UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
[X] | Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the quarterly period ended October 31, 2016
For the quarterly period ended July 31, 2017 | |
[ ] | Transition Report pursuant to 13 or 15(d) of the Securities Exchange Act of 1934 |
For the transition period ___________________ to |
For the transition period ___________________ to ___________________
Commission File Number0-23920
REGI U.S., INC.
(Exact name of Small Business Issuer as specified in its charter)
Oregon | 91-1580146 | |
(State or other jurisdiction of incorporation or organization) | (IRS Employer Identification No.) |
| ||
(Address of principal executive offices) | (Postal or Zip Code) | |
Issuer’s telephone number, including area code: |
NA
(Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of theSecurities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes [X] No [ ]
Indicate by check mark whether the registrant has submitted electronically and posted on its Web site, if any, every Interactive Date File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes [ ] No [X]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definition of ’‘‘‘accelerated filer and large accelerated filer’’ in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer | [ ] | Accelerated filer | [ ] |
Non-accelerated filer | [ ] | Smaller reporting company | [X] |
Emerging growth company | [ ] |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [ ]
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes [ ] No [X]
Indicate the number of shares issued and outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 83,708,68688,986,959 and 88,159,236 shares of common stock with no par value issued and outstanding, respectively, as of December 21, 2016.November 16, 2017.
TABLE OF CONTENTS
7 | |
SIGNATURES | 8 |
2 |
3 |
REGI U.S., INC.
INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
July 31, 2017
The accompanying financial statements for REGI U.S., Inc. (the “Company”) have been prepared by management in accordance with accounting principles generally accepted in the United States of America. These interim consolidated financial statements, which are the responsibility of management, are unaudited and have not been reviewed by the Company’s auditors. Management believes the consolidated financial statements are free of material misstatement and present fairly, in all material respects, the financial position of the Company as at July 31, 2017 and the results of its operations and its cash flows for the three months ended July 31, 2017.
F-1 |
REGI U.S., Inc.
October 31, 2016 | April 30, 2016 | July 31, 2017 | April 30, 2017 | |||||||||||||
(Unaudited) | (Unaudited) | (Audited) | ||||||||||||||
ASSETS | ||||||||||||||||
Current Assets: | ||||||||||||||||
Cash and cash equivalents | $ | 5,403 | $ | 42 | ||||||||||||
Deposits | 2,000 | - | ||||||||||||||
Cash and cash equivalent | 252,040 | 67,818 | ||||||||||||||
Prepaid expenses | 37,527 | 8,987 | ||||||||||||||
Total current assets | 7,403 | 42 | 289,567 | 76,805 | ||||||||||||
Furniture and equipment, net | 16,675 | - | 15,273 | 14,279 | ||||||||||||
Total Assets | 304,840 | 91,084 | ||||||||||||||
LIABILITIES AND STOCKHOLDERS’ DEFICIT | ||||||||||||||||
Total Assets | $ | 24,078 | $ | 42 | ||||||||||||
LIABILITIES AND STOCKHOLDERS’ DEFICIT | ||||||||||||||||
Current Liabilities: | ||||||||||||||||
Accounts payable and accrued liabilities | $ | 202,270 | $ | 192,752 | 261,770 | 219,966 | ||||||||||
Due to related parties | 1,881,716 | 1,916,876 | 105,614 | 77,560 | ||||||||||||
Total current liabilities | 2,083,986 | 2,109,628 | 367,384 | 297,526 | ||||||||||||
Long-term liabilities: | ||||||||||||||||
Convertible promissory notes | 205,152 | - | ||||||||||||||
Long-term Liabilities: | ||||||||||||||||
Convertible promissory notes, net of unamortized discount of $324,548 and $12,944, respectively | 732,921 | 636,539 | ||||||||||||||
Convertible promissory notes – related parties, net of unamortized discount of $29,432 and $9,888, respectively | 880,254 | 877,449 | ||||||||||||||
Total long-term liabilities | 205,152 | - | 1,613,175 | 1,513,988 | ||||||||||||
Total liabilities | 2,289,138 | - | 1,980,559 | 1,811,514 | ||||||||||||
Stockholders’ Deficit: | ||||||||||||||||
Common stock, 100,000,000 shares authorized, no par value, 32,779,298 shares issued and outstanding | 11,057,034 | 10,840,946 | ||||||||||||||
Common stock, 150,000,000 shares authorized, no par value, 85,515,297 and 84,850,475 shares issued, respectively 84,687,574 and 84,022,744 shares outstanding, respectively | 20,076,895 | 19,641,632 | ||||||||||||||
Accumulated deficit | (13,322,094 | ) | (12,950,532 | ) | (21,448,722 | ) | (21,058,170 | ) | ||||||||
Total Stockholders’ Deficit | (2,265,060 | ) | (2,109,586 | ) | ||||||||||||
Accumulated other comprehensive loss | (358,675 | ) | (358,675 | ) | ||||||||||||
Total REGI U.S., Inc. stockholders’ deficit | (1,730,502 | ) | (1,775,213 | ) | ||||||||||||
Non-controlling interest | 54,783 | 54,783 | ||||||||||||||
Total stockholders’ deficit | (1,675,719 | ) | (1,720,430 | ) | ||||||||||||
Total Liabilities and Stockholders’ Deficit | $ | 24,078 | $ | 42 | 304,840 | 91,084 |
The accompanying notes are an integral part of these unaudited consolidated financial statements.
F-2 |
REGI U.S., Inc.
Consolidated Statements of Operations and Comprehensive Loss
(Unaudited)
Three Months Ended | Six Months Ended | |||||||||||||||||||||||
October 31, | October 31, | Three Months Ended July 31, 2017 $ | Three Months Ended July 31, 2016 $ | |||||||||||||||||||||
2016 | 2015 | 2016 | 2015 | |||||||||||||||||||||
Operating Expenses: | ||||||||||||||||||||||||
General and administrative | $ | 285,531 | $ | 68,313 | $ | 296,752 | $ | 133,600 | ||||||||||||||||
General and administration | 149,477 | 9,615 | ||||||||||||||||||||||
Research and development | 71,716 | 12,578 | 71,716 | 46,345 | 186,825 | - | ||||||||||||||||||
Loss from operations: | (357,247 | ) | (80,891 | ) | (368,468 | ) | (179,945 | ) | ||||||||||||||||
Loss from operations | (336,302 | ) | (9,615 | ) | ||||||||||||||||||||
Other income (expense): | ||||||||||||||||||||||||
Gain on settlement of accounts payable | - | - | 666 | - | ||||||||||||||||||||
Interest expense | (3,400 | ) | (360 | ) | (3,760 | ) | (720 | ) | (54,250 | ) | - | |||||||||||||
Total other income (expense) | (3,400 | ) | (360 | ) | (3,094 | ) | (720 | ) | (54,250 | ) | - | |||||||||||||
Net loss before non-controlling interest | (390,552 | ) | (9,615 | ) | ||||||||||||||||||||
Net (income) loss attributable to non-controlling interest | - | 7 | ||||||||||||||||||||||
Net loss attributable to REGI U.S., Inc. | (390,552 | ) | (9,608 | ) | ||||||||||||||||||||
Loss per share – basic and diluted | (0.00 | ) | (0.00 | ) | ||||||||||||||||||||
Weighted average number of common shares outstanding – basic and diluted | 84,444,375 | 49,329,670 | ||||||||||||||||||||||
Comprehensive loss: | ||||||||||||||||||||||||
Net loss | $ | (360,647 | ) | $ | (81,251 | ) | $ | (371,562 | ) | $ | (180,665 | ) | (390,552 | ) | (9,615 | ) | ||||||||
Net loss per common share – basic and diluted | $ | (0.01 | ) | $ | (0.00 | ) | $ | (0.01 | ) | $ | (0.00 | ) | ||||||||||||
Weighted average common shares outstanding – basic and diluted | 32,779,298 | 32,779,298 | 32,779,298 | 32,779,298 | ||||||||||||||||||||
Translation adjustments | - | 7,942 | ||||||||||||||||||||||
Comprehensive loss | (390,552 | ) | (1,673 | ) | ||||||||||||||||||||
Comprehensive income attributable to non-controlling interest | - | (27,107 | ) | |||||||||||||||||||||
Comprehensive loss attributable to REGI U.S., Inc. | (390,552 | ) | (27,780 | ) |
The accompanying notes are an integral part of these unaudited consolidated financial statementsstatements.
F-3 |
REGI U.S., Inc.
Consolidated Statements of Cash Flows
(Unaudited)
Six Months Ended October 31, | ||||||||
2016 | 2015 | |||||||
Cash flows from operating activities: | ||||||||
Net loss | $ | (371,562 | ) | $ | (180,665 | ) | ||
Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
Donated services | - | 60,000 | ||||||
Gain on settlement of accounts payable | (666 | ) | - | |||||
Options and warrants issued for services | 216,088 | - | ||||||
Changes in operating assets and liabilities: | ||||||||
Deposit | (2,000 | ) | - | |||||
Due to related parties | (79,045 | ) | 720 | |||||
Accounts payable and accrued liabilities | 10,184 | 3,732 | ||||||
Net cash used in operating activities | (227,001 | ) | (116,213 | ) | ||||
Cash flows from financing activities | ||||||||
Advances from related parties | 27,210 | 115,795 | ||||||
Issuance of convertible promissory notes | 205,152 | |||||||
Net cash provided by financing activities | 232,362 | 115,795 | ||||||
Net change in cash and cash equivalents | 5,361 | (418 | ) | |||||
Cash and cash equivalents, beginning of period | 42 | 491 | ||||||
Cash and cash equivalents, end of period | $ | 5,403 | $ | 73 | ||||
Supplemental Disclosures: | ||||||||
Interest paid | $ | - | $ | - | ||||
Income tax paid | - | - | ||||||
Non-cash financing and investing transactions: | ||||||||
Furniture and equipment paid by related parties | $ | 16,675 | $ | - |
Three Months Ended July 31, 2017 $ | Three Months Ended July 31, 2016 $ | |||||||
Cash flows from operating activities | ||||||||
Net loss | (390,552 | ) | (9,615 | ) | ||||
Adjustments to reconcile loss to net cash used in operating activities: | ||||||||
Amortization of debt discount | 13,137 | - | ||||||
Depreciation expense | 1,198 | - | ||||||
Shares issued for services | 59,500 | - | ||||||
Service settled with promissory notes | 37,986 | - | ||||||
Service settled with promissory notes – related party | 37,500 | - | ||||||
Changes in non-cash working capital items: | ||||||||
Taxes receivable | - | (118 | ) | |||||
Prepaid expenses | (28,540 | ) | ||||||
Accounts payable and accrued liabilities | 28,054 | (11,483 | ) | |||||
Due to related parties | 42,631 | 21,314 | ||||||
Net cash from (used in) operating activities | (199,086 | ) | 98 | |||||
Cash flows from investing activities | ||||||||
Purchase of research equipment | (2,192 | ) | - | |||||
Net cash provided by (used in) investing activities | (2,192 | ) | - | |||||
Cash flows from financing activities | ||||||||
Issuance of common shares for option exercise | 15,500 | |||||||
Issuance of convertible promissory notes | 370,000 | - | ||||||
Net cash provided by financing activities | 385,500 | - | ||||||
Increase in cash | 184,222 | 98 | ||||||
Cash and cash equivalent, beginning | 67,818 | 43 | ||||||
Cash and cash equivalent, ending | 252,040 | 141 | ||||||
Non-cash items | ||||||||
Discount on convertible promissory notes for beneficial conversion features | 344,284 | - | ||||||
Shares issued for note conversion | 15,982 | - | ||||||
Supplemental Disclosures | ||||||||
Interest paid | - | - | ||||||
Income taxes paid | - | - |
The accompanying notes are an integral part of these unaudited consolidated financial statements.
F-4 |
REGI U.S., Inc.
Notes to Consolidated Financial Statements
(Unaudited)
1. | Nature of Business |
REGI U.S., Inc. (“we”, “our”, the “Company”, “REGI”) has been engaged in the business of developing and building improved axial vane-type rotary devices for civilian, commercial and government applications with the marketing and intellectual rights in the U.S. Effective February 17, 2017 REGI purchased the worldwide marketing and intellectual rights, other than in the U.S., from Reg Technologies, Inc. (“Reg Tech”), a British Columbia company. No revenue has been derived to date and REGI’s planned principal operations have not commenced.
NOTE 1. BASIS OF PRESENTATION AND ACCOUNTING POLICIESREGI formed a wholly-owned subsidiary, Rad Max Technologies, Inc., on April 10, 2007 in the State of Washington.
Effective February 17, 2017 REGI purchased all of Reg Tech’s assets including all rights to the technology with the issuance of 51,757,119 shares of REGI’s common stock.
Asset Purchase Agreement
On September 16, 2016, REGI entered into an asset purchase agreement (the “APA”) with Reg Tech, a public company whose common stock was listed on TSX Venture Exchange to purchase all of the assets of Reg Tech, a company with a common director and CEO with REGI with the issuance of 46,173,916 unregistered common shares of our Company. The APA was amended on February 14, 2017 to increase the consideration shares to an aggregate of 51,757,119 unregistered common shares of our Company and to amend the list of the assets purchased. The shares are issued as of the date of this report. The Amended APA is attached as an exhibit to this report. The transaction was closed on February 17, 2017 upon TSX Venture Exchange approval.
The transaction is accounted for as a reverse merger recapitalization wherein Reg Tech is considered to be the accounting acquirer. The prior year results of operations and cash flows are those of Reg Tech for all periods presented.
Upon closing of the asset purchase agreement, all assets of Reg Tech except GST receivable were transferred from Reg Tech to REGI. In addition, upon closing of the APA, all assets, liabilities, and equity instruments of REGI were incorporated into the surviving company. The net adjustment to additional paid in capital for the asset purchase was a decrease of $1,243,757. The net cash received from the reverse merger was $10,753.
The following table summarizes the assets and liabilities of REGI U.S. on February 17, 2017:
Cash | $ | 10,753 | ||
Prepaid | 2,000 | |||
Furniture and equipment, net | 15,477 | |||
Accounts payable and accrued liabilities | (217,043 | ) | ||
Due to related parties | (843,703 | ) | ||
Convertible promissory notes | (351,586 | ) | ||
Convertible promissory notes – related parties | (118,874 | ) | ||
Net assets | $ | (1,502,976 | ) |
F-5 |
The following table summarizes the assets and liabilities of Reg Tech on February 17, 2017 that were not assumed in the transaction:
Accounts payable and accrued liabilities | $ | (86,736 | ) | |
Due to related parties | (172,483 | ) | ||
Net Liabilities | $ | (259,219 | ) |
2. | Significant Accounting Policies |
Principles of consolidation
The accompanying unaudited interim consolidated financial statements of REGI U.S., Inc. (“REGI”) have been prepared in accordance with accounting principles generally accepted in the United States of America, and the rules of the Securities and Exchange Commission, and should be read in conjunction with the audited financial statements and notes thereto for the year ended April 30, 20162017 filed on Form 10-K with the SEC. In the opinion of management, the accompanying unaudited interim consolidated financial statements reflect all adjustments, consisting of normal recurring adjustments, necessary to present fairly the financial position and the results of operations for the interim period presented herein. The results of operations for interim periods are not necessarily indicative of the results to be expected for the full year or for any future period. Notes to the unaudited consolidated financial statements which would substantially duplicate the disclosures contained in the audited consolidated financial statements for fiscal 20162017 as reported in the Form 10-K, have been omitted.
These financial statements include the accounts of the Company, its wholly owned subsidiary RadMax Technologies, Inc., and its 51% owned subsidiary Rand Energy Group Inc. (“Rand”), which ownership was purchased from Reg Tech effective February 17, 2017.
All significant inter-company balances and transactions have been eliminated upon consolidation.
Investment in associates
Investments in which the Company has the ability to exert significant influence but does not have control are accounted for using the equity method whereby the original cost of the investment is adjusted annually for the Company’s share of earnings, losses and dividends during the current year.
As part of the APA the Company purchased from Reg Tech and owns 26.1% of equity interest in Minewest Silver and Gold Inc. (“Minewest”), a British Columbia company. Minewest owns a 70% interest subject to a 10% Net Profits Interest in mining property in British Columbia. As at the date of the asset purchase and the date of this report, Minewest is inactive due to lack of funding. As a result, the assets were impaired and no transactions are recorded for Minewest during the year ended April 30, 2017 or the three months ended July 31, 2017.
Property, plant and equipment
Property and equipment are stated at cost, which includes the acquisition price and any direct costs to bring the asset into use at its intended location, less accumulated amortization.
AmortizationDepreciation of property and equipment is calculated using the straight-line method to write off the cost, net of any estimated residual value, over their estimated useful lives of the assets as follows: Office equipment 5 years and electronic equipment 2 years. AmortizationDepreciation of office equipment is included in general and administrative expenses.expenses; Depreciation of research equipment is included in research and development expense. During the three months ended July, 2017 depreciation of $1,198 was recorded on the research equipment.
F-6 |
Recent accounting pronouncements
NOTE 2. GOING CONCERNThe Company has implemented all new accounting pronouncements that are in effect and that may impact its financial statements. The Company does not believe that there are any other new accounting pronouncements that have been issued that might have a material impact on its financial position or results of operations.
3. | Going Concern |
REGI
The Company incurred net losses of $371,562$390,552 for the sixthree months ended OctoberJuly 31, 20162017 and has a working capital deficit of $2,076,583$62,544 and an accumulated deficit of $13,322,094$21,448,722 at OctoberJuly 31, 2016.2017. These factors raise substantial doubt about the ability of REGIthe Company to continue as a going concern. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. As a result, REGI’s unauditedthe Company’s consolidated financial statements as of OctoberJuly 31, 20162017 and for the six monthsyear ended have been prepared on a going concern basis, which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business.
REGIThe Company also receives interim support from affiliated companiesrelated parties and plans to raise additional capital through debt and/or equity financings. There is no assurance that any of these activities will be successful. There continues to be insufficient funds to provide enough working capital to fund ongoing operations for the next twelve months. REGI may also raise additional funds through the exercise of warrants and stock options, if exercised. There is no assurance that any of these activities will be successful.
NOTE 3. RELATED PARTIES
4. | Secured Convertible Promissory Notes |
Amounts due from related parties are unsecured, non-interest bearing and due on demand. Related parties consist of the directors and officers and a former director of REGI and companies controlled or significantly influenced by these parties. As of OctoberJuly 31, 2016, there was $1,881,716 due to related parties. As of April 30, 2016, there was $1,916,876 due to related parties.
During the six month period ended October 31, 2015, the former President and CEO of2017, REGI provided consulting services to REGI valued at $45,000, which were accounted for as donated capital and charged to expense during the period. $Nil was recorded in the six month period ended October 31, 2016.
During the six month period ended October 31, 2015, the CFO of REGI provided consulting services to REGI valued at $15,000, which were accounted for as donated capital and charged to expense during the period. $Nil was recorded in the six month period ended October 31, 2016.
During the six month period ended October 31, 2016, the the CEO advanced $95,633 to the Company, of which $11,827 was for the purchase of the office furniture. During the six months ended October 31, 2016 the CEO was repaid $46,000, of which $30,000 was with the issuance of secured convertible promissory notes.
During the six month period ended October 31, 2016, the the Chief Engineer who is also a director of the Company advanced $19,094 to the Company, of which $4,848 was for the purchase of the office equipment. During the six months ended October 31, 2016 the Chief Engineer was repaid $41,517 for balance owed to him, of which $15,152 was with the issuance of secured convertible promissory notes.
During the year ended April 30, 2012, the Company issued a promissory note of $24,000 for amounts previously accrued and owed to a company with common director with the Company. The promissory note bears interest rate of 6% per annum, is unsecured and due on demand. During the six months ended October 31, 2016 and 2015, there was no change to the principal amount of the promissory note and interest expense of $720 was recorded each year. The principal balance of the note is included as due to related parties in the consolidated balance sheets.
NOTE 4. GAIN ON DEBT SETTLEMENT
During the six months ended October 31, 2016 the Company recorded gain on debt settlement of $666 with a service provider.
NOTE 5. SECURED CONVERTIBLE PROMISSORY NOTES
During the six months ended October 31, 2016, the Company issuedhas outstanding senior secured convertible promissory notes (the “Convertible Notes”) of $880,254 (net of unamortized discount of $29,432) issued to related parties and $732,921 (net of unamortized discount of $324,548) issued to non-related parties. As of April 30, 2017, REGI has outstanding senior secured convertible promissory notes (the “Convertible Notes”) of $877,449 (net of unamortized discount of $9,888) issued to related parties and $636,539 (net of unamortized discount of $12,944) issued to non-related parties.
During the three months ended July 31, 2017, the Company issued convertible notes for totalcash proceeds of $205,152.$370,000, service debt provided by non-related parties of $37,986, and service debt provided by related parties of $37,500. The Convertible Notes are secured against all assets of the Company, repayable two years after the issuance, bearing simple interest rate of 10% during the term of the notes and simple interest rate of 20% after the due date,date. As of April 30, 2017, $755,185, $55,500, $949,121, $60,000 and $132,500 of the promissory notes are convertible at any time on or after ninety days from the issuance date into the Company’s common stocks at $0.755, $0.12, $0.10, $0.09 and $0.08 per share.share respectively.
The Company analyzed the conversion option in the notes for derivative accounting treatment under ASC Topic 815, “Derivatives and Hedging,” and determined that the instrument does not qualify for derivative accounting.
The Company therefore performed an analysis to determine ifdetermined that the conversion option was subject to a beneficial conversion feature and determined thatduring the instrument does not havethree months ended July 31, 2017 the Company recorded a total beneficial conversion feature.feature of $344,284, and amortization of the beneficial conversion feature of $13,137 as interest expense.
5. | Related Parties |
Amounts due to related parties are unsecured, non-interest bearing and due on demand. Related parties consist of the directors and officers and a former director of REGI and companies controlled or significantly influenced by these parties. As of July 31, 2017, there was $105,614 due to related parties. As of April 30, 2017, there was $77,560 due to related parties.
F-7 |
6. | Stockholders’ Equity |
a) | Common Stock |
On January 6, 2017, the Company’s annual and special meeting of stockholders approved the amendment to the Company’s articles that increased the authorized common shares from 100,000,000 to 150,000,000.
NOTE 6. STOCKHOLDERS’ EQUITYDuring the three months ended July 31, 2017 related party convertible promissory notes of $15,152 and accrued interest of $830 were converted into a total of 159,822 shares of REGI’s common stock at $0.10 per share.
a) Common Stock OptionsDuring the three months ended July 31, 2017 the Company issued 155,000 shares of its common stock for options exercised at $0.10 per share.
During the three months ended July 31, 2017 the Company issued 350,000 shares of its common stock for services provided by the directors, officers and Warrantsconsultants of the Company with the total value recorded at $59,500 based on the market trading price of the issuance date.
On September 16, 2016, the Company entered into the APA with Reg Tech to purchase all of the assets of Reg Tech. An aggregate of 51,757,119 unregistered common shares of our company were issued as consideration for the asset purchase.
During the year ended April 30, 2017 related party convertible promissory note of $30,000 and its accrued interest of $1,405 were converted into 314,050 shares REGI’s common stock at $0.10 per share.
Treasury Shares
At July 31, 2017 and April 30, 2017, Rand Energy owned 827,731 shares of the Company’s common stock which have been deducted from the total shares outstanding.
b) | Common Stock Options and Warrants |
On August 12, 2016, REGI granted an aggregate of 3,700,000 common stock options for services. These options vest upon grant, expire on July 20, 2021 and are exercisable at the following prices:
Options | Exercise price | |||||
900,000 | $ | 0.10 | ||||
600,000 | $ | 0.20 | ||||
550,000 | $ | 0.35 | ||||
450,000 | $ | 0.50 | ||||
350,000 | $ | 0.75 | ||||
350,000 | $ | 1.00 | ||||
250,000 | $ | 1.25 | ||||
250,000 | $ | 1.50 | ||||
3,700,000 |
The fair value
F-8 |
On January 1, 2017, REGI granted an aggregate of 3,500,000 common stock options for services. These options vest upon grant, expire on January 1, 2022 and are exercisable at the options was determined to be $216,088 using the Black-Scholes option pricing model, which requires management to make estimates that are subjective and may not be representative of the actual results. Changes in assumptions can materially affect estimates of fair value. The following assumptions were used for the calculation: risk free interest rate 1.16% expected life (in years) 4.94 expected volatility 228.65% and expected dividend yield 0.0%.prices:
Options | Exercise price | |||||
2,500,000 | $ | 0.10 | ||||
300,000 | $ | 0.20 | ||||
300,000 | $ | 0.35 | ||||
300,000 | $ | 0.50 | ||||
100,000 | $ | 0.75 | ||||
3,500,000 |
A summary of REGI’s stock option activityactivities for the sixthree months ended OctoberJuly 31, 2016 is2017 and the year ended April 30, 2017 are as follows:
Three Months Ended | Year Ended | |||||||||||||||||||||||
Six months ended October 31, 2016 | July 31, 2017 | April 30, 2017 | ||||||||||||||||||||||
Weighted | Weighted | Weighted | ||||||||||||||||||||||
Average | Average | Average | ||||||||||||||||||||||
Exercise | Exercise | Exercise | ||||||||||||||||||||||
Options | Price | Options | Price | Options | Price | |||||||||||||||||||
Outstanding at beginning of period | 1,938,000 | $ | 0.15 | 9,138,000 | $ | 0.31 | 1,938,000 | $ | 0.15 | |||||||||||||||
Granted during the period | 3,700,000 | $ | 0.52 | |||||||||||||||||||||
Granted | - | - | 7,200,000 | 0.36 | ||||||||||||||||||||
Exercised | (155,000 | ) | 0.10 | - | - | |||||||||||||||||||
Expired | (803,000 | ) | 0.10 | - | - | |||||||||||||||||||
Outstanding at end of period | 5,638,000 | $ | 0.39 | 8,180,000 | 0.35 | 9,138,000 | 0.31 | |||||||||||||||||
Exercisable at end of period | 4,184,500 | $ | 0.48 | 7,445,000 | $ | 0.35 | 7,684,500 | $ | 0.34 | |||||||||||||||
Weighted average fair value of options granted | $ | 0.06 |
The weighted average remaining contractual life of the options was 3.38 and 3.61 years at July 31, 2017 and April 30, 2017 respectively.
At OctoberJuly 31, 2016,2017 and April 30, 2017, the Company had $266,707$Nil and $28,740 of total unrecognized compensation cost related to non-vested stock options and warrants, which will be recognized over future periods.respectively. The intrinsic value of “in the money” exercisable options at OctoberJuly 31, 20162017 and April 30, 2017 was $Nil.$272,000 and $145,580, respectively.
There was no warrant activity during the three months ended July 31, 2017. A summary of REGI’s common stock warrant activity for the six monthsyear ended October 31, 2016April 30, 2017 is as follows:
Year Ended | ||||||||||||||||
October 31, 2016 | April 30, 2017 | |||||||||||||||
Weighted | Weighted | |||||||||||||||
Average | Average | |||||||||||||||
Exercise | Exercise | |||||||||||||||
Warrants | Price | Warrants | Price | |||||||||||||
Outstanding at beginning of period | 200,000 | $ | 0.25 | 200,000 | $ | 0.25 | ||||||||||
Expired | (200,000 | ) | 0.25 | |||||||||||||
Outstanding at end of period | 200,000 | 0.25 | - | - | ||||||||||||
Exercisable at end of period | 200,000 | $ | 0.25 | - | $ | - |
At OctoberJuly 31, 2016, the exercise price2017 and the weighted average remaining contractual life of the outstandingApril 30, 2017, there were no warrants was $0.25 per share and 0.60 year, respectively. The intrinsic value of “in the money” exercisable warrants at October 31, 2016 was $Nil.outstanding.
F-9 |
NOTE 7. COMMITMENTS
7. | Commitments |
Pursuant to a letter of understanding dated December 13, 1993 between REGI, 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 RC/DC Engine technology and will receive 5% of all net profits from sales, licenses, royalties or income derived from the patented technology. To date, no sales have been accrued and no royalties have been accrued or paid.
Pursuant to an agreement dated August 20, 1992, REGI acquired the U.S. rights to the original RC/DC Engine from Rand. REGI will pay Rand and the original owner a net profit royalty of 5% and 1%, respectively. To date no sales have been accrued and no royalties have been accrued or paid.
8. | Subsequent Events |
NOTE 8. SUBSEQUENT EVENTS
Subsequent to July 31, 2017, convertible loans of $549,866 were issued. The convertible notes are secured against all assets of the Company, repayable two years after the issuance, bearing simple interest rate of 10% during the term of the notes and simple interest rate of 20% after the due date. The promissory notes are convertible at any time on or after ninety days from the issuance date into the Company’s common stocks at $0.10 per share.
Subsequent to OctoberJuly 31, 2016,2017, 55,892 and 243,501 shares of the Company’s common stock were issued for convertible promissory notes at $0.08 and $0.10 per share, respectively, and $8,652 was repaid for convertible loan redemption.
On November 2, 2017 the Company issued Convertible Notes3,172,269 shares of its common stock to Rand Energy. These shares together with the 827,721 shares of common stock initially owned by Rand Energy and recorded as the Company’s treasury shares, were transferred to the 49% shareholders of Rand Energy, as consideration for total proceedspurchase of $38,000.all of their 49% interest in Rand Energy, resulting in the Company owing 100% equity interest of Rand Energy.
F-10 |
On September 16, 2016, the Company entered into an asset purchase agreement with Reg Technologies Inc. to purchase all of the assets of Reg Technologies, a company with a common director and the CEO. The consideration for the purchase was an aggregate of 50,929,388 unregistered common shares of our company, which were issued in December, 2016 after Reg Technologies obtained shareholder approval by special resolution at a special meeting of the shareholders on November 18, 2016,. The transaction is subject to TSX Venture Exchange approval.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Forward-Looking Statements
Certain statements contained in this Quarterly Report on Form 10-Q constitute “forward-looking statements.” These statements, identified by words such as “plan,” “anticipate,” “believe,” “estimate,” “should,” “expect” and similar expressions include our expectations and objectives regarding our future financial position, operating results and business strategy. These statements reflect the current views of management with respect to future events and are subject to risks, uncertainties and other factors that may cause our actual results, performance or achievements, or industry results, to be materially different from those described in the forward-looking statements. Such risks and uncertainties include those set forth in our 10-K for the fiscal year ended April 30, 2016.2017. We do not intend to update the forward- looking information to reflect actual results or changes in the factors affecting such forward-looking information. We advise you to carefully review the reports and documents we file from time to time with the Securities and Exchange Commission (the “SEC”), particularly our Annual Reports on Form 10-K, our Quarterly Reports on Form 10-Q and our Current Reports on Form 8-K.
All dollar amounts in this Quarterly Report are in U.S. dollars unless otherwise stated.
Nature of Business
We are a developmentan early stage company engaged in the business of developing and building an improved axial vane-type rotary engine known asdevices for civilian, commercial and government applications. We own the RadMax™ rotary technology (the “RadMax® Engine”), used in the design of lightweight and high efficiency engines, compressors and pumps. The worldwide intellectual and marketing rights to the RadMax™ Engine, exclusive of the United States,RadMax® technology. Our vision is to develop advanced devices that reduce carbon footprint, reduce device size, weight and parts count, and increase fuel and manufacturing efficiencies. We intend to develop and market these devices in cooperation with industry and government partners. We are held by Regfocused on creating new, disruptive technologies that are more efficient, compact and cost-effective than those currently available.
On July 27th, 2016, we undertook our reorganization, naming our wholly owned subsidiary, RadMax Technologies, Inc. (“Reg Tech”RadMax”). The Company owns as the U.S.Company’s DBA for marketing and intellectual rights and has a project cost sharing agreement, whereby it funds 50% of the further development of the RadMax™ Engine and Reg Tech funds 50%.
Reg Tech is a public company listed for trading on the TSX Venture Exchange and on OTC.BB. Reg Tech holds approximately 10.17% of our issued and outstanding shares.technology image.
Recent Development
Effective September 16, 2016 the Company executed Asset Purchase Agreement with Reg Tech to purchaseFebruary 17, 2017 we purchased all of Reg Tech’s assets. The consideration for the purchase is one & one tenth (1.1) shares of REGI U.S., Inc. for each one (1) shareassets of Reg Technologies Inc. for(“Reg Tech”), a totalBritish Columbia public company, with the issuance of 50,929,38851,757,119 shares of REGI U.S..our common stock, increasing our ownership in the intellectual and marketing rights to the RadMax® technology from US only to worldwide. Reg Tech then distributed all these shares to its shareholders of record as dividends. This consolidation of ownership to the technology better enables our focused research and development efforts.
The asset purchase also resulted in our ownership of 49% of the issued and outstanding common shares of Rand Energy Group Inc. (“Rand Energy”), a British Columbia Company and 26% of the issued and outstanding common shares of Minewest Silver and Gold Inc. (“Minewest”), also a British Columbia company.
Rand Energy previously owned and transferred its intellectual and marketing rights to the original RadMax technology to Reg Tech. Effective November 2, 2017, we issued 3,172,269 shares of our common stock to Rand Energy. These shares together with the 827,721 shares of our common stock initially owned by Rand Energy and recorded as the Company’s treasury shares, were issuedtransferred to the 49% shareholders of Rand Energy, as consideration for purchasing all of their 49% interest in December, 2016 after Reg Technologies obtainedRand Energy, resulting in the Company owing 100% equity interest of Rand Energy. This agreement with the 49% shareholder approval by special resolution atof Rand Energy settles any and all potential claims between the companies.
Minewest is engaged in the business of acquisition and exploration of mineral properties. Minewest owns a special meeting of the shareholders on November 18, 2016.. The transaction is70% interest subject to TSX Venture Exchange approval.a 10% Net Profits Interest in mining property in British Columbia. As at the date the asset purchase and the date of this report, Minewest is inactive due to lack of funding.
Going Concern
We incurred net losses of $371,562$390,552 for the sixthree months ended OctoberJuly 31, 2016, has2017 and had a working capital deficit of $2,076,583$62,544 and an accumulated deficit of $13,322,094$21,448,722 at OctoberJuly 31, 2016.2017. Further losses are expected until we enter into a licensing agreement with a manufacturer and reseller.agreements of our technologies. These factors raise substantial doubt about the ability of the Company to continue as a going concern.
We may receive interim support from affiliated companiesrelated parties and plan to raise additional capital through debt and/or equity financings. We may also raise additional funds through the exercise of warrants and stockwhen our outstanding options ifare exercised. However, there is no assurance that any of these activities will be successful.realized.
Due to the uncertainty of our ability to generate sufficient revenues from our operating activities and/or to obtain the necessary financing to meet our obligations and repay our liabilities arising from normal business operations when they come due, in their report on our financial statements for the year ended April 30, 2016,2017, our registered independent auditors included additional comments indicating concerns about our ability to continue as a going concern. Our financial statements contain additional note disclosures describing the circumstances that led to this disclosure by our registered independent auditors. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Results of Operations for SixThree Months Ended OctoberJuly 31, 20162017 Compared to the SixThree Months Ended OctoberJuly 31, 20152016
The asset purchase from Reg Tech is accounted for as a reverse merger recapitalization wherein Reg Tech is considered to be the accounting acquirer. The prior year results of operations and cash flows are those of Reg Tech.
We had a net loss of $371,562$390,552 during the sixthree months ended OctoberJuly 31, 2016,2017, increased from net loss of $180,665$9,615 during the sixthree months ended OctoberJuly 31, 2015.2016 when we had very limited cash available for maintenance of our public compliance requirements.
ResearchWe incurred research and development expenses increased from $46,345of $186,825 in the three months ended OctoberJuly 31, 2015 to $71,7162017, and no such expenses in sixthe three months ended OctoberJuly 31, 2016, as more funds were available2016.
During the three months ended July 31, 2017 we incurred interest expense of $53,890 on outstanding secured convertible promissory notes and $360 on a promissory note. We did not incur interest expense in the current period.three months ended July 31, 2016.
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Total general and administrative expenses increased from $133,600 in the six months ended October 31, 2015 to $296,752 in the six months ended October 31, 2016.
General and administrative expense comparisons are as follows:
During each of the six months ended October 31, 2015 and 2016 we recorded interest expense of $720 on the same promissory note issued to a related party.
During the six months ended October 31, 2016 we recorded interest expense of $3,040 on secured convertible promissory notes; during the six months ended October 31, 2015 we did not have such debt instrument or incur related interest expense.
We have not attained profitable operations and are dependent upon obtaining financing to pursue exploration activities. For these reasons our auditors believe that there is substantial doubt that we will be able to continue as a going concern.
Results of Operations for Three Months Ended October 31, 2016 Compared to the Three Months Ended October 31, 2015
We had a net loss of $360,647 during the three months ended October 31, 2016, increased from net loss of $81,251 during the three months ended October 31, 2015.
Research and development expenses increased from $12,578 in three months ended October 31, 2015 to $71,716 in three months ended October 31, 2016, as we raised more funds in the current period.
Total general and administrative expenses increased from $80,891 in three months ended October 31, 2015 to $357,247$9,615 in the three months ended OctoberJuly 31, 2016.
General and administrative expense comparisons are as follows:
During each of the three months ended OctoberJuly 31, 20152017, as we had more funds available and 2016 we recorded interest expense of $360 onexpanded our operations in the same promissory note issued to a related party.
During the three months ended October 31, 2016 we recorded interest expense of $3,040 on secured convertible promissory notes; during the three months ended October 31, 2015 we did not have such debt instrument or incur related interest expense.current period.
Liquidity and Capital Resources
During the three months ended OctoberJuly 31, 2016,2017, we financed our operations mainly through advances from related parties of $27,210 and with proceeds of $205,152$370,000 from issuance of secured convertible promissory notes.notes and $15,500 from option exercises.
At OctoberJuly 31, 20162017 total amount owingowed to related parties is $1,881,716$105,614 or 90.29%28.75% of total current liabilities as of OctoberJuly 31, 2016.2017. This funding was necessary with a downturn in the financial market to complete the RadMax™ Enginemeet our research and development targets and place us in a position to attain profit. TheThese balances owingowed 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.
During November, 2016 we raised $38,000 by issuing secured convertible promissory notes. See Item 2 of Part II to this report.
We plan to raise additional capital through debt and/or equity financings. We cannot provide any assurance that additional funding will be available to finance our operations on acceptable terms in order to enable us to complete our plan of operations. There are no assurances that we will be able to achieve further sales of our common stock or any other form of additional financing. If we are unable to achieve the financing necessary to continue our plan of operations, then we will not be able to continue the development of our RadMax™ Enginetechnologies and our business will fail.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to our stockholders.
Critical Accounting Policies
We have identified certain accounting policies that are most important to the portrayal of our current financial condition and results of operations. Our significant accounting policies are disclosed in Note 1 of the consolidated financial statements for the three months ended OctoberJuly 31, 2016,2017, attached hereto.
Contractual Obligations
We do not currently have any contractual obligations requiring any payment obligation from us.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
We are a smaller reporting company as defined by Rule 12b-2 of theSecurities Exchange Act of 1934 and are not required to provide the information under this item.
Item 4. Controls and Procedures
(a)Evaluation of disclosure controls and procedures
Based upon an evaluation of the effectiveness of our disclosure controls and procedures performed by our management, with participation of our Chief Executive Officer and our Chief Financial Officer as of the end of the period covered by this report, our Chief Executive Officer and our Chief Financial Officer concluded that our disclosure controls and procedures were not effective due to inadequate segregation of duties.
As used herein, “disclosure controls and procedures” mean controls and other procedures of our company that are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act is accumulated and communicated to our management, including our principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
We are taking steps to enhance and improve the design of our disclosure controls. During the period covered by this interim report, we have not been able to remediate the material weaknesses identified above. To remediate such weaknesses, we need to appoint additional qualified personnel to address inadequate segregation of duties, and adopt sufficient written policies and procedures for accounting and financial reporting. These remediation efforts are largely dependent upon securing additional financing to cover the costs of implementing the changes required. If we are unsuccessful in securing such funds, remediation efforts may be adversely affected.
(b)Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting during the quarter ended OctoberJuly 31, 20162017 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
6 |
PART II -II- OTHER INFORMATION
We are not a party to any pending legal proceeding. Management is not aware of any threatened litigation, claims or assessments.
We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information required under this item.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
During the six months ended October 31, 2016 and upFrom May 1, 2017 to the date of this report, the Company issued senior secured convertible promissory notes (the “Convertible Notes”) for a total amountcash proceeds of $243,152.$770,849 and service debt of $187,003. The Convertible Notesconvertible notes are secured against all assets of the Company, repayable two years after the issuance, bearing simple interest rate of 10% during the term of the notes and simple interest rate of 20% after the due date,date. $40,000 and $917,852 of these promissory notes are convertible at any time on or after ninety days from the issuance date into the Company’s common stocks at $0.12 and $0.10 per share.share respectively.
From May 1, 2017 to the date of this report, 55,892 and 403,323 shares of the Company’s common stock were issued for convertible promissory notes at $0.08 and $0.10 per share, respectively; 155,000 shares of common stock were issued for options exercised at $0.10 per share; and 350,000 shares of common stock were issued for services provided by the directors, officers and consultants of the Company.
On November 2, 2017 the Company issued 3,172,269 shares of its common stock to Rand Energy, which shares were transferred to the 49% shareholders of Rand Energy as part of the consideration for purchase of all of their 49% interest in Rand Energy.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
None.
(a) Exhibit(s)
31.1 | Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of theSarbanes-Oxley Act of 2002* | ||
31.2 | Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of theSarbanes-Oxley Act of 2002* | ||
32.1 | Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of theSarbanes-Oxley Act of 2002* | ||
32.2 | Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of theSarbanes-Oxley Act of 2002* | ||
7 |
* Filed herewith.
** In accordance with Regulation S-T, the XBRL-formatted interactive data files that comprise Exhibit 101 in this Quarterly Report on Form 10-Q shall be deemed “furnished” and not “filed”.
Pursuant to the requirements of theSecurities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
December 22, 2016November 16, 2017
REGI U.S., INC. | |
/s/ Paul Chute | |
Paul Chute | |
President and Chief Executive Officer |
8 |