About EDGAR Online | Login
 
Enter your Email for a Free Trial:
The following is an excerpt from a 20-F/A SEC Filing, filed by REG TECHNOLOGIES INC on 11/14/2002.
Next Section Next Section Previous Section Previous Section
REG TECHNOLOGIES INC - 20-F/A - 20021114 - COMPANY_INFORMATION

ITEM 4. INFORMATION ON THE COMPANY

A.         HISTORY AND DEVELOPMENT

We were originally incorporated on October 6, 1982 as Reg Resources Corp. under a perpetual charter pursuant to the British Columbia Company Act by registration of our Memorandum and Articles. On February 23, 1993 we changed our name to Reg Technologies Inc. in order to better reflect our main area of business development. We did not consolidate our shares at the time our name was changed.

Its authorized capital consists of 45,000,000 shares consisting of 30,000,000 common shares without par value, 10,000,000 preferred shares with a par value of $1.00 per share and 5,000,000 class "A" non-voting shares without par value. Of the 30,000,000 common shares without par value, 16,578,371 shares were issued and outstanding as of April 30, 2001 and the same number of shares were issued and outstanding as of the date of this Form 20-F. There are no Preferred or Class "A" Shares currently outstanding. All the Issuer's outstanding shares are Common Shares. They are not subject to any future call or assessment and they all have equal voting rights. There are no special rights or restrictions of any nature attached to any of the shares and they all rank equally, as to all benefits that might accrue to the holder thereof.

Our head office is located at #1103 -11871 Horseshoe Way, Richmond, B.C., V7A 5H5, Canada. Our telephone number is 604-278-5996 and our fax number is 604-278-3409.

We made our initial public offering of 500,000 Common Shares in July 1983 at a price of $0.50 per share to residents of British Columbia. Following the completion of that offering, our shares were listed on the Vancouver Stock Exchange (which is now the TSX Venture Exchange, previously the Canadian Venture Exchange).

We were initially involved in the mineral development and oil and gas business. The mineral development business produced no revenues from operations and the oil and gas business produced only limited revenues.

On May 23, 1986 we entered an agreement which was amended October 20, 1986 ("Initial Agreements") among ourself, Rand Cam-Engine Corp (a private company owned by James L. McCann, the inventor of the Rand Cam Engine) and James L. McCann. Under this agreement we acquired a 40% interest in a company to be formed, by paying $50,000 and agreeing to expend $200,000 on research and development pertaining to the Rand Cam Engine, which utilizes a new type of design for a rotary internal combustion engine.

10


The company to be formed referred to above was incorporated in November 1989, by registration of its Memorandum and Articles pursuant to the British Columbia Company Act as Rand Energy Group Inc. (REGI), which company would hold all the rights, agreements and patents to the Rand Cam Engine. We acquired 1,200,000 of the issued and outstanding shares of REGI while Rand Cam-Engine Corp. acquired 1,800,000 of the issued and outstanding shares.

The Initial Agreements were superseded by an "Energy Group Acquisition Agreement" dated March 28, 1990 and a "Share Purchase Agreement" dated March 28, 1990 whereby James L. McCann and Rand Cam- Engine Corp. agreed to transfer all rights, title and interest in and to the Rand Cam Engine to REGI for 1,800,000 common shares of REGI in consideration for certain covenants and warranties along with the $250,000 expended in accordance with the Initial Agreements. We were allotted 1,200,000 common shares of REGI.

These agreements resulted in us owning 40% of the issued and outstanding shares of Rand Technologies Inc., with the balance of 60% being owned by Rand Cam-Engine Corp. Pursuant to an amalgamation agreement between the shareholders of Rand Technologies Inc. and REGI, the two companies were amalgamated effective July 31, 1993. The amalgamated company is called Rand Energy Group Inc. and retains the same ownership structure.

Under an agreement dated April 27, 1993, between ourself, REGI, Rand Cam-Engine Corporation and James L. McCann (the "Agreement"), Rand Cam-Engine Corporation agreed to sell to us 330,000 shares of REGI, representing a further 11% interest in REGI. In consideration for a controlling interest in REGI, we agreed to pay Rand Cam-Engine Corporation $50,000, issue 600,000 shares of our Common Stock (the "Purchase Price") and grant a participating royalty to a maximum amount of $10,000,000, ("Participating Royalty"). On July 14, commencing in 1995 and for each consecutive year thereafter, the Participating Royalty is to be paid in the form of instalments by us. A minimum of $50,000 per year must be paid by us to the Rand Cam-Engine Corporation. As part of the minimum payment, we are to pay to Rand Cam-Engine Corporation, 5% of any after-tax net profits receive by us from REGI.

Pursuant to the Agreement, we were and are to distribute the 600,000 Common Shares to Rand Cam-Engine Corporation as follows: (a) 100,000 shares upon receiving regulatory approval; (b) a further 100,000 shares within five days of receiving written approval of the then Vancouver Stock Exchange following the successful testing of the Alpha version of the Rand Cam/Direct Charge Engine, and an independent engineer's report recommending further expenditures be made. Regulatory approval was received on April 11, 1995 and the shares were issued April 20, 1995 at $1.69 per share;

(c) a further 150,000 shares within five days after the latter of: receipt of written approval of the Vancouver Stock Exchange of an independent assessment report confirming that the Beta version of the RC/DC Engine has commercial or military applications; July 17, 1993; or the date the shares issued in (b) above;

(d) a final 250,000 shares within five days after written approval from the Vancouver Stock Exchange following the latter of: the signing of a contract to build and sell the RC/DC Engine or the execution of a License Agreement with an independent company; July 17, 1994; or the date the shares are issued in (c) above.

Under the terms of the Agreement, if any of the 600,000 shares to be issued as set out above remain unissued after ten years from the date of the Agreement, these shares will not be issued and we shall be relieved of any further obligations in respect to the issuance of these shares.

Pursuant to an agreement with Brian Cherry ("Cherry Agreement") dated July 30, 1992 , REGI was assigned all rights, title and interest in the Direct Charge Rotary Engine for all countries excluding the United States of America. Also under the Cherry Agreement, Sky Technologies Inc. (now called REGI U.S., Inc.) was assigned from Brian Cherry all right, title and interest in and to the Rand Cam/Direct Charge Rotary Engine for the United States.

11


 

REGI U.S., INC.

REGI U.S., Inc. ("REGI U.S.") is a 52.5% owned U.S. subsidiary of Rand Energy Group Inc. which is in turn controlled through 51% ownership by us. REGI U.S. was organized under the laws of the State of Oregon on July 27, 1992 as Sky Technologies, Inc. with its name changed on August 1, 1994. It has a total authorized capital of 20,000,000 common shares. As of April 30, 2002, a total of 10,221,735 shares are issued of which 5,073,200 are owned by Rand Energy Group Inc. In 1993 Sky completed an offering of 500,000 units consisting of one share of the Common Stock with no par value and one Warrant to purchase one share of Sky. Each Warrant entitled the holder to purchase one share of Sky at $1.25 until August 24, 1994 and then at a price of $1.50 during the following 12 month period, or extension thereof.

Pursuant to an agreement dated July 30, 1992 and amendments thereto between Brian Cherry, Sky and ourself (the "Cherry Agreement"), we acquired and then assigned to Sky the U.S. technology rights to the Rand Cam/Direct Charge Rotary Engine (the "Rand Cam/Direct Charge Rotary Engine") from Brian Cherry. REGI will retain a 5% interest in the net profits from the United States rights. In consideration, Mr. Cherry received, subject to regulatory approval, 100,000 shares of the Company, and a 1% net profits interest in REGI U.S. Brian Cherry purchased 300,000 shares of Sky/REGI at US $0.01.

Our stock currently trades on the OTC BB under the symbol REGRF and on the TSX Venture Exchange as RRE.

B.         BUSINESS OVERVIEW

Nature of the Company’s Operations

We are engaged in the business of developing and building an improved axial vane-type rotary engine known as the Rand Cam TM Direct Charge (“RC/DC”) Engine, which is a variation of the Original Engine. The Original Engine is an axial vane rotary engine, the worldwide marketing rights to which are held by RAND. A United States patent was issued for the RC/DC Engine on July 4, 1995, and assigned to us. Since no marketable product has yet been developed, we have not received any revenues from operations.

The RC/DC Engine is based upon the Original Engine patented in 1983. Brian Cherry, a former officer and director of the Company, has done additional development work on the Original Engine that resulted in significant changes and improvements for which the U.S. patent has been issued and assigned to us. We believe the RC/DC Engine offers important simplification from the basic Original Engine, which will make it easier to manufacture and will also allow it to operate more efficiently.

Based upon testing work performed by independent organizations on prototype models, we believe that the RC/DC Engine holds significant potential in a number of other applications ranging from small stationary equipment to automobiles and aircraft. In additional to its potential use as an internal combustion engine, the RC/DC Engine design is being employed in the development of several types of compressors, pumps, expanders and other applications.

To date, several prototypes of the RC/DC Engine have been tested and additional development and testing work is continuing. We believe that such development and testing will continue until a commercially feasible design is perfected. There is no assurance at this time, however, that such a commercially feasible design will ever be perfected, or if it is, that it will become profitable. If a commercially feasible design is perfected, we do, however, expect to derive revenues from licensing the Technology relating to the RC/DC Engine regardless of whether

12


actual commercial production is ever achieved. There is no assurance at this time, however, that revenues will ever be received from licensing the Technology even if it does prove to be commercially feasible.

We believe that a large market would exist for a practical rotary engine which could be produced at a competitive price and which could provide a good combination of fuel efficiency, power density and exhaust emissions.

Based on the market potential, we believe the RC\DC Engine is well suited for application to internal combustion engines, pumps, compressors and expansion engines. The mechanism can be scaled to match virtually any size requirement. This flexibility opens the door to large markets being developed.

We are currently testing prototypes for these products including air pumps for fuel cell applications and air conditioning compressors. Our strategy is to develop engines and compressors for low to medium horsepower applications, then apply the Technology to larger applications. We plan to license the Technology or enter into joint venture arrangements for other specific applications. The licensee or joint venture partners will then provide funding for research and development of the specific applications.

Products

Rand Cam Technology

Rand Cam Cold Turbine Engine

On March 13, 2001, we announced that analysis has been completed on a RAND CAM COLD TURBINE ENGINE to generate 1000 horsepower at 1800 rpm for the electrical power generation market. Preliminary drawings of this engine have been completed. A presentation has been prepared to visually demonstrate the technology so that we can generate interest and obtain funding to build and test this new engine. A dry run of the presentation was presented to a representative of one of the largest engine manufacturers in North America and the representative is assisting in setting up a presentation for its top management. Two additional presentations have been made to the management of this engine manufacturing company and the product is being reviewed by its engineering department. This presentation will be "taken on the road" and shown to additional major engine manufacturers and end users such as utility companies to solicit interest. Summarizing the presentation, the RAND CAM COLD TURBINE ENGINE compared to the best available MICROTURBINE ENGINE, has 32 percent better efficiency and generates 91 percent more power from the same airflow while retaining all of the emissions advantages of the MICROTURBINE ENGINE.

An analysis has been completed to show the potential of the RAND CAM COLD TURBINE ENGINE in aircraft application at the 400 horsepower output level so that we can work with several groups that have expressed interest in the Rand Cam Engine at this rating for aircraft and marine markets.

On July 12, 2001 we announced that our Engineer, Patrick Badgley, has completed a proposal to build a residential Cold Turbine Rand Cam™ generator. The self-contained residential power plant will be capable of providing 100% of the power needs of a modern luxury residence and would run on natural gas, propane or diesel fuel. The 25kW Rand Cam™ power plant would run at 3600 rpm, be extremely quiet, only 18 inches in overall diameter and would weigh 110 lbs.

Designs have been completed for three different applications of this new engine concept. The Cold Turbine is the use of a positive displacement RAND CAM(TM) compressor and a positive displacement RAND CAM(TM) expander in a Brayton cycle (gas turbine) machine.

Rotary Power International has been granted a license agreement for the power generator applications.

13


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.

Motor Scooter Project

The motor scooter project was successfully tested by Paul LaMarche, our engineer in Detroit, Michigan. Additional testing is proposed to prove the concept to potential interested customers.

The RC\DC Scooter Engine was successfully test fired on the new ignition system which was designed by our engineering team. The system fired in all chambers on both sides. The positive aspect of this test is that the ignition system is capable of operating at the demanding rate of the sixteen combustions per revolution versus the eight combustions for two revolutions on the existing piston engine used today.

The RC\DC Scooter engine will be a light weight, smooth and quiet running motor and very inexpensive to maintain and manufacture. Also, the RC\DC Scooter Engine prototype required equipment has been fabricated and acquired. The RC\DC Scooter Engine will weigh approximately 15-20 pounds and generate 20 HP. We have received inquiries from manufacturers regarding the possibility of including the Motor Scooter Engine in lightweight and inexpensive vehicles. There is no assurance, however, that we will enter into an agreement with anyone to manufacture the Motor Scooter engine.

Compressor

We contracted Coltec, Inc., a Columbus, Indiana engineering firm, to fabricate the Rand Cam (TM) air conditioning compressor for buses. The testing is to be conducted by Trans/Air Manufacturing Corporation, one of the largest manufacturers of air conditioning units for buses, which has agreed to jointly develop and manufacture the working model compressor. The prototype compressor was delivered to Trans/Air in January 2001 and is presently awaiting testing in a bus.

A special 3.2 SCFM air compressor has been designed for a large fuel cell customer. The customer has reviewed the design and his comments including type of drive motor, inlet and outlet piping arrangements and mounting considerations were incorporated and final drawings were prepared. This compressor is of virtually all plastic construction.

On June 28, 2001 we announced that the air pump for the fuel cell had been assembled and testing had commenced. The air pump was designed for the 1 KW fuel cell and is to be further tested by a potential customer at its facilities. Reg Technologies, Inc. also has agreed to build a Rand Cam compressor for several applications in the air, hydrogen and natural gas compressor requirements for fuel cell applications.

On August 21, 2001 we announced that the prototype air compressor requested by a major fuel cell manufacturer has been fabricated and is currently undergoing additional testing at REGI U.S.’s facility in Detroit. At the completion of this effort the compressor will be delivered to a compressor manufacturer for

14


evaluation and testing as a first step towards this manufacturer becoming a licensee to manufacture compressors for our applications.

Air Pump

On September 21, 2000 we announced that Paul LaMarche, a director and Vice President of Engineering, completed a series of feasibility tests on the Rand Cam air pump for the Lumbar seat application in automobiles. The Rand Cam air pump was tested without lubrication and filled the lumbar chamber in less than four (4) seconds, which is less than required by the specifications, at only 6,600 rpm. To date, production costs and manufacturing techniques have not been completed.

Hydraulic Pump

A special 2.5 GPM pump has been designed and fabricated for use in a hydrostatic transmission for the lawn and garden market. The pump includes an integrated 12 Volt drive motor. This pump incorporates the same new technologies used in the air conditioning compressor including the winged rotor and multi-piece vanes. The pump is designed for very low cost and is of all plastic construction. Production pricing has been obtained and we are very competitive according to our customer. This specific application for which this pump was designed has been temporarily put on hold.

Hydrogen Separator

We purchased the rights to the H2O Hydrogen Separator Technology consisting of a hydrogen separator based, which is a unique system for extracting hydrogen from water. We own a 50% interest in the U.S. rights and Reg Technologies, Inc. owns 50% of the worldwide rights excluding the U.S. to the Hydrogen Separator Technology.

In consideration for a 50% interest for the rights to the Hydrogen Separator Technology Reg Technologies, Inc. (“Reg”) agrees that we shall apply for a patent in the U.S. for the Hydrogen Separator Technology at Reg’s expense; and Reg agrees to build a prototype of the Hydrogen Separator Technology as designed by GHM, Inc. We declined the option to purchase an additional 50% interest. To date, patent confirmation has not been received by Reg.

Ceramic Rand Cam TM Engine

On December 6, 2001 we announced that a U.S. Navy contract (SBIR No1-144) has been awarded to Advanced Ceramics Research (prime contractor) and REGI U.S., Inc. to build and test a Naval 0.5 horsepower ceramic engine. The proposed engine is a four stroke Rand Cam™ engine utilizing continuous injection and combustion in a single combustion chamber. The engine will be of all ceramic construction to permit high temperature operation, without cooling, to effectively burn heavy oil. This new motor will be developed for powering the U.S. Navy’s new Smart War-fighter Array of Re-configurable Modules (SWARM) low cost unmanned aerial vehicle.

On April 4, 2002 we announced that we signed an agreement to grant a license to Advanced Ceramics Research, Inc. (“ACR”) for the Rand Cam™ based motors for 10 H.P. or less for the SBIR No 1-144 Navy Contract for the remote piloted applications. We agreed that a 5 year contract will also be granted to ACR for the Rand Cam™ concept motors for the commercial and military rights for the applications developed under the Navy contract for 10 H.P or less.

We will receive a royalty fee of 5% of the purchase price for the commercial and Navy applications. We also receive 30% of the Navy phase I contract and 50% of the phase II contract which is typically $50,000 to $100,000 for Phase I and $500,000 to $750,000 for Phase II. Phase I has been completed by Advanced Ceramics. The Company is awaiting funding from Phase II to be determined before the end of December, 2002.

15


Progress Report from May 1, 2001 to April 30, 2002

On June 28, 2001 we reported that the air pump for the fuel cell has been assembled and testing has been completed. The air pump was designed for the 1KW fuel cell and is to be further tested by a potential customer at their facilities.

On August 21, 2001, we reported progress on the Rand Cam™ Air Conditioning Compressor. We previously reported the air conditioning compressor for heavy-duty bus applications was completed and delivered to the Trans Air Manufacturing Company for testing in January of this year. Unfortunately, the testing has not been started. Pat Badgley previously visited this company and was assured that Trans Air is still very interested in the compressor. Testing has been delayed due to reorganization of Trans Air. We expect testing to commenced as soon as possible as Trans Air is still interested in the Rand Cam Engine compressor.

On October 22, 2001 we announced that Robert D. Stoddart B.S. Chemical Engineering, was appointed as Corporate Marketing Director for the Rand Cam(TM) technology applications for REGI U.S., Inc. Robert Stoddart brings with him 30 years experience in the aerospace and aircraft industry, as Corporate Marketing Director and Federal Government Affairs Director. Mr. Stoddart has been involved as a contractor and/or consultant for the Department of Defense, Naval Sea Systems Command; Naval Air Systems Command and Defense Advanced Research Projects Agency (DARPA).

We also announced that Stodd International, Mr. Stoddart's company, was appointed as agent for REGI U.S., Inc. to raise up to $6 million (U.S.) on a non-exclusive basis. A 5% agents fee of the total funds received from contacts introduced by Stodd International will be paid for funds raised, license fees, royalty payments and contract fees. We believe that Mr. Stoddart’s extensive expertise in government relations and advanced technologies marketing will be a valuable asset to marketing the Rand Cam(TM) projects and raising substantial funds for REGI U.S., Inc.

Our Rand Cam(TM) technology was exhibited at the GSE Expo (Ground Support Equipment Expo http://www.gseexpo.com) in Las Vegas at the Rio Hotel and Convention Center on October 23-25, 2001. Our booth was well attended.

On December 6, 2001, we announced that a U.S. Navy contract (SBIR No1-144) has been awarded to Advanced Ceramics Research (prime contractor) and REGI U.S., Inc. to build and test a Naval 0.5 horsepower ceramic engine. The proposed engine is a four stroke Rand Cam(TM) engine utilizing continuous injection and combustion in a single combustion chamber. The engine will be of all ceramic construction to permit high temperature operation, without cooling, to effectively burn heavy oil. This new motor will be developed for powering the U.S. Navy's new Smart War-fighter Array of Re-configurable Modules (SWARM) low cost unmanned aerial vehicle.

On April 4, 2002 we announced that we signed an agreement to grant a license to Advanced Ceramics Research, Inc. (“ACR”) for the Rand Cam™ based motors for 10 H.P. or less for the SBIR No 1-144 Navy Contract for the remote piloted applications.

A 5 year contract will also be granted to ACR for the Rand Cam™ concept motors for the commercial and military rights for the applications developed under the Navy contract for 10 H.P or less. We will receive a royalty fee of 5% of the purchase price for the commercial and Navy applications. REGI U.S., Inc. also receives 30% of the Navy phase I contract and 50% of the phase II contract which is typically $50,000 to $100,000 for Phase I and $500,000 to $750,000 for Phase II.

16


The Industry

We initially targeted market was the smaller engine application (under 20 horsepower) segment. This includes such applications as lawnmowers, lawn tractors, weed eaters, tillers, shredders, chainsaws, electrical generators, pumps, heatpumps and tampers. Our management believes that many of these small engine applications could benefit by the expected size, weight, reduced vibration, cost and power density advantages of the Rand Cam Rotary Engines.

Possible military applications include smaller electrical generator sites, water pumps and a small diesel engine 5-10 HP for drones or remote piloted vehicles. We plan to address the electrical power generation market through solicitation of military research and development funding.

The use of the basic engine technology in air conditioning compressors appears to hold significant potential for mass market applications.

Another application is the air pump being developed for a large fuel company which could hold the potential for significant volume sales if it proves to be a viable alternative to existing pumps currently used in fuel cell applications.

We are currently targeting the diesel engine market for military applications.

Description of the Markets in Which the Company Competes

We currently face and will continue to face competition in the future from established companies engaged in the business of developing, manufacturing and marketing engines and other products. While not a highly competitive business in terms of numbers of competitors, the business of developing engines of a new design and attempting to either license or produce them is nonetheless difficult because most existing engine producers are large, well financed companies which are very concerned about maintaining their market position. Such competitors are already well established in the market and have substantially greater resources than us. Internal combustion engines are produced by automobile manufacturers, marine engine manufacturers, heavy equipment manufacturers and specialty aircraft and industrial engine manufacturers. We expect that our engine would be used mainly in industrial and marine applications.

Except for the Wankel rotary engine built by Mazda of Japan, no competitor, that we are aware of, presently produces in a commercial quantity any rotary engine similar to the engines we are developing. The Wankel rotary engine is similar only in that it is a rotary engine rather than a reciprocating piston engine. Without substantially greater financial resources than is currently available to us, however, it is very possible that it may not be able to adequately compete in the engine business. One competitor, Rotary Power International, is presently producing the first production SCORE rotary (Wankel type) engines. Our RC\DC Engine is more fuel efficient, smaller, quieter, costs less to produce and will have fewer exhaust emissions.

We believe that if and when our engine is completely developed, in order to be successful in meeting or overcoming competition which currently exists or may develop in the future, our engine will need to offer superior performance and/or cost advantages over existing engines used in various applications.

Seasonality

We believe that there is no seasonality which affects the sales of our products.

17


Availability of Raw Materials

Since we are not in production and there are no plans at this time for us to enter the actual engine manufacturing business, raw materials are not of present concern. At this time, however, there does not appear to be any foreseeable problem with obtaining any materials or components, whic h may be required in the manufacture of its potential products.

Marketing Strategy

We intend to pursue the development of the RC/DC Engine and the air pump, compressor and other products by entering into licensing and/or joint venture arrangements with other larger companies, which have the financial resources to maximize the potential of the technology. At the present time no such licensing or joint venture arrangements have been concluded and there is no assurance that any will be in the foreseeable future. We have no current plans to become actively involved in either manufacturing or marketing any engine or other product which it may ultimately develop to the point of becoming a commercial product.

Our current objective is to complete and test the various compressor, pump and diesel engine prototypes. Based on the successful testing, the prototypes will be used for presentation purposes to potential license and joint venture partners. We are currently making presentations to the U.S. military which could result in additional government funding if the diesel engine prototype meets with its approval.

We expect revenue from license agreements with the potential end users based on the success of the design of from the compressor, pump, Cold Turbine Engine and diesel engine prototypes. Based on of successful testing of the Rand Cam prototypes, we expect to have joint venture or license agreements finalized, which would result in royalties to us. However, there is no assurance that the tests will be successful or that we will ever receive any such royalties.

The following marketing activities are all currently underway:

AIR CONDITIONING COMPRESSOR - An agreement with Trans Air Manufacturers has been completed to use the Rand Cam(TM) compressor in air conditioning units in bus applications. We have delivered a compressor prototype for testing. We are awaiting test results from Trans Air.

AIR PUMP – A prototype air pump for a Fuel Cell Application has been completed and will be delivered to the Fuel Cell manufacturer for testing soon.

DIESEL ENGINE – Efforts are underway to obtain funding for modifications of the existing Diesel engine to incorporate the latest winged rotor technology and incorporate extensive thermal barrier coatings. Also several new aircraft engine designs have been completed for aircraft applications ranging from 1 to over 400 horsepower for interested potential customers. We have signed a license agreement with Advanced Ceramics and Radian MILPARTS to further develop our Rand Cam Technology for diesel engine applications. We are currently designing a 42 H.P diesel engine for a remote piloted helicopter for potential military applications.

Patents and Licenses

Patents

We have patents on the Rand Cam Engine for Canada, Mexico and the United States to protect certain aspects of the Rand Cam engine. U.S. patent 5,429,084 was granted on July 4, 1995, to James McCann, Brian Cherry, Patrick Badgley and four other individuals for various improvements incorporated in the RC/DC Engine, This

18


patent has been assigned to us. The patent to the original Rand Cam engine, U.S. Patent 4,401,070, was issued on August 30, 1983 to James McCann and the marketing rights are held by Rand Energy.

The RC/DC Engine is composed basically of a disk shaped rotor with drive shaft, which turns, and the housing or stator, which remains stationary. The rotor has two or more vanes that are mounted perpendicular to the direction of rotation and slide back and forth through it. As the rotor turns, the ends of the vanes ride along the insides of the stator housing which have wave-like depressions, causing the vanes to slide back and forth. In the process of turning and sliding, combustion chambers are formed between the rotor, stator walls and vanes where the fuel/air mixture is injected, compressed, burned and exhausted.

Two additional patents have been issued for improvements to the engine including: U.S. Patents 5,509,793 “Rotary Device with Slidable Vane Supports) issued April 24, 1996 and 5,551,853 “Axial Vane Rotary Device and Sealing System Therefor) issued September 3, 1996. Additional patent applications are presently in process for the Winged Rotor, Multi-Piece Vanes and Cold Turbine.

Royalty Payments

The August 1992 Agreement calls for us to pay RAND semi-annually a royalty of 5% of any net profits to be derived by us from revenues received as a result of its license of the Original Engine. The August 1992 Agreement also calls for us to pay Brian Cherry a royalty of 1% semi-annually any net profits derived by us from revenue received as a result of our licensing the Original Engine.

Other provisions of the April 1993 Agreement call for is (a) to pay to RAND a continuing royalty of 5% of the net profits derived from the Technology by us and (b) to pay to Brian Cherry a continuing royalty of 1% of the net profits derived by us from the Technology.

Pursuant to the letter of understanding dated December 13, 1993, among us, RAND, Reg Tech and WVURC, WVURC will receive 5% of all net profits from sales, licenses, royalties or income derived from the patented technology relating to the Original Engine and the RC/DC Engine.

No royalties are to be paid to Alliant or Adiabatics, Inc.

Pursuant to our agreement with Weston, we agreed to pay to Weston 8.5% of net sales derived from the AVFS together with a minimum annual royalty of $24,000 per year beginning October 1, 1997, payable quarterly. This agreement was terminated February 4, 2002.

Competition and Alternative Technologies

We believe strong competition can be expected in the engine market with new patents being taken out on a continuous basis and that we may have a time advantage over some of the competitive products as far as niche markets which we may enter, however there is no way to accurately determine or predict whether this situation is or will continue to be true.

The conventional piston type internal combustion engine is the prime competitor of the Rand Cam Engine. Due to the substantial infrastructure built up to support the standard combustion engine, substantial barriers to entry exist into this market.

A number of the new engine designs over the last decade have offered advantages on the thermodynamics front (e.g. more efficient use of energy through better combustion, better heat transfer, etc.). In the case of the Rand Cam Engine, its strong point it believed to be in its mechanism, not in its thermodynamics. Whether or not the

19


engine's mechanism alone will provide the competitive edge necessary to result in a marketable and successful product is unknown at this time.

Since we do not have management experience in manufacturing engines, it hopes to be able to follow the same strategy as that of other companies such as Orbital and Wankel, where it would be licensing its technology and would therefore not be directly engaged in manufacturing.

An extensive manufacturing study has not been performed to date and it could turn out that the costs to manufacture are prohibitive for one or more reasons. However, the computer modelling done can be utilized to generate manufacturing drawings which could be used to obtain preliminary costing estimates.

The development of our business and its ability to maintain its competitive and technical position has depended and will depend, in part, upon its ability to attract and retain qualified scientific, engineering, managerial and manufacturing personnel.

Significant competition exists from engine manufacturers and engineering firms specializing in the development of internal combustion engines technology for the automotive, marine, motorcycle and small engine industry. Such competition also exists in the pump and compressor markets which may utilize the Rand Cam technology in their products. Many of these companies have substantially greater resources for research, development and manufacturing than us. It is possible that our competitors may succeed in developing technologies and products that are more effective or commercially acceptable. We believe, based on its testing of the Rand Cam engine that the engine is a superior overall engine package to the reciprocating piston engine. This assessment is made on the basis of the Rand Cam engine's potential for reduced engine weight and packaging volume, improved performance, and possibly lower manufacturing costs.

Technology development is taking place on many fronts and competitors may have, unknown to us, a product or products under development which may be technologically superior to ours which may be more acceptable to the market. Competition with engines employing Rand Cam technology may also include other lean burn engines, electric motors, gas turbine engines, solar power and hybrid vehicles, and may include concepts not yet known to us.

Material effects of Government

Our engine products including the spark ignited engine, Diesel engine and Cold Turbine engine will be subject to various exhaust emissions standards depending upon the application and the country in which it is produced and/or sold. As each product becomes ready for sale, it will be necessary to have the engine certified according to the standards in effort at that time.

C.         ORGANIZATIONAL STRUCTURE

For a list of our significant subsidiaries, see “Item 10 – Additional Information – Subsidiary Information”.

D.         PROPERTY, PLANT AND EQUIPMENT

We own no properties. We currently utilize office space leased by Reg Technologies in a commercial business park building located in Richmond, British Columbia, Canada, a suburb of Vancouver. The 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. Mr. Badgley, a director and Vice President, works out of an office in his home in Columbus, Indiana. From this office, Mr. Badgley oversees and controls development and testing of the engine and other prototypes. Mr. Badgley has also used the facilities of Coltec Industries which was under contract to design and build the compressor prototype.

20


BROKERAGE PARTNERS