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
For the quarter ended July 31, 2005
¨ TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______________________to _______________________
Commission File No. 0-23920
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¨
Indicate by check mark whether the registrant is a shell company
(as defined in Rule 12b-2 of the Exchange Act)
Yes ¨ No x
(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 13, 2005
Common – 23,770,725 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, 2005
(unaudited)
REGI U.S., Inc.
(A Development Stage Company)
July 31, 2005
| Index | |
| Balance Sheets | F-1 |
| Statements of Operations | F-2 |
| Statements of Cash Flows | F-3 |
| Notes to the Financial Statements | F-4 |
REGI U.S., Inc.
(A Development Stage Company)
Balance Sheets
(expressed in US dollars)
| July 31, | |||
| 2005 | |||
| $ | |||
| ASSETS | |||
| Current Assets | |||
| Cash | 4,378 | ||
| Prepaid expenses (Note 5(g)) | 354,373 | ||
| Total Assets | 358,751 | ||
| LIABILITIES AND STOCKHOLDERS’ DEFICIT | |||
| Current Liabilities | |||
| Bank indebtedness | – | ||
| Accounts payable | 78,289 | ||
| Accrued liabilities | 19,812 | ||
| Due to related parties (Note 5) | 620,081 | ||
| Total Liabilities | 718,182 | ||
| Commitments (Note 6) | |||
| Stockholders’ Deficit | |||
| Common Stock (Note 4): | |||
| 50,000,000 shares authorized without par value; 23,770,725 shares issued and | |||
| outstanding (April 30, 2005 - 23,720,725 shares) | 5,994,342 | ||
| Common Stock Subscribed (Note 4(e)) | 70,379 | ||
| Donated Capital (Note 5) | 585,000 | ||
| Deferred Compensation (Note 4(c)) | (10,000 | ) | |
| Deficit Accumulated During the Development Stage | (6,999,152 | ) | |
| Total Stockholders’ Deficit | (359,431 | ) | |
| Total Liabilities and Stockholders’ Deficit | 358,751 |
(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 US dollars)
| Accumulated From | |||||||||
| July 27,1992 | |||||||||
| (Date of Inception) | Three Months Ended | ||||||||
| to July 31, | July 31, | ||||||||
| 2005 | 2005 | 2004 | |||||||
| $ | $ | $ | |||||||
| Revenue | – | – | – | ||||||
| Expenses | |||||||||
| General and administrative 1 (Note 5) | 2,999,558 | 118,279 | 86,791 | ||||||
| Research and development 1 (Note 5) | 3,915,155 | 157,421 | 16,882 | ||||||
| Amortization | 130,533 | – | 1,239 | ||||||
| Impairment loss (Note 3(d)) | 72,823 | – | – | ||||||
| Operating Loss | 7,118,069 | 275,700 | 104,912 | ||||||
| Other Income (Expenses) | |||||||||
| Interest expense | 4,032 | – | – | ||||||
| Accounts payable written-off | 114,885 | – | – | ||||||
| 118,917 | – | – | |||||||
| Net Loss | 6,999,152 | 275,700 | 104,912 | ||||||
| Net Loss Per Share – Basic and Diluted | (0.01 | ) | (0.01 | ) | |||||
| Weighted Average Shares Outstanding | 23,727,000 | 22,231,000 | |||||||
| 1 Stock-based compensation is included in: | |||||||||
| General and administrative | 497,046 | 8,763 | 25,788 | ||||||
| Research and development | 11,000 | – | – | ||||||
| 508,046 | 8,763 | 25,788 | |||||||
(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 US dollars)
| From | |||||||||
| July 27, 1992 | |||||||||
| (Date of Inception) | Three Months Ended | ||||||||
| to July 31, | July 31, | ||||||||
| 2005 | 2005 | 2004 | |||||||
| $ | $ | $ | |||||||
| Cash Flows to Operating Activities | |||||||||
| Net loss for the period | (6,999,152 | ) | (275,700 | ) | (104,912 | ) | |||
| Adjustments to reconcile net loss to cash | |||||||||
| Accounts payable written-off | (102,688 | ) | – | – | |||||
| Amortization | 130,533 | – | 1,239 | ||||||
| Impairment loss | 72,823 | – | – | ||||||
| Stock-based compensation | 508,046 | 8,763 | 25,788 | ||||||
| Donated services | 585,000 | 37,500 | 37,500 | ||||||
| Intellectual property written off | 578,509 | – | – | ||||||
| Changes in operating assets and liabilities | |||||||||
| Decrease in accounts receivable | (3,000 | ) | – | – | |||||
| Increase in prepaid expense | (354,373 | ) | (337,159 | ) | (6,250 | ) | |||
| Increase in accounts payable and accrued liabilities | 208,945 | 10,428 | 4,564 | ||||||
| Net Cash Used in Operating Activities | (5,375,357 | ) | (556,168 | ) | (42,071 | ) | |||
| Cash Flows from Financing Activities | |||||||||
| Increase in bank indebtedness | – | – | – | ||||||
| Increase (decrease) in due to related parties | 907,928 | 482,431 | 31,310 | ||||||
| Proceeds from convertible debenture | 5,000 | – | – | ||||||
| Proceeds from the sale of common stock | 4,607,076 | 11,250 | |||||||
| Subscriptions received | 96,347 | 70,379 | 12,500 | ||||||
| Net Cash Provided by Financing Activities | 5,616,351 | 564,060 | 43,810 | ||||||
| Cash Flows from Investing Activities | |||||||||
| Patent protection costs | (38,197 | ) | – | (4,403 | ) | ||||
| Purchase of property plant and equipment | (198,419 | ) | – | – | |||||
| Net Cash Used by Investing Activities | (236,616 | ) | – | (4,403 | ) | ||||
| Increase (Decrease) In Cash and Cash Equivalents | 4,378 | 7,892 | (2,664 | ) | |||||
| Cash and Cash Equivalents - Beginning of Period | – | (3,514 | ) | (3,133 | ) | ||||
| Cash and Cash Equivalents - End of Period | 4,378 | 4,378 | (5,797 | ) | |||||
| Non-Cash Investing and Financing Activities | |||||||||
| Stock-based compensation | 493,216 | 8,763 | 25,788 | ||||||
| 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 US dollars)
| 1. | Interim Reporting |
The accompanying unaudited interim financial statements
have been prepared by REGI U.S., Inc. (the "Company") pursuant to the
rules and regulations of the United States Securities and Exchange Commission.
Certain information and disclosures normally included in annual financial
statements prepared in accordance with accounting principles generally
accepted in the United States of America have been condensed or omitted
pursuant to such rules and regulations. In the opinion of management,
all adjustments and disclosures necessary for a fair presentation of these
financial statements have been included. Such adjustments consist of normal
recurring adjustments. These interim financial statements should be read
in conjunction with the audited financial statements of the Company for
the fiscal year ended April 30, 2005, as filed with the United States
Securities and Exchange Commission. |
|
The results of operations for the three months ended
July 31, 2005 are not indicative of the results that may be expected for
the full year. |
|
| 2. | Nature of Operations and Continuance of Business
|
The Company was incorporated in the State of Oregon,
U.S.A. on July 27, 1992. |
|
The Company is a development stage company engaged
in the business of developing and commercially exploiting an improved
axial vane type rotary engine known as the Rand Cam/Direct Charge Engine
(the “RC/DC Engine”). The world-wide marketing and intellectual
rights, other than in the U.S., are held by Rand Energy Group Inc. (“Rand”
or “REGI”), 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 has a working capital deficit of $359,431 and has accumulated
losses of $6,999,152 since inception. These factors raise substantial
doubt about the Company’s ability to continue as a going concern.
The ability of the Company to emerge from the development stage with respect
to its planned principal business activity is dependent upon its successful
efforts to raise additional equity financing, receive funding from affiliates
and controlling shareholders, and develop a market for its products. |
|
The Company plans to raise funds through loans from
Rand. Rand owns approximately 18% of the shares of the Company as at July
31, 2005, and plans to sell shares as needed to meet ongoing funding requirements
if traditional equity sources of financing prove to be insufficient. The
Company also receives interim support from affiliated companies and plans
to raise additional capital through debt and/or equity financings. There
continues to be insufficient funds to provide enough working capital to
fund ongoing operations for the next twelve months. The Company may also
raise additional funds through the exercise of warrants and stock options,
if exercised. |
|
| 3. | Recent Accounting Pronouncements |
In May 2005, the Financial Accounting Standards Board
(FASB) issued SFAS No. 154, “Accounting Changes and Error Corrections
– A Replacement of APB Opinion No. 20 and SFAS No. 3”. SFAS
154 changes the requirements for the accounting for and reporting of a
change in accounting principle and applies to all voluntary changes in
accounting principle. It also applies to changes required by an accounting
pronouncement in the unusual instance that the pronouncement does not
include specific transition provisions. SFAS 154 requires retrospective
application to prior periods’ financial statements of changes in
accounting principle, unless it is impracticable to determine either the
period-specific effects or the cumulative effect of the change. The provisions
of SFAS No. 154 are effective for accounting changes and correction of
errors made in fiscal years beginning after December 15, 2005. The adoption
of this standard is not expected to have a material effect on the Company’s
results of operations or financial position. |
F-4
REGI U.S., Inc.
(A Development Stage Company)
Notes to Financial Statements
(expressed in US dollars)
| 3. | Recent Accounting Pronouncements (continued) |
In December 2004, the FASB issued SFAS No. 153, “Exchanges
of Nonmonetary Assets - An Amendment of APB Opinion No. 29”. The
guidance in APB Opinion No. 29, “Accounting for Nonmonetary Transactions”,
is based on the principle that exchanges of nonmonetary assets should
be measured based on the fair value of the assets exchanged. The guidance
in that Opinion, however, included certain exceptions to that principle.
SFAS No. 153 amends Opinion No. 29 to eliminate the exception for nonmonetary
exchanges of similar productive assets and replaces it with a general
exception for exchanges of nonmonetary assets that do not have commercial
substance. A nonmonetary exchange has commercial substance if the future
cash flows of the entity are expected to change significantly as a result
of the exchange. The provisions of SFAS No. 153 are effective for nonmonetary
asset exchanges occurring in fiscal periods beginning after June 15, 2005.
Early application is permitted and companies must apply the standard prospectively.
The adoption of this standard is not expected to have a material effect
on the Company’s results of operations or financial position. |
|
In December 2004, the FASB issued SFAS No. 123R,
“Share Based Payment”. SFAS 123R is a revision of SFAS No. 123
“Accounting for Stock-Based Compensation”, and supersedes APB
Opinion No. 25, “Accounting for Stock Issued to Employees” and
its related implementation guidance. SFAS 123R establishes standards for
the accounting for transactions in which an entity exchanges its equity
instruments for goods or services. It also addresses transactions in which
an entity incurs liabilities in exchange for goods or services that are
based on the fair value of the entity’s equity instruments or that
may be settled by the issuance of those equity instruments. SFAS 123R
focuses primarily on accounting for transactions in which an entity obtains
employee services in share-based payment transactions. SFAS 123R requires
a public entity to measure the cost of employee services received in exchange
for an award of equity instruments based on the grant-date fair value
of the award (with limited exceptions). That cost will be recognized over
the period during which an employee is required to provide service in
exchange for the award – the requisite service period (usually the
vesting period). SFAS 123R requires that the compensation cost relating
to share-based payment transactions be recognized in financial statements.
That cost will be measured based on the fair value of the equity or liability
instruments issued. Public entities that file as small business issuers
will be required to apply SFAS 123R in the first interim or annual reporting
period that begins after December 15, 2005. Management has not yet determined
the impact of this statement on its results of operations. |
|
In March 2005, the SEC staff issued Staff Accounting
Bulletin No. 107 (“SAB 107”) to give guidance on the implementation
of SFAS 123R. The Company will consider SAB 107 during implementation
of SFAS 123R. |
|
The FASB has also issued SFAS No. 151 and 152, but
they will not have relationship to the operations of the Company. Therefore
a description and its impact for each on the Company’s operations
and financial position have not been disclosed. |
|
| 3. | Intangible Assets |
| July 31, | April 30, | ||||||||||||
| 2005 | 2005 | ||||||||||||
| Accumulated | Net Carrying | Net Carrying | |||||||||||
| Cost | Amortization | Value | Value | ||||||||||
| $ | $ | $ | $ | ||||||||||
| Patents - RC/DC Engine | 111,251 | 111,251 | – | – |
| (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-5
REGI U.S., Inc.
(A Development Stage Company)
Notes to Financial Statements
(expressed in US dollars)
| 3. | Intangible Assets (continued) |
|
(d) |
The Company recognized the balance of carrying costs
as additional amortization during the year ended April 30, 2005 as there
is no assurance the Company will be able to generate revenues from the
technology, or if revenues are generated, that it will be profitable.
|
|
| 4. | Common Stock |
|
(a) |
Stock Option Plan |
|
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. SFAS 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. |
||
The pro forma information is as follows: |
||
| Three Months Ended | |||||||
| July 31, | July 31, | ||||||
| 2005 | 2004 | ||||||
| $ | $ | ||||||
| Net loss — as reported | (275,700 | ) | (104,912 | ) | |||
| Add: Stock-based compensation expense included in net | |||||||
| loss — as reported | 8,763 | 22,237 | |||||
| Deduct: Stock-based compensation expense determined under | |||||||
| fair value method | (12,034 | ) | (22,237 | ) | |||
| Net loss — pro forma | (278,971 | ) | (104,912 | ) | |||
| Net loss per share – basic and diluted — as reported | (0.01 | ) | (0.01 | ) | |||
| Net loss per share – basic and diluted — pro forma | (0.01 | ) | (0.01 | ) | |||
The fair value for options granted was estimated at the date of grant using the Black-Scholes option-pricing model and the weighted average fair value of stock options granted during the period was $0.45 (2004 -$0.23) .
The weighted average assumptions used are as follows:
| Expected dividend yield | 0% | 0% | |
| Risk-free interest rate | 3.38% | 3.5% | |
| Expected volatility | 165% | 203% | |
| Expected option life (in years) | 1.0 | 3.0 |
F-6
REGI U.S., Inc.
(A Development Stage Company)
Notes to Financial Statements
(expressed in US dollars)
(a) Stock Option Plan (continued)
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 | |||||||
| Number of | exercise price | ||||||
| Shares | $ | ||||||
| Outstanding, April 30, 2004 | 1,900,000 | 0.50 | |||||
| Granted | 246,500 | 0.50 | |||||
| Exercised | (133,750 | ) | 0.24 | ||||
| Cancelled | (400,000 | ) | 0.20 | ||||
| Outstanding, April 30, 2005 | 1,612,750 | 0.26 | |||||
| Granted | 125,000 | 0.45 | |||||
| Exercised | (50,000 | ) | 0.23 | ||||
| Expired | – | – | |||||
| Outstanding, July 31, 2005 | 1,687,750 | 0.28 |
Additional information regarding options outstanding as at July 31, 2005 is as follows:
| Outstanding | Exercisable | |||||
| Weighted | ||||||
| average | Weighted | Weighted | ||||
| remaining | average | average | ||||
| Number of | contractual | exercise | Number of | exercise | ||
| Exercise prices | shares | life (years) | price | shares | price | |
| $ 0.00 – $ 0.25 | 1,245,000 | 1.43 | $ 0.21 | 312,000 | $ 0.21 | |
| $ 0.26 – $ 0.50 | 342,750 | 4.16 | $ 0.39 | 88,250 | $ 0.40 | |
| $ 0.51 – $ 0.75 | 100,000 | 4.5 | $ 0.75 | 25,000 | $ 0.75 | |
| 1,687,750 | 2.17 | $ 0.28 | 425,750 | $ 0.28 |
| (b) | 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. |
||
| (c) | Non-cash Consideration |
|
Shares issued for non-cash consideration to third
parties were valued based on the fair market value of the services provided.
During the year ended April 30, 2005, the Company issued a total of 150,000
shares of common stock for consulting services. These shares were issued
at an aggregate fair value of $24,000 for services to be rendered over
a two-year period. The Company charged $3,000 to operations for the pro-rata
portion of services performed during the period ended July 31, 2005. |
F-7
REGI U.S., Inc.
(A Development Stage Company)
Notes to Financial Statements
(expressed in US dollars)
| (d) | Share Purchase Warrants |
|
The following table summarizes the continuity of
the Company’s warrants: |
| Weighted | |||||||
| average | |||||||
| exercise | |||||||
| Number of | price | ||||||
| Shares | $ | ||||||
| Balance, April 30, 2004 | 173,120 | – | |||||
| Issued | 516,400 | 0.21 | |||||
| Exercised | (173,120 | ) | 0.16 | ||||
| Expired | – | – | |||||
| Balance, April 30, 2005 | 516,400 | 0.20 | |||||
| Issued | – | – | |||||
| Exercised | – | – | |||||
| Outstanding, July 31, 2005 | 516,400 | 0.35 |
At July 31, 2005, the following share purchase warrants were outstanding:
| Number of | Exercise | |||
| Warrants | Price | Expiry Date | ||
| 516,400 | $0.35 | December 24, 2005 |
| (e) | Private Placement |
|
The Company is in the process of raising funds through
a private placement consisting of up to 1,500,000 units at $0.60 per share
for proceeds of $900,000. Each unit will consist of one share of Class
A common stock and one ½ warrant. Two ½ warrants will enable
the investor to purchase one additional share at an exercise price of
$0.80 per share in the first year and $1.00 in the second year from the
date of closing. As of July 31, 2005, the Company received proceeds of
$70,379 net of issue costs. |
||
| (f) | On May 27, 2005, the Company granted 125,000 stock
options to employees and officers of the Company, exercisable at $0.45
per share, up to May 27, 2010. |
|
| (g) | The Company issued 50,000 shares upon the exercise
of stock options for proceeds of $11,250. |
|
| 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) | During the period ended July 31, 2005, the value
of consulting services of $22,500 (2004 - $22,500) was contributed by
the President, CEO and director of the Company, charged to operations
and treated as donated capital. |
|
| (c) | During the period ended July 31, 2005, the value
of consulting services of $7,500 (2004 - $7,500) was contributed by the
Vice President and director of the Company, charged to operations and
treated as donated capital. |
|
| (d) | During the period ended July 31, 2005, the value
of consulting services of $7,500 (2004 - $7,500) was contributed by the
CFO, COO and director of the Company, charged to operations and treated
as donated capital. |
|
| (e) | During the period ended July 31, 2005, rent of $1,145
(2004 - $964) was paid to a company having common officers and directors.
|
|
| (f) | During the period ended July 31, 2005, project management
fees of $7,500 (2004 - $7,500) were paid to a company having common officers
and directors. |
|
F-8
REGI U.S., Inc.
(A Development Stage Company)
Notes to Financial Statements
(expressed in US dollars)
(g) |
On June 14, 2005, the Company entered into a consulting
agreement with Clearvision Inc. (“the Consulting Agreement”)
for the provision of public relations services to the Company, in consideration
for 500,000 shares of the Company’s common stock at an agreed value
of $0.70. These shares were provided to Clearvision by an affiliate, JGR
Petroleum Inc. (“JGR”), a private company controlled by the
president of the Company. The Company recognized $350,000 upon the payment
of shares to Clearvision, of which $339,706 is recorded as a prepaid expense
at July 31, 2005, and will be expensed over 34 weeks, which is the minimum
term of the agreement. Clearvision Incorporated will design and implement
a public relations campaign designed to create visibility for the Company.
|
|
| 6. | Commitments |
|
(a) |
The Company is committed to fund 50% of the further
development of the RC/DC Engine. |
|
(b) |
The Company entered into a Distributors Agreement
dated June 29, 2005 with ANUVU Incorporated with an option to acquire
exclusive rights to distribute the ANUVU Fuel Cell technology for Canada
and Europe. The Company’s affiliate, Reg Technologies Inc. paid $200,000
to exercise a portion of the option agreement and acquire the Canadian
rights. The Company has the remaining option to pay $300,000 for the European
rights, of which $150,000 is to be paid within 90 days of the Agreement,
and the balance of $150,000 by November 30, 2005. The rights are subject
to a royalty of 5% of gross sales. The Company will receive 2 warrants
of ANUVU’s common stock for every dollar paid for the distribution
rights to a maximum of 1,000,000 warrants. Each warrant will be exercisable
to acquire one share of ANUVU’s common stock at $0.01 per share up
to one year from date of payment. |
|
| 7. | Subsequent Events |
|
(a) |
On August 18, 2005 the company issued 6,250 shares
upon the exercise of stock options for proceeds of $2,812. |
|
(b) |
On August 22, 2005, the Company cancelled 100,000
stock options. |
|
F-9
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Forward Looking Statements
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.
Overview
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. (“Rand”) 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 RAND 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 $359,431. 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 23,770,725 outstanding shares of the Company, having an approximate current market value of $2,867,000 based on $0.67 per share as at September 13, 2005, 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.
Progress Report from May 1, 2005 to September 19, 2005
Rand Cam Technology
Rand Cam™ Generator and Fuel Cell Technology
On June 29, 2005, REGI U.S., Inc. we entered into an exclusive distributor agreement relating to fuel cell technology (the “Technology”) with Anuvu Incorporated (“Anuvu”). Our affiliate, Reg Technologies, Inc., agrees to pay $200,000.00 as payment in full for the exclusive Canadian Distributorship for the Technology. We have an option to pay $300,000 for the exclusive European rights for the Technology, of which $150,000.00 is to be paid within 90 days from the date of the Agreement and the final payment of $150,000.00 is to be paid on or before November 30, 2005.
We agree to issue 200,000 treasury shares of REGI U.S., Inc. to Anuvu upon confirmation of acceptance of the European fuel cell technology patents. Anuvu will submit a patent application for Canada and Europe based on the current fuel cell technology claims set forth in claims of the U.S. Patents Pending held by Anuvu before the deadline date by the Patent Office. Patents will be owned by Anuvu and used exclusively in Europe by REGI
during the term of the Agreement. REGI agrees to pay for the patent application costs and associated legal fees for Europe.
Reg Technologies, Inc. and REGI agree to pay a 5% royalty of the adjusted gross sales relating to the Technology.
REGI and Reg Technologies, Inc. will receive up to 1,000,000 warrants of Anuvu, based on 2 warrants issued for every $1.00 paid for the Distribution rights. The warrants enable REGI and Reg Technologies, Inc. the right to purchase up to 1,000,000 shares of Anuvu for a total of $10,000 for a period of one year.
Anuvu agrees as follows:
| • | to give REGI a right
of first refusal to purchase Anuvu shares, in the event additional shares
are to be issued or purchased, for a period of six months; |
| • | to build a working
fuel cell model prototype for a vehicle for demonstration purposes in
Canada and Europe on behalf of Reg Technologies, Inc. and REGI |
| • | to work on the Rand
Cam™ projects as required by Reg Technologies, Inc. and REGI, under
a contract basis; |
| • | to grant to REGI
and Reg Technologies a right of first refusal to exclusively use, manufacture,
develop, sell, market and distribute products based on new patents and
applications for patents, improvements, technology, products, devices,
know-how, inventions, ideas, methods, processes and concepts, which are
owned or developed by Anuvu and are not included in the Distributorship
Patents in consideration for 100,000 treasury shares of REGI. |
We believe the companies have a common objective of developing a clean burning new source of power for vehicles, which are currently using gasoline driven piston engines. We are in the final phase of developing a light weight rotary engine that will run on any fuel, including cleaner burning fuels, such as hydrogen, propane and natural gas.
Anuvu Fuel Cell Advantages:
| • | Anuvu recently commenced building
1,100 fuel cell engines for an automotive customer. |
|
| • | The Anuvu fuel cell
is Integration-Ready, complete fuel cell systems have been integrated
into on-road vehicles, boats, off-road vehicles and extensively used in
driving simulators. |
|
| • | Anuvu fuel cells exceed goals
for DOE weight and volume for mobile applications |
|
| • | Improved stack efficiency
and life by liquid cooling each cell for uniform temperature control.
|
|
| • | Improved water management
technology which allows operation over a broad range of gas and humidity
conditions, greatly reducing the complexity and cost of gas humidification
subsystems |
|
| • | Smaller, lighter, more robust
and vibration tolerant |
|
| • | Carbon-based to reduce catalyst
poisoning, increasing cell life |
|
| • | Lower cost with no precious
metals, except a trace amount of platinum |
|
| • | Designed for high volume manufacturing
and consistency of performance |
On June 14, 2005, the Company entered into a consulting agreement with Clearvision Inc. (“the Consulting Agreement”) for the provision of public relations services to the Company, in consideration for 500,000 shares of the Company’s common stock at a fair value of $0.70. These shares were provided to Clearvision by an affiliate, JGR Petroleum Inc. (“JGR”), a private company controlled by the president of the Company. Clearvision Incorporated will design and implement a public relations campaign designed to create visibility for the Company. The campaign will last approximately 34 weeks and will consist of a spotlight on a national television newsmagazine, a video news release airing on television news programs and talk shows, a newspaper feature and a radio news release.
Results of operations for the three months ended July 31, 2005 (“2005”) compared to the three months ended July 31, 2004 (“2004”)
There were no revenues from product licensing during the periods.
The net loss in 2005 increased by $170,788 to $275,700 compared to $104,912 in 2004. Administrative expenses increased by $31,488 to $118,917 from $86,791 in 2004. Research and development expenses increased by $140,539 to $157,421 compared to $16,882 in 2004.
Liquidity
During the three months ended July 31, 2005, we financed our operations mainly by receiving support from related parties in the amount of $482,431. These amounts are non-interest bearing, unsecured and repayable on demand. The related parties have indicated that they will advance further funds if needed.
As at July 31, 2005, we had a working capital deficit of $359,431. 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). Rand owns approximately 18% of the shares of the Company, having an approximate current market value of $2,867,000 as at September 13, 2005, and plans to sell shares as needed to meet our ongoing funding requirements if traditional equity sources of financing prove to be insufficient.
Item 3. Controls and Procedures
As required by Rule 13a-15 under the Exchange Act, as of the end of the period covered by this quarterly report, being July 31, 2005, we have carried out an evaluation of the effectiveness of the design and operation of our company's disclosure controls and procedures. This evaluation was carried out under the supervision and with the participation of our company's management, including our President and our Chief Financial Officer. Based upon that evaluation, our President and our Chief Financial Officer concluded that our company's disclosure controls and procedures are effective. There have been no changes in our company's internal controls or in other factors, which could significantly affect internal controls subsequent to the date we carried out our evaluation.
Disclosure controls and procedures and other procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported, within the time period specified in the Securities and Exchange Commission's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in our reports filed under the Exchange Act is accumulated and communicated to management, including our President and our Chief Financial Officer as appropriate, to allow timely decisions regarding required disclosure.
PART II Other Information
Item 1. Legal Proceedings
None
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None
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
(a) Exhibits:
| 10.1 | ||
| 31.1 | ||
| 31.2 | ||
| 32.1 | ||
| 32.2 |
(b) Reports on Form 8-K
| 1. | On July 5, 2005, the Company filed a Form 8-K Current
Report regarding an agreement entered into between REGI U.S, Inc. and
Reg Technologies Inc. and Anuvu Incorporation dated June 29, 2005. |
|
| 2. | On September 13, 2005, the Company filed a Form 8-K
Current Report regarding the change of the Company’s principal auditor.
|
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.
| Dated: September 23, 2005 | REGI U.S., INC. | |
| By: | /s/ John G. Robertson | |
| John G. Robertson, President | ||
| (Principal Executive Officer) | ||
| By: | /s/ James Vandeberg | |
| James Vandeberg, Chief Financial Officer | ||
| (Principal Financial Officer) | ||