REG TECHNOLOGIES INC.
Suite 240 – 1170 Hammersmith Way
Richmond, BC V7A 5E9
Tel: 604.278-5996
Fax: 604.278.3409
April 1, 2011
MANAGEMENT DISCUSSION & ANALYSIS
This discussion and analysis should be read in conjunction with our interim consolidated financial
statements and related notes thereto for the nine months ended January 31, 2011, as well as our audited
financial statements and accompanying Management’s Discussion & Analysis for the year ended April
30, 2010, which have been prepared in accordance with Canadian generally accepted accounting
principles. All amounts in the financial statements and this discussion and analysis are expressed in
Canadian dollars, unless otherwise indicated.
FORWARD LOOKING STATEMENTS
Certain statements contained in this MD&A using the terms “may”, “expects to”, “projects”, “estimates”,
“plans”, and other terms denoting future possibilities, including our expectations and objectives, are
forward-looking statements in respect to various issues including upcoming events based upon current
expectations, which involve risks and uncertainties that could cause actual outcomes and results to differ
materially. These statements reflect the current views of management with respect to future events and
are subject to risks, uncertainties and other factors. Our actual results, performance or achievements
could differ materially from those expressed in, or implied by, these forward-looking statements,
including those described in our financial statements, Management’s Discussion & Analysis and Material
Change Reports filed with the Canadian Securities Administrators. Accordingly, no assurances can be
given that any of the events anticipated by the forward-looking statements will transpire or occur, or if
any of them do so, what benefits, including the amount of proceeds, that we will derive therefrom.
All subsequent forward-looking statements, whether written or oral, attributable to our company or
persons acting on our behalf are expressly qualified in their entirety by these cautionary statements.
Overview
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 RadMax™ rotary technology (the “Technology”
or the “RadMax Engine”), used in the design of lightweight and high efficiency engines, compressors and
pumps. Since no marketable product has yet been developed, we have not received any revenues from
operations.
We are a reporting issuer in British Columbia and Alberta and trade on the TSX Venture Exchange (the
(“TSX.V”) under the symbol “RRE”. We are also listed on the OTC BB under the symbol “REGRF”.
In July, 2010 we incorporated our wholly owned subsidiary Minewest Gold and Silver Corp. Inc.
(“Minewest”), a private company incorporated in British Columbia for the purpose of acquiring and
exploring mineral properties.
The worldwide marketing and intellectual rights to the Technology, other than in the US, are held by us
and REGI owns the US marketing and intellectual rights. We own 4.5 million shares of REGI,
2
representing a 16% interest. We have a project cost sharing agreement with REGI whereby we each fund
50% of the costs of developing the Technology.
Based upon testing work performed by independent organizations on prototype models, we believe that
the RadMax 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 RadMax Engine design is being employed in the development of several types of
compressors, pumps, expanders and other applications. The mechanism can be scaled to match virtually
any size requirement.
To date, several prototypes of the RadMax 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, 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.
Based on the market potential, we believe the RadMax Engine is well suited for application to internal
combustion engines, pumps, compressors and expansion engines.
The RadMax Engine must be technologically superior to other engines that competitors offer and must
have a competitive price/performance ratio to adequately penetrate its potential markets. A number of
rotary engines have been designed over the past 80 years but only one, the Wankel, has been able to
achieve mechanical practicality and any significant market acceptance.
We have tested the RadMax Engine technology for interested customers. To date, we have granted an
option for a license for certain applications to a Fortune 1000 company, which has evaluated the
RadMaxEngine design and assisted in the development and testing at no cost to us. On December 31,
2010 the option agreement expired without exercise.
Products and Projects
RadMax™ Engine
Based on a review of published industry literature by our thermodymanics engineer, Dr. Allen
MacKnight, PhD., we believe that the RadMax Engine could achieve improved fuel consumption when
compared to gasoline and turbine engines. Specifically, a given volume of diesel fuel contains
approximately 30% more energy that the same volume of gasoline and diesel engines consume
approximately 0.4 pounds of fuel for every horsepower hour. As a point of reference, all turbine engines
consume approximately 0.8 pounds of fuel for every horsepower hour.
To bring the RadMax Engine from concept to reality, a number of milestones, or steps, are required for
ultimate qualification. These start with concept drawings and presentations, and lead to testing by
independent agencies to validate the emissions, horsepower, and other critical metrics.
Together with REGI, we have been working with a Fortune 1000 company since April 2008 in evaluating
and considering technical solutions in developing the RadMax Engine application based on a
specification of its industry partner. Under the terms of a confidentiality agreement, we are prohibited
from publishing the name of the partner or discussing the partner’s specific application.
3
The agreement gives the Fortune 1000 company an option for 90 days after the completion of the
evaluation period to enter into a letter of intent for exclusive commercial and military markets. They have
a period of 12 months after completion of the evaluation period to enter into a letter of intent for a non-
exclusive license for the RadMax Engine for certain commercial and military markets. This agreement
expired on December 31, 2010.
We retained Belcan Engineering Services of Phoenix, AZ to review the Fortune 1000 diesel engine
design before production of the prototype, which review was to help to ensure a streamlined and timely
fabrication process. Following the design review, the next step will be to fabricate RadMax Engine parts
and assemblies, validate assembly operations, and conduct component, assembly, and system tests. After
multiple technical meetings with Belcan Engineering Services, the following results have been
accomplished:
* familiarization with the RadMax Engine baseline design, including mechanical operation,
friction;
* contributors and sealing approach;
* shared understanding of the vane actuation system;
* determination of vane loads in compressor and engine applications;
* preliminary evaluation of thermodynamics and determination of potential hot spots;
* evaluation of compression ratio, and recommendations for design modifications; and
* assessment of all bearings – main bearings which control all rotating components, linear bearings
which control the vane actuators, and journal bearings which facilitate wheel operations on the
fixed stators.
Belcan’s technical assignment was to optimize the design of the diesel engine application which
comprises the vanes, push rods, and a lift block that interface with a stator. The review of the RadMax
Engine thermodynamics and vane-actuation systems were performed first. All recommendations
resulting from these reviews were evaluated and changes into the RadMax Engine baseline were
incorporated as appropriate.
The design review covered thermodynamic engineering work, material selections, sealing solutions,
component geometry, mechanical integration, operating limitations and a vital assembly review.
The resultant thermodynamics report included recommendations for RadMax Engine materials,
thicknesses, tolerances, and coatings. One specific recommendation is to fabricate the cam using lighter
weight materials to take advantage of its improved thermal conductivity.
In June 2010, REGI met with representatives of the Fortune 1000 company and conducted a review of the
engine analysis, design, and fabrication plans. At the completion of the review, we announced that the
design review indicates the acceptance of the demonstration RadMax Engine, subject to a few minor
action items that have since been resolved. The objective of the review was to obtain approval to
commence fabrication of the demonstration diesel engine. A revised drawing package and computer
models of the updated components were submitted to the Fortune 1000 Company for final review.
On August 12, 2010, following two years of technical assessments and design reviews, the engineering
team confirmed that the RadMax Engine engineering drawings were complete, additional technical
reviews were not necessary and we would proceed with building the RadMax demonstration prototype.
Commercial item procurement, parts fabrication and preparation for prototype testing are underway. Our
target is to complete prototype fabrication and start initial testing early 2011 after completion of our
planned financing. This event represents the completion of another significant milestone.
After completion of our Request for Proposals to three pre-qualified bidders to provide a fixed-price
quotation we selected Path Technologies Inc. (“Path Tech”), of Painesville, Ohio, to fabricate the
4
prototype RadMax Engine. Upon the commencement of the fabrication stage, we will integrate those
parts, along with other commercial items (fuel injection, for example) to produce the prototype engine.
In February, 2011, we paid Path Technologies for the purchase order to commence fabrication to
complete the cam and actuator for the RadMax™ demonstration diesel engine model.
On March 8, 2011 we provided a fabrication progress report of the RadMax™ assembly via news release,
reporting the initial fabrication progress is as follows:
* All specified material has been ordered
* All connecting tubes have been final machined to their outside and inside geometric tolerances
* The connecting tubes have been masked for subcontracted flame spray plating services
* Each of the 24 vane blocks have been trued, which means three axis sides are perfectly parallel to
their opposite sides and perpendicular to each other
* The outside dimensions of the vane portion has been fabricated in a wire EDM Process
Following completion of the vanes, flame spray plating of the connecting tubes, fabrication of the apex
seals, wheel assemblies, and attaching parts, the actuator components will be ready for sub component
testing.
Next components planned for fabrication are the cam assemblies, rotor assemblies, stator assemblies, and
enclosure assemblies. Following each of these fabrications the components will be tested. Upon
successful testing of the components the entire RadMax™ engine will be prepared for friction testing,
lubrication flow testing, cooling flow testing, and compression testing.
Upon successful completion of the entirety of tests performed on the RadMax™ engine, fuel and engine
certification tests will be conducted by an independent recognized facility.
RadMax™ Pump
We actively pursued the development of the RadMax™ Pump from early 2007 until March 2008. From
September 2007 until March 2008, we worked with an industry partner in the water pump industry. The
partner evaluated the pump as a potential new product offering as part of its fire engine chemical
dispersant product line. The evaluation and test period ended when the partner had a change in its senior
management and their leading advocate left the company. Until there is further interest established in the
RadMax™ Pump by an end user, no further work is anticipated.
RadMax Compressor
We then focused our technical resources on validating the seals for a compressor application, leading
towards the technology incorporation in the RadMax Engine.
In February 2009 the pump was set up in our Richmond, B.C. laboratory, for demonstration to interested
parties. It is a fully functional prototype capable of pumping twice its internal volume every revolution.
Future development would take the form of customization based on interest from another industry
partner. Commercialization requires tooling to significantly reduce the cost of the pump in a production
environment.
We actively pursued the development of high pressure metal seals using the RadMax™ Compressor from
July 2007 until September 2007. The technical concept of high pressure metal seals was validated in a
prototype compressor test bed that was fabricated from residual hardware. There was no immediate
interest by an industry partner to enter intoa joint development of the RadMax™ Compressor. Until there
5
is further interest established in the RadMax™ Compressor by an end user, no further work will be
conducted.
Summary of Quarterly Results
The following is a summary of our financial results of eight of our most recently completed quarters:
Three
Three
Three
Three
Three
Three
Three
Three
months months
months
months
Months
Months
Months
months
Description
ended
ended
ended
ended
ended
ended
ended
ended
Jan.31, Oct. 31, July 31, April 30, Jan. 31,
Oct. 31,
July 31,
April 30,
2011
2010
2010
2010
2010
2009
2009
2009
$
$
$
$
$
$
$
$
Net Revenues
0
0
0
0
0
0
0
0
Income or
loss before
other items
Total
(117,920)
(92,486)
(99,643) (177,367) (185,081) (167,292) (159,926)
(207,812)
Per share
(0.00)
(0.00)
(0.00)
(0.02)
(0.004)
(0.006)
(0.00)
(0.02)
Net loss for
period
Total
(117,920)
(23,502)
(61,898) (113,407) (105,852) (157,669)
(77,974)
23,512
Per share
(0.00)
(0.00)
(0.00)
(0.02)
(0.004)
(0.006)
(0.00)
(0.00)
As we are in a development stage company, variances by quarter reflect overall corporate activity and are
also impacted by factors which are not recurring each quarter, such as research and development costs
and financing costs.
The fluctuations in net loss are mainly due to the difficulties faced by small companies when it comes to
raising funds in the current economic climate. When a financing is completed, expenditures rise,
increasing the net loss. As those funds are allocated, expenditures decline, reducing the net loss.
Results of Operations
We incurred a net loss of $187,409 for the nine months ended January 31, 2011, compared to a net loss of
$ for the nine months ended January 31, 2010. Significant changes from the first nine months in fiscal
2010 to the first nine months in fiscal 2011 are as follows:
* In 2011 we had a convertible debenture of principal amount of $50,000. Interest of $6,999 was
recorded on the loan during the period, while we did not have such debt or related interest
expense in 2010;
* We decreased shareholder communication expenses from $51,844 in 2010 to $18,688 in 2011
due to our continued search for efficient channels for shareholder communication during the
weak world economy;
* From the first nine months of 2010 to the same period in 2011 office expenses decreased from
$44,051 to $18,488, professional fees decreased from $80,347 to $50,321, rent and utility
decreased from $27,562 to $12,229, wages and benefit decreased from $21,616 to $17,833, all
due to our effort to streamline our operations and share costs with our associated companies;
* Research and development expenses decreased from $98,200 to $65,040, because we have
reached a stage where one of the research members’ work is not required in 2011 as much as in
2010;
* In 2010 we had stock based compensation for options granted of $31,987; in 2011 has stock
based compensation of $20,296.
6
Management and director fees increased from $39,150 in 2010 to $49,221 in 2011 and consulting fees
increased from $13,965 in 2010 to $25,553, as a result of these types of services provided by the new
subsidiary Minewest we creased in 2011.
In 2010 we recognized a gain of $26,689 on private sale of our REGI shares when the shares were
transferred to the purchasers; in 2011 we recognized the same gain of $39,542.
In addition, in the first nine months of both 2010 and 2011 we recognized unrealized gain on warrants
issued with our private sales of our REGI shares as a result of the warrant fair value calculation using
Black-Scholes option pricing model, with $144,115 in 2010 and $78,334 in 2011. The gains were realized
when warrants expired.
Liquidity and Capital Resources
As of January 31, 2011 we had a cash position of $144,168, compared to $364 as at the year ended April
30, 2010, representing a significant increase of $143,804. As at January 31, 2011, we had a working
capital of $295,029, compared to a working capital of $219,216 as at April 30, 2010.
During the nine month period ended January 31, 2011 we issued a convertible debenture for $50,000,
which bears interest at 8% per annum, payable monthly, is unsecured and due on June 1, 2011. The
unpaid amount of principal can be converted at any time at the holder’s option into common shares at a
price of $0.20 per share. We have the option to repay the principal and accrued interest before the due
date with 30 days advance notice.
During the nine month period ended January 31, 2011, we issued 460,929 common shares for gross
proceeds of $92,186 for warrants exercised at $0.20 per share.
During the nine months ended January 31, 2011 we raised $266,686 from sale of our private placement
subscriptions and our wholly owned subsidiary Minewest raised $207,500 from sale of subscription of its
common shares.
We are owed $842,081 by REGI, which receivable relates to REGI’s 50% share of recent project costs
for the RadMax Engine pursuant to the project cost sharing agreement. REGI currently lacks the liquidity
to fund its share of the costs.
During the year ended April 30, 2010, we financed our operations by way of share subscriptions pursuant
to private placements for total net proceeds of $375,786. We also received proceeds of $240,395 from
the sale of shares of REGI, representing a gain of $142,815.
We are still in the development stage of our business and expect to continue with research and
development activities for the near future. We do not expect to generate significant revenues in the near
future and will have to continue to rely upon the sale of equity securities to raise capital or shareholder
loans. Fluctuations in our share price may affect our ability to obtain future financing and the rate of
dilution to existing shareholders.
We have no funding commitments or arrangements for additional financing at this time and there is no
assurance that we will be able to obtain any additional financing on terms acceptable to us, if at all. Any
additional funds raised will be used for general and administrative expenses, and to continue with our
research and development activities. The quantity of funds to be raised and the terms of any equity
financing that may be undertaken will be negotiated by management as opportunities to raise funds arise.
We estimate that we will require approximately $250,000 to fund our general and administrative expenses
for the next twelve months. We will also require approximately $250,000 to fund our share of the costs
7
for the RadMax Engine, being the master design integrator, prototype fabrication and labour expense.
The quantity of funds to be raised and the terms of any equity financing that may be undertaken will be
negotiated by management as opportunities to raise funds arise.
On February 24, 2011 we issued 1,994,333 units of private placement at $0.15 per unit at $0.15 per unit
consisting of one common share of the Company and one share purchase warrant entitling the holder to
purchase one additional share of common stock at a price of $0.20 for one year from February 24, 2011,
$174,500 of the proceeds was received by January 31, 2011 and the remaining $125,500 received after
January 31, 2011.
Transactions with Related Parties
During the nine month period ended January 31, 2011 and 2010, we entered into the following
transactions with related parties:
* At January 31, 2011, the Company is owed an aggregate of $Nil (April 30, 2010 - $28,455)
by related parties and owed an aggregate of $239,394 (April 30, 2010 - $146,741) to related
parties. The amounts owed are unsecured, non-interest bearing and due on demand. These
parties are companies that the President of the Company controls or significantly
influences.
* During the nine month period ended January 31, 2011, rent of $12,229 (2010 - $27,562)
incurred with a company having common officers and directors.
* During the nine month period ended January 31, 2011, management fees of $22,500 (2010
- $22,500) were accrued to a company having common officers and directors in accordance
with the management agreement dated May 1, 2007. As at January 31, 2011 an aggregate
balance of $27,724 was owed to this related party by Rand and the Company. On
December 1, 2010 the management agreement was amended whereby the related party
agrees to accrue the $5,000 per month management fees, but not to be paid until the
Company is sufficiently funded for operations and not to charge interest on outstanding
balances.
* During the nine month period ended January 31, 2011, research and development costs of
$65,040 (2010 - $98,200) were paid to a company having common officers and directors.
* During the nine month period ended January 31, 2011, administrative and management
fees, included in miscellaneous office expenses, of $9,509 (2010 - $20,250) and directors’
fees of $9,000 (2010 - $9,000) were paid to officers, directors and companies controlled by
officers and directors for services rendered.
These transactions are in the normal course of operations and are measured at the exchange amount of
consideration established and agreed to by all the related parties. Amounts due from related parties are
unsecured, non-interest bearing and due on demand.
At January 31, 2011, the Company is owed $nil (April 30, 2010 - $28,455) by related parties and owed an
aggregate of $239,394 (April 30, 2010 - $146,741) to related parties. The amounts owed are unsecured,
non-interest bearing and due on demand. These parties are companies that the President of the Company
controls or significantly influences.
8
Significant Recent Developments
Spin Off of 50% Interest in Silverknife Claims to Subsidiary
On August 9th, 2010 we announced that we intended to spin off our 50% interest in the Silverknife claims,
located in Liard Mining Division, BC, to a newly created subsidiary, Minewest Silver and Gold Inc.
(“Minewest”). Minewest will prepare a geological report on the Silverknife claims. Pursuant to an
agreement between our company and Minewest we will perform a $150,000 work program in the first
year and a $250,000 work program in the second year. As consideration for the 50% interest in the
Silverknife claims, Minewest will issue up to 8,000,000 common shares to our company and we will
retain a 5% net profit return. We plan to distribute the Minewest shares to our shareholders on a 7 to 1
basis as of a record date of August 27th, 2010.
We advised that negotiations were underway to acquire the additional 50% interest in the Silverknife
claims. Minewest intends to raise $250,000, of which $150,000 will be flow-through shares to be spent
on exploration, including drilling the known silver, lead and zinc targets, which were identified in a 3,000
foot drilling program completed in 1985.
Subsequently, we announced that we were extending the record date and distribution of the Minewest
shares as a result of a letter received from Barry Price, who is associated with Rapitan Resources Inc.
(“Rapitan”), one of the optionors of the Silverknife claims. In his letter Mr. Price alleges that we do not
hold an interest in the claims because the work required to earn the interest was not completed by January
1, 1985. However, we assert that an amended agreement was signed by all parties extending the
completion of the work program to January 1, 1986, which work program was completed before that date.
On December 21, 2010, we announced that we signed an agreement dated December 16, 2010 with
Rapitan, wherein both parties confirm that there are no further disputes regarding ownership of
Silverknife claims 1 and 2 and Rapitan sold its 25% interest in the Silverknife property to Minewest, who
will consequently own 70% work interest in the Silvernife Claims 1 and 2, subject to a 10% net smelter
return.
In February, 2011 we completed our 43-101 report which result was announced in our news release. A
proposed Phase I exploration program consisting of a desk study followed by a series of on-the-ground
Property boundary and drill collar location surveys, followed by geophysics and diamond drilling with a
recommended budget of $358,700 is recommended for the Silverknife Property.
On February 15, 2011 our directors declared a distribution of Minewest Silver & Gold Inc. shares on a 7
to 1 basis as of the previous record date February 15, 2011 to be extended to February 28th, 2011.
Directors and Officers
Our Board of Directors is as follows:
John Robertson
Jennifer Lorette
Suzanne Robertson
James Vandeberg
Robert Grisar
Our officers are:
John Robertson
President, Chief Executive Officer and Corporate Secretary
James Vandeberg
Chief Financial Officer
9
Share Capital
Our authorized capital consists of 65,000,000 shares, consisting of 50,000,000 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 50,000,000 common shares without par value, 28,830,785 shares
(excluding the 217,422 shares owned by Rand) were outstanding as of the date of this report. There are no
Preferred or Class "A" Shares currently outstanding.
During the nine months ended January 31, 2011, we issued 460,929 common shares for warrants
exercised at $0.20 per share.
The following is a summary of the stock options and share purchase warrants outstanding as at January
31, 2011:
Stock options:
Expiry Date
Exercise
Number
Remaining
price
of options
contractual life
(years)
$
August 1, 2013
0.40
400,000
2.51
April 22, 2014
0.21
375,000
3.23
April 19, 2015
0.21
50,000
4.22
October 21, 2015
0.14
750,000
4.72
Options Outstanding
1,575,000
Options Exercisable
393,570
Share purchase warrants:
Expiry Date
Exercise
Number
price
of warrants
$
July 26, 2011
0.20
551,667
September 24, 2011
0.20
1,643,333
Warrants Outstanding
2,195,000
10
Changes in Accounting Policies
The unaudited interim consolidated financial statements for the nine months ended January 31, 2011 have
been prepared in accordance with Canadian generally accepted accounting principles for interim financial
information using the same accounting policies and methods of application as the audited consolidated
financial statements of the Company for the year ended April 30, 2010.
IFRS Implementation Plan
We have commenced the development of an International Financial Reporting Standards (“IFRS”)
implementation plan to prepare for this transition, and are currently in the process of analyzing the key
areas where changes to current accounting policies may be required. While an analysis will be required
for all current accounting policies, the initial key areas of assessment will include:
* Exploration and development expenditures;
* Property and equipment (measurement and valuation);
* Stock-based compensation;
* Accounting for income taxes; and
* First-time adoption of International Financial Reporting Standards (IFRS 1).
As the analysis of each of the key areas progresses, other elements of our IFRS implementation plan will
also be addressed, including: the implication of changes to accounting policies and processes and
financial statement note disclosure. The table below summarizes the expected timing of activities related
to our transition to IFRS:
Initial analysis of key areas for which changes to accounting policies
In progress now
may be required
Detailed analysis of all relevant IFRS requirements and identification of
In progress now
areas requiring accounting policy changes or those with accounting
policy alternatives
Assessment of first-time adoption (IFRS 1) requirements and
In progress now
alternatives
Final determination of changes to accounting policies and choices to be
In discussion with auditors
made with respect to first-time adoption alternatives
Resolution of the accounting policy change implications on the
In analysis
accounting processes
Quantification of the financial statement impact of changes in
In analysis
accounting policies
Approval
Our Board of Directors have approved the disclosures in this MD&A. A copy of this MD&A will be
provided to anyone who requests it.
11
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements.
Additional Information
Additional information relating to our company is available on SEDAR at www.sedar.com.