UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
x QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
¨ TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to ____________
REGI U.S., INC.
(Name of Small Business Issuer in its Charter)
| Oregon | 91-1580146 |
| (State or Other Jurisdiction of | (I.R.S. Employer |
| incorporation or organization) | Identification No) |
#1103-11871 Horseshoe Way
Richmond, BC V7A 5H5 Canada
(Address of Principal Executive Offices)
(604) 278-5996
Issuer's Telephone Number
(Former Name or Former Address, if changed since last Report)
Check whether the Issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the Company was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. (1) Yes x No ¨ (2) Yes x No ¨
(ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE YEARS)
Not applicable
(APPLICABLE ONLY TO CORPORATE ISSUERS)
State the number of shares outstanding of each of the Issuer's classes of common equity, as of the latest practicable date:
September 10, 2004
Common - 22,411,055 shares
DOCUMENTS INCORPORATED BY REFERENCE
A description of any "Documents Incorporated by Reference" is contained in Item 6 of this Report.
Transitional Small Business Issuer Format Yes ¨ No x
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
The Financial Statements of the Company required to be filed with this 10-QSB Quarterly Report were prepared by management and commence on the following page, together with related Notes. In the opinion of management, the Financial Statements fairly present the financial condition of the Company.
REGI U.S. Inc.
(A Development Stage Company)
Interim Financial Statements
July 31, 2004
(Unaudited)
2
REGI U.S. Inc.
(A Development Stage Company)
INTERIM FINANCIAL STATEMENTS
JULY 31, 2004
(Expressed in U.S. Dollars)
F-i
REGI U.S. Inc.
(A Development Stage Company)
Balance Sheets
(expressed in U.S. dollars)
| July 31, | April 30, | |||
| 2004 | 2004 | |||
| $ | $ | |||
| (unaudited) | (audited) | |||
| Assets | ||||
| Current Assets | ||||
| Cash | - | - | ||
| Amounts receivable | 3,000 | 3,000 | ||
| Prepaid expenses | 6,250 | - | ||
| Total Current Assets | 9,250 | 3,000 | ||
| Intangible Assets (Note 3) | 68,029 | 64,865 | ||
| Total Assets | 77,279 | 67,865 | ||
| Liabilities and Stockholders' Deficit | ||||
| Current Liabilities | ||||
| Bank indebtedness | 5,797 | 3,133 | ||
| Accounts payable | 76,415 | 77,950 | ||
| Accrued liabilities | 14,399 | 8,300 | ||
| Due to related parties (Note 5) | 168,233 | 136,923 | ||
| Total Liabilities | 264,844 | 226,306 | ||
| Commitments and Contingent Liabilities (Notes 1 and 6) | ||||
| Subsequent Event (Note 8) | ||||
| Stockholders' Deficit | ||||
| Common Stock (Note 4), 50,000,000 shares authorized without par value; | ||||
| 22,381,055 and 22,231,055 shares issued and outstanding respectively | 5,645,215 | 5,610,451 | ||
| Common Stock Subscribed | 12,500 | - | ||
| Donated Capital (Note 5) | 435,000 | 397,500 | ||
| Deferred Compensation | (36,805 | ) | (27,829 | ) |
| Deficit Accumulated During the Development Stage | (6,243,475 | ) | (6,138,563 | ) |
| Total Stockholders' Deficit | (187,565 | ) | (158,441 | ) |
| Total Liabilities and Stockholders' Deficit | 77,279 | 67,865 |
(The accompanying notes are an integral part of the financial
statements)
F-1
REGI U.S. Inc.
(A Development Stage Company)
Statements of Operations
(expressed in U.S. dollars)
(unaudited)
| Accumulated from | ||||||
| July 27, 1992 | ||||||
| (Inception) | Three Months Ended | |||||
| To July 31, | July 31, | |||||
| 2004 | 2004 | 2003 | ||||
| $ | $ | $ | ||||
| Revenue | - | - | - | |||
| Administrative Expenses | ||||||
| Bad debts | 2,792 | - | – | |||
| Bank charges and interest | 11,817 | 161 | 108 | |||
| Consulting services (Note 5) | 411,000 | 37,500 | 45,000 | |||
| Foreign exchange loss (gain) | 2,857 | (651 | ) | (53 | ) | |
| Interest on debentures | 12,593 | - | - | |||
| Investor relations – publications | 330,882 | 7,732 | - | |||
| Investor relations – consulting | 604,965 | 10,766 | - | |||
| Office, rent and telephone (Note 5) | 177,447 | 5,284 | 1,500 | |||
| Professional fees | 396,838 | 3,742 | 2,268 | |||
| Stock-based compensation | 459,387 | 22,237 | 5,000 | |||
| Transfer agent and regulatory fees | 108,796 | 20 | - | |||
| Travel | 27,141 | - | - | |||
| Less: interest and other income | (16,788 | ) | - | - | ||
| accounts payable written-off | (15,818 | ) | - | - | ||
| 2,513,909 | 86,791 | 53,823 | ||||
| Research and Development Expenses | ||||||
| Intellectual property (Note 3) | 578,509 | - | - | |||
| Amortization | 126,480 | 1,239 | 1,166 | |||
| Market development | 93,146 | - | - | |||
| Professional fees | 73,904 | - | - | |||
| Project management fees | 321,051 | 11,051 | - | |||
| Project overhead | 211,588 | - | - | |||
| Prototype design and construction | ||||||
| contracts, net of recoveries | 1,355,896 | - | - | |||
| Royalties | 93,000 | - | - | |||
| Technical prototype design consulting (Note 5) | 599,009 | 5,831 | 7,500 | |||
| Technical reports | 29,050 | - | - | |||
| Technical salaries | 169,467 | - | - | |||
| Travel | 177,533 | - | - | |||
| Less: accounts payable written off | (99,067 | ) | - | - | ||
| 3,729,566 | 18,121 | 8,666 | ||||
| Net Loss for the Period | (6,243,475 | ) | (104,912 | ) | (62,489 | ) |
| Net Loss Per Share – Basic | - | (0.01 | ) | (0.01 | ) | |
| Weighted Average Shares Outstanding | 22,331,000 | 17,777,000 | ||||
| (Diluted loss per share has not been presented as the result is anti-dilutive) | ||||||
(The accompanying notes are an integral part of the financial
statements)
F-2
REGI U.S. Inc.
(A Development Stage Company)
Statements of Cash Flows
(expressed in U.S. dollars)
(unaudited)
| Accumulated | ||||||
| From | ||||||
| July 27, 1992 | ||||||
| (Inception) | Three Months Ended | |||||
| to July 31, | July 31, | |||||
| 2004 | 2004 | 2003 | ||||
| $ | $ | $ | ||||
| Cash Flows to Operating Activities | ||||||
| Net loss for the period | (6,243,475 | ) | (104,912 | ) | (62,489 | ) |
| Adjustments to reconcile net loss to net cash used by operating | ||||||
| activities | ||||||
| Accounts payable written-off | (102,688 | ) | - | - | ||
| Amortization | 126,480 | 1,239 | 1,166 | |||
| Donated services | 435,000 | 37,500 | 52,500 | |||
| Intellectual property written off | 578,509 | - | - | |||
| Stock-based compensation | 462,938 | 25,788 | 5,000 | |||
| Changes in operating assets and liabilities | ||||||
| Amounts receivable | (3,000 | ) | - | - | ||
| Prepaid expense | (6,250 | ) | (6,250 | ) | ||
| Accounts payable and accrued liabilities | 201,659 | 4,564 | 953 | |||
| Net Cash Used by Operating Activities | (4,550,827 | ) | (42,071 | ) | (2,870 | ) |
| Cash Flows from Financing Activities | ||||||
| Proceeds from convertible debenture | 5,000 | - | - | |||
| Subscriptions received | 38,468 | 12,500 | - | |||
| Shares issued | 4,273,252 | - | - | |||
| Increase in due to related parties | 456,079 | 31,310 | 5,208 | |||
| Net Cash Provided by Financing Activities | 4,772,799 | 43,810 | 5,208 | |||
| Cash Flows to Investing Activities | ||||||
| Purchase of property and equipment | (24,947 | ) | - | - | ||
| Patent protection costs | (202,822 | ) | (4,403 | ) | (2,335 | ) |
| Net Cash Used by Investing Activities | (227,769 | ) | (4,403 | ) | (2,335 | ) |
| Increase (Decrease) in Cash and Cash Equivalents | (5,797 | ) | (2,664 | ) | 3 | |
| Cash and Cash Equivalents - Beginning of Period | - | (3,133 | ) | 87 | ||
| Cash and Cash Equivalents - End of Period | (5,797 | ) | (5,797 | ) | 90 | |
| Non-Cash Investing and Financing Activities | ||||||
| Stock-based compensation | 462,938 | 25,788 | 5,000 | |||
| Shares issued to settle debt | 496,000 | - | - | |||
| Shares issued for convertible debenture | 5,000 | - | - | |||
| Shares issued for intellectual property | 345,251 | - | - | |||
| Affiliate's shares issued for intellectual property | 200,000 | - | - | |||
| Supplemental Disclosures | ||||||
| Interest paid | 12,593 | - | - | |||
| Income tax paid | - | - | - | |||
(The accompanying notes are an integral part of the financial
statements)
F-3
REGI U.S. Inc.
(A Development Stage Company)
Notes to Financial Statements
(expressed in U.S. dollars)
| 1. | Nature of Operations and Continuance of Business | |
| REGI U.S., Inc. herein ("the Company") was incorporated in the State of Oregon, U.S.A. on July 27, 1992. | ||
| The Company is a development stage company
engaged in the business of developing and commercially exploiting an improved
axial vane type rotary engine known as the Rand Cam/Direct Charge Engine
("The RC/DC Engine"). The world-wide marketing and intellectual rights,
other than the U.S., are held by Rand Energy Group Inc. ("Rand"), which
is a major shareholder of the Company. The Company owns the U.S. marketing
and intellectual rights and has a project cost sharing agreement, whereby
it will fund 50% of the further development of the RC/DC Engine and REGI
will fund 50%. |
||
| In a development stage company, management
devotes most of its activities to establishing a new business. Planned
principal activities have not yet produced any revenues and the Company
has suffered recurring operating losses as is normal in development stage
companies. The Company also has a working capital deficit of $255,594.
These factors raise substantial doubt about the Company's ability to continue
as a going concern. The ability of the Company to emerge from the development
stage with respect to its planned principal business activity is dependent
upon its successful efforts to raise additional equity financing, receive
funding from affiliates and controlling shareholders, and develop a market
for its products. |
||
| The Company plans to raise funds through
loans from a shareholder, Rand. Rand owns approximately 18% of the shares
of the Company, having an approximate current market value of $1,224,000
as at September 15, 2004, and plans to sell shares as needed to meet ongoing
funding requirements if traditional equity sources of financing prove
to be insufficient. The Company receives interim support from its ultimate
parent company and other affiliated companies and plans to raise additional
capital through debt and/or equity financings. There continues to be insufficient
funds to provide enough working capital to fund ongoing operations for
the next twelve months. The Company may raise additional funds through
the exercise of warrants and stock options, if exercised. |
||
| 2. | Summary of Significant Accounting Policies | |
| (a) | Fiscal year | |
| The Company's fiscal year end is April 30. | ||
| (b) | Basis of Accounting | |
| These financial statements are prepared in conformity
with accounting principles generally accepted in the United States and
are presented in U.S. dollars. |
||
| (c) | Use of Estimates | |
| The preparation of financial statements in conformity
with U.S. generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amounts of revenues
and expenses during the periods. Actual results could differ from those
estimates. |
||
| (d) | Cash and Cash Equivalents | |
| The Company considers all highly liquid instruments
with a maturity of three months or less at the time of issuance to be
cash equivalents. |
||
F-4
REGI U.S. Inc.
(A Development Stage Company)
Notes to Financial Statements
(expressed in U.S. dollars)
| 2. | Summary of Significant Accounting Policies (continued) | |
| (e) | Intangible Assets | |
| Intangible assets represent legal costs incurred
in establishing patents. These costs are being amortized on a straight-line
basis over 20 years. The useful life of the patent is determined by management
and is not to exceed the legal life. No amortization is provided on capitalized
patent costs until such time as the patent has been granted. |
||
| (f) | Long-Lived Assets | |
| In accordance with Financial Accounting Standards
Board ("FASB") Statement of Financial Accounting Standards ("SFAS") No.
144, Accounting for the Impairment or Disposal of Long- Lived Assets",
the carrying value of intangible assets and other long-lived assets is
reviewed on a regular basis for the existence of facts or circumstances
that may suggest impairment. The Company recognizes an impairment when
the sum of the expected undiscounted future cash flows is less than the
carrying amount of the asset. Impairment losses, if any, are measured
as the excess of the carrying amount of the asset over its estimated fair
value. |
||
| (g) | Foreign Currency Translation | |
| The Company's functional and reporting currency
is the United States dollar. The financial statements of the Company are
translated to United States dollars in accordance with SFAS No. 52 "Foreign
Currency Translation". Monetary assets and liabilities denominated in
foreign currencies are translated using the exchange rate prevailing at
the balance sheet date. Gains and losses arising on translation or settlement
of foreign currency denominated transactions or balances are included
in the determination of income. Foreign currency transactions are primarily
undertaken in Canadian dollars. The Company has not, to the date of these
financials statements, entered into derivative instruments to offset the
impact of foreign currency fluctuations. |
||
| (h) | Income Taxes | |
| Potential benefits of income tax losses are not
recognized in the accounts until realization is more likely than not.
The Company has adopted SFAS No. 109 as of its inception. Pursuant to
SFAS No. 109 the Company is required to compute tax asset benefits for
net operating losses carried forward. Potential benefit of net operating
losses have not been recognized in these financial statements because
the Company cannot be assured it is more likely than not it will utilize
the net operating losses carried forward in future years. |
||
| (i) | Revenue Recognition | |
| Product sales are recognized at the time goods are
shipped. System and project revenue are recognized utilizing the percentage
of completion method that recognizes project revenue and profit during
construction based on expected total profit and estimated progress towards
completion during the reporting period. All related costs are recognized
in the period in which they occur. Revenue from licensing the right for
others to use the technology is recognized as earned over time and collection
is certain. |
||
| (j) | Research and Development | |
| The Company is in the development stage and all
costs relating to research and development are charged to operations as
incurred. |
||
| (k) | Comprehensive Income | |
| SFAS No. 130, "Reporting Comprehensive Income,"
establishes standards for the reporting and display of comprehensive income
and its components in the financial statements. As at April 30, 2004 and
2003, the Company has no items that represent comprehensive income and,
therefore, has not included a schedule of comprehensive income in the
financial statements. |
||
F-5
REGI U.S. Inc.
(A Development Stage Company)
Notes to Financial Statements
(expressed in U.S. dollars)
| 2. | Summary of Significant Accounting Policies (continued) | |
| (l) | Stock-Based Compensation | |
| The Company accounts for stock-based awards using
the intrinsic value method of accounting in accordance with Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees"
(APB 25). Under the intrinsic value method of accounting, compensation
expense is recognized if the exercise price of the Company's employee
stock options is less than the market price of the underlying common stock
on the date of grant. |
||
| Statement of Financial Accounting Standards No.
123, "Accounting for Stock-Based Compensation," (SFAS 123), established
a fair value based method of accounting for stock- based awards. Under
the provisions of SFAS 123, companies that elect to account for stock-
based awards in accordance with the provisions of APB 25 are required
to disclose the pro forma net income (loss) that would have resulted from
the use of the fair value based method under SFAS 123. |
||
| During the year, the Company adopted the disclosure
requirements of Statement of Financial Accounting Standards No. 148, "Accounting
for Stock-Based Compensation - Transition and Disclosure an Amendment
of FASB Statement No. 123" (SFAS 148), to require more prominent disclosures
in both annual and interim financial statements regarding the method of
accounting for stock-based employee compensation and the effect of the
method used on reported results. |
||
| The pro forma information is as follows: | ||
| Three Months Ended | ||||||
| July 31, | July 31, | |||||
| 2004 | 2003 | |||||
| $ | $ | |||||
| (unaudited) | (unaudited) | |||||
| Net loss - as reported | (104,912 | ) | (62,489 | ) | ||
| Add: Stock-based compensation expense included in net | ||||||
| loss - as reported | 22,237 | - | ||||
| Deduct: Stock-based compensation expense determined | ||||||
| under fair value method | (22,237 | ) | - | |||
| Net loss - pro forma | (104,912 | ) | (62,489 | ) | ||
| Net loss per share (basic) - as reported | (0.01 | ) | (0.01 | ) | ||
| Net loss per share (basic) - pro forma | (0.01 | ) | (0.01 | ) | ||
| The assumptions used are as follows: | ||||||
| Expected dividend yield | 0% | |||||
| Risk-free interest rate | 3.5% | |||||
| Expected volatility | 203% | |||||
| Expected option life (in years) | 3 | |||||
| (m) | Basic and Diluted Net Income (Loss) per Share | |
| The Company computes net income (loss) per share
in accordance with SFAS No. 128, "Earnings per Share" (SFAS 128). SFAS
128 requires presentation of both basic and diluted earnings per shares
(EPS) on the face of the income statement. Basic EPS is computed by dividing
net income (loss) available to common shareholders (numerator) by the
weighted average number of common shares outstanding (denominator) during
the period. Diluted EPS gives effect to all dilutive potential common
shares outstanding during the period including stock options, using the
treasury stock method, and convertible preferred stock, using the if-converted
method. In computing diluted EPS, the average stock price for the period
is used in determining the number of shares assumed to be purchased from
the exercise of stock options or warrants. Diluted EPS excludes all dilutive
potential common shares if their effect is anti-dilutive. |
||
F-6
REGI U.S. Inc.
(A Development Stage Company)
Notes to Financial Statements
(expressed in U.S. dollars)
| 2. | Summary of Significant Accounting Policies (continued) | |
| (n) | Financial Instruments | |
| The carrying value of cash, amounts receivable,
accounts payable, accrued liabilities and due to related parties approximate
fair value due to the relatively short maturity of these instruments.
|
||
| (o) | Recent Accounting Pronouncements | |
| In December 2003, the United States Securities and
Exchange Commission issued Staff Accounting Bulletin No. 104, "Revenue
Recognition" (SAB 104), which supersedes SAB 101, "Revenue Recognition
in Financial Statements." The primary purpose of SAB 104 is to rescind
accounting guidance contained in SAB 101 related to multiple element revenue
arrangements, which was superseded as a result of the issuance of EITF
00-21, "Accounting for Revenue Arrangements with Multiple Deliverables."
While the wording of SAB 104 has changed to reflect the issuance of EITF
00-21, the revenue recognition principles of SAB 101 remain largely unchanged
by the issuance of SAB 104. The adoption of SAB 104 did not have a material
impact on the Company's financial statements. |
||
| (p) | Interim Financial Statements | |
| These interim unaudited financial statements have
been prepared on the same basis as the annual financial statements and,
in the opinion of management, reflect all adjustments, which include only
normal recurring adjustments, necessary to present fairly the Company's
financial position, results of operations and cash flows for the periods
shown. The results of operations for such periods are not necessarily
indicative of the results expected for a full year or for any future period.
|
||
| 3. | Intangible Assets | |
| July 31, | April 30, | |||||||
| 2004 | 2004 | |||||||
| Accumulated | Net Carrying | Net Carrying | ||||||
| Cost | Amortization | Value | Value | |||||
| $ | $ | $ | $ | |||||
| (unaudited) | (audited) | |||||||
| Patents - RC/DC Engine | 102,403 | 34,374 | 68,029 | 64,865 |
| (a) | On August 20, 1992 the Company acquired the U.S.
rights to the original Rand Cam-Engine from REGI by issuing 5,700,000
shares at a fair value of $0.01 per share. REGI will receive a 5% net
profit royalty. The $57,000 was charged to operations as research and
development. |
|
| (b) | Pursuant to an agreement with a former director,
the Company acquired the U.S. rights to the improved axial vane rotary
engine known as the RC/DC Engine. In consideration for the transferred
technology, the former director was issued 100,000 shares of Reg Technologies
Inc. ("REG") (a public company owning 51% of REGI) with a fair value of
$200,000. The $200,000 was charged to operations as research and development.
A 1% net profit royalty will be due to the former director. |
|
| (c) | Pursuant to a letter of understanding dated December
13, 1993 between the Company, REGI and REG (collectively called the grantors)
and West Virginia University Research Corporation ("WVURC"), the grantors
have agreed that WVURC shall own 5% of all patented technology and will
receive 5% of all net profits from sales, licences, royalties or income
derived from the patented technology. |
|
F-7
REGI U.S. Inc.
(A Development Stage Company)
Notes to Financial Statements
(expressed in U.S. dollars)
| 4. | Common Stock | |
| (a) | Stock Option Plan | |
| The Company has a Stock Option Plan to issue up
to 2,500,000 shares to certain key directors and employees, approved April
30, 1993 and amended December 5, 2000. Pursuant to the Plan the Company
has granted stock options to certain directors and employees. |
||
| The following table summarizes the continuity of the Company's stock options: | ||
| Weighted | |||||
| average | |||||
| exercise | |||||
| Number of | price | ||||
| shares | $ | ||||
| Outstanding, April 30, 2003 (audited) | 1,850,000 | 0.20 | |||
| Granted | 350,000 | 0.27 | |||
| Exercised | (100,000 | ) | 0.20 | ||
| Cancelled | (200,000 | ) | 0.20 | ||
| Outstanding, April 30, 2004 (audited) | 1,900,000 | 0.21 | |||
| Granted | 46,500 | 0.25 | |||
| Expired | (400,000 | ) | 0.20 | ||
| Outstanding, July 31, 2004 (unaudited) | 1,546,500 | 0.21 | |||
| Exercisable at end of period | 1,486,625 | 0.22 |
| Additional information regarding options outstanding as at July 31, 2004 is as follows: |
| Outstanding | Exercisable | |||||||||||
| Weighted | ||||||||||||
| average | Weighted | Weighted | ||||||||||
| remaining | average | average | ||||||||||
| Exercise price | Number of | contractual | exercise price | Number of | exercise price | |||||||
| $ | shares | life (years) | $ | shares | $ | |||||||
| 0.20-0.35 | 1,546,500 | 3.0 | 0.21 | 1,486,625 | 0.22 | |||||||
The fair value for options granted was estimated
at the date of grant using the Black-Scholes option-pricing model under
the Black-Scholes option-pricing model the weighted average fair value
of stock options granted during the year was $0.23. |
F-8
REGI U.S. Inc.
(A Development Stage Company)
Notes to Financial Statements
(expressed in U.S. dollars)
| 4. | Common Stock (continued) | |
| (b) | Share Purchase Warrants | |
| The following table summarizes the continuity of the Company's warrants: | ||
| Weighted | |||||
| average | |||||
| exercise | |||||
| Number of | price | ||||
| shares | $ | ||||
| Balance, April 30, 2003 (audited) | – | – | |||
| Issued | 973,120 | 0.21 | |||
| Exercised | (550,000 | ) | 0.16 | ||
| Expired | (250,000 | ) | 0.30 | ||
| Balance, April 30, 2004 (audited) and July 31, 2004 (unaudited) | 173,120 | 0.20 |
| At July 31, 2004, the following share purchase warrants were outstanding: |
| Number of | Exercise | ||||||
| Warrants | Price | Expiry Date | |||||
| 173,120 | $0.20 | January 7, 2005 |
| (c) | Performance Stock Plan | |
| The Company has allotted 2,500,000 shares to be
issued pursuant to a Performance Stock Plan approved and registered on
June 27, 1997. Compensation is recorded when the conditions to issue shares
are met at their then fair market value. There are no options currently
granted pursuant to this plan. |
||
| (d) | Non-cash Consideration | |
| Shares issued for non-cash consideration were valued
based on the fair market value of the services provided. During the year,
the Company issued a total of 150,000 shares of common stock for consulting
services. These shares were issued at an aggregate fair value of $24,000
for services rendered. The Company charged $3,551 to operations for the
pro-rata portion of services performed during the period. |
||
| (e) | Private Placement | |
| The Company has offered a private placement subscription
for up to 4,000,000 units of the Company at a purchase price of $0.25
per unit. Each unit will consist of one common share of the Company and
one-half non-transferable share purchase warrant. Each two one-half warrants
may be exercised within one year of the date of issuance to the purchaser
at a price of $0.35. As at July 31, 2004, the Company had received $12,500
in subscriptions. |
||
| 5. | Related Party Transactions/Balances | |
| (a) | Amounts owing to related parties are unsecured,
non-interest bearing and are due on demand. These companies are related
through significant ownership of the Company, having common officers and
directors, and sharing the same office. |
|
| (b) | The value of consulting services of $22,500 (2004
- $30,000) was contributed by the President, CEO and director of the Company
and charged to operations and treated as donated capital. |
|
| (c) | The value of consulting services of $7,500 (2004
- $7,500) was contributed by the Vice President and director of the Company
and charged to operations and treated as donated capital. |
|
F-9
REGI U.S. Inc.
(A Development Stage Company)
Notes to Financial Statements
(expressed in U.S. dollars)
| 5. | Related Party Transactions/Balances (continued) | |
| (d) | The value of consulting services of $7,500 (2004
- $7,500) was contributed by the CFO, COO and director of the Company
and charged to operations and treated as donated capital. |
|
| (e) | The value of technical consulting services of $Nil
(2004 - $7,500) was charged to research and development expenses and treated
as donated capital. |
|
| (f) | Rent of $964 (2004 - $Nil) was paid to a company having common officers and directors. | |
| (g) | Project management fees of $7,500 (2004 – $Nil) were paid to a company having common officers and directors. | |
| 6. | Commitments and Contingent Liabilities | |
| (a) | The Company is committed to fund 50% of the further development of the RC/DC Engine. | |
| (b) | See Note 1 for substantial doubt about continuing as a going concern. | |
| (c) | On July 27, 2004, the Company entered into a consulting
agreement for online marketing services. The consultant is to receive
$15,000 for services to be rendered. $5,000 is currently due and has been
accrued, $5,000 is due after 30 days and the remaining $5,000 is due after
60 days. |
|
| 7. | Subsequent Event | |
| Subsequent to July 31, 2004, the Company
issued 30,000 common shares for cash consideration of $6,000 on the exercise
of stock options. |
||
F-10
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
This report contains forward-looking statements. The words, "anticipate", "believe", "expect", "plan", "intend", "estimate", "project", "could", "may", "foresee", and similar expressions are intended to identify forward-looking statements. The following discussion and analysis should be read in conjunction with the Company's Financial Statements and other financial information included elsewhere in this report which contains, in addition to historical information, forward-looking statements that involve risks and uncertainties. The Company's actual results could differ materially from the results discussed in the forward-looking statements. Factors that could cause or contribute to such differences include those discussed below, as well as those discussed elsewhere in this report.
REGI U.S., Inc. was incorporated in the State of Oregon, USA on July 27, 1992.
The Company is a development stage company engaged in the business of developing and commercially exploiting an improved axial vane type rotary engine known as the Rand Cam/Direct Charge Engine ("The RC/DC Engine"). The world-wide marketing and intellectual rights, other than the U.S., are held by Rand Energy Group Inc. ("REGI") which is the controlling shareholder of the Company. The Company owns the U.S. marketing and intellectual rights and has a project cost sharing agreement, whereby it will fund 50% of the further development of the RC/DC Engine and REGI will fund 50%.
In a development stage company, management devotes most of its activities to establishing a new business. Planned principal activities have not yet produced any revenues and the Company has suffered recurring operating losses as is normal in development stage companies. The Company also has a working capital deficit of $255,594. These factors raise substantial doubt about the Company's ability to continue as a going concern. The ability of the Company to emerge from the development stage with respect to its planned principal business activity is dependent upon its successful efforts to raise additional equity financing, receive funding from affiliates and controlling shareholders, and develop a market for its products.
The Company plans to raise funds through loans from a shareholder, Rand. Rand owns approximately 18% of the shares of the Company, having an approximate current market value of $1,224,000 as at September 15, 2004, and plans to sell shares as needed to meet ongoing funding requirements if traditional equity sources of financing prove to be insufficient. The Company receives interim support from its ultimate parent company and other affiliated companies and plans to raise additional capital through debt and/or equity financings. There continues to be insufficient funds to provide enough working capital to fund ongoing operations for the next twelve months. The Company may raise additional funds through the exercise of warrants and stock options, if exercised.
The Company receives interim support from its ultimate parent company and other affiliated companies and plans to raise additional capital through debt and/or equity financings.
There continues to be insufficient funds to provide enough working capital to fund ongoing operations for the next twelve months. The Company may raise additional funds through the exercise of warrants and stock options, if exercised.
Progress Report from May 1, 2004 to September 20, 2004
Rand Cam Technology
Gasoline and Diesel Engine
Two prototype engines were built in 1993 and 1994 by the WVURC to run on gasoline. Testing on these prototypes suggested that the concept is fundamentally sound and that with a program of engine review, design, testing and development, a technically successful range of engines can be developed. The
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current prototype design for the diesel engine was designed by a consortium made up of Alliant Techsystems (formerly Hercules Aerospace Company) ("Alliant"), WVURC and us. Alliant was involved in the design and development including drawings for the RC/DC diesel engine. In addition Alliant performed extensive analysis on the diesel engine including bearings, cooling, leakage, rotor, vanes, housing, vane tip heating, geometry and combustion. This engine was designed as a general purpose power plant for military and commercial applications. A prototype of the diesel engine has been assembled and tested.
In May 2004 the Company completed an amended Rand Cam™ UAV engine license agreement with Radian, Inc. Radian, Inc. agrees to furnish REGI U.S., Inc. with a second generation, application specific Rand Cam™ 42 H.P. diesel engine at the conclusion of their Phase II study program. The Radian, Inc. UAV product development program commenced early this year and the UAV prototype fabrication is underway, with application specific testing scheduled to start on or before third quarter 2004. Receipt by REGI U.S., Inc. of the product development-application specific engine is scheduled to occur during 4th quarter 2004. The Phase I/ Study Rand Cam™ 42 H.P. diesel engine demonstrated that the engine generates sufficient pressure and temperature to proceed with the second generation diesel engine.
REGI U.S. has an agreement with Radian which grants an exclusive license for the manufacture of the Rand Cam Diesel Engines within the United States, for applications in Unmanned Autonomous Vehicles (UAV'S) over 10 horsepower, including non-exclusive rights to the worldwide sales for this application.
On August 3, 2004, we announced that the Rand Cam™ compressor tests were completed under the direction of Brian Cherry, Vice President of Research and Development. The tests have shown encouraging results of up to 25 P.S.I. with only 800 R.P.M., and have exceeded expectations. The testing for the compressor was completed on behalf of Trans Air Manufacturing for air-conditioning in bus applications.
On September 7, 2004 we announced that the unmanned vehicle applications for the Rand Cam™ technology is on schedule, and we expect our licensee to start assembly and subsequent engine testing in the fourth quarter of this year.
In April 2004 the Company received an additional listing on the Berlin Bremen Stock Exchange (www.berlinerboerse.de) under the symbol RGJ, German Cusip Number S7589431045/786692. The Company retains the OTC Bulletin Board listing Symbol: RGUS.
REGI U.S., Inc.'s market maker is Berliner Freiverkehr (Aktien) AG, which is one of the largest German brokerage firms and acts as market maker for the Unofficial Regulated Markets in Berlin and Frankfurt. The main advantage for REGI U.S., Inc. to trade on the Berlin Bremen Stock Exchange, is that the German investors, including small ones, can buy REGI U.S., Inc. shares in their domestic currency, thus making transactions easier and less expensive.
In June 2004 Brian Cherry was appointed Vice President of the Rand Cam™ engine technology projects. Brian Cherry is the inventor of the Direct Charge Rand Cam™ engine patented in 1996 by REGI U.S., Inc. and is currently the project manager in charge of developing a Rand Cam™ electric generator for hybrid electric automobiles, and for residential uses in family homes. Mr. Cherry will also be overseeing and preparing the current submission of a new patent application on the Rand Cam™ technology. The generator can run on any fuel including hydrogen and natural gas. The tests are to commence within 30 days utilizing an alternator as the electric output, and the Rand Cam™ engine as the power source. REGI U.S., Inc. has signed an agreement with Brian Cherry to develop the generator application and other applications for a period of two years in consideration for 150,000 treasury shares of REGI U.S., Inc.
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Results of operations for the three months ended July 31, 2004 ("2005") compared to the three months ended July 31, 2003 ("2004")
There were no revenues from product licensing during the periods.
Net loss per share for 2005 was (0.01), the same as in 2004.
The net loss in 2005 increased by $43,000 to $105,000 compared to $62,000 in 2004. Administrative expenses increased by $33,000 to $87,000 from $54,000 in 2004. The increases were mainly due to the stock-based compensation of $22,237 which was $5,000 in 2004 and research and development expenditures of $18,000 which was $9,000 in 2004.
During the three months ended July 31, 2004, we financed our operations mainly through funds received from related parties ($31,000) and from share subscriptions received ($13,000). The amounts owing to related parties increased by $31,000 to $168,000, are unsecured and repayable on demand. The related parties have indicated that they will advance further funds if needed.
As at July 31, 2004 we had a working capital deficit of $255,594. Working capital is not adequate to meet development costs for the next twelve months. Unexercised stock options and warrants, if exercised could raise significant additional funds. We receive interim support from our ultimate parent company and plan to raise additional funds from equity financing which is yet to be negotiated. We also plan to raise funds through loans from a shareholder (Rand Energy Group Inc.). Rand Energy Group Inc. owns approximately 18% of the shares of the Company, having an approximate current market value of $1,224,000 as at September 15, 2004, and plans to sell shares as needed to meet our ongoing funding requirements if traditional equity sources of financing prove to be insufficient.
The Company has offered a private placement subscription for up to 4,000,000 units of the Company at a purchase price of $0.25 per unit. Each unit will consist of one common share of the Company and one-half non-transferable share purchase warrant. Each two one-half warrants may be exercised within one year of the date of issuance to the purchaser at a price of $0.35. As at July 31, 2004, the Company had received $12,500 in subscriptions.
Item 3. Controls and Procedures
| (a) | Evaluation of disclosure controls and procedures.
Based on the evaluation of the Company's disclosure controls and procedures
(as defined in Rules 13a-14(c) and 15d-14(c) under the Securities Exchange
Act of 1934) as of a date within 90 days of the filing date of this Quarterly
Report on Form 10-QSB, our chief executive officer and chief financial
officer have concluded that our disclosure controls and procedures are
designed to ensure that the information we are required to disclose in
the reports we file or submit under the Exchange Act is recorded, processed,
summarized and reported within the time periods specified in the SEC's
rules and forms and are operating in an effective manner. |
| (b) | Changes in internal controls. There were no significant
changes in our internal controls or in other factors that could significantly
affect these controls subsequent to the date of their most recent evaluation.
|
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PART II Other Information
| Item 1. | Legal Proceedings None |
| Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds In June 2004 Brian Cherry was appointed Vice President of the Rand Cam™ engine technology projects. REGI U.S., Inc. has signed an agreement with Brian Cherry to develop the generator application and other applications for a period of two years in consideration for 150,000 treasury shares of REGI U.S., Inc. issued June 8, 2004. On August 3, 2004 30,000 shares of common stock were issued to the Company's President pursuant to the exercise of stock options. During the three months ended July 31, 2004, the Company received subscriptions totally $12,500 pursuant to a private placement of up to 4,000,000 Units. Each unit consists of one share of common stock of the Company and one ½ warrant at $0.35 exercisable for a period of one year from the date of issuance. Two ½ warrants enable the purchaser to acquire one additional share of common stock. |
| Item 3. | Defaults upon Senior Securities None |
| Item 4. | Submissions of Matters to a Vote of Security Holders None. |
| Item 5. | Other Information None. |
| Item 6. | Exhibits |
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SIGNATURES
In accordance with the requirements of the Exchange Act, the Registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| REGI U.S., INC. | ||
| Dated: September 20, 2004 | By: | /s/ John G. Robertson |
| John G. Robertson, President | ||
| (Principal Executive Officer) | ||
| Dated: September 20, 2004 | By: | /s/ James Vandeberg |
| James Vandeberg, Chief Financial Officer | ||
| (Principal Financial Officer) | ||
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