robertson has been President and a Director of Reg Technologies Inc., a British Columbia corporation listed on the TSX Venture Exchange that has financed the research on the Rand Cam Engine since 1986. REGI U.S. is controlled by Rand Energy Group, Inc., a British Columbia corporation of which Reg Technologies Inc. is the majority shareholder. REGI U.S. owns the U.S. rights to the Rand Cam (TM) technology and Rand Energy Group, Inc. owns the worldwide rights exclusive of the U.S. Mr. Robertson is President, Principal Executive Officer and a member of the Board of Directors of IAS Communications, Inc., an Oregon corporation traded on the OTC bulletin board, which is developing a new type of antenna system. Since June 1997 Mr. Robertson has been President,
Principal Executive Officer and a Director of Information-Highway.com, Inc., a Florida corporation which is currently inactive, and its predecessor. He is also the President and Founder of Teryl Resources Corp., a public company trading on the TSX Venture Exchange involved in gold, diamond, and oil and gas exploration. He is also President of Linux Gold Corp., a public company trading on the OTC Bulletin Board. Since May 1977 Mr. Robertson has been President and a member of the Board of Directors of SMR Investments Ltd., a British Columbia corporation engaged in the business of management and investment consulting.
Jennifer Lorette - Vice President
Ms. Lorette became a member of the board of directors in January 2001. She has been our Vice President since June 1994, and was also previously Chief Financial Officer. Since 2001 she has also been a director for Reg Technologies, Inc., a British Columbia corporation listed on the TSX Venture Exchange that has financed the research on the Rand Cam Engine since 1986. REGI U.S. is controlled by Rand Energy Group, Inc., a British Columbia corporation of which Reg Technologies Inc. is the majority shareholder. Since February 1995 Ms. Lorette has been Secretary and a director of IAS Communications Inc., an Oregon corporation traded on the OTC bulletin board. Since June 1997 Ms. Lorette has been Executive Vice President and a Director of Information-Highway.com, Inc., a Florida corporation traded which is currently inactive, and its predecessor. Since November 2000 Ms. Lorette has also been a director of Linux Gold Corp. Since February 2001 Ms. Lorette has been a director of Teryl Resources Corp., a public company trading on the TSX Venture Exchange involved in gold, diamond, and oil and gas exploration.
James L. Vandeberg - Chief Operating Officer and Chief Financial Officer, and a Member of the Board of Directors
Mr. Vandeberg became a Director and Chief Operating Officer in November 1999 and Chief Financial Officer in 2000. Mr. Vandeberg is an attorney in Seattle, Washington. He has served as our legal counsel since 1996. Mr. Vandeberg's practice focuses on the corporate finance area, with an emphasis on securities and acquisitions. Mr. Vandeberg was previously general counsel and secretary of two NYSE companies and is a director of Information-Highway.com, Inc., a Florida corporation which is currently inactive. He is also a director of IAS Communications, Inc. an Oregon corporation traded on the OTC bulletin board since November 1998. Mr. Vandeberg is also a director of Linux Gold Corp., a British Columbia company traded on the OTC bulletin board. Mr. Vandeberg is also a director of Cyber Merchants Exchange, Inc. since May 2001. He is a member and former director of the American Society of Corporate Secretaries. He became a member of the Washington Bar Association in 1969 and of the California Bar Association in 1973. Mr. Vandeberg graduated cum laude from the University of Washington with a Bachelor of Arts degree in accounting in 1966, and from New York University School of Law in 1969, where he was a Root-Tilden Scholar.
Brian Cherry - Vice President, Rand CamTM Engine Technology Projects
Mr. Cherry was Vice President and a Director of the Company since its inception in July 1992, until January 2001 when he left the Company to pursue personal interests. Mr. Cherry was appointed Vice President, Rand CamTM Engine Technology Projects in June 2004.
Section 16(a) Beneficial Ownership Reporting Compliance
Based solely upon a review of Forms 3, 4 and 5 furnished to us, other than Messrs. Vandeberg and Cherry who furnished us with no forms during the year, none of our officers, directors or beneficial owners of more than ten percent of the Common Stock failed to file on a timely basis reports required to be filed by Section 16(a) of the Exchange Act during the most recent fiscal year.
ITEM 10. EXECUTIVE COMPENSATION
No executive officer had an annual salary and bonus in excess of $100,000 during the past fiscal year. Mr. Robertson received no compensation from us in fiscal year 2005.
Name and Principal Position |
Year |
Annual Compensation | Long-Term Compensation | |||||
Awards | Payouts | |||||||
Salary ($) |
Bonus ($) |
Other Annual Compensation ($) |
Restricted Stock Award(s) (#) |
Securities Under- lying Options/ SARs (#) |
LTIP (2) Payout ($) |
All Other Compensation ($) |
||
John G. Robertson, President and CEO |
2005 2004 2003 |
Nil Nil Nil |
Nil Nil Nil |
30,000 36,000(3) Nil |
Nil Nil Nil |
Nil Nil Nil |
Nil Nil Nil |
Nil Nil Nil |
(1) | "SARS" or "stock appreciation right" means
a right granted by US, as compensation for services rendered, to receive
a payment of cash or an issue or transfer of securities based wholly or
in part on changes in the trading price of our publicly traded securities.
|
(2) | "LTIP" or "long term incentive plan" means
any plan which provides compensation intended to serve as incentive for
performance to occur over a period longer than one financial year, but
does not include option or stock appreciation right plans or plans for
compensation through restricted shares or restricted share units. |
(3) | Access Information Services, Inc., a Washington
corporation which is owned and controlled by the Robertson Family Trust,
received or is to receive $2,500 per month from us for management
services provided to us. Mr. Robertson is a trustee of the Robertson Family
Trust. |
On March 31, 1994, we entered into a management agreement with Access Information Services, Inc., a Washington corporation, which is owned and controlled by the Robertson Family Trust. We retained Access at the rate of $2,500 per month to provide certain management, administrative, and financial services.
We may in the future create retirement, pension, profit sharing, insurance and medical reimbursement plans covering our Officers and Directors. At the present time, no such plans exist. No advances have been made or are contemplated by us to any of our Officers or Directors. Directors receive no compensation for their service as such. Compensation of officers and directors is determined by our Board of Directors and is not subject to shareholder approval.
The following table sets forth certain information with respect to options exercised during the fiscal year ended April 30, 2005 by our Chief Executive Officer, and with respect to unexercised options held by our Chief Executive Officer at the end of fiscal 2005.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND YEAR END OPTION VALUES
Name
|
Shares Acquired On Exercise (#) |
Value realized ($) |
Number of Unexercised Options at Years End Exercisable / Unexercisable |
Value of Unexercised Options at Year End (1) Exercisable / Unexercisable |
John G. Robertson | -0- | -0- | 570,000 / 0 | $131,100 / -0- |
(1) The calculation of the value of unexercised options is based on the difference between the last sale price of $0.43 per share for our Common Stock on April 29, 2005 and the exercise price of each option (then $0.20), multiplied by the number of shares covered by the option.
We do not have any Long Term Incentive Plans.
We do not have any employment contracts, termination of employment and change of control arrangements.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The following table sets forth, as of July 25, 2005, our outstanding Class A Common Stock owned of record or beneficially by each person who owned of record, or was known by us to own beneficially, more than 5% of our Common Stock, and the name and shareholdings of each Executive Officer and Director and all Executive Officers and Directors as a group. A person is deemed to be the beneficial owner of securities that can be acquired by such person within 60 days from the date of this report upon the exercise of warrants or options. Each beneficial owner's percentage ownership is determined by assuming that options that are held by such person and which are exercisable within 60 days from the date are exercised.
Name | Class A Shares Owned | Percentage of |
Class A Shares | ||
Owned | ||
John G. Robertson, Chairman of the Board of | 7,085,736 | 29.9% |
Directors, President and Director (1) (2) (3) (4) | ||
James McCann (5) | 3,700,976 | 15.6% |
Rand Energy Group Inc. (6) | 3,700,976 | 15.6% |
Jennifer Lorette, Vice President and Director (7) | 200,500 | * |
James Vandeberg, Chief Operating Officer and Director (8) | 76,000 | * |
Brian Cherry, Vice President of the Rand CamTM Engine Technology Projects | 150,000 | * |
ALL EXECUTIVE OFFICERS & DIRECTORS AS A GROUP (FOUR | 7,362,236 | 31.04% |
INDIVIDUALS) (9) |
Except as noted below, all shares are held beneficially and of record and each record shareholder has sole voting and investment power.
*Less than one percent of the issued and outstanding on July 25, 2005, which was 23,764,475
(1) These individuals may be deemed to be our "parents or founders" as that term is defined in the Rules and Regulations promulgated under the Securities Act of 1933.
(2) Includes 3,700,976 shares registered in the name of Rand Energy Group Inc. See Note (5) below for an explanation of the beneficial ownership of Rand Energy Group Inc. Mr. Robertson disclaims beneficial ownership of these shares beyond the extent of his pecuniary interest. Also includes 570,000 options that are currently exercisable. Mr. Robertson's address is the same as the Company's.
(3) Includes 2,747,860 common shares registered in the name of Access Information Services, Ltd., a corporation controlled by the Robertson Family Trust, and 600,000 options that are currently exercisable. 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. Mr. Robertson's address is the same as our address.
(4) Rainbow Network is a private Turks and Caicos Island company. Mr. Robertson is the President and director of Rainbow Network. Mr. Robertson disclaims beneficial ownership of the shares owned or controlled by the Rainbow Network. Mr. Robertson's address is the same as our address.
(5) Includes 3,700,976 shares registered in the name of Rand Energy Group Inc. See Note (6) below for an explanation of the beneficial ownership of Rand Energy Group Inc.
(6) Rand Energy Group Inc. is owned 51% by Reg Technologies Inc. and 49% by Rand Cam Engine Corp. Under Rule 13d-3 under the Securities Exchange Act of 1934, both Reg Technologies Inc. and Rand Cam Engine Corp. could be considered the beneficial owner of the 3,700,976 shares registered in the name of Rand Energy Group Inc.
Reg Technologies Inc. is a British Columbia corporation listed on the TSX Venture Exchange that has financed the research on the Rand Cam Engine since 1986. Since October 1984 Mr. Robertson has been President and a Director of Reg Technologies Inc. SMR Investment Ltd., a British Columbia corporation, holds a controlling interest in Reg Technologies Inc. Since May 1977 Mr. Robertson has been President and a member of the Board of Directors of SMR Investments Ltd. Susanne M. Robertson, Mr. Robertson's wife, owns SMR Investment Ltd. Accordingly, in Note (2) above, beneficial ownership of the 3,700,976 shares registered in the name of Rand Energy Group Inc. has been attributed to Mr. Robertson. We believe it would be misleading and not provide clear disclosure to list as beneficial owners in the table the other entities and persons discussed in this paragraph, although a strict reading of Rule 13d-3 under the Securities Exchange Act of 1934 might require each such entity and person to be listed in the beneficial ownership table.
Rand Cam Engine Corp. is a privately held company whose stock is controlled by James McCann and minor interest by several other shareholders. We believe it would be misleading and not provide clear disclosure to list as beneficial owners in the table the other entities and persons discussed in this paragraph, although a strict reading of Rule 13d-3 under the Securities Exchange Act of 1934 might require each such entity and person to be listed in the beneficial ownership table.
(7) Includes 162,500 options that are currently exercisable. Ms. Lorette's address is the same as the Company's.
(8) Includes 75,000 options that are currently exercisable. Mr. Vandeberg's address is 601 Union Street, Suite 4500, Seattle, WA 98101.
(9) Includes 3,700,976 shares registered in the name of Rand Energy Group Inc. whose beneficial ownership is attributed to Mr. Robertson as set forth in Note (2) above. See Note (5) above for an explanation of the beneficial ownership of Rand Energy Group Inc. Mr. Robertson disclaims beneficial ownership of these shares beyond the extent of his pecuniary interest. Also includes 570,000 options that are currently exercisable.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Pursuant to the August 1992 Agreement we issued 5,700,000 shares of our Common Stock at a deemed value of $0.01 per share to Rand Energy Group Inc., a privately held British Columbia corporation ("RAND") in exchange for certain valuable rights, technology, information, and other tangible and intangible assets relating to the United States rights to the Original Engine. RAND is owned 51% by Reg Technologies Inc., a British Columbia corporation listed on the TSX Venture Exchange ("Reg Tech"), and 49% by Rand Cam Engine Corp. Reg Tech's President is also our President and its Vice President is also Vice President of the Company.
We also agreed to pay semi-annually to RAND a royalty of 5% of any net profits to be derived by us from revenues received as a result of its license of the Original Engine.
In the April 1993 Agreement, an amendment to a previous Amendment Agreement dated November 23, 1992, between RAND, Reg Tech and Brian Cherry (a former officer and director) and an original agreement dated July 30, 1992, between RAND, Reg Tech and Brian Cherry, Cherry agreed to: (a) sell, transfer and assign to RAND all his right, title and interest in and to the technology related to the RC/DC Engine, including all pending and future patent applications in respect of the Technology for all countries except the United States of America, together with any improvements, changes or other variations to the Technology; (b) sell, transfer and assign to us (then called Sky Technologies Inc.), all his right, title and interest in and to the Technology, including all pending and future patent applications in respect of the Technology for the United States of America, together with any improvements, changes or other variations to the Technology.
Other provisions of the April 1993 Agreement call for us (a) to pay to RAND a continuing royalty of 5% of the net profits derived from the Technology by us and (b) to pay to Brian Cherry a continuing royalty of 1% of the net profits derived from the Technology by us.
A final provision of the April 1993 Agreement assigns and transfers ownership to us of any patents, inventions, copyrights, know-how, technical data, and related types of intellectual property conceived, developed or created by RAND or its associated companies either prior to or subsequent to the date of the agreement, which results or derives from the direct or indirect use of the Original Engine and/or RC/DC Engine technologies by RAND.
The terms of the agreements referenced above were negotiated by the parties in non-arm's-length transactions but were deemed by the parties involved to be fair and equitable under the circumstances existing at the time.
We are controlled by Rand Energy Group Inc., a privately held British Columbia corporation ("RAND"), which, in turn, is controlled 51% by Reg Technologies Inc., a publicly held British Columbia corporation ("Reg Tech") and 49% by Rand Cam Engine Corp. SMR Investment Ltd., a British Columbia corporation, holds a controlling interest in Reg Technologies Inc. Since May 1977, Mr. Robertson has been President and a member of the Board of Directors of SMR Investments Ltd. Susanne M. Robertson, Mr. Robertson's wife, owns SMR Investment Ltd. Rand Cam Engine Corp. is a privately held company whose stock is reportedly majority owned and controlled by James McCann and the balance by several other shareholders.
ITEM 13. EXHIBITS.
Number | Description | |
3.1 | Articles of Incorporation | (1) |
3.2 | Article of Amendment changing name to REGI U.S., Inc | (2) |
3.3 | By-Laws | (1) |
4.1 | Specimen Share Certificate | (1) |
4.2 | Specimen Warrant Certificate | (1) |
10.1 | Consulting Agreement, dated December 1, 1999, between | (3) |
Regi U.S., Inc. and Patrick Badgley | ||
10.2 | Special Service Proposal, dated December 21, 1999, between Regi U.S. and ColTec, Inc | (3) |
10.3 | Agreement between Coltec and REGI dated October 2000 | (4) |
10.4 | Agreement between REGI and Advanced Ceramics Research dated March 20, 2002 | (5) |
10.5 | License Agreement between Rand Energy Group, Inc., and Reg Technologies, Inc. REGI U.S., Inc. and Radian Incorporated made as of April 24, 2002 | (5) |
10.6 | Agreement between REGI U.S., Inc. and Rotary Power Generation, Incorporated made as of April 22, 2002 | (6) |
10.7 | Amendment to Agreement between REGI U.S., Inc. and Rotary Power Generation, Incorporated made as of April 2, 2003 | (6) |
23.1 | Consent of Independent Auditors | (7) |
31.1 | Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |
31.2 | Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |
32.1 | Certification of John G. Robertson, President (Principal Executive Officer), pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | |
32.2 | Certification of James Vandeberg, Chief Financial Officer (Principal Financial Officer), pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
(1) | Incorporated by reference from Form 10-SB Registration Statement filed April 26, 1994. |
(2) | Incorporated by reference from 10-Q Report for the quarter ended 7-30-94. |
(3) | Incorporated by reference from our 10-KSB for the fiscal year ended April 30, 2000. |
(4) | Incorporated by reference from our 10-KSB for the fiscal year ended April 30, 2001 |
(5) | Incorporated by reference from our 10-KSB for the fiscal year ended April 30, 2002 |
(6) | Incorporated by reference from our 10-KSB for the fiscal year ended April 30, 2003 |
(7) | Incorporated herein. |
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
The following table discloses accounting fees and services which we paid to our auditor, Manning Elliott:
2005 | 2004 | ||
Type of Services Rendered | Fiscal Year | Fiscal Year | |
(a) Audit Fees | $10,900 | $10,400 |
(b) Audit-Related Fees | $Nil | $Nil |
(c) Tax Fees | $Nil | $Nil |
(d) All Other Fees | $Nil | $Nil |
EXHIBIT INDEX
Number | Description | |
3.1 | Articles of Incorporation | (1) |
3.2 | Article of Amendment changing name to REGI U.S., Inc | (2) |
3.3 | By-Laws | (1) |
4.1 | Specimen Share Certificate | (1) |
4.2 | Specimen Warrant Certificate | (1) |
10.1 | Consulting Agreement, dated December 1, 1999, between | (3) |
Regi U.S., Inc. and Patrick Badgley | ||
10.2 | Special Service Proposal, dated December 21, 1999, between Regi U.S. and ColTec, Inc | (3) |
10.3 | Agreement between Coltec and REGI dated October 2000 | (4) |
10.4 | Agreement between REGI and Advanced Ceramics Research dated March 20, 2002 | (5) |
10.5 | License Agreement between Rand Energy Group, Inc., and Reg Technologies, Inc. REGI U.S., Inc. and Radian Incorporated made as of April 24, 2002 | (5) |
10.6 | Agreement between REGI U.S., Inc. and Rotary Power Generation, Incorporated made as of April 22, 2002 | (6) |
10.7 | Amendment to Agreement between REGI U.S., Inc. and Rotary Power Generation, Incorporated made as of April 2, 2003 | (6) |
23.1 | Consent of Independent Auditors | (7) |
31.1 | Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |
31.2 | Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |
32.1 | Certification of John G. Robertson, President (Principal Executive Officer), pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | |
32.2 | Certification of James Vandeberg, Chief Financial Officer (Principal Financial Officer), pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
(1) | Incorporated by reference from Form 10-SB Registration Statement filed April 26, 1994. |
(2) | Incorporated by reference from 10-Q Report for the quarter ended 7-30-94. |
(3) | Incorporated by reference from our 10-KSB for the fiscal year ended April 30, 2000. |
(4) | Incorporated by reference from our 10-KSB for the fiscal year ended April 30, 2001 |
(5) | Incorporated by reference from our 10-KSB for the fiscal year ended April 30, 2002 |
(6) | Incorporated by reference from our 10-KSB for the fiscal year ended April 30, 2003 |
(7) | Incorporated herein. |
Independent Auditor's Report | F-1 |
Balance Sheets | F-2 |
Statements of Operations | F-3 |
Statements of Cash Flows | F-4 |
Statement of Stockholders' Equity | F-5 |
Notes to the Financial Statements | F-8 to F-15 |
REGI U.S., Inc.
(A Development Stage Company)
April 30, 2005
Report of Independent Registered Public Accounting Firm
To the Stockholders and Board of Directors
of REGI U.S., Inc.
(A Development Stage Company)
We have audited the accompanying balance sheets of REGI U.S., Inc. as of April 30, 2005 and 2004 and the related statements of operations, cash flows and stockholders’ deficit for the period from July 27, 1992 (Inception) to April 30, 2005 and the years ended April 30, 2005 and 2004. 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 the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of REGI U.S., Inc., as of April 30, 2005 and 2004, and the results of its operations and its cash flows for the period from July 27, 1992 (Inception) to April 30, 2005 and the years ended April 30, 2005 and 2004, in conformity with accounting principles generally accepted in the United States.
The accompanying financial statements have been prepared assuming the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company has a significant working capital deficit, has not generated any revenues and has accumulated operating losses since inception. These factors raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regard to these matters are also discussed in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
/s/ Manning Elliott
CHARTERED ACCOUNTANTS
Vancouver, Canada
August 9, 2005
F-1
REGI U.S., Inc.
(A Development Stage Company)
Balance Sheets
(expressed in U.S. dollars)
April 30, | April 30, | |||
2005 | 2004 | |||
$ | $ | |||
ASSETS | ||||
Current Assets | ||||
Prepaid expenses | 17,214 | – | ||
Total Current Assets | 17,214 | – | ||
Intangible Assets (Note 3) | – | 64,865 | ||
Total Assets | 17,214 | 64,865 | ||
LIABILITIES AND STOCKHOLDERS’ DEFICIT | ||||
Current Liabilities | ||||
Bank indebtedness | 3,514 | 3,133 | ||
Accounts payable | 78,077 | 77,950 | ||
Accrued liabilities | 9,596 | 8,300 | ||
Due to related parties (Note 5(a)) | 137,650 | 136,923 | ||
Total Liabilities | 228,837 | 226,306 | ||
Commitments (Note 6) | ||||
Subsequent Events (Note 8) | ||||
Stockholders’ Deficit | ||||
Common Stock (Note 4): | ||||
50,000,000 shares authorized without par value; 23,720,725 and 22,231,055 | ||||
shares issued and outstanding, respectively | 5,838,841 | 5,492,267 | ||
Additional Paid-in Capital | 138,488 | 115,184 | ||
Donated Capital (Note 5) | 547,500 | 397,500 | ||
Deferred Compensation | (13,000 | ) | (27,829 | ) |
Deficit Accumulated During the Development Stage | (6,723,452 | ) | (6,138,563 | ) |
Total Stockholders’ Deficit | (211,623 | ) | (161,441 | ) |
Total Liabilities and Stockholders’ Deficit | 17,214 | 64,865 |
(The Accompanying Notes are an Integral Part of the Financial Statements)
F-2
REGI U.S., Inc.
(A Development Stage Company)
Statements of Operations
(expressed in U.S. dollars)
Accumulated From | ||||||
July 27,1992 | ||||||
(Date of Inception) | For the Year Ended | |||||
to April 30, | April 30, | |||||
2005 | 2005 | 2004 | ||||
$ | $ | $ | ||||
Revenue | – | – | – | |||
Expenses | ||||||
Amortization | 130,533 | 5,292 | 4,787 | |||
General and administrative 1 (Note 5) | 2,877,247 | 434,311 | 505,125 | |||
Impairment loss on intangible assets (Note 3(d)) | 72,823 | 72,823 | – | |||
Research and development 1 (Note 5) | 3,757,734 | 72,463 | 105,931 | |||
Operating Loss | 6,838,337 | 584,889 | 615,846 | |||
Other Income | ||||||
Accounts payable written-off | 114,885 | – | 5,933 | |||
Net Loss | 6,723,452 | 584,889 | 609,913 | |||
Net Loss Per Share – Basic and Diluted | (0.03 | ) | (0.03 | ) | ||
Weighted Average Shares Outstanding | 22,836,000 | 19,346,000 | ||||
1 Stock-based compensation is included in: | ||||||
General and administrative | 488,283 | 51,132 | 142,354 | |||
Research and development | 11,000 | 11,000 | – | |||
499,283 | 62,132 | 142,354 |
(The Accompanying Notes are an Integral Part of the Financial Statements)
F-3
REGI U.S., Inc.
(A Development Stage Company)
Statements of Cash Flows
(expressed in U.S. dollars)
From | ||||||
July 27, 1992 | ||||||
(Date of Inception) | For the Year Ended | |||||
to April 30, | April 30, | |||||
2005 | 2005 | 2004 | ||||
$ | $ | $ | ||||
Cash Flows to Operating Activities | ||||||
Net loss for the period | (6,723,452 | ) | (584,889 | ) | (609,913 | ) |
Adjustments to reconcile net loss to net cash used in operating | ||||||
activities | ||||||
Accounts payable written-off | (102,688 | ) | – | (5,933 | ) | |
Amortization | 130,532 | 5,292 | 4,787 | |||
Amortization of deferred compensation and other stock-based | ||||||
compensation | 499,283 | 62,132 | 142,354 | |||
Donated services | 547,500 | 150,000 | 210,000 | |||
Impairment loss on intangible assets | 72,823 | 72,823 | – | |||
Intellectual property written-off | 578,509 | – | – | |||
Changes in operating assets and liabilities | ||||||
Amounts receivable | (3,000 | ) | – | – | ||
Prepaid expenses | (17,214 | ) | (17,214 | ) | – | |
Accounts payable and accrued liabilities | 198,518 | 1,423 | (2,255 | ) | ||
Net Cash Used in Operating Activities | (4,819,189 | ) | (310,433 | ) | (260,960 | ) |
Cash Flows from Investing Activities | ||||||
Patent protection costs | (38,197 | ) | (13,250 | ) | (6,445 | ) |
Purchase of property and equipment | (198,419 | ) | – | – | ||
Net Cash Used by Investing Activities | (236,616 | ) | (13,250 | ) | (6,445 | ) |
Cash Flows from Financing Activities | ||||||
Increase in bank indebtedness | 3,514 | 381 | 3,133 | |||
Increase in due to related parties | 425,497 | 728 | 158,185 | |||
Proceeds from convertible debenture | 5,000 | – | – | |||
Proceeds from the sale of common stock | 4,621,794 | 322,574 | 106,000 | |||
Net Cash Provided by Financing Activities | 5,055,805 | 323,683 | 267,318 | |||
Increase (Decrease) In Cash and Cash Equivalents | – | – | (87 | ) | ||
Cash and Cash Equivalents - Beginning of Period | – | – | 87 | |||
Cash and Cash Equivalents - End of Period | – | – | – | |||
Non-cash Investing and Financing Activities | ||||||
Stock-based compensation | 512,283 | 47,303 | 170,184 | |||
Shares issued to settle debt | 496,000 | – | 166,000 | |||
Shares issued for convertible debenture | 5,000 | – | – | |||
Shares issued for intellectual property | 345,251 | – | – | |||
Affiliate’s shares issued for intellectual property | 200,000 | – | – | |||
Supplemental Disclosures | ||||||
Interest paid | – | – | – | |||
Income tax paid | – | – | – |
(The Accompanying Notes are an Integral Part of the Financial Statements)
F-4
REGI U.S., Inc.
(A Development Stage Company)
Statements of Stockholders’ Equity (Deficit)
From July 27, 1992 (Date of inception) to April 30, 2005
(expressed in U.S. dollars)
Deficit | ||||||||||
Accumulated | Total | |||||||||
Additional | Common | During the | Stockholders’ | |||||||
Common Stock | Paid-in | Stock | Donated | Deferred | Development | Equity | ||||
Shares | Amount | Capital | Subscribed | Capital | Compensation | Stage | (Deficit) | |||
# | $ | $ | $ | $ | $ | $ | $ | |||
Balance – July 27, 1992 (Date of inception) | – | – | – | – | – | – | – | – | ||
Stock issued for intellectual | ||||||||||
property at $0.001 per share | 5,700,000 | 57,000 | – | – | – | – | – | 57,000 | ||
Stock issued for cash | 300,000 | 3,000 | – | – | – | – | – | 3,000 | ||
Net loss | – | – | – | – | – | – | (23,492 | ) | (23,492 | ) |
Balance – April 30, 1993 | 6,000,000 | 60,000 | – | – | – | (23,492 | ) | 36,508 | ||
Stock issued for cash pursuant to a | ||||||||||
public offering | 500,000 | 500,000 | – | – | – | – | – | 500,000 | ||
Net loss | – | – | – | – | – | – | (394,263 | ) | (394,263 | ) |
Balance – April 30, 1994 | 6,500,000 | 560,000 | – | – | – | (417,755 | ) | 142,245 | ||
Stock issued for cash pursuant to: | ||||||||||
Options exercised | 10,000 | 1,000 | – | – | – | – | – | 1,000 | ||
Private placement | 250,000 | 562,500 | – | – | – | – | – | 562,500 | ||
Warrants exercised | 170,200 | 213,000 | – | – | – | – | – | 213,000 | ||
Net loss | – | – | – | – | – | – | (1,225,743 | ) | (1,225,743 | |
Balance – April 30, 1995 | 6,930,200 | 1,336,500 | – | – | – | – | (1,643,498 | ) | (306,998 | ) |
Stock issued for cash pursuant to: | ||||||||||
Options exercised | 232,500 | 75,800 | – | – | – | – | – | 75,800 | ||
Warrants exercised | 132,200 | 198,300 | – | – | – | – | 198,300 | |||
A private offering | 341,000 | 682,000 | – | – | – | – | – | 682,000 | ||
Net loss | – | – | – | – | – | – | (796,905 | ) | (796,905 | ) |
Balance – April 30,1996 | 7,635,900 | 2,292,600 | – | – | – | – | (2,440,403 | ) | (147,803 | ) |
Stock issued for cash pursuant to: | ||||||||||
Options exercised | 137,000 | 13,700 | – | – | – | – | – | 13,700 | ||
Warrants exercised | 185,400 | 278,100 | – | – | – | – | – | 278,100 | ||
Private placements | 165,000 | 257,500 | – | – | – | – | – | 257,500 | ||
Net loss | – | – | – | – | – | – | (510,184 | ) | (510,184 | ) |
Balance – April 30, 1997 | 8,123,300 | 2,841,900 | – | – | – | – | (2,950,587 | ) | (108,687 | ) |
Stock issued for cash pursuant to: | ||||||||||
Options exercised | 50,000 | 5,000 | – | – | – | – | – | 5,000 | ||
A units offering | 500,000 | 500,000 | – | – | – | – | – | 500,000 | ||
Stock issued for acquisition of AVFS rights | 400,000 | 288,251 | – | – | – | – | – | 288,251 | ||
Stock issued for financial consulting services | 125,000 | 170,250 | – | – | – | – | – | 170,250 | ||
Stock issued to settle an accrued liability | 50,000 | 25,000 | – | – | – | – | – | 25,000 | ||
Net loss | – | – | – | – | – | – | (580,901 | ) | (580,901 | ) |
Balance – April 30, 1998 | 9,248,300 | 3,830,401 | – | – | – | – | (3,531,488 | ) | 298,913 |
(The Accompanying Notes are an Integral Part of the Financial Statements)
F-5
REGI U.S., Inc.
(A Development Stage Company)
Statements of Stockholders’ Equity (Deficit)
From July 27, 1992 (Date of inception) to April 30, 2005
(expressed in U.S. dollars)
Deficit | ||||||||||||
Accumulated | Total | |||||||||||
Additional | Common | During the | Stockholders’ | |||||||||
Common Stock | Paid-in | Stock | Donated | Deferred | Development | Equity | ||||||
Shares | Amount | Capital | Subscribed | Capital | Compensation | Stage | (Deficit) | |||||
# | $ | $ | $ | $ | $ | $ | $ | |||||
Balance – April 30, 1998 | 9,248,300 | 3,830,401 | – | – | – | – | (3,531,488 | ) | 298,913 | |||
Stock issued for financial | ||||||||||||
consulting services | 100,000 | 71,046 | – | – | – | – | – | 71,046 | ||||
Net loss | – | – | – | – | – | – | (397,924 | ) | (397,924 | ) | ||
Balance – April 30, 1999 | 9,348,300 | 3,901,447 | – | – | – | – | (3,929,412 | ) | (27,965 | ) | ||
Stock issued for cash pursuant to a | ||||||||||||
private placement | 852,101 | 639,075 | – | – | – | – | – | 639,075 | ||||
Less cash commission paid | – | (47,607 | ) | – | – | – | – | – | (47,607 | ) | ||
Warrants exercised | 17,334 | 17,334 | – | – | – | – | – | 17,334 | ||||
Stock-based compensation | – | – | 15,417 | – | – | – | – | 15,417 | ||||
Net loss | – | – | – | – | – | – | (413,495 | ) | (413,495 | ) | ||
Balance – April 30, 2000 | 10,217,735 | 4,510,249 | 15,417 | – | – | – | (4,342,907 | ) | 182,759 | |||
Stock issued for cash pursuant to | ||||||||||||
warrants exercised | 4,000 | 2,000 | – | – | – | – | – | 2,000 | ||||
Stock-based compensation | – | – | 18,500 | – | – | – | – | 18,500 | ||||
Stock to be issued | – | – | – | 72,000 | – | – | – | (72,000 | ) | |||
Net loss | – | – | – | – | – | – | (808,681 | ) | (808,681 | ) | ||
Balance – April 30, 2001 | 10,221,735 | 4,512,249 | 33,917 | 72,000 | – | – | (5,151,588 | ) | (533,422 | ) | ||
Stock issued for cash pursuant to a | ||||||||||||
private placement | 1,066,200 | 266,550 | – | (72,000 | ) | – | – | – | 194,550 | |||
Amount receivable | – | (3,000 | ) | – | – | – | – | – | (3,000 | ) | ||
Stock-based compensation | – | – | 3,083 | – | – | – | – | 3,083 | ||||
Net loss | – | – | – | – | – | – | (156,090 | ) | (156,090 | ) | ||
Balance - April 30, 2002 | 11,287,935 | 4,775,799 | 37,000 | – | – | – | (5,307,678 | ) | (494,879 | ) | ||
Stock issued to settle debt | 6,100,000 | 305,000 | – | – | – | – | – | 305,000 | ||||
Stock issued for services | 250,000 | 16,500 | – | – | – | – | – | 16,500 | ||||
Stock issued for convertible debenture | 50,000 | 5,000 | – | – | – | – | – | 5,000 | ||||
Stock to be issued | – | – | – | 25,968 | – | – | – | 25,968 | ||||
Donated consulting services | – | – | – | – | 187,500 | – | – | 187,500 | ||||
Net loss | – | – | – | – | – | – | (220,972 | ) | (220,972 | ) | ||
Balance – April 30, 2003 | 17,687,935 | 5,102,299 | 37,000 | 25,968 | 187,500 | – | (5,528,650 | ) | (175,883 | ) |
(The Accompanying Notes are an Integral Part of the Financial Statements)
F-6
REGI U.S., Inc.
(A Development Stage Company)
Statements of Stockholders’ Equity (Deficit)
From July 27, 1992 (Date of inception) to April 30, 2005
(expressed in U.S. dollars)
Deficit | ||||||||||||
Accumulated | Total | |||||||||||
Additional | Common | During the | Stockholders’ | |||||||||
Common Stock | Paid-in | Stock | Donated | Deferred | Development | Equity | ||||||
Shares | Amount | Capital | Subscribed | Capital | Compensation | Stage | (Deficit) | |||||
# | $ | $ | $ | $ | $ | $ | $ | |||||
Balance – April 30, 2003 | 17,687,935 | 5,102,299 | 37,000 | 25,968 | 187,500 | – | (5,528,650 | ) | (175,883 | ) | ||
Donated consulting services | – | – | – | – | 210,000 | – | – | 210,000 | ||||
Stock issued for cash pursuant to a | ||||||||||||
private placement: | 173,120 | 25,968 | – | (25,968 | ) | – | – | – | – | |||
Stock issued for cash pursuant to the: | ||||||||||||
Exercise of warrants | 550,000 | 86,000 | – | – | – | – | – | 86,000 | ||||
Exercise of stock options | 100,000 | 20,000 | – | – | – | – | – | 20,000 | ||||
Stock-based compensation | – | – | 78,184 | – | – | (78,184 | ) | – | – | |||
Stock issued for services | 400,000 | 92,000 | – | – | – | (92,000 | ) | – | – | |||
Stock issued to settle debt | 3,320,000 | 166,000 | – | – | – | – | – | 166,000 | ||||
Deferred compensation | – | – | – | – | – | 142,355 | – | 142,355 | ||||
Net loss | – | – | – | – | – | – | (609,913 | ) | (609,913 | ) | ||
Balance – April 30, 2004 | 22,231,055 | 5,492,267 | 115,184 | – | 397,500 | (27,829 | ) | (6,138,563 | ) | (161,441 | ) | |
Stock issued for services | 150,000 | 24,000 | – | – | – | (24,000 | ) | – | – | |||
Stock issued for cash pursuant to: | ||||||||||||
Options exercised | 133,750 | 29,750 | – | – | – | – | – | 29,750 | ||||
Warrants exercised | 173,120 | 34,624 | – | – | – | – | – | 34,624 | ||||
Private placement | 1,032,800 | 258,200 | – | – | – | – | – | 258,200 | ||||
Stock-based compensation | – | – | 23,304 | – | – | – | – | 23,304 | ||||
Donated consulting services | – | – | – | – | 150,000 | – | – | 150,000 | ||||
Amortization of deferred compensation | – | – | – | – | – | 38,829 | – | 38,829 | ||||
Net loss | – | – | – | – | – | – | (584,889 | ) | (584,889 | ) | ||
Balance - April 30, 2005 | 23,720,725 | 5,838,841 | 138,488 | – | 547,500 | (13,000 | ) | (6,723,452 | ) | (211,623 | ) |
(The Accompanying Notes are an Integral Part of the Financial Statements)
F-7
REGI U.S., Inc.
(A Development Stage Company)
Notes to the Financial Statements
(expressed in U.S. dollars)
1. | Nature of Operations and Continuance of
Business |
|
REGI U.S., Inc. (the “Company”)
was incorporated in the State of Oregon, U.S.A. on July 27, 1992. |
||
The Company is a development stage company
engaged in the business of developing and commercially exploiting an improved
axial vane type rotary engine known as the Rand Cam/Direct Charge Engine
(the “RC/DC Engine”). The world-wide marketing and intellectual
rights, other than in the U.S., are held by Rand Energy Group Inc. (“Rand”
or “REGI”), which is a major shareholder of the Company. The
Company owns the U.S. marketing and intellectual rights and has a project
cost sharing agreement, whereby it will fund 50% of the further development
of the RC/DC Engine and REGI will fund 50%. |
||
In a development stage company, management
devotes most of its activities to establishing a new business. Planned
principal activities have not yet produced any revenues and the Company
has suffered recurring operating losses as is normal in development stage
companies. As at April 30, 2005, the Company has a working capital deficit
of $211,623 and has accumulated losses of $6,723,452 since inception.
These factors raise substantial doubt about the Company’s ability
to continue as a going concern. The ability of the Company to emerge from
the development stage with respect to its planned principal business activity
is dependent upon its successful efforts to raise additional equity financing,
receive funding from affiliates and controlling shareholders, and develop
a market for its products. |
||
The Company plans to raise funds through
loans from Rand. Rand owns approximately 18% of the shares of the Company,
having an approximate current market value of $1,754,000 as at April
30, 2005, and plans to sell shares as needed to meet ongoing funding requirements
if traditional equity sources of financing prove to be insufficient. The
Company also receives interim support from affiliated companies and plans
to raise additional capital through debt and/or equity financings. There
continues to be insufficient funds to provide enough working capital to
fund ongoing operations for the next twelve months. The Company may also
raise additional funds through the exercise of warrants and stock options,
if exercised. |
||
2. | Summary of Significant Accounting Policies
|
|
(a)
|
Basis of Presentation |
|
These financial statements are prepared in conformity
with accounting principles generally accepted in the United States and
are presented in U.S. dollars. The Company’s fiscal year end is
April 30. |
||
(b) |
Use of Estimates |
|
The preparation of financial statements in conformity
with accounting principles generally accepted in the United States requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the periods. Actual results could
differ from those estimates. |
||
(c) |
Cash and Cash Equivalents |
|
The Company considers all highly liquid instruments
with a maturity of three months or less at the time of issuance to be
cash equivalents. |
||
(d) |
Intangible Assets |
|
Intangible assets represent legal costs incurred
in establishing patents. These costs are being amortized on a straight-line
basis over 20 years. The useful life of the patent is determined by management
and is not to exceed the legal life. No amortization is provided on capitalized
patent costs until such time as the patent has been granted. |
||
(e) |
Comprehensive Income |
|
SFAS No. 130, “Reporting Comprehensive Income,”
establishes standards for the reporting and display of comprehensive income
and its components in the financial statements. As at April 30, 2005 and
2004, the Company has no items that represent comprehensive income and,
therefore, has not included a schedule of comprehensive income in the
financial statements. |
F-8
REGI U.S., Inc.
(A Development Stage Company)
Notes to the Financial Statements
(expressed in U.S. dollars)
2. | Summary of Significant Accounting Policies
(continued) |
|
(f)
|
Long-lived Assets |
|
In accordance with Financial Accounting Standards
Board (“FASB”) Statement of Financial Accounting Standards
(“SFAS”) No. 144, Accounting for the Impairment or Disposal
of Long-Lived Assets”, the carrying value of intangible assets and
other long-lived assets is reviewed on a regular basis for the existence
of facts or circumstances that may suggest impairment. The Company recognizes
an impairment when the sum of the expected undiscounted future cash flows
is less than the carrying amount of the asset. Impairment losses, if any,
are measured as the excess of the carrying amount of the asset over its
estimated fair value. |
||
(g) |
Foreign Currency Translation |
|
The Company’s functional and reporting currency
is the United States dollar. The financial statements of the Company are
translated to United States dollars in accordance with SFAS No. 52 “Foreign
Currency Translation”. Monetary assets and liabilities denominated
in foreign currencies are translated using the exchange rate prevailing
at the balance sheet date. Gains and losses arising on translation or
settlement of foreign currency denominated transactions or balances are
included in the determination of income. Foreign currency transactions
are primarily undertaken in Canadian dollars. The Company has not, to
the date of these financials statements, entered into derivative instruments
to offset the impact of foreign currency fluctuations. |
||
(h) |
Income Taxes |
|
Potential benefits of income tax losses are not
recognized in the accounts until realization is more likely than not.
The Company has adopted SFAS No. 109 “Accounting for Income Taxes”
as of its inception. Pursuant to SFAS No. 109 the Company is required
to compute tax asset benefits for net operating losses carried forward.
The potential benefits of net operating losses have not been recognized
in these financial statements because the Company cannot be assured it
is more likely than not it will utilize the net operating losses carried
forward in future years. |
||
(i) |
Revenue Recognition |
|
The Company will recognize revenue in accordance
with SEC Staff Accounting Bulletin No. 104 when there is persuasive evidence
of an arrangement, delivery of products has occurred or services have
been rendered, the seller’s price to the buyer is fixed or determinable,
and collectibility is reasonably assured. This policy is prospective in
nature, as the Company has not yet generated any revenue since inception.
|
||
(j) |
Research and Development |
|
The Company is in the development stage and all
costs relating to research and development are charged to operations as
incurred. |
||
(k) |
Stock-based Compensation |
|
The Company accounts for stock-based awards using
the intrinsic value method of accounting in accordance with Accounting
Principles Board Opinion No. 25, “Accounting for Stock Issued to
Employees” (APB 25). Under the intrinsic value method of accounting,
compensation expense is recognized if the exercise price of the Company’s
employee stock options is less than the market price of the underlying
common stock on the date of grant. Stock-based compensation for employees
is recognized on a straight- line basis over the vesting period of the
individual options. |
||
Stock-based awards for non-employees are accounted
for under Statement of Financial Accounting Standards No. 123, “Accounting
for Stock-Based Compensation,” (SFAS 123), which establishes a fair
value based method of accounting for stock-based awards and recognizes
compensation expense based on the fair value of the stock award or fair
value of the goods and services received, whichever is more reliably measurable.
Under the provisions of SFAS 123, companies that elect to account for
stock-based awards in accordance with the provisions of APB 25 are required
to disclose the pro forma net income (loss) that would have resulted from
the use of the fair value based method under SFAS 123. |
F-9
REGI U.S., Inc.
(A Development Stage Company)
Notes to the Financial Statements
(expressed in U.S. dollars)
2. |
Summary of Significant Accounting Policies
(continued) |
|
(k)
|
Stock-based Compensation (continued) | |
During the year ended, April 30, 2005, the Company
recognized stock-based compensation of $47,303. Of this amount, $23,303
was recognized as the fair value of stock options granted to non-employees
while the remaining amount of $24,000 represented the fair value of
shares issued for consulting services rendered by an employee. Of the
$24,000 amount $11,000 was charged to operations and the remaining
amount of $13,000 was recorded as deferred compensation. The balance
of $27,829 recorded as deferred compensation as at April 30, 2004
was charged to operations during the year. |
||
The Company adopted the disclosure requirements
of Statement of Financial Accounting Standards No. 148, “Accounting
for Stock-Based Compensation – Transition and Disclosure an Amendment
of FASB Statement No. 123” (SFAS 148), to require more prominent
disclosures in both annual and interim financial statements regarding
the method of accounting for stock-based employee compensation and the
effect of the method used on reported results. |
||
The pro forma information is as follows: |
Year Ended | ||||||
April 30, | April 30, | |||||
2005 | 2004 | |||||
$ | $ | |||||
Net loss — as reported | (584,889 | ) | (609,913 | ) | ||
Add: Stock-based compensation expense included in net | ||||||
loss — as reported | 62,132 | 142,354 | ||||
Deduct: Stock-based compensation expense determined under | ||||||
fair value method | (64,712 | ) | (149,467 | ) | ||
Net loss — pro forma | (587,469 | ) | (617,026 | ) | ||
Net loss per share – basic and diluted — as reported | (0.03 | ) | (0.03 | ) | ||
Net loss per share – basic and diluted — pro forma | (0.03 | ) | (0.03 | ) | ||
The fair value of the options
granted during the year was measured at the grant date using the Black-Scholes
option pricing model with the following weighted average assumptions:
|
Expected dividend yield | 0% | 0% | ||
Risk-free interest rate | 2.44% | 4.6% | ||
Expected volatility | 172% | 221% | ||
Expected option life (in years) | 1.36 | 3.0 |
(l) | Basic and Diluted Net Income (Loss) per Share |
|
The Company computes net income (loss) per share
in accordance with SFAS No. 128, “Earnings per Share” (SFAS
128). SFAS 128 requires presentation of both basic and diluted earnings
per shares (EPS) on the face of the income statement. Basic EPS is computed
by dividing net income (loss) available to common shareholders (numerator)
by the weighted average number of common shares outstanding (denominator)
during the period. Diluted EPS gives effect to all dilutive potential
common shares outstanding during the period including stock options, using
the treasury stock method, and convertible preferred stock, using the
if- converted method. In computing diluted EPS, the average stock price
for the period is used in determining the number of shares assumed to
be purchased from the exercise of stock options or warrants. Diluted EPS
excludes all dilutive potential common shares if their effect is anti-dilutive.
|
||
(m) | Financial Instruments |
|
The carrying value of bank indebtedness, accounts
payable, accrued liabilities and due to related parties approximate fair
value due to the relatively short maturity of these instruments. |
F-10
REGI U.S., Inc.
(A Development Stage Company)
Notes to the Financial Statements
(expressed in U.S. dollars)
2. | Summary of Significant Accounting Policies
(continued) |
|
(n)
|
Recent Accounting Pronouncements |
|
In December 2004, the FASB issued SFAS No. 153,
“Exchanges of Nonmonetary Assets - An Amendment of APB Opinion
No. 29”. The guidance in APB Opinion No. 29, “Accounting
for Nonmonetary Transactions”, is based on the principle that
exchanges of nonmonetary assets should be measured based on the fair value
of the assets exchanged. The guidance in that Opinion, however, included
certain exceptions to that principle. SFAS No. 153 amends Opinion No.
29 to eliminate the exception for nonmonetary exchanges of similar productive
assets and replaces it with a general exception for exchanges of nonmonetary
assets that do not have commercial substance. A nonmonetary exchange has
commercial substance if the future cash flows of the entity are expected
to change significantly as a result of the exchange. The provisions of
SFAS No. 153 are effective for nonmonetary asset exchanges occurring in
fiscal periods beginning after June 15, 2005. Early application is permitted
and companies must apply the standard prospectively. The adoption of this
standard is not expected to have a material effect on the Company’s
results of operations or financial position. |
||
In December 2004, the Financial Accounting Standards
Board (FASB) issued Statement of Financial Accounting Standard (SFAS)
No. 123R, “Share Based Payment”. SFAS 123R is a revision of
SFAS No. 123 “Accounting for Stock-Based Compensation”, and
supersedes APB Opinion No. 25, “Accounting for Stock Issued to Employees”
and its related implementation guidance. SFAS 123R establishes standards
for the accounting for transactions in which an entity exchanges its equity
instruments for goods or services. It also addresses transactions in which
an entity incurs liabilities in exchange for goods or services that are
based on the fair value of the entity’s equity instruments or that
may be settled by the issuance of those equity instruments. SFAS 123R
focuses primarily on accounting for transactions in which an entity obtains
employee services in share-based payment transactions. SFAS 123R requires
a public entity to measure the cost of employee services received in exchange
for an award of equity instruments based on the grant-date fair value
of the award (with limited exceptions). That cost will be recognized over
the period during which an employee is required to provide service in
exchange for the award – the requisite service period (usually the
vesting period). SFAS 123R requires that the compensation cost relating
to share-based payment transactions be recognized in financial statements.
That cost will be measured based on the fair value of the equity or liability
instruments issued. Public entities that file as small business issuers
will be required to apply SFAS 123R in the first interim or annual reporting
period that begins after December 15, 2005. The adoption of this standard
is not expected to have a material effect on the Company’s results
of operations or financial position. |
||
The FASB has also issued SFAS No. 151 and 152, but
they will not have relationship to the operations of the Company. Therefore
a description and its impact for each on the Company’s operations
and financial position have not been disclosed. |
||
In March 2005, the SEC staff issued Staff Accounting
Bulletin No. 107 (“SAB 107”) to give guidance on the implementation
of SFAS 123R. The Company will consider SAB 107 during implementation
of SFAS 123R. |
||
(o) |
Reclassifications |
|
Certain reclassifications have been made to the
prior year’s financial statements to conform to the current year
presentation. |
||
3. | Intangible Assets |
April 30, | April 30, | ||||
2005 | 2004 | ||||
Accumulated | Net Carrying | Net Carrying | |||
Cost | Amortization | Value | Value | ||
$ | $ | $ | $ | ||
Patents - RC/DC Engine | 111,251 | 111,251 | – | 64,865 |
(a) | On August 20, 1992 the Company acquired the U.S.
rights to the original Rand Cam-Engine from REGI by issuing 5,700,000
shares at a fair value of $0.01 per share. REGI will receive a 5%
net profit royalty. The $57,000 was charged to operations as research
and development. |
F-11
REGI U.S., Inc.
(A Development Stage Company)
Notes to the Financial Statements
(expressed in U.S. dollars)
3. | Intangible Assets (continued) |
|
(b)
|
Pursuant to an agreement with a former director,
the Company acquired the U.S. rights to the improved axial vane rotary
engine known as the RC/DC Engine. In consideration for the transferred
technology, the former director was issued 100,000 shares of Reg Technologies
Inc. (“REG”) (a public company owning 51% of REGI) with a
fair value of $200,000. The $200,000 was charged to operations
as research and development. A 1% net profit royalty will be due to the
former director. |
|
(c) |
Pursuant to a letter of understanding dated December
13, 1993 between the Company, REGI and REG (collectively called the grantors)
and West Virginia University Research Corporation (“WVURC”),
the grantors have agreed that WVURC shall own 5% of all patented technology
and will receive 5% of all net profits from sales, licences, royalties
or income derived from the patented technology. |
|
(d) |
The Company recorded an impairment loss of $72,823
during the year ended April 30, 2005 due to the uncertainty about cash
flows from this technology. |
|
4. | Common Stock |
|
(a) |
Stock Option Plan |
|
The Company has a Stock Option Plan to issue up
to 2,500,000 shares to certain key directors and employees, approved April
30, 1993 and amended December 5, 2000. Pursuant to the Plan the Company
has granted stock options to certain directors and employees. |
||
During the year, the Company granted 246,500 stock
options to non-employees pursuant to the Plan at a weighted average grant
date fair value of $0.36. The Company charged stock-based compensation
expense of $23,303 for the vested fair value of these stock options
to operations in accordance with SFAS 123 during the year. |
||
The following table summarizes the continuity of
the Company’s stock options: |
Weighted | |||||
average | |||||
Number of | exercise price | ||||
Shares | $ | ||||
Outstanding, April 30, 2003 | 1,850,000 | 0.20 | |||
Granted | 350,000 | 0.27 | |||
Exercised | (100,000 | ) | 0.20 | ||
Cancelled | (200,000 | ) | 0.20 | ||
Outstanding, April 30, 2004 | 1,900,000 | 0.50 | |||
Granted | 246,500 | 0.50 | |||
Exercised | (133,750 | ) | 0.24 | ||
Expired | (400,000 | ) | 0.20 | ||
Outstanding, April 30, 2005 | 1,612,750 | 0.26 |
Additional information regarding options outstanding as at April 30, 2005 is as follows: | ||||||||
Outstanding | Exercisable | |||||||
Weighted | ||||||||
average | ||||||||
remaining | Weighted | Weighted | ||||||
Number of | contractual | average | Number of | average | ||||
Exercise prices | shares | life (years) | exercise price | shares | exercise price | |||
$0.00 – $ 0.25 | 1,288,750 | 1.71 | $0.21 | 541,000 | $0.21 | |||
$0.26 – $ 0.50 | 224,000 | 4.05 | $0.33 | 63,250 | $0.33 | |||
$ 0.51 – $ 0.75 | 100,000 | 4.75 | $0.75 | 25,000 | $0.75 | |||
1,612,750 | 2.25 | $0.26 | 589,250 | $0.24 |
F-12
REGI U.S., Inc.
(A Development Stage Company)
Notes to the Financial Statements
(expressed in U.S. dollars)
4. | Common Stock (continued) | |
(b) | Performance Stock Plan |
|
The Company has allotted 2,500,000 shares to be
issued pursuant to a Performance Stock Plan approved and registered on
June 27, 1997. Compensation is recorded when the conditions to issue shares
are met at their then fair market value. There are no options currently
granted pursuant to this plan. |
||
(c) | Non-cash Consideration |
|
Shares issued for non-cash consideration to third
parties were valued based on the fair market value of the shares provided.
During the period, the Company issued a total of 150,000 shares of common
stock at a fair market value of $0.16 per share for consulting services.
These shares were issued at an aggregate fair value of $24,000 for
services to be rendered over a two-year period. The Company charged $11,000
to operations for the pro-rata portion of services performed during the
period. |
||
(d) | Share Purchase Warrants |
|
The following table summarizes the continuity of
the Company’s share purchase warrants: |
Weighted | |||||
average | |||||
exercise price | |||||
Number of | $ | ||||
Shares | |||||
Balance, April 30, 2003 | - | - | |||
Issued | 973,120 | 0.21 | |||
Exercised | (550,000 | ) | 0.16 | ||
Expired | (250,000 | ) | 0.30 | ||
Balance, April 30, 2004 | 173,120 | 0.20 | |||
Issued | 516,400 | 0.35 | |||
Exercised | (173,120 | ) | 0.20 | ||
Outstanding, April 30, 2005 | 516,400 | 0.35 |
At April 30, 2005, the following share purchase warrants were outstanding: | |||||
Number of | Exercise | ||||
Warrants | Price | Expiry Date | |||
516,400 | $ 0.35 | December 24, 2005 |
(e) | Private Placement |
|
On December 24, 2004, the Company closed a private
placement offering for 1,032,800 units of the Company at a purchase price
of $0.25 per unit for total cash proceeds of $258,200. Each unit
consisted of one common share of the Company and one-half non-transferable
share purchase warrant. Each two one- half warrants may be exercised within
one year of the date of issuance to the purchaser at a price of $0.35
per share. |
||
5. | Related Party Transactions | |
(a) | Amounts owing to related parties are unsecured,
non-interest bearing and are due on demand. These companies are related
through significant ownership of the Company, having common officers and
directors, and sharing the same office. |
|
(b) | During the year ended April 30, 2005, the value
of consulting services of $90,000 (2004 - $90,000) was contributed
by the President, CEO and director of the Company, charged to general
and administrative expenses and treated as donated capital. |
|
(c) | During the year ended April 30, 2005, the value
of consulting services of $30,000 (2004 - $30,000) was contributed
by the Vice President and director of the Company, charged to general
and administrative expenses and treated as donated capital. |
F-13
REGI U.S., Inc.
(A Development Stage Company)
Notes to the Financial Statements
(expressed in U.S. dollars)
5. | Related Party Transactions (continued)
|
|
(d) |
During the year ended April 30, 2005, the value
of consulting services of $30,000 (2004 - $30,000) was contributed
by the CFO, COO and director of the Company, charged to general and administrative
expenses and treated as donated capital. |
|
(e) |
During the year ended April 30, 2005, the value
of technical consulting services of $Nil (2004 - $60,000) was
charged to research and development expenses and treated as donated capital.
|
|
(f) |
During the year ended April 30, 2005, rent of $4,367
(2004 - $3,567) included in general and administrative expenses was
paid to a company having common officers and directors. |
|
(g) |
During the year ended April 30, 2005, project management
fees of $22,500 (2004 - $30,000) included in research and development
expenses were paid to a company having common officers and directors.
|
|
6. | Commitments |
|
(a)
|
The Company is committed to fund 50% of the further
development of the RC/DC Engine. |
|
(b) |
On April 21, 2005, the Company entered into an agreement
with a firm that will provide public relations and consulting services
to the Company for $5,000 per month. |
|
7. | Income Taxes |
|
Potential benefits of income tax losses
are not recognized in the accounts until realization is more likely than
not. The Company has net operating losses of $5,433,000, which commence
expiring in 2013. Pursuant to SFAS No. 109 the Company is required to
compute tax asset benefits for net operating losses carried forward. The
potential benefits of net operating losses has not been recognized in
these financial statements because the Company cannot be assured it is
more likely than not it will utilize the net operating losses carried
forward in future years. For the years ended April 30, 2005 and 2004,
the valuation allowance established against the deferred tax assets increased
by $157,000 and $88,000, respectively |
||
The components of the net deferred tax
asset at April 30, 2005 and 2004 and the statutory tax rate, the effective
tax rate and the elected amount of the valuation allowance are scheduled
below: |
April 30, | April 30, | |||
2005 | 2004 | |||
$ | $ | |||
Net Operating Loss | 5,433,000 | 5,133,000 | ||
Statutory Tax Rate | 35% | 34% | ||
Effective Tax Rate | – | – | ||
Deferred Tax Asset | 1,902,000 | 1,745,000 | ||
Valuation Allowance | (1,902,000) | (1,745,000) | ||
Net Deferred Tax Asset | – | – |
8. | Subsequent Events | |
(a) | On May 27, 2005, the Company granted 125,000 stock
options to employees and officers of the Company, exercisable at $0.45
per share, up to May 27, 2010. |
|
(b) | On June 7, 2005, the Company entered into a consulting
agreement with a firm that will provide advisory and consulting services
to the Company in consideration of $15,000 or the issuance of 50,000
free trading common shares of the Company. |
F-14
REGI U.S., Inc.
(A Development Stage Company)
Notes to the Financial Statements
(expressed in U.S. dollars)
8. | Subsequent Events (continued) | |
(c) | On June 14, 2005, the Company entered into a consulting
agreement (“the Consulting Agreement”) for the provision of
public relations services to the Company, in consideration for $350,000
worth of the Company’s common stock. Additionally, on June 14, 2005,
the Company entered into an agreement with JGR Petroleum Inc. (“JGR”),
a private company controlled by the President of the Company. Under the
terms of the Agreement, JGR will provide the shares required under the
Consulting Agreement. The Company will repay JGR from future financings
on a non-interest bearing basis. |
|
(d) | (d) The Company entered into a distributor agreement
dated June 29, 2005 with Anuvu Incorporated for an option to acquire exclusive
rights to distribute the Anuvu fuel cell technology in Europe. The Company
must pay $150,000 by September 27, 2005 and an additional $150,000 by
November 30, 2005 in exchange for these exclusive rights. The Company
has also agreed to issue 200,000 shares to Anuvu upon confirmation of
acceptance of the European fuel cell technology patents. Anuvu will receive
a royalty of 5% of gross sales. The Company will receive 2 warrants of
Anuvu’s common stock for every dollar paid for the distribution
rights to a maximum of 1,000,000 warrants. |
|
(e) | (e) The Company issued 43,750 shares upon the exercise
of stock options for proceeds of $10,000. |
F-15
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report or amendment to be signed on its behalf by the undersigned, thereunto duly authorized.
REGI U.S., INC. | |
By: /s/ John G. Robertson | |
John G. Robertson, President | |
Chief Executive Officer and Director |
Dated: August 12, 2005
In accordance with the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the Registrant and in the capacities and on the dates indicated below.
Signature | Title | Date |
/s/ John G. Robertson | President, Chief | 8/12/05 |
(John G. Robertson) | Executive Officer and Director | |
/s/James Vandeberg | Chief Operating Officer | 8/12/05 |
(James Vandeberg) | Chief Financial Officer and Director | |
/s/ Jennifer Lorette | Vice President and Director | 8/12/05 |
(Jennifer Lorette) |