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, 2006
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.
[X] Yes [ ] No
Check if disclosure of delinquent filers pursuant to Item 405
of Regulation S-B is not contained
in this form, and no disclosure will be contained, to the best of the registrant’s
knowledge, in
definitive proxy or information statements incorporated by reference in part
III of this Form
10-KSB or any amendment to this Form 10-KSB. [X]
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). [ ] Yes [ X ] No
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 17, 2006,
computed by reference to
the price at which the stock was sold on that date: $39,295,293.
The number of shares outstanding of the registrant's common
stock, no par value, as of July 17,
2006 was 25,900,375.
Documents incorporated by reference: See Exhibits.
Transitional Small Business Disclosure Format (Check one): Yes [ ] No [X]
2
REGI U.S., INC.
FORM 10-KSB
TABLE OF CONTENTS
3
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 holds approximately 12% of the common shares of REGI, 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 Reg Tech. 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 Reg will fund 50%.
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.
4
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 Reg Tech. 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.
5
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.
6
PRODUCTS AND PROJECTS
Rand Cam Technology
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 Cam™ UAV engine license agreement with Radian, Inc. Radian, Inc. agrees to furnish REGI U.S., Inc. with a second generation, application specific Rand Cam™ 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 Cam™ 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 Cam™ 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 Cam™ 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 Cam™ technology.
On January 24, 2006 REGI announced the completion of several continuous successful combustion tests at 245 RPM on the new version of the Rand Cam™ engine. Several spin tests were conducted initially up to 800 RPM on the new modified version of the Rand Cam™ engine. An insignificant amount of wear on the engine has been confirmed during the months of December 2005, and January 2006.
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 Cam™ diesel engine for a generator application for hybrid electric cars. Additionally, our licensee for the 42 H.P. production model diesel Rand Cam™ is currently completing the engine for unmanned aerial applications for the U.S. military.
7
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.
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 ™ 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 ™ 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
8
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.
On February 14, 2006 the 125 H.P. RadMax™ engine was received by REGI from Radian Milparts and will be tested by the Company’s rotary engine specialist. The 125 H.P. RadMax™ engine is the improved version of the 42 H.P. RadMax™ engine, which focused on eliminating leak paths and was designed for maintainability.
In March 2006 we announced that final modifications, which were successfully implemented on the 42 H.P Rand Cam™, were being completed by Ebco Industries, for the 125 H.P. version of the RadMax™ engine. The modifications will be completed during 2006 and an extensive testing program will commence. The 125 H.P. RadMax™ engine has been thoroughly designed with advanced sealing methods by Radian Milparts, which will be the production model for presentation to several major companies interested in licensing the technology from REGI U.S., Inc. The testing will consist of endurance to determine wear and tear, and maintenance factors /hydrocarbons /calculations and fuel efficiency using a state-of-the-art computerized fuel injection system.
Rand Cam™ Generator and Fuel Cell Technology
In September 2004 testing had commenced for the Rand Cam™ 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 Cam™ engine projects and co-inventor of the Rand Cam™ 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 Cam™ 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 Cam™ engine design will be further tested for generator and hybrid car applications.
The Company entered into a Distributors Agreement dated June 29, 2005, with ANUVU Incorporated with an option to acquire exclusive rights to distribute the ANUVU Fuel Cell technology for Canada and Europe. The Company’s affiliate, REG, paid $200,000 to exercise a portion of the option agreement and acquire the Canadian rights on behalf of the Company. During the year ended April 30, 2006 , the Company assigned the distribution rights to Reg Tech and recovered $200,000 of research and development expenses.
9
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 Cam™ engine technology projects. Brian Cherry is the inventor of the Direct Charge Rand Cam™ engine patented in 1996 by REGI U.S., Inc. and is currently the project manager in charge of developing a Rand Cam™ 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 Cam™ 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 Cam™ 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.
On May 1, 2006, our shares began trading on the Frankfurt Stock Exchange under the symbol (RGJ). International Security Identification Number (ISIN/CUSIP) number is US7589431045. Because the Frankfurt exchange is the third-largest organized exchange-trading market in the world (just behind the NYSE and Nasdaq exchanges), in terms of turnover and dealings in securities, we anticipate a much wider, international market access for our shares. The listing on the Frankfurt Stock Exchange provides us with increased exposure to worldwide capital markets and will enable us to attract European institutional and individual investors to trade our common stock in euros.
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
10
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 Company is currently developing and testing the 42 HP diesel engine and the 125 HP diesel engine. The following marketing activities are all currently underway:
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 for Reg Technologies, Inc.
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.
11
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 Cam™ improvements for a patent in the month of July.
On November 3, 2004 we announced that the Canadian Patent was issued for the Rand Cam™ 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 Cam™ 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 Cam™ technology.
In December 2005, we completed an agreement to obtain the rights to the RadMax technology preliminary patent application, the RadMax trademark, including study notes, drawings and parts list from Radian Inc.
In exchange for these property rights, we will provide an unconditional release to Radian for all obligations under the UAV license agreement dated April 24, 2002 and modified May 14, 2004. Completing this agreement will allow us to own 100% interest in the rights to the new RadMax rotary design. Radian agrees to provide all the work completed to date, including preliminary patent applications and all hardware.
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 Cam™ diesel engine for a generator application for hybrid electric cars. Additionally, our licensee for the 42 H.P. production model diesel Rand Cam™ 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.
12
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. 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
13
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, 2006, of $7,778,810. 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
14
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. 6,637,976 common shares, not including currently exercisable options or warrants, are owned by current insiders representing control of approximately 25.6% 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
15
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 REGI U.S., Inc. and funded as to 50% each.
We plan to contract with outside individuals, institutions and companies to perform most of the additional research and development work which we may require to benefit from our rights to the RC/DC Engine and other products.
During the last two fiscal years, we have incurred a total of $148,251 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.
16
ITEM 2. DESCRIPTION OF PROPERTY
We own no properties. We currently utilize 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, 2006, 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.
17
| 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 |
| Quarter Ended July 31, 2005 | .82 | .35 | 1.00 | .40 |
| Quarter Ended October 31, 2005 | .95 | .54 | .97 | .57 |
| Quarter Ended January 31, 2006 | .85 | .41 | .88 | .47 |
| Quarter Ended April 30, 2006 | 2.50 | .48 | 2.53 | .51 |
(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 17, 2006, there were 25,900,375 shares of common stock outstanding, held by 240 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, 2006 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 stock of the Company and one-half non-transferable share purchase warrant. Each whole warrant 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.
On April 26, 2006 we closed private placement offering for subscriptions of an aggregate of 1,500,000 Units at US$0.60 per Unit for total cash proceeds of $900,000. Each Unit consisted of
18
one share common stock of the Company and one-half warrant. Each whole warrant, may be exercised to enable the investor to purchase one additional share of common stock at US$0.80 within the first year of the date of issuance to the purchaser, and US$1.00 within the second year of the date of issuance to the purchaser. 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 $7,778,810 and further losses are expected until we complete a licensing agreement with a manufacturer and reseller. At April 30, 2006, we had working capital of $100,203. Our only assets are cash totaling $240,137 prepaid expenses, totaling $60,139. 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 2006 and 2005, we raised a total of $1,158,200 pursuant to two private placements of an aggregate of 2,532,800 units. 1,032,800 units of the Company were issued at a purchase price of $0.25 per unit for total cash proceeds of $258,200. Each unit contains one share and one-half warrant. Each whole warrant may be exercised within one year of date of issuance to acquire one additional share at $0.35 per share. 1,500,000 Units were issued at a purchase price of US$0.60 per Unit for total cash proceeds of $900,000. Each Unit consisted of one share common stock of the Company and one half warrant. Each whole warrant may be exercised to enable the investor to purchase one additional share of Common Stock at US$0.80 within the first year of the date of issuance to the purchaser, and US$1.00 within the second year of the date of issuance to the purchaser.
During the year, we also raised $53,313 from the exercise of 212,000 stock options, and $142,240 from the exercise of 406,400 share purchase warrants. During the fiscal year ended April 30, 2005, we raised $29,750 from the exercise of 133,750 stock options, and $34,624 from the exercise of 173,120 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, 2006 ("2006) compared to the year ended April 30, 2005 ("2005")
There were no revenues from product licensing during 2006 and 2005.
19
The net loss in 2006 increased by $470,469 to $1,055,358 compared to $584,889 in 2005. The increase was due to an increase of $620,025 in general and administrative expenses. The increase in administrative expenses was mainly due to an increase in stock-based compensation of $101,489 to $124,793 in 2006 from $23,304 in 2005 and an increase in consulting fees of $153,220 to $329,922 in 2006 from $176,702 in 2005, and an increase in investor relations expenses of $381,890 to $467,009 in 2006 from $85,119 in 2005. 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 2006, we financed our operations mainly through proceeds of $195,553 from the exercise of stock options and share purchase warrants, as well as net proceeds of $881,088 from the completion of a private placement offering.
We received funding in 2006 from our affiliated companies (common officers and directors) and our 12% 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 $143,258 or 72% of total current liabilities as at April 30, 2006. 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, 2006, we had working capital of $100,203. 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 3,205,986 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, 2006, 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
20
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 | 65 |
Director, Chairman of the Board of Directors, President and Chief Executive Officer |
| Jennifer Lorette | 34 |
Director, Vice-President |
| James Vandeberg | 62 |
Director and Chief Operating Officer and Chief Financial Officer |
| Brian Cherry | 66 |
Vice President, Rand Cam™ Engine Technology Projects |
21
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.
22
James L. Vandeberg - Chief Operating Officer and Chief Financial Officer, and a Member of the Board of Directors
Mr. Vandeberg became a Director of the Company in November 1998 and its Chief Operating Officer in August 1999. 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. He is a director of Information-Highway.com, Inc., a Florida corporation traded on the Pink Sheets. He is also a director of IAS Communications Inc. an Oregon corporation traded on the OTC bulletin board. Mr. Vandeberg is also a director of Reg Technologies Inc. which is traded on the OTC bulletin board. Mr. Vandeberg is also a director of ASAP Show Inc. since 2005. 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 Cam™ 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 Cam™ 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 Mr. 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 $100,000 during the past fiscal year. Mr. Robertson received no compensation from us in fiscal year 2006.
Name and Principal Position |
Year |
Annual Compensation | Long-Term Compensation | |||||
| Awards | Payouts | |||||||
Salary ($) |
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 |
2006 2005 2004 |
Nil Nil Nil |
Nil Nil Nil |
30,000 30,000 36,000 (3) |
Nil Nil Nil |
570,000 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. |
23
| (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 $2,500 per month to provide certain management, administrative, and financial services
We may in the future create retirement, pension, profit sharing, insurance and medical reimbursement plans covering our Officers and Directors. At the present time, no such plans exist. No advances have been made or are contemplated by us to any of our Officers or Directors. Directors receive no compensation for their service as such. Compensation of officers and directors is determined by our Board of Directors and is not subject to shareholder approval.
The following table sets forth certain information with respect to options exercised during the fiscal year ended April 30, 2006 by our Chief Executive Officer, and with respect to unexercised options held by our Chief Executive Officer at the end of fiscal 2006.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND YEAR END OPTION VALUES
Name |
Shares Acquired On Exercise (#) |
Value realized ($) |
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 | $1,088,700 / -0- |
(1) The calculation of the value of unexercised options is based on the difference between the last sale price of $2.11 per share for our common stock on April 28, 2006 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 12, 2006, our outstanding 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
24
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 |
Shares Owned |
Percentage of Shares Owned |
| John G. Robertson, Chairman of the Board of Directors, President and Director (1) (2) (3) | 6,463,826 | 25.0% |
| James McCann (4) | 3,205,986 | 11.9% |
| Rand Energy Group Inc. (5) | 3,205,986 | 11.9% |
| Jennifer Lorette, Vice President and Director (6) | 155,400 | * |
| James Vandeberg, Chief Operating Officer and Director (7) | 75,000 | * |
| Brian Cherry, Vice President of the Rand Cam™ Engine Technology Projects | Nil | * |
| ALL EXECUTIVE OFFICERS & DIRECTORS AS A GROUP (FOUR INDIVIDUALS) (8) | 6,637,976 | 25.6% |
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 17, 2006, which was 25,900,375
(1) This individual may be deemed to be a "parent or founder" of REGI as that term is defined in the Rules and Regulations promulgated under the Securities Act of 1933.
(2) Includes 3,205,986 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 2,747,720 common shares registered in the name of Access Information Services, Ltd., a corporation controlled by the Robertson Family Trust, and 570,000 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 REGI’s address.
(4) Includes 3,205,986 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.
(5) Rand Energy Group Inc. is owned 51% by REG TECH and 49% by Rand Cam Engine Corp. Under Rule 13d-3 under the Securities Exchange Act of 1934, both REG TECH and Rand Cam
25
Engine Corp. could be considered the beneficial owner of the 3,205,986 shares registered in the name of Rand Energy Group Inc.
SMR Investment Ltd., a British Columbia corporation, holds a controlling interest in REG TECH. 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 3,205,986 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 by several other shareholders in minor interest. We believe it would be misleading and not provide clear disclosure to list as beneficial owners in the table the other entities and persons discussed in this paragraph, although a strict reading of Rule 13d-3 under the Securities Exchange Act of 1934 might require each such entity and person to be listed in the beneficial ownership table.
(6) Includes 125,000 options that are currently exercisable. Ms. Lorette's address is the same as the Company's.
(7) Includes 18,750 options that are currently exercisable. Mr. Vandeberg's address is 601 Union Street, Suite 4500, Seattle, WA 98101.
(8) Includes 3,205,986 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
26
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 Regi U.S., Inc. and Patrick Badgley |
(3) |
| 10.2 | Special Service
Proposal, dated December 21, 1999, between Regi U.S. and ColTec, Inc |
(3) |
| 10.3 | Agreement between Coltec
and REGI dated October 2000 |
(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) |
27
| 10.7 | Amendment to Agreement between
REGI U.S., Inc. and Rotary Power Generation, Incorporated made as of April
2, 2003 |
(6) |
| 23.1 | (8) | |
| 23.2 | (8) | |
| 31.1 | (8) | |
| 31.2 | (8) | |
| 32.1 | (8) | |
| 32.2 | (8) |
| (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 by reference from our 10-KSB for the fiscal year ended April 30, 2005 |
| (8) |
Incorporated herein. |
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
The following table discloses accounting fees and services which we paid to our auditor, Smythe Ratcliffe during 2006, and to our former auditor, Manning Elliott, in 2005:
| 2006 | 2005 | |
| Type of Services Rendered | Fiscal Year | Fiscal Year |
| (a) Audit Fees | $ ***** | $10,900 |
| (b) Audit-Related Fees | $Nil | $Nil |
| (c) Tax Fees | $Nil | $Nil |
| (d) All Other Fees | $Nil | $Nil |
28
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 14, 2006
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 | 8/14/06 |
| (John G. Robertson) | Executive Officer and Director | |
| /s/James Vandeberg | Chief Operating Officer | 8/14/06 |
| (James Vandeberg) | Chief Financial Officer and Director | |
| /s/ Jennifer Lorette | Vice President and Director | 8/14/06 |
| (Jennifer Lorette) | ||
| /s/ Brian Cherry | Vice President | 8/14/06 |
| (Brian Cherry) |
29
EXHIBIT INDEX
| Number | Description | Page |
| 3.1 | Articles of Incorporation
|
(1) |
| 3.2 | Article of Amendment changing
name to REGI U.S., Inc |
(2) |
| 3.3 | By-Laws… |
(1) |
| 4.1 | Specimen Share Certificate
|
(1) |
| 4.2 | Specimen Warrant Certificate
|
(1) |
| 10.1 | Consulting Agreement, dated
December 1, 1999, between Regi U.S., Inc. and Patrick Badgley |
(3) |
| 10.2 | Special Service Proposal,
dated December 21, 1999, between Regi U.S. and ColTec, Inc |
(3) |
| 10.3 | Agreement between Coltec and
REGI dated October 2000 |
(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) |
| 10.5 | Agreement between REGI U.S.,
Inc. and Rotary Power Generation, Incorporated made as of April 22, 2002
|
(6) |
| 10.6 | Amendment to Agreement between
REGI U.S., Inc. and Rotary Power Generation, Incorporated made as of April
2, 2003 |
(6) |
| 23.1 | (8) | |
| 23.2 | (8) | |
| 31.1 | (8) | |
| 31.2 | (8) | |
| 32.1 | (8) | |
| 32.2 | (8) |
| (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 by reference from our 10-KSB for the fiscal year ended April 30, 2006 |
| (8) |
Incorporated herein. |
30
REGI U.S., Inc.
(A Development Stage Company)
April 30, 2006
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
TO THE DIRECTORS AND STOCKHOLDERS OF REGI U.S., INC.
(A Development Stage Company)
We have audited the accompanying balance sheet of REGI U.S., Inc. (A Development Stage Company) as at April 30, 2006 and the statements of operations, stockholders' equity and cash flows for the year then ended and the period from July 27, 1992 (date of inception) to April 30, 2006. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. The statements of operations, stockholders’ deficit, and cash flows from July 27, 1992 (date of inception) to April 30, 2005 were audited by other auditors whose report dated August 9, 2005 expressed an unqualified opinion, with an explanatory paragraph discussing the Company’s ability to continue as a going-concern. Our opinion on the statements of operations, stockholders’ deficit and cash flows from inception to April 30, 2006, insofar as it related to amounts for prior periods through April 30, 2005, is solely based on the reports of other auditors.
We conducted our audit in accordance with standards of the Public Company Accounting Oversight Board (United States of America). Those standards require that we plan and perform an audit to obtain reasonable assurance whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, based on our audit and the reports of other auditors, these financial statements present fairly, in all material respects, the financial position of the Company as at April 30, 2006 and the results of its operations and its cash flows for the year then ended and the cumulative totals for the development stage of operations from July 27, 1992 (date of inception) through April 30, 2006 in conformity with accounting principles generally accepted in the United States of America.
The accompanying financial statements have been prepared assuming that the Company will continue as a going-concern. As discussed in note 1 to the financial statements, the Company has minimal revenues and limited capital, which together raise substantial doubt about its ability to continue as a going-concern. Management plans in regard to these matters are also described in note 1. These financial statements do not include any adjustments that might result from the outcome of this uncertainty.
“Smythe Ratcliffe LLP” (signed)
Chartered Accountants
Vancouver, British Columbia
July 25, 2006
F-1
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 sheet of REGI U.S., Inc. (A Development Stage Company) as at April 30, 2005 and the related statements of operations, cash flows and stockholders’ deficit for the year then ended and for the period from July 27, 1992 (Date of Inception) to April 30, 2005. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform an audit to obtain reasonable assurance whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management as well as evaluating the overall financial statement presentation. We believe that our audit 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 the Company as at April 30, 2005, and the results of its operations and its cash flows for the year then ended and for the period from July 27, 1992 (Date of Inception) to April 30, 2005, 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 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. These financial statements do not include any adjustments that might result from the outcome of these uncertainties.
CHARTERED ACCOUNTANTS
Vancouver, Canada
August 9, 2005
F-2
REGI U.S., Inc.
(A Development Stage Company)
Balance Sheets
(expressed in U.S. dollars)
| April 30, | April 30, | |||||
| 2006 | 2005 | |||||
| $ | $ | |||||
| ASSETS | ||||||
| Current Assets | ||||||
| Cash | 240,137 | – | ||||
| Prepaid expenses | 60,139 | 17,214 | ||||
| Total Assets | 300,276 | 17,214 | ||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT) | ||||||
| Current Liabilities | ||||||
| Bank indebtedness | – | 3,514 | ||||
| Accounts payable | 33,515 | 78,077 | ||||
| Accrued liabilities | 23,300 | 9,596 | ||||
| Due to related parties (Note 6(a)) | 143,258 | 137,650 | ||||
| Total Liabilities | 200,073 | 228,837 | ||||
| Commitments (Note 7) | ||||||
| Stockholders’ Equity (Deficit) | ||||||
| Common Stock (Note 5): | ||||||
| 50,000,000 shares authorized without par value; 25,839,125 shares issued and | ||||||
| outstanding (2005 - 23,720,725 shares) | 6,915,482 | 5,838,841 | ||||
| Additional Paid-in Capital | 262,281 | 125,488 | ||||
| Subscriptions Received | 3,750 | – | ||||
| Donated Capital (Note 6) | 697,500 | 547,500 | ||||
| Deficit Accumulated During the Development Stage | (7,778,810 | ) | (6,723,452 | ) | ||
| Total Stockholders’ Equity (Deficit) | 100,203 | (211,623 | ) | |||
| Total Liabilities and Stockholders’ Equity (Deficit) | 300,276 | 17,214 |
| Approved by the Directors: | |
| “John Robertson” | |
| John Robertson - Director | |
| “Jennifer Lorette” | |
| Jennifer Lorette - Director |
(The Accompanying Notes are an Integral Part of the Financial Statements)
F-3
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, | ||||||||
| 2006 | 2006 | 2005 | |||||||
| $ | $ | $ | |||||||
| Expenses | |||||||||
| Amortization | 130,533 | – | 5,292 | ||||||
| General and administrative1 (Note 6) | 3,931,583 | 1,054,336 | 434,311 | ||||||
| Impairment loss | 72,823 | – | 72,823 | ||||||
| Research and development (Note 6) | 3,833,522 | 75,788 | 72,463 | ||||||
| Operating Loss | 7,968,461 | 1,130,124 | 584,889 | ||||||
| Other Income | |||||||||
| Accounts payable written-off (Note 4) | 189,651 | 74,766 | – | ||||||
| Net Loss for Year | 7,778,810 | 1,055,358 | 584,889 | ||||||
| Loss Per Share | (0.04 | ) | (0.03 | ) | |||||
| Weighted Average Common Shares Outstanding | 24,240,000 | 22,836,000 | |||||||
| 1 Included in General and administrative: | |||||||||
| Stock-based compensation | 263,281 | 124,793 | 23,304 | ||||||
| Amortization of deferred compensation | 372,795 | 12,000 | 38,828 | ||||||
(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, 2006
(expressed in U.S. dollars)
| Deficit | ||||||||||||||||||||||||
| Accumulated | Total | |||||||||||||||||||||||
| Common | During the | Stockholders’ | ||||||||||||||||||||||
| 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, 2006
(expressed in U.S. dollars)
| Deficit | ||||||||||||||||||||||||
| Accumulated | Total | |||||||||||||||||||||||
| Common | During the | Stockholders’ | ||||||||||||||||||||||
| 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 | ||||||||||||||||
| 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 (Note 6) | 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, 2006
(expressed in U.S. dollars)
| Deficit | ||||||||||||||||||||||||
| Accumulated | Total | |||||||||||||||||||||||
| Common | During the | Stockholders’ | ||||||||||||||||||||||
| 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: | ||||||||||||||||||||||||
| Warrants exercised | 550,000 | 86,000 | – | – | – | – | – | 86,000 | ||||||||||||||||
| Stock options exercised | 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 | ||||||||||||||||
| 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 | ) | |||||||||||||
| Re-class deferred compensation to | ||||||||||||||||||||||||
| additional paid in capital | – | – | (13,000 | ) | – | – | 13,000 | – | – | |||||||||||||||
| Stock issued for cash pursuant to: | ||||||||||||||||||||||||
| Options exercised | 212,000 | 53,313 | – | – | – | – | – | 53,313 | ||||||||||||||||
| Warrants exercised | 406,400 | 142,240 | – | – | – | – | – | 142,240 | ||||||||||||||||
| Private placement | 1,500,000 | 881,088 | – | – | – | – | – | 881,088 | ||||||||||||||||
| Common stock subscribed | – | – | – | 3,750 | – | – | – | 3,750 | ||||||||||||||||
| Stock-based compensation | – | – | 124,793 | – | – | – | – | 124,793 | ||||||||||||||||
| Deferred compensation | – | – | 12,000 | – | – | – | – | 12,000 | ||||||||||||||||
| Donated consulting services | – | – | – | – | 150,000 | – | – | 150,000 | ||||||||||||||||
| Net loss | – | – | – | – | – | – | (1,055,358 | ) | (1,055,358 | ) | ||||||||||||||
| Balance – April 30, 2006 | 25,839,125 | 6,915,482 | 262,281 | 3,750 | 697,500 | – | (7,778,810 | ) | 100,203 |
(The Accompanying Notes are an Integral Part of the Financial Statements)
F-7
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, | ||||||||
| 2006 | 2006 | 2005 | |||||||
| $ | $ | $ | |||||||
| Operating Activities | |||||||||
| Net loss | (7,778,810 | ) | (1,055,358 | ) | (584,889 | ) | |||
| Adjustments to reconcile net loss to net cash used | |||||||||
| in operating activities | |||||||||
| Accounts payable written-off | (189,651 | ) | (74,766 | ) | – | ||||
| Amortization | 130,533 | – | 5,292 | ||||||
| Impairment loss | 72,823 | – | 72,823 | ||||||
| Stock-based compensation | 263,281 | 124,793 | 23,304 | ||||||
| Amortization of deferred compensation | 372,795 | 12,000 | 38,828 | ||||||
| Donated services | 697,500 | 150,000 | 150,000 | ||||||
| Intellectual property written-off | 578,509 | – | – | ||||||
| Changes in operating assets and liabilities | |||||||||
| Accounts receivable | (3,000 | ) | – | – | |||||
| Prepaid expense | (60,139 | ) | (42,925 | ) | (17,214 | ) | |||
| Accounts payable and accrued liabilities | 254,622 | 43,908 | 1,423 | ||||||
| Cash Used in Operating Activities | (5,661,537 | ) | (842,348 | ) | (310,433 | ) | |||
| Investing Activities | |||||||||
| Patent protection costs | (38,197 | ) | – | (13,250 | ) | ||||
| Purchase of property, plant and equipment | (198,419 | ) | – | – | |||||
| Cash Used in Investing Activities | (236,616 | ) | – | (13,250 | ) | ||||
| Financing Activities | |||||||||
| Increase (decrease) in bank indebtedness | – | (3,514 | ) | 381 | |||||
| Advance from related parties | 431,105 | 5,608 | 728 | ||||||
| Proceeds from convertible debenture | 5,000 | – | – | ||||||
| Proceeds from the sale of common stock | 5,672,467 | 1,076,641 | 322,574 | ||||||
| Subscriptions received | 29,718 | 3,750 | – | ||||||
| Cash Provided by Financing Activities | 6,138,290 | 1,082,485 | 323,683 | ||||||
| Increase In Cash and Cash Equivalents | 240,137 | 240,137 | – | ||||||
| Cash and Cash Equivalents - Beginning of Period | – | – | – | ||||||
| Cash and Cash Equivalents - End of Period | 240,137 | 240,137 | – | ||||||
| Non-Cash Investing and Financing Activities | |||||||||
| Shares issued to settle debt | 496,000 | – | – | ||||||
| Shares issued for convertible debenture | 5,000 | – | – | ||||||
| Shares issued for intellectual property | 345,251 | – | – | ||||||
| Consulting services reflected as donated capital | 697,500 | 150,000 | 150,000 | ||||||
| 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-8
REGI U.S., Inc.
(A Development Stage Company)
Notes to the Financial Statements
Years Ended April 30, 2006 and 2005
(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 Reg Technologies, Inc. (“Reg”), a major shareholder who owns 13% of the Company’s issued and outstanding stock and controls the Company. The Company owns the U.S. marketing and intellectual rights and has a project cost sharing agreement, whereby it will fund 50% of the further development of the RC/DC Engine and Reg 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. The Company has accumulated losses of $7,778,810 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 Energy Group Inc. (“Rand”), a private company with officers and directors in common with the Company. Further, Rand owns approximately 12% of the shares of the Company, and may 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 is a development stage company, as defined by Statement of Financial Accounting Standard (“SFAS”) No. 7, “Accounting and Reporting by Development Stage Enterprises”. |
|||
| (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 disclosures 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) | Financial Instruments |
||
| (i) | Fair Value |
||
| The carrying values of cash, accounts payable, accrued liabilities and due to related parties approximate their fair values because of the short-term maturity of these financial instruments. |
|||
| (ii) | Interest Rate Risk |
||
| The Company is not exposed to significant interest rate risk due to the short-term maturity of its monetary assets and liabilities. |
|||
| (iii) | Credit Risk |
||
| The Company’s financial asset that is exposed to credit risk consists primarily of cash. To manage the risk, cash is placed with major financial institutions. |
|||
F-9
REGI U.S., Inc.
(A Development Stage Company)
Notes to the Financial Statements
Years Ended April 30, 2006 and 2005
(expressed in U.S. dollars)
| 2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) |
||
| (c) | Financial Instruments (Continued) |
||
| (iv) | Currency Risk |
||
| The Company’s functional and reporting currency is the U.S. dollar. 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. |
|||
| (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. Intangible assets previously recorded were written off as impairment loss in 2005. Legal costs incurred for patents are charged to operations as part of research and development. |
|||
| (e) | 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. 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. |
|||
| (f) | Research and Development |
||
| The Company is in the development stage and all costs relating to research and development are charged to operations as incurred. |
|||
| (g) | Stock-Based Compensation |
||
| Prior to May 1, 2005, the Company accounted for stock-based awards under the recognition and measurement provisions of Accounting Principles Board (“APB”) Opinion No. 25, “Accounting for Stock Issued to Employees”, using the intrinsic value method of accounting, under which compensation expense was only recognized if the exercise price of the Company’s employee stock options was less than the market price of the underlying common stock on the date of grant. |
|||
| Effective May 1, 2005, the Company adopted the fair value recognition provisions of SFAS No. 123R, “Share-Based Payments”, using the modified retrospective transition method. |
|||
| The pro forma information is as follows: |
|||
| April 30, | ||||
| 2005 | ||||
| $ | ||||
| Net loss — as reported | (584,889 | ) | ||
| Add: Stock-based compensation expense included in net | ||||
| loss — as reported | 23,304 | |||
| Deduct: Stock-based compensation expense determined under | ||||
| fair value method | (25,884 | ) | ||
| Net loss — pro forma | (587,469 | ) | ||
| Loss per share – basic and diluted — as reported | (0.03 | ) | ||
| Loss per share – basic and diluted — pro forma | (0.03 | ) |
F-10
REGI U.S., Inc.
(A Development Stage Company)
Notes to the Financial Statements
Years Ended April 30, 2006 and 2005
(expressed in U.S. dollars)
| 2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) |
|
| (g) | Stock-Based Compensation (Continued) |
|
| The fair value for options granted was estimated at the date of grant using the Black-Scholes option pricing model and the weighted average fair value of stock options granted during the year ended April 30, 2006, was $0.44 (2005 - $0.36). During the year ended April 30, 2006, the Company recorded stock-based compensation of $124,793 (2005 - $23,304) as general and administrative expense. At April 30, 2006, the Company had $316,472 of total unrecognized compensation cost related to non-vested stock options held by employees, which will be recognized over future periods. |
||
| The weighted average assumptions used are as follows: |
||
| April 30, 2006 | April 30, 2005 | ||
| Expected dividend yield | 0% | 0% | |
| Risk-free interest rate | 3.89% | 2.44% | |
| Expected volatility | 123% | 172% | |
| Expected option life (in years) | 2.04 | 1.36 |
| Option pricing models require the input of highly subjective assumptions including the expected price volatility. The subjective input assumptions can materially affect the fair value estimate, and therefore, the existing models do not necessarily provide a reliable single measure of the fair value of the Company’s stock option. |
||
| (h) | Basic and Diluted Income (Loss) per Share |
|
| The Company computes income (loss) per share in accordance with SFAS No. 128, “Earnings per Share”. SFAS 128 requires presentation of both basic and diluted earnings per share (“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 common 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. |
||
| (i) | Recent Accounting Pronouncements |
|
| In December 2004, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 153, “Exchanges of Non-Monetary Assets - An Amendment of APB Opinion No. 29”. The guidance in APB Opinion No. 29, “Accounting for Non-Monetary Transactions”, is based on the principle that exchanges of non-monetary 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 non-monetary exchanges of similar productive assets and replaces it with a general exception for exchanges of non-monetary assets that do not have commercial substance. A non-monetary 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 non-monetary 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 did not have a material effect on the Company’s results of operations or financial position. |
||
| In May 2005, the FASB issued SFAS No. 154, “Accounting Changes and Error Corrections – A Replacement of APB Opinion No. 20 and SFAS No. 3”. SFAS No. 154 changes the requirements for the accounting for and reporting of a change in accounting principle and applies to all voluntary changes in accounting principle. It also applies to changes required by an accounting pronouncement in the unusual instance that the pronouncement does not include specific transition provisions. SFAS No. 154 requires retrospective application to prior periods’ financial statements of changes in accounting principle, unless it is impracticable to determine either the period-specific effects or the cumulative effect of the change. The provisions of SFAS No. 154 are effective for accounting changes and correction of errors made in fiscal years beginning after December 15, 2005. The adoption of this standard will not have a material effect on the Company’s results of operations or financial position. |
F-11
REGI U.S., Inc.
(A Development Stage Company)
Notes to the Financial Statements
Years Ended April 30, 2006 and 2005
(expressed in U.S. dollars)
| 2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) |
||
| (i) | Recent Accounting Pronouncements (Continued) |
||
| The FASB has also issued SFAS No. 155, “Accounting for Certain Hybrid Financial Instruments”, and SFAS No. 156, “Accounting for Servicing of Financial Assets”, but they will not have any 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. |
|||
| (j) | Reclassification |
||
| Certain reclassifications have been made to the prior year’s financial statements to conform to the current year’s presentation. |
|||
| 3. | INTANGIBLE ASSETS |
||
| (a) | Pursuant to an agreement dated August 20, 1992, the Company acquired the U.S. rights to the original Rand Cam-Engine from Rand by issuing 5,700,000 shares at a fair value of $0.01 per share. The Company will pay Rand and the original owner a net profit royalty of 5% and 1%, repecitively. The $57,000 was charged to operations as research and development. |
||
| (b) | Pursuant to a letter of understanding dated December 13, 1993 between the Company, Rand 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 with regards to Rand-Cam Engine technology and Direct-Charge Engine technology and will receive 5% of all net profits from sales, licences, royalties or income derived from the patented technology. |
||
| 4. | ACCOUNTS PAYABLE |
||
| Long outstanding accounts payable in the amount of $74,766 was determined to be no longer payable and was written-off during the 2006 year. |
|||
| 5. | COMMON STOCK |
||
| (a) | Private Placements |
||
| (i) | During the year ended April 30, 2006, the Company issued 1,500,000 units at $0.60 per unit for proceeds of $881,088, net of commissions of $18,912, pursuant to a private placement. Each unit consists of one share of common stock and one-half warrant. Each whole warrant will enable the investor to purchase one additional share at an exercise price of $0.80 per share in the first year and $1 per share in the second year. |
||
| (ii) | 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 whole warrant may be exercised within one year of the date of issuance to the purchaser at a price of $0.35 per share. |
|||
| (b) | Stock Option Plan |
||
| The Company has a Stock Option Plan to issue up to 2,500,000 shares to certain key directors and employees, approved April 30, 1993 and amended December 5, 2000. Pursuant to the Plan, the Company has granted stock options to certain directors and employees. |
|||
| All options granted by the Company have the following vesting schedule: |
|||
| (i) | Up to 25% of the option may be exercised at any time during the term of the option, such initial exercise is referred to as the “First Exercise”. |
||
| (ii) | The second 25% of the option may be exercised at any time after 90 days from the date of First Exercise, such second exercise is referred to as the “Second Exercise”. |
||
F-12
REGI U.S., Inc.
(A Development Stage Company)
Notes to the Financial Statements
Years Ended April 30, 2006 and 2005
(expressed in U.S. dollars)
| 5. | COMMON STOCK (Continued) |
||
| (b) | Stock Option Plan (Continued) |
||
| (iii) | The third 25% of the option may be exercised at any time after 90 days from the date of Second Exercise, such second exercise is referred to as the “Third Exercise”. |
||
| (iv) | The fourth and final 25% of the option may be exercised at any time after 90 days from the date of the Third Exercise. |
||
On May 27, 2005, the Company granted 75,000 stock options to consultants exercisable at $0.45 per share, up to May 27, 2010. On April 21, 2006, the Company granted 75,000 stock options to a consultant exercisable at $2.20 per share, up to April 21, 2011. The weighted average grant date fair value of these 150,000 stock options granted to non-employees pursuant to the Plan was $1.32 per share. During the year ended April 30, 2006, the Company charged stock-based compensation expense of $63,571 to operations for the vested fair value of these stock options in accordance with SFAS No. 123.
On May 27, 2005, the Company granted 50,000 stock options to an officer of the Company exercisable at $0.45 per share, up to May 27, 2010. On March 9, 2006, the Company granted 570,000 stock options to the President of the Company exercisable at $0.20 per share, up to March 15, 2007. The weighted average grant date fair value of these 620,000 stock options granted to non-employees pursuant to the Plan was $0.55 per share. During the year ended April 30, 2006, the Company charged stock-based compensation expense of $61,222 to operations for the vested fair value of these stock options in accordance with SFAS No. 123R.
The following table summarizes the continuity of the Company’s stock options:
| Weighted | |||||||
| average | |||||||
| Number of | exercise price | ||||||
| Shares | $ | ||||||
| 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 | |||||
| Granted | 770,000 | 0.44 | |||||
| Expired | (645,000 | ) | 0.20 | ||||
| Exercised | (212,000 | ) | 0.25 | ||||
| Cancelled | (350,000 | ) | 0.36 | ||||
| Outstanding, April 30, 2006 | 1,175,750 | 0.37 |
F-13
REGI U.S., Inc.
(A Development Stage Company)
Notes to the Financial Statements
Years Ended April 30, 2006 and 2005
(expressed in U.S. dollars)
| 5. | COMMON STOCK (Continued) |
|
| (b) | Stock Option Plan (Continued) |
|
| Additional information regarding options outstanding as at April 30, 2006 is as follows: |
||
| Exercise | April 30, | April 30, | ||||||||
| Expiry Date | Price | 2006 | 2005 | |||||||
| March 15, 2006 | $0.20 | – | 570,000 | |||||||
| April 12, 2006 | $0.20 | – | 75,000 | |||||||
| November 29, 2006 | $0.20 | 37,500 | 75,000 | |||||||
| March 15, 2007 | $0.20 | 570,000 | – | |||||||
| May 10, 2007 | $0.20 | 75,000 | 337,500 | |||||||
| August 1, 2008 | $0.20 | – | 81,250 | |||||||
| September 10, 2008 | $0.25 | 150,000 | 150,000 | |||||||
| December 2, 2008 | $0.35 | 100,000 | 100,000 | |||||||
| May 25, 2009 | $0.25 | 24,500 | 36,500 | |||||||
| September 30, 2009 | $0.35 | 50,000 | 50,000 | |||||||
| October 19, 2009 | $0.30 | – | 25,000 | |||||||
| November 9, 2009 | $0.40 | – | 12,500 | |||||||
| January 7, 2010 | $0.75 | – | 100,000 | |||||||
| May 27, 2010 | $0.45 | 93,750 | – | |||||||
| April 21, 2011 | $2.20 | 75,000 | – | |||||||
| Options outstanding | 1,175,750 | 1,612,750 | ||||||||
| Options exercisable | 173,750 | 589,250 | ||||||||
| Weighted average price for options exercisable | $ | 0.43 | $ | 0.24 |
| (c) | Performance Stock Plan |
|
| The Company has allotted 1,500,000 shares to be issued pursuant to a Performance Stock Plan approved and registered on June 27, 1997. There are no options currently granted pursuant to this plan. |
||
| (d) | Non-Cash Consideration |
|
| Shares issued for non-cash consideration to third parties were valued based on the fair market value of the services provided. During the year ended April 30, 2005, the Company issued a total of 150,000 shares of common stock 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 $12,000 (2005 – $11,000) to operations for the pro-rata portion of services performed during the year ended April 30, 2006. |
F-14
REGI U.S., Inc.
(A Development Stage Company)
Notes to the Financial Statements
Years Ended April 30, 2006 and 2005
(expressed in U.S. dollars)
| 5. | COMMON STOCK (Continued) |
|
| (e) | Share Purchase Warrants |
|
| The following table summarizes the continuity of the Company’s warrants: |
||
| Weighted | |||
| average | |||
| Number of | exercise price | ||
| Shares | $ | ||
| Balance, April 30, 2004 | 173,120 | 0.20 | |
| Issued | 516,400 | 0.35 | |
| Exercised | (173,120) | 0.20 | |
| Balance, April 30, 2005 | 516,400 | 0.35 | |
| Issued | 750,000 | 0.80 | |
| Exercised | (406,400) | 0.35 | |
| Expired | (110,000) | 0.35 | |
| Balance, April 30, 2006 | 750,000 | 0.80 |
At April 30, 2006, the following share purchase warrants were outstanding:
| Exercise | April 30, | April 30, | ||
| Expiry Date | Price | 2006 | 2005 | |
| December 30, 2005 | $0.35 | – | 516,400 | |
| November 30, 2006/2007 | $0.80/$1.00 | 325,000 | – | |
| April 26, 2007/2008 | $0.80/$1.00 | 425,000 | – | |
| Warrants outstanding | 750,000 | 516,400 |
| (f) | As of April 30, 2006, the Company had received subscriptions of $3,750 upon the exercise of stock options for 18,750 shares issued subsequent to the period. |
|
| (g) | During the year ended April 30, 2006, the Company issued 212,000 shares upon the exercise of stock options for proceeds of $53,313. |
|
| (h) | During the year ended April 30, 2006, the Company issued 406,400 shares at $0.35 per share upon the exercise of warrants for proceeds of $142,240. |
| 6. | RELATED PARTY TRANSACTIONS/BALANCES |
|
| (a) | At April 30, 2006, the Company is indebted to related parties for an aggregate of $143,258, which is unsecured, non-interest bearing and due on demand. Related parties consist of companies controlled or significantly influenced by the President of the Company. |
|
| (b) | The Company entered into an agreement with a professional law firm (the “Law Firm”) in which a partner of the firm is an Officer and Director of the Company. The Company agreed to pay a cash fee equal to 5% of any financings with parties introduced to the Company by the Law Firm. The Company also agreed to pay an equity fee equal to 5% of the equity issued by the Company to parties introduced by the Law Firm, in the form of options, warrants or common stock. During the year, fees in the aggregate of $12,201 (2005 - $6,167) for legal services have been paid to the Law Firm. |
|
| (c) | During the year ended April 30, 2006, the value of consulting services of $90,000 (2005 - $90,000) was contributed by the President, CEO and Director of the Company, charged to operations and treated as donated capital. |
|
| (d) | During the year ended April 30, 2006, the value of consulting services of $30,000 (2005 - $30,000) was contributed by the Vice President and Director of the Company, charged to operations and treated as donated capital. |
|
F-15
REGI U.S., Inc.
(A Development Stage Company)
Notes to the Financial Statements
Years Ended April 30, 2006 and 2005
(expressed in U.S. dollars)
| 6. | RELATED PARTY TRANSACTIONS/BALANCES (Continued) |
||
| (e) | During the year ended April 30, 2006, the value of consulting services of $30,000 (2005 - $30,000) was contributed by the CFO, COO and Director of the Company, charged to operations and treated as donated capital. |
||
| (f) | During the year ended April 30, 2006, rent of $4,797 (2005 - $4,367) was paid to a company having common officers and directors. |
||
| (g) | During the year ended April 30, 2006, project management fees of $30,000 (2005 - $22,500) were paid to a company having common officers and directors. |
||
| (h) | On June 14, 2005, the Company entered into a consulting agreement with Clearvision Inc. (the “Consulting Agreement”) for the provision of MediaBlitz!® campaign services to the Company, in consideration for 500,000 shares of the Company’s common stock at an agreed value of $0.70, which represented the market value of the stock at the closing date. These shares were provided to Clearvision by an affiliate, JGR Petroleum Inc. (“JGR”), a private company controlled by the President of the Company. JGR then received a cash reimbursement of $350,000 in respect of this transaction. |
||
| (i) | During the year ended April 30, 2006, the Company entered into an agreement with a consulting company to provide public relations, corporate communications, advisory and consulting services to the Company. In consideration of the services, the Company agreed to pay 48,000 common shares of the Company, which were provided by Rand. The Company recognized $25,920 upon payment of shares and the Company’s liabilities arising from this agreement are included in amounts due to related parties. |
||
| (j) | During the year ended April 30, 2006, the Company benefited from two arrangements entered into by Rand on behalf of the Company as follows: |
||
| (i) | Rand entered into an agreement with a consultant for investor relations whereby the consultant received an option to purchase from Rand 100,000 shares of the Company’s common stock at $0.75 per share. The option vested immediately and has a fair value of $62,366. |
||
| (ii) | Rand entered into an agreement with a consultant whereby the consultant was to arrange for the issuance of up to 750,000 units of the Company at $0.60 per unit, each unit consisting of one share of common stock and one-half share purchase warrant, with each whole warrant being exercisable into one share of common stock at $0.80 in the first year and $1 in the second year. Consideration for the agreement was an option to purchase from Rand up to 100,000 shares of common stock of the Company at $0.60 per share. The fair value of this option is $61,650 and vests at 0.1333 share of each unit subscription. To April 30, 2006, $3,315 was recognized as share issue costs pursuant to issuance of 40,334 units of the Company. |
||
In each case, the Company must pay Rand an amount equal to the fair value of the stock option granted to the consultant by Rand, and reimburse Rand any cash payments paid to the consultant on behalf of the Company. The liabilities arising from these arrangements are reflected in due to related parties.
The fair value of the foregoing options are calculated and reflected in the Company’s financial statements using the Black-Scholes option pricing model with assumptions that are identical to those that would have been applied had the Company directly engaged the services of the consultant
The assumptions used in the option pricing model are as follows:
| Risk-free interest rate | 4.03% | |
| Expected volatility | 237% | |
| Expected option life | 3 years |
F-16
REGI U.S., Inc.
(A Development Stage Company)
Notes to the Financial Statements
Years Ended April 30, 2006 and 2005
(expressed in U.S. dollars)
| 6. | RELATED PARTY TRANSACTIONS/BALANCES (Continued) |
|
| (k) | During the year ended April 30, 2006, a total of 708,002 units were issued to the spouse of the President and to companies controlled by a director pursuant to a private placement. |
|
| (l) | The Company entered into a distributors agreement dated June 29, 2005, with ANUVU Incorporated with an option to acquire exclusive rights to distribute the ANUVU fuel cell technology for Canada and Europe. The Company’s affiliate, REG, paid $200,000 to exercise a portion of the option agreement and acquire the Canadian rights on behalf of the Company. During the year ended April 30, 2006, the Company assigned the distribution rights to REG and recovered $200,000 of research and development expenses. |
|
| All of the above transactions and balances are in the normal course of operations and are measured at the exchange amount, which is the amount of consideration established and agreed to by the related parties. |
||
| 7. | COMMITMENTS |
|
| (a) | The Company is committed to fund 50% of the further development of the RC/DC Engine. |
|
| (b) | During the year ended April 30, 2006, the Company entered into a consulting agreement for the provision of consulting services from February 15, 2006 to May 31, 2006 in consideration for $4,500 upon the signing of the agreement (paid), $4,000 payable 30 days after the signing of the agreement (paid), and $4,000 payable 60 days after the signing of the agreement (payable). |
|
| 8. | 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 $6,158,000, 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 benefit of net operating losses has not been recognized in these financial statements because the Company cannot be assured it more likely than not will utilize the net operating losses carried forward in future years. For the years ended April 30, 2006 and 2005, the valuation allowance established against the deferred tax assets increased by $272,600 and $157,000, respectively. |
||
| The components of the net deferred tax asset at April 30, 2006 and 2005 and the statutory tax rate, the effective tax rate and the elected amount of the valuation allowance are scheduled below: |
||
| April 30, | April 30, | ||
| 2006 | 2005 | ||
| $ | $ | ||
| Net Operating Losses | 6,213,000 | 5,433,000 | |
| Statutory Tax Rate | 35% | 35% | |
| Effective Tax Rate | – | – | |
| Deferred Tax Asset | 2,174,600 | 1,902,000 | |
| Valuation Allowance | (2,174,600) | (1,902,000) | |
| Net Deferred Tax Asset | – | – |
Pursuant to SFAS No. 109, the Company is required to compute tax asset benefits for non-capital losses carried forward. Potential benefit of non-capital 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 losses carried forward in future years.
F-17
REGI U.S., Inc.
(A Development Stage Company)
Notes to the Financial Statements
Years Ended April 30, 2006 and 2005
(expressed in U.S. dollars)
| 8. | INCOME TAXES (Continued) |
| The reconciliation of income tax attributable to continuing operations computed at the statutory tax rates to income tax expense is: |
| April 30, | April 30, | ||||||
| 2006 | 2005 | ||||||
| $ | $ | ||||||
| Income tax benefit computed at U.S. statutory rates | 369,375 | 204,711 | |||||
| Stock-based compensation | (43,678 | ) | – | ||||
| Compensation recognized as donated capital | (52,500 | ) | (52,500 | ) | |||
| Impairment loss | – | 25,488 | |||||
| Non-deductible write-off of accounts payable | 26,168 | – | |||||
| Unrecognized tax losses | (299,365 | ) | (177,699 | ) | |||
| Future income tax benefit | – | – |
| 9. | SUBSEQUENT EVENTS |
|
| Subsequent to April 30, 2006, the Company: |
||
| (a) | issued 35,250 common stocks upon the exercise of options for cash proceeds of $7,250. |
|
| (b) | issued 30,000 common stocks upon the exercise of warrants at $0.80 per share for cash proceeds of $24,000. |
|
| (c) | granted 25,000 stock options to a consultant exercisable at $2.09 per share until June 29, 2011. |
|
F-18